What is contract price slippage adjustment under the law in Vietnam? What are the methods for determining contract price slippage in Vietnam?

Regarding this matter, LawNet would like to answer as follows:

1. What is contract price slippage adjustment under the law in Vietnam?

Contract price slippage adjustment or contract price adjustment due to inflation and deflation is specified in Clause 1, Article 107 of Decree 24/2024/ND-CP on adjustment of contract price due to inflation and deflation in Vietnam as follows:

Contract price adjustment due to inflation and deflation (hereinafter referred to as contract price slippage adjustment) for adjustable unit price contracts is carried out in accordance with Clauses 2 and 3 of this Article. For time-based contracts, output-based contracts, contract price slippage can be applied to contracts with long performance periods or in market situations with large price fluctuations.

The application of price slippage adjustment must be specified in the bidding documents or RFPs and be finalized during the contract negotiation process (if any) and contract finalization.

The contract must stipulate the principles and time for calculating adjustments; input database to calculate adjustments; time to calculate the price index or original price as a basis for determining the difference due to price slippage for each contract instalment.

The content of the contract price must include a provisional price slippage value calculated on the basis of expected price slippage and legal regulations on cost management as a basis for payment. The management and payment of price slippage according to the terms and conditions already in the contract, does not require signing a contract modification document; if price fluctuations cause subsequent instalments and total contract price to exceed the originally fixed budget, the employer must seek approval from the competent person. If approved by the competent person, the parties sign a contract modification document before making payment.

Thus, contract price slippage adjustment is contract price adjustment due to inflation and deflation according to legal regulations. For time-based contracts, output-based contracts, contract price slippage can be applied to contracts with long performance periods or in market situations with large price fluctuations.

2. What are the methods for determining contract price slippage in Vietnam?

According to the provisions of Clause 3, Article 107 of Decree 24/2024/ND-CP, contract price slippage is determined according to the following methods in Vietnam:

(1) Direct compensation method;

(2) Adjustment method using adjustment formula based on application of price index. The price index used as a basis for calculating price slippage is determined according to the bidding documents, RFPs, detailed contract negotiation (if any) and contract finalization. The index source can be specified according to the price index announced by the General Statistics Office of Vietnam or the construction price index announced by the Ministry of Construction and the Provincial People's Committee.

For foreign-sourced cost items subject to price slippage adjustments, the price index published by the independent statistical agency in the foreign country where the cost incurs may be applied.

Determining the method and formula for calculating price adjustments must be based on a scientific basis, consistent with the nature of the package, and specific regulations on price slippage risk management in the contract. Employers can apply adjustment formulas that are widely applied in the international market, including regulatory templates of the Fédération Internationale des Ingénieurs Conseils (FIDIC), and guidance from the World Bank ( WB), Asian Development Bank (ADB) and other templates;

(3) Other adjustment methods specified in Points a and b of Clause 3, Article 107 of Decree 24/2024/ND-CP as per the law

Note: Contract price slippage adjustment for contracts based on adjustable unit price contracts, time-based contracts, output-based contracts (if any) shall fall under situations where the contract price, volume, or other specified terms can be changed without requiring contract modifications or signing a contract modification document as outlined in Clause 5 of Article 70 in the Bidding Law 2023.

Thus, contract price slippage is determined by the following methods:

- Direct compensation method;

- Adjustment method using adjustment formula based on application of price index. (index announced by the General Statistics Office of Vietnam or the Ministry of Construction or foreign-sourced index)

- Other adjustment methods according to law.

At the same time, investors can apply adjustment formulas that are widely applied in the international market, including regulatory forms such as (FIDIC), (WB), (ADB) and other forms.

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