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Summary

The article “Contracts for Construction according to the Law of Vietnam and Construction Contracts published by FIDIC in 1999” focuses on some fundamentals relevant to the construction field, including:

• Types of construction contracts
• Major risks arising during the construction process
• Differences between construction contracts according to the Law of Vietnam and that of FIDIC contracts; and
• Construction Contract Value, Payment Methods, and Payment Dossiers

Legal Basis

The above-mentioned matters are primarily within the scope of:

• 2003 Construction Law, 2014 Construction Law, Decree No. 48/2010/ND-CP, Decree 37/2015/ND-CP, and implementation guidelines.
• 2005 Bidding Law, 2013 Bidding Law, and implementation guidelines.
• 2015 Civil Code; and
• Conditions of Construction Contracts published by The International Federation of Consulting Engineers (“FIDIC”)

Do note that many legal provisions have expired, for example, 2003 Construction Law, 2005 Construction Law, Decree No. 48/2010/ND-CP, Decree No. 99/2007/ND-CP (referenced by CNC to compare with current provisions – especially Decree No. 37/2015/ND-CP and Circular 09/2016/TT-BXD, or to clarify the reasons for the changes made to the current law).

For the ease of following, this weekly article is written and published with the following formula in mind:

• Awareness of issues
• Analyze and Evaluate the Issues
• Provide conclusions and recommendations regarding the issues

However, exceptions are made to some small sections due to their characteristics and for that which the above-mentioned formula might not be adhered to.

Acronyms

The following acronyms are used throughout this article, and unless otherwise stated, stand for:

Acronym		Meaning
BQLDA	:	Project Management Board
BXLTT	:	Dispute Adjudication Board
NHNN	:	State Bank of Vietnam
FIDIC	:	International Federation of Consulting Engineers
USD	:	United State Dollar
VND	:	Vietnam Dong
BXD	:	Ministry of Construction
CYCCCDT	:	Employer Specifications
VIAC	:	Vietnam International Arbitration Center
BLDS 2015	:	Civil Code No. 91/2015/QH13 promulgated by the National Assembly on November 24th, 2015
CV 2507	:	Decision No. 2507/BXD-VP issued by the Minister of Ministry of Construction on November 26th, 2007
CV 2508	:	Decision No. 2508/BXD-VP issued by the Minister of Ministry of Construction on November 26th, 2007
Law on Bidding 2005	:	Bidding Law No. 61/2005/QH11 dated November 21th, 2005
Law on Construction 2003	:	Construction Law No. 76/2003/QH11 dated November 26th, 2003 by the National Assembly
Law on Construction 2014	:	Construction Law No. 50/2014/QH13 dated November 18th, 2014
Law on Bidding 2013	:	Bidding Law No. 43/2013/QH13 dated November 26th, 2013
Law on Commerce 2005	:	Commerce Law No. 36/2005/QH11 dated June 14th, 2005
Decree 48/2010	:	Decree No. 48/2010/ND-CP promulgated by the Government on May 07th, 2010, stipulates contracts in the construction field.
FIDIC Contract	:	Contracts/Conditions of Contract introduced by FIDIC for application in the construction field
Red Book 1999	:	Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer
Yellow Book 1999		Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant, and For Building and Engineering Works Designed by the Contractor
Silver Book 1999 or EPC/Turnkey	:	Conditions of Contract for EPC Turnkey Projects
Green Book 1999 or FIDIC Short Form	:	Short Form Contract
Pink Book	:	Conditions of Contract for Building and Engineer Works Designed by the Employer and funded by Multilateral Development Banks, including the 2005, 2006 and/or 2010 editions

Nature of Construction Contracts

Determining the nature of contracts allows regulatory laws to be taken into account. In Vietnam, contracts in the construction field (hereinafter referred to as “construction contracts”) are primarily considered civil contracts.[1]

This means that the establishment (signing) and implementation of construction contracts is directly based on BLDS 2015 and its guidelines for implementation.

Moreover, during the signing and implementation of construction contracts, all parties must be aware of the exclusive characteristics of the construction field and subjected to the regulation of the 2014 Construction Law, as well as its implementation guidelines. For example:[2]

• Principles of ensuring the contractors’ qualifications
• Principles of prioritizing domestic contractors
• Principles of unity among packages
• Principles of compliance with the agreement based on integrity, collaboration, and legality

Therefore, in most situations the 2005 Commerce Law would not be invoked and applied for issues pertaining to construction contracts, unless:

• The issues do not fall within the scope of the two sources of law previously mentioned or
• 2005 Commerce Law is referenced for direct application

The Crucial Role of Time

Construction activities are considered the first and foremost tasks for the commencement, commerce, operation, or usage of any construction or project.

Therefore, it is imperative that the Employers (and the Engineers) demand Contractors to complete the construction or project within the specified time.

Failure to complete the construction or project within the specified time would lead to many adversities, which include damages due to prolongation, namely: management costs, implementation, and construction operations or other damages such as claims from third parties, etc.

Aside from specific situations or small scale/value projects, almost all implementation of construction contracts requires an extension of time to be performed in comparison to other types of contracts. Moreover, the time required for the implementation of  construction contracts could be extended by years due to multiple reasons.

However, the sole fact that the time for implementation of construction contracts is extended also leads to changes in context, especially when compared to the context when the contract is initially concluded, including changes in laws, financial conditions, price, human resources, etc. of all parties participating in the construction contract. And these changes are the principal origins of the many risks that are analyzed in Section II below.

Causes for Extension of Time

The causes for extensions of time aren’t boiled down only to the implementation of work. In most construction contracts, the presence of clauses that allow for the extension of time for implementation is never lost, with the following as examples:[3]

• Extension due to Contractor faults (lack of capability, experience, inability to make payment, labor safety violations, etc.)
• Delays of one or some other packages/contracts of the same project
• The changes and/or additions made to the scope of works
• Abnormal changes in weather and/or climate conditions
• Over interference or mistakes from the authorities
• Force majeure or other unforeseen circumstances
• Employer’s breach of contract (belated payment, delay in approval/acceptance, handover of site, etc)

Therefore, depending on the role and position, the concerned party must consider any and all situations that Employers or Contractors encounter/or be entitled to a claim for an extension of time for completion based on one of the aforementioned reasons.

It should also be noted that the assessment and the evaluation of the events leading to the extension of contract implementation time is one of, if not the most complex issues besides the adjustment of the contract price due cost changes, whenever construction contracts are involved.

Pre-requisite Conditions

Besides the comprehension and awareness of involved parties regarding the extension of time for completion, relevant law provisions, etc, the significance of the following elements is not to be underestimated:

• The submission time of the notice for events leading to the extension of time for completion
• The effects of the events on the completion of Works.
• The record of documents, materials, evidence, or data of the contractor on the effect of such events.

Legal Consequences

Regardless of whether an extension of time is granted, or not, may result in serious legal consequences. For example:

• Waive of rights to claim
• If the submission is made outside of the allowed duration, or the submission is not adequate, the extension of time for completion claim may be rejected by the Employer or by the jurisdiction (arbitration or Court) chosen by the parties
• Cost increases

Any extension of contract implementation time would directly affect the costs of contract implementation, including but not limited to indirect costs, direct costs, and profits.

Change of turns

On the other hand, upon rejection of the Contractor’s claims for an extension of time for completion, the Employer is entitled to claim damages arising from delays and/or a rejection of performance of any obligations resulting from the extension. For instance, the adjustment to the contract price mentioned in Section II.2 below.

This direct contrast of interests between the parties, relative to extensions of time for the completion of works, is the cause of many construction disputes – directly or indirectly.

As such, sufficient attention ought to be given to the elements relevant to the time of completion, lest grave consequences occur

Lack of Law Provisions

Loopholes in the legal framework pertaining to private construction contracts remain an unaddressed problem in Vietnam.

To elaborate, the current laws of Vietnam only have stipulations on the application of state-related construction contracts,[4] for instance:

• Projects on development investment of the state, political organizations, socio-political organizations, socio-political-professional organizations, socio-professional organizations, social organizations, Units of People’s armed forces, public service units
• Projects on development investment of state-owned enterprises
• Projects on development investment financed by the state, state-owned enterprises. Provided that the financed amount either accounts for 30% or more of the total investment of the project or above 500 billion Vietnamese dongs.

The application of Decree No. 37/2015/ND-CP or Law on Bidding 2013 for private construction contracts is only encouraged or simply for reference purposes only.[5]

Furthermore, Civil Code 2015 does not contain any stipulations specifically mentioning construction contracts, meanwhile, Law on Construction 2014 only mentions construction contracts briefly (from Article 138 to Article 147)

Additionally, neither the development history of Vietnamese legal science nor the practical law contains any stipulation specifically for private construction contracts.

Difficulties and Limitations

The lack of law provisions or specialized legal documents to regulate private construction contracts has caused significant disadvantages to the practical implementation, as well as serving as the origin of many potential risks that many employers, contractors, engineers and/or lawyers, and contract managers could have trouble dealing with.

To illustrate, regarding the choice of law for the sigining and implementation of private construction contracts, the involved parties only have three options, each with their own shortcomings, namely:

• Based on laws.
• Based on agreements between parties.
• Based on accepted templates made by third parties, like Conditions of Contract introduced by FIDIC.

Based on laws

Means that parties imply or clearly express the application of the provisions in Decree No. 37/2015/ND-CP or Circular 09/2016/TT-BXD or other previous for the contract

For this option, the shortcomings are:

• Difficulties when deterining the principles for budget management.
• Disadvantageous positions for Contractors
• High chances of contract termination or increase in implementation costs due to the ease of invoking law provisions given to the Employers.
• Interpretation of the law provisions might vary from its original intention.

In many situations, parties might find it hard or unable to find the similar definition for the contractual relations they entered.

As such, aside from situations where parties agreed that “law’s spirit” is the law of choice, the strict adherence to Decree No. 37/2015/ND-CP has a high chance of causing disputes or conflicts.

This matter is further complicated in situations where parties solitarily assume that they are subjected to the regulation of the above-mentioned decree, circular, while they are in fact, should not be subjected to.

Based on the Agreement between Parties

This means that parties shall take their own circumstances into account as they bring forward their request, suggestions, and considerations so that an agreement is ultimately reached when parties deem that it is appropriate.

The potential risks when this option is chosen are:

• Some issues relevant to construction contracts, ranging from the structure of the contract, the priorities, operation regulations, method of dispute resolution, etc might not be accounted for
• The mechanism or sanction for certain situations might not be fully flexed out or inapplicable; or
• Differences in interpretations of the agreement, which might lead to lack of cohesion in the application of the agreement despite the nature of the concerned matter might be the same.

Overall, the application of the agreement made by parties might cause a lack of synchronization and inconsistency between different regions or between the two parties.

Based on accepted templates

This means the utilization of templates made by third parties whose use has been accepted by the involved parties. With the most prominent being the Conditions of Contract introduced by FIDIC.

About this option, the content referenced by parties might be able to solve the disadvantages posed by the other two options, as this option utilizes templates, which could have been popularized and used in multiple countries

However, this option also has its own demerits, for instance:

The difference between the common law system and the civil law system.

The difference or discrepancy between the principles of Vietnam’s Civil law on contract and the template’s approach to contract.

Inadequate comprehension of the provisions of the template, which in turn leads to inaccurate application; and

The difference in the interpretation of the same clause between parties.

Advance Heedings

“Whether or not the construction contract one entered into is financed by the state’s budget?” is the first question that should cross the mind of any party about to enter any construction contract.

Since, aside from situations where the application of Decree No. 37/2015/ND-CP, Law on Bidding 2013 are mandatory, not all construction contracts are subjected to such regulations.

In cases where the law of choice is based on law or based on the referenced templates, both parties should make amendments, applications, and interpretations appropriate to the reality, circumstances, and situations so that the most optimal solution could be reached

In the long run, the introduction of one or some templates in the construction field is proven necessary, since it could be applied not only to construction contracts with relation to state-funded projects but also to private construction contracts.

Or vice versa, templates of private construction contracts could be introduced or some significant parts of it could be recommended for inclusion in state-related construction contract

The Variety of Applicable Laws

Notwithstanding the foregoing, the two important sources of law that regulate construction contracts are Civil Code 2015 and Law on Construction 2014

However, due to the characteristics of the construction field, which is the participation of multiple service providers, more than one unit (contractor) might have the capabilities, qualifications, experience, and financial conditions required to accept the works/tasks demanded by the Employer.

Therefore, for the most competent unit (contractor) to be chosen (based on the qualifications, price, time, finance, etc…), the employers usually organize selections

This could be seen as one of the most important reasons for why the signing and implementation of construction laws are subjected to the regulations of many other sources of law, especially the Law on Bidding and its guidelines.

Overlapping Laws

This would have been a simple matter if the scope of application of Law on Construction 2014 and Law on Bidding 2013 had clear distinction.

However, the stipulations and the applications of these two sources of law have multiple overlaps.

As such, parties, especially those who are subjected to or entered state-related construction contracts, must determine the applicable law for their own specific circumstances, to be specific:[6]

Is it possible for a member of the joint venture to sign on behalf of the joint venture?

Law on Construction 2014 stipulates the following: “Members of a joint venture must sign, stamp (if any) on the construction contracts unless agreed otherwise”[7]

Meanwhile, according to Law on Bidding 2013: “For contractors who are joint venture, all participating members of the joint venture must directly sign, stamp (if any) on the contract document. The contract signed by parties must be in accordance with this Law and other relevant law provisions”.[8]

This begs the question of in the cases that members of the joint venture authorize a single member of the joint venture to sign the construction contract (provided the authorizations are considered legitimate and appropriate to the civil law regulations), is it possible for the contractor to invoke the provisions of Law on Construction 2014 to reach an agreement with the Employer regarding the authorization, or is it mandatory to abide by the stipulations of Law on Bidding 2013?.

Practical Application

In cases of international bidding or projects in which there are multiple contractors who entered the project under one joint venture, factual cases have proven that it is possible for members of the joint venture to authorize a single member (the representative) to sign on behalf of other members and still ensure the validity of the bidding documents.

On the other hand, employers who are the target of and subjected to the regulations of the Law on Bidding often decline such authorization due to[9]

The possibility of violating the laws on bidding; or

The possibility of members of the joint venture refusing to be held accountable for breaching the contract.

Remedies

The above-mentioned overlapping of laws’ scope of application for construction contracts could be rectified if:

Law on Bidding 2013 does not mention matters relating to construction contracts, and instead, such matter is solely regulated by Law on Construction 2014; or

The law on bidding only regulates contracts pertaining to procurement and service provision, which is outside the Law on Construction’s scope of application. In this case, the Law on Construction only needs to remove the stipulations on contracts that are not considered construction contracts by nature as mentioned in Section III.3.2; or

The Law on bidding only stipulates matters pertaining to Letter of Acceptance, the procedures for the issuance of Letter of Acceptance, which have binding effects on parties and mark the closure of the bidding phase; meanwhile, the Law on Construction 2014 shall regulate matters pertaining to the establishment and implementation of construction contracts, including content, format and methods in which Letter of Acceptance is issued.

Shortage of Stipulations on Letter of Acceptance

In practice, the shortage of specific stipulations for Letter of Acceptance has also led to many instances where references to Letter of Acceptance as part of the construction contracts are rejected by parties. There are two explanations for this situation:

Firstly, parties are too obsessed with the notion that a contract must have the word “contract” or “contract agreement” or some other similar terms in its title

Meanwhile, according to the Law of Vietnam, the nature of a contract is an agreement between at least two parties, in which rights and obligations between parties are established[10] or

Secondly, the content of the Letter of Acceptance in itself is insufficient to demonstrate the rights and obligations of the involved parties

However, it is common sense that upon the issuance of any acceptance for any request, and the acceptance is final (which means no further additional request is made), such acceptance shall constitute a contract between parties.[11]

Therefore, fundamentally speaking, even if the contract is not signed by one member of the joint venture, neither the legitimacy and validity of the construction contract nor the Employer’s right to hold the joint venture (or any of its members) accountable for not fulfilling their obligations shall be affected.

Limitations of Law on Bidding

Similar to the construction field, there are also no specific laws regulating private projects.

In other words, the bidding activities for private projects in Vietnam are being neglected, and the similar risks of private construction activities are also applied to private bidding activities.

As such, the above Section 1.3 shall be able to clarify the matter clearly, thereby enabling preemptive measures to be taken for the potential risks that might occur to private bidding activities as well as private construction activities, which allow an optimal solution to be reached.

Furthermore, there are rising demands for stipulations on bidding for bidding activities in Vietnam, including both private and state-related one

On another spectrum, by referencing the bidding procedures of other countries or banks for reconstruction and development such as The Asian Development Bank, the World Bank, etc or other credible organizations, strides could be made in the approach to bidding activities of Vietnam, thereby reaching closer to the world’s standard, as well as avoiding the potential mishaps that might occur during the practical implementation.

[1] Article 4 Decree No. 37/2015/ND-CP; Article 4 Decree No. 48/2010/ND-CP; Article 138 Law on Construction 2014.

[2] Article 2.1 Decree No. 37/2015/ND-CP; Article 2.1 Decree No. 48/2010/ND-CP.

[3] Clause 8.4, 8.5, FIDIC Red Book 1999.

[4] Article 1 Decree No. 37/2015/ND-CP or Article 1, Article 2, Law on Bidding 2013.

[5] Article 1, Decree No. 37/2015/ND-CP; Article 1 Decree No. 48/2010/ND-CP; Article 1 Circular 09/2016/TT-BXD.

[6] Provided that the mentioned situations are within the scope of application of Law on Bidding and Law on Construction.

[7] Article 138.2.(d), Law on Construction 2014

[8] Article 65.1, Law on Bidding 2013

[9] During practical implementation, most contractors of a joint venture use each other’s capabilities to satisfy the conditions of the tender documents, however, said contractor does not actually participate in the implementation of the contract. This issue is actually perplexing when upon failure to fulfill the signed construction contract, the members of the joint venture would either attempt to avoid responsibility or prove that their contribution to the violation is insignificant and has already been forgiven by other members of the joint venture.

[10] Article 385, Civil Code 2015

[11] Article 393, Civil Code 2015