What are the fines for violating a construction contract in 2024 in Vietnam?

What are the fines for violating a construction contract in 2024 in Vietnam?

Pursuant to Article 138 of the Law on Construction in 2014 stipulating general provisions on construction contracts as follows:

General provisions on construction contracts

1. Construction contracts are civil contracts established in writing between principals and contractors to perform in part or wholly the work in construction investment activities.

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According to the current laws on construction, a construction contract is a civil contract governed by the Civil Code in in 2015 and the Law on Construction in 2014.

Pursuant to Article 146 of the Law on Construction in 2014 (amended by Clause 64.c Article 1 of the Law on amendments to the Law on Construction in 2020) stipulating rewards and fines for construction contracts, compensations for damage caused by violations and settlement of disputes over construction contracts as follows:

Rewards and fines for construction contracts, compensations for damage caused by violations and settlement of disputes over construction contracts

1. Rewards or fines for construction contracts shall be agreed upon by the parties and stated in the contracts.

2. For works using public investment funds, non-public investment 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.

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Pursuant to Article 418 of the Civil Code in 2015 stipulating agreements on fines against violations as follows:

Agreements on fines against violations

1. Agreements on fines for violations are reached by the parties to a contract which requires the violating party to pay a fine to the aggrieved party.

2. The fine levels shall be agreed among the parties, unless otherwise prescribed by relevant laws.

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The Law on Construction in 2014 only stipulates the fine for violation of construction contracts using public investment funds, non-public investment state funds, but does not have specific regulations for the fine for construction contracts outside the State budget.

However, according to the Civil Code in 2015, the fine for violation of contracts in general and the fine for violation of construction contracts in particular will depend on the agreement between the two parties (unless otherwise specified by relevant laws).

In addition, in the Official Dispatch 48/BXD-KTXD in 2019, the Ministry of Construction responded to the clarification of a company on the fine for violation of construction contracts for construction works outside public investment funds. The Ministry of Construction stated that the fine for violation of construction contracts for construction works outside public investment funds will be applied to the fine agreed upon by the parties when entering into the construction contract.

In some specific cases, if a construction contract meets the conditions of a commercial contract, it can be considered a commercial contract and a commercial contract is still a form of civil contract.

Pursuant to Article 301 of the Law on Commercial in 2005 stipulating fine level as follows:

Fine level

The fine level for a breach of a contractual obligation or the aggregate fine level for more than one breach shall be agreed upon in the contract by the parties but must not exceed 8% of the value of the breached contractual obligation portion, except for cases specified in Article 266 of this Law.

As regulations above, the regulation on commercial law stipulates that the fine for violation of a contract is agreed upon by the parties in the contract, but not more than 8% of the value of the part of the contract obligation that is violated.

In summary, the fine for violation of a construction contract in 2024 will be as follows:

[1] For construction works using public investment funds: The fine is up to 12% of the value of the part of the contract that is violated.

[2] For construction works not using public investment funds:

- For construction contracts that do not meet the conditions of a commercial contract: The provisions of the Civil Code in 2015 will apply, which means that the agreement of the parties will be followed and will be reflected in the contract.

- For construction contracts that meet the conditions of a commercial contract: According to the provisions of commercial law, which means the agreement of the parties but not more than 8% of the value of the part of the contract obligation that is violated.

What are the fines for violating a construction contract in 2024 in Vietnam? - Source: Internet

What are principles of signing construction contracts in Vietnam?

Pursuant to Clause 2 Article 138 of the Law on Construction in 2014 stipulating general provisions on construction contracts as follows:

The principles of signing construction contracts include:

- Voluntariness, equality, cooperation, non-violation of law and social ethics;

- Assurance of adequate funds for payment according to contractual agreement;

- Having completed the selection of contractor and concluded the process of contract negotiation;

- If the contractor is a partnership of contractors, there must be a partnership agreement. The partners shall sign and append their seals (if any) to the construction contract, unless otherwise agreed by the parties.

What are conditions of a construction contract to become effective in Vietnam?

Pursuant to Clause 1 Article 139 of the Law on Construction in 2014 stipulating effect of construction contracts as follows:

A construction contract becomes effective when fully meeting the following conditions:

- The contract signees have full civil act capacity and act according to their competence in accordance with law;

- The principles of signing of construction contracts prescribed at Point a, Clause 2, Article 138 of this Law are adhered to;

- The contractor has full construction operation and practice capability conditions prescribed by this Law.

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