Proposed Vietnamese construction changes could add to uncertainty, says expert

However Nicholas Brown of Pinsent Masons, the law firm behind Out-Law.com, warned that what is being proposed could introduce "additional uncertainty and commercially unrealistic snares" into a complex set of rules. He added that infrastructure companies operating in the country were also concerned about the lack of consultation by the Ministry on the changes.

"Early indications are such that a longer, more inclusive consultation would be welcomed," he said. "Leading infrastructure interests are watching these developments closely."

If passed into law, the new Construction Contract Regulations would take the form of a decree replacing 2010's Decree 48 on Contracts in Construction Activities. The draft was released for industry consultation towards the end of last year, but Vietnam's Legislative Assembly is yet to publically announce when the changes will come into force.

The changes will apply to all relevant contracts that are entered into on or after the effective date of the new law if it is enacted in its current form. It may also apply to contracts that are entered into before the effective date where work has not yet commenced. According to the draft, whether the new law will apply to such contracts will be a decision for the "investment decider" of that particular project.

The biggest change is that most of the provisions in the new draft law would apply to any construction contract regardless of how it is funded. The existing Decree 48 only applies to state-funded contracts, defined as those with no less than 30% state funding. The new law contains eleven specific provisions that only apply to state-funded contracts. These include a formal requirement for a valid construction contract, security requirements and time for payment. As is the case with Decree 48, the new law would apply to written construction contracts only leaving oral agreements unregulated.

In its current form, the draft appears to allow an employer and the main contractor to withhold payments in certain circumstances. It sets out a non-exhaustive list of scenarios where this could be the case, including where the contractual parties have "not completed required approval procedures for payment" and where "factors for price adjustment are not sufficient or not available". The drafts states that this would generally apply "whenever the contractual parties are not ready for payment according to the contract".

"This vaguely drafted provision may be intended to offer a form of relief from the obligation to pay in accordance with the terms of the contract," infrastructure law expert Nicholas Brown said. "An alternative inference is that it is intended to encourage timely part-payment in cases where a full payment is objectively impossible, in order to avoid the accrual of interest on late payment and other remedies ordinarily available to a trade creditor."

"Whatever the intention may be, the lack of clarity on this leaves the way open for a financially embarrassed employer (or main contractor) to delay payment without compensating the contractor (or subcontractor) for the financial distress this causes. This is not in line with the international trend towards security of payment in the construction industry nor, in the case of some state-funded contracts, the State's obligation to honour primary contractual obligations owed to certain contractors of certain foreign nationalities," he said.

The new law would also introduce an additional requirement for an employer's "representative" or "consulting engineer" to report issues concerning the "certifying or declining or postponing the certification of completed contractual quantities and variations" to the employer.

Brown said that although the reform was welcome, the draft decree did not address some of the more problematic provisions of Decree 48. "This is to be regretted, especially given the wider net of regulation being cast across the construction industry," he said.

"With due respect to the Ministry, recognising the multifarious challenges it faces as the primary industry regulator, it would have been preferable had the draft decree done away with the many aspects of over-regulation of written construction contracts - where educational measures and other forms of capacity building offer a better, investment-friendly route to an improved construction industry," he said.