What are principles of advance funding for project using public investment capital in Vietnam?

1. What are principles of advance funding for project using public investment capital in Vietnam?

Clause 1, Article 10 of Decree 99/2021/ND-CP stipulates advance funding principles as follows:

1. Advance funding principles:

a) For construction contract-based jobs:

Advance disbursement of funds may proceed after entry into force of contracts and investors are provided with the guarantee for advance on contract value from contractors (where the guarantee for advance is required) whose value is equal to the amount of advance disbursement. In particular, with respect to construction contracts, where site clearance is required, the plan for site clearance or the record of (partially or wholly) cleared site handover that site clearing organizations provide for investors under contractual arrangements must be in place.

Amount, time, amount of regular recovery, time of regular recovery and other arrangements regarding protection for recovery of advances which is agreed upon between investors and contractors in accordance with regulations must be specified in contracts and keep up with the investment, contract execution progress and quantities worked each year. Advance amount and number of advance payments shall be arranged in years according to the contract performance schedule set in the respective year (if any).

Based on the demands for advance disbursement, investors may make one-off or instalment advance disbursement under a contract on condition that total advance disbursement does not exceed the amount of advance disbursement prescribed in contracts and is restricted to the maximum amount of advance disbursement prescribed in clause 3 of this Article.

Investors shall work with contractors to calculate the amount of advance disbursement which is rational and conform to regulations of clause 3 of this Article; manage the utilization of the advance to ensure that the advance serves agreed-upon purposes, beneficiaries, is effective, and take responsibility to recover the amount of advance disbursement.

b) For contract-based or non-contractual jobs in projects without construction components:

For contract-based jobs in projects without any construction component, the advance disbursement of funds may proceed after entry into force of contracts and investors are already provided with the guarantee for advance on the contract sum from contractors (where relevant) whose value is equal to the amount of advance disbursement. In this situation, the amount, time of advance disbursement, amount and time of regular recovery of advance disbursement, and other arrangements concerning security for recovery of advance disbursement, on which investors agree with contractors as per regulations must be specified in contracts and in line with the investment, project execution progress and quantities worked on an annual basis. Advance amount and number of advance payments shall be arranged in years according to the contract performance schedule set in the respective year (if any).

For non-contractual jobs, the advance disbursement of funds shall proceed after the estimate of costs of implementation of these jobs or the site clearance plan is approved by competent authorities, and upon the investor’s request.

Based on the demands for advance disbursement, investors may make one-off or instalment advance disbursement on condition that total advance disbursement does not exceed the maximum limit on advance disbursement that is set as per clause 3 of this Article.

Investors shall work with contractors to calculate the amount of advance disbursement which is rational and conform to regulations of clause 3 of this Article; manage the utilization of the advance to ensure that the advance serves agreed-upon purposes, beneficiaries, is effective, and take responsibility to recover the amount of advance disbursement in accordance with regulations.

2. What is guarantee or security for advance disbursement using public investment capital in Vietnam?

According to Clause 2, Article 10 of Decree 99/2021/ND-CP, guarantee or security for advance disbursement is 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.

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.

Best Regards!