Cases of termination of construction contracts that are not required to compensate for damage in Vietnam

Hello, Lawnet would like to answer as follows:

1. What is a construction contract?

According to the provisions of Clause 1, Article 2 of Decree 37/2015/ND-CP, the definition of a construction contract is as follows:

- Construction contract is a civil contract negotiated in writing between the employer and contractor for execution of a part or whole of the construction investment activity.

- The employer means the investor or its representative, general contractor or main contractor.

- Contractor means general contractor or main contractor if its employer is the investor; sub-contractor if its employer is general contractor or main contractor. The contractor can be a joint venture among contractors.

2. Cases of termination of construction contract in Vietnam

According to Article 41 of Decree 37/2015/ND-CP, cases of termination of construction contract are as follows:

(1) Situations resulting in termination of the contract, rights to terminate the contract; sequence, procedures for termination of the contract, level of compensation for losses caused by termination of the contract must be agreed in the contract and in accordance with the provisions set out hereof and relevant law provisions.

(2) In case the default party (party in breach of the contract) fails to correct its mistakes after 56 days since the date of temporary suspension by notice without proper reason except otherwise as agreed, the other party (party ordering suspension temporary) has the right to terminate the contract.

(3) In case either party unilaterally terminates the contract without the other party’s fault, such party must make compensation for damages caused to the other party.

(4) Before terminating the contract, one party must make a written notice to the other party some time in advance but no later than 28 days with reasons being specified except otherwise as agreed in the contract. If the party that terminates the contract fails to make the notice causing losses to the other party, such party must make compensation for the losses.

(5) The contract shall become ineffective since the date of termination and the parties must fulfill the procedures for liquidation with a period of time as agreed in the contract but no later than 56 days since the notice about termination is issued except otherwise as agreed in the contract. After this period, if either party fails to fulfill the procedures for liquidation, the other party is fully entitled to liquidate the contract.

(6) Within two working days since the contract is terminated, the contractor must move all the materials, human force, machinery, equipment and other properties in its possession out of the construction site. After this period, if the contractor fails to do so, the employer has the right to settle these properties.

3. Cases of termination of construction contracts that are not required to compensate for damage in Vietnam

In addition to the above cases of termination of construction contracts, either party has the right to terminate the contract without compensation for losses caused in the cases as prescribed in Clauses 7 and 8 of Article 41 of Decree 37/2015/ND-CP.

- The employer has the right to terminate the contract in the following cases:

+ The contractor goes bankrupt, dissolved or transfers the contract to other individuals or organizations without consent of the employer.

+ The contractor refuses to execute the construction work under the contract for 56 straight days that results in violations of the contract progress as agreed in the contract except otherwise as approved by the employer.

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

+ The employer goes bankrupt, dissolved or transfers the contract to other individuals or organizations without approval of the contractor.

+ The construction work has been suspended for 56 straight days by the employer’s fault except otherwise as agreed by the two parties.

+ The employer fails to make the payment to the contractor after 56 days since receipt of adequate payment documents except otherwise as agreed by the two parties.

In addition, in a construction contract, the assignor and contractor may agree on the level of contract rewards, penalties for contract violations and responsibilities for violations as follows:

- 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.

(According to the provisions of Clauses 1 and 2, Article 146 of the Law on Construction 2014)

- Responsibilities for breach of the contract are prescribed in Points 3-7, Article 146 of the Law on Construction, provisions of Decree 37/2015/ND-CP and relevant law provisions;

- In case the employer fails to make timely and adequate payment as agreed in the contract, it must pay interest on late payments at the commercial bank where the contractor opens its payment accounts.

- Interest on late payments shall be calculated from the first day of late payment until the payment is fully made to the contractor except otherwise as agreed by the two parties.

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