Changes to construction law in Vietnam

Out-Law Guide | 25 Aug 2011 | 5:10 pm | 3 min. read

This guide was last updated in August 2011.

The Vietnamese Government has passed Decree 48 replacing, amending, elaborating and partly consolidating the existing law governing the country's construction industry. However, numerous questions remain about its intended operation and the status of existing provisions.

The new law introduces important changes to pricing, payment, parties' rights, remedies, privileges, duties and obligations, insurance, notification of claims and arbitration. This guide provides a basic introduction to Decree 48, focussing on the immediate changes to claims procedure.

To whom does it apply?

Decree 48 applies to organisations and people involved in construction contracts governing projects with no less than 30% state funding. Funding that originates from an official development assistance programme with a foreign nation is still regarded as state funding.

A 'construction contract' for the purposes of Decree 48 is a written agreement providing for civil relations in construction activities. This means it does not apply to parties who enter into an oral agreement. It also does not apply to construction projects with investment of less than 30% state funding. It remains unclear whether this threshold is applied at the time the construction contract is signed, or whether a subsequent decrease or increase in the level of state investment will cause the decree to become effective or ineffective.

From when does it apply?

Decree 48 took effect on 1 July 2010 and applies as from that date. However, its requirements are not binding on a construction contract whose status prior to this date was 'performed or being performed'. The use of this expression for the purpose of the exemption, rather than a reference to the date of contract execution, is highly unusual and means that parties to a relevant construction contract could be bound by the changes even if their contract was signed before this date.

This wording could mean that if the contract had not reached practical completion by 1 July 2010 then Decree 48 could apply. It is unlikely that a variation or change-in-law clause in the contract would truly envisage such a fundamental post-contractual change in the law. This will need to be considered on a case by case basis.

The main changes

Decree 48 introduces important changes and additional provisions in the following areas:

  • new party rights, privileges, duties and obligations;
  • material price inflation;
  • adjustment of schedule;
  • payment
  • construction insurance;
  • notification and substantiation of claims;
  • time limit for commencement of arbitration;
  • suspension and termination;
  • bilingual construction contracts.

Notification and substantiation of claims

The decree creates a legal duty to 'promptly notify' the other party about and provide evidence of any contractual defaults within 30 days after that default becomes known to the innocent party. If the innocent party does not do so, the decree provides that the parties must "comply with signed agreements". This appears to create a temporary waiver of rights and remedies arising from a default.

This raises a number of questions:

  • can a party avoid the operation of this clause by refusing to acknowledge a default or feigning ignorance of it?
  • does the waiver arise after the 30 day period has expired, or is there a further period to allow the innocent party to 'promptly notify' the other?
  • does the waiver arise where the innocent party has incorrectly addressed the default?

Within 30 days of receiving the complaint, the other party must show cause why the matters complained of do not represent a contractual default. Otherwise, it will be deemed to have accepted the complaint. There is no particular manner or form stipulated about how this must be provided.

These provisions are not expressed in any way that goes against any overriding contractual notice provisions. All applicable notice provisions should also be fully complied with.

Time limit for commencement of arbitration

There is a two-year time limit for requesting an arbitration to resolve a dispute arising from a construction contract. Under the new law, this two-year period now runs from "the date the parties' lawful rights and interests are infringed upon" (previously "the date the dispute occurs"). This change brings the position into line with the limitation period in relation to court proceedings established in Vietnam's Civil Code, as well as corresponding provisions in many other jurisdictions.

This change may be significant in practice. In the Vietnamese construction industry, disputes tend to be stored up to be resolved in bulk once the works are completed.