Debt Recovery from a Construction Project Owner for Delayed Payments

Delayed payments in construction contracts are quite common in Vietnam. As a result, many businesses face cash flow difficulties and are unable to cover operating costs such as wages, materials, and loan interest, and may even be forced to suspend operations.

In this article, TNTP analyzes “Debt Recovery from a Construction Project Owner for Delayed Payments” and the related legal issues.

Identifying the causes of Delayed Payment by the Construction Project Owner

In the debt recovery process, the first and most critical step is to accurately identify the reasons for the construction project owner’s failure to make payment. Not all cases of delayed payment are intentional; they may arise from various factors. Common causes include:

• The project owner deliberately delays payments due in accordance with agreed milestones or completed work;
• Acceptance records or payment documents have not been fully signed or approved;
• The project owner withholds payment for warranty obligations or set-off against penalties, liquidated damages, or other amounts deemed due under the contract; or
• Financial difficulties, delayed disbursement of funds, or incomplete final settlement of the project.

A proper identification of the underlying cause is a key basis upon which the Contractor may adopt an appropriate debt recovery strategy in construction matters, thereby avoiding unsuitable measures that may adversely affect the prospects of recovery or the ongoing contractual relationship between the parties.

Identifying Debts to Be Prioritised for recovery

In the course of debt recovery from a Construction Project Owner for delayed payments, a request for the settlement of the entire outstanding debt in a single payment is often impracticable and may be rejected or result in prolonged resolution, particularly where certain payment items remain disputed between the parties. Accordingly, in order to enhance the effectiveness of such debt recovery, enterprises should classify the outstanding debts into two categories:

First, amounts corresponding to completed works that have satisfied the conditions for payment and are supported by clear contractual and legal grounds, and therefore have a high likelihood of recovery.

Enterprises should prioritise the immediate recovery of such amounts in order to promptly improve cash flow, alleviate financial pressure, and establish a basis for addressing the remaining outstanding items.

Second, amounts which remain disputed in relation to quantities of work, unit rates, or variations and additional works performed outside the scope of the contract. This category of debts typically requires a longer period for verification and resolution.

Such amounts should not be commingled with debts that have already satisfied payment conditions; instead, they should be separately identified for negotiation, reconciliation, and progressive completion of supporting documentation. At the same time, enterprises should proactively prepare meeting minutes, formally record outstanding issues, and establish a structured roadmap for resolution so as to avoid unnecessary delays in the overall recovery process.

Rather than awaiting the resolution of the entire outstanding amount in a single stage, Contractors should adopt a structured debt recovery strategy against Construction Project Owners, prioritising different categories of debt in a clear order so as to optimise both efficiency and recovery timelines.

Handling Debt Recovery based on the causes of Delayed Payments

Construction Project Owners often provide various reasons to delay payment. Each situation requires an appropriate approach to ensure the effectiveness of debt recovery.

Where the Construction Project Owner asserts that payment cannot be made due to the absence of formal acceptance, the Contractor should proactively issue a written request proposing a reasonable timeline for the acceptance organisation to carry out and complete the acceptance procedures.

In cases where the Construction Project Owner refuses or delays signing final account statements or as-built documentation, the Contractor should consistently dispatch formal correspondence and record such delays. This helps create pressure and clarify the responsibilities of the parties, thereby supporting the debt recovery process.

Where delayed payment arises from reductions in quantities or adjustments to unit prices, the enterprise should review the contractual agreements and all relevant documents executed between the parties, and then prepare a written record confirming such changes or adjustments, clearly stating which party requested the change and whether such change has been approved, and, at the same time, requesting all supporting documents evidencing such approval.

For additional works performed outside the contractual scope without a signed contract addendum, the enterprise should ensure the execution of partial acceptance minutes, handover records, or records confirming completed work quantities. The collection of factual evidence such as emails, messages, and site photographs is also necessary to support its claims and facilitate debt recovery from the Construction Project Owner.

In circumstances where the Construction Project Owner applies set-off against penalties or damages, the Contractor should review whether such penalties or damages comply with applicable laws and the agreements between the parties, and request clear supporting evidence.

Where financial difficulties are cited as the cause of delayed payment, the enterprise should negotiate a specific payment schedule with clear commitments, in order to minimise the risk of prolonged delays in debt recovery.

Effectively addressing delayed payments based on their causes helps enterprises adopt a more proactive approach to debt recovery from Construction Project Owners and minimise potential risks.

Actions enterprises should take to ensure effective Debt Recovery

To safeguard their interests and improve the efficiency of debt recovery, enterprises should proactively implement certain actions from the early stage of contract performance, including:

First, sending all requests related to acceptance or payment in writing. Written requests for acceptance and payment help establish clear evidence and serve as a safeguard in the event of disputes.

Second, dividing construction contract performance into multiple stages and conducting acceptance, work confirmation, and interim/final account settlement at the end of each stage. This helps reduce the risk of large outstanding debts and improves debt recovery at each stage.

Third, retaining all evidence of submitted requests, including proof that the other party has received the documentation or acknowledged its payment obligations, to support debt recovery or dispute resolution.

Fourth, setting specific timelines for each step of the debt recovery process, including submission of requests, reminders, negotiations, and initiation of legal proceedings. This helps create necessary pressure on the Construction Project Owner, prevents payment delays from being prolonged indefinitely, and enables enterprises to proactively escalate to stronger enforcement measures when necessary.

Fifth, establishing mechanisms to secure payment obligations and carefully reviewing dispute resolution clauses prior to contract execution. To prevent breaches of payment obligations by Construction Project Owners, enterprises should consider applying security measures such as payment guarantees or retention of title. At the same time, to ensure effective dispute resolution if disputes arise, dispute resolution provisions in the contract should be carefully reviewed.

Proactively implementing these measures from an early stage will help enterprises maintain better control over the process and enhance the effectiveness of debt recovery from Construction Project Owners.

Common mistakes that reduce Debt Recovery effectiveness

In practice, many enterprises encounter difficulties in debt recovery from Construction Project Owners not due to a lack of legal basis, but due to mistakes made during the handling process. Common mistakes include:

First, only communicating via phone calls or messages without formal written records, resulting in a lack of clear evidence when needed.

Second, waiting until completion and final account settlement of the entire project before requesting a lump-sum final payment, thereby reducing opportunities for debt recovery at each stage.

Combining disputed receivables not yet agreed between the parties with receivables that are already due for payment, thereby causing delays in the debt recovery process.

Allowing payment delays to continue for too long without escalating to stronger enforcement measures.

Identifying and avoiding these mistakes is an important factor in improving the effectiveness of debt recovery from a Construction Project Owner.

When to engage legal counsel

In the process of debt recovery, when conventional negotiation and communication measures are no longer effective, enterprises should consider seeking support from legal counsel.

Specifically, the following warning signs should be noted:

• Acceptance records, as-built documentation, final account documents, or debt reconciliation statements remain unsigned for an extended period;
• The Construction Project Owner shows signs of denying payment obligations or disputing the completed scope of work;
• The Construction Project Owner demonstrates avoidance of communication, changes its address, or becomes difficult to contact; and
• The Construction Project Owner deliberately delays or prolongs payment.

When such signs are identified, enterprises should promptly adopt appropriate legal measures and may consider engaging legal counsel for support.

With the involvement of legal counsel, negotiation and settlement processes can become more effective. With professional expertise and practical experience, legal counsel can assist enterprises in formulating clear and well-founded claims, as well as reviewing, structuring, and developing a complete and comprehensive set of supporting documents.

Frequently asked Questions

In the process of debt recovery from Construction Project Owners, enterprises often encounter the following common questions and concerns:

First, should construction works be suspended if the Construction Project Owner fails to make payment?

In practice, suspension of works (suspension of contract performance) may be carried out if there is a contractual basis and the proper notice procedures are strictly followed. However, it is necessary to carefully assess the contract terms to avoid being deemed in breach of contract.

Second, is it possible to recover debts without fully signed acceptance documents?

Where acceptance documents are not fully signed by all parties, enterprises may still recover receivables if they can provide other supporting evidence demonstrating completion of the works, such as final account documents, debt reconciliation statements, handover records, emails, messages, or documents and photographs reflecting actual construction works performed.

Third, can interest for late payment, contractual penalties, or compensation be claimed?

It is necessary to refer to the relevant contractual provisions, related agreements, and applicable laws. Enterprises may claim interest for late payment, penalties, or compensation for damages if such entitlements are agreed in the contract or provided for under applicable law.

Fourth, is it possible to reclaim materials and equipment that have been supplied?

Where the contract includes provisions or the parties have agreed on retention of title over materials and equipment, the enterprise may seek to reclaim such assets in the event of the Construction Project Owner’s breach of payment obligations. However, the legal conditions for recovery of such assets under applicable law and the contract terms must be carefully reviewed.

Fifth, when should negotiation be escalated to litigation?

The transition from negotiation to litigation typically occurs when the Construction Project Owner no longer shows willingness to cooperate or when there are clear indicators of payment risk or inability to pay.

Through this article, TNTP has provided key insights into Debt Recovery from a Construction Project Owner for Delayed Payments. To ensure effective debt recovery, enterprises should proactively develop appropriate strategies and consider engaging legal counsel when necessary. Should you or your enterprise require case-specific legal advice, please contact TNTP for further assistance.

Sincerely,