Circular No. 08/2010/TT-BXD dated July 29, 2010 of the Ministry of Construction guiding methods of adjusting construction contract prices

CIRCULAR

GUIDING METHODS OF ADJUSTING CONSTRUCTION CONTRACT PRICES

THE MINISTRY OF CONSTRUCTION

Pursuant to the Government's 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 Government's Decree No. 48/ 2010/ND-CP of May 7, 2000, on construction contracts;

The Ministry of Construction guides methods of adjusting construction contract prices as follows:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. This Circular guides methods of adjusting prices of construction contracts under work construction investment projects with 30% or more state capital.

2. This Circular applies to organizations and individuals involved in the adjustment of prices of construction contracts under work construction investment projects with 30% or more state capital. Organizations and individuals involved in the adjustment of prices of construction contracts under work construction investment projects with less than 30% state capital are encouraged to apply this Circular.

3. Construction contracts under projects funded with official development assistance (ODA) comply with relevant treaties to which the Socialist Republic of Vietnam is a contracting party and which contain provisions different from those of this Decree.

Article 2. Principles of adjustment of construction contract prices

Principles of adjustment of construction contract prices comply with Article 34 of the Government's Decree No. 48/2010/ND-CP of May 7. 2010. on construction contracts, specifically as follows:

1. Adjustment of construction contract prices may be made during the period of contract performance, including also extended periods as agreed upon in contracts.

2. In case the adjustment of construction contract prices (post-adjustment prices) will not result in an excess of the approved total investment capital, investors may decide on the adjustment. In case it will result in an excess of the approved total investment capital, the adjustment shall he reported to investment deciders for permission.

3. Adjustment of contract prices is applicable to fixed unit-price contracts, adjustable unit-price contracts and time-based contracts.

4. For lump-sum contracts and percentage contracts, contract price adjustment may only be made for additional job volumes outside the signed contracts.

5. Adjustment of contract prices must be agreed upon by parties and cases eligible for contract price adjustment, and the order, scope and method of and grounds for contract price adjustment must be specifically indicated in contracts, The method of contract price adjustment must be compatible with contract price types and characteristics of contractual jobs.

Article 3. Cases eligible for construction contract price adjustment

1. For lump-sum contracts and percentage contracts: Contract price adjustment may only be made for additional job volumes outside the signed contracts, specifically as follows:

a/ For consultancy contracts, additional job volumes outside these contracts means volumes other than consultancy tasks to be performed.

b/ For construction contracts, additional job volumes outside these contracts means volumes other than jobs to be performed under designs.

c/ For equipment provision contracts, additional job volumes outside these contracts means lists of additional equipment outside lists under the initially signed contracts.

2. For fixed unit-price contracts and time- based contracts:

a/ In case the volume (or duration) of actually completed construction which has been tested for takeover is smaller or larger than that indicated in the signed contract, payment shall be made according to the tested actually completed volume or duration.

b/ In case prices of fuels, supplies and equipment subject to price valorization measures applied by the State under the Price Ordinance abnormally fluctuate or in case the State amends tax and salary policies thereby directly affecting contract prices, contract unit prices may be adjusted if investment deciders' permission is obtained and contracting parties so agree in contracts,

3. For adjustable unit-price contracts:

a/ In case the tested actually completed volume is smaller or larger than that indicated in the signed contract, payment shall be made according to the tested actually completed volume.

b/ At the time of contract signing, parties shall agree to adjust unit prices for job volumes eligible for price adjustment due to price fluctuation after a specified period following the effective date of the contract.

c/ In special cases, contract price adjustments shall be made when necessary to promptly overcome consequences of natural disasters or for contracts the prices of which remain undetermined by the time of contract signing due to insufficient conditions for price determination and with the Prime Minister's permission.

Chapter II

METHODS OF ADJUSTING CONSTRUCTION CONTRACT PRICES

Article 4. Method of adjusting construction contract prices for lump-sum contracts and percentage contracts

1. For lump-sum contracts: When there are additional job volumes outside the signed contract, the parties shall make an additional contract annex clearly indicating additional job volumes and applicable unit prices.

If additional jobs are subject to no unit price in the contract, the contracting parties shall agree on unit prices for performance of these volumes before performing them. For additional jobs subject to unit prices available in the signed contract, these unit prices will apply.

A new unit price shall be determined on the principle agreed upon in the contract on unit prices for additional job volumes. New unit prices shall be determined under the Ministry of Construction's Circular guiding the estimation and management of work construction investment expenditures and agreements in the contract.

2. For percentage contracts: When there arc additional jobs volumes outside the signed contract, the parties shall make an additional contract annex clearly indicating additional job volumes and applicable unit prices.

The additional contract value will equal the percentage (%) already indicated in the contract multiplied by the value of additional job volumes.

Article 5. Method of adjusting contract prices for fixed unit-price contracts

1. In case the additional job volume is larger than 20% of the corresponding job volume indicated in the contract or subject to no unit price indicated in the contract, the parties shall agree to determine a new unit price on the principle agreed upon in the contract on unit prices for additional job volumes. New unit prices shall be determined under the Ministry of Construction's Circular guiding the estimation and management of work construction investment expenditures and agreements in the contract.

2. In case the additional work volume is equal to or smaller than 20% of the corresponding work volume indicated in the contract, the unit price indicated in the contract, including also the one already adjusted under the agreement in the contract (if any), may be applied.

3. When prices of fuels, supplies and equipment subject to price valorization measures applied by the State under the Price Ordinance abnormally fluctuate or when the State amends tax and salary policies, directly affecting the contract price, and the unit price adjustment is permitted by the investment decider and agreed upon in the contract, the parties shall make an additional cost estimation and an additional contract annex. Additional cost estimations shall be made under the Ministry of Construction's Circular guiding the estimation and management of work construction investment expenditures and agreements in the contract.

Article 6. Method of adjusting contract prices for time-based contracts

When prices of fuels, supplies and equipment subject to valorization measures applied by the State under the Price Ordinance abnormally fluctuate or when the State amends tax and salary policies, directly affecting the contract price, and the unit price adjustment is permitted by the investment decider and agreed upon in the contract, the parties shall make an additional contract annex, clearly indicating post-adjustment new unit prices. New unit prices shall be determined on the principle agreed upon in the contract.

Article 7. Method of adjusting contract prices for adjustable unit-price contracts

1. Adjustment of contract prices by the method using a price adjustment coefficient

The adjustment of contract prices shall be made according to the following formula:

GTT= GHD x Pn (1)

In which:

- "GTT" is the payment price corresponding to the job volume completed and tested for takeover during the period of time "n". "GTT" may be the payment price for the whole contract or a work item or a job or a cost breakdown in the contract.

- "GHD" is the price in the signed contract corresponding to job volumes completed and tested for takeover during the period of time "n". "GTT" may be the payment price for the whole contract or a work item or a job or an expenditure breakdown in the contract.

- "Pn" is the coefficient for price adjustment (increase or decrease) applicable to the contract payment for job volumes completed and tested for takeover during the period of time "n".

"Pn" shall be determined in correspondence and conformity with the payment price "GTT", specifically as follows:

+ If "Gn" is the payment price for the whole contract at the time "n", "P " will be the coefficient for price adjustment determined for the whole contract corresponding to the period of time "n".

+ If "GTT'" is the payment price for a work item in the contract at the time "n", "P" will be the coefficient for price adjustment determined for the corresponding work item in the contract during the period of time "n".

+ Tf "GTT" is the payment price for a job or a cost breakdown in the contract at the time "n". "Pn" will be the coefficient for price adjustment determined for the corresponding job or cost breakdown in the contract during the period of time "n".

When contract price adjustment is made according to formula (I), input data for price calculation and adjustment must be suitable to jobs indicated in the contract. The contract must indicate the use of competent state agencies' sources of information on prices or price indexes for price adjustment.

"Pn "' shall be determined and applied in the following cases:

a/ In case the adjustment is made to all cost breakdowns (material, labor and construction machinery costs), coefficient "Pn" shall be determined as follows:

       (2)

In which:

- a is a fixed coefficient and indicated in the table of correspondingly adjusted figures in the contract, showing the part of payments for the contract (or work items, jobs or cost breakdowns in the contract) not subject to price adjustment.

- b. c and d are coefficients denoting percentages (ratios) of cost breakdowns related to the performance of contractual jobs (labor, construction machinery and material costs) indicated in the table of correspondingly adjusted figures.

- Depending on each case of adjustment (for the whole contract or a work item or a job), coefficients a, b, c. d.... shall be correspondingly determined as appropriate. These coefficients shall be calculated, determined and agreed upon by the parties in the contract.

- The sum of a + b + c + d + ... = 1

- Ln. En. Mn.... are current price indexes or prices corresponding to different costs (labor, construction machinery and material costs) for the period of time "n", and determined within 28 days before the deadline for submission of a payment dossier indicated in the contract.

- Lo. Eo. Mo.... are original price indexes or prices corresponding to different costs (labor, construction machinery and material costs) and determined within 28 days before the date of bidding closure.

- The coefficients a. b. c. d.... and indexes Lo. Eo. Mo,... shall be indicated in the contract dossier.

- In case the currency of adjusted price indexes or prices (indicated in the table) is not the payment currency, it shall be converted into the payment currency at the selling rate set by the State Bank of Vietnam on the date on which these price indexes or prices are requested to be applied.

- In case the contractor fails to complete a jobs within a period indicated in the contract for a subjective reason, the price adjustment shall be made based on each price index or price applicable within 28 days before the deadline for submission of a payment dossier as indicated in the contract or the time of job performance decided by the principal.

b/ In case the adjustment is made to 2 cost breakdowns, coefficient "Pn " shall be determined as follows:

            (3)

+ The values a, b, d. Ln. Lo. Mn and Mo shall be determined as in formula (2)

+ The sum of coefficients a + b + d = 1

- Adjustment of material and machinery costs:

            (4)

+ The values a. c. d. En. Eo. Mn and Mo shall be determined as in formula (2)

+ The sum of coefficients a + c + d = 1

Adjustment of labor and machinery costs:

             (5)

+ The values a. b. c. Ln. Lo. En and Eo shall be determined as in formula (2)

+ The sum of coefficients a + b + c = 1

c/ ln case the adjustment is made to one cost breakdown:

When adjustment is made to one cost breakdown in the contract (labor or construction machinery or material cost or for some major materials), coefficient "Pn” shall be determined as follows:

Adjustment of labor cost:

              (6)

+ The values a. b. Ln and Lo shall be determined as in formula (2)

+ The sum of coefficients a + b = 1

Adjustment of construction machinery cost:

              ( 7)

+ The values a, c, En and Eo shall be determined as in formula (2)

+ The sum of coefficients a + c = 1

 Adjustment of material cost:

             (8)

+ The values a, d. Mn and Mo shall be determined as in formula (2)

+ The sum of coefficients a + d = 1

- In case the price adjustment is made to some major materials:

+ The value "a" shall be determined as in formula (2)

+ d1 d2, d3,... are coefficients showing percentages (ratios) of costs of major materials subject to price adjustment in the contract.

+ Mn1.Mn2.Mn3 Mo1. Mo2. Mo3... are price indexes or prices of materials subject to price adjustment at the time "n” and at the original time.

+ The sum of coefficients a + d1 + d2 + d3 +... = 1

d/ Prices announced by local competent agencies or construction price indexes announced by the Ministry of Construction or the General Statistics Office may be used, but prices or price indexes applicable to a contract must be indicated in the contract by the parties and suitable to contents and characteristics of jobs in the contract.

e/ For special works not yet subject to construction price indexes announced by the Ministry of Construction, investors shall determine or hire capable consultancy organizations to determine construction price indexes by the method guided by the Ministry of Construction for application in contract price adjustment.

2. Contract price adjustment by the method of direct clearing:

In addition to the method of contract price adjustment specified in Clause 1 of this Article, prices of simple construction contracts may be adjusted by the method of direct clearing.

Chapter III

IMPLEMENTATION PROVISIONS

Article 8. Organization of implementation

1. Construction contracts performed before the effective date of this Circular are not required to comply with this Circular. For contracts currently in the process of negotiation and not yet concluded, investment deciders may decide on application of this Circular.

2. Ministers, heads of ministerial-level agencies, chairpersons of provincial-level People's Committees and boards of directors of state corporations and economic groups shall implement this Circular.

Article 9. Effect

1. This Circular takes effect on September 15, 2010, and replaces the Ministry of Construction's Circular No. 06/2007/TT-BXD of July 25,2007, guiding construction contracts.

2. Any problems arising in the course of implementation should be reported to the Ministry of Construction for consideration and settlement.-