Every day, we often live, work or play, and shop in construction works from apartment buildings to commercial centers, entertainment buildings, etc. To have these construction works, the principal (also known as the investor) and the construction contractor (also known as the contractor) have signed Construction Contracts specifying the construction items and important terms to ensure that the parties involved in the construction process are on schedule and ensure the quality of the work. Therefore, in this article, TNTP lawyers will clarify the things you need to know about Construction Contracts to help readers and enterprises operating in the field of construction work refer to.
1. What is a construction contract?
• According to Clause 1, Article 138 of the Construction Law 2024, Construction contracts are civil contracts established in writing between principals and contractors to perform in part or all the work in construction investment activities.
• Specifically, the principal is the investor or the investor’s representative or the general principal, or the main principal. The contractor can be the general contractor or the main contractor when the contractor is the investor, or a subcontractor when the contractor is the general contractor or the main contractor, or it can be a consortium of contractors.
Thus, the subjects participating in the construction contract include the principal and the contractor with the object of the contract is to perform construction work of a certain project with specific items.
2. Characteristics of Construction Contracts
Construction contracts have the following specific characteristics:
• The subjects of construction contracts are very diverse, depending on the construction activity, there will be corresponding contract subjects. For example, the subjects of construction contracts are underground construction, finishing, equipment installation, etc.
• The contractor is often selected by bidding because the contract value is often very large. To ensure competition, fairness, and clarity, the principal often uses bidding to select the most suitable contractor.
• Construction contracts have many activities with diversity and complexity. To ensure the progress and quality of the project, the contractor can divide the work into many different contractors with expertise in a certain item. During the contract implementation process, the contractor may need the assistance of a third party. The third party can be a subcontractor, supplier, joint venture contractor, supervision consultant, design consultant, etc.
3. Contents of the Construction Contract
Construction contracts must have the criteria prescribed in Clause 1, Article 141 of the Construction Law 2014 as follows:
• Applied legal documents;
• Language used in the contract;
• Content and volume of work;
• Quality, technical requirements of work; pre-acceptance test and handover;
• Contract performance duration and schedule;
• Contract price, advance payment, currency used in payment, and payment for the contract;
• Contract performance security, contract advance guarantee;
• Adjustment of the construction contract;
• Rights and obligations of the parties to the construction contract;
• Liability for violations of the contract, rewards and fines for violations of the contract;
• Suspension and termination of the contract;
• Settlement of disputes over the contract;
• Risks and force majeure events;
• Settlement and liquidation of the contract; and
• Other contents.
In addition to the above contents, the Construction Contract should note the specific provisions on the responsibilities of the general contractor. The terms should be clearly stated to avoid errors that may cause future disputes, affecting the construction progress and causing damage to the parties.
4. Legal validity of construction contracts
• First of all, a Construction Contract is only legally valid when it fully meets the following conditions:
– The contract signees have full civil act capacity;
– Meet the principles of contract signing;
– The contract must be in writing and signed by the legally authorized representatives of the parties to the contract. In case one party to the contract is an organization, that party must sign and stamp in accordance with the law.
• The effective date of the Construction Contract is the date of signing the contract (stamping, if required) or another specific date agreed upon by the parties in the Construction Contract and the principal has received the contract performance guarantee from the contractor (for contracts with provisions on contract performance guarantee).
Thus, for a construction contract to be legally effective, the contracting party, the contractor, and related parties must ensure the constitutive conditions of this type of contract, including satisfaction of the content and the effective date of the contract. At the same time, rights and obligations arise only when the construction contract is legally effective. In addition, the construction contract also stipulates that the agencies resolve disputes between the parties in case disputes occur during the implementation of the contract.
Through the above analysis, it can be seen the importance of specifying the content of the Construction Contract to ensure that the subject of the contract is implemented on schedule, ensuring the rights of each party as well as avoiding possible disputes in the future.
Above is an article by TNTP’s lawyer on “Things you need to know about construction contract – characteristics, content and legal validity of construction contract”. Hopefully, this article will help readers better understand the contents of construction contracts.
Sincerely,
