Re: Guidance on Additional Contents of Circular No. 09/2008/TT-BXD

                                                     Respectfully submitted:

                                                                       - Ministries, agencies at the ministerial level;

                                   - People's Committees of provinces and centrally governed cities;

                   - State-owned Economic Groups, State-owned Corporations.

After reviewing the situation and considering the opinions of relevant units and ministries regarding the implementation of Circular No. 09/2008/TT-BXD dated April 17, 2008, issued by the Ministry of Construction guiding adjustments to prices and construction contracts due to fluctuations in raw material, fuel, and building material prices, the Ministry of Construction provides specific guidance as follows:

1. On types of materials subject to adjustment.

Circular No. 09/2008/TT-BXD has specified the types of building materials subject to adjustment (13 types). In cases where other types of building materials need to be adjusted due to price fluctuations, the investor shall report to the Minister, the Chairman of the Provincial People's Committee, the Chairman of the State-Owned Economic Group, or the Chairman of the Board of Directors of State-Owned Corporation for decision. As for semi-finished components made from the aforementioned adjustable building materials, they will also be subject to adjustment according to the provisions.

2. On the preparation of a one-time supplementary construction cost estimate.

A one-time supplementary construction cost estimate is prepared based on the quantity already executed and the remaining quantity yet to be executed under the contract, to examine whether the adjustment exceeds the total investment ceiling after adjustment (as stipulated in Clause 6 of Circular No. 09/2008/TT-BXD). If price fluctuations in building materials continue to cause the supplementary budget to exceed the approved amount after adjustment, further adjustments can still be made.

3. On the time point for calculating material price differences.

The time point for calculating material price differences is the time point of acceptance of completed work volume by stages, which may be monthly, quarterly, or as specified in the contract.

The material price at the time of difference calculation for adjustment is the material price at the time of acceptance of completed work volume announced or published by the Joint Departments, or according to valid invoices and documents in accordance with the regulations of the Ministry of Finance, consistent with the market price level at the construction site.

The value of the material price difference is the difference between the material price at the time of adjustment and the material price in the contract, tender package budget approved, or the material price at 28 days before the bid opening date (in case of bidding) for contracts signed from 2007, or the material price in December 2006 or the fourth quarter of 2006 if there is no price in December 2006 for contracts signed before 2007. In cases where the material price in the contract, tender package budget approved is lower than the material price announced or published by the competent state agency at the corresponding time, the price announced or published by the competent state agency shall be taken.

Valid invoices and documents are those in accordance with the regulations of the Ministry of Finance. The contractor is responsible for the legal validity of the invoice, and the investor shall inspect and apply it. In cases where the material price cannot be determined based on the invoice provided by the contractor (multiple prices, purchased before, at different times), the investor shall consider and decide to apply a price that is consistent with the market price level at the construction site at the time of acceptance of completed work volume. In cases where the investor lacks the capacity, they may hire consultants to review and decide.

For fuels (gasoline, diesel, etc.): When implementing fuel cost compensation, the investor and the contractor determine the quantity or proportion of fuel based on the machinery rates in the contract and the fuel consumption standards in the Circulars of the Ministry of Construction guiding the method of determining machinery rates and construction equipment costs (Circular No. 06/2005/TT-BXD dated April 15, 2005, Circular No. 03/2006/TT-BXD dated May 22, 2006, Circular No. 07/2007/TT-BXD dated July 25, 2007, etc.). In cases where machines and equipment are not specified, the fuel consumption rate of similar machines shall be applied.

Method for determining the supplementary construction cost estimate.

The supplementary construction cost estimate can be determined using the material cost adjustment factor method or direct material cost compensation method, and calculated for each contract according to the guidelines in the appendix of Circular No. 09/2008/TT-BXD. The Ministry of Construction provides specific guidance as follows:

4.1. Determining the supplementary construction cost estimate using the material cost adjustment factor method.

The supplementary construction cost estimate calculated using the material cost adjustment factor method is based on the value of direct material costs, the proportion of material costs of the types of materials subject to adjustment, and the material price increase factor (K).

The value of direct material costs and the proportion of material costs subject to adjustment are determined based on the contract price; in cases where the contract price is a lump sum price, the proportion of material costs is determined based on the cost structure of the budget estimate, the standard estimate issued by the state, local construction prices, and the cost structure and standards of similar projects.

The material price increase factor is determined by the following formula:

Where:          - K is the material price increase factor at the time of adjustment

- K_i is the material price index at the time of adjustment

- K­­₀ is the material price index in December 2006 or the fourth quarter of 2006 for contracts signed before 2007, or the material price index 28 days before the bid opening date (in case of bidding), or the approval date of the tender package budget (in case of direct assignment) for contracts signed from 2007.

The price index applied shall be the price index published by the Ministry of Construction, the General Statistics Office, or the price index determined by the project investor in accordance with the method for determining the price index as stipulated in Circular No. 1599/BXD-VP dated July 25, 2007.

4.2. Determining the supplementary construction cost estimate using the direct material cost offset method.

In cases where the quantities and prices of various construction materials are ascertainable under the contract, the supplementary construction cost estimate shall be determined using the direct material cost offset method as guided in Circular No. 09/2008/TT-BXD and this document.

5. Regarding advance payment to contractors for purchasing raw materials, fuels, and construction materials.

If advance payment is made at the time of signing the contract in accordance with regulations, then the price adjustment shall be made when there is a change in the price of construction materials.

In cases where both parties determine the amount of advance payment for purchasing raw materials, fuels, and construction materials or special advance payment for purchasing these items before a price change occurs, the price will not be adjusted for the quantity of raw materials, fuels, and construction materials purchased corresponding to the advance payment already made.

6. To ensure funding, accelerate project progress, and minimize losses for contractors, the project investor may temporarily approve supplementary estimates as a basis for advance payments and interim settlements to contractors while awaiting formal adjustment procedures. In cases where the temporary approval of supplementary estimates does not exceed the total investment ceiling, the advance payments and interim settlements shall be based on the temporarily approved supplementary estimates; if it exceeds the total investment ceiling, prior permission from the investment decision-maker must be obtained before making advance payments and interim settlements.

To effectively implement price adjustments and construction contracts due to fluctuations in raw material, fuel, and construction material prices according to Circular No. 09/2008/TT-BXD, it is recommended that ministries, sectors, and localities focus on directing, guiding, organizing implementation, strengthening inspections, and promptly resolving issues arising during implementation. It is suggested that provincial People's Committees instruct Departments of Construction and Finance to update market information, timely publish monthly construction material prices consistent with market prices, thereby facilitating investors, contractors, and related organizations in determining supplementary construction cost estimates.

During implementation, if any difficulties arise, ministries, sectors, localities, investors, and related organizations are advised to report to the Ministry of Construction for prompt review and resolution.

Difficulties can be submitted in writing to the Ministry of Construction or discussed through the Ministry of Construction’s website (www://http.moc.gov.vn) or directly contacted via the Ministry of Construction’s hotline: 9760271 extension 336, 338, 339, 344.