Circular No. 09/2008/TT-BXD guiding the adjustment of prices and construction contracts due to fluctuations in raw material, fuel, and building material prices.

CIRCULAR

Guidelines for Adjusting Prices and Construction Contracts Due to Fluctuations in Raw Material, Fuel, and Building Material Prices

Pursuant to Decree No. 17/2008/NĐ-CP dated February 4, 2008 of the Government on the Functions, Tasks, Authorities, and Organizational Structure of the Ministry of Construction;

Pursuant to Decree No. 99/2007/NĐ-CP dated June 13, 2007 of the Government on Management of Investment Construction Project Costs; and Decree No. 03/2008/NĐ-CP dated January 7, 2008 of the Government amending and supplementing certain articles of Decree No. 99/2007/NĐ-CP dated June 13, 2007 of the Government on Management of Investment Construction Project Costs;

Pursuant to the directives of the Prime Minister in Document No. 164/TTg-CN dated January 29, 2008 and Document No. 546/TTg-KTN dated April 14, 2008 regarding adjustments to raw material, fuel, and building material prices and construction contracts.

The Ministry of Construction provides guidelines for adjusting prices and construction contracts due to fluctuations in raw material, fuel, and building material prices (hereinafter referred to as building material prices) as follows:

1. Scope and Applicability

1.1. This Circular guides the adjustment of project estimates, bid prices, total investment ceilings, and construction contracts of investors and contractors for construction projects funded by state capital due to fluctuations in building material prices beyond the control of investors and contractors.

1.2. The adjustment of building material prices applies to tender packages that have been and are being implemented under lump sum contract pricing and fixed unit price contract pricing forms.

1.3. Adjustment of contract pricing form for contracts that have already been implemented under lump sum contract pricing and fixed unit price contract pricing forms to adjusted price contract pricing forms due to fluctuations in building material prices beyond the control of investors and contractors.

2. Principles of Adjustment

2.1. The adjustment of building material prices is calculated for construction work quantities from 2007 affected by building material price fluctuations increasing (decreasing) construction project costs beyond the control of investors and contractors (hereinafter referred to as construction work quantities affected by increased prices).

2.2. The adjustment of project estimates, bid prices, total investment ceilings, and construction contracts of investors and contractors must be closely coordinated with measures to curb inflation and stabilize macroeconomic conditions to ensure sustainable growth.

2.3. Construction work quantities affected by increased (decreased) prices and levels of price adjustment are determined by investors and contractors based on the principle of sharing benefits and responsibilities equally.

2.4. Types of building materials subject to price adjustment (increase, decrease) include: gasoline, diesel, various types of steel (including steel cables, various types of steel pipes), asphalt, cement, sand, gravel, crushed stone, various types of bricks, electrical wires, various types of cable, various types of wood (including wooden formwork, various types of wooden doors), various types of glass. In cases where other types of building materials need to be adjusted due to price fluctuations, the investor shall determine and report to the Minister, Chairman of the Provincial People's Committee, Chairman of State Economic Groups, and Chairman of State-Owned Enterprise Council for decision.

2.5. Adjustment of lump sum contract pricing and fixed unit price contract pricing forms to adjusted price contract pricing forms requires clearly defining the contents and scope of adjustment and can only be calculated from the time of price fluctuation determined by the investor and contractor in accordance with the progress of implementation.

3. Methods for Adjusting Building Material Prices

3.1. The adjustment of building material prices is determined for each construction contract, each tender package, and for the entire project. Additional cost expenses due to the adjustment of building material prices are determined by supplementary construction cost estimates and serve as the basis for adjusting contract prices, tender prices, adjusting project estimates, and adjusting total investment ceilings.

3.2. Supplementary construction cost estimates may be determined by calculating direct material cost offsets or material cost adjustment factors. Material cost adjustment factors are calculated by the investor or applied using the material cost index published by the Ministry of Construction or the General Statistics Office. Supplementary construction cost estimates are determined according to the guidance provided in the annex attached to this Circular.

3.3. Supplementary construction cost estimates are prepared once based on construction work quantities affected by increased (decreased) building material prices from 2007.

3.4. The investor organizes the adjustment of project estimates, tender prices, and total investment ceilings based on supplementary construction cost estimates.

4. Adjustment of Construction Project Estimates After Preparing Supplementary Construction Cost Estimates

4.1. For tender packages that have been designated for bidding and self-executed projects, which have selected contractors but have not yet signed construction contracts or are currently being implemented (under lump sum contract pricing or fixed unit price contract pricing forms), the investor determines supplementary construction cost estimates according to the guidance provided above to serve as the basis for adjusting construction project estimates.

4.2. For tender packages, project components, or projects that have not yet selected contractors, the investor proceeds to adjust the estimates according to current regulations.

4.3. Adjusted construction project estimates are determined by adding approved construction project estimates to supplementary construction cost estimates.

5. Adjustment of Tender Prices After Preparing Supplementary Construction Cost Estimates

The investor adjusts tender prices by adding approved winning bid prices to supplementary construction cost estimates determined according to the guidance provided above. If the adjusted tender price does not exceed the approved tender price, the investor decides to approve it. If the adjusted tender price exceeds the approved tender price but does not exceed the total investment ceiling, the investor decides to approve it and reports the result to the investment decision-maker. If the adjusted tender price causes the total investment ceiling to exceed the approved total investment ceiling, the adjustment of the total investment ceiling is carried out according to the guidance provided in Section 6 of this Circular.

6. Adjustment of Total Investment Ceilings After Preparing Supplementary Construction Cost Estimates

The investor bases on the revised construction project budget estimate or the revised tender package price to organize the adjustment of the total investment ceiling. If the adjusted total investment ceiling exceeds the approved total investment ceiling, the investor reports to the investment decision-maker for consideration and decision; In cases where the project is decided on investment by the Prime Minister, the Minister, the head of a ministry-level agency, the head of a government-affiliated agency, the Chairman of the People's Committee at provincial level, the Chairman of the Economic Group, and the Chairman of the State-Owned Enterprise Management Council decide.

7. Adjusting contracts after establishing supplementary construction cost estimates

7.1. For signed contracts, based on the supplementary construction cost estimate and the contents of the signed contract, the investor and the contractor sign additional contract prices as the basis for contract settlement.

7.2. For tender packages that have selection results but have not yet signed contracts, the investor bases on the supplementary construction cost estimate, the tender success results, and the tender invitation and bid documents to negotiate and sign the contract.

7.3. For cases adjusting the form of contract price from lump sum contract price or fixed unit price contract to adjustable price contract form, the investor reports to the investment decision-maker about the content and scope of the adjustment permitted before implementation. The content of the adjustable price contract form is implemented according to the guidance provided in Circular No. 06/2007/TT-BXD dated July 25, 2007, issued by the Ministry of Construction regarding contract guidance in construction activities.

For projects approved by the Prime Minister for bidding plans, the Minister, the head of a ministry-level agency, the head of a government-affiliated agency, the Chairman of the People's Committee at provincial level, the Chairman of the Economic Group, and the Chairman of the State-Owned Enterprise Management Council decide.

8. Implementation organization

8.1. The investor considers and decides on the adjustment of the budget estimate, tender package price, and construction contract to ensure the effectiveness of the project. Specifically, for projects approved by the Prime Minister, the Minister, the head of a ministry-level agency, the head of a government-affiliated agency, the Chairman of the People's Committee at provincial level, the Chairman of the Economic Group, and the Chairman of the State-Owned Enterprise Management Council decide.

8.2. For construction investment projects using local government budget funds, the calculation and adjustment of the budget estimate, tender package price, and contract are carried out and the responsibility lies with the investor; The Provincial People's Committee stipulates the application of construction unit price systems, machinery and equipment construction prices, and construction material prices. In cases where the announced or published price is not suitable or does not exist, the investor bases on valid invoices and receipts consistent with market prices.

8.3. The investor temporarily advances money to the contractor for price difference compensation according to the guidance in this Circular at the advance payment rate of the contract for unexecuted quantities and temporarily settles 80%-90% of the price difference for executed quantities while waiting for adjustment procedures to avoid losses for the contractor and not affect the progress of the construction project.

The temporary advance and settlement documents include: Request for Temporary Advance (Settlement), adjusted contract (contract appendix), and supplementary construction cost estimate.

8.4. After adjusting the construction material prices which change the project category, the investor continues implementing the project as prescribed for the project before the adjustment (without having to redo project establishment, review, and approval procedures).

8.5. For tender packages of projects using ODA funds (excluding counterpart funds), the price adjustment is carried out according to the provisions in the contract. If necessary, the investment decision-maker considers and decides after consulting with the financier, and relevant ministries, sectors, and localities coordinate with the Ministry of Planning and Investment to work with the financier to supplement funds due to price fluctuations.

8.6. For construction works and tender packages implemented according to the Government Decree on Project Management for Construction Investment (Decree No. 16/2005/NĐ-CP dated February 7, 2005, and Decree No. 112/2006/NĐ-CP dated September 29, 2006), if the contract delay is not due to the contractor's fault, then the quantities executed from 2007 will be adjusted according to the guidance in this Circular.

8.7. Ministries, ministry-level agencies, government-affiliated agencies, provincial-level People's Committees, economic groups, and state-owned enterprise management councils organize directives, guidance, inspections, and supervision of investors and contractors strictly implementing the adjustment of construction material prices, budget estimates, tender package prices, total investment ceilings, and contracts according to the guidance in this Circular; Directing investors not to allow construction cost adjustments to affect construction progress, while accelerating the construction progress of projects, especially national key projects.

8.8. Adjusting construction project budgets under the new wage system is implemented according to the guidance in Circulars No. 07/2006/TT-BXD dated November 10, 2006, and Circular No. 03/2008/TT-BXD dated January 25, 2008, issued by the Ministry of Construction regarding budget estimate adjustments for construction projects.

8.9. The transition of construction investment projects according to the regulations of Decree No. 99/2007/NĐ-CP on Construction Investment Cost Management (including total investment ceilings, construction project budget estimates, construction norms and prices, contracts in construction activities, settlement, and final accounts of construction investment capital) requires the investor to report to the investment decision-maker for consideration and decision. For projects approved by the Prime Minister, the Minister, the head of a ministry-level agency, the head of a government-affiliated agency, the Chairman of the People's Committee at provincial level, the Chairman of the Economic Group, and the Chairman of the State-Owned Enterprise Management Council decide.

8.10. For construction contracts fully settled in 2007 (including all contract prices signed and any supplements made in 2007), except for warranty payments as stipulated, the construction material prices cannot be adjusted.

9. Effective Date

9.1. This Circular shall take effect fifteen days after its publication in the Official Gazette and shall replace Circular No. 05/2008/TT-BXD dated February 22, 2008, of the Ministry of Construction guiding the adjustment of construction project prices and contracts due to fluctuations in raw material, fuel, and building material prices.

9.2. Investors of construction projects funded from other sources are encouraged to adjust construction project prices and contracts in accordance with the guidance provided in this Circular.

During implementation, if any difficulties arise, they are requested to be reported to the Ministry of Construction for consolidation and study to resolve.