Circular No. 06/2003/TT-BXD guiding the establishment and management of construction costs for projects funded by international sponsors

CIRCULAR

OF THE MINISTRY OF CONSTRUCTION

GUIDELINES FOR ESTABLISHING AND MANAGING CONSTRUCTION COSTS

 FOR PROJECTS FUNDED BY INTERNATIONAL FINANCIAL INSTITUTIONS

BASED ON THE REGULATIONS ON INVESTMENT MANAGEMENT AND CONSTRUCTION ISSUED TOGETHER WITH DECREE NO. 52/1999/NĐ-CP OF JULY 8, 1999 AND DECREE NO. 12/2000/NĐ-CP OF MAY 5, 2000 OF THE GOVERNMENT; DECREE NO. 07/2003/NĐ-CP OF JANUARY 30, 2003 OF THE GOVERNMENT AMENDING AND COMPLEMENTING CERTAIN PROVISIONS OF THE REGULATIONS ON INVESTMENT MANAGEMENT AND CONSTRUCTION ISSUED TOGETHER WITH DECREE NO. 52/1999/NĐ-CP OF JULY 8, 1999 AND DECREE NO. 12/2000/NĐ-CP OF MAY 5, 2000 OF THE GOVERNMENT;

Pursuant to Decree No. 17/2001/NĐ-CP dated 04/5/2001 of the Government on the issuance of the Regulation on management and use of official development assistance;

BASED ON DECREE NO. 15/CP OF 04/3/1994 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

TO UNIFY THE MANAGEMENT OF CONSTRUCTION COSTS FOR PROJECTS FUNDED BY INTERNATIONAL FINANCIAL INSTITUTIONS, THE MINISTRY OF CONSTRUCTION GUIDES THE PRINCIPLES FOR ESTABLISHING AND MANAGING CONSTRUCTION COSTS AS FOLLOWS:

I. GENERAL PROVISIONS

1. THESE GUIDELINES UNIFIES THE PROCEDURES FOR ESTABLISHING AND MANAGING CONSTRUCTION COSTS FOR PROJECTS USING FUNDS FROM INTERNATIONAL FINANCIAL INSTITUTIONS THAT ARE IMPLEMENTED THROUGH INTERNATIONAL TENDERING IN VIETNAM.

2. THE FUNDS FROM INTERNATIONAL FINANCIAL INSTITUTIONS REFERRED TO IN THESE GUIDELINES ARE FOREIGN LOANS OF THE GOVERNMENT AND INTERNATIONAL AID FUNDS FOR DEVELOPMENT INVESTMENTS (INCLUDING OFFICIAL DEVELOPMENT ASSISTANCE - ODA) MANAGED UNIFIEDLY UNDER THE STATE BUDGET LAW.

3. IN CASE THE GUIDELINES IN THESE GUIDELINES DIFFER FROM THE PROVISIONS IN INTERNATIONAL AGREEMENTS, AGREEMENTS, OR DOCUMENTS SIGNED BETWEEN THE GOVERNMENT OF VIETNAM AND INTERNATIONAL FINANCIAL INSTITUTIONS, THE PROVISIONS IN THOSE INTERNATIONAL AGREEMENTS, AGREEMENTS, OR DOCUMENTS SHALL BE FOLLOWED.

4. THE ESTABLISHMENT OF CONSTRUCTION COSTS FOR PROJECTS FUNDED BY INTERNATIONAL FINANCIAL INSTITUTIONS IMPLEMENTED THROUGH INTERNATIONAL TENDERING IN VIETNAM MUST COMPLY WITH THE GUIDELINES IN THESE GUIDELINES TO ENSURE THE LEGAL MANAGEMENT OF CONSTRUCTION COSTS.

II. ESTABLISHING CONSTRUCTION COSTS

1. TOTAL INVESTMENT COST:

THE TOTAL INVESTMENT COST OF PROJECTS FUNDED BY INTERNATIONAL FINANCIAL INSTITUTIONS IS FORMED FROM THE FUNDS OF INTERNATIONAL FINANCIAL INSTITUTIONS AND DOMESTIC MATCHING FUNDS. THE TOTAL INVESTMENT COST IS CALCULATED AND DETERMINED IN THE FEASIBILITY STUDY STAGE AND IS RECORDED IN THE PROJECT INVESTMENT DECISION.

THE USE OF FUNDS FROM INTERNATIONAL FINANCIAL INSTITUTIONS AND DOMESTIC MATCHING FUNDS FOR SPECIFIC TASKS, ITEMS, OR CONTRACT PACKAGES IS CALCULATED AND SPECIFIED FOR EACH PROJECT. THE CONTENT, APPROVAL PROCESS, OR ADJUSTMENT (IF ANY) OF THE TOTAL INVESTMENT COST OF THE PROJECT IS PERFORMED ACCORDING TO CURRENT REGULATIONS.

2. TOTAL PROJECT ESTIMATE:

ALL CONSTRUCTION PROJECTS FUNDED BY INTERNATIONAL FINANCIAL INSTITUTIONS MUST ESTABLISH A TOTAL PROJECT ESTIMATE AND BE MANAGED ACCORDING TO THESE GUIDELINES.

THE TOTAL PROJECT ESTIMATE IS THE TOTAL COST NECESSARY FOR THE CONSTRUCTION OF THE PROJECT AND IS CALCULATED AT THE TECHNICAL DESIGN STAGE. THE TOTAL PROJECT ESTIMATE INCLUDES CONSTRUCTION AND INSTALLATION COSTS, EQUIPMENT COSTS, CONSULTANCY COSTS, LAND ACQUISITION AND RESIDENT RELOCATION COSTS, OTHER COSTS, TAXES, AND CONTINGENCY COSTS.

THE ITEMS OF COSTS IN THE TOTAL PROJECT ESTIMATE ARE DETERMINED ACCORDING TO THE FOLLOWING PRINCIPLES AND METHODS:

2.1. CONSTRUCTION AND INSTALLATION COSTS:

THE CONSTRUCTION AND INSTALLATION COSTS IN THE TOTAL PROJECT ESTIMATE ARE THE COSTS FOR IMPLEMENTING THE ENTIRE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK OF THE PROJECT. THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK OF THE PROJECT INCLUDES:

THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK OF ITEMS AND CONTRACT PACKAGES IMPLEMENTED THROUGH INTERNATIONAL TENDERING;

THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK OF ITEMS AND CONTRACT PACKAGES SELECTED THROUGH DOMESTIC TENDERING;

OTHER QUANTITIES OF CONSTRUCTION AND INSTALLATION WORK.

2.1.1. FOR THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK IMPLEMENTED THROUGH INTERNATIONAL TENDERING, THE CONSTRUCTION AND INSTALLATION COSTS ARE DETERMINED BASED ON THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK ACCORDING TO THE TECHNICAL DESIGN (OR EQUIVALENT DESIGN OF THE DONOR COUNTRY) AND THE INTERNATIONAL TENDERING UNIT PRICE. THE ESTABLISHMENT OF INTERNATIONAL TENDERING UNIT PRICES IS GUIDED IN SECTION 3 BELOW. IF THE QUANTITY CANNOT BE SPECIFICALLY DETERMINED BY DESIGN OR THOSE WORKS HAVE SMALL QUANTITIES, THEN THE COMPLETE PACKAGE COST (LUMP SUM) IS INCLUDED IN THE ESTIMATE AND TOTAL ESTIMATE.

2.1.2. FOR THE QUANTITY OF CONSTRUCTION AND INSTALLATION WORK SELECTED THROUGH DOMESTIC TENDERING, THE CONSTRUCTION AND INSTALLATION COSTS ARE DETERMINED ACCORDING TO THE TECHNICAL DESIGN APPROVED AND THE LOCAL BASIC CONSTRUCTION UNIT PRICE WHERE THE PROJECT IS LOCATED.

2.1.3. OTHER CONSTRUCTION AND INSTALLATION COSTS: DEPENDING ON THE SPECIFIC NATURE OF EACH PROJECT, OTHER CONSTRUCTION AND INSTALLATION COSTS ARE THE COSTS FOR AUXILIARY AND SERVICE WORKS SUCH AS FIELD HOUSING, OFFICE, ELECTRICITY, WATER, COMMUNICATIONS, TEMPORARY ROADS FOR CONSTRUCTION, LABORATORY, HEALTH CLINIC, COSTS FOR TRAFFIC SAFETY, SITE SAFETY, POST-CONSTRUCTION SITE RESTORATION, MOVING CONSTRUCTION EQUIPMENT... WHICH ARE DETERMINED BY THE ESTIMATE METHOD BASED ON THE SPECIFIC REQUIREMENTS OF EACH PROJECT.

OTHER CONSTRUCTION AND INSTALLATION COSTS ARE AN INDEPENDENT ITEM UNDER CONSTRUCTION AND INSTALLATION COSTS OR ARE ALLOCATED TO ITEMS AND CONTRACT PACKAGES OF CONSTRUCTION AND INSTALLATION.

2.2. EQUIPMENT COSTS:

EQUIPMENT COSTS (EQUIPMENT PURCHASED FROM ABROAD AND DOMESTIC) ARE DETERMINED BASED ON THE QUANTITY OF EACH TYPE OF EQUIPMENT AND THE VALUE PER TON OR EQUIPMENT TYPE. THE VALUE OF EQUIPMENT INCLUDES THE PURCHASE PRICE, TRANSPORTATION COSTS, STORAGE COSTS, TAXES, FEES, INSURANCE, AND OTHER COSTS (IF ANY).

FOR NON-STANDARD EQUIPMENT PRODUCED AND PROCESSED DOMESTICALLY, THE EQUIPMENT COSTS ARE DETERMINED BASED ON THE QUANTITY TO BE PRODUCED AND PROCESSED AND THE PRODUCTION AND PROCESSING COSTS PER TON OR EQUIPMENT TYPE AND OTHER COSTS AS MENTIONED ABOVE. THE PRODUCTION AND PROCESSING COSTS OF NON-STANDARD EQUIPMENT ARE DETERMINED ACCORDING TO CURRENT STANDARDS.

IF THE QUANTITY OF EQUIPMENT FOR THE PROJECT HAS BEEN TENDERED, THE EQUIPMENT COSTS ARE THE CONTRACT PRICE AND OTHER COSTS (IF ANY).

2.3. CONSULTANCY COSTS:

CONSULTANCY COSTS INCLUDE COSTS FOR WORKS PERFORMED BY FOREIGN AND DOMESTIC CONSULTANTS.

FOR WORKS PERFORMED BY FOREIGN CONSULTANTS, CONSULTANCY COSTS ARE DETERMINED BASED ON THE ESTIMATE PREPARED IN ACCORDANCE WITH THE REQUIREMENTS FOR USING CONSULTANTS FOR THE PROJECT, GUIDELINES FOR USING CONSULTANTS OF INTERNATIONAL FINANCIAL INSTITUTIONS, AND OTHER VIETNAMESE REGULATIONS. IF CONSULTANCY WORKS PERFORMED BY FOREIGN CONSULTANTS HAVE BEEN ORGANIZED THROUGH TENDERING, CONSULTANCY COSTS ARE DETERMINED ACCORDING TO THE VALUE OF THE CONSULTANCY CONTRACT SIGNED.

For domestic consultancy work, the consultancy costs shall be calculated at 1.2 times the standard rate for similar investment construction consultancy work as stipulated under current regulations. For consultancy work without specified cost standards, it shall be carried out in accordance with the guidelines of the Ministry of Construction.

2.4. Land clearance, resettlement, and restoration costs:

Land clearance, resettlement, and restoration costs include land compensation costs, crop compensation costs, building structure compensation costs, relocation costs, land clearance costs, resettlement support costs or construction costs for resettlement areas, technical infrastructure construction support costs (if applicable), and costs to restore the original condition.

These costs shall be determined based on current state regulations, international treaty provisions already signed, and other regulations and guidelines from international sponsors.

2.5. Other Costs:

Other costs related to the use of international sponsor funds, such as project documentation preparation costs, project documentation review and completion costs, project preparation committee costs, interest payment costs during construction, international audit costs, institutional strengthening costs, community awareness enhancement costs, insurance fees, bid guarantee fees, and contract implementation fees... if there are no national cost standard regulations, they shall be determined according to international practices, sponsor regulations, or guidelines, or by preparing a budget estimate for approval by the competent authority. Other costs not included in the construction works shall be determined according to the current guidelines of the State.

2.6. Taxes and Fees:

This includes taxes and fees required to be paid according to current state regulations, international treaty provisions already signed, and other regulations and guidelines from international sponsors (if applicable).

2.7. Contingency Costs:

Contingency costs are used for unforeseen volume increases, price escalation, and other unexpected situations during the construction period. Contingency costs amount to 10% of the total estimated cost items in the overall budget. For projects where price escalation contingency costs have a basis for determination or have been specifically calculated, volume increase contingency costs amount to 7%.

3. International Tender Unit Price for Construction and Installation Works:

The unit price for construction and installation works subject to international tendering (hereinafter referred to as the international tender unit price for construction and installation works) includes the following cost components: direct costs, general costs, and contractor profit.

The contents and methods for determining each component of the cost in the international tender unit price for construction and installation works are as follows:

3.1. Direct Costs in the Unit Price Include Material Costs, Labor Costs, and Construction Machinery Costs.

3.1.1. Material Costs:

Material costs in the unit price are determined based on the consumption rates of each type of material and the corresponding construction material prices.

The consumption rate of each type of material is based on the current construction budget estimate standard. In cases where there are no regulations or existing regulations do not match the specific technical and aesthetic requirements of the project, the specific requirements of the project will be used to determine them.

Prices for construction materials that are not available in the domestic market and must be imported from abroad are determined based on the market prices in the region or from the country of the international sponsor (if specified in international treaties). Domestic construction material prices are determined based on the construction material price announcements of the local competent authority where the project is located. Construction materials not listed in the announcement will be determined based on the market price at the time of unit price preparation or the reasonable price of similar completed projects. Material prices do not include value-added tax.

3.1.2. Labor Costs:

Labor costs in the unit price are determined based on labor consumption rates and corresponding daily wage rates.

The labor consumption rate is the number of working days (professional and non-professional) based on the current basic construction budget estimate standard. For work that does not have a specified rate or where the existing rate does not match the specific technical and aesthetic requirements of the project, the specific requirements of the project will be used to determine them.

Daily wage rates include basic wages, wage-related allowances, direct costs allocated to workers, and special costs (if any) and are determined according to the following principle: for work requiring foreign labor, daily wage rates are determined based on the average wage levels of equivalent positions in the region, and for work using domestic labor, wages are determined according to current regulations.

If the conditions stipulated in Clause 1, Article 1 and Article 2 of Decree No. 03/2001/ND-CP dated January 11, 2001 of the Government amending and supplementing certain articles of Decree No. 28/CP dated March 28, 1997 of the Government are met when determining domestic labor wages, the adjustment factor increase as prescribed in Circular No. 04/2003/TT-BLDTBXH dated February 17, 2003 of the Ministry of Labor, Invalids, and Social Affairs shall be applied.

3.1.3. Construction Machinery Costs:

Construction machinery costs in the unit price are determined based on the number of machine operation shifts and the corresponding machine shift prices.

The number of machine operation shifts is based on the current construction budget estimate standard.

Machine shift prices are determined based on the current domestic construction budget estimate shift price list for machines and equipment. For special construction machinery that needs to be imported for project construction or is not included in the current domestic construction budget estimate shift price list for machines and equipment, the current government pricing method shall be used or the rental price of similar machines on the market (if available) shall be applied.

3.2. General Costs:

General costs include expenses for the contractor's operations during the preparation, execution, and completion of the construction project, such as management staff costs, transportation costs, communication costs, office and office equipment costs, office activity service costs, and other general costs. General costs are determined as a percentage (%) of the direct costs in the construction and installation works unit price according to current regulations.

3.4. Contractor Profit:

The contractor's profit is determined at 6.0% of the direct costs and common costs.

4. Budget for international tender packages:

4.1. Based on the project's tender plan, the budgets for each package (consultancy, equipment, construction...) are prepared to determine the package price or serve as a basis for evaluating tender documents. In cases where the budgets for the packages are prepared before the approval of the total budget estimate, the preparation of the total budget estimate for the project must still comply with the provisions stated in Section 2, Part II above.

4.2. Depending on the requirements and scope of the tender, the budget for the construction installation package may include construction installation costs or may include both construction installation costs and other costs allocated according to each package. The construction installation costs (including contingency costs) for each package are determined in accordance with the guidelines set out in Clause 2.1, Section 2, Part II mentioned above.

4.3. For construction projects that are tendered under the design-supply of materials and equipment-construction contract form (referred to as the EPC package), the value of the EPC package included in the total budget estimate for the project may consist of part or all of the consultancy fees, design costs, construction installation costs, equipment costs, contingency costs, other costs, or other costs allocated (if any).

The management of EPC contract costs shall be carried out in accordance with the current regulations of the Ministry of Construction.

III. MANAGEMENT OF CONSTRUCTION COSTS FOR PROJECTS

1. Budget norms and unit prices for international tender construction installation:

1.1. When establishing unit prices for international tender construction installation, the current system of budget norms shall be applied. For construction installation works not covered in the current system of budget norms, or when applying the current system of budget norms is inappropriate, foreign standards or applicable norms consistent with the characteristics of the construction installation work shall be used, subject to the agreement of the Ministry of Construction.

1.2. Unit prices for international tender construction installation are established by the project consultant together with the total budget estimate for the project. The unit prices for international tender construction installation are reviewed for reasonableness by the project sponsor and submitted along with the total budget estimate when submitting to the competent authority for approval of the design and total budget estimate. The agency responsible for reviewing the total budget estimate shall check the compliance of these unit prices with the current regulations.

2. Currency and exchange rate in the total budget estimate, project budget:

The currency for preparing, reviewing, and approving the total budget estimate is the currency specified in the credit agreement of the international financier and the Vietnamese dong. The total budget estimate value is converted into Vietnamese dong (VND) or US dollars (USD) based on the exchange rate at the time of submission for review and approval of the total budget estimate, project budget.

3. Adjustment of the total budget estimate for the project

3.1. During the implementation of the project, if additional works, project components, or packages are required and approved in writing by the authorized person and the international financier, the project sponsor must adjust and supplement the total budget estimate and project budget.

3.2. If the total budget estimate value after adjustment and supplementation exceeds 10% of the previously approved total budget estimate (including contingency costs after adjustments and deductions for project component values), the project sponsor must re-approve the total budget estimate in accordance with current regulations.

3.3. The total budget estimate value after adjustment and supplementation shall not exceed the approved investment ceiling. In cases where the total budget estimate after adjustment and supplementation exceeds the approved investment ceiling, the sponsor must submit it for consideration and decision by the authorized investment decision-maker and adjust the investment ceiling before adjusting and supplementing the total budget estimate.

4. Incurred costs during the project implementation process

4.1. The project sponsor is entitled to settle the volume of incurred costs in accordance with current regulations and is responsible for this.

4.2. For volumes of incurred costs with unit prices stipulated in the signed contract, they are determined according to those unit prices. In cases where there are no unit prices for the volumes of incurred costs in the contract between the project sponsor and the contractor, the project sponsor must establish unit prices in accordance with the guidelines in this circular and submit them for approval by the authorized person. While awaiting approval from the authorized person, the project sponsor is permitted to settle up to 70% of the estimated value based on provisional unit prices. Settlement of volumes of incurred costs without unit prices shall be carried out according to the unit prices approved by the authorized person.

5. Costs of new supplementary components of the project

5.1. For new supplementary components of the project still being implemented by the existing contractor, the costs of these components are determined according to similar unit prices for the same type of work included in the previously signed contract. In cases where there are no similar unit prices for the same type of work in the contract between the project sponsor and the contractor, the provisions of Clause 4.2, Section 4, Part III mentioned above shall apply.

The costs of investment consulting services for these new supplementary components are determined in accordance with current regulations.

5.2. For new supplementary components implemented through tendering or designated to be executed by another contractor, the unit prices for construction installation works within these components shall be carried out in accordance with current regulations.

IV. IMPLEMENTATION

1. This Circular is uniformly applicable throughout the country and takes effect fifteen days after its publication in the Official Gazette.

2. Construction projects using other sources of funds for international tenders in Vietnam may refer to and apply the provisions of this Circular when establishing and managing construction costs.

3. During implementation, if there are any difficulties, please report to the Ministry of Construction for research and amendment.