Construction Contracts And Some Relevant Issues Should Be Noted (Part 1)

Construction contract (Hop dong thi cong xay dung)(*) is a type of construction contracts (Hop dong xay dung) for the performance of construction of the works, work items or part of construction work by design.

i. Legal basis

Currently, construction contracts are mainly governed by the following 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. 09/2016/TT-BXD guiding construction contract of a project;            

In which, Decree No. 37/2015/ND-CP, Circular No. 07/2016/TT-BXD, and Circular No. 09/2016/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.

ii. Scope of work and workloads

The scope of work and workload shall be mutually agreed by both parties (the hirer and contractor) and shall be specified in the construction contract. The scope of work shall be defined according to the bidding documents or requests for proposals, bid or proposals, minutes of negotiations, or relevant legal documents.

A construction contract may include the following tasks, in whole or in part:

–  Transferring, receiving, and managing construction sites, construction site boundaries, markers.

–  Providing building materials, personnel, and construction vehicles/machines/equipment stipulated in the contract.

–  Constructing the construction works according to the approved design and current construction regulations and standards.

–  Surveying and monitoring at requests of designers; carrying out on-line testing and off-line testing according to the commissioning plan prior to acceptance procedure.

–  Controlling construction quality, installing equipment, supervising sub-contractor performance (if the contractor is a prime contractor or EPC contractor).

–  Remedying defects (if any) occurring during the construction.

–  Testing the quality of building materials and structure.

– Conducting the acceptance by construction stage, part of construction work, acceptance of work items, and construction works.

–  Performing HSE and fire/explosion prevention.

–  Protecting construction sites within the scope of contract.

–  Ensuring construction site security.

–  Cooperating with other contractors (if any).

–  Clearing the construction site and transferring construction works after the completion.

–  Other tasks as agreed in the contract, documents, and provisions of laws.

Note: Building materials or construction vehicles provided by the hirer shall be specified in the contract, including weight, quality, date, and place of provision.

iii. Requirements for construction works quality, acceptance, and transfer

1. Requirements for construction works quality:

– The construction work shall follow the design, drawings (including amendments approved by the hirer), deliverables specified in the bidding documents (or request for proposals), applicable standards, and regulations on construction works quality; every contractor shall prepare the description of their quality control and supervision plan.

–  Every contractor shall provide the hirer with testing results of material/work items. Such result shall be released by an accredited testing laboratory.

–  The contractor shall commit that his/her materials/equipment origin is conformable to that stipulated in the contract.

2. Inspection or supervision by hirers

–  Every hirer has the right to access the construction site and places where the natural resources are extracted for implementation of the construction contract;

–  Every hirer has the right to inspect, examine, measure, and test materials, the manufacture and processing of materials, and construction equipment in the construction site or other places stipulated in the contract.

–  Every contractor shall facilitate the manufacturing and processing by the hirer’s staff by giving permission for site access, construction vehicles and protective equipment, and necessary permits. No obligations of the contractor shall be affected by such actions.

–  The contractor shall notify the hirer of the completion of tasks under the hirer’s inspection and measurement before moving onto the next step. The hirer shall immediately inspect, test, or measure the work without explanations, or if it is unnecessary, the hirer shall promptly notify the contractor. The hirer shall not have the right to lodge any complaint if he/she refuses to attend the inspection, testing, or measurement.

3. Acceptance of the completed work:

–  Only completed work that satisfies the quality requirements under clause 1 of this Article is approved.

–  Documents for acceptance of completed works include drawings (including amendments approved by the hirer); technical descriptions, relevant standards, and regulations, Certificates of testing; acceptance record forms, and relevant regulations.

– Participants in the acceptance are hirer’s representatives, contractor’s representatives or consultant’s representatives (if any)

–  Acceptance and transfer documents, including:

+  Acceptance records under the State regulations

+  Testing results of the work needing approving and other relevant provisions of laws.

4. Project commissioning (if any)

Prior to the commissioning, the contractor shall submit all as-built documents, operating and maintenance manuals which specify specifications and instructions on operating, maintenance, re-installation, adjustment, and repair.

The contractor shall support and provide necessary machinery, documents, equipment, fuel, instrument, qualified and experienced staff, etc. for the commissioning. The contractor and hirer shall decide the place and time of commissioning.

The hirer shall send a notice of participation in the commissioning to the contractor 01 day prior to the date of commissioning. If the hirer does not attend the commissioning at the designated time and place, the contractor may carry out the commissioning themselves and it is considered that the commissioning is carried out in the presence of the hirer, unless otherwise agreed by both parties.

If any expense incurs at the contractor’s account due to the compliance with the hirer’s instructions or if it is delayed by the hirer’s fault, the contractor shall send the hirer a notice of that fact and shall be entitled to:

–  Be granted an extension of time;

–  Have all additional expenses covered

The contractor shall submit the hirer all commissioning reports and records as the basis for contract finalization under provisions of laws.

5. Acceptance and transfer of works and work items

After the construction is completed and the commissioning (if any) indicates that the construction works satisfy all acceptance requirements under Article 31 of the Government’s Decree No. 46/2015/ND-CP on quality control and maintenance of construction works and contract requirements, both parties shall carry out the acceptance procedure.

Both parties shall prepare the acceptance record and transfer record if the works satisfy all acceptance requirements. Every unfinished work or minor defect that does not affect the project operation shall be specified in the acceptance and transfer records. Such unfinished work and defect shall be completed and remedied at the contractor’s account.

For any works unqualified for being approved, both parties shall identify causes of failure to meet the acceptance requirements and specify tasks that the contractor needs to carry out to complete the works.

The competent State authority shall inspect the acceptance of construction works during and after the construction is completed under laws on quality control and maintenance of construction works.

6. Responsibilities for defects by contractors

–  The contractor shall finish all unfinished work at their account by the date stipulated in the acceptance record, and transfer such work to the hirer within the required period but exceeding the period of fulfillment of the unfinished work stipulated in the contract.

–  In case of failure to remedy defects:

+  If the contractor fails to remedy any defect within an acceptable period, the hirer or hirer’s representative shall designate a date to remedy such defect and notify the contractor of that date.

+  If the contractor fails to remedy such defect on the designated date, the hirer shall remedy such defect on their own or employ a third party to remedy, and all incurred expenses shall be paid by the contractor (the contractor shall not have the right to file a complaint against such expenses if he/she is unable to prove their inaccuracy). The contractor may be relieved from the remedy but shall be liable for their obligations to fulfill the construction contract.

–  If the defect affects the project operation or the operation of the majority of the project, the hirer has the right to terminate the contract, and the contractor shall reimburse the hirer for all damage under terms of the construction contract or provisions of laws.

–  If it is unable to remedy the defect on the construction site, the contractor may transport defective equipment to another location to have it repaired if it is approved by the hirer.

7. Additional tests

If the defect remedy affects the project operation, the hirer has the right to request to re-conduct any test mentioned in the contract, including tests before and after the construction is completed. The request for re-testing shall be noticed within 30 days after the date on which the defect is remedied. The re-testing shall conform to requirements for testing but shall be paid by the contractor.

8. Unfulfilled obligations

After the acceptance and transfer record is issued, both parties shall be responsible for their unfulfilled obligations. Unfulfilled obligations are still governed by the contract.

iv. Management of construction contract performance

The contract performance management shall be governed by Article 7 of the Decree No. 37/2015/ND-CP and the following contents:

1. Every complaint, request, proposal, and response by either party shall specify the name of the agreement, date of the complaint, required date of response, name of the requesting party, name of the responding party, contents, list of required documents (if any), incurring costs (if any) and other contents, signature (seal, where necessary).

2. Contract schedule management:

Both parties shall decide the contract schedule, date of reporting, and acceptance of the work as the agreement is concluded (the schedule shall be consistent with that in the bid).

3. Quality control:

The transferred work/work item shall satisfy requirements for construction works quality. The contractor shall control the quality of the work carried out by both themselves and that by subcontractors (if any).

4. Construction management:

The construction works shall be managed under the Government’s Decree No. 46/2015/ND-CP on quality control and maintenance of construction works, the Government’s Decree No. 59/2015/ND-CP on construction project management dated June 18, 2015 and relevant provisions of laws.

5. Workloads and contract price management:

Both parties shall control the workloads stipulated in the contract and contract documents. The construction contract workload shall be adjusted in accordance with clause 1, Article 7 of Circular No. 09/2016/TT-BXD.

6. The fire and explosion prevention and HSE shall conform to Article 48 of the Decree No. 37/2015/ND-CP and the following provisions:

–  Occupational safety and health:

+ The contractor shall build fences, lighting systems, and guardians to protect the construction site until it is completed and transferred to the hirer;

+ The contractor shall regularly check protective equipment, scaffoldings, platforms, jacks, construction vehicles, lifting equipment, lighting systems, and update regulations on replacement of such equipment.

–  Fire & explosion prevention

+  Parties to the construction contract shall comply with State regulations on fire and explosion prevention;

+  Fire and explosion prevention systems and fire alarm systems shall be installed to reduce the damage caused by fire and explosion.

7. Amendments to contracts and other terms of contracts:

The construction contract shall conform to Circular No. 09/2016/TT-BXD and terms agreed by both parties under laws on construction project investment.

(*) This article refer to “Construction contract” as Hop dong thi cong xay dung in Vietnamese.

See more issues related to construction contracts:

– Construction contracts and some relevant issues should be noted (part 1);

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

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