Some studies comparing EPC contract according to the regulations of FIDIC and those of vietnamese law

HANOI LAW UNIVERSITY

LUND UNIVERSITY
FACULTY OF LAW

SOME STUDIES COMPARỈNG EPC CONTRACT
ACCORDING TO THE REGULATIONS OF FIDIC
AND THOSE OF VIETNAMESE LAW
SPECIALITY: INTERNATIONAL AND COMPARATIVE LAW
CODE: 60 38 60

THỮVIỀN
TRirÒNGUAiHOCLỤÂT HÀ NÔI
PHONG GV

MASTER OF LAW THESIS
STUDENT: DANG HOANG MAI

SUPERVISORS:
PROF.DR. LE HONG HANH

HA NOI - 2004

PROF.DR. LARS GORTON


Contents
ACKNOVVLEDGEMENTS

2

ABBREVIATIONS

3

1

4

INTRODUCTION
1.1

The necessity of the study

4

1.2

The object and purpose of the study

5

1.3

The studying scope of the thesis

5

1.4

The studying methods

5

2 CONTRACT IN CONSTRUCTION ACTIVITIES
2.1

Construction activities and their characteristics affecting legal
adjustment in construction activities

2.2

Roles of contract in construction activities

2.2.1

Contract as a State's management tool for construction
activities

6
10
10

2.2.1.1

Requirements for subjects of construction contract

11

2.2.1.2

Requirements for content and form of construction contract

14

2.2.1.3

Requirements for bases and procedures to sign and implement
construction contract

15

Mechanism dispute settlement

17

2.2.1.4
2.2.2
2.3

6

Contract as a legal form to establish economic relationships in
the field o f construction investment

EPC Contract - A new approach of construction contracting
method

2.3.1

The advantages of EPC Contract

17
18
20

2.3.1.1

Single source responsibility

20

2.3.1.2

It enables users to control costs and work progress and helps to
make íinancial support easier

22

The implementing speed is faster and the efficiency is higher

23

2.3.1.3
2.3.2
2.3.2.1
2.3.2.2

The disadvantages of EPC Contract

23

The Employer's role of controlling activities of the project no
longer exists

23

The costs spent on project under EPC contract is often higher
than that of project implemented in traditional construction
contract

24


3

EPC CONTRACT UNDER THE FIDIC CONDITIONS OF
CONTRACT FOR EPC/TURNKEY PROJECTS AND
VIETNAMESE LEGAL REGULATIONS
3.1
3.2

25

FIDIC and The FIDIC Conditions of Contract for EPC/Turnkey
Projects

25

Some main content in The FIDIC Conditions of Contract for

EPC/Turnkey Projects

28

3.2.1

Application scope and requirement for contract signature
procedure o f The FIDIC Conditions o f Contract for EPC/Turnkey
Projects
28

3.2.2

Key obligations o f the Employer and the Contractor according
to the FIDIC Conditions o f Contract for EPC/Turnkey Projects 31

3.2.2.1

Key obligations of the Employer according to the FIDIC Conditions
of Contract for EPC/Turnkey Projects
31

3.2.2.2

Keỵ obligations of the Contractor according to the FIDIC
Conditions of Contract for EPC/Turnkey Projects

34

EPC Contract according to Vietnamese Legal Regulations

39

3.3

3.3.1
3.3.2

Deíinition and the application scope of EPC Contract according
to Vietnamese Legal Regualations

39

Content o f EPC Contract according to Vietnamese Legal
Rcgulations

41

3.3.2.1

Design document for assignment of bid in EPC Contract

3.3.2.2

Contract price, contract price adjustment and contract payment

3.3.2.3

Taking- over and handing-over the completed construction works 44

3.3.2.4

Responsibilities of the employer and contractor for the
management of project performance

44

Selection of sub-contractor and re-assignment of bid to the subcontractor

45

3.3.2.5
3.3.3

l

Some regulations on selecting EPC Contractor

41
42

46

3.3.3.1

The forms of selecting EPC Contractor

46

3.3.3.2

Methods to conduct bidding

47

3.3.3.3

Criteria to appraise and rank EPC Contractor

47

SUGGESTIONS TO ENHANCE THE POSSIBILITY OF
APPLYING EPC CONTRACT IN CONSTRUCTION
ACTIVITIES IN VIETNAM

49

4.1

EPC contract in construction projec.ts in Vietnam

49

4.2

Directions to enhance the posibility of applying EPC Contract in
Vietnam

53

Some suggestions to enhance the implementation ability of EPC
Contracts in construction activities in Vietnam

56

4.3

4.3.1
4.3.2

It needs to form Standard sample contracts for construction
activities in VietNam

56

Suggestions involving in EPC Contraci regulations

57


4.3.3
4.3.4

5

Suggestions related to regulations on bidding to select EPC
Contractor

61

Suggestions o f other measures related to the application o f EPC
contract in Vietnam
61

4.3.4.1

For the Government's mechanism and policies

61

4.3.4.2

Forthe Employer

62

4.3.4.3

Improving the Vietnamese Contractors' capacity of conducting
EPC projects

63

CONCLUSION

64

REFERENCES

65

APPENDIXES

68

Appendix No.1: Some the FIDIC’s Standard Form of Contracts

68

Appendix No. 2: Extensions of the time for completion under the FIDIC
Silver Book.

70

Appendix No. 3: Potential price increases underthe FIDIC Silver Book
(exception to the lump-sum contract price)

71

Appendix No. 4: Some projects in Vietnam under the EPC Contract

73

Appendix No. 5: Comparison some Clauses of EPC Contract under the
FIDIC Conditions of Contract for EPC/Turnkey Projects and those of
EPC Projects in Vietnam
74


Acknovvledgements

I would like to express my heartfelt gratitude to SIDA Prọịect, Lund
University and Ha Noi Law University for affording and organizing The
Swedish/Vietnamese Master Programme in International and Comparative
Law.
I would like to register my special immeasurable thanks and appreciation to
my supervisors Professor Lars Gorton of Lund ưniversity and Proíessor Le
Hong Hanh o f The Hanoi Law University, who at every step encouraged me
and guided me with valuable instructions and research tips.
My thanks are due to all Professors of the prọịect who helped and gave me
invaluable knowledge. I would like to extend my words of appreciation to
Librarians of Lund University and Ha Noi Law University for their
cooperation.
And lastly, to my family and friends whose love and comíòrt encouraged
me to complete this thesis.
Dang Hoang Mai
Ha Noi, November 2004

2


Abbreviations
AIA

The American Institute of Architects

EPC

Engineering-Procurement-Construction

ENAA

The Engineering Advancement Association of Japan

FIDIC

International Federation Consulting Engineers

FDI

Foreign Directed Investment

FIEC

The International European Construction Federation

GDP

Gross Domestic Product

ICE

The British Institution of Civil Engineers

ICC

Intemal onal Chambcr o f Commerce

LILAMA

Viet Nam Machinery Installation Corporation

ODA

Official Development Assistant

USD

United State Dollar

VND

Vietnamese Dong

WB

World Bank

3


1 Introduction
1.1 The necessity of the study
In the market economy, economic relations in general and
construction assigning and undertaking relations in particular betvveen
subjects are all established and performed on the basis of the contract.
Construction contract is one of the specialized and rather complicated
kinds o f contract. The reason for this is that both technical element and
liabilities of the participants are included in this contract.
In recently years, there has been a new kind of conừact in construction
investment activities in Vietnam, Engineering- Procurement- Construction

Contract (abbreviated in English as EPC Contract). According to the current
most widely accepted deíinition, EPC Conừact 'í the one in which a
Contractor, considered as the General Contractor, bears all responsibilities for
engũieering, materials and equipment supply and construction in a consortium
of Contractors.1 This is an advanced, advantageous and extensively applied in
the world. In Viet Nam, EPC Contract has been put into eíĩect in the field of
investment and construction but only in low volume and mainly applied to the
projects with Capital sources from íoreign dừect investment (FDI) or oíĩĩcial
development assistance of intemational govemments and organizations. What
matters is most EPC Contractors in those projects are íòreign Contractors or a
Consortium of Contractors. However, some powerful General Construction
Corporations of Vietnam have recently won several tender packages in
intemational biddings, including the ones implemented in EPC Contract form
in Viet Nain. At the same time, the Prime Minister has also decided to make a
few mạịor General Construction Corporations like the Song Da General
Construction Corporation and LELAMA Contractors to conduct some big
construction investment prọịects specialized in electricity, petrol in EPC
Contract form. This really paves the way for enterprises of Vietnam to get used
to the EPC Contract and improve theữ comprehensive capacity and step by step
meet the demands of socio-economic development strategy in the period of
2001-2010 with regard to the construction industry proposed by the Ninứi
National Party Congress. What this strategy wants to do is “ to develop the
construction industry so that it can attain the advanced level in the region and
satisíy the demands for construction of the whole countrỵ as well as to have
suíĩìcient capacity to bid for foreign construction projects”.
Nevertheless, because EPC Conừact is a new one in the construction
activities in Vietnam, the process of putting it into practice now has to deal with
some problems that need solving by not only the legislation but also ứie policies.
In addition, our process of integrating tìie economy into the regional and
global economy is posing urgent requirements for the approach to the mtemational

norms and practice in investment and constructìon in general and the regulations on
construction contracts, mcluđing the ones on EPC Conừact in particular.
1 ICCA S to ck h olm Arbitration Congress, W orking Group II, (1 9 9 0 ), p. 37 0.
2 Ninth P arty C o n g re ss’s D ocum ents, (N ational Politics Publishing H ou se, Ha Noi 2 0 0 1 ).

4


FIDIC - is the most prestigious organization in the world for drawing and
developing Standard íòrms o f contract used in intemational construction

activities. In construction activities in Vietnam, conditions of specimen contract
published by FIDIC have also been used for reference by the participants when
negotiating the contract. Yet, the FIDIC’s íòrms of conừact are dravvn just to
apply to the intemational construction activities so each country has to take
some changes so as to fit its speciĩic conditions when putting it into practice.
For the time being, the FIDIC’s Conditions of Conừact for EPC/Tumkey
Prọịects, published in 1999, are also being brought into effect in prcỹects
implemented in EPC Contract form in Vietnam. In fact, however, there have
been a lot of diữềrent regulations betvveen the EPC Conừact of FIDIC and that
of Vietnamese law which must be investigated and assessed to offer
suggestions to help sữengthen the capacity of applying EPC Contract to the
construction activities in Vietnam in accordance with the current conditions of
Vietnam and gradually integrate with intemational practice.
For all reasons above, I venture to select the subject entitled “ Some
studies comparing EPC contract according to the regulatious o f riD IC
and those o f Victnam ese Iaw” for my master thesis.

1.2 The object and purpose of the study
The object o f the study is some contents of The FIDIC Conditions of

Contract for EPC/Tumkey Projects and regulations of Vietnamese law on
EPC Contract as well as the current application reality in Vietnam.
This theme is made with ứie intention of pointing out the differences and
similarities between regulations on EPC Contract of FIDIC and those of
Vietnamese law. ITienceíòrth, the author nuts forward some suggestions aimed at
enhancing the possibility of bringing EPC Contract into the íìeld of construction
investment in Vietnam in such a way that dance the same tune with the ciHTent
conditions of Vietnam and little by little integrate into intemational practice.

1.3 The studying scope of the thesis
The studying scope of this thesis is some regulations on EPC Contract
according to The FIDIC Conditions of Contract for EPC/Tumkey Projects
published in the year 1999 and Vietnamese law which are related to the
application scope, requirements on EPC Contract signing procedures,
several main responsibilities of the Employer and Contractor and the
bidding to select EPC Contractor. The application practice is limited to only
a few construction prọịects implemented in EPC Contract form with Capital
sources from the State budget in Vietnam.

1.4 The studying methods
In order to perform the task of this study, the author has used concrete
scientiíic studying methods, such as comparing, analyzing and synthesizing.
In each matter and each speciíìc studying content, the theme may use certain
method separately or put the methods together to clariíy studying results as
well as the author’s scientiíic viewpoints of the mentioned matters.
5


2 Contract in construction
activities

2.1 Construction
activities
and their
characteristics affecting legal adịustment
in construction activities
Construction is a technical - economic activity which plays a vital role
in the economy. It helps to create the face of the nation’s economy and
simultaneously set up the initial basis of material and technology for the
development o f other production industries.
Construction works is a special product of construction activities. It is
the íruit of many specialized and qualifíed people and has various uses,
including having iníluence on the environment and cxpressing people’s
sentiments, desires as well as aesthetics. Moreover, it is a long-lasting
product which may exist through centuries. Being aware of these roles and
signiíicance, every legal system pays special attention to the adjustment in
construction activities.
In the past few years, in Vietnam, construction activities have greatly
contributed to the implementation o f industrialization and modemization of
country. Many ílelds of construction, including work construction convey,
designing and operation, have becn satisíying the construction demand of
the country.
In order to create favorable conditions for management of investment
and bidding in construction activities, the Government and Ministries issued
legal documents to regulate these fields to encourage the economic sectors
investing in production and eữĩciently using the investment Capital which
are managed by State; to ensure work construction in compliance with the
planning and designs; to select the Contractors who fully meet the
conditions on appropriate capability for construction operation efficiently
and economically; to create the climate for fair competition as well as
satisíy the requirements on stable development, artistic appearance of works

and the protection of environment.
On November 26, 2003, the 4th Session of the IX National Assembly
has passed the Construction Law to create clearly legal basis for combating
wastefulness, unreasonable loss in construction activities and ensuring work
quality. This Law prescribes construction activities; and rights and
obligations of organizations and individuals that invest in the construction
of works and conduct construction activities.
Article 3 - Law of Construction issued on July, l st, 2004 defines
construction activities as follows: construction activities consist of setting
up construction scheme, íòrmulating investment and construction project,
carrying out surveys of construction, designing, executing construction
project, supervising the implementation of the construction works,
managing investment, construction projects, selecting Contractors in

6


construction activities and other activities related to the construction of
projects.
The concept of construction activities is also clearly defmed in the
Article 12 o f Construction Standards o f Vietnam as every technical activity
related to the construction and installation of construction works in twố
main stages: making construction plan (including the
elaboration of
construction plans and construction management under the plans) and
carrying out the construction project (including formulating investment
project, carrying out surveys, designing, executing, and maintaining
construction works).
From these regulations, we can come to a general concept of
construction activities as follows: Construction activities are the collection

of all technical and economic activities including the
elaboration of
construction plans, íbrmulation of projects on investment in work
construction, construction surveys, construction work designing, execution
of work construction, supervision o f work construction, management of
work construction investment projects, selection of
Contractors in
construction activities and other activities related to work construction
invested directly by organizations or individuals in a certain period of time
and their results are construction Products and completed construction
works.
From this concept, we can see that construction activity has the
following íeatures:
Firstly, the subjects o f the construction activity are businesses,
individuals who have sufficient conditions, capability to take part in
construction activities under the law.
Secondly, in terms o f economic form, construction a c tiv ity is a kind of
direct investment caưied out by construction subjects with their Capital

equipments, lahorers in order ío increase the value of their assets to support
their plans o f developing production and business. Thus, construction
investment is different from other types of portíòlio investment, especially
fmancial investment.
Thỉrdly, the result o f construction activity is construction Products and
completed construction works. For each speciíĩc construction activity, thc
result will be different construction Products or completed construction
works, for example construction-planning schemes are Products of the
construction planning designing activities; investment projects (with the
forms of investment reports, pre-feasibility study reports, feasibility study
reports) are products o f consultancy activities on compiling construction and

investment prọịects; construction data are Products o f surveying activities;

construction designs (including basic design, technical design, construction
drawing design) are Products of construction designing activities; completed
construction works (a house, a factory, a road or a bridge, etc) are Products
of the execution of work construction activities, etc. However, if considered
in more details, completed construction works is the synthetic result of all
construction activities. Construction-planning schemes, work construction
investment projects, surveyed data, construction work designing dravvings
all aim at preparing for the execution of the construction work and are the
bases and conditions to create a completed construction works. As explained

7


in Article 3 o f Vietnamese Law on Construction: “ Construction works
means Products created by human labor and with building materials and

equipment installed there in, affíxed to land, which may include
underground and ground components, undenvater and on-water-surface
components and are constructed according to designs”.
In comparison with other production activities in the economy,
construction activities have their own features. Therefore, there should be
appropriate regulations on construction activities so as to meet the demands
for construction development and enhance their important position in the
economy.
The frist, products o f construction acíivities are single completed
construcíion works o f high economic value.
It can be seen that in the field of construction, there are few mass
products for sales except for some available construction works such as

living quarters for sale or rent. Even in the construction following a sample
design such as residential accommodation, health care center, schools, etc,
each construction works needs to be changed or modiíicd to suit the
geographical and climatic conditions of the work site. So, construction
production activities cannot produce massively like other industries but
produce under the orders. As a result, construction works cannot be
available at the time of signing contract. This characteristic requires the law
to regulate necessary technical standards and rules which are bases for both
parties to determine the objects of the conừact when entering the conữact.
At the same time, it is important for the law to stipulate íòrms and measures
in order to support investors to select the best performer. Hence, regulations
on bidding and selecting contractors in construction activities are of great
importance.
On the other hand, construction Products, from small-scale works such
as a house to large-scale works such as inírasiructure, industrial works are
all the results o f large amount of materials, laborers, machines and
equipments. Thereíbre, the economic value of a completed construction
works is much higher than other usual industrial Products. Moreover, the
product o f construction activities has a great impact on the economy as well
as p eople‘s life and the Service life of construction works is usually rather
long. It is the economic value and special signiílcance of construction works
that put forward strict requirements on the quality of construction Products.
To that end, law should set up specific regulations on construction
standards, rules and economic-technical sanctions compulsorily applied in
construction as well as the rights and responsibilities of subjects taking part
in construction activities for ensuring the quality of construction works. This
feature also has effect on such terms in construction contract as the objects
of contract, request for the quality of the construction works, maintenance,
insurance, solution to construction works incidents and the handing-over
construction works. In addition, because of the important part of the

construction works and their long-term impacts on people‘s life and
surrounding environment, the matters related to architecture, aesthetics and
environmental protection also need to be taken into consideration in legal
regulations on construction.

8


The second, the complex process o f construction activities requires
the participation o f many subịects.
It is clear that to get the íinished products (the completed construction
works), construction process has to experience many stages from
íbrmulation o f projects on investment in work construction, construction
surveys, designing to procurement of material and equipments, execution of
work construction, etc. Each stage also has a lot of particular tasks. In order
to conduct such a large and complicated amount of work, the construction
process not only requires the participation and coordination of many
subjects, but also needs the management and supervision of State agencies,
íĩnance, credits and insurance organizations during the implementation of
the projects. The result of construction activities depends very much on the
capability of participants as well as the coordination among them and
related parties in the construction process.
Therefore, in order to organize and direct activities effectively, the
State needs to establish a comprehensive managing mechanism for
construction activities on the basis of clear allocation and division of
functions, rights and responsibilities for management among managing
authorities as well as their coordination.
At the same time, the law needs to adjust the issue of granting work
permits, ranking enterprises in the íòrms of managing the implementation of
the projects, ensuring their capability in construction activities so as to

maintain the order and stability of construction and investment environment
and keep enhancing the ability of management and capability of enterprises.
. The third, consírucìton activities are usually taken p la ce in
com paratively long period o f time and are remarkably itựluenced by the
climate.
Construction Products are completed construction works which can be
considered as fixed assets, so they often cost a lot of time 10 produce. This is
due to strict requirements o f regulations on the order, procedure and stages
in the construction process. On the other hand, construction activities are
usually carried out outdoors in long periods, thus, they are greatly impacted
by the climate. These impacts include interrupting construction process
which makes the completion of works longer and the costs higher; making
production ability of enterprises underutilized during ứie year, causing
difficulties in carrying out plans for production and business, mobilization
and storage o f material and job stabilization for employees; and even
damaging the implementing works.
This feature leads to the control o f regulations on Capital management
and method o f payment during the construction process. For example, how
to manage Capital when payments are divided into many times equivalent to
the work progress; or if there is no suitable method of payment, enterprises
will have in s u f f íc ie n t Capital so u r c e s to o p era te and e a s ily h a v e to run
unexpected risks of weather, interest, inílation, rate, etc. In addition, there
are regulations on duties of buying insurance for works, machines,
equipments, labourers and third parties dealing with damages caused by
storms, thunderbolt, Tsunami, etc; and stipulations on the subjects’
responsibilities for the progress of implementation in order to shorten the
time o f execution and put the vvorks into operation sooner.

9

On the other hand, because construction activities often take much
time and go hand in hand with a lot of complicated relationships, there are
many possibilities of conílicts between the Employer and the Contractor. A
dispute arising in the construction process may ruin reputation and interest
o f related parties. Eventhough a contract that is careíully drafted with clear
division o f risks among parties and reasonable prices will reduce the
possibility o f disputes, the opposite interests can still lead to disagreements.
Thereíbre, regulations on mechanism and procedures to settle disputes
among parties play a very important role in construction activities.
In conclusion, speciíic characteristics of construction activities
mentioned above have great impacts on legal adjustment in such
complicated and important activities. Hence, it is necessary for the law to
have appropriate adịustments to the íeatures of construction activities to
increase the efficiency o f these adjustments as well as to meet the demand
for development of construction activities in particular and the economy in
general.

2.2 Roles
activities

of

contract

in

construction

In the market economy, every economic relation in general and

construction assigning and undertaking relation in particular between
subjects are all established and períbrmed on the basis of contract. In the
past few years, together with the economic development, the amount
invested in basic construction in our country has rapidly been increased. The
State alone spends more than 30 % of its budget expcnditures on the íield of
investment and construction every year.3 Along with the increased
investment in basic construction, more and more contracts have been signed
with larger and more sophisticated amount of work and a wider variety of
subjects as well executing methods. It can be said that construction contracts
have been actively bringing its roles into full play to construction activities
in Vietnam for the time being.

2.2.1 Contract as a State's management tool for
construction activities
Although contract is a voluntary agreement among parties, in order to
make the contract work as a legal tool to carry out investment construction
activities, the State needs to have necessary regulations so as to ensure
social beneíits as well as the rights of subjects participating in construction
activities. Through contracts, State can perform its management over
construction activities by regulating conditions of the subjects, contents and
forms of contract, bases and procedures to enter contract, mechanism to
carry out and settlement o f violation and disputes of contracts.

3 Thai Ba Can, Pinance M anagem ent in Construction Field, (Finance P ulishing H o u se, Ha
N o i, 2 0 0 3 ) , p. 5.

10


2.2.1.1 Requirements

contract

for

subjects

of

construction

Under the current regulations, subjects of construction contracts
include: Employer, Professional Project Management Board (assignment of
bid party), Investment and Construction Consultancy Organization, Work
Construction Contractor and Supplied Contractor (acceptance of bid party).
Besides, in construction contract relationship, there exists the participation
o f the third party consisting of one or more agencies or organizations vvhose
power and responsibilities are directly involved in the construction contract
relationship. For instance, Designing Consultancy Organization performs
the task of supervising designer while the State agencies períbrm the
management of technology, environment and prevention of fire and
explosion.
Subjects engaged in construction contract must have capability of
construction operation and economic competence in construction activities
as regulated by law.
At the moment, in addition to the detailed regulations on establishing
enterprises and business registration, the State also regulates conditions on
capability for construction operation of enterprises. These conditions can be
divided into two categories: conditions on capability of work construction
consultancy operation and conditions on capability of execution and
construction equivalent to two subject groups in construction activities. The

íĩrst group consists o f Employer (Investor), Prọịect Management Board and
Professj -nai Proịect Management Board belonging to the Employer,
Investment and Construction Consultancy Organization. The second group
includes Work Construction Contractor and General Contractor. In each
group, the law regulates both minimum conditions on capability applied to
all subjects of the samc group and particular conditions on capability
applicd to each subject.4
Regarding to the economic competence of enterprises, the current law
o f construction investment stipulates that: enterprises are entitled to actively
conduct all the tasks o f three stages like preparing investment, carrying out
investment, completing construction and putting prọịects into practice and
taking responsibilities for the results. Among the rights given to enterprises
by the State, the three most important ones are: formulating investment
projects, making decision on investment and organizing to manage
execution of project.5
Investor (Employer): Depending on each kind of Capital source and
each form of enterprises, the Employer is clearly defmed as “Capital owner,
Capital borrower or the person who is assigned to directly m anage and use
Capital for investment as deíĩned in law”.6 The Employer must have
appropriate proíessional capability and experts managing the
implementation of the project. The Employer may use his current system

4 See D e c is io n N o . 1 9 /2 0 0 3 / Q D - B X D dated July 3 rd, 2 0 0 3 o f t h e Minister o f Construction
promulgating the Regulations on Conditions on Capability for Construction Operation.
5 S ee D e cree N o . 5 2 /1 9 9 9 /N D -C P ; D ec ree
0 7 /2 0 0 3 / N D - C P o f the G o v e r n m e n t .
6 V ietna m ese Construction Law, Art. 3 (21).

11

No.

1 2 /2 0 0 0 /N D -C P

and

D ecre e

N o.


and appoint masters or establish the Project Management Board to manage
the project implementation.
Pro/essional Prọịect Management Board: Professional Project
Management Boards are íòunded by authorized State agencies and assigned
responsibility for managing the projects with State budget, especially ODA
Capital source.7
Investmení and Construction Consultancy Organization: Investment
and Construction Consultancy Organizations are professional organizations
of various economic sectors having legal entities and business registration
of their investment and construction consultancy according to the provisions
of law.8
Under the current regulations, investment and construction
consultancy includes: íòrmulation of construction investment projects,
management o f projects, construction surveys, work construction designs,
supervision of work construction, veriíication of the construction quality
and other consultancies.
In the system o f economic organizations operating in construction
field, Investment and Construction Consultancy Organizations or Consultant
Engineers play an important role as a “bridge” between the Employers and

the Contractors. In developed countries, Employers or clients of
Consultancy Organizations understand that “transferring technology is an
important sub-product o f employing Consulting engineers” because
members of the customers’staff who are usually assigned to work with
Consulting organizations may be trained and gain experience from these
organizations. At the same time. by employing engineers and “putting the
burden on their shoulder”, clients can reduce some work for their technical
and managing staff. Thereíòre, the cost of production, operation and
maintenance will be minimized.9
In fact, a great deal o f work related to investment preparation and
implementalion such as planning projects, canying out investment,
managing the project performance used to be conducted inefficiently by the
Employer due to the lack of professionally technical managers. However,
for the time being, aữer being transferred to professional Consulting
organizations, the effíciency has been much improved, which helps the
Employer to take closer control over the project and helps construction
enterprises quickly solve the arising problems and hasten the work progress.
Contractors'. Contractors are organizations and individuals that are
fully capable o f conducting construction activities or practicing construction
when participating in contractual relations in construction activities.10
General Contractor: General Contractor is the Contractor directly
signing contracts with the Employer to undertake a job or all the jobs of a
construction investment project. General Contractor takes the following
principal íorms: Engineering General Contractor; Construction General
7 Ministry o f Planning and Investment released that there are about 3 0 0 P rofessional Project
M anagem ent Boards all over the country now .
8 See D ecree N o . 5 2 / 1 9 9 9 /N D -C P , Art. 15.
9 c , M axell Stanley, C onsultant Engineer, (Construction Publishing H ou se, Ha Noi 1995)
p. 5 1.
10 V ictn am ese Construction Law, Art. 3 (22).

12


Contractor, Engineering and Construction General Contractor; Engineering,
Procurement and Construction General Contractor (EPC General
Contractor); General Contractor íòrmulating construction investment
prcỹects of engineering, procurement and construction (Tumkey General
Contractor).11
Principal Contractor: Principal Contractor is the Contractor directly
signing a contract with the Employer to perform the main work of the
project.12
Sub-contractor: Sub-contractor is the Contractor signing contract with
the Principal Contractor or General Contractor to períòrm a part of the work
o f the Principal Contractor or General Contractor.13
Organizations and individuals engaged in construction activities must
have construction practicing capability and construction operation
capability. Speciíically, construction practicing capability is prescribed for
individuals and construction operation capability is prescribed for
organizations engaged in construction activities.14
Construction practicing capability of individuals is determined in
grades based on their professional qualifications certiíied by a lawful
specialized training organization, experience and professional ethics.
Individuals engaged in construction engineering and planning, construction
survey, work designing and/or supervision of work construction, when
independently conducting such activities, must have appropriate practice
certiíĩcaíes and bear personal responsibilities for their work.
Construction operation capability of organizations is determined in
grades based on construction practicing capability of individuals in such
organizations, experience in construction activities, íinancial stalus,

equipment and managerial capacity of such organizations.
Construction enterprises are enterprises of all economic sectors, which
are established according to regulations of law and have construction
business registration. In order to improve the management of business and
construction activities in accordance with the Law of enterprises, the State
has regulated on conditions and capability of Work Construction
Contractors instead of granting work permits as previously defmed in the
Decision No. 500/BXD-CSXD dated on 18 September 1996 of Ministry of
Construction. Accordingly, Contractors when carrying out the work
construction, must meet the following conditions: having registered the
work construction operation; having full capability for work construction
operation corresponding to work types or grades; having construction-site
commanders with appropriate capability for practicing the work
construction proíession; having construction equipment up to the work
safety and quality requirements.15
It is necessary for Foreign Contractors, including Construction
Consulting Contractors (including consultancy on management of
construction project, survey, designs, examination of designs, inspection,
11 V ietnam ese Construction Law, Art. 3 (23).
12 V ietnam ese Construction Law, Art. 3 (24 )
13 V ietnam ese Construction Lavv, Art. 3 (25).
14 V ietn am ese Construction Lavv, Art. 7 (1).
15 V ietn am ese Construction Lavv, Art. 73.

13


management o f construction quality and other construction Consulting jobs)

and the Work Construction Contractors to have contracting permits suitable

to each contract when signing contract to implement construction projects in
Vietnam. Foreign Contractors must also have the contracts on joint ventures
with Vietnamese Contractors or written commitment to use Vietnamese subcontractors as provided in the Regulation on Bidding of Vietnam, except for
the cases agreed by the Prime Minister or appropriate with the provisions of
Vietnamese law.16

2.2.1.2 Requirements
construction contract

for

content

and

form

of

Content o f a construction contract: Content of a construction contract
is a set of terms, including both general conditions and speciíic ones that
two parties of assignment and acceptance of bid commit with each other,
fully showing the rights and obligations of each party.
According to the regulation in Article 108 - Law on Construction, a
construction contract includes the following main contents: the tasks to be
performed; quality and technical requirements of the job; timing and work
progress; conditions for taking over and handing over; price and method of
payment; period of waưanty; liability for contract breaches and other
agreeraents in coníòrmity with each type of contract; and the language used
in the contract.

Apart from the main terms deíined in the contract, specific and
general conditions of each contract according to the guidance of the
International Federation Consulting Engineers (FIDIC) are also used for
reference so as to make preparation and sign the construction contract.
General conditions of a contract are the collection of detailed guidance
terms on the rights and obligations of participants in the construction
contract relationshịp which help the preparation of signing contract be
convenient and accurate.
Particular conditions o f a contract are the collection of terms that
apply general conditions to special cases taking context and place of
construction into account. Particular conditions help the process of
preparation to be in line with each contract.
In the past, under the Regulation of economic contract in the fíeld of
basic construction (issued together with the Decision No. 29/QD/LB dated
on 1 June 1992 of Ministry of Construction - State Economic Arbitration),
all the terms o f contract or content of agreement among subjects of contract
were fully indicated right in the contract. Such way of íbrming contract
often makes the content of contract too long or too simple and fails to cover
all rights and obligations of the subjects. It also easily gives rise to disputes
which have negative impact on the períòmiance of the contract.
Under regulations of the cuưent law, a complete construction contract
includes: contract paper (shovving all agreements o f parties on the jobs to be
períbrmed, rights and obligations of each party and sanctions to períbrm
those agreements); documents enclosed with contract (such as bidding
16 S ee D ecisio n N o . 8 7 /2 0 0 4 /Q D -T T G dated 19 M ay 2 0 0 4 o f the Prime Minister
promulgating the Regulations on m anagem ent o f íòreign contractors undertaking the
construction or consultancy on construction projects in Viet Nam.

14

winning notice or bidding appointment paper, General Conditions,
Particular Conditions, proposals in writing of Contractors, drawings,
amendments and supplements in \vriting, guarantee paper, Insurance paper,

etc). With these regulations, the contents of a construction contract have
considerably been vvidened. They not only have an overall view of things
but also speciíically define the rights and obligations of each party taking
part in the contract relationship in order to make a perfect whole which
tightly tie liabilities of the parties together.
Form o f construction contract: Construction contract is set up in
writing indicating the agreement between related parties according to the
procedures regulated by ]aw.

2.2.1.3 Requirements for bases and procedures to sign
and implement construction contract
Legal documents on construction contract have deílned clearly that
beíòre performing assignment of bid or after winning bidding, assignment
o f bid party and acceptance of bid party havc to sign economic contract in
writing. Thus in every case Employers must establish construction contracts
in the way o f directly signing with Contractors. Construction contract is
legal basis to establish relation of assignment and acceptance of bid between
Employers and Contractors.
With the role in macro-management of the economy, the State
regulate bases to sign contract in order to adjust and guide enterprises to
períòrm signing the construcTion contract well. The bases o f signing
construction contract are legal íòundations for signing and are measurement
o f the Contractor‘s done work. At the same time, according to those legal
bases, parties can solve arising troubles and disputes (if any).
The bases to sign the contract include regulations on civil contract,

economic contract, construction investment law, and other relevant
regulations such as construction rules, construction standards, works quality
management, construction cost management, insurance, results of bidding
(if any). These bases are chieíly orientation for subjects of the construction
coniract in order to ensure the result of contract implementation suitably
with enterprise’s requirements as well as meet the demands of the economy
and social beneíits.
Among the above legal bases, the bidding results have a signiíicant
m eaning to m anage investm ent Capital. All work construction investm ent
projects with State budget must hold bid to choose Contractors
implementing projects.
Together with the regulations on bases of signing the construction
contract, the State also manage the implementation of construction contracts
through regulations on key matters such as mechanism, methods of
implementing construction contract in order to guide enterprises to use
contract tool effectively in the construction activities, at the same time
protect the legal rights of enterprises, society and economy‘s benefits.
Compared with usual civil and economic contracts, mechanism to
implement obligations according to contract in construction contract
relations has some remarkable points arising from the features of
construction contract. Firstỉy, mechanism to implement the obligations of

15


parties in construction contract belongs to third party (consultancy
organizations which manage and supervise implementing contracts). If in
the usual economic or civil contracts, there are only the subjects of contract
períòrming their obligations actively according to the signed contract.
Unlike this, in the construction contract relation, there is a third party

playing the role of consultancy and supervision implementing contract of
parties. According to the provisions of law, designing consultancy units
have to perform author’s supervision regarding to the execution of
Contractors. Therefore, some jobs such as taking-over completed items,
handing-over the works, payment and settlement in construction activities
are not only implemented by Employers and Contractors but also depending
on ideas o f designing consultancy units. Besides, due to the sophistication of
construction activities, in order to implement a construction contract
effectively, parties are required to have enough conditions of capability and
qua]ification according to the provisions of law. The Law on Construction
Investment regulates that in case of lacking capability, Employers have to
employ consultancy organizations in order to supervise, manage the
implementation of contract.
Secondly, another remarkable point in the mechanism to implement
the construction contract is that the law allows Contractors to transíer a part
of work to sub-contractors. Re-assignment of bid arising from the feature of
construction activities is that subjects of these activities often take over a
large amount of work but it can be divided into many items to implement.
Besides, construction activities are implemented on the large work-site.
Therefore at the speciữc work-site, many units can implement many
different items at the same time to shorten the time of implementing. The reassignment of bid doesn’t depend on Employers; sub-contractors are only
responsible to the Principal Contractors or General Contractors.
Methods to conducting contract'. According to the provisions of law,
there are four methods o f contract implementation as follow s: 17
- The lump-sum contract: is a contract with lum p-sum price,

applicable to biddịng packages which are clearly determmed in terms of the
quantity, quality requirements and duration. In case of extra-contractual
happenings not caused by the Contractors they shall be considered and
decided by the competent persons or the competent levels;

- The turnkey contract: is a contract that covers the w h ole process
from designing, equipment supply to construction and installation of a
bidding package which are períòrmed through a Contractor. The Investor
shall have to participate in supervising the process of implementation, preacceptance test and examination as well as acceptance and hand-over upon
the completion of the entire project by the Contractor under the signed
contract.
- The contract with price adịustment: is a contract applicable to
bidding packages which, by the time of signing the contract, lack conditions
for the determination of their quantity and volume or the prices greatly
íluctuate due to changes in the State’s policies and the contract períbrmance
17 See D ecree N o . 8 8 /1 9 9 9 /N D -C P dated 19 September 1999 o f the Governm ent
Promulgating the Reguiation on B idding, Art. 6; Circular N o . 0 8 / 2 0 0 3 / T T - B X D dated 9
July 2 0 0 3 o f Ministry o f Construction.

16


duration is over 12 months. During negotiation and reaching contract,
parties have to regulate price changeable, partial work or items being able to
adjust price with adjustment limitation and íòrmula.
The EPC Contract: is a contract signed between an Employer and a
Contractor or a Consortium of Contractors (collectively called EPC
Contractor) to conduct all the work o f a project or a tender package on
engineering,

procuring

equipment,

teclmical

Service,

installation,

construction, synchronous operation and put it into practice.

2.2.1.4 Mechanism dispute settlement
The State regulates mechanism to settle violations and disputes arising
in construction contracts. This mechanism is regulated on the principles of
settling contract disputes in general and in accordance with special features
of construction investment contract. Arising disputes will fírst be solved by
negotiation and conciliation. If these take no effect, disputes may be refeưed
directly to court or arbitration. Solving construction contract violations is
based on legal regulations and agreement betvveen parties in the conừact.
Besides the mechanism to settle violations and disputes of
construction contracts according to the civil and commercial procedures
mentioned above, individuals having responsibilities related to violations
made on contract obligations such as on the quality management and work
safety that cause serious break-downs will be punished according to the
provisions o f criminal law.
In general, the regulations on construction contract have met the basic
requirements o f State management for establishing necessary legal
conditions in order to guarantee enterprises to períorm well their economic
self-control in construction investment activities and simultaneously protect
interests of society as well as legal rights of enterprises.
Besides
compulsory regulations on conditions o f subjects of the contract and the
principles and bases to stgn contract, most other regulations on methods of
contract implementat’jn , content o f contract terms, general and specific

conditions are not only aimed at guiding enterprises to use contract to the
best effect but also establishing economic relationships n construction and
protect legal rights for enterprises. Thereby, contract has really become an
essential tool for the State to manage present construction activities.

2.2.2 Contract as a legal form to es|tatFt1j5ịỊjLj V(| N—
economic
relationships
in
the
fÌ 6l^inNG^Í!H0C!.úÂiHANõi
PHONG GV
construction investment
From the angle o f enterprises operating in the construction field,
contract is a tool for them to carry out construction investment plans and
establish relations of assignment and acceptance of bid in order to achieve
their goals as well as to make anticipated proíits.
It can be said that contract is the most important and basic means to
períbrm self-control right of enterprises in business activities in general and
construction investment ones in particular. Under regulations of law,
enterprises conduct íhis right in consírucíion activities through negotiating,

17


signing and implementing the contract on assignment and acceptance of bid.
At the same time, enterprises must obey signed contracts strictly. In the
transition o f economic management mechanism in our country, Law on
Construction Investment more and more widens economic competence of
enterprises, thereby, continually enhancing legal position o f subjects

participating in construction activities.
Contract as a legal form to establish economic relations in
construction investment field is expressed on the following aspects:
Firstly, through signing the construction contracts, parties can choose
partners in accordance with their requirements.
Secondly, under the contracts parties can agree with each other on
their rights and obligations speciíically whilst the law only regulates on
principle matters.
Thirdly, construction contract is also a very important legal basis to
protect rights and benefits o f subjects of the contract, especially in business
environment having a lot o f risks as construction activities.
To sum up, construction contract is both the result o f the previous
preparation and negotiation and compulsoiy basis to establish the
relationship between assignment and acceptance o f bid in construction.
Correspondingly, there is a need for the Employer and Contractor to
compile a perfect contract in terms of both content and form. Actually,
construction contract is not only an effective management tool o f the Staie
but also an important legal basis for enterprises operating in the construction
field. Therefore, complete regulations on contract will pave the way for
better management o f the State over construction activities and enable
enterprises to perform their self-control rights more effectively in
construction activities.

2.3 EPC Contract - A new approach of
construction contracting method
“EPC” is an abbreviated terms in English for EngineeringProcurement- Construction which takes root írom construction contracts of
buildings or industrial complexes in the oil and gas industry in the United
States. At present, this term is used all over the world. According to the
most widely accepted defmition, “EPC Contract” is the contract where the
General Contractor is responsible for Engineering, Procurement and

Construction o f a consortium o f contractors.18
Under EPC Contract, a Contractor is responsible for completing the
project and the Employer just needs to “get the key” to start operating the
project. Hence, EPC Contracts are sometimes called Tumkey construction
contracts. In addition to delivering a complete facility, the Contractor must
deliver that facility for a guaranteed price by a guaranteed date and it must
perform to the specified level.
As engineering and construction work moves into the 90s, there has
been a great increase in engineer, procure, construct (EPC) contracting

18 Supra N . l , p. 3 7 0.

18


approach.19 In recent years, the application of EPC Contracts to construction
projects, especially to infrastructure projects, has become familiar to the
Employers and íìnancial institutions. The use of EPC contract as a project
delivery method has increased signiíicantly, for example, in America, the
use o f EPC/Tumkey contract for construction projects has increased írom
18 billion USD (in the mid-1980s) to 69 billion USD (in the mid-1990s)
industry and now takes up for roughly 25 percent of the construction
industry.20
Under a traditional contract form, the Employer signs the contract
with Proíessionals (Engineer, Architect) to prepare design and tender
documents, supervise the work as well as with Supplier to procure materials
and equipment and with Contractor to execute construction work (Diagram

Diagram 1.1 Traditỉonal Construction Contract Form
Under an EPC contract form, the Employer signs the contract with

EPC Contractor to prepare design, procure materials and equipment, execute
construction work and supervise work (Diagram 1.2).

Diagram 1.2 EPC Contract Form
It is clear that one of the causes leading to changes in the trend of
applying EPC contract instead o f traditional construction contract is the
advantages of implementing projects in EPC contract form.
19 IEEE, P anel D iscu ssion C onstruction C o n tra ct Trends f o r The 90s, p. 2 1 9 .
J< Joseph A. H uce, U nderstarìding a n d N e g o tia tin g Turnkey an d E P C C ontracts, (Svveet &
Maxvvéll, Lodon, 2 0 0 2 ) , p. 5.

19


2.3.1 The advantages of EPC Contract
2.3.1.1 Single source responsibility
The íirst advantage that makes EPC contract outweigh traditional
construction one is that one party - the EPC Contractor - must be
responsible to the employer for implementing the project.
In traditional design-bid-build projects, responsibility for design and
construction is often spread a number of parties. Design and construction
tasks are often períormed by separate entities of pursuant to separate
contracts. Generally, in these projects, the Employers take the responsibility
for co-ordinating various project elements and their respective interíacing.
Each Contractor or participant will only have liability for the discrete
prọịect package for which he is responsible. This may lead to a number of
problems. Contractors may make claims as a result of poor co-ordination
between packages. One Contractor may delay the work of others.
Furthermore, it may be very difficult to allocate responsibility for defects
between a designer and a contractor.21

By contrast, the EPC contract makes the Contractor entirely
responsible for both the design and construction of the works. The
Employer receives a completed project in accordance with his períòrmance
specifications. When he looks for accountability as to the períòrmance and
quality of the works, he needs look no íurther than the Contractor. This
means that the Employer does not need to worry about co-ordinating
contractors effectively (and avoids claims resulting frora lack of interíace
defínition). If he wishes to make a claim conceming a defect he can look to
the Contractor vvithout the need to address whether it is a design or
workmanship problem.22
Furthermore, thc Contractor is allocateđ design, co-ordination and
construction responsibilities for the whole of the work, ứie Employer need
not provides the same level of technical expertise required under the
traditional contract, e.g. he need not provide detailed design preparation
capabilities. In summary, the Contractor must deliver works that are fully
operational to the speciíications of the Employer; any defect o f fault is
necessarily his responsibilũy except where the contract provides otherwise.
Everything relating to the works can, thus, be concentrated in a single
source responsibility - the Contractor.
The use of EPC Contract results in a considerable reduction of
intervention by the Employer in the design and construction process, as
compared with traditional construction contract. The role of Employer will
consist primarily of contract administration. So it is vitally important that
great care is taken in selecting the Contractor has suffícient knowledge and
expertise to execute the works. Given the significant monetary value of EPC
Contracts, and the potential adverse consequences if problems occur during
construction, the lowest price should not be the only factor used when
selecting Contractor.

21 Supra N . 20, p. 17.

22 Supra N. 2 0, p. 18.

20


The responsibility of the EPC Contractor for the whole designing,
procuring

and

executing

work

construction

makes

the

Standard o f

períormance be given for the EPC Contractor different ữom contractor in
the traditional construction contract. The EPC Contractor must design and
build the works in a manner such that the períòrmance of the fínished works
satisfies the criteria set out in the contract (othenvise known as períòrmance
criteria). The Employer will deííne these performance criteria in such a way
as to ensure that the works provide at least the level of performance required
for profít-able production. The períbrmance criteria may speciíy output,
input, and any other períòrmances the Employer may desire. For example,

in the construction of a coal-fired power plant the Employer will want to
ensure that the plant produces suffĩcient power to satisíỷ his commercial
needs, in particular where he has entered separately into an agreenient for a
third party to purchase a certain amount of the electricity produced. Thus,
these criteria set out levels of performance the Employer expects; it is then
the responsibility of the EPC Contractor to produce works that are in
coníbrmity wilh thom.
Under a traditional design-bid-build contract the Construction
Contractor and the Designer are held to different standards of performance
for the completion o f the works. Designers in many jurisdictions
traditionally have nol been required to guarantee result, but rather method.
They are held to have a superior base of knowledge, suffícient in
competency and ability to complete the design with a reasonable degree of
technical skill. For example, courts in the United States have held that the
designer, in the preparation of design and drawings, must exercise his skill
and ability, judgment and taste reasonably and without neglect.23 This
Standard represents a professional duty o f care. The Contractor, on the other
hand, often may be required to construct the works with due care and
diligcnce. The standards are often deíĩned by the relevant legal system and
in accordance with industry practice. The Standard o f performance can vary
from contract to contract, and construction Contractors are required to
complete the works in accordance with the contract. Thereiòre, the
Contractor will not generally be held responsible for design defíciencies.
Under a Tumkey or EPC contract both the Designer and Contractor
responsibilities are placed on the EPC Contractor along with a stricter
Standard o f períbrmance. The Standard of períòrm ance applied w ill be
provided by contract, or in the absence of a specifíc provision, by the
applicable law. Under The FIDIC Conditions of Contract for EPC/Tumkey
Prọịects the Standard is “fìtness fo r purpose”. According to English case
law, a Turnkey/EPC Contractor is under strict liability to deliver a structure

“fít for the puipose” for which it was made.24
The Lífìtness fo r purposè''' Standard goes beyond a “professional duty
o f care”, placing on the EPC Contractor liability íbr any íailure of the
design to perform to the standards required. This provides the Employer
with works constructed and operational in accordance with the intended
purpose or use of the works as provide in the contract. For example, in the
construction of a thermal power plant the Employer can set out in the
23 S u p r a N . 2 0 , p. 18.

24 ld., p. 20.

21