07:47 | 23/07/2024

Maximum Advance Payment Fee of Construction Contracts under Decree 35/2023/ND-CP: How Does It Change Compared to the Previous Regulations?

How has the maximum advance payment rate for construction contracts under Decree 35/2023/ND-CP changed compared to the old regulations? This question is from Minh in Binh Duong.

What is the maximum advance payment for construction contracts according to Decree 35/2023/ND-CP?

Based on Clause 2, Article 9 of Decree 35/2023/ND-CP, the regulations are as follows:

Amend and supplement several articles of Decree No. 37/2015/ND-CP dated April 22, 2015 of the Government of Vietnam detailing construction contracts, which has been amended and supplemented by Decree No. 50/2021/ND-CP dated April 1, 2021 of the Government of Vietnam

....

2. Amend and supplement the first paragraph of Clause 5, Article 18 as follows:

“5. The contract advance payment shall not exceed 30% of the contract value at the time of signing (including contingencies, if any). In case a higher advance payment is required, it must be approved by the investment decision-maker. For projects where the investment decision-maker is the Prime Minister of the Government of Vietnam, the decision on a higher advance payment shall be made by the Minister, the Head of the equivalent agency, the Chairman of the provincial People's Committee; the minimum advance payment levels are regulated as follows:

Compared to Article 18 of Decree 37/2015/ND-CP (supplemented by Point b, Clause 6, Article 1 of Decree 50/2021/ND-CP), which regulates:

Construction Contract Advance Payment

...

5. The advance payment shall not exceed 50% of the contract value at the time of signing (including contingencies, if any). In special cases, it must be approved by the competent authority for investment decisions or the Minister, Chairman of the provincial People's Committee; Chairman of the Board of Members, Chairman of the Board of Directors of groups, corporations in the case where the investment decision authority belongs to the Prime Minister of the Government of Vietnam. The minimum advance payment levels are regulated as follows:

a) For consultancy contracts:

- 15% of the contract value for contracts valued at more than 10 billion VND.

- 20% of the contract value for contracts valued at up to 10 billion VND.

b) For construction execution contracts:

- 10% of the contract value for contracts valued at more than 50 billion VND.

- 15% of the contract value for contracts valued from 10 billion VND to 50 billion VND.

- 20% of the contract value for contracts valued below 10 billion VND.

c) For technology equipment supply contracts, EC, EP, PC, and EPC contracts, turnkey contracts, and other types of construction contracts: 10% of the contract value.

d) In case the parties agree on an advance payment higher than the minimum advance payment levels mentioned in Points a, b, and c of this Clause, the corresponding contract value exceeding the minimum advance payment will not be adjusted from the time of the advance payment.

...

Thus, from June 20, 2023, the maximum advance payment for contracts has been reduced from 50% to 30% of the contract value at the time of signing (including contingencies, if any).

Maximum advance payment for construction contracts according to Decree 35/2023/ND-CP compared to previous regulations

How has the maximum advance payment for construction contracts according to Decree 35/2023/ND-CP changed compared to previous regulations?

Should the advance payment amount, number of advance payments, timing of advance payments, and the recovery of advance payments through subsequent payments be specifically recorded in the documentation?

Based on Clause 2, Article 9 of Decree 35/2023/ND-CP, the regulations are as follows:

Amend and supplement several articles of Decree No. 37/2015/ND-CP dated April 22, 2015 of the Government of Vietnam detailing construction contracts, which has been amended and supplemented by Decree No. 50/2021/ND-CP dated April 1, 2021 of the Government of Vietnam

1. Amend and supplement Clause 3, Article 18 as follows:

3. The amount of advance payment, number of advance payments, timing of advance payments, and the recovery of advance payments through subsequent payments must be specifically included in the bidding documents, request for proposals, or in the draft construction contract submitted to the contractor to provide a basis for calculating the bid price, proposed price, and must be specifically agreed upon by the parties and recorded in the contract according to conformable law, consistent with the contract implementation progress.

Simultaneously, based on Clause 3, Article 18 of Decree 37/2015/ND-CP, which regulates:

Construction Contract Advance Payment

...

3. The amount of advance payment, timing of advance payments, and recovery of advance payments must be specifically agreed upon by the parties in the contract. The amount of advance payment and the number of advance payments must be specifically included in the bidding documents, request for proposals, or in the draft construction contract submitted to the contractor to provide a basis for calculating the bid price, proposed price.

According to the above regulations, from June 20, 2023, the amount of advance payment, number of advance payments, timing of advance payments, and the recovery of advance payments through subsequent payments must be specifically included in the bidding documents, request for proposals, or in the draft construction contract.

These must also be specifically agreed upon by the parties and recorded in the contract according to conformable law, consistent with the contract implementation progress.

When should the advance payment be made?

Based on Clause 2, Article 18 of Decree 37/2015/ND-CP, which regulates:

Construction Contract Advance Payment

...

2. The advance payment shall only be made after the construction contract becomes effective. In terms of construction execution contracts, there must be a site clearance plan as agreed in the contract, and the contractor must have received the advance payment guarantee (if any) corresponding to the value of each type of money agreed upon by the parties.

According to the above regulations, the advance payment shall only be made after the construction contract becomes effective.

Note: For construction execution contracts, there must be a site clearance plan as agreed in the contract, and the contractor must have received the advance payment guarantee (if any) corresponding to the value of each type of payment agreed upon by the parties.

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