Does a contract to use public investment capital whereunder the amount of advance payment is greater than 01 billion dong require a guarantee for the advance disbursement in Vietnam?

Does a contract to use public investment capital whereunder the amount of advance payment is greater than 01 billion dong require a guarantee for the advance disbursement in Vietnam?

At Point a, Clause 2, Article 10 of Decree 99/2021/ND-CP stipulates as follows:

2. Guarantee or security for advance disbursement:

a) For contracts whereunder the amount of advance payment is greater than 01 billion dong, the guarantee for the advance disbursement must be in place:

Investors shall send regulatory payment bodies the guarantee for the advance on the contract sum provided by contractors or suppliers in the corresponding currency type which is equal to the amount of advance disbursement before regulatory payment bodies’ transfer of such advance to investors as a prerequisite for advance disbursement of funds available for use by contractors or suppliers.

The amount of guarantee provided for an advance is reduced in proportion to the amount of advance disbursement recovered by each payment transaction between the client and contractor. Investors shall assure and undertake that the value of guarantee for advance disbursement corresponds to the remaining amount of advance disbursement.

The validity period of the guarantee for advance disbursement may be extended until the investor fully recovers the advance disbursement and must be specified in contracts and proofs of guarantee for the advance disbursement. Where the guarantee is expired, the investor shall submit application for extension of the guarantee for advance disbursement to regulatory payment bodies as a basis for their control of expenditures in accordance with regulations in force. Investors shall supervise the validity period of the guarantee.

According to this regulation in Vietnam, for contracts using public investment capital whereunder the amount of advance payment is greater than 01 billion dong, a guarantee for the advance disbursement in Vietnam is required. In your case, you have a contract to use public investment capital with an amount of advance payment of VND 3 billion, so a guarantee for the advance disbursement is required.

In which cases are exceptions from the requirement for provision of the guarantee for advance disbursement in Vietnam?

According to Point b, Clause 2, Article 10 of Decree 99/2021/ND-CP stipulates as follows:

b) Exceptions from the requirement for provision of the guarantee for advance disbursement:

- For contracts with the amount of advance on the contract sum which is less than or equal to 01 billion dong, simple or small-sized contracts, contractual agreements shall be carried out in accordance with legislation on bidding and construction.

- Construction contracts carried out in the self-implementation form, including those carried out by residential communities according to national target programs.

- Project management trust agreements.

- Non-contractual jobs, compensation, support and residential resettlement work (except where building work is needed).

- Advance funding against costs of project management boards that is given to investors or project management boards.

According to this Article, if falling into one of the above cases, the project investor is not required to guarantee for advance disbursement in Vietnam.

What is percentage of contract value that total amount of advance disbursement given upon the investor’s request shall not exceed in Vietnam?

Pursuant to Clause 3, Article 10 of Decree 99/2021/ND-CP stipulating amounts of advance disbursement, as follows:

a) For the jobs carried out under contracts (e.g. construction contracts, contracts for execution of projects without building part or component):

Total amount of advance disbursement given upon the investor’s request shall not exceed 30% of the contract value (including any allowance). Where the higher amount of advance disbursement is needed, permission must be obtained from investment decision makers. For projects in which decisions on investment are made by the Prime Minister, the decision on the greater amount of advance disbursement may be made by Ministers, Heads of ministerial agencies or Presidents of provincial People's Committees. Makers of decisions on the amount of advance disbursement shall be legally liable for their own decisions and take control of how to use such advance disbursement legally.

b) For non-contractual jobs:

- Total amount of advance disbursement given upon the investor’s request shall not exceed 30% of the approved estimated costs of the quantities of work. Where the higher amount of advance disbursement is needed, permission must be obtained from investment decision makers. For projects in which decisions on investment are made by the Prime Minister, the decision on the greater amount of advance disbursement may be made by Ministers, Heads of ministerial agencies, Presidents of provincial People's Committees. Makers of decisions on the amount of advance disbursement shall be legally liable for their own decisions and take control of how to use such advance disbursement legally.

- The amount of advance disbursement for compensation, support and residential resettlement work is divided into the followings: advance amounts varying according to the plan and schedule of compensation, support and residential resettlement work; on-demand maximum amount of advance disbursement that does not exceed the amount specified in the plan for compensation, support and residential resettlement that is approved by competent authorities; where investors directly pay compensation, relief and residential resettlement costs, based on relevant documents and records, payments shall be made to beneficiaries; where institutional entities are in charge of the compensation, support and residential resettlement work, they must sign up for deposit accounts with regulatory payment bodies which are used for receiving advance disbursements from investors for further payment/disbursement purposes.

- The amount of advance disbursement of funds for project management work shall not exceed the estimated cost of project management and that in the budgetary year (where investors or project management authorities obtain approval of the annual estimate of project management costs from competent authorities) approved by competent authorities.

Thus, the total amount of advance disbursement given upon the investor’s request shall not exceed 30% of the contract value (including any allowance). Where the higher amount of advance disbursement is needed, permission must be obtained from investment decision makers in Vietnam.

Best Regards!