NEW CIRCULAR ON GUIDELINES FOR CONSTRUCTION CONTRACTS

Ministry of Construction has recently promulgated Circular No. 02/2023/TT-BXD on guideline for some contents of construction contracts (“Circular 02”). Circular 02 take effect on 20/04/2023 and replace the following documents:

• Circular No. 07/2016/TT-BXD on guideline for the price adjustments in construction contract (“Circular 07”);
• Circular No. 08/2016/TT-BXD on guideline for some contents of construction consultancy contract (“Circular 08”);
• Circular No. 09/2016/TT-BXD on guideline for construction contract (“Circular 09”);
• Circular No. 30/2016/TT-BXD on guideline engineering, procurement and construction (EPC) contract (“Circular 30”).

Regulated entities almost keep unchanged

Basically, the regulated entities of Circular 02 is the same as that of the replaced circulars. Accordingly, Circular 02’s application is only mandatory for organizations, individuals relevant to the establishment and management of the execution of construction contract in 03 situations:

• Construction investment projects with public investment fund;
• Construction investment projects with State fund (aside from public investment fund)
• Packages of public-private partnership (PPP) projects

For construction contracts that use other funds, the application of Circular 02 is not mandatory but only recommended.

Detailed guidelines on some situations pertaining to interim payment

Article 19.4 of Degree No. 37/2015/NĐ-CP allows that in payment period, if both parties do not meet the requirements to proceed to payment in accordance with the contract so they can make interim payment. On this basis, Circular 02 provides detailed guidelines on interim payment for the following situations, including:

• For adjustable unit price contracts, in cases the data required to adjust the unit price of contract is unavailable, the unit price specified in the contract shall be applied to make interim payment.

With this provision, Circular 02 allows the usage of the unit price specified in the contract to make interim payment for not just construction contracts as stipulated in Article 6.3(đ) of Circular 09, but all types of construction contracts as long as adjustable unit prices are applied.

• For products, works or items in the process of being executed and not yet completed in accordance with the requirements of the contract, the interim payment shall be made based on the completion rate for each particular situation and detail unit prices of products, works or items in the contract.

Price adjustment

For construction consultancy contracts in which payment is made over time, Circular 02 stipulated that the adjustment to the salary of the expert shall be calculated using the formula applied for labour cost listed in Section I Appendix I of Circular 02.

In addition, for situations in which the contract price is adjusted via direct clearing, Circular 02 also stipulated the same adjustment method as in Circular 07, however, concise formulas are now provided for the ease of calculation and application. The formulas and detailed guidelines on price adjustments via direct clearing are specified in Section II Appendix I of Circular 02.

Abolish some detailed guidelines for construction contracts

Overall, Circular 02 abolished almost all stipulations on detailed guidelines for all types of construction contracts in Circular 08, Circular 09 and Circular 30. It means that all detailed guidelines for construction contracts could only be found in Degree No. 37/2015/NĐ-CP (amended, supplemented by Degree No. 50/2021/NĐ-CP) and circulars stipulating detailed guidelines for each type of contract are no longer valid.

This direction of Circular 02 might be intended to give the parties to the construction contract more freedom to negotiate. However, in cases where mutual agreement is not reached, the shortage of detailed guideline could become obstacles for both parties, such as the detailed guidelines on risks and force majeure in Circular 08 and Circular 09, or guidelines on the essential contents in EPC contracts in Circular 30, all of which had been abolished and have yet to be inherited by corresponding provisions.

Contract forms

Circular 02 promulgated 03 construction contract forms, including:

• Construction consultancy contract form
• Construction contract form
• EPC contract form

Circular 02 also clearly stipulated that the forms are not mandatory and are only for reference purposes.

Furthermore, different from the previous forms, the forms issued with Circular 02 are composed of General Conditions of Contract and Particular Conditions of Contract. Such structure made the drafting and management of contracts more convenient and consistent with the contract forms utilized in international practices, typically the FIDIC forms. More details for the article The FIDIC 1999 Conditions of Contract for Construction

Other notable points

In transitional provision, Circular 02 requires the content of the construction contract in approved but yet to be issued tender documents, requests for proposal must be adjusted to be consistent with Circular 02. In cases the tender documents, request for proposal had been issued, if adjustments were made to the content relevant to the contract, all contractors who had purchased tender documents, requests for proposal must be notified of such adjustments in advance.