Circular No. 07/2016/TT-BXD guiding the adjustment of construction contract prices

CIRCULAR

Guidelines for Adjusting Construction Contract Prices

Based on the Construction Law 50/2014/QH 13 dated June 18, 2014;

Based on Decree No. 62/2013/NĐ-CP dated June 25, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

Based on Decree No. 37/2015/NĐ-CP dated April 22, 2015 of the Government detailing construction contracts;

Pursuant to the proposal of the Director of the Construction Economy Department;

The Minister of Construction issues this Circular guiding the adjustment of construction contract prices.

Article 1. Scope of Regulation and Applicability

1. This Circular guides the adjustment of construction contract prices including: principles, cases eligible for price adjustment, procedures, methods, contents, and ways to adjust construction contract prices.
2. This Circular applies to organizations and individuals related to the establishment and management of implementation of construction contracts under investment construction projects (including construction contracts between project investors implementing BOT, BTO, BT, and PPP projects with contractors implementing packages of the project) as follows:
   1. Investment construction projects of state agencies, political organizations, political-social organizations, political-social-professional organizations, social-professional organizations, social organizations, units of the people's armed forces, public service units.
   2. Investment construction projects of state-owned enterprises;
   3. Investment construction projects not falling within the scope specified in point a and b of this clause but using state capital, state-owned enterprise capital at 30% or more, or less than 30% but over 500 billion VND in the total project investment.

It is encouraged for organizations and individuals related to the establishment and management of construction contracts under investment construction projects using other sources of funds to apply the provisions of this Circular.

For construction contracts under projects utilizing official development assistance (ODA) funds, if international treaties to which Vietnam is a party have different provisions from those set out in this Circular, the provisions of such international treaties shall be implemented.

Article 2. Principles for Adjusting Construction Contract Prices

1. Price adjustments shall only apply during the contract performance period, including any extended periods agreed upon by the contracting parties.
2. If the adjusted contract price (including reasonable additional work outside the scope of the signed contract) does not exceed the approved tender package price (including the contingency costs of that package), the Investor has the right to decide on the adjustment; if it exceeds the approved tender package price, prior approval from the Investment Decision Authority is required before the adjustment can be made.
3. When signing supplementary agreements to the contract, the parties must clearly define the additional work volume and applicable unit prices. The additional work volume must be agreed upon by all parties before execution.
4. Price adjustments shall not be made for the portion of the contract value corresponding to advance payments exceeding the minimum advance payment amount (as stipulated in Clause 5, Article 18 of Decree No. 37/2015/NĐ-CP) from the date of advance payment; and for additional work volumes resulting from the contractor's subjective fault.
5. Price adjustments according to the provisions of this Circular shall not be carried out for matters within the responsibility of insurance companies to compensate.
6. Price adjustments of the contract must be agreed upon by the parties and specified in the contract regarding the situations eligible for price adjustment, procedures, timelines, scope, conditions for adjustment, methods, and bases for adjusting the contract price. The method of adjusting the contract price must be appropriate to the type of contract price and the nature of the contract work. Other contents (if any) agreed upon by the parties to be adjusted in the contract must not contravene the provisions of this Circular and relevant laws concerning construction contracts.

Article 3. Cases for Adjusting Contract Prices

Construction contracts shall only be adjusted in the cases stipulated in Clause 2 and Clause 3, Article 143 of the Construction Law No. 50/2014/QH13 dated June 18, 2014. Specifically, some cases for adjusting contract prices are as follows:

1. For lump-sum contracts: The contract price may only be adjusted for reasonable additional work volumes, reduced work volumes compared to the scope of work required to be performed under the signed contract, and force majeure cases, specifically as follows:
   1. Reasonable additional work volumes or reduced work volumes:

• For consulting contracts, these are additional work volumes outside the consulting tasks that must be performed, or work items included in the contract but not executed.
• For construction contracts, these are work volumes outside the scope of work required to be performed according to the accompanying design; or construction works, project components, or work items not required to be performed according to the accompanying design.
• For equipment supply contracts, these are quantities outside the equipment list within the initial contract scope.
  2. Force majeure cases as specified in Clause 2, Article 51 of Decree No. 37/2015/NĐ-CP, and other force majeure cases (such as encountering caves, mud pockets, artifacts, archaeological sites) that the parties could not foresee at the time of signing the contract, approved by the Investment Decision Maker.
     2. For fixed unit price contracts:
        1. Additional reasonable work volumes without unit prices in the contract.
        2. Force majeure cases and other force majeure cases as specified in point b, Clause 1 of this Article.
     3. For time-based contracts:
        1. Actual completion time exceeding or falling short by more than 20% of the time stated in the contract.
        2. Additional reasonable experts without expert fees in the contract.
        3. When the State changes tax policies affecting the wage level of experts directly impacting the contract price, and the parties have agreed on this in the contract.
     4. For adjustable unit price contracts:

a) Actual completed work volume exceeding or falling short by more than 20% of the corresponding work volume stated in the contract.

2. Additional reasonable work volumes without unit prices in the contract.
3. Adjusting the entire unit price or certain unit prices for work items where the tenderer and contractor agreed to adjust after a certain period from the date the contract becomes effective.
4. Force majeure cases and other force majeure cases as specified in point b, Clause 1 of this Article.

5. For combined price contracts:

Including the cases for adjusting contract prices specified in Clauses 1 to 4 of Article 3 (cases corresponding to each type of contract price).

Article 4. Procedures for Implementing Contract Price Adjustments

1. For the cases for adjusting contract prices specified in Article 3 (excluding the case specified in point c, Clause 4 of Article 3 of this Circular), the parties must sign supplementary contract appendices as the basis for adjusting contract prices.
2. The investor is responsible for approving or submitting for approval additional budget estimates (excluding the case specified in point c, Clause 4 of Article 3) prepared by the contractor, serving as the basis for signing supplementary contract appendices. The contractor prepares additional budget estimates based on agreed additional and newly arisen volumes, legal regulations on construction project cost management, and agreements in the contract.
3. The main contractor is responsible for correspondingly adjusting the contract price for subcontractors according to the content of the contract signed between the parties when the contract price is adjusted.

Article 5. Adjustment of price for lump-sum contracts

1. When additional work volume reasonably occurs outside the scope of the contract or when additional work volume reasonably lacks unit prices in the contract, the parties to the contract shall agree on the unit price of such work before implementation. The determination of new unit prices shall be based on the principles agreed upon in the contract regarding unit prices for work volumes arising outside the scope of the contract; work volumes lacking unit prices in the contract. New unit prices shall be determined according to the Circular guiding the establishment and management of construction project investment costs issued by the Ministry of Construction and agreements in the contract.
2. For construction works contracts that include works, sub-works, or tasks not required to be carried out in the design documents attached to the signed contract: apply the unit prices in the contract to adjust the contract price downwards. When signing a lump-sum contract, the parties should attach a unit price table to facilitate downward adjustments, and this table is only used to adjust prices for work volumes not executed under the contract.

3. In cases of force majeure or other extraordinary events: Unit prices for work necessary to remedy the consequences of force majeure shall be determined based on actual conditions, the Circular guiding the determination and management of construction project investment costs issued by the Ministry of Construction. The unit prices in the signed contract may be applied; or unit prices determined according to the principles agreed upon in the contract regarding new unit prices for additional work volumes arising outside the scope of the contract.

Article 6. Adjustment of price for fixed unit price contracts

1. When additional work volume lacking unit prices in the contract occurs, the parties to the contract shall agree on the unit price of such work before implementation. The determination of unit prices shall be based on the Circular guiding the determination and management of construction project investment costs issued by the Ministry of Construction and agreements in the contract.
2. In cases of force majeure or other extraordinary events: Implement the provisions stipulated in Clause 3 of Article 5 of this Circular.

Article 7. Adjustment of price for time-based contracts

1. When the actual completion time accepted for inspection increases or decreases by more than 20% compared to the corresponding time recorded in the contract or when additional experts lacking remuneration rates in the contract are added, the parties shall agree on new remuneration rates for experts according to the principles agreed upon in the contract regarding new remuneration rates for experts. New remuneration rates for experts shall be determined according to the regulations applicable to the contract and agreements in the contract.
2. When the State changes tax policies or wage policies affecting the remuneration of experts directly impacting the contract price and the parties have agreed in the contract, the parties shall adjust the expert remuneration rates according to the principles agreed upon in the contract and relevant regulations.

Article 8. Adjustment of price for adjustable unit price contracts

1. When the actual completed work volume accepted for inspection increases or decreases by more than 20% compared to the corresponding work volume recorded in the contract or when additional reasonable work volume lacking unit prices in the contract occurs, the parties shall agree on new unit prices according to the principles agreed upon in the contract regarding unit prices for these work volumes for payment. New unit prices shall be determined according to the Circular guiding the determination and management of construction project investment costs issued by the Ministry of Construction and agreements in the contract.

2. If the parties agree in the contract to adjust unit prices (in whole or in part) for work subject to price adjustment due to inflation after a certain period from the date the contract becomes effective. Adjustable unit prices shall be determined according to the method specified in the Appendix attached to this Circular.
3. In cases of force majeure or other extraordinary events: Unit prices for work necessary to remedy the consequences of force majeure shall be determined based on actual conditions, the Circular guiding the determination and management of construction project investment costs issued by the Ministry of Construction, or applying unit prices according to the agreement in the signed contract, including adjusted unit prices according to the contract agreement (if any).

Article 9. Adjustment of price for combined price contracts

Based on each part of work in the contract corresponding to each type of contract price, the parties apply the price adjustment contents stipulated in Articles 5 to 8 of this Circular to adjust the contract price accordingly.

Article 10. Methods for adjusting contract prices

Depending on the nature of the contract and the type of contract price, the parties agree to adjust the contract price using either the price adjustment factor method or the direct offset method.

The detailed contents of the methods for adjusting contract prices are guided in the Appendix attached to this Circular.

Article 11. Implementation Organization

1. For construction contracts that have been and are being implemented before the date this Circular takes effect, the price adjustment of the contract shall be carried out as follows:

1. For contracts that have been and are being implemented before June 15, 2015 (the effective date of Decree No. 37/2015/NĐ-CP), the price adjustment of the contract shall be carried out according to the contract content already signed and the regulations on construction contracts prior to June 15, 2015.
2. For contracts signed and being implemented from June 15, 2015 to before the effective date of this Circular, the price adjustment of the contract shall be carried out according to the contract content already signed and the regulations on construction contracts under Decree No. 37/2015/NĐ-CP.
   2. For construction contracts currently under negotiation but not yet signed, report to the Investment Decision Maker for consideration and decision on applying the provisions of this Circular to adjust the contract price.
   3. For other cases not covered by the provisions of Clause 1 and Clause 2 of this Article, the price adjustment of the contract shall be carried out according to the provisions of Decree No. 37/2015/NĐ-CP and this Circular.
   4. The Minister, Heads of Ministries equivalent to Ministries, Chairpersons of People's Committees of provinces and centrally governed cities, Heads of political organizations, political-social organizations, social-professional organizations, Chairpersons of Management Boards of State-owned Corporations, Economic Groups, and related organizations and individuals are responsible for implementing this Circular.

Article 12. Effective Date

This Circular takes effect from May 1, 2016 and replaces Circular No. 08/2010/TT-BXD dated July 29, 2010 of the Ministry of Construction on guiding methods for adjusting construction contract prices./.