Regulation on Construction Contracts in Vietnam

Decree 37/2015/ND-CP clarifies the types of contracts, and defines the rights and obligations of the parties to the contract and related parties. However, in addition to the above advantages, some current regulations no longer meet practical needs and are also inconsistent with the provisions of the Law amending and supplementing several articles of the Construction Law 2020 and guiding documents. Therefore, Decree 50/2021/ND-CP, issued on April 1, 2021, amended and supplemented several articles of Decree 37/2015/ND-CP dated April 22, 2015, of the Government providing detailed guidance on construction contracts. The purpose of the decree is to improve the terms of construction contracts, implementation procedures, and responsibilities of the parties during the construction process, thereby improving the effectiveness of project management and ensuring the quality of work. Decree 50/2021/ND-CP takes effect from the date of signing, April 1, 2021. Below, Viet An Law will analyze some notable contents of regulation on construction contracts in Vietnam under Decree 37/2015/ND-CP as amended by Decree 50/2021/ND-CP.

Scope of regulation of regulation on construction contracts in Vietnam

Decree 37/2015/ND-CP amended and supplemented by Decree 50/2021/ND-CP applies to construction investment projects using state capital. Therefore, projects using only private capital can apply or choose not to apply according to the will of the parties. Article 1 of the Decree clearly states:

“Encourage organizations and individuals involved in construction contracts of construction investment projects using other capital sources to apply the provisions of this Decree.”

New contents amended by Decree 50/2021/ND-CP

Regulation on construction contracts amends and supplements several provisions in Decree 37/2015/ND-CP as follows:

• Amending and supplementing the scope of regulation and applicable subjects.
• Adjusting the names of some types of construction contracts.
• Supplementing regulations on principles for adjusting unit prices of construction contracts.
• Amending and supplementing regulations on principles of construction contract adjustment.

Amending and supplementing the scope of regulation and applicable subjects

Decree 50/2021/ND-CP has recorded the scope of regulation and subjects of application consistent with the Public Investment Law, the Investment Law, and the amended Construction Law… by converting traditional terms into new terms such as: “public investment capital, foreign capital for public investment”; “PPP project”; “public-private partnership”. The unified use of the reference system to determine the scope of application as a “capital source” will create a synchronous framework for projects using public investment capital, and foreign capital for public investment.

In addition, Decree 50/2021/ND-CP has added several new types of contracts such as:

For classification by nature and content of work, supplement simple, small-scale Construction Contracts:

• Is a construction contract to implement bidding packages and has a value not exceeding the limit of small-scale bidding packages according to the law on bidding (Bidding packages for providing non-consulting services and purchasing goods with a package value not exceeding 10 billion VND; construction and installation packages, mixed packages with a package value not exceeding 20 billion VND);
• The work content within the scope of the contract is of a simple technical nature and easy to perform.
• In the spirit of simplicity, small scale, and reduction of unnecessary procedures, the Decree provides very open regulations on the issue of advances, specifically:
  • Advance payment or no advance payment shall be considered and agreed upon by the contracting party and the contractor upon the contractor’s request.
  • The investor shall consider and decide on the implementation of the contract advance guarantee to ensure that it is appropriate to the nature of the contract work.

For classification by contract price form, add:

• Cost plus fee contract;
• Other construction contracts.

Expanding the scope of application and adding some new types of contracts helps to classify construction contracts more clearly, creating a legal basis for the application of different forms of contracts. This is to ensure consistency and technical requirements in project implementation because construction contracts in reality are very diverse in terms of scale, implementation time, and work. The Decree has officially included these types of contracts in the group of regulations on classifying construction contracts and officially created a clear legal basis while meeting practical needs. In particular, 02 types of contracts classified according to the form of the contract price are stipulated in Article 140 of the Construction Law 2014, but Decree 37/2015/ND-CP does not mention it, so the addition of Decree 50/2021/ND-CP is appropriate, creating consistency and avoiding confusion in the application and enforcement of the law in practice.

Adjusting the names of some types of construction Contracts

Clause 2, Article 1 of Decree 50/2021/ND-CP has reconceptualized and quantitatively redefined the type of “Technological equipment supply contract” into “Contract for procurement of materials and equipment”, thereby adjusting the names of the following types of construction contracts:

• “Contract for engineering and procurement of technological equipment” changed to “Contract for engineering and procurement of materials and equipment” (EP);
• “Contract for procurement of technological equipment and construction of works” changed to “Contract for procurement of materials, equipment and construction of works” (PC);
• “Contract for engineering – procurement of technological equipment and construction of works” changed to “Contract for engineering – procurement of materials, equipment – construction of works” (EPC).

Especially for EPC contracts, Decree 50/2021/ND-CP has provided more specific and complete guidance on the following contents:

• EPC contracts are given priority for complex projects with high technical and technological requirements and must strictly comply with synchronization and consistency from the engineering stage to the equipment procurement, construction, training, and technology transfer stages;
• Before deciding to apply the EPC contract, the investment decision maker is responsible for organizing the assessment of technical and technological requirements, shortening the project implementation time, and consistency from the engineering, equipment procurement, construction to operation training and project handover stages to meet the approved project objectives and requirements and ensure the feasibility of applying the EPC contract compared to other types of contracts.

In addition, because there are additional regulations related to the application of EPC Contracts, Decree 50/2021/ND-CP also has new regulations related to the rights and responsibilities of the EPC contracting authority, the EPC contractor as well as the management of the implementation of this type of Contract.

The addition of this provision in Decree 50/2021/ND-CP has ensured consistency and uniformity in the legal system and facilitated relevant organizations and individuals in applying the law because previously, these criteria were scattered in circulars and instructions on the application of EPC Contracts or instructions on preparing bidding documents for EPC packages. The specific provisions on EPC Contracts are also a legal basis, giving more initiative to project investors.

Amending and supplementing regulations on principles for adjusting unit prices of construction contracts

Decree 50/2021/ND-CP has amendments and supplements to the principles of adjusting construction contract unit prices as follows:

• The condition for adjusting the unit price is that in addition to satisfying the increase or decrease of more than 20% of the corresponding work volume stated in the contract, the actual work volume must also simultaneously change by more than 0.25% of the contract value and more than 1% of the unit price of that work.
• In case the actual volume of work performed increases by more than 20% of the corresponding volume of work stated in the contract, the new unit price will only be applied to the actual volume performed exceeding 120% of the volume stated in the contract.
• In case the actual volume of work performed is reduced by more than 20% of the corresponding volume of work stated in the contract, the new unit price will be applied to the entire actual completed and accepted volume of work.
• In case the actual volume of work performed increases or decreases by less than or equal to 20% of the corresponding volume of work stated in the contract, the unit price in the contract, including the unit price adjusted according to the contract agreement (if any) shall be applied for payment.

The addition of the above regulations has created a legal basis for adjusting unit prices for contracts in cases where it is necessary to adjust unit prices of construction contracts, ensuring the rights of the participating parties.

Amending and supplementing regulations on principles for adjusting construction contracts

Decree 50/2021/ND-CP stipulates that construction contract adjustments are applied throughout the contract extension period.

• For fixed price contracts, the contract price is adjusted in the following cases:
  • The State changes policies that directly affect the performance of the contract unless the contracting parties have agreed otherwise;
  • When the project is adjusted to affect the contract unless the contracting parties have agreed otherwise;
  • Force majeure cases as prescribed by law.
• For package contracts, add the following 02 cases where the contract can be adjusted:
  • When the State changes policies that directly affect the performance of the contract unless the contracting parties have another agreement;
  • When the project is adjusted to affect the contract unless the contracting parties have agreed otherwise.

The amendment and supplementation of cases that can be adjusted to the contract have created a legal basis to anticipate the possibility of contract adjustment, expand the time for contract adjustment to suit reality, overcome existing problems and limitations to shorten the implementation time and improve the efficiency of construction contract implementation for the participating parties.

Above is the advice of Viet An Law on the regulation on construction contracts in Vietnam. If you have any related questions or need support, please contact Viet An Law for the best support!