A Number of Fundamental Issues About Construction Contracts (Part 2)

A dossier of construction contract must comprise a contract with the basic contents prescribed in Article 141 of the 2014 Construction Law and its enclosed documents.

A construction contract may include some or all of the following documents:

–   Written notice of contract winning or contractor appointment;

–   Specific terms of the contract or terms of reference, for construction consultancy contracts;

–   General terms of the contract;

–   Bidding dossier or dossier of requirements of the principal;

–   Design drawings and technical instructions;

–   Bid dossier or dossier of proposals of the contractor;

–   Written records of contract negotiation, documents modifying and supplementing the contract;

–   Annexes;

–   Other related documents.

The order of priority for application of documents attached to a construction contract is agreed upon by the contracting parties. If the parties to the contract do not reach an agreement, the order specified in Clause 2, Article 142 of the Law on Construction 2014 shall apply.

The order of priority application of documents enclosed with a construction contract shall be agreed upon by contractual parties. In case the contractual parties have no agreement thereon, the order prescribed in Paragraph 2, Article 142 of the 204 Construction Law will apply.

Adjustment of a construction contract includes adjustment of volume, schedule, contract unit prices and other contents agreed upon in the contract. Adjustment of a construction contract may be made only during the period of contract performance. A construction contract may be adjusted in the following cases:

–  The case(s) agreed upon by the parties in the contract in accordance with the 2014 Construction Law and relevant laws;

–   When the State changes its policies directly affecting the contract performance, unless otherwise agreed upon by the contractual parties;

–  When the project is adjusted, affecting the contract, unless otherwise agreed upon by the parties;

–  Force majeure circumstances as prescribed by law.

Besides, the adjustment of prices of construction contracts under projects using state funds must also comply with the following provisions:

–  The adjustment of unit prices for contract performance is applicable only to adjustable unit price-based and time-based contracts;

–  Unit prices in contracts may be adjusted according to the contents, scope, methods and bases for contract adjustment agreed upon by the parties in the contracts in accordance with law;

–  Permission of investment deciders shall be sought for contract adjustments that would change the investment objectives and contract performance time or increase the approved construction bidding package cost estimate.

–  Payment for a construction contract must suit the type of contract, contract price and conditions stated in the contract already signed by the parties. Contractual parties shall reach agreement on methods, time and dossiers of and conditions on payment.

–  The principal shall fully pay the value for each time of payment to the contractor after subtracting advanced amount and work warranty money as agreed upon in the contract, unless otherwise agreed upon by the parties.

–  For package contracts, payment shall be made according to a percentage of the contract price or the price of the work, work items or volume of work corresponding to the payment period agreed upon by the parties in the contract.

–  For fixed unit price-based and adjustable unit price-based contracts, payment shall be made based on actually completed and tested volumes and unit prices or adjusted unit prices as agreed upon in the contracts.

–  For time-based contracts, payment of expenses for consultants shall be determined by multiplying the consultants’ salary levels and expenses related to their activities by their actual working time already pre-acceptance tested (on a monthly, weekly, daily or hourly basis).

–  For charge-plus cost-based contracts, payment shall be made based on direct expenses for their performance of contractual work and management expenses and profits of the contractor as agreed upon.

–  Payment for arising volumes without price units stated in construction contracts shall be made as agreed upon in the contracts.

–  Currency used in the payment of construction contracts is Vietnam dong; foreign currencies may be used for payment as agreed upon by contractual parties in accordance with the law on foreign exchange management.

1. Suspension

Contractual parties have the right to suspend the performance of their construction contract in the following cases:

–  The principal has the right to suspend the performance of the construction contract when the contractor fails to meet requirements on quality, labor safety and schedule stated in the signed contract;

–  The contractor has the right to suspend the performance of the construction contract when the principal violates the payment agreements.

2. Termination

–  The principal has the right to terminate the contract in the following cases:

+  The contractor falls bankrupt or is dissolved;

+ The contractor refuses or continuously fails to perform work under the contract resulting in violations of the performance schedule agreed upon in the contract.

–  The contractor has the right to terminate the contract in the following cases:

+  The principal falls bankrupt or is dissolved;

+  Due to the fault of the principal the work is suspended repeatedly beyond the schedule agreed upon by the parties, unless otherwise agreed upon by the parties;

+  The principal fails to make payment to the contractor after the time limit agreed upon by the parties from the date the principal receives complete and valid payment dossiers, unless otherwise agreed upon by the parties.

Note: Before a party suspends or terminates the performance of the construction contract, such party shall notify in writing the other party of the reason for suspension or termination; if it fails to notify the other party, thus causing damage to the latter, it shall pay compensations for such damage.

1. Rewards and fines, compensations for damage caused by violations

–  Rewards or fines for construction contracts shall be agreed upon by the parties and stated in the contracts. For works using state funds, the fine level must not exceed 12% of the value of the violated contract. In addition to the fine level as agreed upon, the violating party shall compensate for damage caused to the other party and a third party (if any) in accordance with this Law and relevant laws.

–  The contractor shall compensate for damage caused to the principal in the following cases:

+  The work quality fails to ensure the agreements reached in the contract or the completion time is prolonged due to the fault of the contractor;

+  Human and property losses are caused due to the fault of the contractor during the warranty period.

–  The principal shall pay compensations to the contractor in the following cases:

+  Due to the fault of the principal, the contractual work is discontinued or performed behind schedule, encounters risks or machines, equipment, supplies and structures of the contractor are left unused;

+  The principal provides documents and conditions necessary for the jobs not in accordance with the contractual agreements, making the contractor re-implement construction, suspend or adjust its job;

+  The principal supplies raw materials, materials and equipment and meets other requirements not according to the time and requirements stated in the construction contract;

+  The principal fails to make payment as agreed upon in the contract.

–  In cases where a party fails to perform the contractual obligations or improperly performs the contractual obligations, after performing the obligations or applying remedies, such party shall also pay compensations for other damage, if any, caused to the other party at the level equivalent to the level of damage caused to the other party.

–  If a party violates the contract due to the fault of a third party, the violating party shall take responsibility for the violation to the other party. The dispute between the violating party and the third party shall be settled in accordance with law.

–  If the contract violation of a party infringes upon the body, interests and property of the other party, the inflicted party is entitled to request the other party to bear the responsibility for contract violations as agreed upon in the contract and prescribed by relevant laws.

2. Dispute resolution

Dispute resolution shall be performed based on observance of contractual agreements and commitments in the course of contract performance, ensuring equality and cooperation. Contractual parties shall have the obligations to negotiate to settle disputes themselves. If their negotiation is unsuccessful, their disputes shall be resolved through conciliation or commercial arbitration or court proceedings in accordance with law.

1. Settlement

–  Contract settlement is the determination of total final value that the principal is responsible for paying to the contractor when the contractor has fulfilled all the works as agreed in the contract.

–   The time limit for settlement for a construction contract shall be agreed upon by the parties.

–  The settlement documents are formulated by the contractor in accordance with contract type and contractual price. Subject matters of the settlement documents must be in accordance with agreement in the contract, including:

+  Report on inspection and acceptance of the entire works within the contract’s scope of work and additional works beyond the contract;

+  Tabular calculation of contract settlement value (also called A-B settlement) on which the followings must be specified: value of completed works, value of additional quantity (if any) beyond the signed contract’s scope of work, value of payment or temporary payment and the remaining value that the employer is responsible for paying to the contractor;

+   As-built documents, construction diary for a construction contract covering construction execution;

+  Other documents as agreed in the contract.

2. Liquidation

A construction contract may be liquidated in the following cases:

–  The parties have fulfilled their contractual obligations;

–  The construction contract is terminated or cancelled in accordance with law.

The time limit for liquidation of a construction contract shall be agreed upon by the contractual parties.

See more other issues related to construction contracts:

– Types of construction constracts;

– A number of fundamental issues about construction contracts (Part 1);

– A number of issues about construction contracts (Hop dong thi cong xay dung).