A Number Of Fundamental Issues About Construction Contracts (Part 1)

A construction contract means a civil contract agreed in writing between the principal and the contractor to perform part or all of the work in construction investment activities. Construction contracts include many different types, depending on the stages and tasks in the construction of a work. However, no matter what type of contract, it is necessary to comply with some of the basic legal issues that are the foundation of a construction contract.

Currently, construction contracts are mainly governed by the following legal documents:

– Construction Law 2014;            

– Decree No. 37/2015/ND-CP detailing construction contracts;            

– Circular No. 07/2016/TT-BXD guiding adjustment of the construction contract price;            

– Circular No. 08/2016/TT-BXD guiding a number of contents on construction consultancy contracts;              

– Circular No. 09/2016/TT-BXD guiding construction contract of a project;            

– Circular No. 30/2016/TT-BXD guiding contract design – supply technology equipment and construction works.              

In which, Decree No. 37/2015/ND-CP, Circular No. 07/2016/TT-BXD, Circular No. 08/2016/TT-BXD, Circular No. 09/2016/TT-BXD, and Circular No. 30/2016/TT-BXD is only required to apply to construction investment projects of state agencies, political organizations, socio-political organizations, socio-political organizations – professional organizations, social organizations. society – profession, social organization, units of the people’s armed forces, public non-business units; State-owned enterprises’ construction investment projects; projects using state capital, capital of state-owned enterprises from 30% or more or less than 30% but over 500 billion VND in the total investment of the project. The other construction investment projects are not required but encouraged to apply such documents.

1. Principles of conclusion

The conclusion of a construction contract must be made based on the following principles:

–   Voluntariness, equality, cooperation, non-violation of law and social ethics;

–   Assurance of adequate funds for payment according to the contractual agreement;

–   Having completed the selection of the contractor and concluded the process of contract negotiation;

–   If the contractor is a partnership of contractors, there must be a partnership agreement. The partners shall sign and append their seals (if any) to the construction contract, unless otherwise agreed by the parties;

–   At the time of signing, the contractor must meet conditions for practice qualification and performance qualification as prescribed in the Law on Construction. As for partnership contractor, the division of work quantity in the partnership agreement must be based on the performance qualification of each member of the partnership. As for foreign main contractors, an undertaking to hire domestic sub-contractors to perform the tasks under the contract must be included when such sub-contractors are capable of meeting the requirements of the bid package.

–  The investor or its representative is permitted to sign a contract with one or more main contractors for the performance of tasks. In case the investor signs contracts with multiple main contractors, the content of these contracts must ensure uniformity and comprehensiveness during the performance of the tasks under the contract to meet the schedule, quality, and efficiency of the investment project

–   General contractor or main contractor is permitted to sign contracts with one or multiple sub-contractors but such sub-contractors must be accepted by the investor. All these sub-contractors must be in uniformity and agreement with the main contractor signed with the investor. General contractor or main contractor must be responsible to the investor for schedule, quality of the undertaken tasks including the tasks performed by sub-contractors.

–   Contractual price is not permitted to exceed the bid price or result of negotiation on construction contract except the quantity generated outside the scope of the bid package permitted by competent persons.

2. Principles of implementation

Construction contracts are performed on the following principles:

–   The contractual parties shall properly implement their commitments in the contract regarding the scope of work, quality requirements, quantity, category, schedule, methods, and other agreements;

–   Honesty, cooperation, and lawfulness;

–   No infringement upon the interests of the State and community and lawful interests of other organizations and individuals.

1. Effective conditions

A construction contract becomes effective when fully meeting the following conditions:

–  The contract signees have full civil act capacity and act according to their competence in accordance with law;

–  The principles of conclusion of construction contracts prescribed in Section 1, Part II above;

–  The contractor has full construction operation and practice capability conditions prescribed by Construction Law.

2. Effective date

A construction contract takes effect from the time of signing the contract or other specific time as agreed upon by the parties to the contract.

Construction contracts are usually classified according to one of three criteria:

–   The nature and content of the work;

–   Contract price;

–   Relationships between contracting parties.

For detailed information on the classification and types of specific construction contracts, see the article Types of construction contracts.

A construction contract includes the following items:

–   Applicable legal basis;

–  Language of application: The language used for a construction contract is Vietnamese. For a construction contract with foreign elements, the language to be used is Vietnamese and a foreign language selected by the parties; in case of no agreement, English will be used.

–  Content and volume of work: Content and quantity of work in a construction contract are subject matters and quantity of work that the employer signs with the contractor in accordance with the scope of work and specified in the contract.  The scope of work is determined on the basis of an invitation to bid (ITB) or request for proposals, bid documents, negotiation minutes, and other relevant legal documents. Depending on the specific type of construction contract, the scope of work performed will be determined differently.

–   Quality, technical requirements of work, acquisition, and handover:

+  For the product quality of a construction contract: The product quality of a construction contract must meet contractual requirements, comply with and meet quality requirements as prescribed by law. The contracting parties must agree in the contract on regulations, standards (national standards and regulations), and technical instructions applicable to construction contracts. Imported equipment and goods must also have regulations on origin.

+  For collection and product handover of completed jobs:

~   The agreement on the process of acceptance and handover of the contracting parties must comply with the provisions of the law on construction quality management.

~   Jobs that need to be accepted and handed over; grounds for acceptance and handover; the process, time of takeover test, product handover of completed jobs; personnel composition participating in acceptance and handover; acceptance and handover forms; Regulations on signers, minutes, acceptance and handover documents must comply with the provisions of law and agreed upon by the parties in the contract.

~ The parties are only allowed to accept and hand over products that meet the prescribed quality requirements;

~   For jobs that are required to be checked and accepted before moving to other jobs, the contractor must notify the principal to take over for acceptance in accordance with the law on construction quality control. construction.

~   For defective products (not meeting the requirements of the contract), they must be repaired, if they cannot be repaired, they must be discarded. The party that causes the error must bear all costs related to the repair, re-inspection, and other costs related to the error correction, as well as the contract performance schedule.

–  Time and progress of contract performance: Contract execution time is counted from the effective date of the contract until the parties have fulfilled their obligations under the signed construction contract. The contractor is responsible for setting up a detailed schedule of contract performance and submitting it to the principal for approval to serve as a basis for implementation, in which the completion and handover milestones of major works and products should be clearly shown.

–   Contract price, advance, currency used in payment, and expected construction contract payment;

–   Contract performance security, contract advance guarantee: The issue of contract performance security, contract advance guarantee are specified in Article 16 and Clause 4, Article 18 of Decree 37/2015/ND-CP.

–  Expected construction contract adjustment: See details of construction contract adjustment in the article A number of fundamental issues about construction contracts (Part 2).

–  Rights and obligations of parties to a construction contract: Depending on each specific type of construction contract, each party to a construction contract will have different rights and obligations. Detailed contents of rights and obligations are provided by law from Article 24 to Article 34 of Decree 37/2015/ND-CP.

–  Responsibilities for breach of contract, bonus, and penalty for breach of contract: See details on bonuses, penalties, and liability for a breach of a construction contract in the article A number of fundamental issues about construction contracts (Part 2).

–   Suspension and termination of construction contracts: See details on suspending and terminating construction contracts in the article A number of fundamental issues about construction contracts (Part 2).

–  Proposed construction contract dispute resolution: See more details on the settlement of construction contract disputes in the article A number of fundamental issues about construction contracts (Part 2).

–   Risks and impossible resistance:

+   Risk is the risk that negatively affects the performance of a construction contract in the future. In the construction contract, the parties must specify the responsibilities of each party for their own risk management and treatment; each party’s responsibility to overcome the consequences in case of risks.

+  Force majeure is an objectively risky event that cannot be foreseen before signing a construction contract and cannot be overcome when it occurs despite all necessary measures and capabilities. allowed such as Natural disasters, environmental incidents, enemy sabotage, fires, and other force majeure factors.

In the contract, the parties must agree on the handling of force majeure such as notice of force majeure; the parties’ liability for force majeure; terminate and pay construction contracts in case of force majeure (if any).

–  Final settlement and liquidation of expected construction contracts: See more details on settlement and liquidation of construction contracts in the article A number of fundamental issues about construction contracts (Part 2).

–  Other contents: In addition to the above, construction contracts may provide for the following issues: insurance and warranty, subcontracting, labor safety, environmental protection, and fire prevention; electricity, water, and site security; transportation of technological equipment;…

See more issues related to construction contracts:

– Types of construction contracts;

– A number of fundamental issues about construction contracts (Part 2);

– A number of issues about construction contracts.