Construction is a complex field with many parties, subjects, and work content. The parties must establish a solid mechanism with which to minimize potential risks in the project. Therefore, Completing the Construction Contract Management Mechanism is an important issue in an effort to create a safe, friendly, sustainable, and cooperative construction relationship between the parties.
Realizing the importance of the above issue, together with the invitation of cooperation from SCL Vietnam, Mr. Le The Hung – Managing Partner of CNC Vietnam Law Firm, participated in the research and online discussion on the topic: “Suggestions to improve the Construction Contract Management Mechanism” on September 19, 2020.
CONSTRUCTION CONTRACT MANAGEMENT MECHANISM DISCUSSION
During this discussion, Mr. Le The Hung presented and analyzed various aspects and attention-worthy issues when drafting Construction Contracts. The discussion was divided into sections by Mr. Hung following the clauses and types of construction contracts so that participants could easily visualize and understand. To be specific, the discussion consisted of 7 main topics as follows:
1. Construction contracts – Scope of application
The application of Decree No. 37/2015/NĐ-CP detailing provisions for construction contracts is recommended. Accordingly, properly drafted construction contracts, afford the opportunity for the parties to interact more appropriately while continuing to achieve their established objectives, not to mention the mitigation of potential dispute.
2. Construction contracts – Important definitions
Many terms used in Decree 37/2015/NĐ-CP are not defined or are not clearly defined. During the discussion, Mr. Hung provided some enlightenment on some definitions such as:
- Lump-sum contracts
- Contracts for the provision of technological equipment
- Contracts for the supply of human resources, machinery, equipment, etc.
From these discussions, participants acquired a better understanding and interpretation of these definitions.
3. The problem with EPC contracts
Many fundamental issues of the EPC Contract were presented by Mr. Hung, Including:
- Scope of application;
- Selection of appropriate projects for EPC contracts;
- Fundamentals issues pertaining to drafting or signing EPC contracts;
- Management of EPC contracts according to the principle of “concentration and centralization”.
4. Construction Contracts
- Similarly, construction contracts also have aspects needing to be analyzed for clarification:
- Nature of construction contracts: Commercial Contracts or Civil Contracts?
- The effective date of construction contracts
- Getting around the definition of “force majeure”
5. Construction contracts – advance payments
- According to Mr. Hung, advance payment has become a common practice in construction contracts. However, the advance payment clause continues to involve a plethora of legal questions needing to be addressed/acknowledged, such as:
- The basis for establishing the minimum amount of advance payment
- When to initiate the recovery of an advance payment?
- Why guarantees for the full value of advance payment are necessary?
6. Construction contract Performance Bonds
- Regulations on construction contract performance bonds are still unclear, leading to many risks and potential disputes, for example:
- Risks that the Contractor performs a contractual obligation prior to the contract taking effect.
- Risks of not receiving a performance bond.
- Risks of the validity of performance bonds expiring upon handover of the works
7. Final Account and Liquidation of construction contracts
- Finally, Mr. Hung raised questions related to final account and contract liquidation, such as:
- Initiation of the final account prior to the fulfillment of maintenance obligations;
- Variations (due to the Employer’s fault) undertaken by the Contractor during the maintenance period;
- Contractor’s obligation to return the outstanding balance upon taking into account the maintenance cost subsequent to the final account.
- During this exchange, the lawyer not only presented this invaluable information but also combined questioning and answering with group activities. The atmosphere of discussion was active and informative. Therefore, even though it was deliverd online, the discussion was highly interactive.
QUESTIONS ABOUT THE CONSTRUCTION CONTRACT MANAGEMENT MECHANISM DISCUSSED
Many questions about “Completion of the Construction Contract Management Mechanism” were introduced throughout the discussion, such as:
- Does a contract’s duration last from the effective date to the complete fulfillment of contractual obligations per the signed contract?
- Are EPC contracts applicable only to projects or packages with expedited implementation?
- What are the bases for the determination of the “minimum value of the advance payment”?
- How are differences harmonized during the final account and liquidation of contracts?
- What are the risks of not receiving performance bonds?
- It is evident that the discussion has provided and supported many legal perspectives to the establishment and completion of Construction Contracts.
OPPORTUNITIES FOR COOPERATION AND DEVELOPMENT
- Through this cooperation, the parties exchanged practical experiences in construction. The discussion provided an opportunity to learn about contract management in this field, as a result, risks and disputes evolving in practice – when concluding Construction Contracts – are minimized.
More information
Readers interested in CNC’s training programs on FIDIC 1999 Contract Management, FIDIC Contract 2017 New Features can contact: +84-28-6276-9900 or email contact@cnccounsel.com.
