On 7 May 2010, the Government of Vietnam issued Decree No. 48/2010/ND-CP providing regulations on construction contracts for projects funded with 30% State capital. Decree 48 will take effect on 1 July 2010 and replaces that part of Decree No. 99/2007/ND-CP dated 13 June 2007 which deals with construction contracts.

Types of construction contract

Decree 48 divides construction contracts into eight (8) types basing on the nature of work, including: (i) contracts for providing construction consulting service, (ii) contracts for providing construction of works, (iii) contracts for procurement, (iv) contracts for engineering and construction, (v) contracts for engineering and procurement, (vi) contracts for procurement and construction, (vii) contracts for engineering, procurement and construction, and (viii) turn-key contracts. Basing on the price of contracts, Decree 48 provides for five (5) types of construction contract as follows: (i) lump sum price contracts, (ii) fixed unit price contracts, (iii) adjustable unit price contracts; (iv) time based price contracts, and (v) value percentage based price contracts.

Governing law and language

The Vietnamese law is set to be the governing law for the construction contracts. Foreign laws may be only allowed for construction projects funded by ODA capital where Vietnam commits to permit the construction contracts be governed by foreign laws.

The Vietnamese will always be the official language of the construction contracts. For those contracts involving a foreign party, they can also be signed in English language but the parties must specify the language used in correspondences and the language that shall prevail to resolve any dispute.

Rules on contract adjustment

Decree 48 also provides for principles and circumstances where the contract price adjustment and contract adjustment are permitted, whereby such adjustments can only occur during the implementation of the signed contracts. The adjustments will be decided by the owner if the new price does not exceed the approved total invested capital. In the event it exceeds that threshold it will be decided by the person who has power to make such investment.

Price adjustment will apply only to three types of construction contracts, namely fixed unit price contracts, adjustable unit price contracts and time based price contracts. Further price adjustment and details of the price adjustment must be agreed in the contract. Price adjustment may take the form of unit price adjustment or quantity adjustment or both. If the additional quantity is 20% greater than the respective volume in the signed contract, the parties will determine the new unit price for such additional works. If it is less than 20%, the unit price agreed in the contract will apply. For fixed unit price contracts and time based price contracts, if price of State regulated materials greatly fluctuate, price adjustment is possible in the event it is agreed in the contract and approved by the investment decision-making body.

Contract adjustment would also be possible if the same is agreed in the contracts. For lump sum contracts, Decree 48 only permits the adjustment in respect of additional bill of quantity beyond what the parties have agreed in the contracts. A contract may be adjusted in terms of price, quantity or works schedule. Works schedule can only be adjusted in some prescribed situations, and the parties must delineate responsibilities of each party if the completion date is behind the agreed schedule.

Termination of construction contracts

Decree 48 stipulates circumstances where each the owner and the contractor may terminate the contract without compensation to other party. The owner may terminate the contract if (i) the contractor goes bankrupt or assigns interest of construction contract to its creditors without approval of the owner or (ii) the contractor refuses to implement the agreed works or fails to carry out the agreed work for 45 consecutive days. The contractor may terminate the contract if (i) the owner goes bankrupt or dissolved; (ii) the contractor cannot carry out the works for more than 45 consecutive days due to the fault of the owner; (iii) the owner fails to pay the contractor after 45 days of receipt of a complete and valid payment dossier from the contractor.

It is noted that Decree 48 gives the contractor only 2 days to remove all materials, personnel, machines, equipments and other assets out of construction site. If they fails to do so, the owner will have right to deal with such assets.