Resolving Obstacles in Finalizing Lump-sum Contracts

According to reflections from the Management Board of Investment and Construction Projects of Binh Son district, Quang Ngai province, the Management Board has prepared and submitted for appraisal the completion settlement dossier for a construction project funded by the State. The project includes a package for construction work under a lump-sum contract. The contractor performed according to the approved design but the volume of work differed from the contract volume. Based on the actual volume, when re-determining the actual value of the construction package, two cases arise, and the Management Board prepares the settlement dossier for each case as follows:

In the case where the actual construction value is greater than the signed lump-sum contract value (including both increased and decreased volumes), the Management Board works with the contractor to agree on a settlement based on the lump-sum contract value.

In the case where the actual construction value is less than the signed lump-sum contract value (including both increased and decreased volumes), the Management Board works with the contractor and the design consultant to determine the design consultant’s liability for compensation and agree on the project settlement accordingly.

However, the District Finance Department recalculates the project settlement value and only accepts the reduced volume value, not the increased volume value. This handling by the Finance Department is not accepted by the contractor.

The Management Board of Investment and Construction Projects of Binh Son district requests the competent authority to review and provide guidance to resolve the above obstructions.

Regarding this matter, the Department of Construction of Quang Ngai province guides as follows:

Payment, settlement, and contract price adjustment of construction contracts must be executed according to the type of contract, contract price, and agreements in the contract signed by the parties and comply with the legal regulations corresponding to each period.

When applying a lump-sum contract price, the package price and contract price must fully account for all related risks such as volume risk and price fluctuations during the contract performance period, with each party responsible for their own risks.

According to Decree 37/2015/ND-CP dated April 22, 2015, of the Government of Vietnam detailing construction contracts, a lump-sum contract is understood to be lump-sum within the scope of work and the agreements reached by the parties in the contract.

When the contractor performs according to the approved design and the content agreed upon in the contract, the investor shall make payment and settlement equal to the contracted value. The deduction in payment is only executed if there is a reduction in items or work compared to the design as required by the investor.

Point d, Clause 1, Article 62 of the Law on Tendering stipulates, “For construction packages, during contract negotiation and finalization, the relevant parties must review the workload according to the approved design; if the contractor or the tendering party finds the quantities or workloads inaccurate compared to the design, the tendering party must report to the investor for consideration and decision on adjusting the workload to ensure conformity with the design.”

According to the above regulations, for lump-sum contracts, reviewing the workload outside the agreements signed in the contract during settlement is not in compliance with the Law on Tendering.

Regulations on the verification of lump-sum contract settlements

Furthermore, the verification of settlements for lump-sum contracts is regulated at Point b, Clause 3, Article 15 of Circular 09/2016/TT-BTC dated January 18, 2016, of the Ministry of Finance regarding the settlement of completed projects funded by the State, and specifically detailed at Point 2.3, Article 3; Article 16 of Decision 04/2014/QD-BTC dated January 2, 2014, of the Minister of Finance on the issuance of the process for verifying settlements of completed projects using state capital.

• Verification for packages under the form of “lump-sum contracts” is conducted as follows: *

“Compare the content of work, the performed workload in the value calculation table for settlement proposal A-B with the acceptance statement of completed work volumes and the contract requirements to determine the accepted completed workload conforms.

Compare the unit price in the value calculation table for settlement proposal A-B with the unit price recorded in the contract value calculation table; when the contractor fulfills all the requirements and content of work, meets the exact completed workload and unit price recorded in the contract, the contract value calculation table; then the settlement value equals the lump-sum contract value signed. Do not re-calculate the volume or detailed unit price, which was approved by the competent authority under the winning bid decision.”

Regarding the legality of construction contracts, at Point c, Clause 3, Article 6 of Decree 37/2015/ND-CP stipulates, “Government management authorities, control, disbursement, lending, inspection, audit, and other relevant agencies must base on the effective construction contract content to perform their functions and tasks as prescribed and shall not infringe upon the lawful rights and interests of the contract parties.”

According to the above regulations and guidelines, the involved parties recalculating volumes or detailed unit prices in lump-sum contracts beyond the agreements signed in the settlement process is not suitable with the current regulations.

According to the Government of Vietnam

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