Circular No. 02/2004/TT-BXD guides the calculation of additional construction costs for projects due to sudden increases in steel prices.

CIRCULAR

Guidelines for Supplementing Construction Costs Due to Sudden Increase in Steel Prices

project due to a sudden increase in the price of construction steel 

Pursuant to Decree No. 36/2003/NĐ-CP dated April 4, 2003 of the Government stipulating the functions, tasks, powers, organizational structure of the Ministry of Construction;

Pursuant to Resolution No. 03/2004/NQ-CP dated March 12, 2004 of the Government's regular session in February 2004 on specific measures to compensate for costs due to the increase in construction material prices to ensure and accelerate the progress of state-funded construction projects;

Implementing the Prime Minister's directive (as stated in Official Letter No. 1814/VPCP-KTTH dated April 14, 2004 of the Government Office) regarding solutions to address the impact of increased steel prices in basic construction;

After reaching consensus with the Ministry of Planning and Investment, the Ministry of Finance, and the Ministry of Construction, guidelines for supplementing construction costs for projects during the period of sudden increase in steel prices are hereby issued, effective from January 1, 2004, based on the following principles and methods:

1. Principles for Supplementing Costs

1.1. Supplement construction costs for investment projects using various sources of capital: state budget funds, credit guaranteed by the State, state development credit, and state enterprise development capital.

1.2. The supplementation of construction costs due to the sudden increase in steel prices shall apply to projects, project components, or tender packages (hereinafter referred to as projects) listed in the 2004 construction investment plan, which are executed through direct assignment, bidding (with price adjustment clauses or lump-sum contracts), or self-execution of projects, currently under construction or scheduled to commence construction, and have actual work volumes completed at the time of the sudden increase in steel prices.

1.3. The supplementary construction cost due to the sudden increase in steel prices shall be calculated for the volume of construction works that actually use steel with increased prices only when there are valid receipts and invoices corresponding to the actual quantity and type of steel used according to the design, and the steel price in these documents must not exceed the announced price by the Department of Finance and Construction at the local level as of December 2003.

1.4. Supplementary construction costs due to the sudden increase in steel prices shall not be applied to imported steel already included in the project.

1.5. In cases where construction uses materials produced from steel products such as cables, pipes, etc., they shall also be adjusted according to the provisions of this Circular.

1.6. Adjustments for other material price differences shall continue to be implemented according to the provisions of Circular No. 09/2000/TT-BXD dated July 17, 2000, and Circular No. 07/2003/TT-BXD dated June 17, 2003, issued by the Minister of Construction.

2. Method for Supplementing Costs

2.1. For construction projects executed through direct assignment or self-execution of projects currently under construction, the supplementary construction cost due to the sudden increase in steel prices shall be calculated based on the actual volume and type of steel used, the difference between the actual steel price at the time of acceptance and the announced steel price in December 2003 at the local level, as follows:

The supplementary construction cost due to the sudden increase in steel prices shall be added to the pre-tax construction cost estimate of the project as attached in the Appendix to this Circular.

2.2. For construction projects executed through bidding currently under construction, the supplementary construction cost due to the sudden increase in steel prices shall be determined according to the method described in Point 2.1 above.

If the steel price in the winning bid is higher than the announced steel price in December 2003, the steel price in the winning bid shall be used to calculate the price difference. If the steel price in the winning bid is lower or equal to the announced steel price in December 2003, the announced price shall be used to calculate the price difference.

The supplementary construction cost due to the sudden increase in steel prices (including the price difference and value-added tax calculated at the applicable rate for construction and installation activities) shall be added as a supplementary amount to the contract price.

2.3. For construction projects that were directly assigned or bid but commenced construction during the period of sudden increase in steel prices, the supplementary cost shall be added to the project's estimated cost or contract price according to the supplementary calculation method described in Points 2.1 or 2.2 above.

2.4. For construction projects that have not been directly assigned or bid, the project owner shall adjust the preliminary estimate and total preliminary estimate based on the announced steel price in the local area according to current regulations.

2.5. For new construction investment projects, the total investment amount and total preliminary estimate shall be prepared according to current regulations.

3. Implementation Organization

3.1. Project owners together with contractors, design consultants, and construction supervision organizations shall organize inspections and confirm the completed construction volumes in accordance with each period of sudden increase in steel prices to accurately supplement construction costs due to the sudden increase in steel prices.

3.2. The project investor shall perform calculations, confirm, and be responsible for the accuracy of the quantity and price difference adjustment for construction steel, while compiling the additional cost report to submit to the competent authority for approval of the technical design and total budget estimate for review and inspection when necessary. Strictly prohibit collusion, bribery, or false declaration of quantities for additional costs that cause the construction project value to increase unjustifiably with reality, leading to investment capital loss.

3.3. The project investor may adjust the construction cost due to sudden increases in construction steel prices into the project's estimated value. In cases where the additional construction cost due to sudden increases in construction steel prices exceeds the total budget estimate or approved total investment amount, the project investor shall include the steel price difference into the project's estimated value, component project value, tender package price, and proceed with procedures to adjust the total budget estimate and total investment amount according to current regulations.

3.4. The Chairman of the People's Committees of provinces and centrally governed cities shall direct the Finance and Construction Departments to closely monitor fluctuations in construction steel prices and regularly and continuously issue construction steel prices at each local time point and area during periods of sudden price increases, serving as a basis for calculating the price difference adjustment for construction steel.

3.5. For projects using sources of funds other than those specified in point 1.1 of Section 1 above, the project investor shall base on the actual construction steel prices at each time point to consider self-adjustment.

3.6. Ministries, sectors, People's Committees of provinces and centrally governed cities, State-owned Corporations shall organize and direct inspections of project investors and contractors to strictly implement this Circular, accelerate progress, especially national key projects in the 2004 basic construction investment plan.

This Circular shall take effect fifteen days after its publication in the Official Gazette.

ANNEX

(Attached to Circular No. 02/2004/TT-BXD dated April 22, 2004)

COMBINED ESTIMATE TABLE FOR INSTALLATION AND CONSTRUCTION PROJECT COMPONENTS

Where:

Article 24^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.} : Quantity of installation and construction work item j

D^jvl, D^jnc, D^jm: Material, labor, and machinery costs within the unit price of installation and construction work item j.

F₁ : Additional allowances (if any) calculated based on the minimum wage not included or insufficient in the unit price.

F₂ : Additional allowances (if any) calculated based on the wage grade not included or insufficient in the unit price.

h_1n : Coefficient indicating the relationship between labor costs in the unit price compared to the minimum wage of group n.

- Group I : h_1.1 = 2,342

- Group II : h_1.2 = 2,493

- Group III : h_1.3 = 2,638

- Group IV : h_1.4 = 2,796

h_2n : Coefficient indicating the relationship between labor costs in the unit price compared to the wage grade of group n.

- Group I : h_2.1 = 1,378

- Group II : h_2.2 = 1,370

- Group III : h_2.3 = 1,363

- Group IV : h_2.4 = 1,357

P : General cost rate (%).

TL : Pre-tax income subject to tax.

g_XL : Pre-tax Construction Installation Estimate Value.

G_xl : Post-tax Construction Installation Estimate Value.

CL_vl : Material difference (if any).

BT : Adjustment for sudden increase in construction steel price (if any).

q_{international}^{organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.} : Quantity of construction steel type i accepted at time t.

For coal-fired thermal power plants where the enterprise holds 100% of the registered capital and uses 100% of its own capital to invest in the project approved by the competent authority, E is determined as 100%;_{international}^{organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.} : Adjustment level for construction steel type i at time t.

d.1. Amount of taxable income in Vietnam:^XL_VAT : Prescribed VAT rate for construction and installation work.

GTGT : Total output VAT (calculated according to Circular No. 120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance).