Cases of termination of a PPP project contract before its expiry in Vietnam

Cases of termination of a PPP project contract before its expiry in Vietnam (Internet image)

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

1. What is a PPP project contract?

PPP project contract means a written agreement between a contracting authority and a PPP project investor or enterprise on the State's concession to that investor or PPP project enterprise to execute a PPP project according to provisions of the Law on Public – Private Partnership Investment 2020, including the following types of contracts:

- Build – Operate – Transfer contract (hereinafter referred to as BOT contract);

- Build - Transfer - Operate contract (hereinafter referred to as BTO contract);

- Build - Own - Operate contract (hereinafter referred to as BOO contract);

- Operate - Manage contract (hereinafter referred to as O&M contract);

- Build - Transfer - Lease contract (hereinafter referred to as BTL contract);

- Build - Lease - Transfer contract (hereinafter referred to as BLT contract);

- Mixed contract prescribed in Clause 3 of Article 45 of the Law on Public – Private Partnership Investment 2020.

(Clause 16, Article 3 of the Law on Public – Private Partnership Investment 2020)

2. Cases of termination of a PPP project contract before its expiry in Vietnam

According to Clause 2, Article 52 of the Law on Public – Private Partnership Investment 2020, the termination of a PPP project contract before its expiry (briefly called early termination) only occurs in the following cases:

- If the project is affected by a force majeure event, despite all remedial actions taken by parties, the continued execution of the PPP contract will not be ensured;

- Early termination occurs to gain the state interests; meet the requirements concerning national defence, security and state secrets;

- The PPP project enterprise loses its solvency in accordance with the law on bankruptcy

- Either party seriously defaults on contractual obligations;

- Other cases appear due to substantial changes in circumstances in accordance with civil law to the extent that the contracting parties agree to terminate the contract.

3. Procedures for premature termination of PPP project contract in Vietnam

Procedures for premature termination of PPP project contract in Vietnam are specified in Clause 1, Article 81 of Decree 35/2021/ND-CP, specifically as follows:

- A party to the contract submits a written request for premature termination of the PPP project contract which must specify the reasons for premature termination;

- The parties reach an agreement the conditions for premature termination of the PPP project contract;

- The parties complete the procedures for contract finalization as prescribed in Article 68 of PPP Law.

Article 68. Discharge of PPP contracts

1. PPP contracts shall be discharged as follows:

a) In case where the contracting parties have already fulfilled their contractual obligations, the contracting parties shall certify the fulfillment and termination of their rights and obligations;

b) In case where a contract is terminated before expiry as specified in Clause 2 of Article 52 of this Law, the contracting parties shall certify the completed obligations and the parties' liabilities for the unfinished work.

2. The time limit for discharge of a PPP contract shall be agreed upon by the contracting parties, but not exceeding 180 days from the date on which the contracting parties fulfill their contractual obligations or the date on which the parties agree to terminate the contract before its expiry.

3. In case where costs have incurred when the contract is discharged as prescribed in Clause 1 of this Article, the discharge of the contract must include the determination of the obligations of the contracting authority and the PPP project enterprise to the costs incurred.

4. Guidance on handling costs of settlement in case of premature termination of contract in Vietnam

Costs of settlement in case of premature termination of contract  shall comply with the provisions of Article 82 of Decree 35/2021/ND-CP, specifically as follows:

- The PPP project contract shall specify the formula or method for calculation of costs of settlement in case of premature termination of the contract as prescribed in Clause 2 Article 52 of PPP Law.

- In case of the contract is prematurely terminated because the contract-signing authority seriously violates the obligations to execute the contract, compensations shall be paid to the investor and the PPP project enterprise as follows:

+ Establishment of the project funded by public investment capital. Procedures for approving the decision on investment guidelines and investment decision shall comply with the Law on Public Investment;

+ Use of backup public investment capital;

+ Other lawful sources of financing.

- The procedures and funding for purchase of the PPP project enterprise shall comply with regulations of law on management and use of state capital for business operation of enterprises.

- After the parties reach an agreement on the conditions for premature termination of the project contract, the contract-signing authority shall request the competent authority to consider deciding the cases in which the settlement costs have to be paid; method, values and sources of payment to the investor and the project management enterprise if that is the liability of the State.

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