Circular No. 08/2010/TT-BXD guiding the method for adjusting construction contract prices

CIRCULAR

Guidelines for Adjusting Construction Contract Prices

_____________________________

Pursuant to Decree No. 17/2008/NĐ-CP dated February 4, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

Pursuant to Decree No. 48/2010/NĐ-CP dated May 7, 2010 of the Government on contracts in construction activities,

The Ministry of Construction hereby issues guidelines for adjusting construction contract prices as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

1. These Guidelines apply to the methods for adjusting construction contract prices for projects using thirty percent or more state capital.

2. These Guidelines apply to organizations and individuals related to adjusting construction contract prices for projects using thirty percent or more state capital. It is encouraged that organizations and individuals related to adjusting construction contract prices for projects using less than thirty percent state capital also apply these Guidelines.

3. For construction contracts under projects funded by official development assistance (ODA), if international treaties to which Vietnam is a party have different provisions from those set forth in these Guidelines, such treaties shall be followed.

Article 2. Principles for Adjusting Construction Contract Prices

The principle of adjusting construction contract prices shall be implemented according to Article 34 of Decree No. 48/2010/NĐ-CP dated May 7, 2010 of the Government on contracts in construction activities, specifically as follows:

1. Price adjustment shall only apply during the performance period of the contract, including any extension periods agreed upon in the contract.

2. When adjusting the construction contract price (the adjusted contract price) does not exceed the approved total investment ceiling, the project investor has the authority to decide on the adjustment; however, if it exceeds the approved total investment ceiling, approval from the Investment Decision Maker is required.

3. Price adjustment applies to fixed unit price contracts, adjustable unit price contracts, and time-based contracts.

4. For lump sum contracts and percentage contracts, price adjustments can only be made for additional work volumes outside the scope of work stipulated in the signed contract.

5. Price adjustment must be agreed upon by all parties and specified in the contract regarding the circumstances allowing for price adjustment, procedures, scope, methods, and bases for price adjustment.

The method for adjusting contract prices must be consistent with the type of contract price and the nature of the work in the contract.

Article 3. Circumstances Allowing for Adjustment of Construction Contract Prices

1. For lump sum contracts and percentage contracts: Price adjustment can only be made for additional work volumes outside the scope of work stipulated in the signed contract, specifically:

a) For consulting contracts, additional work volumes outside the contract scope are those tasks beyond the consulting duties.

b) For construction contracts, additional work volumes outside the contract scope are those volumes beyond the design-specified work scope.

c) For equipment supply contracts, additional work volumes outside the contract scope are supplementary equipment items not included in the initial contract scope.

2. For fixed unit price contracts and time-based contracts:

a) If the actual completed volume (or time) accepted for inspection is less or more than the contracted volume (or time), payment shall be based on the actual completed volume (or time) accepted for inspection.

b) If the fuel, material, and equipment prices regulated by the State for price stabilization under the Pricing Ordinance fluctuate abnormally or when the State changes tax or wage policies directly affecting the contract price, the unit price may be adjusted with permission from the investment decision-making level and agreement among the parties in the contract.

3. For adjustable unit price contracts:

a) If the actual completed volume accepted for inspection is less or more than the contracted volume, payment shall be based on the actual completed volume accepted for inspection.

b) At the time of signing the contract, the parties agree to adjust the unit price for work volumes subject to price adjustment due to inflation after a certain period from the date the contract becomes effective.

c) In special cases: Due to urgent requirements to address disaster consequences or progress demands at the time of contract signing that were insufficient to determine the contract price and with Prime Minister's approval.

Chapter II

METHODS FOR ADJUSTING CONSTRUCTION CONTRACT PRICES

Article 4. Methods for adjusting construction contract prices for lump-sum contracts and percentage contracts

1. For lump-sum contracts: When there is additional work volume outside the scope of the signed contract, the parties must establish an additional contract appendix, clearly defining the additional work volume and the applicable unit price.

If the additional works do not have a unit price in the contract, the parties to the contract must agree on a unit price to implement this work volume before execution. For additional works that already have a unit price in the contract, the unit price stipulated in the signed contract shall be applied.

The determination of a new unit price follows the principle agreed upon in the contract regarding the unit price for additional work volumes. The new unit price is determined according to the Circular guiding the preparation and management of investment construction project costs issued by the Ministry of Construction and the agreements in the contract.

2. For percentage contracts: When there is additional work volume outside the scope of the signed contract, the parties must establish an additional contract appendix, clearly defining the additional work volume and the applicable unit price.

The value of the additional contract will be equal to the percentage specified in the contract multiplied by the value of the additional work volume.

Article 5. Methods for adjusting contract prices for fixed unit price contracts

1. When the additional work volume exceeds 20% of the corresponding work volume recorded in the contract or when the additional work volume does not have a unit price in the contract, the parties must agree on a new unit price according to the principle agreed upon in the contract regarding the unit price for additional work volumes. The new unit price is determined according to the Circular guiding the preparation and management of investment construction project costs issued by the Ministry of Construction and the agreements in the contract.

2. When the additional work volume is less than or equal to 20% of the corresponding work volume recorded in the contract, the unit price in the contract shall be applied, including any adjusted unit price pursuant to the agreement in the contract (if any).

3. When fuel, materials, and equipment prices, which are subject to government price stabilization measures under the Price Ordinance, experience abnormal fluctuations, or when changes in government tax and wage policies directly affect the contract price and with the approval of the investment decision-making level and the agreement of the parties in the contract, the parties must prepare an additional budget estimate and an additional contract appendix. The additional budget estimate is prepared according to the Circular guiding the preparation and management of investment construction project costs issued by the Ministry of Construction and the agreements in the contract.

Article 6. Methods for adjusting contract prices for time-based contracts

When fuel, materials, and equipment prices, which are subject to government price stabilization measures under the Price Ordinance, experience abnormal fluctuations, or when changes in government tax and wage policies directly affect the contract price and with the approval of the investment decision-making level and the agreement of the parties in the contract, the parties must establish an additional contract appendix clearly defining the new unit price after adjustment. The determination of the new unit price is carried out according to the principle agreed upon in the contract.

Article 7. Method for Adjusting Contract Prices for Contracts Based on Adjustable Unit Prices

1. Adjustment of contract prices using the price adjustment coefficient method

The adjustment of contract prices shall be carried out according to the following formula:

of_No. = G_HĐ x P_{For power plants invested under the Build-Operate-Transfer (BOT) model, n is determined according to the operational period of the power plant stipulated in the BOT contract.}               (1)

Where:

: bid price after corrections and adjustments, minus any discount (if applicable) of the lowest bidder among those detailed financial evaluations;_No.: Is the payment price corresponding to the volume of work completed and accepted during the period "n". "G_No." may be the total contract payment price, or the payment price for a project component, or type of work, or cost factor within the contract.

: bid price after corrections and adjustments, minus any discount (if applicable) of the lowest bidder among those detailed financial evaluations;_HĐ : Is the contract price agreed upon corresponding to the volume of work completed and accepted during the period "n". "G_HĐ" may be the value of the entire contract, or the value of a project component, or type of work, or cost factor within the contract.

- P_{For power plants invested under the Build-Operate-Transfer (BOT) model, n is determined according to the operational period of the power plant stipulated in the BOT contract.}: Is the price adjustment coefficient (increase or decrease) applied to the contract payment for the volume of work completed and accepted during the period "n".

"Pn" is determined correspondingly and appropriately with the payment price "G_No.", specifically:

+ If "G_No." is the payment price for the entire contract at time "n", then "P_{For power plants invested under the Build-Operate-Transfer (BOT) model, n is determined according to the operational period of the power plant stipulated in the BOT contract.}" is the price adjustment coefficient determined for the entire contract during the period "n".

+ If "G_No. " is the payment price for a project component in the contract at time "n", then "P_{For power plants invested under the Build-Operate-Transfer (BOT) model, n is determined according to the operational period of the power plant stipulated in the BOT contract.}" is the price adjustment coefficient determined for the project component within the contract during the period "n".

+ If "G_No." is the payment price for a type of work or cost factor in the contract at time "n", then "P_{For power plants invested under the Build-Operate-Transfer (BOT) model, n is determined according to the operational period of the power plant stipulated in the BOT contract.}" is the price adjustment coefficient determined for the type of work or cost factor within the contract during the period "n".

When adjusting contract prices according to formula (1), the input database for calculating price adjustments must be consistent with the content of the work in the contract. The contract must specify the use of price information sources or price index sources from competent state agencies to adjust contract prices.

"Pn" is determined and applied in the following specific cases:

a) In the case of adjusting all cost factors (adjusting both materials, labor, construction machinery), the coefficient "Pn" is determined as follows:

Where:

- a: Is a fixed coefficient, determined in the corresponding adjustment data table in the contract, representing the portion of payments under the contract (or by project component, or work, or cost factor in the contract) that is not subject to price adjustment.

- b, c, d…: Are coefficients indicating the proportion (weight) of related cost factors involved in performing the work under the contract (labor costs, construction machinery costs, material costs, etc.) listed in the corresponding adjustment data table.

- Depending on each adjustment case (for the entire contract, or project component, or work), the coefficients a, b, c, d… are determined accordingly. Coefficients a, b, c, d… are calculated, determined, and agreed upon by the parties in the contract.

- Total of coefficients: a + b + c + d + … = 1

- Ln, En, Mn,…: Are price indices or current prices corresponding to each type of cost (labor costs, construction machinery costs, material costs, etc.) for the period "n", determined within 28 days before the deadline for submitting payment documents stipulated in the contract.

- Lo, Eo, Mo,…: Are price indices or original prices corresponding to each type of cost (labor costs, construction machinery costs, material costs, etc.), determined within 28 days before the tender closing date.

- Coefficients a, b, c, d,… and indices Lo, Eo, Mo,… must be determined in the contract documents.

- In the case where the currency of the price index or adjusted price (listed in the table) is not the corresponding payment currency, it will be converted to the corresponding payment currency according to the selling exchange rate set by the State Bank of Vietnam on the day when the price index or price is required to be applied.

- In the case where the contractor fails to complete the work within the time specified in the contract due to the contractor's subjective reasons, the price adjustment will be based on each price index or price applicable within 28 days before the deadline for submitting payment documents as stipulated in the contract or the actual work completion date decided by the employer.

b) In the case of adjusting two cost factors, the coefficient "Pn" is determined as follows:

- Adjusting material costs and labor costs:

+ Quantities a, b, d, Ln, Lo, Mn, Mo are determined as in formula (2)

+ Total of coefficients: a + b + d = 1

- Adjusting material costs and machinery costs:

+ Quantities a, c, d, En, Eo, Mn, Mo are determined as in formula (2)

+ Total of coefficients: a + c + d = 1

- Adjusting labor costs and machinery costs:

+ Quantities a, b, c, Ln, Lo, En, Eo are determined as in formula (2)

+ Total of coefficients: a + b + c = 1

c) In the case of adjusting one cost factor:

When adjusting the price for one cost factor in the contract (such as adjusting only labor costs or construction machinery costs or material costs or certain key materials...), the coefficient "Pn" is determined as follows:

- Adjusting labor costs:

+ Quantities a, b, Ln, Lo are determined as in formula (2)

+ Total of coefficients: a + b = 1

- Adjusting construction machinery costs:

+ Quantities a, c, En, Eo are determined as in formula (2)

+ Total of coefficients: a + c = 1

- Adjusting material costs:

+ Quantities a, d, Mn, Mo are determined as in formula (2)

+ Total of coefficients: a + d = 1

- In the case of adjusting prices for certain key materials:

+ Quantity "a" is determined as in formula (2)

+ d₁.₂.₃ ... is the coefficient indicating the proportion (weight) of the cost of the key material being adjusted in the contract.

+ Mn₁, Mn₂, Mn₃, Mo₁, Mo₂, Mo₃,... are the price indices or prices of the materials being adjusted at time "n" and the original time.

+ Total of coefficients: a + d₁ + d₂ + d₃ +… = 1

d) Price announcements from local authorities or construction price indices published by the Ministry of Construction, General Statistics Office may be used, but the specific price or index used to apply to the contract must be clearly stipulated by the parties in the contract and must be consistent with the nature and content of the work in the contract.

đ) For special projects not included in the construction price index published by the Ministry of Construction, the project investor shall determine or engage consulting organizations with sufficient capacity to determine the construction price index for the project according to the guidance method of the Ministry of Construction for application in contract price adjustment.

2. Contract price adjustment using the direct offset method:

In addition to the contract price adjustment method specified in Clause 1 of this Article, for simple construction contracts, the contract price may be adjusted using the direct offset method.

Chapter III

IMPLEMENTING PROVISIONS

Article 8. Implementation organization

1. Contracts for construction that have been and are being implemented before the date this Circular takes effect are not required to comply with the provisions of this Circular. For contracts currently under negotiation and not yet signed, the Investment Decision Maker shall decide on the application of the provisions of this Circular.

2. The Ministers, Heads of agencies at the ministerial level, Chairmen of Provincial People's Committees under central city administrations, Boards of Directors of State-owned Corporations, and Economic Groups are responsible for implementing this Circular.

Article 9. Effective Date

1. This Circular takes effect from September 15, 2010, and replaces Circular No. 06/2007/TT-BXD dated July 25, 2007, of the Ministry of Construction on guiding contracts in construction activities.

2. Any difficulties encountered during implementation should be reported to the Ministry of Construction by organizations and individuals for consideration and resolution./.