Circular No. 06/2007/TT-BXD dated July 25, 2007 of the Ministry of Construction providing guidance on contracts in construction activities

CIRCULAR

PROVIDING GUIDANCE ON CONTRACTS IN CONSTRUCTION ACTIVITIES

Pursuant to the Government’s Decree 36/2003/ND-CP of April 4, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Construction;

Pursuant to the Government’s Decree 99/2007/ND-CP of June 13, 2007, on the management of works construction investment expenses;

The Ministry of Construction provides specific guidance on contracts in construction activities as follows:

Part I

GENERAL PROVISIONS

1. Contracts in construction activities

1.1. A contract in construction activities is a civil contract. A contract in construction activities (below referred to as construction contract for short) is a written agreement between the principal and the contractor on the establishment, change or termination of their rights or obligations for the performance of one, several or all jobs in construction activities. A construction contract is a document legally binding on the contracting parties regarding their rights and obligations; disputes between the contracting parties shall be settled based on the legally effective signed contract; disputes not yet mentioned in the contract shall be settled in accordance with relevant laws.

1.2. The principal is the investor, general contractor or principal contractor.

1.3. The contractor is the general contractor or principal contractor, in case the principal is the investor, or the subcontractor, in case the principal is the general contractor or principal contractor.

2. Scope and subjects of application

2.1. Scope of application

Construction jobs, bidding packages under works construction investment projects funded with state capital, including state budget capital (including official development assistance - ODA), state-guaranteed credit capital, state development investment credit capital, and state investment capital of other sources.

For Build-Operate-Transfer (BOT) construction contracts, Build-Transfer-Operate (BTO) contracts or Build-Transfer (BT) contracts, in the course of investing in the construction of works, project investors shall, depending on their contributed capital amounts, study and apply the guidance in this Circular.

For contracts on execution of ODA-funded projects, if a treaty signed by competent agencies or organizations of the Socialist Republic of Vietnam contains provisions different from those of this Circular, the provisions of that treaty prevail.

2.2. Subjects of application

This Circular applies to principals and contractors that are domestic and foreign organizations and individuals with adequate operation and practice capacity when signing contracts for carrying out construction activities in Vietnam.

Organizations and individuals involved in construction contracts under works construction investment projects funded with capital of other sources are encouraged to apply the provisions of this Circular.

3. Principles of signing a construction contract

3.1. A contract shall be signed on the principles of voluntariness, equality, good will, cooperation, honesty and observance of law and social ethics. All agreements must be expressed in a contract.

3.2. A construction contract shall be signed only after the principal has selected the contractor according to regulations and the contracting parties have finished the contract negotiation process.

3.3. Depending on the complexity of a contract, the contracting parties may apply the provisions of this Circular to contract drafting, negotiation and signing. For a contract involving simple and small-scale jobs or bidding packages, the parties may state all relevant contents in the contract. For contracts involving bidding packages under complex and large-scale projects, the contractual terms may be separated into general and specific conditions.

General conditions of a contract are documents expressing basic rights and obligations of and relations between the contracting parties.

Specific conditions of a contract are documents specifying or supplementing a number of contents of the contract’s general conditions.

3.4. The contract price (contract signing price) must neither exceed the winning bid (in case of bidding) nor the approved cost estimate of the bidding package (in case of contractor designation), except for the volume arising outside the bidding package approved by a competent authority.

3.5. The investor or investor’s representative may sign contracts with one or many principal contractors for performance of jobs. When an investor signs contracts with many principal contractors, the contents of these contracts must ensure the unified and coordinated performance of contractual jobs in order to assure the progress and quality of projects.

3.6. The principal contractor may sign contracts with one or several subcontractors provided that those subcontractors must be approved by the investor and the subcontractors must be consistent with the contract signed by the principal contractor and the investor. The principal contractor is answerable to the investor for the progress and quality of the signed jobs, including those performed by subcontractors.

3.7. In case of partnership contractors, the partners must make a partnership agreement bearing the signatures of all of them; if the partners agree to authorize a contractor who is the head of the partnership to sign a contract directly with the principal, that contractor shall sign the contract with the principal.

3.8. The principal and the contractor may appoint their representatives to negotiate, sign and perform a contract:

- The parties’ representatives to negotiate a contract must have full power to make decisions and bear responsibility for their decisions throughout the course of contract negotiation. Any contents which are subject to approval of competent authorities must be stated in the contract negotiation record.

- The parties’ representatives to sign and perform a contract must have full power to make decisions and bear responsibility for their decisions throughout the course of contract performance. Any contents which are subject to approval of competent authorities must be stated in the contract.

4. Types of construction contract

Depending on the size, nature and conditions of investment projects on the construction of works, kinds of jobs and relations between parties, a construction contract may be of different types with different contents.

4.1. Construction consultancy contract

Construction consultancy contract is a construction contract for the performance of one, several or all consultancy jobs in construction activities, such as formulation of a construction planning; formulation of a works construction investment project; construction survey; construction engineering; selection of contractors; construction supervision; management of investment projects on the construction of works; verification of designs, total cost estimates and cost estimates; and other consultancy activities related to works construction.

Consultancy contract for the performance of all jobs of construction engineering under a project is a general engineering contract.

4.2. Contract on supply of construction supplies and equipment

Contract on supply of construction supplies and equipment is a construction contract for the supply of supplies and equipment included in a technological chain installed to a construction work according to the technological design for an investment project on work construction.

4.3. Construction contract

Construction contract is a contract on the construction of a work, work item or construction job according to the work construction design.

Construction contract for the performance of all jobs of construction of a work under a project is a general contract for work construction.

Contract for the performance of all jobs of engineering and construction of a work under a project is a general contract for work engineering and construction.

4.4. Engineering, procurement and construction contract (EPC contract)

EPC contract is a construction contract for the performance of all jobs, including engineering, procurement of supplies and equipment, and construction of a work or work item.

4.5. Turnkey contract

Turnkey contract is a construction contract for the package performance of all jobs of project formulation, engineering, procurement of supplies and equipment, and work construction.

5. Management of contract performance

The principal and the contractor shall, within the ambit of their rights and obligations, work out implementation plans and measures compliant with the contents of the signed contract in order to realize the agreements reached in the contract. Contents of management of the contracting parties’ contract performance include management of the quality and progress of jobs; contract volumes and prices; management of labor safety, environmental sanitation, fire and explosion prevention and combat; management of contract change and modification; and other contents stated in the construction contract, for the attainment of the signed contract’s objectives.

The supervision of contract performance complies with Clause 1, Article 59 of the Bidding Law.

Part II

DOSSIERS AND CONTENTS OF A CONSTRUCTION CONTRACT

1. Dossiers of a construction contract

A construction contract dossier comprises a construction contract, attached documents and documents added in the course of contract performance (below referred to as documents attached to a contract).

Documents attached to a contract constitute an integral part of a construction contract. Depending on the size and nature of jobs, documents attached to a contract may be all or some of the following:

1.1. Contract-winning notice or contractor designation document;

1.2. Contractual conditions (general and specific conditions);

1.3. The contractor’s proposal;

1.4. Technical instructions and reference conditions;

1.5. Blueprints;

1.6. Written amendments or supplements, contract negotiation record;

1.7. Contract performance guarantee, advance payment guarantee, and other forms of guarantee, if any;

1.8. Other relevant documents.

Depending on each specific contract, the contracting parties shall reach agreement on the order of priority in the application of contractual documents if those documents contain contradictory provisions.

2. Contents of a construction contract

Depending on the size, characteristics and nature of each specific work, bidding package and job and the type of construction contract, a construction contract may contain all or some of the following principal contents: information on the contract and contracting parties; definitions and explanations; applicable laws and used languages; payment currencies; job volumes; contract price; advances; contract payment; contract price adjustment; job performance schedule and completion deadline; contract performance guarantee; general rights and obligations of the contractor; general rights and obligations of the principal; subcontractor/s (if any) designated by the investor; quality management of construction works; take-over test of completed jobs; work insurance and warranty, environmental protection, labor safety and fire and explosion prevention and combat; electricity, water and security for the construction site; responsibilities for errors; suspension and termination of the contract by the principal and the contractor; risks and responsibilities; force majeure circumstances; bonus; fine for contract breach; settlement of disputes over the contract; contract finalization; and contract liquidation.

2.1. Information on the contract and contracting parties

A contract must fully contain general information on the contract and information on the contracting parties.

2.1.1. General information on a contract covers the serial number of the contract; the name of the bidding package; the name of the project and bases for signing the contract;

2.1.2. Information on the contracting parties covers transaction names of the contracting parties; representatives of the parties; business registration addresses or transaction addresses; tax identification numbers, business registration certificates, account numbers; telephone and fax numbers, and email addresses; paper of authorization (in case the contract is signed under authorization); the time of signing the contract; and other relevant information.

2.2. Definitions and explanations

Some terms must be defined in order to prevent misunderstanding and facilitate the elaboration, negotiation and performance of a contract. Those terms may include: contract; contract agreement; letter of approval; letter of bidding participation; technical characteristic, standards and explanations; blueprint; bid dossier; bid dossier annex; list of anticipated workdays (if any); party and parties; investor; contractor; consultant; investor’s representative; contractor’s representative; subcontractor, etc.

If a term has a different meaning when it is used in an article, a clause or a specific context, this meaning must be explained in such article, clause or context.

2.3. Applicable laws and used languages

2.3.1. Applicable laws: A contract is governed by the legal system of the Socialist Republic of Vietnam. ODA-funded projects comply with Point 2.1, Part I of this Circular.

2.3.2. Language used in a contract is Vietnamese. When a contract involves foreign party(ies), Vietnamese and English shall be used.

2.4. Payment currencies

Payment currencies must be clearly stated in a contract. Different payment currencies may be used under a contract on the principle that payment shall be made in the currency used for bids in compliance with the bid invitation dossier or requirement dossier. Payment may be made by account transfer, in cash, account transfer telegram, etc., which, however, must be specified in the contract.

2.5. Job volumes

A contract must specify the volumes and scopes of jobs to be performed. Job volumes and scopes shall be determined based on the requirement dossier of the investor (the principal) or the bid invitation dossier and the record clearly describing the requirements of the investor (the principal, if any), or relevant records of negotiation between the parties.

2.6. Construction contract price

Contract price is a sum of money which the principal commits to pay to the contractor for the performance of the job volume according to quality, progress and other requirements stated in the contract.

In a contract, the parties shall specify the contract price contents, including taxes, charges and the parties’ responsibilities to pay relevant taxes and charges.

Based on the bid invitation dossier, bidding participation dossier and contract negotiations results, the parties shall determine the contract price. A contract price may take one of the following forms:

2.6.1. Package contract price (package and pro rata prices stipulated in the Bidding Law) is the price of a construction contract which remains unchanged throughout the course of contract performance with regard to jobs under the signed contract, except for cases of adjustment specified in the contract (if any).

The package contract price applies to works or bidding packages for which the volume, quality and implementation duration have been identified, or, in some cases, for which the volume cannot be identified yet but the contractor has adequate capacity, experience and documents for the calculation and determination of the package price and accepts to take risks related to the price determination.

Construction contracts of all types may use a package contract price if the contract price can be determined before the contract is signed, even when the contract price is determined as a percentage (%) of the work value or the volume of a regular consultancy job.

2.6.2. Contract price based on fixed unit price (unit price- and time-based prices stipulated in the Bidding Law) is a construction contract price determined on the basis of the temporarily calculated job volume and the unit price of each job under the contract which are fixed and kept unchanged throughout the course of contract performance, except for cases of adjustment specified in the contract (if any).

The contract price based on fixed unit price applies to works or bidding packages the volume of which cannot be accurately determined but the unit prices for job performance can be determined and the contractor has adequate capacity, experience and documents for the calculation and determination of fixed unit prices for work construction and risks related to the unit price determination. Those fixed unit prices are kept unchanged throughout the course of contract performance, except for cases of adjustment specified in the contract.

Fixed unit prices may be full unit prices, for construction jobs, or time-based labor unit prices (monthly, weekly, daily or hourly), for several consultancy jobs.

2.6.3. Contract price based on adjustable price is the price of a construction contract under which the volume and unit price of a job under the contract may be adjusted in the cases specified in the contract.

Contract price based on adjustable price applies to works or bidding packages for which, at the time of signing a construction contract, there are insufficient conditions for accurately determining the to-be-performed volume or there are insufficient expense factors for determining unit prices for job performance.

Contract price based on adjustable price (at the time of contract signing, the contract price is temporarily calculated) shall be adjusted when the volumes and unit prices can be determined according to the contractual terms.

2.6.4. Combined contract price is a contract price determined in the forms specified at Points 2.6.1, 2.6.2 and 2.6.3 above.

Combined contract price applies to large-scale and long-term works or bidding packages with complicated technical requirements. The principal and the contractor shall, based on the types of job under the contract, agree on, and determine in an appropriate manner the types of job subject to the application of the package contract price, contract price based on fixed unit price or contract price based on adjustable price.

2.7. Construction contract advance

Contract advance is a sum of money the principal advances to the contractor for the performance of jobs under a contract.

The advance of investment capital for works construction must be stated in the construction contract and made right after the contract comes into force and after the principal has received the contract performance guarantee (for cases requiring contract performance guarantee under Point 2.11). A construction contract must specify the advance level, the advance time, the number of advances, and the advance recovery. The advance levels are specified as follows:

- For consultancy contracts, the minimum advance is equal to 25% of the contract price;

- For construction contracts, the minimum advance is equal to 10% of the contract price, for contracts valued at over VND 50 billion each; 15%, for contracts valued at between VND 10 billion and 50 billion each; or 20%, for contracts valued at under VND 10 billion each;

- For contracts on supply of supplies and equipment, the advance depends on the contract value, which, however, must not be lower than 10% of the contract price;

- For EPC contracts, the advance for equipment procurement is based on the supply progress stated in the contract; for other jobs such as engineering or construction, the minimum advance is equal to 15% of the value of that job under the contract.

- For ground clearance, the advance is based on ground clearance plans;

The advanced amount is gradually recovered upon each payment; the recovery of the advanced amount starts right upon the first payment and finishes when the paid amount reaches 80% of the contract value. For ground clearance jobs, the advanced amount is fully recovered upon completion of ground clearance jobs.

The principal and the contractor shall reach agreement on plans to pay and recover advances for manufacturing high-value components and semi-finished products first for construction activities or procuring supplies for seasonal reserve.

Depending on the size and nature of contractual jobs, the contractor may suggest advance levels lower than the above levels.

2.8. Construction contract payment

2.8.1. Contract payment must be based on the type and price of, and conditions under, the contract signed by the contracting parties. The number of payments, payment periods, payment time and payment conditions must be clearly specified in the contract.

2.8.2. Contract payment in case of package contract price: Payment shall be made according to percentage (%) of the price of the contract, work, work item, or job volume completed corresponding to payment periods specified in the contract after the payment dossiers are examined and certified by the principal. The contractor will be paid the whole price of the contract signed with the principal and adjustable price-based money amounts (if any) after completing the contract and the completed contractual jobs are taken over.

2.8.3. Contract payment in case of contract price based on fixed unit price: Payment shall be made based on completed job volumes (including arising volumes, if any) tested and taken over in the payment period and on unit prices corresponding to such jobs stated in the contract or the contract annex.

2.8.4. Contract payment in case of contract price based on adjustable price: Payment shall be made based on completed job volumes (including arising volumes, if any) tested and taken over in the payment period and on the adjusted unit prices according to the contractual terms. If, at the payment time, the unit prices cannot yet be adjusted, the unit prices temporarily calculated at the time of signing the contract shall be used for temporary payment and the payment value shall be adjusted when the adjusted unit prices are available according to the contractual terms.

2.8.5. Contract payment in case of combined contract price: Payment shall be made in compliance with Points 2.8.2, 2.8.3 and 2.8.4 above.

2.8.6. Depending on the size and nature of bidding packages, works or work items, and the contract type and price, the parties may agree to make payment in a lump-sum or payment in installments. In case of payment in installments, the contract must specify the payment schedule (based on time, percentage (%) or completed job volume) and payment level at each payment time (payment deadlines). Installments must be paid according to this payment schedule; if the actual job performance progress is slower than the payment progress, the principal may agree with, or determine the adjusted payment levels, taking into consideration the scope and extent of such delayed performance.

2.8.7. Dossiers of construction contract payment

The order, procedures, documents and certifications necessary in payment dossiers (including forms) must be clearly stated in the contract. Payment dossiers shall be compiled by the contractor according to the forms stated in the contract. A payment dossier comprises the following principal documents:

- Payment dossier in case of package contract price:

+ Take-over test record (quality and volume test record): In each payment period, there may be one or several kinds of records for take-over of completed works, work items or job volumes, with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor; certification of detailed completed volumes is not required. Dossier of completion of jobs tested for take-over in the payment period (if any);

+ Table for determination of the value of completed job volumes under the contract (Appendix 2, not printed herein);

+ Table for determination of the value of volumes arising outside the contract, with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor (Appendix 4, not printed herein);

+ Table for calculation of the value requested to be paid (Appendix 1, not printed herein), with the following items: value of completed volumes under the contract, value of job volumes arising outside the contract (if any), advance amount, and remaining payment value after the above amounts are subtracted.

- Payment dossier in case of contract price based on fixed unit price:

+ Dossier of completion of jobs tested for take-over in the payment period; record of take-over test of completed job volumes (quality and volume test record) corresponding to jobs under the signed contract in the payment period, with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor;

+ Table for determination of the value of completed volumes under the contract (Appendix 2, not printed herein);

+ Table for determination of the value of volumes arising outside the contract (Appendix 4, not printed herein);

+ Table for determination of adjusted unit prices under the contractual terms (if any) (Appendix 3, not printed herein), with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor;

+ Table for calculation of the value requested to be paid (Appendix 1, not printed herein), with the following items: value of completed volumes under the contract, value of job volumes arising outside the contract (if any), advance amount, and remaining payment value after the above amounts are subtracted.

- Payment dossier in case of contract price based in adjustable price:

+ Dossier of completion of jobs tested for take-over in the payment period; record of take-over test of completed job volumes (quality and volume test record) corresponding to jobs under the signed contract in the payment period, with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor;

+ Table for determination of adjusted unit prices under the contractual terms (Appendix 3, not printed herein), with the certification of a representative of the principal or the consultant (if any) and a representative of the contractor;

+ Table for determination of the value of completed volumes under the contract (Appendix 2, not printed herein);

+ Table for calculation of the value requested to be paid (Appendix 1, not printed herein), with the following items: value of completed volumes under the contract, advance amount, and remaining payment value after the above amounts are subtracted.

- In case of combined contract price, a payment dossier shall be compiled according to relevant regulations on payment dossiers applicable to each kind of contract price mentioned above.

2.8.8. Payment time limit

The parties shall state in the contract the time limit within which the principal must make payment to the contractor after receiving a complete and valid payment dossier according to the contractual terms, which, however, must not exceed 10 working days.

For construction works funded with state budget capital, within three working days after receiving a complete and valid payment request dossier from the contractor, the investor shall carry out procedures and transfer the payment request to the capital-allocating or -lending body. In the year when construction finishes or the work is put to use, the investor shall make payment to the contractor for the value of completed jobs, excluding the amount retained for work warranty according to regulations.

2.8.9. Delayed payment

The parties shall clearly state in the contract financial compensations for late-paid amounts according to the extent of delay; compensation levels may vary, but the first-time compensation must not be lower than the amount calculated at interest rate set by a commercial bank in each period.

2.8.10. Payment of retained money amounts

The parties shall state in the contract the payment of retained money amounts when the contractor has fulfilled his/her/its obligations defined in the contract, such as the remaining money amounts of previous temporary payments or any amounts which the principal has not yet paid to the contractor, including the amount for work warranty (if any).

2.9. Adjustment of construction contract price

2.9.1. The contract price adjustment must be stated in the contract and compliant with the bid invitation dossier, bidding participation dossier and contract negotiation results. The parties shall clearly state in the dossier cases eligible for contract modification, and methods, modes and scopes of adjustment of the contract price.

2.9.2. The contract price may be adjusted in one of the following cases:

- Addition of jobs not covered by the signed contract;

- At the time of contract signing, temporarily calculated unit prices were used for jobs or job volumes for which the principal and the contractor could not yet accurately determine unit prices and agreed to adjust them when conditions permit;

- When the arising volume is 20% larger than the corresponding job volume to be performed by the contractor under the contract, unit prices shall be considered and adjusted for such arising volume;

- There are some unit prices which the principal and the contractor agree to consider and adjust after a certain period of time from the starting date of contract performance;

- When prices of fuel, supplies or equipment specified in the contract see great fluctuations, directly affecting the contract performance, or when the State amends relevant policies, price adjustment must be reported to a competent authority for consideration and decision;

- Force majeure circumstances specified in the contract;

- To-be-inflated amounts specified in the contract. Bases for inflation calculation are determined 28 days before the date the contractor submits the payment dossier;

2.9.3. Methods of contract price adjustment

In case of adjustment of the contract price, the to-be-paid job volumes are determined on the basis of completed job volumes already tested; unit prices used for making payment for jobs are determined under the contractual terms applicable to the re-determination or adjustment of unit prices in the contract according to the adjustment co-efficient. One or all of the following methods may be used for adjusting the contract price:

- Use of construction price indicators publicized by the Ministry of Construction, consultancy organizations or the General Statistics Office;

- Direct clearing;

- Formula for determination of the adjustment co-efficient (Appendix 5, not printed herein).

2.10. Implementation schedule and job completion deadline

2.10.1. The parties shall specify in the contract the points of time for starting and finishing the contract.

2.10.2. The contractor shall work out a detailed schedule and submit it to the principal for approval, serving as a basis for contract performance.

2.10.3. The contracting parties shall anticipate and plan measures to deal with situations which may prolong the job performance duration and may not arbitrarily prolong this duration for other reasons.

2.10.4. The parties shall agree in detail the extent of damage and ways of dealing with damage caused by the parties’ delayed performance.

2.11. Construction contract performance guarantee

2.11.1. Construction contract performance guarantee means that the contractor takes one of the measures of deposit, collateral, or submission of letter of underwriting in order to guarantee the successful bidder’s responsibility to perform the construction contract in a given period of time as required in the bid invitation dossier.

2.11.2. The contractor shall take a measure to guarantee the performance of a construction contract before the contract comes into force, except for bidding for the provision of consultancy services and self-performance of contracts.

2.11.3. The value of contract performance guarantee is specified in the bid invitation dossier and does not exceed 10% of the contract price; in order to prevent high risks, this value may be higher but must not exceed 30% of the contract price and must be approved by a competent authority.

2.11.4. The validity duration of construction contract performance guarantee shall last till the time of performance of the warranty obligation, if any.

2.11.5. The contractor may not reclaim the guarantee for construction contract performance in case he/she/it refuses to perform the contract after it comes into force.

2.12. General rights and obligations of the contractor

Depending on the size and nature of jobs, the parties shall specify in the contract general responsibilities of the contractor, such as:

2.12.1. Representative of the contractor

The contractor may designate his/her/its representative and authorize the representative to perform certain tasks, which must be specified in the contract.

If the contractor’s representative is not specified in the contract, before the date of construction commencement, the contractor shall submit to the principal the name and details of the representative and his/her/its powers and responsibilities for consideration and approval. Without prior approval of the principal, the contractor may not dismiss his/her/its representative or appoint another replacement.

2.12.2. Key personnel of the contractor

The contract must describe in detail issues related to key personnel of the contractor, specifically:

- The contractor’s key personnel at the construction site and the office;

- Report on the contractor’s key personnel and equipment;

- The principal’s supervision of the contractor’s key personnel.

2.12.3. The contract must also specify general rights and obligations of the contractor with respect to:

- Subcontractors (if any);

- The transfer of benefits of a subcontract;

- The parties’ cooperation in contract performance;

- Placement of land markers;

- Safety regulations;

- Data (conditions) on the construction site;

- Rights to roads and vehicles;

- Responsibilities for existing construction works and inhabitants;

- Roads leading to the construction site;

- Goods transportation;

- The contractor’s main equipment;

- Equipment and materials supplied by the principal;

- Progress report;

- Supply and use of documents;

- Delayed drawings or instructions;

- The contractor’s use of the principal’s documents;

- Secret details;

- Joint responsibilities and multiple responsibilities;

- Removal of the contractor’s employees out of the construction site after the work is tested;

- Other relevant issues (antiques, etc.).

2.13. General rights and obligations of the principal

The contract must specify general rights and obligations of the principal with respect to:

2.13.1. The principal’s key personnel;

2.13.2. The principal’s responsibility to make financial arrangements;

2.13.3. The principal’s use of the contractor’s documents;

2.13.4. The principal’s complaints.

If the principal hires qualified organizations or individuals to provide consultancy services to ensure the proper performance of jobs, the contract must specify issues related to consultants, such as:

- Consultants’ tasks and powers;

- Consultants’ authorization;

- Consultants’ instructions;

- Replacement of consultants;

- Consultants’ decision.

2.14. Subcontractors (if any) designated by the investor

The contracting parties may agree to employ subcontractors designated by the investor to perform certain jobs in order to attain the ultimate goal of the jobs, but such employment must be approved by the principal contractor. Then, the contract must specify issues related to designated subcontractors, such as:

2.14.1. Definition of designated subcontractor;

2.14.2. The principal contractor’s right to deny the designated subcontractor(s);

2.14.3. Payment to the designated subcontractor(s).

2.15. Quality management of construction works

Quality management of works must comply with state regulations on quality management of construction works. A contract must state in detail the quality management of works, including quality management by the contractor; quality management by the investor (the principal) and the consultant (including construction survey consultant, engineering consultant, supervision consultant and other related consultants).

2.16. Take-over test of completed jobs

The contract must specify the parties’ responsibilities and obligations or take-over test of all jobs, each job and jobs which need be tested before other jobs are performed, covering:

- Contents of to-be-tested jobs (test of part or the whole of a job);

- Testors, persons signing test records;

- Form of the test record, for each tested job, including assessment of tested jobs;

- Jobs which need be measured for payment purposes, methods of measurement;

2.17. Work insurance and warranty

2.17.1. The contract must specify the parties’ responsibilities for insurance, covering the following contents: insured objects, insurance sums and insurance duration.

2.17.2. The principal shall buy insurance for construction works and assets under his/her/its ownership. If this insurance premium has been included in the successful bid, the contractor shall buy insurance.

2.17.3. The contractor shall buy necessary insurance for its activities in accordance with law.

2.17.4. The principal and the contractor shall reach agreement and state in the contract warranty conditions, warranty duration and the parties’ warranty responsibilities for construction works. Work warranty contents comply with regulations on quality management of construction works.

2.18. Environmental protection, labor safety, fire and explosion prevention and combat

The parties shall state in the contract each party’s duties, responsibilities and obligations regarding environmental protection, labor safety and fire and explosion prevention and combat in the course of job performance.

Environmental protection and labor safety contents comply with state regulations on management of investment projects on the construction of works.

2.19. Electricity, water and security for the construction site

The contract must specify each party’s rights and obligations related to the supply of water and electricity, payment of electricity and water charges, and security for the construction site.

2.20. Responsibilities for errors

The contract must specify the parties’ responsibilities for errors made in the course of job performance, such as:

- Completion of unfinished jobs and correction of errors or repair of malfunctions;

- Expenses for error correction;

- Time of notification of errors;

- Failure to correct errors;

- Removal of erroneous jobs out of the construction site;

- Additional inspections of post-correction errors;

- Error causes;

- Unfulfilled obligations under the contract.

2.21. Contract suspension or termination by the principal and the contractor

In a construction contract, the principal and the contractor shall reach agreement and specify cases of contract suspension or termination, the parties’ right to suspend or terminate the contract; order and procedures for contract suspension or termination by the parties; determination of the contract value at the time of contract suspension; and the parties’ payment responsibilities after contract termination.

2.21.1. The principal and the contractor may suspend a construction contract in the following cases:

- Due to a fault of the principal or the contractor;

- Force majeure circumstances;

- Other cases as agreed by the parties.

In these cases, either party may suspend the contract but shall notify in writing another party in advance as agreed by the parties. The parties shall discuss solutions for proper performance of the signed construction contract.

The duration of construction contract suspension and levels of damages payable for such suspension shall be agreed by the parties themselves in the contract.

2.21.2. Construction contract termination by the principal or the contractor

- Either party may terminate the contract and need not pay damages when another party breaches the contract to an extent that the contract must be cancelled as agreed by the parties in the contract or as provided for by law;

- If one party unilaterally terminates the construction contract not due to the other party’s fault, the contract-terminating party shall pay damages to the other party;

- Before terminating a construction contract, the contract-terminating party shall notify the other party in advance as agreed by the parties themselves; if failing to make notification, thereby causing damage to the other party, the contract-terminating party shall pay damages to the other party;

- When the contract is terminated, it becomes invalid from the time of termination and the parties shall return related assets or money to each other.

2.22. Risks and parties’ responsibilities

The contract must specify responsibilities of the principal and the contractor for risks, such as compensations for damage caused by one party to the other; and each party’s handling of arising risks.

2.23. Force majeure circumstance

The parties shall list in the contract force majeure circumstances, such as earthquake, storm, flood, cyclone, tsunami, landslides, war or war danger; and ways of dealing with those circumstances.

2.24. Bonus, fine for contract breach

Contract bonus or fine for contract breach must be specified in the contract. The bonus level must not exceed 12% of the value of the yielded benefit, while the fine level must not exceed 12% of the breached value of the contract. Bonus money shall be deducted from profits earned from the early use or operation of quality works or from amounts saved reasonably in the course of contract performance.

2.25. Settlement of disputes over a construction contract

When disputes over a construction contract occur, the parties shall negotiate and settle them. If the parties fail to reach agreement, their disputes shall be settled through conciliation or arbitration or at a court in accordance with law.

2.26. Construction contract finalization

The contract must specify the order, procedures, time limit for submission of finalization reports, which must not exceed 30 days, contents of a contract finalization dossier, and enclosed forms (if any) for contract finalization. The contract finalization dossier shall be made by the contractor, depending on each specific kind of contract, on the principle that only a list of available documents (test record, payment dossiers in different periods) is required and unavailable documents shall be made. A dossier comprises:

- Work completion document (for work construction contract), certified by the parties;

- Records of take-over test of completed job volumes;

- Record of certification of arising job volumes;

- Record of take-over test of construction survey results;

- Record of take-over test of work construction designs;

- Record of transfer and putting of the work to use;

- Table for determination of the contract finalization value, certified by the parties;

- Other relevant documents.

2.27. Construction contract liquidation

Right after the contractor fulfills his/her/its contractual obligations, the contracting parties shall liquidate, and terminate the validity of, the contract and other related obligations.

Contract liquidation must be completed within forty-five (45) days from the date the contracting parties fulfill their contractual obligations.

2.28. Validity of a contract

A construction contract becomes valid on the date the contracting parties sign the contract, unless otherwise agreed by the parties.

Part III

ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect 15 days after its publication in “CONG BAO” and replaces the Construction Ministry’s Circular 02/2005/TT-BXD of February 25, 2005, providing guidance on contracts in construction activities.

2. Ministers, heads of ministerial-level agencies, presidents of provincial/municipal People’s Committees, Boards of Directors of state corporations, economic groups, and heads of concerned units shall organize the implementation of this Circular.

3. Problems arising in the course of implementation should be promptly reported to the Ministry of Construction for study and solution.