Update

August 2010

Decree 48/2010 a Critical Change to the

Construction Laws of Vietnam

A New Decree:
Operates in the place of Decree No 99/2007/ND-CP and Circular 6/2007/TT-BXD,
governing all types of contracts, including contracts for consulting services,
construction services, EPC, and turnkey contracts.
Introduces important changes applicable to such contractual matters as: pricing;
payment; parties rights, remedies, privileges, duties and obligations; insurance;
notification and substantiation of claims; and the commencement of arbitration.
This Alert:
Provides a basic introduction to the Decree.
Focuses on the immediate changes concerning notification and substantiation of claims
and the time limit for commencement of arbitration.

Another Decree, another set of issues

The Government of the Socialist Republic of Viet Nam (the
Government) has promulgated a Decree that replaces,
amends, elaborates and partly consolidates existing legal
provisions governing the construction industry in Vietnam.
The operation of the Decree is broad and effective now.
Some of the changes and amendments brought about are in
some cases quite remarkable.
Introduction
Following brisk consultations, the Government has
promulgated a Decree (with the serial number 48/2010/
ND-CP) (Decree 48) containing, within its 52 articles, several
important changes and additions to existing statutory
provisions governing the Vietnamese construction industry.
Unfortunately, in several respects, Decree 48 does not exhibit
the clarity and uniformity of legislative drafting required of
Vietnamese statutory instruments1, and numerous questions
arise as to its intended operation and the status of prior
statutory instruments.

A series of Alerts, starting with this one, will outline the more
important provisions of Decree 48, and identify the areas of
uncertainty requiring further guidance from the Government.
To whom does it apply?
Decree 48 applies to organisations and persons involved in
construction contracts governing projects where not less
than thirty percent of the capital2 invested in that project is
regarded as state capital. State capital that originates from an
official development assistance programme with a foreign
nation is still regarded as state capital.
Essentially, the expression construction contract denotes a
written agreement providing for civil relations in
construction activities3. Thus, it does not apply to
organisations and persons who enter into an oral agreement.
Nor does it apply to organisations and persons whose
construction project involves an investment of state capital
that represents less than thirty percent of the total capital
investment. It remains unclear whether the threshold test is
to be applied once-and-for-all at the time of execution (i.e.

As stipulated in the Law on Promulgation of Legal Instruments (Law No. 17/2008/QH12).

See Article 1 (Scope of regulation and subject of application), Clause 2 of Decree 48. This thirty percent threshold is not new to Vietnamese law, as it
was an indirect feature of the former Decree on Management of Work Construction Investment Expenditures and the Bidding Law.
3
See Article 2 (Interpretation of terms), Clause 1 of Decree 48.
2

continued on reverse

signing and/or sealing) of the construction contract, or

whether a subsequent decrease/increase in the level of state
capital, beyond the threshold level, will cause the Decree 48
to become ineffective/effective.
From when does it apply?
Decree 48 took effect on July 1st 20104, and applies as from
that date5; however its requirements are not binding on a
construction contract whose status prior to July 1st 2010 was
v ang thc hin, which roughly translates as
"performed or being performed. The use of this expression,
rather than a reference to the date of contract execution, for
the purpose of this exemption, is highly unusual.
As a result of this choice of milestone, it appears that
organisations and persons to whom Decree 48 applies by
virtue of the character of their construction contract will not
escape the operation of its provisions merely because their
contract was executed prior to July 1st 2010. If for whatever
reason, say the operation of a condition precedent to
performance, there has yet to be complete or partial
performance prior to July 1st 2010, then arguably, the contract
will not be exempt from the operation of Decree 48. Few
change-of-law clauses would truly envisage such a
fundamental post-contractual change of law, and the legal and
commercial implications of the trigger for effectiveness in
Decree 48 warrant careful assessment on a case by case basis.

8. Suspension and termination

9. Bilingual construction contracts
Subsequent Alerts will outline the more salient aspects
of its provisions relevant to these topics, and consider their
interrelation with the other Vietnamese statutes (eg, Law
on Construction7 and Circular Providing Guidance on
Contracts in Construction Activities9) and on the provisions
of parties contracts.
But for reasons of immediate, practical urgency, the
remainder of this Alert will draw immediate attention to the
seventh and eight topics, namely - new time limitations on
the notification and substantiation of claims and on the
commencement of arbitration proceedings.
Beware: Notification and substantiation of claims
Article 43 (Complaints in the course of performance of
construction contracts) introduces a statutory duty to
promptly notify and substantiate contractual defaults within
thirty days after the default becomes known to the innocent
party. There are also the hallmarks of waiver provision in
relation to any claim that has not been so notified and
substantiated prior to the expiration of the deadline11.
Clause 3 requires that:

There does however appear to be a power, solely on the part

of an investment decider, to opt out of the application of
Decree 48 where negotiating parties (to whom the decree
would apply if the investment decider so decided) were in the
process of negotiating their construction contract
immediately prior to July 1st 20106. And yet, it is unclear
whether if that power were to be exercise, Decree on Management of Work Construction Investment Expenditures7
would spring back into life, notwithstanding the former
decrees repeal under Article 51 of the Decree 48. Would the
exercise of the power lead to a legal vacuum?

Within 30 days after detecting matters incompatible with

the signed contract, the detecting party shall promptly notify
the other party of such contents and complain about these
matters. Past that time limit, if no party lodges a complaint,
the parties shall comply with signed agreements."

The main areas of change

Is this a waiver?

Decree 48 introduces important changes and additional

statutory provisions in the following nine areas:

The obligation of the parties to comply with signed

agreements is open to being construed as a temporary
waiver of rights and remedies arising from preceding
contractual defaults. Indeed, the style of drafting of this
provision throws up a number of subsidiary questions,
such as:

1.
2.
3.
4.
5.
6.
7.

New party rights, privileges, duties and obligations

Material price inflation
Adjustment of Schedule
Payment
Construction insurance
Notification and substantiation of claims
Time limit for commencement of arbitration

The complaint must be sent to the correct address for

transaction or information exchange as agreed upon by the
parties in the contract.11 Unaccountably, Article 43 contains
no corresponding express requirement in relation to the
notification of a contractual default.

Can a party avoid the operation of Clause 3 simply by

looking the other way, refusing to acknowledge a
contractual default, and/or feigning ignorance of it?

See Article 51 (Effect) of Decree 48.

See Article 83 (Application of legal instruments), Clause 1 of Decree 48.
6
See Article 52 (Organization of implementation), Clause 1 of Decree 48.
7
No. 99/2008/ND-CP.
8
No. 16-2003-QH11.
9
No. 06/2007/TT-BXD.
10
See Article 43, Clause 3 of Decree 48.
11
See Article 43, Clause 5 of Decree 48.
5

continued on reverse

Does the temporary waiver (if that is what Clause 3 is

intended to create) arise following the expiration of the
thirty day period, or following the expiration of the period
within which there must be a prompt notification?
Does the temporary waiver arise where the complainant
has mis-addressed his complaint?

The show-cause procedure

Clause 4 of Article 43 provides that within thirty days of
receiving a complaint, the recipient must show cause why the
matters complained of do not represent a contractual default,
failing which the recipient will be deemed to have accepted
the complaint. A clearer expression of waiver is noticeable in
this context than one find in relation to the obligation to
notify and substantiate a complaint under Clause 3; however
there are several points of uncertainty here too, such as:

Does Clause 4 establish a conclusive presumption or

waiver, or a rebuttable presumption?
Is it sufficient merely for the recipient of the complaint to
respond in the form that he or she thinks fit? There are
no particular manner or form requirements stipulated in
that regard.

to resolve a dispute arising from a construction contract from

"the date the dispute occurs "under the Ordinance on
Commercial Arbitration12 to "from the date the parties' lawful
rights and interests are infringed upon."13 This change brings
the position in line with the limitation period established in
the Civil Code, in relation to court proceedings14, and
corresponding legal norms in many other jurisdictions. And
yet, does such an early commencement point for the two
year limitation period actually sit comfortably with the
practice in the Vietnamese construction industry of storing up
disputes for resolution en bloc upon the achievement of
completion of the works? This change will surely compel a
new approach involving the taking of formal protective
measures during the life of the project.
Time to Act: immediate countermeasures
It will be apparent that Articles 43 and 44 of Decree 48 call
for an immediate change of behaviour by contracting parties
to whom the decree applies and is effective. Prudent
countermeasures will involve speedier, more sophisticated
document control procedures and revised time lines for the
initiation of arbitration with a view to preserving arbitration
as an available avenue of dispute resolution on the project.
Although the implementation of such countermeasures is a
matter largely for project management staff, we are ready to
consult with you with a view to designing and establishing a
suitable system to minimize embarrassment and more
importantly, to better preserve the working relationship of
the contracting parties.

Contractual notice provisions

Since Article 43 is not expressed so as to derogate from any
concurrent contractual notice provisions, as an article of
prudence, it is strongly recommended that all applicable
contractual notice provisions also be fully complied with.
Time limit for commencement of arbitration
There has been a noticeable change to the commencement
point for the two-year time limit for requesting an arbitration
Tu Dinh
Consultant

Nicholas Brown
Partner

T: +852 2294 3314

E: tu.dinh@pinsentmasons.com

T: +852 2294 3414

E: nicholas.brown@pinsentmasons.com

12

See Article 21 (Statute of limitations for initiating dispute settlement through arbitration), Clause 2 of Decree 48.
See Article 44 (Settlement of disputes over construction contracts), Clause 4 of Decree 48.
14
See Article 427 (Statute of limitations for initiating lawsuits related to civil contracts) of Decree 48.
13

Pinsent Masons LLP 2010

This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.
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