Drafting BOT and BTO contracts in Vietnam

Contracts are special contracts in the investment field to attract private investment capital, especially foreign investment capital to build infrastructure projects and projects that require huge capital, recovery time is long but the state budget is insufficient to invest. These contracts are often referred to as project contracts. Viet An Law Firm will summarize legal issues related to drafting BOT contracts and BTO contracts through the following article.

Legal basis

• Law on Investment by Public-Private Partnership 2020.

What are BOT contracts and BTO contracts?

Based on Article 3 and Article 45 of the Law on Investment by Public-Private Partnership 2020, BOT contracts and BTO contracts can be understood as follows:

• BOT contract (Build – Operate – Transfer) is a contract in which investors and PPP project enterprises are granted the right to build, business, and operate works and infrastructure systems within a certain period of time; At the end of the term, the investor or PPP project enterprise transfers the project and infrastructure system to the State.
• BTO contract (Build – Transfer – Operate) is a contract in which investors and PPP project enterprises assign the right to build works and infrastructure systems. After completing construction, the investor or PPP project enterprise transfers the project and infrastructure system to the State and is entitled to do business and operate that project and infrastructure system for a certain period of time.

In particular, “PPP Project” is a collection of proposals related to investment to provide public products and services through the implementation of one or more of the following activities:

• Construction, operation, and business of projects and infrastructure systems;
• Renovating, upgrading, expanding, modernizing, operating, and trading existing infrastructure systems;
• Operate and sell existing projects and infrastructure systems.

Thus, BOT contracts and BTO contracts are simply understood as project contracts. It can be understood that a project contract is an agreement between a competent state agency and an investor to create, change, and terminate rights and obligations related to construction investment and transfer of infrastructure works.

General characteristics of the contract BOT and BTO in Vietnam

Subject of the contract

BOT and BTO contracts are special investment contracts that demonstrate public-private partnership relationships. Therefore, in these contracts there always exist two sides, including:

• Investors can be domestic and foreign investors, and be one or more investors participating in the contract. Investors can be individuals or organizations. Usually, investors are reputable enterprises with expertise and experience in investment, construction, and operation of infrastructure projects. Investors are selected through bidding or direct appointment.
• Competent state agency. Depending on the type of contract, investment field, and investment project, this agency can be ministries, ministerial-level agencies, or People’s Committees of provinces. Central government or agencies under these agencies are authorized to sign contracts. Which agency has the authority to sign and implement project contracts depends on each specific project.

In essence, these agencies represent the State and, on behalf of the State’s interests, negotiate with investors in all economic sectors. Therefore, the State can be considered as a party to the project contract. This characteristic of the subject helps distinguish project contracts from other contracts in the investment field.

The object of the contract

Project contracts all target infrastructure works. The content of the contract is related to the construction, business, and transfer of these projects, including:

• National highways, inter-provincial and inter-district roads, bridges, tunnels, and related works and utilities;
• Railways, tram lines;
• Airports, seaports, river ports, ferry terminals;
• Water supply plant, drainage system to treat wastewater and waste;
• Power plants, power transmission lines ;
• Other projects as decided by the Prime Minister.

Projects in this field can be the construction and operation of new infrastructure projects or the renovation, expansion, modernization, operation, and management of existing projects.

Governing law

BOT contracts and BTO contracts are governed by the national legal system. For contracts with foreign elements, the parties have the right to agree to apply foreign law provided that the consequences of application do not contravene the basic principles of Vietnamese law.

The basic content of the contract

The content of project contracts in general and BTO and BOT contracts, in particular, includes the rights and obligations of the parties to achieve predetermined benefits. Investors carry out investment projects for profit purposes, so they will have to consider factors related to profits or related economic benefits (such as the right to carry out other potentially profitable investments). As for the State, when signing contracts, it is mainly aimed at infrastructure development goals for socio-economic development. During the process of negotiating BOT contracts and BTO contracts, it is necessary to take into account and reconcile the interests of investors and the interests of the State.

The project contract has the following main contents:

• Names, addresses, and authorized representatives of the parties involved in signing the project contract;
• Objectives and scope of activities of the project;
• Capital source, total investment capital, implementation progress;
• Capacity, technology and equipment, design requirements and project technical standards, quality standards;
• Regulations on supervision and inspection of construction quality;
• Regulations on the protection of natural resources and the environment;
• Conditions on land use, infrastructure, and auxiliary works necessary for construction and operation;
• Project construction progress, project enterprise’s operating term, and project transfer time;
• Rights and obligations of the parties and guarantees and risk allocation commitments;
• Regulations on prices, fees, and revenues (including methods for determining prices and fees, and conditions for adjusting prices and fees);
• Regulations on consulting, design appraisal, construction equipment, acceptance, operation and maintenance of works;
• Technical conditions, operational status, quality of the project upon transfer, principles for determining the value of the project and sequence of project transfer;
• Responsibilities of investors in technology transfer, training in management and technical skills to operate the project after transfer;
• Conditions and procedures for adjusting project contracts
• Cases of project contract termination ahead of schedule;
• Method of resolving disputes between project contract signing parties;
• Handling contract violations;
• Force majeure and handling principles;
• Regulations on support and commitments of state agencies;
• Validity of project contract.

Above are the legal issues in drafting BOT and BTO contracts in Vietnam. If there are any difficulties during the contract drafting process, please contact Viet An Law Firm for detailed advice!