Circular No. 06/2008/TT-BXD dated March 20, 2008 of the Ministry of Construction guiding the management of costs of urban public-utility services

GUIDING THE MANAGEMENT OF COSTS OF URBAN PUBLIC-UTILITY SERVICES

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

Pursuant to the Governments Decree No. 31/2005/ND-CP of March 11, 2005, on production and provision of public-utility products and services;

Pursuant to the Finanee Ministers Decision No. 06/2005/QD-BTC of January 18, 2005. promulgating the Regulation on calculation of prices of assets, goods and services.

In order to raise the use efficiency of state budget capital, improve the quality of urban public-utility services and encourage organizations and individuals of all economic sectors to provide urban public-utility services, the Ministry of Construction guides the management of costs of urban public-utility services as follows:

I. GENERAL PROVISIONS

1. Subjects of application and scope of regulation

1.1. Cost management is applied to the following urban public-utility services:

- Collection, transport and landfill disposal of garbage:

- Dredging and maintenance of water drainage systems;

- Maintenance of public lighting systems:

- Maintenance and development of trees.

1.2. For some other urban public-utility services such as waste processing and non-landfill disposal, management of cemeteries, parks and zoos and some other services, provincial/ municipal Peoples Committees shall apply the guidance in this Circular depending on practical conditions in their localities.

1.3. All organizations and individuals that manage or use state budget capital for the provision of the above-said urban public-utility services shall abide by the provisions of this Circular.

2. General principles on the management of costs of urban public-utility services

2.1 Costs of urban public-utility services calculated under the guidance in this Circular are used for competent state agencies to determine cost estimates for urban public-utility services and serve as a basis for the negotiation, consideration and decision on the prices of public-utility services provided through bidding, order placement or plan assignment to organizations and individuals providing urban public-utility services.

2.2. Costs of urban public-utility services must be properly calculated and managed in conformity with practical conditions and objective requirements of the market mechanism.

II. ESTIMATED COSTS OF URBAN PUBLIC-UTILITY SERVICES

Estimated costs of urban public-utiliry services include material cost, labor cost, cost of machine and equipment use, general management expense and profit ratio. The estimated costs of urban public-utility services are determined as follows:

1. Volume of each urban public-utility service

The volume of each urban public-utility service is determined according to plans or unplanned tasks assigned by competent state agencies.

2. Unit cost of each urban public-utility service

The unit cost of each urban public-utility service consists of material cost, labor cost and cost of machine and equipment use (referred to as direct cost). Direct cost is determined as follows:

2.1. Material cost means expenses for principal and subsidiary materials used in the provision of urban public-utility services. Material cost is determined accordins to this formula:

The prices of materials must be reasonable and suitable to market prices and determined according to the price quotations of producers or suppliers, the prices already applied to other works of similar quality standards or prices announced by localities, and must be competitive (material prices constituting the unit price is exclusive of value-added tax).

2.2. Labor cost means all expenses for laborers directly engaged in the provision of-urban public utility services and are determined as follows:

The workday wage of workers of relevant grade must be properly calculated, consisting of all amounts of wage, additional wage and wage-based allowances (including wage supports). The workday wage is determined on the basis of the minimum wage level prescribed by a competent state agency in order to ensure payment of wage to laborers, taking into account the prevailing wage level on the labor market in each region for each type of workers and specific working conditions, limit of capital sources and payment capability of localities.

2.3. Cost of machine and equipment use means expenses for machines and equipment used for the provision of urban public-utility services:

The cost of a shift of relevant machine and equipment is determined under the guidance in the Construction Ministrys Circular No. 07/2007/TT-BXD of July 25, 2007. guiding the method of determining costs of shifts of construction machines and equipment or the table of costs of shifts of machines and equipment prescribed by local administrations.

3. General managemen: expense means management expense of an enterprise, general expense for direct management (including labor tools), expense in service of workers: expenses for payment of interests on loans from banks and other credit institutions: mid-shift meal allow ances. charges, fees and expenses for hiring assets and workshop ground (if any), audit expenses and other expenses.

General management expense in the estimated cost of urban public-utility services shall be decided by provincial/municipal Peoples Committees but must not exceed 70% of direct labor expense and determined according to specific conditions of each locality and each urban public-utility service. If the cost of machine and equipment use represents more than 60% of the direct cost, the general management expense must not exceed 5% of the cost of machine and equipment use.

Provincial/municipal Peoples Committees shall consider and make decisions in special cases in which the percentage of general management expense exceeds the above rates.

4. Profit ratio must not exceed 5% of the direct cost and general management expense in the estimated cost for the provision of public-utility services.

III. CONTRACTS ON THE PROVISION OF URBAN PUBLIC-UTILITY SERVICES

1. Contracts on the provision of urban public-utility services are civil contracts (referred to as contracts). Urban public-utility services are provided under contracts signed between local management agencies and organizations or individuals providing urban public-utility services. Contract on the provision of urban public-utility services is a written agreement between the principal and the contractor on the establishment, alternation or termination of rights and obligations of the contracting parties for the performance of one. several or all tasks of provision of urban public-utility services. Contracts are legal documents binding rights and obligations of contracting panics. Disputes between contracting parties shall be settled on the basis signed contracts which have taken legal effect. Disputes of which the settlement is not yet agreed upon in contracts shall be settled in accordance wjth relevant legal provisions.

2. Contractual price

Contractual price is a sum of money which the principal commits to pay to the contractor for a work volume performed according to quality, schedule and other requirements specified in the contract. The contracting parties shall clearly state in the contract all elements constituting the contractual price, including taxes, charges and responsibilities of involved parties to pay relevant taxes and charges.

Contracting parties shall base themselves on bidding dossiers, bids, cost estimates, goods orders and assigned plans approved by competent state agencies and negotiation results to determine contractual prices. Contractual prices may take the following forms:

2.1. Package contractual price (package or pro-data prices specified in the Bidding Law) is a contractual price which is kept unchanged throughout the course of performance of the contract regarding works falling under the signed contract, except cases where adjustments are permitted as specified in the contract (if any) the form of package contractual price appiies to works or bidding packages of which the work volume, quality and implementation time have been clearly

identified or to some cases where it is impossible to determine the work volume but the contractor has capacity, experience and documents to calculate and determine package prices and accept to take related risks:

2.2. Contractual price based on fixed unit prices (unit price-based or time-based prices specified in the Bidding Law) is a contractual price which is deteimined on the basis of the pre-calculated work volume and the unit price for each work which is fixed and kept unchanged throughout the course of performance of the contract, except when adjustments are permitted as specified in the contract (if any). The form of contractual price based on fixed unit prices applies to works or bidding packages of which work the volume cannot be exactly identified but unit prices can be determined and the contractor has enough capacity, experience and documents to calculate and determine fixed unit prices and related risks. Fixed unit prices are kept unchanged throughout the course of performance of the contract, except when adjustments are permitted as specified in the contract.

2.3. Contractual price based on adjustable prices is a contractual price calculated on the basis of the work volume and unit prices of works under the contract which may be adjusted in cases specified in the contract.

The form of contractual price based on adjustable prices applies to works or bidding packages of which the work volume or cost elements used for determining unit prices cannot be exactly identified at the time of signing the contract due to the lack of necessary conditions.

Contractual prices based on adjustable prices (at the time of signing contracts) will be adjusted when it is possible to determine work volume and unit prices as prescribed in tp.e contract.

2.4. Combined contractual price is a contractual price determined in the forms specified at Points 2.1, 2.2, and 2.3 above.

IV. ORGANIZATION OF IMPLEMENTATION

1. The Ministry of Construction shall publicize wastage limits of materials and workday norms for the performance of a volume unit of urban public-utility services: and regularly or irregularly inspect the management of costs of urban public-utility services in localities nationwide in accordance with this Circular.

2. Provincial/municipal Peoples Committees shall:

- Elaborate for publicization or promulgation norms which have not yet been included in the system of norms for estimation of costs of urban public-utility services publicized by the Ministry of Construction or which have been included in the publicized system of norms but are inappropriate to local technical processes or specific conditions in service of the provision of urban public-utility services in their localities.

- Guide and provide for the application of norms and unit prices as well as the formulation and approval of estimated costs of urban public-utility services in their localities;

- Reorganize state companies performing public-utility tasks under their management according to Chapter III of the Governments Decree No. 31/2005/ND-CP of March 11, 2005, on the production and provision of public-utility products and services;

- Formulate mechanisms and policies to encourage organizations and individuals to provide urban public-utility services in order to reaiize tne Partys and States guidelines on socialization of the provision of urban public-utility services in localities;

- Annually, send norms and unit prices already publicized or promulgated to the Ministry of Construction for monitoring and management.

3. For urban public-utility services with comparatively stable prices, competent agencies may use these prices to estimate costs of urban public-utility services, taking into account fluctuations in market prices (if any).

4. To encourage investors of projects on construction of new urban centers which have been partially or wholly put into use but not yet been handed over to urban administrations to apply the provisions of this Circular.

5. Transitional provisions: Signed contracts which are being performed or estimated costs (prices of urban public-utility services) which have been approved by competent authorities are not required to be readjusted or re-approved; provincial/municipal Peoples Committees shall consider and make decision on the application of this Circular when necessary.

6. This Circular takes effect 15 days after its publication in CONG BAO and replaces the. Construction Ministrys Circular No. 17/2005/TT-BXD of November 1, 2005, guiding the methods of formulating and managing costs of urban public-utility services.

Any problems arising in the course of implementation should be reported by localities to the Ministry of Construction for guidance and settlement.

CIRCULAR