Circular No. 08/1999/TT-BXD guides the establishment and management of construction project costs under investment projects.

CIRCULAR

Guidelines for the preparation and management

 of construction costs for projects

______________________

THE MINISTER OF CONSTRUCTION

Pursuant to Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government promulgating the Regulation on Investment Management and Construction.

To implement the management mechanism for construction works of investment projects using state budget funds, state-guaranteed credit, state development credit, state-owned enterprise development capital, self-raised capital by state-owned enterprises, and non-state-guaranteed commercial credit as stipulated in Articles 10, 11, and 12 of Decree No. 52/1999/NĐ-CP, the Ministry of Construction provides guidelines for the preparation and management of construction costs for projects as follows:

II- SUPPORT MEASURES FOR STATE-OWNED AGRICULTURAL FARMS AND FORESTRY COMPANIES IN THE FIELD OF SCIENCE AND TECHNOLOGY

1- Construction costs for projects are all necessary expenses required to construct new, renovate, expand, or technically refurbish works. Due to the characteristics of the production process and the nature of construction products, each work has its own construction cost determined based on its scale, features, technical nature, and construction technology requirements.

According to the stages of the investment and construction process, construction costs are represented through the total investment ceiling at the investment preparation stage, the project estimate at the implementation stage, and the itemized project estimate during the investment execution phase, and the final settlement price and investment capital settlement when the project is completed and put into operation.

The total investment ceiling includes all investment and construction costs (including initial production capital) and is the maximum cost limit of the project determined in the Investment Decision. The project estimate and the final value of the project settlement upon completion and putting the project into operation must be within the approved total investment ceiling or adjusted according to Article 25 of the Investment and Construction Management Regulations issued together with Decree No. 52/1999/NĐ-CP dated July 8, 1999, of the Government.

2- Construction costs are determined based on the volume of work, standard norms, economic-technical indicators, and state policies that are appropriate to the objective market factors during each period and are managed according to the Investment and Construction Management Regulations issued together with Decree No. 52/1999/NĐ-CP dated July 8, 1999, of the Government.

3- All construction works of investment projects using state budget funds, state-guaranteed credit, state development credit, state-owned enterprise development capital, self-raised capital by state-owned enterprises, and non-state-guaranteed commercial credit must comply with the guidelines for preparing and managing construction costs as specified in this Circular.

II- CONTENT OF CONSTRUCTION COSTS FOR WORKS BY
INVESTMENT STAGES

1- Total Investment Ceiling

The total investment ceiling is analyzed, calculated, and determined during the feasibility study report preparation stage (or investment report) of the project, including costs for investment preparation (survey, investigation, feasibility study report preparation and review, project design and review, general estimate preparation, bidding costs, completion of investment and construction procedures, construction roads, electricity, water supply, auxiliary areas, temporary worker housing (if applicable)), costs for investment implementation and construction (construction and installation, equipment procurement, and other related costs), costs for production preparation to put the project into operation (training costs, trial run, trial production, hiring experts for operation during the trial run), initial working capital for production (for production projects), interest on bank loans of the investor during the implementation period, insurance costs, and contingency costs.

For Group A projects and certain special projects permitted by the Prime Minister, in addition to the above contents, the total investment ceiling also includes research and technology costs related to the project.

Detailed content, methods, and bases for calculating the total investment ceiling are guided by the Ministry of Planning and Investment.

2- Project Estimate

The project estimate is the total necessary investment and construction costs calculated specifically at the technical design or technical design-construction stage. The project estimate includes: construction and installation costs, equipment costs (including technological equipment, non-standard equipment requiring manufacturing (if any), and other equipment serving production, work, and living activities), other costs, and contingency costs (including both inflation contingency and quantity variation contingency).

The items of costs in the project estimate include the following specific contents:

2.1- Construction and Installation Costs Include:

- Demolition and dismantling costs of old structures (taking into account the value of recovered materials (if any) to reduce investment capital);

- Site leveling and earthwork costs;

- Costs for constructing temporary and auxiliary works for construction (construction roads, electricity, water, workshops, etc.), temporary site housing for workers and construction management (if any);

- Costs for constructing individual works;

- Equipment installation costs (for equipment requiring installation);

- Large-scale equipment and construction workforce relocation costs (in case of designated tendering if applicable).

2.2- Equipment Costs Include:

- Procurement costs for technological equipment (including non-standard equipment requiring manufacturing (if any)), and other equipment serving production, work, and living activities of the project (including installed equipment and non-installed equipment);

            - Transportation costs from port or purchase location to the project site, storage costs at ports in Vietnam (for imported equipment), container storage costs (if any) at ports, and storage and maintenance costs at site warehouses;

            - Taxes and insurance fees for construction equipment.

2.3- Other Costs Include:

Given the specific characteristics of this expense item, the content of each type of expense is divided according to the stages of the investment and construction process. Specifically:

a. In the investment preparation stage:

- Costs for preparing the preliminary feasibility study report for Class A projects or Class B projects (if required in writing by the competent authority deciding on investment), feasibility study report for general projects and projects only implementing investment reports;

- Advertising and promotional costs for the project (if applicable);

- Scientific research and technology-related costs (for Class A projects and certain special projects approved by the Prime Minister);

- Fees for reviewing the feasibility study report of the investment project.

b. In the implementation stage:

- Commencement costs (if applicable);

- Compensation costs and organization costs during the land acquisition, crop compensation, relocation of residents, and removal of structures on the construction site, costs serving resettlement and recovery work (for construction projects requiring resettlement and recovery);

- Land rental fees or land transfer rights fees;

- Construction surveying costs, design costs, model testing costs (if applicable), tender documentation preparation costs, bidding result analysis and evaluation costs, procurement of materials and equipment costs, construction supervision and installation monitoring costs, and other consulting costs;

- Project Management Board costs;

- Safety and environmental protection costs during the construction process (if applicable);

- Quality inspection costs (if applicable);

- Cost estimation and budget review costs, construction cost management costs;

- Construction insurance costs;

- Land administration fees;

- Design technical review fees or design technical-construction review fees, total project estimate fees, bidding result review fees.

c. In the completion and commissioning stage:

- Final acceptance report preparation costs, capital conversion costs, review and approval of final settlement costs;

- Demolition costs for temporary structures, auxiliary structures for construction, temporary housing (excluding recoverable value) etc.;

- Site cleanup costs, acceptance organization costs, inauguration and handover costs;

- Technical worker and production management staff training costs;

- Expert operation and production hiring costs during trial run (if applicable);

- Raw material, energy, and labor costs for unloaded and loaded trial run processes (excluding recoverable product value) etc.

2.4- Contingency Costs:

Contingency costs are expenses reserved for unforeseen quantities arising from design changes requested by the Investor and approved by the competent authority, unforeseeable quantities, and price escalation factors during project implementation.

3- Construction Item Project Estimate

The construction item project estimate is the necessary cost to complete the construction works of the construction item calculated based on the construction drawings or technical design-construction drawings.

The construction item project estimate includes:

3.1- Pre-tax construction item project estimate value including material costs, labor costs, construction machinery costs, common costs, and pre-tax income.

3.2- Post-tax construction item project estimate value including the pre-tax construction item project estimate value and the output VAT amount.

4- Payment Price

4.1- For bidding cases, the payment price is implemented according to the progress and the bid price (for lump-sum contracts) or paid according to the bid unit price and conditions stipulated in the contract between the investor and the construction enterprise (for adjustable-price contracts).

4.2- For cases permitted to designate contractors, the payment price is implemented according to the approved construction item or overall project estimate value based on the quantity and quality acceptance of each payment period.

5- Invested Capital Subject to Settlement

Invested capital subject to settlement is the entire legitimate cost incurred during the investment and construction process.

Detailed contents of invested capital subject to settlement are guided by the Ministry of Finance.

III. BASIS FOR ESTABLISHING CONSTRUCTION COSTS IN THE IMPLEMENTATION STAGE OF INVESTMENT

To determine all necessary costs in the implementation stage of investment as detailed in points 2 and 3 of Section II above, the following essential documents must be referenced:

1- Preliminary feasibility study report (if applicable) and feasibility study report or investment report approved by the competent authority.

2- Technical design documents, construction drawing documents, or technical design-construction documents.

3- Quantity of construction works calculated according to the design suitable with the list of basic construction unit prices.

4- List and quantity of technological equipment (including non-standard equipment that needs to be manufactured or processed if applicable), other equipment needed for production, work, and living purposes that need to be installed, not required by production technology of the construction project.

Consulting design organizations are responsible for the completeness, accuracy, and reasonableness of the contents mentioned in points 3 and 4 above.

5- Unit price based on area or capacity usage of common construction items: This is the index determining the average installation cost to complete one unit of area or capacity usage or one unit of structure of each type of building or common construction item constructed according to typical design or economically reasonable design. This price level is calculated from the pre-tax budgeted value of various types of work, installation structures within the building or construction item (civilian, industrial, transportation, water conservancy, etc.), excluding direct costs not included within the scope of the building or construction item such as costs for constructing roadways, drainage, electricity outside the building, and equipment costs of the building or construction item.

6- Basic construction unit price: The basic construction unit price issued by the Provincial People's Committee includes direct costs for materials, labor, and machinery usage fees calculated per unit volume of individual installation work or part of the installation structure, determined based on the basic construction budget norms.

For important state projects with complex construction scale and technical requirements, if permitted to establish separate unit prices, they shall be based on the basic construction unit price established in accordance with the design stages approved by competent authorities.

7- Equipment prices based on tender results or competitive bidding procurement prices or market information.

8- Transportation freight charges, loading and unloading fees, warehouse storage costs according to the guidelines of the Government Price Board.

9- Norms for various costs, fees, and taxes calculated as percentages or price lists include:

- Land compensation costs for crops, relocation of residents, and facilities on the construction site, costs for resettlement and recovery services (for construction projects requiring resettlement and recovery) based on government regulations, Ministry of Finance guidance, and competent authorities.

- Land rental or land transfer fees based on government regulations and guidance from competent authorities.

- General cost norms, survey costs, design costs, project management costs, investment and construction consulting costs, review fees (feasibility study reports, technical design or technical design-construction, total budget estimates, construction budgets...) according to the guidelines of the Ministry of Construction, Ministry of Finance, and competent authorities.

- Land administration fees, other types of fees, taxes, insurance premiums... based on the guidelines of the Ministry of Finance.

10- Relevant systems and policies issued by the Ministry of Construction and competent authorities.

IV- METHODS FOR ESTABLISHING CONSTRUCTION COSTS
IN THE IMPLEMENTATION STAGE OF INVESTMENT

1 - Total project estimate

The total project estimate is determined according to the following principles and methods:

- For technically advanced projects with complex foundation and construction geology, hydrogeology, a technical design must be completed before detailed construction drawings are made, then the total project estimate is prepared based on the technical design.

- For simple or common technical projects that only require a technical design-construction phase, the total project estimate is prepared based on the technical design-construction.

1.1- Installation costs:

1.1.1- For construction items that undergo a technical design phase before detailed construction drawings, installation costs are determined based on the quantity of installation work according to the technical design and the basic construction unit price of various works or installation structures established in accordance with the technical design.

1.1.2- For construction items that only require a technical design-construction phase, installation costs are determined based on the quantity of installation work according to the technical design-construction and the basic construction unit price issued by the provincial people's committee where the construction takes place.

1.1.3- For common construction items, installation costs are determined based on the total floor area or designed capacity of the construction item and the price per unit area or capacity usage as specified in point 5, Section III above.

1.1.4- For auxiliary area construction items and temporary housing for construction workers serving the construction of investment projects decided by competent authorities within the total investment amount, the calculation of installation costs for these items is carried out as follows:

1.1.4.1- Auxiliary area construction

Auxiliary area construction costs are prepared as separate installation budgets depending on specific designs according to the scale and nature of each construction item in the auxiliary area but the total installation costs of these items must not exceed the cost recorded in the approved total investment amount.

The installation budget for construction items is determined according to the method stated in Appendix 2 of this Circular.

1.1.4.2- Temporary housing construction for construction workers

Costs for constructing temporary housing for construction workers are calculated based on the necessary needs of the type of temporary housing required but must not exceed 2% of the installation value in the approved total project estimate (for new construction projects far from residential areas, projects along routes (roads, first-class canals, forestry roads, power lines)) and must not exceed 1% of the installation value in the approved total project estimate (for other projects).

Auxiliary area construction costs and temporary housing construction costs for construction workers are included in the bid package prices (for projects implementing tendering methods) or fully allocated for these costs (for projects designated by competent authorities).

1.2- Equipment costs:

The cost of equipment is determined based on the quantity of each type of equipment and the value calculated per ton or per unit of the corresponding equipment; wherein, the value calculated for one ton or one unit of equipment includes: purchase price, transportation costs from the port or place of purchase to the project site, storage costs at warehouses, yards, and containers (if any) at Vietnamese ports (for imported equipment), preservation and maintenance costs at on-site storage facilities, taxes, and insurance fees for construction equipment. In the case of bidding, the equipment price is the winning bid price including the aforementioned contents and other expenses (if any) recorded in the contract.

For non-standard equipment that needs to be manufactured or processed, the costs for these types of equipment are determined based on the volume of equipment required to be manufactured or processed and the production or processing price per ton or per unit, which is consistent with the nature and type of non-standard equipment, and other related costs as mentioned above.

1.3- Other costs:

Including costs not included in construction costs, equipment costs, and allocated according to the stages of the investment and construction process as detailed in Clause 2.3, Point 2, Section II of this Circular. These costs are determined based on standard rates (%) or specific pricing tables and are divided into two groups:

- The group of costs and fees determined based on standard rates (%) includes: design costs, project management board costs, review fees, and other consulting costs, etc.

Among them: Project management board costs are calculated based on the scale and type of construction. The standard rate (%) values and methods for calculating project management board costs are implemented according to the provisions in Appendix 3 attached to this Circular.

- The group of costs determined through budget preparation includes costs not determined based on standard rates (%), such as: construction survey costs, project promotion and advertising costs, worker and technical staff training costs, production management staff training costs, costs for hiring operation experts and trial production (if any), compensation costs, and organizational implementation costs during land acquisition, crop compensation, relocation of residents, and demolition of structures on the construction site, service costs for resettlement and recovery work (for construction projects requiring resettlement and recovery), etc.

1.4- Contingency Fees:

According to regulations, the contingency fee standard in the total project budget is calculated at 10% of the total construction costs, equipment costs, and other costs as specified in Points 1.1, 1.2, and 1.3 above.

The procedures and methods for preparing the total construction project budget are guided in Appendix 1 attached to this Circular.

2 - Construction Item Budget

The construction item budget is determined based on the quantity of construction works calculated according to the design, basic construction prices issued by the Provincial People's Committee or construction project prices (for projects with separate pricing), general cost standards, pre-tax income, and output VAT.

The method for preparing the construction item budget is guided in Appendix 2 attached to this Circular.

V- MANAGEMENT OF CONSTRUCTION COSTS IN THE IMPLEMENTATION STAGE OF INVESTMENT
STAGE OF IMPLEMENTING INVESTMENT

1- On Standard Rates

Basic construction standard rates are researched and issued by the Ministry of Construction for uniform application nationwide. Basic construction prices issued by the Provincial People's Committee or basic construction prices for projects (for projects with separate pricing) must be established based on the aforementioned standard rates. In cases where construction works or structures are not included in the current standard rate list, relevant ministries and localities must organize research and establish such standard rates and agree with the Ministry of Construction for their application. Standard rates issued by specialized construction ministries before March 30, 1994, shall not be applied.

- Specialized construction ministries organize reviews, revisions, and supplements to specialized standard rates agreed upon with the Ministry of Construction for issuance and application. Standard rates issued by specialized construction ministries prior to March 30, 1994, shall not be applied.

- Provincial Construction Departments and centrally-administered city Construction Departments are responsible for organizing and coordinating with specialized construction departments to establish standard rates for construction works using new materials, technologies, and structures within their jurisdictions, to be submitted to the Ministry of Construction for application. Construction Departments and specialized construction departments may not temporarily agree or unify the supplementation or adjustment of standard rates for construction works to establish project prices.

2- On Basic Construction Prices

2.1- Basic construction prices established at provincial and centrally-administered city levels (referred to as local prices) are issued by the Chairman of the Provincial People's Committee and are only used to prepare individual construction item budgets for projects or determine construction costs in the total budget for local construction projects (cannot use the basic construction price list of another locality), serving as the basis for organizing construction tenders for all central and local projects, regardless of the level of investment decision-making authority in that locality. Specifically, the sets of basic construction prices for Hanoi, Ho Chi Minh City, Hai Phong, Da Nang, and Can Tho must have written agreement from the Ministry of Construction (no later than 30 days from receipt of the request) before issuance or modification. Local basic construction prices are developed by the Construction Department in coordination with relevant agencies (Finance, Price Control, Transportation, Agriculture and Rural Development, etc.) following the principles and methods guided by the Ministry of Construction.

2.2 For important state construction projects with large scale and complex technical requirements, some projects with special requirements or specific conditions may be allowed to establish separate unit prices (basic construction project unit prices) according to the method prescribed by the Ministry of Construction. The Ministry of Construction shall coordinate with the investment decision-making authority to establish the Project Unit Price Board and agree on the issuance of separate unit prices for such projects.

3 On the total budget estimate of the project

All construction projects, regardless of whether they are tendered or permitted to be directly awarded, must prepare the total budget estimate in accordance with the contents, principles, and methods stipulated in this Circular.

Before the Investor submits the total budget estimate for approval by the competent authority, it must be reviewed by the construction management agency at the appropriate level. The reviewing agency ensures that the review content complies with Clause 2 of Article 37 of the Investment Management Regulation and bears legal responsibility for the results and content of the review as mentioned above. When necessary, the reviewing agency may coordinate with the approving agency of the technical design and total budget estimate to hire consulting organizations (or experts) to conduct the review. In this case, the review fee will be used to hire the consulting organization (or expert) to carry out the review. Specifically, the total budget estimate of projects in Group A shall be reviewed by the Ministry of Construction.

The total budget estimate approved by the competent authority shall not exceed the approved total investment amount.

3.1 The total budget estimate of projects in Groups B and C funded by state budget, state development credit, or state-guaranteed commercial credit under ministries, sectors, central agencies, and state-owned corporations shall be approved by the investment decision-making authority after being reviewed by the construction management agency at the investment decision-making level or the specialized agency responsible for managing unit prices and budget estimates of relevant ministries (for projects where the investment decision-making level does not have such a functional agency).

3.2 The total budget estimate of projects in Groups B and C funded by state-owned enterprises' development capital, self-raised funds, or non-state-guaranteed commercial credit shall be approved by the enterprise's investment decision-making authority after being reviewed by the enterprise's construction management agency or by the specialized agency responsible for managing unit prices and budget estimates of relevant ministries or localities (for projects where the enterprise does not have such a functional agency).

3.3 The total budget estimate approved by the competent authority is the maximum limit of construction costs, serving as the basis for organizing tenders and post-tender cost management. The approving authority bears legal responsibility for the approved contents in accordance with Clause 2 of Article 38 of the Investment Management Regulation and other relevant laws.

In cases where projects in Group A are permitted to be divided into component projects (or sub-projects), the total budget estimate of each component project (or sub-project) shall be prepared as if it were a standalone investment project. The review and approval of the total budget estimate of each component project (or sub-project) shall be carried out in accordance with the regulations applicable to projects in Group A.

In exceptional cases, if construction projects of Group A or B projects do not have an approved total budget estimate or do not meet the conditions to prepare a total budget estimate, then within the latest stage when 50% of the value of the construction work has been completed, an approved total budget estimate must be obtained from the competent authority.

If the investment decision specifies the capital amount for each item but it is necessary to commence construction, then the commencement item budget must be approved by the competent authority.

For item budgets belonging to construction projects of component projects in the aforementioned groups, before the Investor approves the item budgets of the project, these budgets must be reviewed by the specialized agency responsible for managing unit prices and construction budget estimates. The item budgets approved by the Investor shall not exceed the component project's budget estimate within the total budget estimate of the entire project submitted for approval by the competent authority.

3.4 The review period for the total budget estimate shall not exceed 45 days for projects in Group A, 30 days for projects in Group B, and 20 days for projects in Group C, starting from the date the reviewing agency receives complete and valid documents.

Adjustment of construction costs for projects

The total budget estimate of the project, as well as the item budget or individual construction work budget already approved, can be adjusted or supplemented, but shall not exceed the approved total investment amount.

4.1 In cases where the investment decision allows changes to the design of certain parts or items of the project, when re-preparing the budget for those parts or items based on the same price level of the approved total budget estimate results in exceeding the approved total budget estimate (including contingency costs), the Investor must re-prepare the total budget estimate and undergo another review process to submit for approval by the competent authority.

4.2 In cases where the investment decision allows changes to the design of certain parts or items of the project without exceeding the approved total budget estimate (including contingency costs), when re-preparing the budget for those parts or items, the same price level of the approved total budget estimate must still be applied to ensure consistency in the project budget documentation.

4.3 - The adjustment of construction project costs shall be carried out regularly on a monthly or quarterly basis by determining the level of compensation for price differences or adjusting each individual cost item in the budget estimate, then consolidating these to determine the overall adjustment level of the construction project budget estimate.

The Construction Departments of provinces and centrally-administered cities shall take the lead, with the participation of the Finance and Material Price Departments and relevant agencies, in determining the material prices at the construction site based on the periodic notifications from the Joint Construction-Finance-Material Price Departments regarding the prices of various types of materials and building supplies at centralized sales locations or production sites within the province or city, serving as the basis for determining the level of compensation for material cost price differences in the budget estimate.

When there are significant changes in prices, wages, and related policies, the provinces and centrally-administered cities and the Project Owners (for projects with separate unit prices) must re-establish the basic construction unit prices according to the provisions of the State Management Regulation on Investment and Construction and the guidelines of the Ministry of Finance.

4.4 - The payment of investment capital for tendered or designated tendered projects shall be implemented in accordance with the provisions set forth in Article 49 of the Investment and Construction Management Regulation and the guidance of the Ministry of Finance.

             VI- IMPLEMENTATION

This Circular shall be uniformly applied throughout the country from the date of issuance. All previous Circulars issued by the Ministry of Construction that relate to this Circular are hereby abolished.