DESIGN AND CONSTRUCTION CONTRACTS
Vietnam is a developing country, as of 2019 the per capita income of Vietnamese people is over 2700USD /person /year and is recognized by the World Bank organization as a country with many infrastructure and housing construction projects. In 2020, with the COVID 19 pandemic, projects and construction works are more or less affected. For example, overdue payment may also be delayed by the negative pandemic effects on the world economy in general and Vietnam in particular. Meanwhile, design and construction contracts are often of great value. Therefore, effectively preventing and resolving disputes that arise from or relate to design and construction contracts need to be supported by experienced lawyers and legal experts in this field. The experience and understanding of Lac Duy & Associates’s lawyers and legal experts will help the parties to the dispute.
1. Knowledge of amended and supplemented laws related to projects, design works, construction such as:
The project contract is specified in Clause 2, Article 3 of the Government’s Decree No. 63/2018/ND-CP of May 4, 2018, on investment in the form of public-private partnerships;
A Construction – Business – Transfer Contract (referred to as BOT contract) is a contract signed between a competent state agency and an investor or project enterprise for the construction of infrastructure works; after completing the work, investors and project enterprises are entitled to do business within a certain period of time; at the end of the time limit, investors and project enterprises may transfer such works to competent state agencies;
A Construction – Transfer – Business Contract (referred to as BTO contract) is a contract signed between a competent state agency and an investor or project enterprise for the construction of infrastructure works; upon completion of the work, the investor or project enterprise transfers it to a competent state agency and is entitled to do so for a certain period of time;
Construction – Transfer Contract (referred to as BT contract) means a contract signed between a competent state agency and an investor or project enterprise (if any) for the construction of infrastructure works; upon completion of the work, the investor transfers the work to a competent state agency and is paid by land fund, working office, infrastructure assets or the right to trade in or exploit the work or service for the implementation of another project;
A Construction – Ownership – Business Contract (referred to as a BOO contract) is a contract signed between a competent state agency and an investor or project enterprise for the construction of infrastructure works; upon completion of the work, the investor or project enterprise owns and is entitled to do business within a certain period of time; upon the expiration of the time limit, investors and project enterprises shall terminate the operation of investment projects in accordance with the law on investment;
A construction contract – transfer – lease of services (referred to as a BTL contract) is a contract signed between a competent state agency and an investor or project enterprise for the construction of infrastructure works; upon completion of the work, the investor or project enterprise transfers it to a competent state agency and is entitled to provide services on the basis of operation and operation of such work within a certain period of time; competent state agencies to lease services and pay to investors and project enterprises;
A construction contract – Service lease – Transfer (referred to as a BLT contract) is a contract signed between a competent state agency and an investor or project enterprise for the construction of infrastructure works; after completing the work, investors and project enterprises are entitled to provide services on the basis of operation and exploitation of such works within a certain period of time; competent state agencies to lease services and pay to investors and project enterprises; after the time limit for provision of services, investors and project enterprises may transfer such works to competent state agencies;
Business – Management Contract (referred to as a O&M contract) means a contract signed between a competent state agency and an investor or project enterprise to do business part or all of the work within a certain period of time;
A mixed contract is a contract combining all kinds of contracts specified in Clauses 3, 4, 5, 6, 7, 8 and 9, Article 3 of the Government’s Decree No. 63/2018/ND-CP of May 4, 2018, on investment in the form of public-private partnerships;
Other contracts specified in Clause 4, Article 40 of the Government’s Decree No. 63/2018/ND-CP of May 4, 2018, on investment in the form of public-private partnerships.
2. Preventing disputes in the drafting of contracts:
2.1. Subjective risks when signing the contract
Current situations
The person who signs the contract has no authority to sign (not the legal representative or the signer is not authorized).
The person who sign contract exceeds the authorized scope.
Prevention
Check in the enterprise registration certificate, business license in case the subject of the transaction is a legal person to check the person who has the right to sign the contract and the legal status of the legal person.
Request for authorization documents and identification documents (ID card, citizen identity card…) when making transactions.
Carefully check the authorization conditions and scope of authorization in the power of authorship.
2.2. Risks relating to the subject merchandise of the contract
Current situation
Disputes over the scope of work as set forth in the contracts;
Disputes over technical requirements in the design, construction contracts.
Disputes over time and contractual implementation.
When drafting contracts, the two parties have specified unclear terms and conditions that resulting in misunderstandings and/or the exploitation by a party so as to not perform obligations.
Prevention
It is necessary to draft detail and clear terms and conditions of the contract. In particular, when drafting, it is also possible to make an appendix separately to clarify the scope of work, technical requirements, quantity, quality, time, progress of implementation … to avoid disputes later.
2.3. Risks of collection and handover
Current situation
Disputes over transfer conditions and transfer time;
Disputes over transfer quality; Disputes over maintenance and repair of damage (if any).
Prevention:
The parties agree specifically in the contract on technical conditions, quality of works, operation status upon transfer. The contents of the obligations of the parties in the maintenance and repair of damage to maintain the operation of the post-transfer works should also be clearly stated to ensure the purpose of the contract and the liability of disputes that may arise.
2.4. Risk about the price, payment method
Current situations
Risks relating to price terms and condition when the market is fluctuate; Disputes over transportation costs;
Risk on payment method;
Disputes over payment term and payment obligations.
Precautions
It is highly recommended to draft detailed, specific and flexible terms which should be divided payment into one or more installments, the payment method should be in cash, the term, conditions and payment obligations should also be clarified to limit the evasion of obligations of the parties in the contract.
2.5. Risks of penalties for violations
Current situations
According to Article 301 of the Commercial Law, the right to agree on fines for violations committed by the involved parties is limited, specifically: “The fine level for breach of contractual obligations or the total fine for many violations agreed upon by the parties in the contract but it shall not exceed 8% of the value of the violated contract obligation”. Therefore, when agreeing on fines, they must base on the provisions of the Commercial Law to select fines within 8% or less, if the parties agree on a higher fine (e.g. 12%) then the excess (4%) considered a violation of the law and void.
According to the provisions of the Civil Code, if overdue payment occurs, the parties may agree on a fine but must not exceed 150% of the base interest rate.
The late payment interest rate at the average overdue debt interest rate on the market at the time of payment corresponds to the period of late payment.
Precaution
This is a normal provision, which can be included or not in the contract because it is already prescribed by law. In case it is specified in the contract, the parties should consider about the agreed percentage of violation is in accordance with the provisions of laws.
2.6. Risks associated with the provisions of the law on un Majeure events
Current situations
A force Majeure event is an event that occurs objectively unpredictable and cannot be overcome despite the application of all necessary measures and the permissible possibility.
Where the obliging party is unable to perform its civil obligations due to force majeure events, it shall not be liable for civil liability, unless otherwise agreed or otherwise provided for by law (Article 302 of the Civil Code 2015).
Pursuant to Article 294 of the 2005 Commercial Law, the breaching party shall be exempt from liability in case of force majeure events.
Thus, the most important value of drafting the provision on force majeure is to help the parties anticipate cases of liability exemption if breaches of contract obligations when force majeure conditions occur during the performance of contracts
Precaution
When drafting a contract, there should be a clear agreement on the cases of force majeure. Force majeure may be caused by natural phenomena: floods, fires, earthquakes, tsunamis. Force majeure can be caused by social phenomena: wars, riots, coups, strikes, embargoes, government changes or can bring up events themselves such as power outages, engine failures … suppliers of supplies and equipment that delay delivery are force majeure events to exempt them from liability.
3. Drafting dispute settlement term should be consistent with the financial conditions and actual circumstances of the parties:
When commencing the commercial transaction, the parties normally expect that the transactions will be executed smoothly and no disputes arose related thereto. However, the parties should be agreed about the competent authority who will be eligible to settle the disputes and other relating terms and conditions in order to prevent the situation that the two parties could not communicate with each other when the disputes arise. wish to achieve their purpose of signing and do not expect that disputes will arise.
3.1. Disputes resolution by arbitration
Advantages
Procedures are usually quick, flexible, the parties can be proactive about the time and place of settlement;
The trial is not public, making the information of the parties confidential.
The referee is highly specialized, deeply knowledgeable about the matter of the dispute.
Disadvantages
High arbitration costs. The arbitral award may be annulled by the Court.
Some activities still require court intervention such as the application of provisional emergency measures or the enforcement of arbitration rulings
3.2. Dispute Resolution by the competent court
Advantages
Strict procedures;
The court judgements shall be enforced;
Public, deterrent trial.
Reasonable cost.
Disadvantages
Complicated procedure, lack of flexibility.
Court judgments and decisions may be appealed, causing the trial process to be prolonged, costly for the time and effort of the parties.
Public trials can affect business secrets and the prestige and position of the parties in the market.
Lac Duy & Associates generally assists clients in drafting design, construction, and special representations of the parties to the dispute, as lawyers or authorized representatives, to protect the legitimate rights and interests of the parties.
If you have any questions to consult, please contact Lac Duy & Associates immediately to receive timely advice and support.