05 things you should know construction contract in Vietnam

05 things you should know construction contract in Vietnam (Internet image)

1. What is construction contract?

According to Point b, Clause 1, Article 3 of Decree 37/2015/ND-CP,  work construction contract (or construction contract) is a type of contract for the performance of construction of the works, work items or part of construction work by design;

2. Scope of work and workloads of construction contract in Vietnam

Scope of work and workloads of construction contract according to Article 2 of Circular 09/2016/TT-BXD are as follows:

- The scope of work and workload shall be mutually agreed by both parties (the hirer and contractor) and shall be specified in the construction contract. The scope of work shall be defined according to the bidding documents or request for proposals, bid or proposals, minutes of negotiations or relevant legal documents.

A construction contract may include the following tasks, in whole or in part:

+ Transferring, receiving and managing construction sites, construction site boundaries, markers

+ Providing building materials, personnel, and construction vehicles/machines/equipment stipulated in the contract.

+ Constructing the construction works according to the approved design and current construction regulations and standards.

+ Surveying and monitoring at requests of designers; carrying out on-line testing and off-line testing according to the commissioning plan prior to acceptance procedure.

+ Controlling construction quality, installing equipment, supervising sub-contractor performance (if the contractor is prime contractor or EPC contractor).

+ Remedying defects (if any) occurring during the construction

+ Testing quality of building materials and structure

+ Conducting the acceptance by construction stage, part of construction work, acceptance of work items and construction works

+ Performing HSE and fire/explosion prevention;

+ Protecting construction sites within the scope of contract.

+ Ensuring the construction site security

+ Cooperating with other contractors (if any)

+ Clearing the construction site and transferring construction works after the completion.

+ Other tasks as agreed in the contract, documents and provisions of laws.

- Building materials or construction vehicles provided by the hirer shall be specified in the contract, including: weight, quality, date and place of provision.

3. Construction contract duration and schedule in Vietnam

Article 5 of Circular 09/2016/TT-BXD stipulates construction contract duration and schedule as follows:

- The contract duration shall be calculated from the effective date of the contract to the date on which both parties fulfill their contract obligations.

- The contractor shall submit the detailed schedule to the hirer which specify:

+ The order of work, schedule of work, duration of construction of primary work items, work items and the construction works.

+ Date for checking and inspecting the work, work items and construction works;

+ Reports on applicable construction techniques and main construction phases; reports on the number of officers, workers and equipment required for each main construction phase. The contractor shall follow the detailed schedule approved by the hirer.

- The contract schedule shall specify milestones and date of transfer of the primary works.

- both parties shall specify cases which requires to adjust the contract schedule. Any adjustment to the contract schedule that does not make the contract schedule extend (including the acceptable extension time under terms of the contract) shall be agreed by the both parties.

Where the adjustment make the contract schedule last longer, the hirer shall request the person competent to make investment (hereinafter referred to as “investment decision-maker”) to consider deciding, and each party shall define their liabilities for damage due to the delay.

- Both parties should speed up their performance of contracts while still ensuring the construction works quality.

- The contractor shall submit a prediction of potential adverse events that may affect the construction work or may make the contract price increase.

4. Sample of construction contract in Vietnam

Sample of construction contract according to Circular 09/2016/TT-BXD is as follows:

Sample of construction contract

5. Construction contract insurances and warranties in Vietnam

Construction contract insurances and warranties under Article 8 of Circular 09/2016/TT-BXD as follows:

- Insurances

+ Every hirer shall buy the construction works insurance for the project affecting the community safety and environment or those applying sophisticated construction techniques or complicated construction conditions.

Where the insurance premium is included in the contract price, the contractor shall buy the construction works insurance under provisions of laws.

+ The contractor shall buy necessary insurances such as insurances for construction workers, the third party or construction equipment, etc.

- Warranties

+ The contractor shall provide warranties on the construction works and equipment as agreed in the contract. Every agreement on warranty period and warranty claim shall conform to laws on construction.

+ The warranty obligation may be guaranteed by a sum of guarantee or other methods agreed by both parties; however, the guarantee for warranty obligation is strongly recommended;

+ The guarantee shall be returned to the contractor after the warranty period is ended and the warranty obligation is certified “fulfilled” by the hirer;

+ The contractor shall deliver their warranty obligation within 21 days from the date of receipt of notice of defects from the hirer during the warranty period; if the contractor refuses to deliver their obligation, the hirer is entitled to hire other organization or individual to repair and pay them with the guarantee amount;

+ The period of warranty on Class 1 or Special- Class work items or construction works shall be at least 24 months; the period of warranty on the remaining work items or construction works shall be at least 12 months. The period of warranty on housing shall be at least 05 years.

+ The period of warranty on equipment shall be conformable to that in the construction contract but not shorter than the warranty period provided by the manufacturer and shall be calculated from the date of acceptance of equipment installation.

+ The warranty on any work item which contains quality defects or suffers breakdown repaired by the contractor may last longer according to the agreement by both parties prior to the acceptance.

+ The minimum guarantee amount is as follows:

++ For class-1 or special-class construction works : 3% of the contract value;

++ For every construction works other than class-1 or special-class construction works: 5% of the contract value;

+ The contractor shall be entitled to refuse to perform the warranty if the defects or breakdown occurs by the hirer’s fault or force majeure events.

+ After the warranty period, the contractor shall submit a report on fulfillment of warranty obligations to the hirer. The hirer shall issue a Certificate of fulfillment of warranty obligations to the contractor.

Quoc Dat

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