Circular No. 05/2008/TT-BXD dated February 22, 2008 of the Ministry of Construction guiding the adjustment of prices and construction contracts in response to fluctuations in prices of raw materials, fuels and construction materials

CIRCULAR

GUIDING THE ADJUSTMENT OF PRICES AND CONSTRUCTION CONTRACTS IN RESPONSE TO FLUCTUATIONS IN PRICES OF RAW MATERIALS, FUELS AND CONSTRUCTION MATERIALS

Pursuant to the Governments Decree No. 17/2008/ND-CP of February 4, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Construction;

Pursuant to the Governments Decree No. 99/2007/ND-CP of June 13, 2007, on the management of work construction investment expenses; and Decree No. 03/200S/ND-CP of January 7, 2008, amending and supplementing a number of ankles of Decree No. 99/2007/ND-CP;

Based on the Prime Ministers instruction in Document No. 164/lTg-CN of Jamuuy29, 2008, on the adjustment of prices and package contracts;

After consulting the Ministry of Planning and Investment and the Ministry of Finance, the Ministry of Construction guides the adjustment of prices of raw materials, fitels and construction materials (below collectively referred to as construction material prices) and construction contracts in response to price fluctuations beyond the control of investors and contractors as follows:

1. Subjects and scope of application

1.1. The adjustment of construction material prices applies to bidding packages which have been being executed at package contractual prices or fixed unit price-based contractual prices.

1.2. To adjust contractual prices of contracts which have been performed from package contractual prices or fixed unit price-based contractual prices into adjustable price-based contraciual prices in response to fluctuations in construction material prices which are beyond the control of investors and contractors.

2. Adjustment principles

2.1. Construction material prices shall be adjusted for construction and installation volumes performed, from 2007. which are affected by fluctuations.in construction material prices resulting in higher construction costs which are beyond the control of investors and contractors (below referred to as construction and installation volumes affected by price hikes).

2.2. Investors and contractors shall determine construction and installation volumes affected by price hikes and price adjustment levels, and bear responsibility for such determination.

2.3. In adjusting package contractual prices or fixed unit price-based contractual prices into adjustable price-based contract prices, it is necessary to identify the scope, method, bases and time of adjustment, which must only be applied from the time of price fluctuation determined by investors and contractors according to the implementation progress.

2.4. Investors shall report to investment deciders for consideration and decision any adjustment of construction material prices which will result in an excess of the approved total investment capital and affecting the investment efficiency of statecapiml-fundcd projects.

2.5. For construction investment projects executed under the Governments Decree No. 99/2007/ND-CP of June 13, 2007, on the management of construction investment expenses, their construction investment expenses shall be adjusted under the Governments Decree No. 99/2007/ND-CP and guiding documents.

3. Methods of adjusting construction material prices

Construction material prices may be adjusted for each construction contract, each bidding package and the whole project. Additional expenses arising from the adjusmient of construction material prices shall be stated in estimates of additional construction costs to serve as a basis for the adjustment of contractual prices, bidding package prices, cost estimates of works and total invesunent capital.

Based on the terms of each contract, additional construction costs may be estimated using adjustment coefficients of material expenses or to offset direct material expenses. Additional construction costs shall be estimated pursuant to the Appendix to this Circular.

4. Adjustment of construction cost estimates of works after making additional construction costs

4.1. For bidding packages for which contractors have been designated and projects will be self-implemented or contractors have been selected but construction contracts have not yet been signed or are being perfonned (at package contractual prices or fixed unit price-based contractual prices), investors shall estimate additional construction costs under the guidance in Section 3 above for use as a basis for the adjustment of construction cost estimates of works.

4.2. Forbidding packages, work items or works for which contractors have not yet been selected, investors shall adjust their cost estimates according to current regulations.

4.3. The adjusted construction cost estimate of a work shall be determined by adding additional construction cost estimates to the approved construction cost estimate of the work.

5. Adjustment of bidding package prices after making additional construction cost estimates

Investors shall adjust bidding package prices by adding additional construction cost estimates determined under Section 3 to approved successful bids.

For state capital-funded projects, if the adjusted price of a bidding package does not exceed the approved price, the investor may decide to approve that price. If the adjusted price of a bidding package exceeds the approved price but does not result in an excess of the total investment capital, the investor may decide to approve and shall report it to the investment decider. If the adjusted price of a bidding package results in an excess of the approved total investment capital, the investor shall report it to the investment decider for consideration and decision.

6. Adjustment of total investment capital after making additional construction cost estimates

For state capital-funded projects, if the adjustment of construction material prices results in an excess of the approved total investment capital and affects project investment efficiency, the investor shall report it to the investment decider for consideration and decision. Ministers, heads of ministerial-level or government-attached agencies, presidents of provincial-level Peoples Committees, presidents of economic groups, or chairmen of boards of directors of state corporations may decide on the adjustment of the total investment capital of projects in which the investment has been decided by the Prime Minister.

7. Modification of contracts after making additional construction cost estimates

7.1. For signed contracts, based on their terms and additional construction cost estimates, the investor and contractor shall sign additional contractual prices for use as a basis for contract payment.

7.2. For bidding packages for which contractors have been selected but contracts have not yet been signed, the investor shall negotiate and sign a contract on the basis of additional construction cost estimates, the bid invitation dossier and the bid dossier.

7.3. In case of adjustment of package contract prices or fixed unit price-based contractual prices into adjustable price-based contractual prices, the investor shall report to the investment decider (on the scope, method, bases and time of adjustment, etc.) for approval before adjustment. Terms of a construction contract comply with the Construction Ministrys Circular No. 06/2007/TT-BXD of July 25, 2007, guiding construction contracts.

Ministers, heads of ministerial-level or government-attached agencies, presidents of provincial-level Peoples Committees, presidents of economic groups, or chairmen of boards of directors of state corporations shall decide on the modification of contracts for state capital-funded projects for which bidding plans have been approved by the Prime Minister.

8. Organization of implementation

8.1. Investors shall check and certify construction and installation volumes affected by price hikes, calculate, and bear responsibility for the accuracy of, additional construction cost estimates, adjusted cost estimates, bidding package prices and adjusted total investment capital suitable to each fluctuation in construction material prices for use as a basis for the addition of construction costs as a result of fluctuations in construction material prices.

8.2. For construction contracts for which full payment has been made in 2007, construction material prices shall not be adjusted u::der the guidance of this Circular.

8.3. Ministries, ministerial-level agencies, government-attached agencies, provincial/ municipal Peoples Committees, economic groups and state corporation shall direct, guide and inspect investors and contractors in adjusting construction material prices, costs estimates, bidding package prices, total investment capital and contracts in accordance with this Circular; and request investors not to let the adjustment of construction expenses affect the contraction progress and, at the same time, to speed up the progress of construction of works, especially important national ones.

8.4. The adjustment of construction cost estimates.according to new wage levels complies with die guidance of the Construction Ministrys Circular No. 07/2006/TT-BXD of November 10, 2006, and Circular No. 03/2008/TT-BXD of January 25, 2008, guiding the adjustment of construction cost estimates.

8.5. Investors shall report to investment deciders for consideration and decision the transition of constiuction investment projects under Decree No. 99/2007/ND-CP on the management of construction investment expenses (including total investment capital, construction cost estimates, construction norms and prices, construction contracts, and payment and settlement of construction investment capital). Ministers, heads of ministerial-level or government-attached agencies, presidents of provincial-level Peoples Committees, presidents of economic groups, or chairmen of boards of directors of state corporations shall decide on the transition of state capital-funded projects approved by the Prime Minister.

8.6. This Circular takes effect 15 days after its publication in CONG BAO.

Problems arising in the course of implementation should be reported to the Ministry of Construction for synthesis, study and settlement.

APPENDIX

ADDITIONAL CONSTRUCTION COST ESTIMATES BASED ON ADJUSTED CONSTRUCTION MATERIAL PRICES
(Attached to the Construction Ministrys Circular No. 05/2008/TT-BXD of February 22, 2008)

1. Adjustment of material prices by offsetting direct material expenses

VL =

Of which:

Qi is the volume of the ith material in the construction and installation volume affected by price hike.

CLj is the difference between the price of the ith material at the time of adjustment and the construction material price quoted in the contract or bidding package cost estimate.

The construction material price at the time of adjustment shall be that announced by a competent state agency.

In case the construction material price quoted in the contract is lower than that announced by a competent state agency at a point of time, CLj. is the difference between the construction material price announced by a competent state agency at the time of adjustment and the construction material price announced by the competent state agency at that point of time.

In case a competent state agency fails to notify a construction material price in time or announces a construction material price unsuitable to reality or the construction material price is not included in such notification, the investor and contractor shall base themselves on valid documents and invoices to determine the construction material price and bear responsibility for its truthfulness and accuracy.

2. Adjustment of construction material prices based on adjustment coefficients of material expenses

VL = GVL xP x K

Of which:

GVL is the direct material expense in the contract.

P is the proportion of the expense for the material with an increased price to the direct material expense of the contract.

K is the coefficient of increase of the construction material price at the time of adjustment compared to the contractual price of the construction material before it is increased.

3. Other expenses

NC is the labor cost constituting a direct expense of construction and installation volumes with adjusted material prices.

KNCC is the general expense calculated based on the labor cost, for construction and installation work for which the general expense is calculated based on the labor cost.

The proportions of general expense and prepaid taxable income are those set in contracts, bidding packages or cost estimates.

Value-added tax shall be calculated according to state regulations