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Reduce the Burden of Enterprises and Stimulate market Vitality -- Interpretation of Notice on Clearing and Regulating The Margin in The Field of Engineering Construction

Reduce the Burden of Enterprises and Stimulate market Vitality -- Interpretation of Notice on Clearing and Regulating The Margin in The Field of Engineering Construction

Reduce the Burden of Enterprises and Stimulate market Vitality -- Interpretation of Notice on Clearing and Regulating The Margin in The Field of Engineering Construction

2016-06-30 18:09

The General Office of the State Council recently issued the Notice on Cleaning up and Standardizing The Deposit in the Field of Construction projects (hereinafter referred to as the Notice). The notice puts forward requirements from the aspects of clearing the kinds of margin, perfecting the margin system and supervising. What is the background and significance of "notice"? What are the highlights? How to implement? Li Dequan, a researcher at the Policy Research Center of the Ministry of Housing and Urban-Rural Development, has been studying these issues.

Q: Why does the State Council attach so much importance to the issue of margin in the field of engineering construction?

Joe lee: in the process of the construction unit and related department management, adopt to construction enterprises in cash to pay a certain amount of deposit, to be completed meet the relevant requirements shall be returned to the management, with its means hard, simple management and has the characteristics of the subsequent restriction, by the construction unit, are used more and more various related management departments. Due to the lack of standardized management, the types of deposit in the field of engineering construction have been increasing, which has formed the current situation of collecting various names, occupying a huge amount of funds and overwhelming the burden of enterprises. According to the survey results, the capital occupied by construction companies in the form of margin accounts for 10% or more of their annual operating income, and most of it is paid in cash. Moreover, the collection margin party overdue does not return, with a variety of reasons to delay the return, after the delay does not pay any capital to occupy the cost of the situation exists in different degrees around. In the construction market capital is tight, the construction enterprises by the large amount of unpaid project funds, and a large amount of margin is occupied under the circumstances, this issue has become a vital issue for the construction enterprises.

Q: What policies does the Notice specify to address the margin issue? What are the highlights?

Li Dequan: The Circular issued by the State Council this time has clear policy boundaries and strong pertinence, which is mainly reflected in two aspects:

On the one hand, it draws the policy boundary and gives the policy bottom line of collecting margin. The Notice clearly states that all security funds, except those for bidding security, performance security, construction quality security and wage security for migrant workers, shall be cancelled. This will clarify the types of deposits that can be collected, and cancel all kinds of notional deposits that have no legal basis, which reflects the legal, clear, effective and secure solution. On this basis, the Circular further stipulates that "without the approval of the State Council, no region or department shall set up any new deposit project in the field of engineering construction". This will effectively stop the extensive management methods of construction units and administrative departments, which collect deposits at will, manage by collection, provide services on behalf of collection, and ignore the credit and performance of enterprises in the market.

On the other hand, improve and perfect the margin payment, management mode. First, the notice is implemented in the form of bank guarantee as a form of guarantee. This method can not only relieve the pressure of large amount of corporate cash, but also can evaluate the economic strength and credit status of enterprises through the economic organization of Banks, which is conducive to the enterprises with good reputation to obtain a favorable market competitive position. Second, we will implement differentiated wage deposit for migrant workers. Namely to certain period wage pays good, the enterprise that does not have wage to default a circumstance, give earnest money derate treatment. In this way, the margin system is more focused on enterprises with wage arrears, such enterprises not only need to pay, but also appropriately increase the proportion of deposit. This kind of differentiated management reflects the original intention of management, good market atmosphere and refined progress of government management. Third, the Notice stipulates that if the performance bond has been paid before the completion of the project, the construction unit shall not reserve the bond for project quality at the same time. Straighten out the relationship between the margin, and solve the problem of repeated guarantee.

Q: we have noticed that after the issuance of the notice, businesses have been flooded with thumb up messages. How can we ensure the implementation of the policy?

Li Dequan: This is also one of the highlights of notice. We see, "notice" stipulated for the cancellation of the margin project, since the day of the notice issued, all stop collecting. For the cancelled margin project, the collected margin should be returned to the relevant enterprises before the end of 2016, with a very clear time limit. In particular, the Notice stipulates for the first time that if the deposit is not returned in accordance with the provisions or the contract, the deposit receiving party shall pay the liquidated damages to the collected party for late return. This regulation reflects the protection of the construction enterprises in a weak position in the construction market transaction, and is also the due meaning of the fair market transaction principle. Secondly, the Notice puts forward requirements for the revision and improvement of the margin management system. The abolition of the system inconsistent with the requirements of the Notice, the revision of the amendment, at the same time to achieve the connection with the credit system, to explore the establishment of a new mechanism of the construction market. The notice also proposed that the new policy of guarantee deposit should be implemented as soon as possible through information disclosure, establishment of a reporting and investigation mechanism, and public exposure of typical cases and other operational and practical means.

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