Vietnam’s new construction law introduces clearer rules and reduced administrative burdens

The new Law on Construction (LOC) will replace the current Construction Law No. 50/2014/QH13 and introduces changes to penalties and liquidated changes, alongside being a significant step toward greater contractual freedom and reduced administrative control, in line with the government’s push to simplify procedures and accelerate project delivery.

Under the previous regime, there was uncertainty when construction-specific rules did not address a contractual issue, leaving parties unsure whether the commercial law or the civil code should apply. The new LOC resolves this by confirming that the civil code governs construction contracts where construction specific provisions do not apply.

Frederic Gillion, construction arbitration specialist at Pinsent Masons, said: “This clarification addresses the prior uncertainty surrounding the hierarchy between the commercial law and the civil code in construction matters, which directly influences penalty caps, statutory limitation periods, and the calculation of late payment interest.”

Under the new regime, LOC construction contracts can now, for the first time, include pre-determined compensation for specific breaches, operating similarly to liquidated damages (LD) and reducing disputes about quantifying losses.

The new LOC distinguishes between pre-determined compensation and penalties for breaches, which remain capped at 12% for public investment construction works.

Gillion said: “This change brings Vietnam in line with international practices, but careful drafting will remain essential to ensure that LD clauses are not characterised as penalties.”

Force majeure and hardship are also formally recognised. The clause refers to the civil code regarding the determination of force majeure and hardship events.

Yong Neng Chan, a construction arbitration expert at Pinsent Masons, said: “The new law lists qualifying events, thereby limiting contractual autonomy but increasing predictability.”

“The new law reinforces the role of arbitration but also now recognises ‘international dispute resolution models’ in construction contracts, likely referencing dispute adjudication boards (DABs) and FIDIC style dispute resolution mechanisms, which are widely used on major projects, bringing Vietnam in line with international practice,” he said.

“When a foreign party is involved, a non-Vietnamese contract language may prevail, resolving another previously unclear issue.”
A state appraisal of construction drawings has been eliminated in the new regime, creating significant reform by shifting to a single administrative procedure from project preparation to commencement, with responsibility for detailed design now placed squarely on the investor.

Other changes include updates to project categorisation based on investment type, whether public, public-private partnership or a business investment; broader permit exemptions, including for small residential structures and works already subject to feasibility appraisal; decentralisation of construction order and quality management authority to provincial People’s Committees; and the creation of a national database on construction activities to enhance transparency and reduce administrative friction.

“In summary, these legal clarifications and reforms mark a significant improvement in Vietnam's construction law framework. The new law aligns more closely with international standards and best practices and streamlines administrative processes for both domestic and foreign stakeholders in Vietnam’s construction sector,” Gillion said.