Author: TNTP LAW

The execution of a construction contract is influenced by various factors and always carries the potential for disputes. Therefore, right from the contract drafting stage, the parties need to identify possible disputes to establish the resolution methods for each case. This will help the parties to be proactive if any disputes arise. In this article, TNTP will present some common disputes in construction contracts that the contracting parties should be aware of.

1. Disputes arising from payment schedule violations under the contract

• This can be considered a typical and common dispute during the execution of a construction contract. Some reasons for such disputes may include i) Unclear payment terms and failure to anticipate issues that may arise during the contract execution (market price fluctuations); ii) Subcontractors being dependent on the payment schedule between the main contractor and the owner; iii) Incomplete payment documentation (quantity acceptance minutes, payment acceptance minutes, value-added invoices, etc.); iv) Difficulties caused by the owner, delayed payments, or inability to pay.

• In practice, when a contractor requests payment, owners may provide various reasons to refuse payment, such as:

+ The contractor’s work does not meet the required quality, has errors, or unrepaired damages;
+ The contractor is behind schedule;
+ The parties have not conducted acceptance and handover of the project.;
+ Payment documentation is invalid, such as lacking signatures, the person signing the documents not having the proper authority;
+ Additional items have not been submitted with complete documentation and approved by the owner;
+ The contractor does not carry out warranty obligations for the project;
+ The contractor provides misleading information about capacity documents to deceive the owner and engage in prohibited activities in construction operations, etc.

In the case where a contractor executes multiple projects for an owner, the owner can also argue that due to disputes in one project, they will not continue to pay for contracts related to other projects.

2. Disputes arising from failure to ensure construction progress and quality

When implementing a project, the owner’s main concerns are the construction progress and the quality of the project.

Regarding construction progress, the parties usually agree on specific timelines, and the contractor is responsible for adhering to the agreed-upon schedule in the contract. However, due to various factors such as manpower, materials, weather conditions, circumstances, etc., the contractor may delay the construction progress and affect the owner.

Regarding the quality of the project, the contractor needs to fulfil the commitments regarding materials, supplies, and design. However, in reality, some contractors may use materials or supplies that do not meet quality standards, do not conform to the agreements of the parties, or deviate from the approved designs. Contractors may also fail to comply with construction standards, technical regulations, and legal requirements regarding the use of construction materials. These factors result in inadequate quality of the project, leading to disputes between the parties.

3. Disputes arising from unilateral termination of the contract before the expiration date

When serious violations occur according to the agreements of the parties in the contract or as stipulated by law, the owner/contractor may unilaterally terminate the contract. However, in practice, many owners/contractors terminate contracts without following legal regulations and the contract. Some examples include: the contractor requesting the owner to pay for costs outside the contract, but the owner refuses, so the contractor unilaterally terminates the contract; the owner intentionally cites multiple unjustifiable reasons to claim that the contractor has violated the contract and terminates the contract based on those reasons, etc.

When one party unilaterally terminates the contract without justifiable reasons, the aggrieved party has the right to claim compensation for damages and penalties for the contract violation (if the contract includes provisions on penalties).

4. Disputes regarding compensation for damages in construction contracts

Proving the right to be compensated for damages and determining the amount of compensation resulting from the breach of a party in a construction contract is a complex task. Typically, it is difficult for the parties to reach a mutual agreement on a general compensation amount. Therefore, the parties are required to hire third parties, such as construction experts, appraisal units, evaluators, etc., to determine legal responsibilities and calculate damages.

The above is the article “Common Disputes in Construction Contracts” that TNTP provides to readers. If you have any questions or need further clarification, please contact TNTP.

Sincerely,

When investors wish to jointly contribute assets and efforts for business purposes but are not ready to establish an economic organization, they often choose to invest under the Business Cooperation Contract (BCC) format. So, what should foreign investors pay attention to when investing under the BCC contract? In this article, TNTP will analyze the key points that foreign investors need to consider.

1. Procedure for Investment Approval

If the investment project requires investment approval, the investor must follow the procedures for requesting investment approval as prescribed by law. According to the law, investment projects that require investment approval are projects that have significant scale, impact on the economy, society, and environment, and thus need approval from competent authorities such as the National Assembly, the Prime Minister, or the Provincial People’s Committee (Articles 30, 31, and 32 of the 2020 Investment Law). After obtaining approval from the competent authority, the investor will be granted an Investment Registration Certificate (IRC) as stipulated in Article 38 of the 2020 Investment Law.

2. Procedure for Issuance of Investment Registration Certificate

• Based on the provisions of Article 27.2 of the 2020 Investment Law, domestic investors and foreign investors or foreign investors investing under the BCC contract in Vietnam must follow the procedures for obtaining an IRC as prescribed by law.

• For investment projects that do not require investment approval, the investor submits the IRC application file to the Investment Registration Authority. Based on that, the Investment Registration Authority will review and issue the IRC to the investor within 15 days from the date of receiving a complete and valid application file if the investment project meets the conditions prescribed by law.

3. Establishment of the Coordinating Board

Based on the provisions of Article 27.3, parties to a business cooperation contract shall establish a coordinating board to execute the BCC. Functions, tasks and powers of the coordinating board shall be agreed upon by the parties.

4. Establishment of the Operating Office

• A foreign investor to a business cooperation contract may establish an operating office in Vietnam to execute the contract. The location of the operating office shall be decided by the foreign investor depending on the requirements for contract execution.

• The operating office of a foreign investor to a business cooperation contract has its own seal; the foreign investor may open an account, hire employees, sign contracts and carry out business activities under the business cooperation contract and Certificate of registration of the operating office.

• The foreign investor to the business cooperation contract shall submit the application for registration of operating office to the investment registration authority of the area where the operating office is intended to be located (Article 49 of the 2020 Investment Law).

5. Shutdown of the Operating Office

• Within 07 working days from the day on which the decision to shut down the operating office is issued, the foreign investor shall send a folder to the investment registration authority of the area where the operating office is located. Within 15 days from the receipt of the application, the investment registration authority shall issue the decision to shut down the operating office.

• The folder consists of:

a) A decision to shut down the operating office in the case of shutdown of the operating office ahead of schedule;
b) A list of creditors and amount of debts which have been paid;
c) A list of employees and their benefits provided;
d) A tax authority’s certification of fulfillment of tax liability;
dd) A social security authority’s certification of fulfillment of social insurance obligations;
e) The certificate of operating office registration;
g) A copy of the investment registration certificate;
h) A copy of the business cooperation contract.

These are the contents of the article “Important Considerations for Investment under the BCC Contract in Vietnam” provided by TNTP. If you have any further questions or need assistance, please contact TNTP for the best support.

Sincerely,

In principle, the parties to a business cooperation contract (“BCC”) are free to voluntarily commit and agree as long as it does not violate regulations of law and is not contrary to social ethics. Nevertheless, when agreeing and drafting the business cooperation contract, the parties should pay attention to the required contents as prescribed by law. In the following article, TNTP will provide some notes when drafting the terms of the business cooperation contract.

1. Subject matter of the business cooperation contract

The subject matter of the business cooperation contract is the agreement and commitment to recognize the business cooperation to be performed in the contract. The nature of the BCC contract is not to establish a legal entity, so the content of the agreement on “work” as the subject matter of the contract must be specific and clear to limit possible disputes.

2. Objectives and scope of business activities

To ensure that the parties fully and accurately understand the business activities, the business cooperation contract should define the objectives and scope of activities. This clause plays a role in binding the parties’ responsibility for performing business cooperation activities and avoiding the parties misunderstanding the purpose and performing improperly or exceeding the scope of cooperation desired by the parties.

3. Terms of capital contribution and distribution profits from business activities

Performing the obligation to contribute and distribute the profits from business activities is one of the most easily disputed contents in the business cooperation contract. Thus, the parties should agree clearly on this content in the contract.

Accordingly, the parties should agree on the type of property to contribute (money, effort, machinery, equipment, or other property), the ratio and the term of contribution of the parties. If one of the parties fails to perform the contribution obligation, the parties also need to agree on resolutions to handle this issue. For example, where there is agreement on the contribution that a party fails to contribute money on schedule, they must pay interest on the unpaid portion of the amount under the provisions of law and must compensate for the damage.

Regarding the distribution of the business cooperation activities, the parties should agree clearly on the distributing conditions, the division ratio and the term of sharing for each party.

4. Progress and term of contract

The contract should agree on the progress and duration of the contract. That will bind the responsibilities of the parties for business activities as well as related to the termination of cooperation at the end of the contract. Accordingly, the parties should agree in the contract on the specific work to be performed in each stage and the responsibilities of each party for this work.

5. Rights and obligations of the parties

In the business cooperation contract, the parties have common rights and obligations are (i) to enjoy the yield and income gained from cooperation activities; (ii) to participate in decisions involving issues of performance of cooperation contract and co-operation monitoring; (iii) to compensate for damages to other party caused by their faults. In addition, the parties may further agree on their own rights and obligations. Defining the rights and obligations of each party shall reduce disputes and determine the responsibilities of the parties for the cooperation relationship.

6. Capital withdrawal from the business cooperation contract

The capital withdrawal by one member may affect the interests and cause damage to the other party(s) in the contract. Therefore, the business cooperation contract should agree on the capital withdrawal, and the parties should strictly comply with the committed contents to avoid disputes.

If the capital withdrawal is not in the case that the parties have agreed in the contract, the member withdrawing capital is determined to be in breach of the contract and shall be held responsible for their violations.

7. Terms of liability for breach of contract and dispute resolutions

To facilitate the parties when there is any breach of the contract, the parties should agree on the liability for the violations and the resolutions of settlement when a dispute occurs.

Accordingly, the parties may agree on specific sanctions to be applied when there is any breach of contract (such as fines for violations, compensation for damage, …). Regarding dispute resolutions, the parties can agree on the method of dispute settlement such as negotiation, conciliation, arbitration, or court. In case of dispute settlement by arbitration, the parties should agree on the Arbitration Center, the number of arbitrators, the language and location of dispute settlement, etc.

8. Termination of the business cooperation contract

Termination of the contract also means the end of the partnership. The parties may agree to terminate the contract in the following cases:

– The time limit mentioned in the cooperation contract has expired. The parties agree in the contract on the duration of cooperation to carry out business activities, upon the expiration of such time limit, the cooperation contract shall terminate.

– The purpose of cooperation has been achieved. When entering into the contract, the parties determine the purpose of establishing the cooperation contract, if that purpose has been achieved, the cooperation contract shall be terminated.

– Other cases as agreed by the parties. During the performance of a contract, due to the cooperation activities not achieving the desired results or for other reasons, the parties may agree to terminate the business cooperation contract.

In addition to the clauses aforementioned, the parties may agree on other contents as long as it is not contrary to the provisions of law, not contrary to social ethics. Such as confidentiality clauses, non-solicitation agreements, etc.

Above is the content of the article “Instruction for drafting a business cooperation contract”. Hope the above sharing will be useful for those who are interested in this issue.

Best regards,

Currently, investment in the form of a business cooperation contract (hereinafter referred to as BCC contract) is being chosen by numerous investors. However, disputes arising from this type of contract are also increasingly common. Therefore, to limit disputes, the parties should pay attention to the drafting stage of the contract. In the following article, TNTP will analyze the business cooperation contract and the basic contents you need to know about this contract.

1. What is a business cooperation contract?

According to Clause 14, Article 3 of the Investment Law 2020, a business cooperation contract (hereinafter referred to as BCC contract) means a contract between investors for business cooperation and distribution of profits or products without establishing a business organization.

On the other hand, Article 504 of the Civil Code 2015 stipulates that the cooperation contract means an agreement between natural and/or juridical persons regarding the property contribution, effort to perform certain jobs, the same benefit, and mutual responsibility.

Thus, the business cooperation contract is an agreement between two or more parties (the parties may be both domestic investors or foreign investors, or one party is a domestic investor and the other is a foreign investor) regarding the property contribution, effort to perform business cooperation, profit sharing or product distribution without the establishment of a business organization.

For instance, Company A is an enterprise legally established and operating in Vietnam, specializing in the production of plant varieties, and willing to expand its business activities to rice production and export. Company B is a legally established company in Japan, specializing in producing and distributing rice products. Company B is wishing to transfer seeds to produce and trade Japanese rice in Vietnam. Hence, Company A and Company B mutually agree to make and enter into a BCC contract to perform business cooperation activities.

2. Form of a business cooperation contract

According to Clause 1, Article 27 of the Investment Law 2020, BCC contracts signed between domestic investors shall be executed in accordance with civil law. According to Article 504 of the Civil Code 2015, the cooperation contracts between individuals and legal entities must be written in writing.

In addition, Clause 2, Article 27 of the Investment Law 2020 stipulates that BCC contracts signed by and between a domestic investor and a foreign investor or by and between foreign investors shall implement procedures for the issuance of investment registration certificates in accordance with the provisions of Article 38 of the Law on Investment. That means the business cooperation contract by and between a domestic investor and a foreign investor or by and between foreign investors must be made in writing and procedures for the issuance of an investment registration certificate in accordance with the law.

Thus, the business cooperation contract must be made in writing. This will be the basis for determining the membership of the parties. Based upon the content of this contract, each party will know its rights, obligations and responsibilities to the other party. In addition, even though the law does not stipulate the contract must be notarized or authenticated if the parties to the contract are both individuals, the contract should be notarized and authenticated to facilitate the settlement dispute in the jurisdictions (if any).

3. Main contents of the contract

Pursuant to Article 28 of the Investment Law 2020, the business cooperation contract shall contain at least:

– Names, addresses and authorized representatives of parties to the contract; business address or project address;

– Objectives and scope of business;

– Contributions by the parties to the contract, and distribution of business investment results between the parties;

– Schedule and duration of the contract;

– Rights and obligations of parties to the contract;

– Adjustment, transfer and termination of the contract;

– Responsibilities for breaches of the contract; method of dispute settlement.

In addition to the main contents aforementioned, the parties to the contract are entitled to agree upon other items which are not contrary to the law.

Above is the content of the article: “Business cooperation contract – Basic contents you need to know” that TNTP sent to readers. Hope the above information is useful to those who are interested in this issue.

Best regards,