What is a Lump Sum Contract?

What is a lump-sum contract?

According to Clause 1, Article 62 of the Law on Bidding 2013, a lump-sum contract is specifically defined as follows:

- A lump-sum contract is a contract with a fixed price throughout the duration of the contract for the entire scope of work. Payment for the lump-sum contract can be made multiple times during the execution process or once upon completion of the contract. The total amount paid to the contractor upon fulfilling all contractual obligations is exactly as stated in the contract;

- When applying a lump-sum contract, the bid price must include all costs for potential risks and price escalation during the contract execution process. The bid price must cover all expenses for risks and price escalations that may occur during the contract execution;

- A lump-sum contract is the basic type of contract. When deciding to apply the contract types specified in Clause 2 and Clause 3, Article 62 of the Law on Bidding 2013, the person approving the contractor selection plan must ensure that these contract types are more suitable than a lump-sum contract. For consulting service packages, simple non-consulting services; procurement packages for small-scale goods, construction, and mixed contracts, a lump-sum contract must be applied;

- For construction packages, during the negotiation and finalisation of contracts, relevant parties need to review the workload table according to the approved design. If the contractor or the inviting party discovers that the quantity and scope of work are inaccurate compared to the design, the inviting party must report to the investor for consideration and decision to adjust the workload to ensure alignment with the design;

- When applying a lump-sum contract, the investor for projects, the inviting party for regular procurement, the centralised procurement unit, or the unit requiring procurement for centralised procurement is responsible for the accuracy of the quantity and scope of work. If a consulting contractor is used to prepare design documents, tender documents, or required documents, the contract between the investor, inviting party, centralised procurement unit, or unit requiring procurement with the consulting contractor must specify the responsibilities of the parties in handling and compensating for errors in quantity and scope of work.

This is the content of the consultation on lump-sum contracts. For more detailed information, you should refer to the Law on Bidding 2013.

Do lump-sum construction contracts require detailed confirmation of completed quantities?

According to the Law on Construction 2014, if classified according to the price form applied, construction contracts will include lump-sum contracts; fixed-unit-price contracts; adjustable-unit-price contracts; time-based contracts; cost-plus-fee contracts; combination price contracts; and other construction contracts. For construction contracts using state capital, only the following types or combinations of contracts are applied: lump-sum contracts; fixed-unit-price contracts; adjustable-unit-price contracts; and time-based contracts.

In this context, a lump-sum contract is a contract with a fixed price throughout the duration of the contract for the entire scope of work. Payment for the lump-sum contract can be made multiple times during execution or once upon completion. The total amount paid to the contractor upon fulfilling all contractual obligations is exactly as stated in the contract;

According to Decree 37/2015/ND-CP, payment for construction contracts must align with the type of contract, contract price, and conditions agreed upon by the parties. When making payments according to the contract agreements, the parties are not required to sign a contract appendix, except in cases of additional work not included in the contract.

The parties agree in the contract on the number of payment times, payment stages, payment time, payment term, payment documents, and payment conditions.

In this context, for lump-sum construction contracts, payments are made according to the percentage of the contract price or the value of the work, project items, or workload corresponding to the payment stages agreed upon in the contract. Detailed confirmation of the completed quantities is not required for payment.

Therefore: Based on the above regulations, when making payments for lump-sum construction contracts, detailed confirmation of completed quantities is not required.

Thus: If your company and the investor have signed a lump-sum construction contract, but when it comes to payment, the investor demands detailed confirmation of completed quantities before making a payment, it is not in accordance with the law.

This is our consulting opinion regarding the issue you are inquiring about.

Sincerely!