Fixed Price vs Cost-Plus: Which Contract Model for China Projects?

Quick Answer

The Two Contract Models at a Glance

When a foreign company engages a Chinese contractor, supplier, or development partner for a project in China, one of the first and most consequential decisions is the choice of pricing model. The two dominant frameworks are fixed-price (lump sum) contracts and cost-plus (reimbursable) contracts. Each carries profoundly different implications for risk allocation, cash flow, change management, legal exposure, and ultimately, project success.

Under a fixed-price contract, the contractor agrees to complete a defined scope of work for a predetermined total price. The contractor bears the risk of cost overruns and retains any savings from efficient execution. Variations or change orders require formal renegotiation of the contract sum. This model is governed primarily by Articles 770–787 of the PRC Civil Code governing construction projects, and by the PRC Construction Law (2019 Revision) for building works.

Under a cost-plus contract, the contractor is reimbursed for all actual, allowable, and allocable costs incurred in performing the work, plus an agreed fee (either fixed, percentage-based, or incentive-driven) representing profit. The contracting party (the foreign company) bears the cost risk, while the contractor has less incentive to control spending — unless specific performance incentives are built into the fee structure. Cost-plus contracts in China are subject to the same general contract provisions of the Civil Code but receive special attention in the context of construction cost management regulations and auditing requirements.

The distinction is not merely academic. The choice between these models can determine whether a China project finishes on budget and on time, or becomes a source of protracted disputes, arbitration hearings, and damaged business relationships. This article provides a detailed, practice-oriented comparison to help foreign businesses make an informed decision.

Risk Allocation and Cost Certainty

Fixed-Price: Risk Shifts to the Contractor

In a fixed-price arrangement, the contractor assumes the risk of cost overruns arising from labour rate increases, material price fluctuations, productivity shortfalls, and unforeseen site conditions — unless the contract expressly excludes these risks through price adjustment clauses, force majeure provisions, or exclusions for owner-caused delays. For the foreign client, this provides maximum cost certainty: the price is known before work begins, subject only to approved variations.

However, Chinese contractors typically price this risk into their bids. A fixed-price bid from a Chinese construction firm or EPC (Engineering, Procurement, and Construction) contractor will generally include a risk premium that can range from 10% to 25% above estimated cost, depending on the complexity and ambiguity of the specification. Market practice in China’s construction sector (governed by MOFURD pricing standards and the national standard measurement codes GBT 50500-2013 for construction bills of quantities) tends toward conservative pricing when the foreign client’s specifications reference international standards that the contractor is less familiar with.

Cost-Plus: Risk Remains with the Foreign Client

Under a cost-plus model, the foreign company bears the full weight of cost uncertainty. If steel prices spike (as they did in China during 2021–2022 when rebar prices fluctuated by over 40%), if labour shortages drive up wages in Yangtze River Delta manufacturing hubs, or if design changes proliferate, the cost belongs to the client. The contractor has no financial incentive to economise unless the fee structure includes profit-sharing on savings or a guaranteed maximum price.

That said, cost-plus contracts can be advantageous when the scope is genuinely uncertain and a fixed-price bid would include such a large risk premium as to be commercially prohibitive. For early-stage R&D projects, pilot manufacturing lines, or software development with evolving requirements, a cost-plus approach avoids the “bid high or lose money” dilemma that forces contractors to either overprice or refuse the work.

Comparative Risk Table

Change Order Management Under Each Model

Change orders are a perennial source of disputes in China projects, regardless of contract model. However, the dynamics differ significantly.

Fixed-Price Change Orders

In a fixed-price contract, any change to the scope of work triggers a formal variation process. The contractor will typically price variations at rates significantly higher than the blended rates in the original bid, because variation pricing often excludes the efficiencies of scale and learning-curve benefits embedded in the original lump sum. Foreign companies in China frequently report that variation pricing under fixed-price EPC contracts can be 30–50% above the originally budgeted unit rates.

The PRC Civil Code (Article 793) provides that where a construction contract does not specify the price for varied work, the price shall be determined according to the prevailing market rate at the time of variation — a provision that often leads to disagreement. Chinese courts and arbitration tribunals (including CIETAC and SHIAC) will look to industry-standard measurement codes (GBT 50500) and local government-issued construction cost indices to resolve such disputes. Foreign companies should insist on pre-agreed unit rates for variations in the original contract — including rates for labour, materials, equipment, overhead, and profit — to avoid the uncertainty of ex-post pricing.

Cost-Plus Change Orders

In a cost-plus contract, changes are administratively simpler: the contractor performs the changed work and includes the costs in the next reimbursement application. While this avoids the adversarial renegotiation that fixed-price variations often entail, it creates a different problem: scope creep without adequate client oversight. Without robust change control procedures — such as requiring written authorisation for any work exceeding a cost threshold — cost-plus projects can drift significantly from the original intent.

Chinese cost-plus contracts commonly include a change order log and require that the contractor submit weekly or monthly budget forecasts against the approved scope. The foreign company’s project manager (or an independent cost engineer, known in China as a gongcheng zaoshou guwen) should review all cost-plus draw requests against a detailed work breakdown structure before approving payment.

Legal Treatment Under PRC Law

The PRC Civil Code (Contract Book, Books 3 & 4)

The PRC Civil Code, effective 1 January 2021, consolidated and modernised China’s contract law framework. The provisions governing construction and service contracts are found in Book 3 (Chapter 16, Articles 770–787 for construction projects; Chapter 23, Articles 919–940 for entrustment contracts relevant to certain cost-plus service arrangements). Key articles relevant to our comparison include:

• Article 770 — Defines a construction project contract as one where the contractor performs construction and the client pays the price. This is the foundational provision for both fixed-price and cost-plus models.
• Article 777 — Addresses owner-directed variations: if the client changes the design or scope, the contractor is entitled to increased costs and extended time, calculated according to the contract or, failing agreement, by reference to market rates.
• Article 793 — Provides that where construction work fails quality inspection, the contractor must remedy at its own cost. In a cost-plus model, defect rectification costs are generally borne by the contractor (as part of its fee responsibility) unless the contract provides otherwise.
• Article 793, para 2 — Constructs a deemed cost-plus arrangement for contracts that are invalid (e.g., due to lack of contractor qualification) but where the work has been accepted: the contractor is entitled to compensation “by reference to the cost of the work plus a reasonable profit.” This mirrors the cost-plus logic.

The PRC Construction Law (2019 Revision)

The Construction Law imposes mandatory requirements on construction project contracting. Article 18 specifically addresses pricing methods, stating that construction pricing shall follow state and local government standards (the quota system), and that lump-sum contracts must include reasonable profit margins. Cost-plus contracts in the construction sector must include detailed cost composition schedules, and the contractor must maintain transparent cost accounting records subject to auditing by the client or its appointed firm.

Article 22 of the Construction Law also requires open or invited tendering for certain state-funded and large-scale projects. Foreign companies whose joint venture or WFOE is undertaking a project in China should confirm whether the project is subject to mandatory tendering under the Tendering and Bidding Law (1999, amended 2017) and its implementing regulations — a fixed-price competitive bid will be required in such cases, limiting the availability of a cost-plus approach.

The Tendering and Bidding Law

Where mandatory tendering applies (including for large-scale construction, key equipment procurement, and design services for projects using state-owned funds, as defined in the 2018 “Regulations on the Scope of Mandatory Tendering for Construction Projects”), fixed-price lump sum is the default and expected format. Cost-plus pricing can be used only where the tender documents specifically permit it, which is rare. Foreign companies must carefully assess whether their project triggers mandatory tendering obligations — failure to tender can result in fines and contract invalidity.

Tax Implications: VAT and Business Tax

Tax treatment is a critical but often overlooked dimension of the pricing model decision in China. Since China’s VAT reform (the “Business Tax to VAT” or ying gai zeng transition, completed in 2016), all construction and service contracts are subject to VAT rather than business tax.

VAT Treatment by Contract Type

Under current PRC VAT regulations (Circular Caishui [2016] No. 36 and subsequent amendments):

• General VAT (6%, 9%, or 13%): Construction services are subject to 9% VAT under the general method (or 3% under the simplified method for qualifying small-scale taxpayers). Design and consulting services are at 6%. Equipment supply is at 13%. A mixed contract combining construction, equipment, and services must be correctly classified for VAT purposes — a fixed-price “turnkey” or EPC contract that bundles all elements in one price risks being treated as a taxable mixed-sale (hunhe xiaoshou) at the highest applicable rate if not properly structured.
• Input VAT credits: Under a cost-plus model where the contractor invoices for actual costs plus fee, the foreign client can claim input VAT credit against its output VAT — but only if the contractor issues a special VAT invoice (zengzhi shui zhuanyong fapiao) with the correct tax rate and compliant content. Cost-plus contracts often require the contractor to furnish backup cost invoices, which must themselves be valid VAT invoices for the client’s credit chain to work.
• Fixed-price contract timing: A lump-sum contract typically specifies milestone-based VAT invoicing (e.g., 30% on mobilisation, 40% on completion of main works, 30% on handover). The foreign client must ensure that VAT invoices are issued at each milestone to avoid cash flow mismatches in VAT credit timing.

Contract Structuring for Tax Efficiency

Foreign companies should consider splitting a large project into separate contracts for different VAT rate categories: a 6% design contract, a 9% construction contract, and a 13% equipment supply contract. This can substantially reduce overall VAT costs compared to a single composite fixed-price contract taxed at the highest applicable rate. Cost-plus contracts, by their nature, make such splitting easier because each cost category is itemised and can be separately invoiced.

Withholding Tax on Cross-Border Payments

If the contracting party is a foreign company without a Chinese establishment (FE), payments to a Chinese contractor are generally subject to withholding tax — currently 6% VAT plus 10% enterprise income tax (EIT) on service fees, unless reduced by an applicable Double Tax Treaty. A cost-plus contract that reimburses a Chinese contractor for costs incurred in China (materials, local labour, permits) will face scrutiny from Chinese tax authorities on whether the cost reimbursement element is subject to withholding. Proper documentation and contract segregation are essential.

Dispute Patterns in Chinese Practice

Fixed-Price Dispute Patterns

Analysis of published CIETAC construction arbitration awards and Chinese court judgments under the Civil Code reveals several recurring dispute themes in fixed-price contracts:

1. Scope definition disputes: The most common cause of fixed-price claims in China is disagreement over what was included in the original scope. Ambiguous technical specifications, reference to multiple standards (Chinese GB vs. ISO vs. ASTM), and incomplete bills of quantities frequently give rise to contractor claims for additional payment under Article 777 of the Civil Code.
2. Price adjustment claims: Chinese contractors routinely invoke the principle of “change in circumstances” (Article 533 of the Civil Code, replacing the former Contract Law’s Article 26 on force majeure and hardship) to seek upward price adjustments when material prices rise dramatically. Courts have granted such relief when price increases exceed 30% from the contract baseline, though outcomes vary by jurisdiction.
3. Quality-versus-price disputes: Fixed-price contractors accused of cutting corners to maintain margins is a recurring pattern. The foreign client may seek price reduction or defect damages under Article 793, while the contractor argues that the fixed price necessarily implies lower-grade materials unless expressly specified.

Cost-Plus Dispute Patterns

1. Cost auditing disputes: Chinese contractors often maintain less detailed cost records than foreign clients expect. Disputes arise over whether a particular cost item — such as head office overhead allocation, project manager travel expenses, or tooling depreciation — is “allowable” under the cost-plus contract. Foreign companies should specify an exhaustive list of allowable and non-allowable costs, and should retain a Chinese cost engineer to audit draw requests.
2. Fee disputes: Whether the contractor’s fee is a fixed amount, a percentage of cost, or a target-cost incentive fee is a frequent source of disagreement. Percentage-based fees in cost-plus contracts create a perverse incentive to inflate costs. CIETAC tribunals have generally upheld agreed fee percentages but have also adjusted them downward under the “fairness and good faith” principle (Article 6 of the Civil Code) where the contractor has clearly profiteered.
3. Timing and inefficiency disputes: Without cost pressure, contractors may lack urgency. Chinese cost-plus projects frequently experience schedule overruns, and the foreign client ends up paying for extended site overhead and project management costs. A well-structured cost-plus contract should include schedule milestones with fee-based incentives (or disincentives) for early (or late) completion.

Suitability by Project Type

Construction and Infrastructure

For standard building construction, factory fit-outs, and infrastructure projects in China with well-developed drawings and bills of quantities, fixed-price is strongly preferred. Chinese construction contractors are familiar with the national standard measurement code (GBT 50500-2013), government-published unit price databases, and the competitive tendering process. A fixed-price EPC contract with a reputable Chinese constructor provides reliable cost outcomes for projects such as:

• Warehouse and factory construction in industrial parks (Suzhou, Tianjin, Guangzhou)
• Office fit-outs in Grade A buildings (Shanghai, Beijing, Shenzhen)
• Standard production line installation where the foreign company has well-defined process specifications

For complex infrastructure with significant geotechnical uncertainty (tunnels, bridges, deep foundations), a cost-plus or hybrid model may be more appropriate, as fixed-price bids under these conditions include large risk premiums that make projects uneconomical.

Manufacturing and Equipment Supply

For the procurement of standard manufacturing equipment from Chinese suppliers, fixed-price is the market norm. Chinese equipment suppliers in sectors such as injection moulding, food processing machinery, packaging lines, and chemical process equipment will quote fixed prices with defined specifications, delivery terms (typically FOB Chinese port or under Incoterms), and warranty conditions. Cost-plus pricing is rare in this sector and would signal an unusual or custom-engineered product.

However, for custom manufacturing lines, automation integration, or first-of-kind production equipment, a cost-plus or hybrid model may be necessary. In these cases, the foreign company should insist on a target price with shared savings: if the supplier completes the custom equipment below the target, the savings are split; if costs exceed the target, the supplier bears a pre-agreed proportion of the overrun.

Software Development and IT Projects

The Chinese software development sector — both for enterprise applications and embedded systems — predominantly uses cost-plus or time-and-materials (T&M) contracts. Fixed-price software contracts in China are notoriously problematic: requirements inevitably evolve, change requests become battlegrounds, and quality suffers as the developer races to minimise hours against a fixed budget. For software projects, we recommend:

• Agile development engagements: Time-and-materials with a ceiling cap and monthly scope prioritisation
• Defined-deliverable projects: Fixed-price only after a paid discovery / requirements phase (typically 4–6 weeks)
• Milestone-based release contracts: Fixed price per sprint or release, with clear acceptance criteria

Chinese software outsourcing firms (such as those in the Dalian, Chengdu, and Xi’an IT clusters) are accustomed to T&M billing for foreign clients but will require clear statements of work (SOW) and may push for hybrid pricing to protect against scope creep from the foreign side.

R&D and Pilot Projects

Cost-plus is the only realistic model for early-stage R&D, pilot plant construction, or technology demonstration projects in China. The uncertainty inherent in R&D makes fixed-price contracting impossible — no responsible Chinese contractor would accept a fixed price for work with unknown outcomes. Foreign companies funding R&D at Chinese universities, research institutes, or innovation centres should expect cost-plus arrangements with detailed budget breakdowns, periodic progress reporting, and IP ownership clauses (which are subject to separate consideration under China’s Patent Law and Technology Import regulations).

Chinese Contractor Preferences and Negotiation Dynamics

Understanding what Chinese contractors prefer and why is essential for effective negotiation. Based on market surveys and our experience advising foreign clients across sectors:

• SOEs and large state-owned construction groups (e.g., CSCEC, CREC, CRCC): These contractors strongly prefer fixed-price contracts with clear specifications referencing Chinese GB standards. They have established cost databases, experienced quantity surveyors, and internal risk management systems calibrated for fixed-price work. They are less comfortable with cost-plus contracts, which they view as administratively burdensome and requiring cost-tracking systems they may not maintain at project level.
• Private construction and engineering firms: More flexible on pricing model but will push for fixed price with favourable payment milestones (including advance payments of 15–30%, which is common practice in China under MOFURD guidelines). They may accept cost-plus for projects where they have a strategic interest (e.g., building a relationship with a multinational client, accessing new technology).
• Software and IT service firms: Prefer T&M or cost-plus with monthly billing cycles. They view fixed-price as high-risk and will either refuse or price it with substantial buffers. Foreign companies who insist on fixed-price for software frequently report poor outcomes.
• Equipment manufacturers: Fixed-price is the market standard. Cost-plus is seen as a client-control mechanism that signals distrust, which can damage the relationship in the guanxi-sensitive Chinese business environment.

Recommended Clauses for Each Model

Essential Clauses for Fixed-Price Contracts in China

1. Detailed Scope of Work with Specifications Annex — Reference specific Chinese GB standards or internationally recognised equivalents for all materials, workmanship, and testing. Include a complete bill of quantities (gongcheng qingdan) with unit rates for variations.
2. Price Adjustment Clause (Jiage Tiaozheng Tiaokuan) — Provide for adjustment of the fixed price when specified trigger events occur: material price index changes beyond a threshold (e.g., ±5%), government-mandated wage increases, or force majeure. Reference the official construction cost indices published by provincial Housing and Urban-Rural Construction Departments.
3. Variation Mechanism (Biangeng Tiaokuan) — Pre-agreed unit rates for all classes of variation work (labour, materials, equipment, subcontractor costs, overhead, profit). Define a clear change order process with time limits for approval (typically 14 days under Chinese practice).
4. Defect Liability Period — PRC Construction Law mandates minimum defect liability periods (e.g., 5 years for structural elements, 2 years for waterproofing, 1 year for electrical/mechanical). Specify the period in the contract, noting that the statutory minimums cannot be reduced by agreement.
5. Dispute Resolution — Specify arbitration (CIETAC or SHIAC, with Chinese language as the procedural language unless otherwise agreed) or litigation in a Chinese court. Note that foreign judgments are not directly enforceable in China, making arbitration under the New York Convention the preferred option for foreign parties.
6. Retention Money (Zhiwei Kuai) — Standard Chinese practice holds 3–5% of the contract price as retention for the defect liability period. Specify release conditions and timing.

Essential Clauses for Cost-Plus Contracts in China

1. Defined Cost Categories (Feiyong Mingxi) — Exhaustive list of allowable costs (direct labour, materials, equipment rental, subcontractor costs, permits, insurance, site overhead) and expressly excluded costs (head office overhead above a stated percentage, entertainment expenses, fines and penalties, financing costs).
2. Fee Structure (Feiyong Jisuan Fangshi) — Choose among: (a) fixed fee (absolute amount, adjusted only for material scope changes); (b) percentage fee (not recommended due to perverse incentives); or (c) target-cost incentive fee (preferred — the contractor receives a share of savings below target and bears a share of overruns).
3. Cost Audit and Verification Rights — The foreign company must have the right to audit all cost records, subcontract invoices, material receipts, and payroll records. This right should survive contract termination and extend for at least 2–3 years after project completion. Many cost-plus disputes in China stem from inadequate audit provisions.
4. Budget and Forecasting Requirements — The contractor must submit monthly cost forecasts against a detailed work breakdown structure, with explanations of variances exceeding a threshold (e.g., 10%). This provides early warning of budget drift.
5. Guaranteed Maximum Price (GMP) Clause — Even in a cost-plus contract, a GMP provides a ceiling above which the contractor bears 100% of additional costs. The GMP should include a shared-savings mechanism to give the contractor an incentive to come in under the ceiling.
6. Change Control Protocol — Any work exceeding a de minimis cost threshold (e.g., RMB 50,000 or any individual item not in the approved budget) requires written authorisation from the foreign company’s project representative before execution.

Hybrid Approaches: Best of Both Worlds?

In the complex reality of foreign-invested projects in China, pure fixed-price or pure cost-plus contracts are often less effective than well-designed hybrid models. The most common and recommended hybrid structures include:

1. Fixed-Price with Provisional Sums (Yusuan Jiage Hetong)

The bulk of the work is priced as a fixed lump sum, but a provisional sum (typically 10–20% of the contract value) is included for undefined or uncertain work items. The contractor draws on the provisional sum against documented costs, subject to the same cost-plus principles and audit rights. This is the most common approach in Chinese construction for projects where 80–90% of the scope is well-defined but some elements (e.g., foundation conditions, utility connections) remain uncertain.

2. Cost-Plus with Guaranteed Maximum Price (GMP)

The contractor commits to a maximum price based on a preliminary design or bill of quantities. Costs below the GMP are reimbursed as incurred, and savings are shared between the parties under an agreed formula (e.g., 50:50). Costs exceeding the GMP are borne entirely by the contractor, providing a powerful cost control incentive. This model is gaining traction in China for large commercial developments and industrial projects where design is incomplete at contract signing but the client needs cost protection.

3. Target Cost with Incentive Fee (Mubiao Chengben Jia Jiangli Hetong)

The parties agree on a target cost based on a detailed estimate. If actual costs are below the target, the contractor receives a pre-agreed share of the savings (typically 30–60%). If costs exceed the target, the contractor bears a share of the overrun (typically 20–40%), subject to a cap (the maximum risk exposure of the contractor). This aligns incentives powerfully and is increasingly used by sophisticated foreign investors in China’s manufacturing and energy sectors.

4. Two-Phase Contracts

Phase 1 (Definition/Design): Cost-plus or time-and-materials for detailed design, site investigation, and scope definition. Phase 2 (Execution): Fixed-price or GMP based on the fully developed scope from Phase 1. This approach avoids the high risk premiums of a premature fixed-price bid while providing cost certainty for the execution phase. It is particularly effective for complex industrial projects and is recommended by the FIDIC Gold Book for design-build-operate projects.

Practical Recommendations for Foreign Companies

1. Invest in scope definition before signing. The single most effective action a foreign company can take to secure favourable contract terms in China is to invest in a thorough, China-compatible scope definition before entering contract negotiations. Commission a Chinese design institute to produce a detailed bill of quantities (gongcheng qingdan) referencing GB standards. This transforms a potential cost-plus situation into a fixed-price one and dramatically reduces the risk premium in bids.
2. Use hybrid pricing for everything in between. If the scope is 70–90% defined, use a fixed-price base contract with provisional sums for the uncertain remainder. If the scope is less than 70% defined, use a cost-plus contract with GMP and shared savings. Avoid pure fixed-price for uncertain work and pure cost-plus (without GMP or incentives) for work that could be scoped with reasonable effort.
3. Insist on pre-agreed variation rates. Whether fixed-price or cost-plus, the contract must include a schedule of pre-agreed unit rates for labour, materials, equipment, and overhead applicable to any variations. This single clause eliminates the most common source of construction disputes in China. Base these rates on the local government-published cost indices (e.g., Shanghai Construction Cost Index, Guangdong Province Cost Quota).
4. Structure contracts for VAT efficiency. Separate the project into component contracts aligned with VAT rate categories (6% for design/consulting, 9% for construction/installation, 13% for equipment supply). Require the contractor to issue special VAT invoices (zengzhi shui zhuanyong fapiao) at each milestone with correct tax rates. Engage a Chinese tax advisor to review the contract structure before signing.
5. Choose Chinese dispute resolution and apply Chinese law. The PRC is not a signatory to the Hague Choice of Court Convention, and foreign court judgments are not enforceable in China. All contracts for China projects should specify Chinese law as the governing law and CIETAC or SHIAC arbitration as the dispute resolution mechanism. The arbitration clause should explicitly reference the arbitration rules in effect as of the contract date and specify the seat of arbitration (typically Beijing, Shanghai, or Shenzhen).

Conclusion

The choice between fixed-price and cost-plus contracting for China projects is not a binary decision but a spectrum. The most successful foreign companies in China treat this as a strategic decision informed by project characteristics, contractor capabilities, regulatory requirements, and tax implications — not as a default preference for one model or the other.

Fixed-price contracts offer cost certainty and shift risk to the contractor, but they demand well-defined scope, carry embedded risk premiums, and can lead to adversarial change order negotiations. Cost-plus contracts offer flexibility and are essential for uncertain or innovative work, but they require robust audit capabilities, active project management, and contractual safeguards against scope creep.

The growing trend among sophisticated foreign investors and multinational corporations operating in China is toward hybrid models — particularly cost-plus with GMP, target-cost with incentives, and two-phase contracts — that capture the advantages of both approaches. When combined with China-compatible scope definition, pre-agreed variation rates, VAT-efficient contract structuring, and CIETAC arbitration clauses, these hybrid models provide a pragmatic and legally robust foundation for successful project delivery in one of the world’s most dynamic and challenging construction markets.

Foreign companies that invest upfront in understanding the legal framework (PRC Civil Code Book 3, Construction Law, Tendering and Bidding Law), contractor market dynamics, and tax consequences of their chosen pricing model will be far better positioned to avoid the cost overruns, disputes, and relationship damage that so often plague cross-border projects in China. The contract model you choose is not just a pricing mechanism — it is a blueprint for the entire project relationship.

China Gateway 360 — Your trusted partner for B2B market entry, contract advisory, and project delivery in China. This article provides general guidance and does not constitute legal advice. Foreign companies should engage qualified Chinese legal counsel and tax advisors for their specific contracting situations.