By Lawyer Le Phuong Thanh – UniLaw LLC

LAWYERS FOR CONTRACTORS – UNILAW

The construction and infrastructure landscape in Vietnam is rapidly evolving, bringing both immense opportunities and significant legal complexities for domestic and international contractors. Whether dealing with payment delays, quality disputes, or the intricacies of procurement law, having a specialized contract attorney is no longer an option but a necessity. At UNILAW, we represent contractors in navigating the multifaceted legal environment of Vietnam, ensuring that their rights are protected and their projects remain commercially viable.

Real-Life Success: Securing Payment for Rough Construction Services

In a landmark dispute recently settled by the High People’s Court in Da Nang (Judgment No. 25a/2023/KDTM-PT), a major contractor, Vinaconex 25, sought legal recourse against the project owner, Dat Xanh Mien Trung (now renamed), regarding unpaid debts arising from a construction contract signed in 2018.

The contractor had been tasked with the rough construction of 33 shophouses within a lakeside project in Da Nang. Despite the contractor completing all works, including defect rectifications that did not affect the project’s operation, the owner withheld significant payments. The owner argued that the work was incomplete, quality was substandard, and the contractor had failed to provide original final settlement documents. However, the legal reality told a different story. The project owner and the general contractor had already signed a formal acceptance certificate (Biên bản nghiệm thu) on July 30, 2019, stating that the construction “met technical and aesthetic requirements” and was “ready for use.”

The Court determined that since the owner had officially accepted the work and the state construction authority had confirmed the project’s eligibility for handover, the owner’s refusal to confirm the final settlement value constituted a breach of contract. The contract lawyer representing the contractor successfully argued for the application of Article 306 of the Law on Commerce and Article 43 of Decree 37/2015/ND-CP regarding late payment interest and penalties.

The Verdict: The Court of Appeals upheld the initial ruling, forcing the project owner to pay the contractor a total of 12,975,819,426 VND. This included approximately 9.8 billion VND in principal debt, 2.3 billion VND in late payment interest, and 785 million VND as a penalty for delaying the settlement process. This case demonstrates the critical role of a legal contract lawyer in using formal acceptance documents to overcome bad-faith payment withholding.

The Legal Foundation of Construction Contracts in Vietnam

Understanding the statutory framework is the first step for any contractor. In Vietnam, construction contracts are governed by the Law on Construction and detailed by government decrees. A contract law lawyer must ensure every agreement aligns with these mandatory provisions.

Decree No. 37/2015/NĐ-CP provides a clear definition of what constitutes a construction contract in Vietnam. Article 2, Clause 4 states:

“Construction contract is a civil contract agreed upon in writing between the employer and the contractor to perform part or all of the work in construction investment activities.”

Legal Insight: This means that in Vietnam, verbal agreements or informal emails are generally insufficient for significant construction works. Every right and obligation must be recorded in a written document to be enforceable in court.

Furthermore, Article 3 of Decree 37/2015/NĐ-CP classifies contracts based on their nature and content, including:

• Construction consultancy contracts;
• Construction performance contracts;
• Equipment supply contracts;
• Engineering and Construction (EC);
• Engineering, Procurement, and Construction (EPC);
• Turnkey contracts.

A contract law lawyer must carefully choose the contract type, as the legal risks and responsibilities vary significantly between an equipment supply contract and an EPC turnkey arrangement.

Defining the Rights and Obligations of the Contractor

The success of a contractor often depends on a clear understanding of their statutory obligations. Article 28 of Decree No. 37/2015/NĐ-CP outlines the core duties of a construction contractor:

“23. Obligations of the construction contractor:

a) Provide human resources, materials, machinery, construction equipment and other related material conditions in sufficient quantity and types according to the contract; construction drawing design (in case the contractor performs construction drawing design) to perform the work according to the signed contract.

b) Receive and manage the construction site, preserve the center, height, and boundary markers of the project.

c) Construct in accordance with the design, applied standards, technical regulations, ensuring quality, progress, safety, environmental protection and fire and explosion prevention.”

Legal Insight: Clause (a) and (c) are the most frequent sources of dispute. If a contractor uses materials that differ from the approved design—even if they are of “equivalent” quality—the owner may have grounds to refuse payment unless a written variation order or amendment was signed.

On the other side of the coin, the contractor also has powerful rights. Article 113 of the Construction Law 2014 grants contractors the following:

“460. Construction contractors have the following rights:

a) Refuse to perform illegal requests;

b) Propose modifications to the construction design to suit actual construction to ensure quality and efficiency;

c) Request payment of the value of completed construction volume according to the contract;

d) Stop construction when there is a risk of safety for people and the project or the employer does not perform the commitments in the contract.”

Legal Insight: Clause (d) is a critical “shield” for contractors. If an employer fails to pay according to the agreed schedule, a contract attorney can advise the contractor on how to legally suspend works without being liable for delay damages.

The Complexity of Payment and Final Settlement

Payment is the lifeblood of a contractor, yet it remains the most disputed area. Article 144 of the Construction Law 2014 sets the principles for payment:

“1. Payment for construction contracts must be consistent with the type of contract, contract price and conditions in the contract signed by the parties.

2. The contract parties shall agree on the payment method, payment time, payment dossier and payment conditions.

3. The employer must pay the full value of each payment to the contractor after deducting the advance payment and project warranty money according to the contract agreement, unless the parties have other agreements.”

Legal Insight: It is vital to note that under Clause 3, the owner cannot arbitrarily withhold more than the agreed-upon warranty percentage (usually 5% or 10%). If the owner holds back more without a specific defect claim, they are in breach.

Final settlement (quyết toán) is another major hurdle. Article 22 of Decree 37/2015/NĐ-CP defines it as:

“Contract settlement is the determination of the final total value of the construction contract that the employer is responsible for paying to the contractor when the contractor completes all the work according to the agreement in the contract.”

In many cases, owners simply refuse to sign the “A-B Settlement” document to delay payment indefinitely. As seen in the Vinaconex 25 case, if a contractor can prove completion through other technical acceptance certificates, a court can recognize the settlement value even without the owner’s signature on the final form.

Handling Delays and Delay Penalties

Time is money in construction. When a project is delayed, the blame game begins. Article 146 of the Construction Law 2014 regulates penalties:

“2. For construction works using state capital, the contract penalty level shall not exceed 12% of the value of the violated contract portion. In addition to the agreed penalty level, the party violating the contract must also compensate for damages to the other party and the third party (if any) according to the provisions of this Law and other relevant laws.”

Legal Insight: For private projects, the 12% cap might not apply depending on how the contract is drafted under the Civil Code vs. the Commercial Law. A contract lawyer must determine which law prevails. If the contract is purely “commercial,” the penalty is capped at 8% under Article 301 of the Commercial Law.

Contractors often face delays caused by the owner, such as late site handover or delayed design approvals. Article 70 of Decree 37/2015/NĐ-CP allows for progress adjustments in such cases:

“In the process of performing the contract, the parties may adjust the time milestones for completing the specific contents specified in the contract in the following cases:

…d) The handover of the site is not in accordance with the agreement in the contract, the contract is suspended due to the fault of the employer affecting the contract progress but not due to the fault of the contractor.”

Legal Insight: Contractors must document these delays in real-time. A legal contract lawyer will advise you to send a written notice of delay the moment the site is not handed over, rather than waiting until the project deadline passes.

Warranty Obligations and Security Deposits

Contractors are legally bound to guarantee their work. Article 125 of the Construction Law 2014 states:

“1. Construction contractors are responsible for warranting the work they construct. Contractors supplying project equipment and technological equipment are responsible for warranting the equipment they provide.

2. The content of the work warranty includes overcoming, repairing and replacing damaged equipment and defects caused by the fault of the contractor.”

Legal Insight: The warranty period and amount (usually 5% retention) must be specified. If a defect appears, the contractor must be given the first opportunity to fix it. If the owner hires a third party without notifying the contractor and giving them a reasonable time to repair, the contractor might not be liable for those third-party costs.

In another case handled by UNILAW involving a road upgrade (Judgment No. 171/2021/KDTM-PT), the owner hired third-party contractors to fix cracks before the formal joint survey was conducted. The Court ruled that the original contractor was not liable for those specific costs because the owner had failed to follow the contractual procedure for notifying and allowing the contractor to rectify the defects themselves.

Specific Regulations for Foreign Contractors

Foreign entities operating in Vietnam face additional layers of regulation, specifically the requirement for a “Contractor Permit” (Giấy phép thầu).

Article 74 of Decree No. 59/2015/NĐ-CP (as amended) outlines the obligations of foreign contractors:

“16. Foreign contractors have the following obligations:

a) Establish an Executive Office at the project site after being granted a construction operation license…

e) Perform the joint venture contract signed with a Vietnamese contractor or use Vietnamese subcontractors already identified in the construction operation license application dossier…

k) Comply with regulations on standards, technical regulations, construction quality management, labor safety and environmental protection…”

Legal Insight: A foreign contractor cannot simply work alone. They are generally required to form a joint venture with a Vietnamese firm or commit to using Vietnamese subcontractors. Failure to do so can result in the revocation of their license.

UNILAW has extensive experience assisting global firms like Passavant-Roediger GmbH (Germany) and Jasan (China) in securing these permits and ensuring their EPC contracts are compliant with both Vietnamese law and international standards (like FIDIC).

Termination of Construction Contracts

Ending a contract early is a risky move that requires precise legal timing. Article 41 of Decree No. 37/2015/NĐ-CP provides the grounds for termination:

“17. The employer has the right to terminate the contract in the following cases:

a) The contractor is bankrupt, dissolved or transfers the construction contract to another person or organization without the approval of the employer.

b) The contractor refuses to perform the work according to the contract or for 56 consecutive days does not perform the work according to the contract, leading to a violation of the performance progress…”

“18. The contractor has the right to terminate the contract in the following cases:

…c) The employer does not pay the contractor after 56 days from the date the employer received the full valid payment dossier, unless the parties have other agreements.”

Legal Insight: The “56-day rule” is a standard safety valve. Before terminating, Article 41, Clause 15 requires a written notice at least 28 days in advance. If you terminate without this notice, you may be liable for massive damages even if the other party was technically in breach.

Subcontractor Management and Direct Payment

Main contractors often outsource work to specialists. Article 47 of Decree No. 37/2015/NĐ-CP governs these relationships:

“32. A main contract may have many subcontracts. When signing a subcontract, the general contractor or main contractor must comply with the following regulations:

…d) The general contractor or main contractor must be responsible to the employer for the progress, quality, labor safety, environmental protection, and their own errors and the work performed by subcontractors.

đ) The general contractor or main contractor is not allowed to re-assign all the work under the contract to subcontractors for performance.”

Legal Insight: The main contractor remains the “shield” for the owner. You cannot pass 100% of the risk to a subcontractor. Furthermore, “nomination” (where the owner chooses the subcontractor) must be carefully drafted to ensure the main contractor is not held liable for the owner-nominated firm’s failures.

Why Contractors Choose UNILAW

As a specialized contract law lawyer, UNILAW provides more than just documents; we provide strategic security. Our services include:

• Pre-Contract Review: We identify “poison pills” in owner-drafted contracts before you sign.
• Variation Order Management: We help you document changes in scope to ensure you get paid for every extra brick and hour.
• Dispute Resolution: We represent contractors in both Court and Commercial Arbitration (VIAC/ICC).
• International Compliance: For foreign firms, we manage the entire permit and licensing process.

In a case involving an international textile factory construction, UNILAW represented a subcontractor against a general contractor and the foreign owner. The dispute was over an “arithmetic error” in a lump-sum contract where a “Work Office” item was listed but not added to the total price. While the general contractor argued it was the contractor’s “risk,” our contract attorney argued that the owner had clearly received and was using the building, and thus non-payment constituted unjust enrichment. The Supreme Court eventually recognized that the owner must pay for the actual benefit received, regardless of the calculation error.

Contractors build the future of Vietnam. At UNILAW, we build the legal framework that protects that future. If you are facing a payment dispute, a delay claim, or simply need a robust legal contract lawyer to review your next tender, contact us today.