Case of the Week | Can a visa form approved by the supervisor and the construction unit necessarily be used as a basis for settlement?

Huang Xiaohua, Lawyer: Senior Partner, Chairman of the Supervisory Committee, Invited Mediator of Hangzhou Intermediate People's Court

Lawyer Huang Xiaohua has more than ten years of professional experience. Her areas of expertise include: corporate legal services, economic contract disputes, construction engineering disputes, and marriage and family disputes.

Contact Information:

Phone: 13067978911 Email: huangxiaohua@htxls.com

Is a visa form approved by the supervisor and the construction unit necessarily a basis for settlement?

【Case Summary】

A certain university conducted an open tender for a laboratory wastewater treatment project through government procurement procedures. The commercial requirements of the tender document were defined as a turnkey project, which is an integrated design and construction project. A company participated in the bidding and subsequently won the bid. Subsequently, both parties signed a formal construction contract with a contract amount of over 2.5 million yuan, and it was agreed that 95% of the audited amount would be paid after project completion acceptance and audit.

During construction, A company proposed that the original sewage treatment pool design had safety hazards due to soil conditions, so it applied for a separate survey of the rocks of the sewage treatment pool. A third-party survey report subsequently showed that "the sewage treatment pool should be designed for buoyancy resistance." Based on this, A company submitted an engineering visa form stating that if the buoyancy resistance project was constructed by A company, it would require an increase in the project cost of 200,000 yuan. The opinions of the supervisory unit and the construction unit indicated that they agreed to A company's construction, and the increased amount of work would be calculated according to the remaining contract payment and quota.

During construction, the school paid the upfront fees as agreed in the contract. After the project passed the completion acceptance, it was submitted for audit, but the audit unit did not approve the additional 200,000 yuan. A company did not accept the audit report, so the audit report could not be issued, and the school refused to pay the remaining fees.

A company sued the school, requesting payment of more than 1 million yuan in unpaid construction funds (including the 200,000 yuan from the visa form) and demanding that the school bear the responsibility for breach of contract. The school argued that the project in question was a "turnkey project," an integrated design and construction project, and that the construction interface had not changed, refusing to pay the 200,000 yuan.

The court ruled in the first and second instances to dismiss all of plaintiff A company's claims.

【Judgment Summary】

The court held that this case is a civil dispute arising from legal facts before the implementation of the Civil Code. The project in question is a government procurement project. When the content of the project changes, both the plaintiff and the defendant should fulfill their respective approval and reporting obligations in accordance with the bidding requirements, contract agreements, and relevant government procurement regulations. Therefore, when the audit result cannot be issued due to the plaintiff's reasons, the plaintiff's request for the defendant to pay the remaining project funds has no factual or legal basis and violates the principle of good faith.

【Experience Summary】

We know that construction projects generally involve large investments, long construction periods, and many uncertainties, leading to changes in the actual situation of the project compared to the bidding situation. Therefore, in practice, engineering visa forms are often needed for adjustment. Visa forms record special costs incurred at the construction site in writing, directly affecting the vital interests of both the owner and the construction unit, and are an important basis for project settlement. Therefore, visa forms are also the most easily disputed part of construction projects. The reasons for the problems are, on the one hand, the lack of standardization in the construction market, and on the other hand, the lack of importance given by the various parties involved in the construction (including the owner, supervisor, and construction unit). In general, there are several problems:

1. Items that should be visaed are not visaed. For example, for small-scale projects and casual labor, they should be processed promptly when they occur, otherwise, it will be difficult to supplement the visa during settlement, leading to disputes.

2. The contractor lacks visa awareness and conducts non-standard on-site visas. For example, the lack of a signature from one party leads to it not being used as a basis for settlement and claims.

3. Visas that violate contracts or legal regulations. Some project managers, without a full understanding of the contract, especially without reviewing the relevant provisions on the occurrence of engineering costs in the contract, have produced visas that contradict the contract. Such visas cannot be recognized, as this case is a typical example of this mistake.

Learn from the past to avoid future risks. The following suggestions are made to avoid similar risks in the future:

1. Fully understand the contract, paying particular attention to clauses related to cost control. In many contracts, the owner will stipulate some special clauses based on their own conditions and requirements. For example, in this case, the contract clearly states that "for any changes or additions to procurement funds and procurement content during contract execution, approval from the financial department is required, and a written supplementary agreement must be submitted to the government procurement supervision and management department for filing before it can be considered an integral part of the main contract." Therefore, even if the visa form has been approved by three parties, it still needs to be approved by the Ministry of Finance before it can be used as a basis for settlement.

2. Timely processing to avoid supplementary visas later. This is due to the characteristics of construction projects themselves. Many processes will be covered by the next process. If not signed at the time, it will not only be impossible to restore the situation later, but also often lead to shirking of responsibility and disputes. Therefore, visas should be done one by one, one at a time, and processed and reviewed promptly. However, if the construction period is tight or the process requires immediate construction, resulting in only supplementary visas later, then the contractor should also keep evidence, such as communication records with the owner and supervisor, on-site videos and photos, for later use.

3. Visa forms should be as detailed and concise as possible, with clear and unambiguous requests. The description of matters in the visa should be objective and accurate, stating the reasons, settlement method, and settlement unit price, etc. In reality, it is best to sign the total price directly instead of the unit price, and it is best to sign the unit price directly instead of the amount of work. Although the visa form in this case was not adopted by the audit department due to violation of contract regulations, it is worth affirming that the content of the visa itself is detailed, with clear reasons and solutions, reasonable and well-founded, and with a clear total price, which is also the reason why the supervisor and the construction unit agreed.

In short, the visa form is a supplementary contract document that supplements and modifies the content of the contract document. It is an important component of the engineering contract price, which can directly affect the engineering price and is related to the vital interests of both the contractor and the subcontractor. The signing process is often a game between the contractor and the subcontractor. We hope that as a contractor, we should strengthen our self-discipline awareness, make a signature certificate that conforms to the objective reality for responsibility events outside the contract price during construction, avoid omissions and excessive signatures, adhere to contracts and laws, enhance our sense of responsibility, ensure the existing interests of construction contractors, and at the same time, not harm the interests of the construction project owners.

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