Currently, bidding activities are extremely animated, especially in the construction field. Due to the increasing number of construction projects which attract the attention of contractors, the State has expanded regulations on bidding. In that, contractors need to take note of the work transfer rate when constructing projects with the state budgets. These projects have specific characteristics and are significant in economic development. If not careful, contractors can be subject to legal sanctions when transferring work that exceeds the rate under the law.
1. Can the main contractor sign a contract with a sub-contractor?
Under Clause 2, Article 128 of Decree No. 63/2014/ND-CP, the main contractor can sign a contract with a sub-contractor. However, the Contract signing must comply with the regulations of law. In particular:
- The main contractor can sign a contract with the sub-contractors in the List of the contractors mentioned in the bid-envelope and proposal file;
- The main contractor must not request the sub-contractors to carry out the other tasks excluding the mentioned tasks in the bid-envelope and proposal file;
- The replacement and supplement of the sub-contractors to the List of the sub-contractors stated in the bid-envelope and proposal file must be accepted by the investor;
- The main contractor shall be responsible for the workload, quality, progress, and other responsibilities for the work parts carried out by the sub-contractors and shall pay the sub-contractors on time and in full under the agreement between the main contractor and the sub-contractors.
2. What is the transfer rate of the main contractor’s work to sub-contractors?
The work rate between the main contractor and sub-contractors will be agreed upon by the parties in the sub-contractor contract. However, Clause 8, Article 89 of the 2013 Law on Bidding regulates the prohibited acts in bidding, including the acts of bid transfer.
Accordingly, bid transfer including the following act: the contractor transfer to other contractors a part of work under procurement at the value of 10% or more or of less than 10% but over 50 billion VND (after deducting part of work under responsibilities of sub-contractors calculated on the signed contractual price);
Thus, for projects with the state budget, the transfer rate of the contractor’s work to other contractors as permitted by law is less than 10%. In case the contractor transfers the work with the correct value of 10%, it is also considered a violation of the Law on Bidding and is an illegal bid transfer.
3. How is the work transfer over the allowed rate handled?
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For administration:
Under Clause 2, Article 122 of Decree No. 63/2014/ND-CP detailing the implementation of several provisions of the law on bidding regarding the selection of contractors (“Decree No. 63”), the contractors will be banned from participating in bidding activities from 01 to 03 years for violations of Clauses 8 and 9, Article 89 of the Law on bidding.
In addition, under Article 124 of Decree No. 63/2014/ND-CP, organizations and individuals committing violations of the regulations on bidding and causing damage shall be responsible for compensation for damage under the law on compensation for damage and other relevant regulations of law.
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For criminal:
Under Point g, Clause 1, Article 222 of the 2015 Criminal Code 2015 (amended and supplemented in 2017) for Offences against regulations of law on bidding that lead to serious consequences, a person who commits an act of illegally contractor transfer causing damage from VND 100,000,000 to under VND 300,000,000 or under VND 100,000,000 while having incurred a disciplinary penalty or an administrative sanction for this act, shall face a community sentence for up to 03 years or 01 – 05 years’ imprisonment.
Besides, the offender might also be prohibited from holding certain positions or doing certain works for 01 – 05 years or have all or part of his/her property confiscated.
4. Experience with the main contractor when signing sub-contractor contracts?
When getting a bid project with the state budget, contractors should pay attention to strictly comply with Construction contracts and regulations of law on bidding. In addition, they should especially note the rate of work transfer to sub-contractors. The rate must comply with the provisions of the Law on Bidding and be approved by the investor.
Particularly for construction and installation projects, in case the main contractor transfers to sub-contractors over the rate on the bid price, the main contractor may only perform the work transfer with a valid and reasonable reason and the investor’s approval. Otherwise, the main contractor will be considered to transfer the bid project and be subject to sanctions under the law (Section 31, Chapter I, Part 1, Form No. 01 attached with Circular No. 03/2015/TT-BKHDT specifying preparation of invitation to bid on construction works).
When implementing projects, contractors always want to meet the right quantity, quality, progress, and earn profits according to the bid price. Therefore, to carry out the procurement favorably, contractors should note and absolutely avoid violations of the Law on Bidding in general and violations of bid transfer in particular.
Above is the article about the transfer rate of the main contractor’s work to the sub-contractor. Hope that this article is useful to you.
Best regards.
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TNTP & Associates Internationa Law Firm
Lawyer Nguyen Thanh Ha
Email: ha.nguyen@tntplaw.com
