In the current economic environment, cooperation among enterprises is essential to achieve higher efficiency in business operations. Accordingly, cooperation agreements have become increasingly common in business and investment activities, particularly in construction works. What is construction cooperation? How is construction cooperation regulated by law? Let us explore these issues together with NPLaw through the following contents.
In the current economic environment, cooperation among enterprises is essential to achieve higher efficiency in business operations. Accordingly, cooperation agreements have become increasingly common in business and investment activities, particularly in construction works. What is construction cooperation? How is construction cooperation regulated by law? Let us explore these issues together with NPLaw through the following contents.
I. Current issues relating to construction cooperation
Cooperation is one of the main factors in business and is widely applied across various sectors. Through construction cooperation, the participating parties jointly contribute resources, share responsibilities, and provide mutual support in order to achieve optimal efficiency, thereby enhancing competitiveness in the economic market. In addition, construction cooperation enables enterprises to share risks and costs.
However, besides the benefits brought about by construction cooperation, there remain certain limitations, particularly where the rights and obligations of the participating parties are not clearly defined, leading to disputes and adversely affecting the reputation and assets of enterprises.
II. Legal regulations relating to construction cooperation
1. What is construction cooperation?
Pursuant to Clause 38 Article 3 of the Law on Construction 2014: Construction of works includes construction and installation of equipment for new construction works; repair, renovation, relocation, upgrading, restoration; demolition of works; and warranty and maintenance of construction works.
Based on the above provision, construction cooperation may be understood as an agreement between individuals and/or legal entities to jointly contribute assets and efforts in order to perform specific works, including construction and installation of equipment for new construction projects; repair, renovation, relocation, upgrading, restoration; demolition of works; and warranty and maintenance of construction works.
2. What contents must be included in the detailed construction cooperation contract? Which content is the most important, and why?
The construction cooperation contract includes the following contents:
- Purpose and duration of the cooperation;
- Full name and place of residence of individuals; name and registered office of legal entities;
- Contributed assets, if any;
- Contribution in the form of labor, if any;
- Method of distribution of yields and profits;
- Rights and obligations of cooperating members;
- Rights and obligations of the representative, if any;
- Conditions for participation in and withdrawal from the cooperation contract by members, if any;
- Conditions for termination of the cooperation.
Among the above contents, the clause on the method of distribution of yields and profits is the most important provision that the contracting parties should carefully consider. Such a clause enables the parties to determine the portion of profits to which they are entitled when participating in the contract. In practice, most disputes arising during construction cooperation stem from conflicts over profit distribution. Therefore, the parties should clearly determine profit allocation based on the level and ratio of contributions. Clear and specific provisions on profit distribution help prevent disputes arising during practical implementation.
3. Rights and obligations of the parties in construction cooperation
The parties participating in construction cooperation have the following rights and obligations:
- To receive yields and profits derived from construction cooperation activities;
- To participate in decision-making on matters relating to the execution of the construction cooperation contract and to supervise cooperation activities;
- To compensate other cooperating members for damages caused by their own fault;
- To execute other rights and obligations in accordance with the construction cooperation contract.
Accordingly, in addition to enjoying profits from construction cooperation and participating in decisions relating to contract execution, the parties must fulfill the rights and obligations agreed upon in the contract and take liability for damages caused by their own fault.
III. Questions relating to construction cooperation
NPLaw would like to address some frequently asked questions relating to construction cooperation as follows:
1. May one party to the construction cooperation contract authorize the other party to enter into a construction contract with the project owner?
At present, the law does not prohibit authorizing the other party in the construction cooperation contract to enter into a construction contract with the project owner. Accordingly, one party may authorize the other party to sign a construction contract with the project owner. In such cases, transactions established and performed by the authorized representative arise the rights and obligations of the other cooperating member.
2. Is it mandatory to agree on liability provisions in a construction cooperation contract?
Pursuant to Article 505 of the Civil Code 2015, which provides for the contents of cooperation contracts, there is no requirement for a liability clause. Moreover, the law does not mandate that liability provisions must be agreed upon in a construction cooperation contract. Therefore, it is not mandatory to include liability provisions; the parties may agree on liability based on their mutual intent.
3. If one party to the construction cooperation contract causes an accident, is the other party required to provide compensation?
Pursuant to Article 509 of the 2015 Civil Code: Cooperating members shall take joint civil liability with common property; if the common property is insufficient to fulfill common obligations, the cooperating members shall take liability with their separate property in proportion to their respective contributions, unless otherwise agreed in the cooperation contract or otherwise provided by law.
Accordingly, under the law, the parties to the construction cooperation contract must take joint civil liability with common property. Therefore, if one party causes an accident, the other party must still take joint liability, unless otherwise agreed in the construction cooperation contract.
4. Where the construction cooperation contract contains a clause stating "other miscellaneous costs are not included”, may the construction party add costs for purchasing materials outside the contract? How may such costs be added?
Where the construction cooperation contract contains a clause stating that “other miscellaneous costs are not included”, the construction party may add costs for purchasing materials outside the contract if such costs reasonably arise during the construction process and are approved by the other party. Such additional costs should be incorporated by executing a contract addendum to supplement the provisions on material purchase costs.
IV. Legal advisory services relating to construction cooperation
The above outlines certain legal regulations relating to construction cooperation that NPLaw wishes to share with clients. Should you have any questions concerning matters related to construction cooperation, please contact us. With a team of professional lawyers and many years of experience, NPLaw confidently commits to resolving all issues relating to construction cooperation and other legal matters. Thank you very much.
