In the field of construction, disputes frequently arise between parties due to various causes, which may include ambiguous contract terms, changes in work requirements, substandard quality of work, delays in project completion, disputes related to payment, or the impact of changes in laws and policies,… In this article, TNTP will discuss the types of disputes that typically arise from construction contracts and the methods commonly used to settle these disputes.
1. Definition of a Construction Contract
According to Clause 1, Article 138 of the Construction Law 2014, amended in 2020 (“The Construction Law”), a construction contract is a civil contract in writing between the principal and the contractor to perform part or all of the work within construction investment activities. Construction contracts are classified into various types depending on the nature, scope of work, and the contract value. For instance, based on the nature of the work performed, construction contracts include Consulting Contracts, Construction Work Contracts, Design and Procurement Contracts, and Turnkey Contracts, among others.
2. Common Types of Disputes Arising from Construction Contracts
• Payment Disputes: These disputes often arise when the contractor has completed the agreed work, but the principal fails to make full payment for the completed work, resulting in delayed payments and financial harm to the contractor.
• Construction Schedule Disputes: Delays in the construction schedule may be caused by factors on either side. For the contractor, progress may be affected by factors such as weather conditions, natural disasters, labor shortages, or material shortages. Meanwhile, the principal may encounter funding difficulties, delays in approving work, delays in handing over the site, or delays in finalizing the design.
• Scope of Work Disputes: During construction, the principal may issue requirements beyond the agreed scope or unilaterally change the design without mutual agreement, leading to disputes over the responsibilities and obligations of each party.
• Disputes Due to Premature Termination of the Contract: A party may unilaterally terminate the contract for various reasons, such as conflicts of interest or breaches of obligations by one party. Consequently, disputes may arise regarding compensation for damages, penalties, and other liabilities.
• Quality of Work Disputes: Such disputes may occur when one or more parties identify quality issues during the inspection process or after the handover of the construction work. In some cases, quality disputes arise during the warranty period or as a result of notifications from the end-user.
3. Methods for Resolving Disputes Arising from Construction Contracts
• Negotiation: This is a preferred method when the parties are willing to settle disputes without third-party intervention. However, this method relies on the voluntary nature of the parties, meaning there are no binding obligations on either side even if an agreement is reached.
• Mediation: This method offers a high degree of confidentiality, and the outcome is subject to the mutual consent of the parties. Suppose the contract includes an agreement to resolve disputes through mediation by a settlement committee. In that case, the settlement committee will be established to resolve the dispute following Clause 2, Article 45 of Decree 37/2015/ND-CP, with the number of members agreed upon by the parties. Within twenty-eight (28) days from the date of receiving the result of the dispute settlement, if any party does not agree with the result of the dispute settlement, it may object, and the dispute will proceed to arbitration or court. If no objections are raised within this period, the parties are considered to have accepted the result of the dispute settlement and must comply accordingly.
• Arbitration: If the contract includes an arbitration clause or if the parties separately agree to arbitration, this method will be applied. Disputes are resolved through arbitration in accordance with the Law on Commercial Arbitration 2010, and arbitration awards are legally binding. The parties are entitled to request enforcement of the award through the relevant authorities.
• Court Resolution: In cases where negotiation and mediation fail, the parties may submit the dispute to the court in accordance with the Code of Civil Procedure 2015. The court will conduct an open and transparent trial to ensure the rights and obligations of each party.
This article, “Disputes Arising from Construction Contracts” is provided by TNTP for the reference of our readers. Should you have any questions or require further assistance, please do not hesitate to contact TNTP.
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