Legal regulations on construction contracts in vietnam

What is a construction contract? How is it regulated under the 2014 Construction Law?

In the article below, NPLaw will provide you with complete and accurate information about construction contracts and related matters, explained in a clear and straightforward way.

I. Definition of a construction contract

Under Clause 1, Article 138 of the Law on Construction 2014, a construction contract is defined as a civil agreement in written form between the project owner (the awarding party) and the contractor (the awarded party), for the execution of part or all of the work involved in a construction investment activity.

Unlike many other civil contracts, a construction contract must be executed in writing and signed by duly authorized representatives of both parties, as required under Clause 1, Article 6 of Decree No. 37/2015/NĐ-CP. 

II. Characteristics of construction contracts

In addition to the general features of civil contracts, construction contracts have several distinctive characteristics:

• Firstly, the subject matter of a construction contract is very diverse: each type of construction activity corresponds to a specific type of contract subject. For example, the subject of a consulting contract includes tasks such as preparing construction plans, preparing construction investment projects, selecting contractors, supervising construction work, and so on. In contrast, the subject of a construction execution contract includes the execution of specific components such as the foundation, the main structure, finishing works, equipment installation, etc. The subject matter of a construction contract must clearly define its scale. However, determining this scale is not simple, as it depends on many different factors.
• Secondly, the selection of the contracting party is typically done through a bidding process: Unlike other types of contracts where one party may unilaterally choose a contractor, in construction contracts, the contractor is usually selected through a bidding process as regulated by the Bidding Law 2013. Because construction contracts often involve large contract values, the bidding method is used to ensure fairness, transparency, and competition, and to help the project owner select the most qualified contractor. In this context, the construction contract is the result of the contractor selection process.
• Thirdly, the rights and obligations of the parties in a construction contract may involve third parties: A construction contract often includes many different activities that are complex and varied in nature. To ensure the project's progress and quality, the project owner (the contracting party) may divide the work into smaller parts and assign them to multiple contractors, each specializing in a specific task. During contract performance, the main contractor may also need assistance from third parties. These third parties can include subcontractors, suppliers, joint venture contractors, construction supervision consultants, design consultants, and others.
• Fourthly, the legal capacity of the parties in a construction contract: The parties to a construction contract include the project owner (the assigning party) and the contractor (the receiving party). These parties must possess the required capacity in the field of construction and must meet all legal requirements applicable to participants in a construction contract.
• Fifthly, construction contracts are governed by multiple legal documents: Construction contracts are subject to general legal principles set out in the Civil Code. Because they are often signed between legal entities for the purpose of business and profit, they are also regulated by the Commercial Law. Additionally, as construction is a specialized field, these contracts are specifically governed by the Construction Law and other relevant regulations.

III. Types of construction contracts

Under Article 140 of the Law on Construction 2014, contracts are classified as follows:

By the nature of work performed:

• Consulting contracts;
• Construction execution contracts;
• Contracts for supply and installation of equipment;
• EPC (Engineering – Procurement – Construction) or turnkey contracts;
• Other forms of construction contracts.

By pricing method:

• Lump-sum contracts;
• Fixed-unit-price contracts;
• Adjustable-unit-price contracts;
• Time-based contracts;
• Cost-plus-fee contracts;
• Mixed contracts;
• Other contractual forms.

Further details are elaborated in Decree No. 37/2015/NĐ-CP dated April 22, 2015 of the Government provides detailed regulations on construction contracts and Decree No. 50/2021/NĐ-CP dated April 1, 2021 amends and supplements certain provisions of Decree No. 37/2015/ND-CP and relevant guiding circulars issued by competent authorities.

IV. Conditions for legal validity

A construction contract becomes effective when it meets all of the following conditions:

• The person signing the contract must have full legal capacity for civil acts and proper authority in accordance with the law;
• The signing of the contract must comply with the principles set out in Point a, Clause 2, Article 138 of the 2014 Construction Law;
• The contractor must meet all legal requirements regarding construction operation capacity and professional practice capacity as prescribed by this Law.

The effective date of the construction contract is either the date on which the contract is signed or another specific date as agreed upon by the parties.

Simultaneously, Clause 1, Article 6 of Decree No. 37/2015/ND-CP stipulates the validity and legal effect of construction contracts as follows:

A construction contract has legal effect when it meets all of the following conditions:

• The person signing the contract has full legal capacity for civil acts;
• The signing of the contract complies with the principles set out in Article 4 of this Decree;
• The contract is made in written form and signed by the legally authorized representative of each party. In cases where a party to the contract is an organization, that party must sign and affix its official seal in accordance with the law.

Accordingly, a construction contract becomes legally effective when the following three conditions are met:

• The person signing the contract must have full legal capacity for civil acts;
• The signing of the contract must follow the correct legal principles;
• The contract must be made in writing and signed by the authorized representatives of the parties involved.

V. Mandatory contents of a construction contract

According to Clause 1, Article 141 of the 2014 Construction Law, the contents of a construction contract include the following:

• Applicable legal grounds;
• Language used in the contract;
• Scope and volume of work;
• Quality requirements, technical specifications, acceptance, and handover of the work;
• Timeframe and schedule for contract performance;
• Contract price, advance payments, currency used for payment, and payment terms;
• Performance security and advance payment guarantee;
• Adjustments to the construction contract;
• Rights and obligations of the parties to the contract;
• Liability for contract breaches, bonuses, and penalties for violations;
• Suspension and termination of the contract;
• Dispute resolution mechanisms;
• Risks and force majeure events;
• Final settlement and liquidation of the contract;
• Other relevant provisions.

For general contractor construction contracts, in addition to the standard contents above, the contract must also include specific terms regarding the responsibilities and management duties of the general contractor.

Depending on the specific type of construction contract, certain contents may be added or omitted accordingly. Decree No. 37/2015/ND-CP provides detailed and specific guidance on the contents required for different types of construction contracts.

VI. Questions on construction contracts in Vietnam 

6.1 Is a construction contract a commercial contract?

Although the Construction Law 2014 does not provide a specific definition of construction contracts, in theory, a construction contract can also be considered a commercial contract and thus be governed by the Commercial Law 2005. Fundamentally, a commercial contract is a type of civil contract.

However, unlike other types of civil contracts, a commercial contract is characterized by: The legal status of the parties (entered into between merchants, or at least one party is a merchant) and The purpose of the contract (which is for profit-making).

Therefore, if a particular construction contract meets both conditions, the parties involved qualify as merchants and the contract is intended for profit; it can be classified as both a construction contract and a commercial contract, and would fall under the scope of the 2005 Commercial Law.

In practice, most construction contracts do meet the criteria for being considered commercial contracts. As a result, such contracts may be simultaneously governed by the 2015 Civil Code, the 2005 Commercial Law, and the 2014 Construction Law.

6.2. When does a construction contract take legal effect?

According to Article 6 of Decree No. 37/2015/ND-CP, a construction contract has legal effect when all of the following conditions are met:

• The person signing the contract has full legal capacity for civil acts;
• The signing of the contract complies with the principles set out in Article 4 of this Decree;
• The contract is made in written form and signed by legally authorized representatives of the parties. If a party to the contract is an organization, it must sign and affix its official seal in accordance with legal regulations;
• The effective date of the construction contract is either: The date the contract is signed (and sealed, if required), or another specific date as agreed upon by the parties in the contract, and, in cases where the contract requires a performance security, the project owner must have received the performance security from the contractor. 

6.3. Is a PPP project contract the same as a construction contract?

Currently, when referring to PPP project contracts, many people mistakenly believe that these are simply a form of construction contract. This confusion arises because the two share several similarities. For example, PPP projects often involve construction works, along with related issues such as construction delays, labor costs, material expenses, andpost-co nstruction operation and management. These are all matters typically associated with construction contracts. However, based on the definitions and the nature of the parties involved, key differences can be identified. In a standard construction contract, there are usually two main parties: the project owner and the contractor. In contrast, a PPP project contract involves one party being a competent State authority, and the other being a private investor or enterprise. As a result, the roles and responsibilities of each party in a PPP contract differ significantly from those in a typical construction contract.

Furthermore, in a construction contract, once construction is completed, the contractor may still have some remaining obligations such as warranty or maintenance, but these are not the core obligations of the contract.

In contrast, a PPP contract includes a broader range of primary obligations, covering the entire lifecycle of the project from construction, to operation, maintenance, and even the provision of public services or infrastructure to the public.

Therefore, a PPP project contract is not a type of construction contract. Based on the definitions, nature, and characteristics of the two, they are clearly distinct and fundamentally different types of contracts.

VII. Legal advisory services

For businesses or investors requiring professional legal assistance in drafting, reviewing, or negotiating construction contracts, NPLAW offers:

• Tailored legal advice;
• Drafting and vetting of construction contracts;
• Representation in dealings with government authorities;

End-to-end support to ensure legal compliance and project success.