CIRCULAR

GUIDING THE PROJECTION AND MANAGEMENT OF EXPENSES FOR THE CONSTRUCTION OF INFRASTRUCTURE WORKS UNDER THE PROGRAM ON SOCIO­ECONOMIC DEVELOPMENT IN SPECIALLY DISADVANTAGED COMMUNES IN ETHNIC MINORITY AND MOUNTAINOUS AREAS IN THE 2006-2010 PERIOD

Pursuant to Construction Law No. 16/2003/QH11 of November 26, 2003, of the National Assembly of the Socialist Republic of Vietnam;

Pursuant to the Government's Decree No. 16/2005/ ND-CP of February 7, 2005, on the management of construction investment projects, and documents guiding the implementation of the Decree;

Pursuant to the Prime Minister's Decision No. 07/2006/QD-TTg of January 10, 2006, approving the program on socio-economic development in specially disadvantaged communes in ethnic minority and mountainous areas for the 2006-2010 period;

Pursuant to the Government's Decree No. 36/2003/ND-CP of April 4, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Construction;

After reaching agreement with the Nationalities Committee and consulting concerned ministries and branches, the Ministry of Construction hereby guides the projection and management of expenses for the construction of infrastructure works under the Program on socio-economic development in specially disadvantaged communes in ethnic minority and mountainous areas in the 2006-2010 period as follows:

PART I -

SCOPE OF APPLICATION

This Circular guides the projection and management of expenses for the construction of infrastructure works with capital funded by the Program on socio-economic development in specially disadvantaged communes in ethnic minority and mountainous areas in the 2006-2010 period (hereinafter referred to as Program 135 - second phase for short) and applies to construction projects capitalized at no more than VND 7 billion for which only an economic-technical report is required.

This Circular also applies to projects outside Program 135 which have their capital integrated into Program 135 and accounting for less than 50% of total investment capital for the construction of a single work. For projects with the capital contribution proportion equal to or higher than 50%, the presidents of provincial-level People's Committees shall decide on the application of this Circular thereto.

This Circular does not apply to other construction projects.

PART II

PROJECTION AND MANAGEMENT OF EXPENSES FOR THE CONSTRUCTION OF WORKS

Expenses for the construction of infrastructure works under Program 135 - second phase shall be determined in construction cost estimates of works (which are also total cost estimates or total investment levels) calculated according to construction drawing designs included in the approved economic-technical reports. Construction cost estimates of works shall cover construction expenses, equipment expenses, other expenses and contingency expenses. The projection and management of expenses for the construction of works shall comply with current regulations of the State and the following specific regulations:

1. Construction expenses

In the construction cost estimates of works, construction expenses shall be projected for principal works, auxiliary works, works in service of construction, and make-shift houses. Construction expenses shall be determined by estimation. An estimate of construction expenses shall cover direct expenses, general expenses, pre-determined taxable income and value added tax.

a/ Direct expenses include: expense for materials, labor expense, expense for use of construction machines and other direct expenses.

- Expense for materials: Expense for materials shall be determined on the basis of the work volume projected in the construction drawing design and unit prices of materials needed for the relevant construction job set in the construction unit price of a province and differences in material quantities (if any). Construction materials exploited on the spot such as timber, bamboo, sand, stone, gravel, etc. must satisfy quality requirements and their expenses shall be calculated according to their actual buying prices which are compatible with the prevailing prices of construction materials in localities where works are built or with construction material prices jointly notified by local Finance Services and Construction Services.

- Labor expense: Labor expense shall be determined on the basis of the work volume projected in the construction drawing design and the unit price of labor needed for the relevant construction job set in the construction unit price of a province plus labor expense adjustment (if any). When part or all of construction work is contracted to local people, the expense for the performance of this contractual work shall be agreed upon by the two involved parties in compatibility with the direct labor expense in the estimation of construction expenses.

- Expense for use of construction machines: Expense for use of construction machines shall be determined on the basis of the work volume projected in the construction drawing design and the unit prices of construction machines for the relevant construction job set in the construction unit price of a province plus construction machine expense adjustment (if any). For construction jobs performed manually instead of use of construction machines, the expense for manual labor shall not exceed the expense for use of construction machines projected in the estimate of construction expenses.

- Other direct expenses: These expenses are for water pumping, mud dredging, tests of materials, transport of labor and construction equipment to and within construction sites, and other expenses according to general regulations. Other direct expenses shall be calculated in a block amount equal to 1.5% of the total expenses for materials, labor and use of construction machines.

b/ General expenses: These expenses include expense for production management and direction at construction sites, expense for workers, expense for construction services at construction sites and other expenses. General expenses shall be calculated as a percentage (%) of direct expenses, which varies between different kinds of works as provided for in Appendix I to this Circular. Particularly for work volumes performed by commune communities themselves, general expenses shall be equal to 50% of the levels specified in Appendix I to this Circular.

c/ Pre-determined taxable income shall be calculated as a percentage (%) of the aggregate of direct expenses and general expenses, depending on each kind of work as provided for in Appendix I to this Circular.

d/ Value added tax: This tax on construction jobs shall be calculated according to current regulations.

e/ Expense for building make-shift houses at construction sites shall be calculated as a block amount equal to 2% of the post-tax value of estimated construction expenses. The expense for building make-shift houses at construction sites shall not be allowed for work volumes performed by local people.

Expenses for work volumes performed by local people with materials and supplies exploited on the spot and for work items built with the people's contributions shall be projected in separate cost estimates which shall not include pre-determined taxable income, value added tax and expenses for making make-shift houses. The sheet of estimated construction expenses of works shall be drawn up according to the provisions of Appendix 2 to this Circular.

2. Equipment expenses: Equipment expenses consist of expenses for procurement of equipment and expenses for equipment installation, test and adjustment (if any).

Expenses for procurement of equipment consist of buying prices, expense for transportation of equipment to the construction sites, expense for storage, expense for preservation and maintenance in storehouses and yards at construction sites, taxes and insurance for equipment. Expenses for procurement of equipment shall be determined on the basis of the quantity and category of each kind of equipment or all equipment of a work and the unit price of each kind of equipment or all equipment of a work.

Expenses for equipment installation, test and adjustment (if any) consist of direct expenses (materials, labor, construction machines and other direct charges), general expenses, pre-determined taxable income and value added tax. These expenses shall be presented in a cost estimate like construction expenses.

3. Other expenses

a/ Expenses for making economic-technical reports

Expenses for making an economic-technical report shall be calculated as a percentage (%) of the aggregate of construction expenses and equipment expenses stated in the approved economic-technical report and prescribed for each kind of work as follows:

- For civil works such as village community houses, dispensaries, marketplaces, shops, agricultural extension centers in commune clusters, accommodations and auxiliary structure for semi-boarding pupils, public facilities, health stations, schools and other civil works: 4.07%.

- For power works such as power transmission lines, transformer stations, low-voltage power grids in villages or hamlets and other power works: 4.1%.

- For traffic works: Roads linking hamlets or villages to commune centers, inter-village roads, bridges, sluices and other traffic works: 3.5%.

- For small-sized irrigation works: 3.91%.

- For daily-life water supply works: 3.75%.

- If typical designs or model designs issued by competent agencies are used in economic-technical reports, expenses for making such reports shall be calculated on the basis of the aforesaid rate multiplied by an adjustment coefficient of 0.6.

b/ Fees for appraisal of economic-technical reports and expenses for verification of construction drawing designs and construction cost estimates of works shall be determined as follows:

Fees for appraisal of economic-technical reports shall be determined according to regulations of the Finance Ministry.

For all kinds of works, expenses for verification of construction drawing designs and construction cost estimates included in the economic-technical reports shall be equal to 0.3% of construction expenses (exclusive of value added tax) in the approved expenses for the construction of works, of which expenses for verification of construction cost estimates shall account for 50%.

c/ Expenses for construction survey: Expenses for construction survey, such as those for geological survey drills; earth and rock sampling; measurement and mapping of construction sites shall be determined by estimation on the basis of work volumes and survey unit prices promulgated by provincial-level People's Committees.

d/ Expenses for compensation, ground clearance and resettlement: These expenses shall be determined according to compensation prices promulgated by provincial-level People's Committees.

e/ Expenses for the operation of project management units:

- For district-level project management units: Expenses for their operation shall be equal to 2.7% of the aggregate of construction expenses and equipment expenses stated in the approved economic-technical reports.

- For commune-level project management units: Expenses for their operation shall be equal to 2.2% of the aggregate of construction expenses and equipment expenses of works stated in the approved economic-technical reports.

Expenses arising from the management of the Program and the operation of the Program's local steering committees shall not be included in expenses for the operation of project management units and shall not be accounted as expenses for project execution.

f/ Expenses for selection of construction contractors and equipment supply contractors shall not exceed 0.4% of construction expenses (exclusive of value added tax) in the approved construction cost estimates of works, of which expenses for compilation of bidding dossiers shall account for 40%.

g/ Expenses for construction supervision and equipment installation supervision:

Expenses for hiring construction supervision consultants shall be equal to 2.7% of construction expenses (exclusive of value added tax) in the approved expenses for the construction of works.

Expenses for commune supervisory boards shall be equal to 1% of construction expenses (exclusive of value added tax) included in the approved expenses for the construction of works.

Expenses for equipment installation consultancy and supervision shall be equal to 1% of equipment expenses (exclusive of value added tax) included in the approved expenses for the construction of works.

h/ Expenses for verification and approval of financial settlement statements and expenses for investment capital audit shall be calculated according to regulations of the Finance Ministry.

For other jobs like selection of survey and consultancy contractors; supervision of construction survey; assessment of work quality; conversion of investment capital; formulation of norms and unit prices (if any), investors shall estimate their expenses not exceeding 1.5% of construction expenses, and submit them to investment deciders for consideration and decision.

4. Contingency expenses: In construction cost estimates of works, contingency expenses shall be equal to 5% of the aggregate of construction expenses, equipment expenses and other expenses.

A sheet of general construction cost estimate of works shall be made according to a set form.

PART III -

ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its publication in "CONG BAO" and replaces the Construction Ministry's Circular No. 12/2000/TT-BXD of October 25, 2000, guiding the management of expenses for investment in infrastructure works under Program 135.

In the course of implementation, concerned localities and units are requested to report any inappropriate matters that need to be amended or supplemented to the Ministry of Construction for study and settlement.

APPENDIX 1

NORMS OF GENERAL EXPENSES AND PRE-DETERMINED TAXABLE INCOME
(Issued together with Circular No. 01/2006/TT-BXD of May 17, 2006)

Unit of calculation: %

APPENDIX NO. 2

SHEET OF ESTIMATED CONSTRUCTION EXPENSES OF WORKS
(Issued together with Circular No. 01/2006/TT-BXD of May 17, 2006)

In which:

G: Pre-tax value of estimated construction expenses of principal works, auxiliary works and works in service of construction.

G_XDCPT: Post-tax value of estimated construction expenses of principal works, auxiliary works and works in service of the construction.

T^XD_GTGT: Value added tax rate prescribed for construction jobs.

Note: For works built by local people, expenses for building make-shift houses at construction sites shall not be allowed.-