Conditional Acceptance of the Construction Works for Commissioning

The Law

On 15 May 2015 the Government issued Decree No. 46/2015/ND-CP (Decree 46) to provide further guidance on the Law on Construction 2015 with respect to quality management and maintenance of construction works, pointing out:

“The responsibility for the quality of the works remains with the survey construction contractors, design contractors, and supply contractors, even after their work has been inspected and accepted by the employer, or after the defect liability period has expired. This means that these contractors may be held liable for damages evidenced to be caused by the quality of their works.”

What does it mean for businesses?

Under Decree 15/2013/ND-CP, acceptance of construction works for commissioning into use when they have not satisfied all requirements of the design, of national technical regulations, of standards applicable to the construction works, and the technical specifications and other requirements of the employers specified in the agreements is generally not allowed.

However, Decree 46 entitles the employer to conditionally accept the construction works for commissioning into use, if the issues with respect to quality of construction works do not affect the weight-bearing capacity, the life cycle and the functions of the works and if the construction works conform to the safety requirements.

Decree 15/2013/ND-CP allows the employer and contractor to freely agree on the minimum amount of the warranty fee retained by the employer. However, to the extent of State owned works, this has been restricted by Decree 46. Accordingly, the warranty fee for State owned works must not be less than 3% of the contract value for works of grade 1 or special grade, and 5% of contract value for the works of other grades.

Decree 46 stipulates that survey contractors should pay significant attention to the quality of their works. Therefore, we suggest that survey contractors to provide sufficient and eligible resources to ensure their works are compliant with the technical plan, as this is required by Decree 46. We would also warn that the Decree also entitles the employer to completely suspend the construction survey works upon finding them not compliant with the technical plan, or the construction survey agreement.

Decree 46 will take effect from 01 July 2015

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Construction Master Planning: More Defined Procedures

Decree No. 44/2015/ND-CP Clarifies Construction Master Planning

What does the law say?

On 6 May 2015, Government issued Decree No. 44/2015/ND-CP, providing guidance for a number of regulations on construction master planning (“Decree 44”). This Decree provides detailed regulations on a number of articles in the Law on Construction No. 50/2014/QH13, including the formulation, evaluation and approval of construction master planning, as well as master planning implementation and planning permits.

What does this mean for businesses?

More defined procedures for construction industry and investors

Firstly, specific functional areas with the scale over 500 ha shall be put under the general planning category, to ensure the suitability for provincial planning, urban planning, and to form a basis for zoning, and detailed planning.

Secondly, areas (over and below 500 ha) inside specific functional areas shall be put under the general planning category, ensuring its suitability for provincial planning, urban planning, and again to form a basis for zoning planning and detailed planning.

Thirdly, Areas inside specific functional areas upon instruction shall be placed under the detailed planning category, in order to ensure that the general planning framework, and zoning planning is more rigid, and to form a basis for issuance of the construction permit.

Fourthly, in the event that a single investor undertakes a construction project of less than 5 ha, (or under 2 ha if it is an apartment building project), the project must be created without the formulation of a detailed construction planning. Drawings of the general site plan, architectural plan, solutions to technical infrastructure in the fundamental design must comply with zoning plans or planning permits, ensuring the connection with technical infrastructure and compliance with architectural space in the area.

Finally, the planning permit shall be issued to investors who are qualified for implementing the investment in the construction project. The maximum period of a planning permit with respect to a concentrated construction project is 24 months from the date of issuance, until the detailed planning is approved. The maximum period for a planning permit with respect to a separate construction project is 12 months from the date of issuance until the construction project is approved.

Streamlined instruction on planning permits

The following functional areas directly related to the issuance of the planning permit are detailed in Decree 44: (i) procedures for the issuance of planning permit; (ii) application for obtaining planning permit; and (iii) contents of the planning permit. For any construction planning project with the planning tasks being approved before the effective date of this Decree, the formulation, evaluation and approval shall be conducted under the Government’s Decree No. 08/2005/NĐ-CP dated 24 January 2005 on construction planning.

Decree 44 shall take effect from 30 June 2015.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Receiving Advance Payments from Home Buyers: Correct Interpretation and Clarification is Necessary

Law on Residential Housing stipulates that generally, developers shall not be entitled to receive any advance payments from home buyers who purchase residential houses to be developed in the future before the foundation work of the property is completed.

This provision has been interpreted by competent authroties that any amount received by developers from their home buyers prior to the completion of the foundation, shall be deemed illegal and such transactions may be invalid.

However, the business in practice is very various by nature, the developers, in some cases, expect to know how many purchases have committed to buy houses in their projects. Therefore, deposit agreement is a method to secure the housing purchase and sales contracts. The amounts received from such deposit agreements may be at the risk of being regarded as a violation of the aforementioned provision.

In reality, some developers who collected payments from their potential buyers in the form of a “deposit”, or “goodwill amount”, and etc were imposed with administrative sanctions.

Deposits or Advance Payments?

From a legal perspective, there are some aspects that need to be considered in relation to this issue as follows:

Pursuant to regulations stipulated in the Civil Code, a deposit agreement means an amount of money delivered by one party to another party as a security for its performance of the further steps of the contemplated transaction. In the mentioned case, the transaction between the developer and a home buyer is the execution of a housing purchase and sales contract. Therefore, the deposit agreement between developers and its potential buyers prior to the completion of the foundations contains the provision that potential buyers pay a deposit amount to secure their performance commitments. Such buyers shall enter into the housing purchase and sales contracts with the developers when the projects have met the required conditions; in case the buyers do not fulfill their commitments, they shall forfeit their deposits…In our opinion, such agreements is in compliance with the Civil Code regarding deposit agreements.

The Law on Residential Housing provides that developers shall not be entitled to receive an “advance payment” from the buyers prior to the completion of the foundation. This intended provision is justified in avoiding the possibility that developers do not have the sufficient financial capacity to complete the property projects, which may adversely affect the interests of buyers ultimately. This provision is intended for the protection of buyer’s interests, but how should it be interpreted correctly?

In our opinion, the fact that developers receive deposit amounts from their home buyers is not supposed that they have received “advance payment” because the two transactions are different in legal nature: one is the deposit transaction, while the other is the housing purchase transaction. Indeed, from an accounting perspective, deposit amounts cannot  be entered to the accounts as the payments from buyers, because the developers always have an obligation to return deposits (including deposit penalties as agreed) to buyers in the event of any breach of agreement by the developers. Therefore, up to this point, the developers and the potential buyers have still not conducted in house purchase transactions. If such advance payments are supposed to be payments according to housing purchase and sale contracts, such payments shall accounted as revenue of the developers.

A unified interpretation by authorities needed

Relevant competent authorities usually suppose that “receiving deposits” and “receiving advance payments” are the same, and consequently presuming that the developers have breached regulations if receiving deposit amounts, and the related transactions are likely to be canceled due to its invalidity.

The provision of Law on Residential Housing mentioned above for the purpose of protection for interests of buyers is essential and justified. However, the assurance required to enable developers (as businesses) to be advantageous in their doing business within the legal framework is also necessary.

Currently, Law on Residential Housing 2014 and Law on Real Estate Business 2014 provides quite sufficiently regulations in order to remove incapable developers. For example, Law on Real estate requires a developer’s performance of housing project must be guaranteed by a reputable bank.  And furthermore, the developers are entitled to receive advance payments from the buyers up to 50 % or 70% of the housing sale price, and etc. All of these regulations, in our view,  secure enough the interests of home buyers.

Therefore, the further expanded interpretation of competent authorities is neither consistent with the spirit of the Civil Code, nor necessary in practice. Furthermore, such interpretations may adversely affect trading transactions between parties.

It is necessary to have guidance, or a specific confirmation from the Ministry of Construction regarding the fact that developers can receive deposit amounts (prior to the completion of the foundation) is consistent with applicable laws, in order to remove the “hanging verdict” for developers due to different interpretations of the relevant authorities at the local level.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

The article contributed by Mr. Tran Thai Binh, LNT & Partners. Its contents do not constitute legal advice. For more information, please contact lawyers via email:

Regulations of Construction Contracts

Decree 37/2015/ND-CP dated 22 April 2015 on detailed regulations of construction contracts (“Decree 37”)

The Government issued Decree 37/2015/ND-CP dated 22 April 2015 on detailed regulations of construction contract (“Decree 37”). Decree 37 replaces Decree 48/2010/ND-CP dated 7 May 2010 on contracts in construction activities (as amended by Decree 207/2013/ND-CP dated 11 December 2013). Decree 37 will take effect on 15 June 2015.

Under Decree 37, there are many substantial changes that have been stipulated, these key changes include:

  • Supplementing some types of contracts in accordance with the nature of these contracts, and the subsequent relationships between parties and the contracts. Accordingly, with respect to their nature, contracts for supplying human resources, work machinery and equipment have been added. Depending on the relationship of the parties to the contracts, Decree 37 stipulates that construction contracts with four main contracts including a main contract, sub-contract, fixed rate contract and foreign construction contract.
  • Stipulating clearly the principles of signing contracts. The most important principle is that at the time of signing, the contractors must meet conditions for practice and performance qualification, as prescribed in the Law on Construction. This principle is aimed at making sure that the contracts are suitable for providing construction services and to limit risks associated with the quality of building construction undertaken by disqualified contractors.
  • Amendments to the rate of advances for construction contracts as follows: With respect to the consultancy contract, rates are divided in two levels, namely 20% of the contract value for a contract valued up to VND 10 billion and 15% of the contract value for a contract valued over VND 10 billion (instead of 25% of the contract value for every contract as stipulated in the previous decree).
  • Decree 37 requires the employers under construction contracts to provide payment guarantee in order to protect the rights and interests of contractors. Accordingly, the employers are responsible for proving their capabilities to perform payment obligations under the signed contract via such forms as approved by the capital arrangement plan, bank or credit organization guarantee and credit supply contract, or loan agreement with financial institutions.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

New rules ease Public-Private Partnerships (PPP) implementation

The government recently released Decree 15 to provide a comprehensive legal framework for public-private partnership projects, replacing the old regulations. Net Le and Loi Huynh of LNT & Partners took a closer look.

In November 2010, a pilot scheme of public-private partnerships (PPP) was introduced (Decision 71), which was expected to boost PPP projects in Vietnam. As of 2014, there were 38 PPP infrastructure development projects proposed to the government. However, none of them were implemented. From a legal perspective, Decision 71 seems to have failed in providing a realistic framework for the operation of PPP projects. It also confused investors with a dizzying array of government decrees on build-operate-transfer (BOT), build-transfer-operate (BTO), and build-transfer (BT) models, outlined in Decree 108 (November 2009) which provided several amendments. Indeed, most of the infrastructure projects in Vietnam have been carried out in accordance with Decree 108 rather than Decision 71. As such, the government issued Decree 15 on 14 February to finally provide a comprehensive legal framework for PPP projects, replacing Decision 71 and Decree 108. Apart from regulations that remain unchanged, Decree 15 introduces new regulations which may encourage the development of PPPs.

Eligible projects for PPP

The list of the eligible projects for PPP under Decree 15 emphasises the need for the government to develop an integrated infrastructure which has the potential to foster national economic development. Decree 15 describes PPP as an investment arrangement between an authority, investor, and project company to perform, manage, and operate infrastructure and public service projects including:

– Transport infrastructure works and related services;

– Lighting systems; clean water supply systems; drainage systems; waste and waste water collection and treatment systems; social housing; resettlement housing and cemeteries;

– Power plants, transmission lines;

– Health, education, vocational training, culture, sports infrastructure works and related services; offices of state agencies;

– Science and technology, weather forcasting, economic zones, industrial parks, hi-tech zones, information technology parks; the application of information technology;

– Agriculture and rural development infrastructure and services associated with processing and consumption of agricultural products; and

– Other areas as decided by the prime minister.

The government has released Decree 15, intended to clean up sometimes perplexing and contradictory regulations

Financial structure

Excluding operate-manage (OM) projects and projects mentioned above, a PPP project shall have a minimum total investment capital of VND20 billion. Decree 15 allows the investors and the state to allocate financial resources and share the financial risks without a cap, whilst each stakeholder shall be subject to statutory conditions.

Private participation

Private participation shall comprise of the investor’s equity capital and other funding sources which the investor is responsible for raising.

The investor’s equity capital shall be not lower than 15 per cent of the total investment capital. In case the total investment capital is higher than VND1,500 billion ($71 million), the equity capital shall not be lower than 15 per cent for the portion under 1,500 billion Vietnam dong, and for the portion above 1,500 billion Vietnam dong, it shall not be lower than 10 per cent.

Regarding the loan capital, Decree 15 is unclear as to whether the investor may  receive a state guarantee. Previous legislation specifically set out that any loaned capital shall be raised without increasing the burden of public debt. Article 57 of Decree 15 reads that the government may mandate an agency on behalf of the government to guarantee the material supply, product, and service consumption as well as other obligations of the investor, the project company, or other companies participating in the PPP project.

State funding

Before Decree 15, state participation in a PPP projects was capped at 30 per cent under Decision 71, and 49 per cent under Decree 108. These caps had the effect of rendering PPP projects less attractive to investors, as they will have to shoulder a higher risk burden than the state. Decree 15 removes these caps. However, state funding is limited to the following purposes:

– Capital contributions for construction works of projects with business and fee collection from end-users, yet the collection is not sufficient for return on investment and profit;

– Payment for investors providing services in accordance with build-transfer-lease (BTL), build-lease-transfer (BLT), and similar contracts; and

– Support for construction of auxiliary works, site clearance, compensation, and resettlement.

State funding shall include funds from the state budget, central government bonds, local government bonds, official development assistance, and incentive loans from foreign sponsors.

Legal Perspective

Forms of PPP contract

Decree 15 expands on the number of PPP forms available, laying the legal foundation for contracts of build-operate-transfer (BOT); build-transfer-operate (BTO); build-transfer (BT); build-operate-own (BOO); build-transfer-lease (BTL); build-lease-transfer (BLT); and operate-manage (O&M) models. Subject to these forms of contract, the authority that has the power to sign and implement a PPP contract may propose other similar contracts for the review and approval of the prime minister. Previously, Decree 108 only governed BOT, BTO, and BT models, while Decision 71 was silent on the forms of PPP contract.

Governing law

Decree 15 allows parties to choose applicable foreign laws to govern project contracts and contracts guaranteed by the government. Under either scenario, the choice of foreign governing law will not have jurisdiction over Vietnamese regulations on the application of foreign law.

From this perspective, it is possibly the first time that domestic legislation refers to a specific regulation rather than the general term “fundamental principle of Vietnamese laws” which has no definition under the law.

Dispute Resolution

Disputes in a PPP project may be resolved by court or via arbitration subject to agreement by the parties. Decree 15 makes it clear that disputes which are resolved by arbitration in accordance with the project contract and related contracts are commercial disputes. Vietnamese laws only have regulations on commercial arbitration, thus, if the dispute is not commercial, the choice of arbitration would be null and void. Under Decree 15, the resolution schemes are different depending on if the state agency is disputing with a local or a foreign investor.

Protection of lender

Decree 15 provides the lender with the authority to designate a capable organisation to take over all or part of rights and obligations of the investor or the project company in case the investor or the project company fails to perform on its obligations under the PPP project contract or loan agreement. An agreement on such a takeover shall be made between lender and the competent authority or parties of the PPP contract. Decree 15 also allows the investor to assign all or part of its rights and obligations under the PPP project contract to the lender or another investor. In this case, an assignment agreement shall also be made between the assignee and the parties to the PPP project contract.

PPP flow chart

Below is a general flow chart showing the process from initiative to execution of the PPP project contract. It is still a lengthy process for an investor to pursue. Decree 15 allows a conversion from a public project into a PPP project provided that it satisfies the requirements under Decree 15. However, further guidance is expected since it is not yet clear whether such a conversion would require stakeholders to perform all the processes shown below.

This Legal Alert is not a Legal Advice. For more information about this article, please contact the author: Dr. Net Le, Tel: +84909759 699 Email:

LNT & Partners is a leading full-service independent local law firm based in Vietnam with offices in Ho Chi Minh City, Hanoi, San Francisco and an affiliated presence in Hong Kong. The firm is among Vietnam’s most prominent, representing a wide range of multinational and domestic clients, including Fortune Global 500 companies as well as well-known Vietnamese listed companies on a variety of business and investment matters

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

One-size-fits-all contracts may not resolve disputes

LNT’s Thai Binh Tran and Quang Dao Nguyen look at some of the issues raised by the Ministry of Construction’s Circular 03 which insists on a standardised approach to property contracts between individuals and real estate developers.

In apartment sales and purchase transactions, the individual purchaser is often in a weaker position since they often have to accept entering into a standard form contract drafted by a real estate developer. Such contracts generally contain terms favourable to the developer, and may impair the buyer’s interests. This is one of the major causes of disputes arising between developers and individual purchasers.

To address that issue, the Ministry of Construction (MoC) has issued a standard form contract on apartment sales and purchases as a basis for individual purchasers to follow. The guidelines and regulations by the MoC detailing the terms in sale and purchase of apartments are necessary, because they provide clarity and transparency in apartment sale and purchase transactions, as well as protecting the individual’s interests, thereby mitigating disputes between the parties, and facilitating the development of the real estate market in general.

However, recent regulations provided for in Circular 03/2014/TT-BXD (Circular 03) requiring parties to “comply with contents and strictly apply the standard form contract” have caused many difficulties and adverse consequences in practice.

So, what does “non-applying standard form contract” mean?

Prior to Circular 03, the standard form contract for an apartment sale and purchase was prescribed in Circular 01/2009/TT-BXD, later known as Circular 16/2010/TT-BXD. However, these guidelines did not strictly require parties to apply the standard form contract, and also did not provide serious consequences for non-compliance therewith (the invalidity of these contracts). Therefore, in practice, the standard form contract is for reference only.

According to Circular 03, apartment purchase and sale transactions between a developer and an individual purchaser must be in strict accordance with the standard form (issued in conjunction with this Circular). More importantly, a contract signed between the developer and individual purchaser “shall not be recognised and not qualified for issuance of ownership certificate” of ownership to the individual purchaser, if it does not “conform and/or accord with the standard contract”.

The unclear provision of “complying with the standard contract” that real estate developers, when carrying out the registration of sample contract for apartment sale and purchase, are required to amend the sample contract in a way that all words, structure, and order of clauses in the standard contract issued by the MoC must be used and applied.  As such, although the sample contract submitted by the developer is in accordance with principles set forth in the standard contract by the MoC, the registration will still be rejected if the contract has not used the words or the structure of the standard contract.

In our opinion, such interpretation is unreasonable and inflexible, resulting in many problems for both the developers and the individual buyers. The MoC should clarify these issues and if the MoC’s opinion is as interpreted above, then our interpretation results in the legal consequences as discussed below.

Administration of civil transactions

It is clear that an apartment sale and purchase contract between a developer and a individual purchaser must adhere to principles and regulations of the law on the subject matter, however, this does not mean that it is necessary that such a contract need be strictly copied for every sentence, word, or order set forth in the standard contract.

The mandatory use of the wording mentioned above clearly goes against the principle of freedom in entering into an agreement – the key principle of civil transactions. According to this principle, the developer and the individual purchaser have the right to freely agree on the content, and the rights and obligations of each party. Provided that such agreements are not contrary to the laws, it must be recognised by the state. Among various options to address an issue of apartment purchase transactions (such as payment, dispute resolution, etc.), the developer and the individual purchaser may negotiate and agree with the most favourable option. The mandatory use of the standard contract has taken away the freedom in agreements, seriously affecting the interests of both parties. For example, disputes between the developer and the individual purchaser, can be resolved either in a people’s court or in commercial arbitration at the parties’ discretion. However, in a standard form contract, dispute resolution by the court is the only option for parties even though the option of a commercial arbitration may be more appropriate.

Interference in the court’s jurisdiction

According to the Circular 03, the signed contract will be invalid if it is not in compliance with the standard form contract. As such, an agreement (dispute to be resolved by commercial arbitration), despite its full compliance with the law (Law on Commercial Arbitration), may still be invalid if it is not subject to the provision of the standard contract (dispute resolution by the court). However, according to the Civil Code, if the form and content of a contract is in conformity with legal regulations, that contract is valid. This begs the question, is the effectiveness of Circular 03 higher than the Civil Code? Furthermore, this shows that the regulations of the MoC has somewhat interfered in the jurisdiction of the court.


Without a clear explanation from the MoC regarding the requirement of compliance with the standard contract, the parties have been obstructed in their performance, if the aforementioned interpretation is consistent with the opinion of the MoC, those regulations are contrary to the fundamental principles of civil transactions. Therefore, in order to ensure freedom in negotiation, regulations in Circular 03 should only be construed as a requirement for complying with rules and principles of transaction, not necessarily a requirement to comply with every sentence and word of the standard contract.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Legal changes bolster market economy reform_Dec 2013

The National Assembly concluded a busy year which included the ratification of a revised Constitution, the Land Law and the Law on Public Procurement. It is expected the new laws will help develop a more liberal economy.

Le Net at LNT & Partners law firm takes a look at the developments and their anticipated effects.

Revised and Restated Constitution

The 1992 Constitution was revised after more than 20 years of Vietnam’s economic reform process. Once again, it underlines the leading role of the Communist Party, the state sector as the foundation of the economy and the notion that land belongs to the whole nation and is administered by the state. The new constitution states that private and foreign-invested sectors are granted equal rights to set up and run their businesses. The state sector is supported and maintained only in core industries.

The Constitution allocated more powers to the National Assembly and president. The National Assembly is now vested with the right to decide on national fiscal and monetary policy. The president has the power to appoint deputy prime ministers or ministers as proposed by the National Assembly, appoint high-ranking officials and high court judges. The Constitution also clarifies the power of the People’s Procuracy and establishes the State Auditing Agency.

The Constitution stipulates that any “unconstitutional” acts shall be resolved. The Constitution can be seen as a positive move towards the constitutional rule of law.

Three major legal changes should help liberalise the economy further

New Land Law

The new Land Law, which replaces the 2003 legislation, addressed concepts of landed property and compulsory purchases or seizures – a huge source of dispute in the last decade – particularly after notorious cases in Haiphong and Hung Yen. The new Land Law specifies the instances in which such compulsory seizures may occur, which mainly relate to ODA projects, infrastructure development or social housing projects. Moreover, the land price or land pricing method shall be decided by the state with an aim to limit its affect on the real estate market. In addition to land prices and compensation, the new Land Law reduces the scope for amended land zoning planning. The law clearly states that once zoning has been approved, it cannot be changed except under special cases. It is hoped that this strict rule will avoid unplanned urbanisation and the exploitation of those that control land allocations before real investors with fiancial capacity have an opportunity to invest.

The law introduces two concepts: a land price table and particular land price. While the land price table is introduced once every five years, the particular land price will be determined on a case-by-case basis, by a land valuation committee based on the land price table and market price. The land price table is used to calculate land compensation and land use fees for individuals or households, whereas the particular land price is used for land compensation and land use fees for economic organisations or foreign-invested enterprises.

An important part of the Land Law is devoted to land compensation payments and clearances. The law allows provincial people’s committees to determine land prices for compensation and provides a timeline for voluntary land compensation in the case of land recovery, following which the state could apply for a forced land clearance. The compensation is prioritised in the form of land compensation and, only when there is no land available, would monetary compensation be applied. The law also requires the land developer to propose a relocation project before implementing land compensation.

Foreigners and overseas Vietnamese are now allowed to receive land use right certificates if they are allowed to buy houses or apartments adjacent to land pursuant to the Law on Housing. It does not affect the right of foreign-invested enterprises to obtain land use right certificates for industrial land or residential land projects. The new law also maintains the status quo for projects that have already been granted freehold or leasehold status before the introduction of the new law on July 1, 2014.

New Public Procurement Law

The Law of Public Procurement, also effective from July 1, 2014, is introduced with the aim of reducing waste and corruption in public procurement, as well as encouraging private-public partnerships. The new law supplements new methods in the assessment of bids, including bidding concentration and tendering in specialist industries such as pharmaceuticals and medical equipment. Bid concentration is a new feature of this Law on Public Procurement, which authorises the project owner to organise bids for a single professional purchaser instead of multiple suppliers. This process may expedite the public procurement process while maintaining control over cost over-runs and co-ordination among the suppliers. The law implements and combines widely recognised international public procurement principles with local experience in relation to public procurement issues.

To enhance the efficiency of public procurement, the law hands bid appointments down to ministries or provincial people’s committees, rather than the prime minister. The decision-maker will also have to answer to supervisory authorities, to the public, and project owners.

To reduce the price adjustments or project cost over-run problems, the Law on Public Procurement prioritises fixed price methods. If other methods are used, such as lump sum unit price or adjusted unit price, then the bid decision-maker must explain why the selected method of public procurement is preferred vis-à-vis fixed price contracts.

In short, the three laws earmarked by the National Assembly mark a bold step towards stronger reforms to confer more supervisory powers and reduce the abuse of power, waste and corruption, while recognising the importance of professional and uniform executors.

All eyes are now on how the new laws will be implemented.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Tender law offers value for contractors’ money

The National Assembly on November 26, 2013 adopted the Law on Tendering [refered to in VIR#1155 as the Law on Public Procurement], which is expected to encourage a more competitive environment for government bid packages. Le Net and Thai Huynh Ngoc Kim Ngan at LNT & Partners take some highlights.

The Law on Tendering will come into effect on 1 July 2014. Notable changes include the repealing of Section 1, Chapter VI of the Law on Construction (No. 16/2003/QH11) and Article 2 of the Law Amending and Supplementing a Number of Articles of the Law relating to Capital Construction Investment (No. 38/2009/QH12). With these changes, the new law will resolve the overlaps between the Law on Tendering and other laws such as the Law on Construction.

Aimed at addressing certain loopholes and issues related to the current legal framework on procurement, the new Law on Tendering was intended to provide new provisions to clarify these issues. It devotes a separate chapter to each of the following subjects:

Selection via online or e-procurement mechanisms to help simplify the bidding process and implement legislative information disclosure requirements for better transparency throughout the bidding process and project implementation;

Several options, including application of modified criteria (specifically on cost and contractor qualifications), in the evaluation of bidding dossiers by bidding organisers; and

Involvement of foreign contractors being made subject to two new conditions; namely, that they must (i) work in partnership with a Vietnamese company or sub-contract a local company; and (ii) employ only foreign workers when there are no qualified Vietnamese workers available for the project.

As such, the amended provisions are also designed to support local contractors participating in international projects. In addition, the Law on Tendering also includes many new terms and some new principles that aim to actively enhance competitiveness, decentralise public procurement and promote anti-corruption measures. It also introduces a new scope of application for official development assistance (ODA) projects. It is expected that the implementing regulations will rein in ODA projects to a more efficient level. Ideally, the regulations aim to determine the steps towards controlling procurement activities, ensuring fairness between the parties, and limiting corruption.

There are two examples where the Law on Tendering has proven its efficiency.

Total estimated costs and the procedure for bidding supplements

During the process of implementing the winning package, contractors often apply to adjust costs of the project scale related to the bid cost adjustment. Actual evidence shows that many projects are won by bids that are deliberately lower, but which later apply for an adjustment in the scale of investment leading to increased levels of investment. Therefore, this new regulation is intended to overcome this issue, through the appointment of sub-contractors via bidding. As a result, this regulation should contribute to restricting wastage of the state budget.

Responsibility of competent persons in bidding and direct appointment of contractor

Regarding the determination of competent persons, the regulation as described in Article 4(3) is a step forward. This allows quick decisions to be made on small packages. To avoid the downside of this regulation, the responsibility of the authorised individual is clearly defined. As a result, this restricts the abuse of power by an authorised individual, closes a loophole and creates a healthier bidding environment.

However, apart from progress on this issue, there remain a number of practical issues that should be supplemented and rectified in the decrees implementing the law.

Broad definition of state capital

The provisions of the applicable object are always a matter of controversy and present an interesting point. This law provides that procurement activities include “implementation of investment projects developed by organisations other than those specified in points a and b of this paragraph may use state capital, capital of state-owned enterprises, 30 per cent or more or less than 30 per cent but more than VND500 billion in total investment of the project be approved”.

Article 4(44), closely outlines the definition of “state capital”. The law defines state capital to include both equity and loan capital for the purposes of this provision, including capital of state owned enterprises or loans that are guaranteed by the state or secured against state assets. Due to this broad definition, most private public partnership projects (PPP) may fall into the scope of this application, because most public infrastructure projects may require state guarantees.

Consequently, the status of state capital under this law poses a great challenge to the current legal framework. As a result, different types of “state capital” outside the traditional meaning of “state capital” will be restricted. The broad application of this law may further delay the implementation of many projects to organise tendering, such as joint ventures between foreign investors and state owned enterprises, or PPP projects in which the state participates.

Race to the bottom

Time is not the only concern with the Law on Tendering. Quality is also an issue because it could be compromised by cost. Assessment methodology bids as described in Article 38 (1) of the Law on Tendering introduced lowest cost methods. This method is commonly used in a number of developing countries. However, in theory, businesses cannot simultaneously meet the multiple requirements of better quality and cheaper prices. Regrettably, the new law still follows the “cheap price” approach, which may turn out to be expensive in the long run because of low product quality.

The low price approach may also be paralysed by price adjustment provisions in the granting of the project. We understand that an adjustment in prices is “unavoidable” because the country’s macro-economy is still unstable. However, the particular price may be flexible, but the total price should be fixed, since all the risks, such as the escalating price of materials and labour costs, should be taken into account in the bidding price from the start. In reality, the adjustment of prices has led to the situation where the prices of all projects have been driven up to levels higher than the bids with many contractors intentionally delaying the construction process to have the prices adjusted.

Managing direct appointment of contractors

The method for the direct appointment of contractors should reflect real world practices but at the same time, promote openness, transparency and prevention of corruption in the bidding process. This is a significant change from the former Law on Tendering in that it now prescribes fixed price, cost evaluation and technical and cost methods.

The consideration should also be made when adding provisions that ensure objectivity, transparency, efficiency and limiting of corruption to the lowest price method. For that purpose, the law provides that the direct appointment should be adopted in simple or small-scale cases. However, what packages should be deemed as simple or small-scale? The current regulations are quite unclear, leading to several interpretations and different applications. Therefore, this should be further considered when applied in reality.

In addition, this new regulation resolves situations where projects win the bid but fail to meet their deadline because contractors lack capacity (only winning the bid on the basis of lowest price alone). The weight given to the lowest bid as a decisive factor and failing to take into account other factors, is a main cause for faulty and low quality projects. This new regulations also prove that selection of contractors should not only be based on the “lowest bid” but also take into account contractor capacity, qualifications and experience, and sources of supply. However, the regulations on evaluating contractors should further focus on contractor capacity because “quality of the project as the first and foremost priority”.

Overall, there are many positive improvements in the new Law on Tendering, and an intention to enhance investment efficiency and reduce corruption.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://