Key points for defending project managers of construction companies against job-related crimes

Abstract

By clarifying the basic legal relationships among the general contracting company, the subcontracting company, the project supplier and the project manager, it is determined whether there is a legal basis for the property loss involved in the case, and then it is concluded whether there is any infringement of legal interests. Based on the nature, ownership, specific usage and subsequent write-off of the involved funds, and in combination with the elements of the crime, it is ultimately determined whether there are criminal acts such as misappropriation of funds and embezzlement of duty.

Key words

The project manager misappropriated funds and committed embezzlement

The common cooperative structures in the construction industry are the general contracting structure, the subcontracting structure and the transfer structure. Under the general contracting framework, it refers to a contractor (general contractor) signing a contract with the owner and being responsible for the construction and management of the entire project. The general contractor is responsible for all aspects of the entire project, including design, procurement, construction, etc., until the project is completed. This model helps to enhance engineering efficiency and reduce costs. The general contractor is fully responsible for the quality, safety, schedule and cost of the project. Under the subcontracting framework, it refers to the situation where the general contractor entrusts part of the project's work to other contractors (subcontractors) for completion. The subcontractor needs to sign a subcontract with the general contractor and be responsible for the quality and safety of the subcontracted work. The general contractor still needs to be responsible for the entire project and coordinate the work among various subcontractors. Under the subcontracting structure, it refers to the situation where a contractor transfers the entire project or most of the work to another contractor for completion. Subcontracting is usually regarded as an illegal act because it may lead to problems such as a decline in project quality, an increase in safety hazards and contract disputes.

Under different cooperation frameworks, the legal relationships and rights and obligations among the various cooperative entities are different. Clarifying the fundamental legal relationship is a prerequisite for accurately determining the nature of the project manager's possession and use of project funds. For instance, what kind of legal relationship is the funds taken over by the project manager of the general contractor and the project managers of the subcontractors and sub-contractors based on? Is there any authorization from the company? Does it comply with the common practice of fund usage? All these issues need to first clarify the basic legal relationships from the perspective of commercial law. Of course, this does not merely emphasize the significance of commercial legal relations. From the perspective of criminal judgment, overemphasizing commercial legal relations and deviating from the basic logical thinking of criminal determination is also prone to incorrect characterization. For the convenience of a brief discussion, this article only conducts a qualitative analysis of the behavior of the project manager of the subcontractor in using project funds.

I. Is there any infringement of legal interests?

Whether the act of a project manager of a construction company taking advantage of his position to appropriate or misappropriate project funds constitutes the crime of embezzlement by an employee or the crime of misappropriating funds has become a practical difficulty. From a defense perspective, such behavior does not always constitute a crime. There are still many defense angles and Spaces, among which common defense points are worth summarizing and reflecting on.

First of all, it is necessary to clarify whether the complainant has the right to claim the so-called "losses involved in the case". From the perspective of what should be, the subcontractor company has no right to claim project engineering management fees and profits. According to Article 791 of the Civil Code ‌ and the Interim Measures for the Identification and Investigation of Illegal Acts such as Subcontracting and Illegal Division in Construction Projects, construction projects are not allowed to be subcontracted or illegally divided. Therefore, for general compliance operations, the general contracting company should directly sign contracts with suppliers of project materials, labor services, etc., and should not sign subcontracting or illegal subcontracting contracts with subcontracting companies. In terms of legal attributes, the subcontracting legal relationship between the general contracting company and the subcontracting company is illegal. Therefore, the subcontracting company has no legal basis to claim project management fees and project profits.

Secondly, the victimized entity is not qualified, and the object of accusation is also incorrect. From a practical perspective, due to the lack of a legitimate subcontracting legal relationship, even if the subcontracting company actually dispatches a project manager, it can only be defined as labor export. Therefore, the management fees nominally collected by the subcontracting company should be defined as remuneration for labor export or dispatch. To avoid the illegal risks of subcontracting, the subcontracting company usually does not participate in the actual operation of the involved engineering project except for dispatching the project manager. This indicates that the subcontracting company is actually providing labor export for project operation rather than actually undertaking the project engineering. According to such a legal relationship, although the subcontracting company charges a management fee, it is actually the remuneration for labor input. This so-called "management fee" is either directly collected from the general contracting company (illegal) or indirectly collected from the supplier. In fact, from a compliance perspective, if the subcontracting company directly collects management fees from the general contracting company, resulting in a subcontracting relationship with the general contractor, it is illegal. Therefore, subcontracting companies can only indirectly collect management fees and project profits from project material and labor suppliers. Therefore, if the subcontracting company believes that its management fees have been lost, it should also claim them from the project materials and suppliers. There is no legal basis for claiming management fees from its own employees. If the subcontracting company believes that its due labor export remuneration or economic interests have been damaged, it should also claim it from the actual user of the labor. Naturally, it has no right to demand it from its own employees (the project manager of the subcontracting company).

Furthermore, subcontracting companies find it difficult to prove that they have infringed upon their legal interests. From the perspective of the legal logical relationship among all parties, the subcontracting company is also unable to prove that it subcontracted the project involved in the case, and thus has no right to claim the project payment. To avoid the risk of violation, in practice, it is unlikely that there will be a so-called subcontracting agreement between the general contracting company and the subcontracting company of the involved project. Even if there were such underhanded subcontracting agreements, they would naturally not dare to submit them to judicial authorities. Since there is no subcontracting agreement, the subcontracting company's claim for project profits and management fees has no contractual basis. Even if there are under-the-table subcontracting or sub-division agreements, they should be deemed invalid due to violation of prohibitive provisions. Under the premise that the agreement is invalid and there are illegal facts, the subcontracting company also has no right to claim the so-called project construction funds.

Therefore, as a labor input party providing project operation and management, the subcontracting company can only obtain labor remuneration, rather than project engineering profits and management fees. Moreover, the object of claiming labor remuneration should be the material and labor suppliers of the involved project, or the general contracting company, rather than its own employee project manager. The economic losses claimed by the subcontracting company in the report do not exist and there is no fact of infringement of legal interests. In fact, subcontracting companies also obtain management fees from general contracting companies by transferring accounts through downstream suppliers such as labor service companies, which is also illegal and in violation of regulations. In this case, the subcontracting company is no longer a qualified "victimized entity" in the sense of criminal law and there is no need for legal protection of its interests.

Ii. Is there any criminal act of misappropriating funds?

Firstly, the nature of the advance payment of the project reserve fund determines that there is no possibility of misappropriation. All the project operation funds received by the project operation manager are the project reserve funds prepaid by the material and labor suppliers on the project. The so-called project reserve fund refers to the reserve funds prepaid and placed with the project manager for project operation and various expenses. For the project reserve fund, it has been pre-paid into the personal account of the project manager and mixed with his own funds. It is no longer the funds of a certain unit, nor is it the funds of the subcontracting company. The project manager himself has the responsibility and authority to independently control these funds for the operation of the project. How could there be any talk of misappropriation?

Secondly, the reserve funds of multiple projects are used continuously and on a rolling basis. Without liquidation, this also constitutes misappropriation of funds. Generally speaking, the same project manager tracks and operates multiple projects simultaneously. The operation of each project often lasts for many years. If the parties involved have not conducted a settlement of the usage of project funds, how can it be confirmed that there is a problem of "misappropriation or embezzlement" in the specific use of project reserve funds? There are numerous projects, but not all of them are profitable. If there are no specific regulations for the payment of project funds, it will lead to the funds of various projects being mixed together and used in a rolling manner. It is also common for the funds of the previous projects to be advanced for the funds of the subsequent projects. Moreover, in the case of continuous rolling use, how can it be determined that the project reserve funds have been misappropriated? It should be said that as long as the project is operating normally and the project manager can continuously cover the normal expenses of the project, the fact of misappropriation or embezzlement of the project reserve fund cannot be resolutely determined without clear settlement and write-off.

Furthermore, the funds involved in the case were transferred from the supplier, and the project manager is not an employee of the supplier, which does not meet the requirement of "misappropriating the funds of one's own unit". Generally speaking, in order to avoid the risk of subcontracting, subcontracting companies do not directly collect funds from the general contractor but indirectly collect funds from downstream suppliers. If the funds involved in the case come from project material or labor suppliers, and the project manager is clearly not an employee of these suppliers, it does not meet the requirement of "misappropriating the funds of one's own unit". Moreover, if the project material and labor suppliers have not criminally accused the project manager of misappropriating or embezzling the reserve funds, as a subcontracting company without project contracting qualifications, it has even less reason to accuse its project manager of misappropriating the funds of the general contracting company.

Iii. Is there any criminal act of embezzlement of duty?

Firstly, the funds involved in the case are neither the own funds of the subcontracting company nor the income that the subcontracting company is entitled to. As there is no clear subcontracting agreement between the general contracting company and the subcontracting company, and no legal contractual relationship can be formed, in terms of operation, there is no legitimate reason to directly obtain funds from downstream suppliers for compliance. Therefore, the subcontracting company was unable to prove that the involved funds were its own. That is to say, the funds claimed by the subcontracting company for retention or the funds withdrawn by the project manager from the supplier should not be recognized as the income that the subcontracting company is entitled to.

Secondly, there is no fact that the project manager embezzled the subcontracting company's own funds. In terms of the project operation and management model, the subcontracting company does not need to pay any project management and operation fees to the project manager, and the project manager only needs to withdraw operation fees from the supplier. Under normal circumstances, the subcontracting company itself will not pay any other funds to the project manager except for the salary. The project manager has no reason to withdraw any cash from the company either. Therefore, the self-owned funds of the subcontracting company have not been embezzled.

Furthermore, if the project manager's own income is sufficient to cover his or her personal consumption expenses, there is no fact of embezzlement. Although the project operation funds should be used for their designated purposes, due to the non-compliance of the subcontracting project operation, the project operation funds are actually in an unsupervised state of external operation, that is, in practice, they can be completely at the disposal and use of the project manager. In the absence of supervision over funds and in violation of the company's financial norms, pursuing the chaos in the use of project managers' funds through criminal means afterwards is contrary to the principle of restraint in criminal law. From the perspective of specific uses, if the project manager's own funds are sufficient to cover personal consumption, it is not appropriate to determine that there is a fact of embezzlement of project operation funds. Even if there is a case of public funds being used for personal purposes, if the funds can be returned in a timely manner afterwards and the settlement and write-off of the funds are completed, considering the special circumstances of the project's operating funds being used outside the body, it is not appropriate to determine that a crime has been committed.

Of course, in the field of architecture, there are many other types of chaos surrounding project managers and project funds, which await further analysis. Such cases are generally caused by a variety of reasons such as complex and non-compliant cooperation models, weak supervision, and improper company financial management. They cannot be solely attributed to the parties involved and there is a considerable chance of a defense of innocence.