When signing a construction contract, the contractor must ensure the construction schedule for the investor. However, in reality, many reasons can lead to construction schedule delay. This seriously affects the legitimate rights and interests of the investor. Therefore, in case the contractor delays the construction schedule, how should the investor resolve the problem? This article covers legal issues related to construction schedule delay and appropriate solutions for investors.
1. How can the investor resolve when the contractor delays the construction schedule?
In the event that the contractor delays the schedule, the investor can take one, several or all of the following measures:
a) Suspend or terminate the Contract performance
Under the regulations of law, investors have the right to solely carry out the construction work if they have the full capability of performing construction activities. However, in reality, investors often choose contractors for construction. The construction will be carried out based on the construction contract between the parties.
Pursuant to Point c, Clause 2, Article 113 of the 2014 Law on Construction, the contractor is responsible for ensuring the quality and schedule of the construction. In case the contractor delays the construction schedule, under Point b, Clause 1, Article 145 of the 2014 Law on Construction, the employer has the right to suspend the performance of the construction contract when the contractor fails to meet requirements on quality, labor safety and schedule stated in the signed contract. Thus, the investor can suspend the contract performance without any violation or fault of the contractor.
Under Point b, Clause 2, Article 145 of the 2014 Law on Construction, if the construction schedule is delayed since the contractor refuses or continuously fails to perform work under the contract, the employer has the right to terminate the construction contract. In which, the employer may be the investor or the representative of the investor or the general contractor or the main contractor; the contractor may be the general contractor or the main contractor when the employer is the investor, may be the sub-contractor when the employer is the general contractor or the main contractor.
In summary, if the investor directly signs a construction contract with the main contractor and the main contractor does not assign the work to the sub-contractor, the investor will be the employer and the main contractor is the contractor. The investor has the right to suspend or terminate the construction contract with the contractor, depending on the construction schedule delay arising from or without the violation or fault of the contractor. In case the investor terminates the construction contract, the investor has the right to sign a contract with a new contractor to continue the construction to ensure the project schedule.
b) Contractual penalty for the contractor
The investor has the right to request the contractor to pay a construction contract penalty if the parties agree and state the rate and conditions of penalty in the contract.
Pursuant to Clause 2, Article 146 of the 2014 Law on Construction, for works using state budget, the penalty rate must not exceed 12% of the value of the violated contract value. Regarding the works not using state budget, the contractual penalty shall be applied to the agreement between the parties in the contract.
c) Request the contractor to compensate for damage
Pursuant to Point a, Clause 3, Article 146 of the 2014 Law on Construction 2014, the contractor shall compensate the employer for damages when the work’s quality fails to ensure the agreements reached in the contract or the completion time is prolonged due to the fault of the contractor.
Thus, in the event that the construction schedule is delayed and the completion time is prolonged due to the contractor’s fault, the investor has the right to request the contractor to compensate for the damage. It is not necessary to stipulate compensation for damages in the contract.
2. Avoiding the risk from the construction schedule delay of the contractor before signing the Contract
In Item 1 of the article, TNTP has outlined the legal grounds as well as the resolving measures for the investor when the contractor fails to ensure the construction schedule. However, there are more benefits to prevent risks from the outset than dealing with or overcoming consequences. Therefore, with the experience of TNTP, investors should pay attention to prevent the occurrence of this situation as follows:
- Specifying clearly in the contract about the schedule of each construction stage; and
- Regulating penalty rate, compensation for damage, cases of suspension or termination of contract performance if the contractor delays the schedule corresponding to each stage.
It is extremely common that the contractors delay the construction schedule in practice. The reasons can be objective or subjective. To ensure maximize investor’s legitimate rights and interests, they should consider all possible reasons leading to the construction schedule delay, thereby stipulate appropriate remedies and resolving measures in the contract.
The above is the article about the construction schedule delay of the contractor under the construction contract signed with the investor. Hope this article is useful to you.
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TNTP & Associates International Law Firm