Types of contracts used in contractor selection in Vietnam under the Law on Bidding 2023

Types of contracts used in contractor selection in Vietnam under the Law on Bidding 2023 (Internet image) 

Regarding this matter, LawNet would like to answer as follows:

1. What is contractor under the law in Vietnam?

Clause 26, Article 4 of the Law on Bidding 2023 regulates contractors as follows:

Contractor means an organization or individual or a group of organizations or individuals coming together under a consortium agreement that acts as a bidder, has their name specified in the letter of bid, and will directly sign and execute the contract, if winning the bid. In case of a consortium, the consortium agreement must clearly state responsibilities of the lead member, joint responsibilities and specific responsibilities of each member of the consortium for the entire scope of the package. During the bidding process, contractors are referred to as “bidders"

2. Types of contracts used in contractor selection in Vietnam under the Law on Bidding 2023

[1] Lump sum contract 

Clause 1, Article 64 of the Law on Bidding 2023 regulates lump sum contract as follows: 

- Lump sum contracts are used for packages where the scope of tasks, technical requirements and the package execution duration are well defined at the time of contractor selection and changes in quantity or technical requirements or encountering unforeseen conditions is unlikely; or for packages where the quantity and unit price cannot be defined but the contracting parties’ ability to manage risks and substantial variations or the physical and qualitative characteristics of output products are well defined, including EPC contracts and turnkey contracts;

- In case of a lump sum contract, the package price which is used as the basis for bid evaluation and contract award shall include contingencies determined for risks associated with quantities and price escalation which may occur during the contract execution in proportion to the risk management liability to be undertaken by the contractor. The bid price should include all contingencies determined for risks associated with quantities and price escalation which may occur during the contract execution in proportion to the contractor’s liability for the package;

- The contract price is unchanged throughout the contract duration in respect of the scope of tasks, technical requirements and terms and conditions specified in the contract, except force majeure events or changes in the scope of tasks resulting in change in the contract price;

- The payment shall be made according to the percentage of the contract price or the price of works, work item or quantity of tasks in proportion to the agreed-upon payment schedule specified in the contract. The payment is made without requiring certification of completed quantities.

[2] Fixed unit price contract:

- Fixed unit price contracts are used for packages where the physical characteristics are well defined at the time of contractor selection but the exact quantity or volume of tasks to be actually completed by the contractor cannot be determined. The contract price shall initially be determined on the basis of quantity or volume of tasks and fixed unit price specified in the contract and contingencies for additional tasks determined in accordance with regulations of law;

- Unit prices specified in the fixed unit price contract shall remain unchanged throughout the performance of entire tasks specified in the contract. Payment shall be made according to the quantity or volume of tasks completed and accepted, and the fixed unit prices specified in the contract.

(According to Clause 2, Article 64 of the Law on Bidding 2023)

[3] Adjustable unit price contract:

- Adjustable unit price contracts are used for packages with long execution duration where input price fluctuations may occur during the contract execution and the application of fixed unit prices may negatively affect the package execution. Unit prices and the contract price of an adjustable unit price contract may be adjusted according to specified agreements specified in the contract in respect of any tasks of the contract. The contract price shall initially be determined on the basis of quantity or volume of primary tasks and base unit price specified in the contract and contingencies for additional tasks and price escalation. Methods for calculation of price escalation and contingencies for price escalation must be specified in the contract;

- Payment shall be made according to the quantity or volume of tasks completed and accepted, and the unit prices specified in the contract or adjusted unit prices (if any).

(According to Clause 3, Article 64 of the Law on Bidding 2023)

[4] Time-based contract:

Clause 4, Article 64 of the Law on Bidding 2023 stipulates time-based contract as follows:

Time-based contracts may be used for emergency situations; repair or maintenance of works, machinery and equipment; or supply of consulting services when it is difficult to define the scope and length of services. The contract price is based on the unit price per amount of time, agreed hourly, daily, weekly or monthly salary rates specified in the contract and reasonable reimbursable expenses.

[5] Cost plus fee contract:

Cost plus fee contracts are used for tasks or services when the scope of tasks or input factors or costs necessary for performing estimated tasks of the contract cannot be properly defined at the time of contractor selection. At the time of signing contract, the parties shall reach specific agreements on administrative and overhead expenses, profits, direct costs-based calculation method; method for determining direct costs, and other contents necessary for executing the contract.

(According to Clause 5, Article 64 of the Law on Bidding 2023)

[6] Performance-based contract:

Performance-based contracts are used for tasks or services for which the payment is based on the contract execution outcomes with accepted quality and quantity, and other factors. The contract must clearly indicate the quantity and quality of outputs, methods for inspecting, evaluating and measuring the achievement of output quality standards, reduction of payments, price adjustment provisions (if any) and other contents necessary for executing the contract.

(According to Clause 6, Article 64 of the Law on Bidding 2023)

[7] Percentage-based contract:

Percentage-based contracts are used for construction insurance service packages where the contract price is exactly determined on the basis of the value of works actually accepted.

(According to Clause 7, Article 64 of the Law on Bidding 2023)

[8] Mixed contract

Pursuant to Clause 8, Article 64 of the Law on Bidding 2023:

A mixed contract means a contract whose scope comprises different types of contract specified in Clauses 1 through 7 of this Article. The mixed contract must clearly define the scope of tasks to be performed under each type of contract and relevant modifications made when different types of contract are applied to the same task or service. Provisions on payment for each type of contract shall apply to payment for the scope of tasks of the mixed contract.

Duong Thi Hoai Nhi

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