On June 7, the Premier chaired a State Council executive meeting, announcing a new batch of fee reduction measures starting July 1. Among them, the upper limit of the construction quality deposit reserve ratio in the construction sector will be lowered from 5% to 3%.

Fulfilling the promise of “reducing the burden by one trillion yuan”

Starting July 1, 2017,

The upper limit of the construction quality deposit reserve ratio in the construction sector will be lowered from 5% to 3%.

Clean up the government non-tax revenue electricity price surcharge in the energy sector, cancel the special fund for industrial enterprise structural adjustment, and reduce the collection standards for the National Major Water Conservancy Project Construction Fund and the Later-stage Support Fund for Resettlement of Large and Medium-sized Reservoirs by 25%.

We must never allow various canceled fees to come back in disguise!

“The fee reduction measures decided today are all about making real sacrifices. Have all relevant departments ‘verified’ them? Can they be truly implemented?” Premier Li Keqiang called on the heads of relevant departments one by one to inquire.

The Premier emphasized that fee reduction requires not only issuing documents but also clearing every link in implementation. “Some fees may not be collected by central departments, but by lower-level departments and bureaus acting as ‘toll collectors’.” the Premier analogized, “Therefore, all relevant departments must truly go down and investigate. We must never allow various canceled fees to come back in disguise!”

“After inspections by relevant departments, I found that some fee reduction measures introduced by the central government have encountered many ‘twists and turns’ in implementation: this fee seems reduced, but new fee items are simultaneously added elsewhere. Enterprises dare not speak out!”

The Premier heightened his tone here, “All relevant departments must fully recognize that measures such as streamlining administration and delegating powers, tax and fee reductions are important contents of supply-side structural reform and major measures to stimulate the vitality of market entities. All departments must ensure that all measures are implemented without discount!”

Two situations where quality deposit shall not be reserved

In December 2016, the Ministry of Housing and Urban-Rural Development and the Ministry of Finance jointly issued the “Measures for the Administration of Construction Project Quality Deposit”.
1. Two situations where quality deposit shall not be reserved
If performance bond has been paid before the completion of the project, the employer shall not simultaneously reserve quality deposit.
If other guarantee methods such as project quality guarantee or project quality insurance are adopted, the employer shall not reserve deposit.

2. Reserved deposit can be managed by a third party
For social investment projects adopting the reserved deposit method, the employer and contractor may agree to entrust the deposit to a third-party financial institution for custody.

3. Promote bank guarantee to replace cash deposit
Promote the bank guarantee system; the contractor may use a bank guarantee to replace the reserved deposit.
Bank guarantees, project quality guarantees, project quality insurance and other guarantee methods shall be deemed to have the same effect as cash deposits, and no further deposit shall be reserved.

4. If not returned overdue, the employer shall pay liquidated damages
The employer shall specify in the tender documents the reservation and return of deposit, etc.
In the contract terms, it shall also clearly stipulate: the method of paying liquidated damages for overdue return of deposit and the liability for breach of contract.

5. Defect liability period maximum 2 years
The defect liability period automatically starts from the date the project passes completion acceptance. The defect liability period is generally 1 year, with a maximum of not more than 2 years, as agreed by both parties in the contract.

Policy document of the Ministry of Housing and Urban-Rural Development


To the housing and urban-rural development departments and finance departments of all provinces, autonomous regions, and municipalities directly under the Central Government, the construction committees and finance bureaus of municipalities directly under the Central Government, the construction bureaus and finance bureaus of the Xinjiang Production and Construction Corps, and relevant departments of the State Council:

In order to implement the spirit of the “Notice of the General Office of the State Council on Cleaning Up and Standardizing Deposits in the Construction Sector” (Guo Ban Fa [2016] No. 49) and standardize the management of construction project quality deposits, the Ministry of Housing and Urban-Rural Development and the Ministry of Finance have formulated the “Measures for the Administration of Construction Project Quality Deposit”. It is hereby issued to you; please implement it conscientiously in accordance with the actual conditions of your region and department.

Attachment download: “Measures for the Administration of Construction Project Quality Deposit”

(This document is proactively disclosed)

Article 1 In order to standardize the management of construction project quality deposits and implement the maintenance responsibility of the project during the defect liability period, these Measures are formulated in accordance with the “Construction Law of the People's Republic of China”, the “Regulations on the Quality Management of Construction Projects”, the “Notice of the General Office of the State Council on Cleaning Up and Standardizing Deposits in the Construction Sector”, the “Rules for the Financial Management of Capital Construction” and other relevant provisions.

Article 2 The construction project quality deposit (hereinafter referred to as the deposit) mentioned in these Measures refers to the funds agreed upon by the employer and the contractor in the construction project contract, reserved from the payable project payment, to guarantee that the contractor repairs defects appearing in the construction project during the defect liability period.

Defect refers to the quality of the construction project not conforming to the mandatory standards for engineering construction, design documents, and the provisions of the contract.

The defect liability period is generally 1 year, with a maximum of not more than 2 years, as agreed by both parties in the contract.

Article 3 The employer shall specify in the tender documents the reservation and return of the deposit, etc., and shall agree with the contractor in the contract terms on the following matters concerning the deposit:

(1) The method of reservation and return of the deposit;

(2) The proportion and duration of the deposit;

(3) Whether interest is calculated on the deposit, and if so, the method of interest calculation;

(4) The duration and calculation method of the defect liability period;

(5) The procedures for handling disputes over the reservation and return of the deposit, and the quality and cost of project maintenance;

(6) The method of claiming compensation for defects occurring during the defect liability period;

(7) The method of paying liquidated damages for overdue return of the deposit and the liability for breach of contract.

Article 4 During the defect liability period, for government investment projects subject to centralized treasury payment, the management of the deposit shall be executed in accordance with the relevant provisions on centralized treasury payment. For other government investment projects, the deposit may be reserved with the finance department or the employer. During the defect liability period, if the employer is revoked, the deposit shall be transferred together with the delivered assets to the user unit for management, and the user unit shall perform the duties of the employer on its behalf.

For social investment projects adopting the reserved deposit method, the employer and contractor may agree to entrust the deposit to a third-party financial institution for custody.

Article 5 Promote the bank guarantee system; the contractor may use a bank guarantee to replace the reserved deposit.

Article 6 If performance bond has been paid before the completion of the project, the employer shall not simultaneously reserve quality deposit.

If other guarantee methods such as project quality guarantee or project quality insurance are adopted, the employer shall not reserve deposit.

Article 7 The employer shall reserve the deposit in accordance with the method agreed in the contract. The total reserve proportion of the deposit shall not exceed 5% of the total project price settlement. If the contract stipulates that the contractor uses a bank guarantee to replace the reserved deposit, the guarantee amount shall not exceed 5% of the total project price settlement.

Article 8 The defect liability period starts from the date the project passes completion acceptance. If the project cannot be completed and accepted within the specified period due to the contractor's reasons, the defect liability period starts from the date it actually passes completion acceptance. If the project cannot be completed and accepted within the specified period due to the employer's reasons, the project automatically enters the defect liability period 90 days after the contractor submits the completion acceptance report.

Article 9 During the defect liability period, for defects caused by the contractor, the contractor shall be responsible for repair and bear the appraisal and repair costs. If the contractor neither repairs nor bears the costs, the employer may deduct from the deposit or bank guarantee as agreed in the contract. If the cost exceeds the deposit amount, the employer may claim compensation from the contractor as agreed in the contract. After the contractor repairs and bears the corresponding costs, it does not exempt the liability for damages to the project.

For defects caused by others, the employer shall organize repair, the contractor shall not bear the costs, and the employer shall not deduct costs from the deposit.

Article 10 During the defect liability period, if the contractor earnestly performs the responsibilities agreed in the contract, upon expiration, the contractor shall apply to the employer for the return of the deposit.

Article 11 After receiving the contractor's application for return of the deposit, the employer shall, within 14 days, jointly with the contractor, verify according to the contents agreed in the contract. If there is no objection, the employer shall return the deposit to the contractor as agreed. If there is no agreement or the agreement is unclear on the return period, the employer shall return the deposit to the contractor within 14 days after verification; if overdue, it shall bear the liability for breach of contract according to law. If the employer fails to reply within 14 days after receiving the contractor's application for return of the deposit, and still fails to reply within 14 days after being urged, it shall be deemed to have approved the contractor's application for return of the deposit.

Article 12 If the employer and contractor have disputes over the reservation and return of the deposit, and the quality and cost of project maintenance, they shall handle them according to the dispute and dispute resolution procedures agreed in the contract.

Article 13 For construction projects implemented under general contracting, the agreement between the general contractor and subcontractors on the rights and obligations concerning the deposit shall be executed with reference to the provisions of these Measures on the corresponding rights and obligations of the employer and contractor.

Article 14 These Measures shall be interpreted by the Ministry of Housing and Urban-Rural Development and the Ministry of Finance.

Article 15 These Measures shall come into force on the date of promulgation, and the original “Interim Measures for the Administration of Construction Project Quality Deposit” (Jian Zhi [2005] No. 7) shall be abolished simultaneously.