Adjustment of construction contract prices in according with law

Adjustment of construction contract prices is one of the situations that frequently arises during the performance of construction contracts. This article examines the legal regulations on the Adjustment of Construction Contract Prices and addresses certain related issues in order to assist individuals and organizations in protecting their lawful rights and interests.

I. Current Situation Relating to the Adjustment of Construction Contract Prices

In practice, the adjustment of construction contract prices occurs quite commonly during contract performance, depending on the type of contract and arising factors such as increases or decreases in work volume, changes in State policies, or force majeure events.

Any adjustment of the contract price must be agreed upon by the parties through a contract appendix and must comply with applicable laws and regulations.

II. Concept of Adjustment of Construction Contract Prices

To better understand the adjustment of construction contract prices and the factors leading to such adjustment, please refer to the analysis below provided by NPLaw.

1. What is the Adjustment of Construction Contract Prices?

A construction contract is one of the types of construction contracts. Pursuant to Clause 1, Article 138 of the Law on Construction 2014 as amended in 2020, a construction contract is a civil contract agreed upon in writing between the employer and the contractor for the performance of part or all of the work in construction investment activities.

Pursuant to Clause 1, Article 15 of Decree No. 37/2015/ND-CP, the construction contract price is the amount of funding that the employer commits to pay the contractor for performing the work in accordance with the requirements on quantity, quality, schedule, payment conditions, contract advance, and other requirements as agreed in the construction contract.

Accordingly, the adjustment of construction contract prices refers to the modification of the contract value or unit prices originally agreed upon to accommodate changes arising during the implementation of the project or construction works, which may include adjustments to quantities, unit prices, schedules, or other contents agreed upon by the parties in the contract.

2. What Factors Commonly Lead to the Adjustment of Construction Contract Prices?

The adjustment of prices during contract performance is inevitable. Various factors may lead to the adjustment of construction contract prices, including:

• Changes in State policies: When new policies on taxation, wages, or other State regulations directly affect the contract price, the price may be adjusted in accordance with the parties’ agreement.
• Project adjustments: Where project adjustments affect the construction contract, the contract price shall be considered for adjustment, except where otherwise agreed by the parties.
• Changes in work volume: Where the actual construction volume exceeds the volume stipulated in the original contract, the parties may agree on new unit prices for the additional work volume.
• Changes in design and technical requirements: Amendments to design or technical specifications may increase construction costs, thereby leading to an adjustment of the contract price to reflect such changes.

Accordingly, construction contract prices are typically adjusted due to the factors mentioned above.

3. What Measures Help Ensure Transparent, Lawful Adjustment of Construction Contract Prices and Minimize Disputes?

To ensure that the adjustment of construction contract prices is transparent, lawful, and dispute-free, the parties should adopt the following measures:

• Clearly defining cases of adjustment: Specifically stipulate which circumstances constitute changes (e.g., changes in employer requirements, design modifications, or new legal requirements).
• Clearly defining cases not constituting adjustments: Identify minor adjustments that do not affect the scope or quality of work and shall not be deemed changes, in order to limit unreasonable claims for additional costs.
• Providing mechanisms for price adjustment: The contract should specify clear mechanisms for determining the extent of impact and the method of price adjustment, such as based on provisional unit prices or prevailing market prices at the relevant time.
• Using contract appendices: Where work volumes change or additional adjustments arise, a contract appendix should be executed to record the quantities, provisional unit prices, and other details, allowing sufficient time for careful determination of final unit prices.
• Appraisal and approval: The employer should thoroughly appraise contractors’ requests for changes to ensure their reasonableness and compliance with previously agreed conditions.

Accordingly, to implement the adjustment of construction contract prices in a transparent and lawful manner, the parties must adopt appropriate measures and clearly stipulate them in the contract.

III. Legal Regulations Relating to the Adjustment of Construction Contract Prices

Understanding the legal regulations relating to the adjustment of construction contract prices is a common need and concern of many entities. However, in the context of frequent changes in Vietnamese law, proper understanding and application of these regulations are not always straightforward.

Recognizing this, NPLaw provides an overview of the latest legal regulations governing the adjustment of construction contract prices.

1. In Which Cases Is Adjustment of Construction Contract Prices Required?

Pursuant to Clause 2, Article 143 of the Law on Construction 2014 as amended in 2020, construction contract prices must be adjusted in the following cases:

• As agreed by the parties in the contract in accordance with this Law and other relevant laws;
• Where the State changes policies that directly affect contract performance, except where otherwise agreed by the contracting parties;
• Where project adjustments affect the contract, except where otherwise agreed by the contracting parties;
• Force majeure events as prescribed by law.

Pursuant to Clause 3, Article 143 of the Law on Construction 2014 as amended by Point c, Clause 64, Article 1 of the Amended Law on Construction 2020, the adjustment of construction contract prices for projects using public investment capital or State capital outside public investment must also comply with the following provisions:

• Adjustment of unit prices during contract performance shall apply only to adjustable unit price contracts and time-based contracts;
• Unit prices in the contract shall be adjusted in accordance with the contents, scope, methods, and bases for adjustment as agreed by the parties in the contract and in compliance with the law;
• Where contract adjustment results in changes to investment objectives, contract performance duration, or exceeds the approved construction package estimate, approval must be obtained from the investment decision-maker.

Accordingly, parties to a construction contract must adjust the contract price when the above circumstances occur.

2. What Methods Should Be Used to Adjust Construction Contract Prices?

Pursuant to Clause 3, Article 38 of Decree No. 37/2015/ND-CP as amended by Point b, Clause 14, Article 1 of Decree No. 50/2021/ND-CP, methods for adjusting contract prices include the direct offset method and the formula-based adjustment method. The application of price adjustment methods must be suitable to the nature of the work, the type of contract price, the payment currency, and must be agreed upon by the parties in the contract.

3. Are There Any Legal Limits on the Increase or Decrease of Construction Contract Prices?

Pursuant to Clause 2, Article 38 of Decree No. 37/2015/ND-CP as amended by Point a, Clause 14, Article 1 of Decree No. 50/2021/ND-CP, the adjustment of contract unit prices is regulated as follows:

• Adjustment of unit prices during contract performance shall apply only to adjustable unit price contracts and time-based contracts where agreed by the parties in the contract.
• Where the actual work volume increases or decreases by more than 20% compared to the corresponding volume stated in the contract and simultaneously results in a change exceeding 0.25% of the contract value and more than 1% of the unit price of such work, or where additional work volume has no unit price specified in the contract, the parties shall agree on new unit prices based on the principles agreed in the contract for payment.
• Where the actual work volume increases by more than 20% compared to the corresponding volume stated in the contract, the new unit price shall apply only to the portion exceeding 120% of the volume specified in the contract.
• Where the actual work volume decreases by more than 20% compared to the corresponding volume stated in the contract, the new unit price shall apply to the entire volume of work actually completed and accepted.
• Where the actual work volume increases or decreases by 20% or less compared to the corresponding volume stated in the contract, the unit price specified in the contract, including any adjusted unit price agreed under the contract (if any), shall apply for payment.

Additionally, pursuant to Clause 3, Article 38 of Decree No. 37/2015/ND-CP as amended by Clause 12, Article 1 of Decree No. 50/2021/ND-CP, the adjusted contract price must not exceed the approved construction package price or estimate (including contingency costs for such package). In such a case, the employer is entitled to decide on the adjustment. Where the adjusted price exceeds the approved construction package price or estimate, approval for adjustment must be obtained from the competent investment decision-maker or the Minister in charge, or the Chairperson of the provincial People’s Committee if so authorized, for projects decided by the Prime Minister, prior to implementing the adjustment, and sufficient funding must be ensured to pay the contractor in accordance with the contract. The adjustment of construction estimates, package estimates, and package prices shall comply with the laws on construction investment cost management and bidding.

Accordingly, increases or decreases in construction contract prices are subject to the limits prescribed by the above regulations.

4. Guidance on the Adjustment of Construction Contract Prices

Pursuant to Article 6 of Circular No. 02/2023/TT-BXD, where the adjustment of a construction contract price results in the need to amend or supplement the contract, the parties must execute a contract appendix as the basis for such price adjustment. The project owner shall be responsible for approving or submitting for approval the adjusted or additional cost estimates in accordance with the laws on management of construction investment costs and construction contracts, serving as the basis for the execution of the supplementary contract appendix.

Accordingly, the Adjustment of Construction Contract Prices shall be carried out as follows:

• Determination of cases subject to price adjustment: Adjustments shall be made in accordance with the cases agreed upon by the parties in the contract or those permitted by law.
• Submission for approval: The project owner shall approve or submit for approval the adjusted or additional cost estimates in compliance with the laws on management of construction investment costs and construction contracts.
• Execution of a contract appendix: Where the adjustment of the construction contract price requires amendment or supplementation of the contract, a contract appendix shall be executed as the legal basis for the price adjustment.

Thus, when adjusting construction contract prices, the parties shall generally follow the above basic steps.

IV. Responses to Frequently Asked Questions Relating to the Adjustment of Construction Contract Prices

To provide further clarity on the regulations governing the adjustment of construction contract prices, below are several frequently asked questions and corresponding explanations.

1. What types of costs may be adjusted when construction contract prices are adjusted?

Pursuant to Clause 1 Article 38 of Decree No. 37/2015/ND-CP, the parties to a construction contract must specifically agree on the cases in which unit prices and contract prices may be adjusted; the sequence, scope, methods, and bases for adjustment of the construction contract price. The method of price adjustment must be consistent with the type of contract price and the nature of the work under the construction contract.

The costs permitted to be adjusted when adjusting construction contract prices include:

• Material costs: Where prices of construction materials (such as steel) fluctuate upward or downward compared to the time of contract execution, the unit prices of related work items shall be adjusted proportionally.
• Labor costs: Adjustments to regional minimum wages or labor unit prices as regulated by the State shall constitute a basis for adjusting labor costs in the contract, in accordance with the labor cost structure of each work item.
• Construction machinery costs: Adjustments based on changes in fuel prices and operating costs of construction machinery.
• Other costs: Including costs affected by State policies such as taxes (VAT, charges, fees) or fluctuations in foreign exchange rates.

Accordingly, when adjusting construction contract prices, the parties may adjust the above categories of costs.

2. If the parties do not agree on the adjustment of construction contract prices, how does the law provide for resolution?

In the event of a dispute, the parties shall negotiate and review the contract and design dossiers to determine the scope of rights, obligations, and responsibilities of each party. Where the parties cannot reach an agreement through negotiation, the dispute shall be resolved through mediation, commercial arbitration, or the courts in accordance with Clause 8 Article 146 of the Construction Law 2014, as amended and supplemented in 2020, regarding dispute resolution in construction contracts.

3. When adjusting construction contract prices, is it necessary to prepare a written confirmation record?

Any adjustment of construction contract prices must be made in writing. Pursuant to Clause 1 Article 421 of the Civil Code 2015, the parties may agree to amend a contract, and the amended contract must comply with the form of the original contract. As construction contracts are required to be made in writing, any amendment or adjustment must likewise be documented in writing (typically in the form of a contract appendix).

Therefore, when adjusting construction contract prices, it is mandatory to prepare written documentation or confirmation records, usually in the form of a contract appendix. This is necessary to serve as the legal basis for adjusting or supplementing the originally agreed terms.

4. Can the adjustment of construction contract prices be applied to lump-sum contracts or quantity-based contracts?

Pursuant to Clause 2 Article 36 of Decree No. 37/2015/ND-CP, as amended by Clause 12 Article 1 of Decree No. 50/2021/ND-CP, for lump-sum contracts, price adjustments are permitted only for additional work volumes outside the scope of work under the signed contract (for construction contracts and equipment supply contracts, such work is outside the scope required by the design or bidding/solicitation documents; for consultancy contracts, such work is outside the consultancy tasks to be performed) and in the cases specified at Points b, c, and d Clause 2 Article 143 of the Construction Law 2014, as amended in 2020, namely:

• Where the State changes policies that directly affect contract performance, unless otherwise agreed by the parties;
• Where the project is adjusted in a manner that affects the contract, unless otherwise agreed by the parties;
• Force majeure events as prescribed by law.

For quantity-based contracts, adjustments are more flexible. Prices shall be adjusted based on the actual executed quantities and agreed unit prices in accordance with Clause 2 Article 38 of Decree No. 37/2015/ND-CP, as amended by Point a Clause 14 Article 1 of Decree No. 50/2021/ND-CP, in the following cases:

• Increase/decrease in quantities exceeding 20%: The parties may agree to determine new unit prices for the quantities exceeding 20% or for the entire quantity, depending on the circumstances.
• Additional quantities without existing unit prices: The parties shall agree to determine new unit prices prior to execution.

Accordingly, the adjustment of construction contract prices may apply to both lump-sum contracts and quantity-based contracts, subject to different conditions and methods.

5. When adjusting construction contract prices, how should the parties substantiate reasonable additional costs?

Pursuant to Article 20 of Decree No. 37/2015/ND-CP, payment dossiers for construction contracts shall include the following basic documents:

• Minutes of acceptance of completed work volumes for the payment period, certified by the representative of the employer or the consultant (if any) and the contractor; such minutes confirm completion of the works, work items, or work volumes consistent with the contractual scope (for construction contracts, consistent with the design scope; for consultancy contracts, consistent with the consultancy tasks), without requiring detailed confirmation of completed volumes;
• Calculation tables of the value of additional works (if any) outside the scope of the signed contract, certified by the representatives of the employer or consultant (if any) and the contractor;
• Payment request from the contractor specifying: the value of completed work volumes under the contract, the value of additional works (if any), deductions for advance payments, and the payment amount requested for the period after offsets, certified by the representatives of both parties.

Accordingly, to substantiate reasonable additional costs when adjusting construction contract prices, the parties must prepare complete documentation, including:

• Work volume inventory records: Records of actual work volumes, signed by the project supervisor.
• Documents evidencing price fluctuations: Including invoices for materials and supplies from reputable suppliers demonstrating price changes.
• Price index reports: Issued by competent state authorities, together with analyses of their specific impact on the contract.
• Price adjustment proposals: Detailed documents clearly setting out calculations, changes, and proposed price adjustments.

Thus, when adjusting construction contract prices, the parties must substantiate reasonable additional costs through the above means.

V. Why should you seek legal counsel from NP Law when issues arise regarding the adjustment of construction contract prices?

The above information provides responses to issues concerning the Adjustment of Construction Contract Prices as presented by NPLaw to our readers. With a team of experienced lawyers and legal professionals, NPLaw provides reputable and professional legal services, ensuring the best possible protection of clients’ lawful rights and interests. Should you require leg