Recovering civil construction debts when payment is delayed under a construction contract
In civil construction activities, delayed payment under construction contracts is quite common, particularly between contractors and investors. Outstanding debts often arise when the investor fails to make payments according to the agreed schedule, disputes occur regarding additional work beyond the contract scope, or the parties cannot agree on the accepted work volume.
If not handled properly from the outset, businesses may face difficulties in recovering debts, affecting cash flow and reducing the actual likelihood of recovery. Through this article, TNTP’s lawyers analyze common legal risks, identify types of debts arising in civil construction, and propose appropriate handling strategies. On that basis, businesses may proactively choose negotiation or apply necessary legal measures to control risks and optimize debt recovery efficiency.
1. Characteristics of relationships in civil construction affecting debt recovery
In practice, many civil construction projects are not merely relationships between individuals and contractors, but rather relationships between organizations and enterprises. This is commonly seen in cases such as companies constructing offices, showrooms, or retail chains; real estate companies developing townhouses; or main contractors engaging subcontractors for specific work items.
Correctly identifying the nature of these relationships is crucial in the debt recovery process, as payment obligations are primarily determined based on the contract, performance evidence, and agreements between the parties, rather than subjective factors.
According to Articles 280 and 385 of the Civil Code 2015, contracts establish rights and obligations, and the parties must perform them fully, on time, at the agreed place and in the agreed manner. Therefore, in civil construction disputes, the ability to recover debts largely depends on whether the business can prove the payment obligation under the contract.
2. Common legal risks in civil construction
Compared to large-scale projects, civil construction often involves higher risks due to less rigorous contracting and performance practices, including but not limited to the following situations:
Simplified contracts lacking key provisions
Parties often use templates or fail to thoroughly review contracts, resulting in unclear provisions on acceptance, payment, or handling of additional work, which complicates the determination of obligations in disputes.
Oral communications and informal agreements
During contract negotiation and performance, parties often communicate via messages, Zalo, or even phone calls without proper written records. This makes it difficult to prove agreed terms, prolonging dispute resolution and increasing costs.
Lack of clear acceptance procedures
Although contracts and laws provide for acceptance obligations, if criteria, procedures, and authority are not clearly defined, risks may arise—especially in determining completed work volume and payment conditions—leading to disputes.
Failure to finalize additional work value and volume in a timely manner
During construction, additional work is often not clearly agreed upon or documented, including unit prices and quantities, resulting in disputes upon payment.
These shortcomings make it difficult for businesses to prove payment obligations and create opportunities for debtors to delay, deny obligations, or prolong payment. In disputes, insufficient documentation weakens the business’s position in negotiation or litigation
3. Common types of debts arising in civil construction
3.1 Progress-based payment debts
Some construction contracts provide payments based on completed work volume. While this helps manage cash flow and progress, in practice, even when payment is due, the obligor may fail to pay or only make partial payments, delaying the remaining amounts.
This not only disrupts the contractor’s cash flow but also directly affects project execution.
3.2 Debts due to failure to conduct acceptance
At the acceptance stage, although the contractor has completed the work and prepared all required documentation, the obligor may refuse to sign acceptance minutes to delay finalizing the payable amount and postpone payment.
3.3 Debts arising from out-of-contract work
Additional work such as extra materials, labor, or design changes is often not formally recorded or agreed upon. Contractors may perform extra work to meet deadlines without agreeing on pricing or documenting it, leading to disputes over payment.
3.4 Debts due to deposit deductions or retention for warranty
Contracts often provide for deposit deductions or retention amounts for warranty purposes. However, these are often not clearly regulated regarding conditions, scope, timing, or methods of deduction and refund, allowing the obligor to apply them in their favor and delay payment.
4. Determination of legal grounds and documentation for debt recovery in Civil construction
After identifying the type of debt, the business must review all documents and agreements between the parties to determine the legal basis for its payment claim. In practice, debt recovery does not rely solely on the contract but also depends on the performance and supporting evidence.
4.1 Contractual and agreed legal grounds
The business should review key contractual terms to clearly determine payment rights and obligations, including:
Payment provisions
It is necessary to clearly determine the payment method (by stages, by work volume, or by completion milestones), the required supporting documents for each payment, the payment timeline, and the conditions for payment eligibility. This serves as the basis for determining whether the debtor has breached its obligations.
Late payment interest and penalties
The business should verify whether the contract provides for late payment interest and penalties, including the applicable rate, calculation method, and commencement time. In practice, many contracts do not clearly regulate these issues, leading to difficulties in determining interest amounts in the event of disputes.
According to Article 306 of the Commercial Law 2005 and Article 11 of Resolution No. 01/2019/NQ-HĐTP, where there is no specific agreement, late payment interest is typically determined in accordance with applicable law and judicial practice. The interest rate may be referenced based on the average market rate, determined through lending rates of several commercial banks at the time of payment.
In reality, obtaining such interest rate data may be difficult, as commercial banks are not obligated to provide such information upon request. Therefore, without early preparation or an appropriate collection strategy, businesses may face disadvantages in proving and claiming late payment interest during dispute resolution.
Acceptance provisions
It is necessary to clearly define acceptance conditions, completion criteria, authorized signatories, and required documentation as the basis for payment. In practice, debtors often delay payment obligations where acceptance provisions are unclear.
Additional work provisions
During contract performance, additional work or changes in material costs are common. These may arise from design changes, schedule adjustments, or objective factors such as market fluctuations, weather, or site conditions.
Therefore, clearly defining provisions on additional work (including recording methods, approval mechanisms, pricing methods, and timing for approval of revised values) is crucial to minimizing disputes. If not agreed upon from the outset or promptly confirmed during performance, such additional work may easily become a source of conflict and may even disrupt contract performance.
Suspension and termination provisions
The business should review provisions on the right to suspend performance or unilaterally terminate the contract in case of payment breaches. These are important legal tools to exert pressure during debt recovery.
However, such measures must strictly comply with contractual conditions, procedures and legal provisions, and especially notice obligations. Failure to do so may result in reverse legal risks. Specifically:
According to Clause 2, Article 428 of the Civil Code 2015:
- “A party unilaterally terminating a contract must immediately notify the other party; if their failure to notify causes damage, compensation must be paid”; or
- According to Clause 4, Article 45 of the 2014 Law on Construction (as guided by Articles 40 and 41 of Decree No. 37/2015/ND-CP): “4. Before a party suspends or terminates the performance of a construction contract in accordance with Clauses 1, 2 and 3 of this Article, it must notify the other party in writing, clearly stating the reasons for such suspension or termination; if it fails to give such notice and causes damage to the other party, it must compensate for such damage”,
Accordingly, the party exercising the right must notify the other party within a reasonable time, unless otherwise agreed. Failure to do so may give rise to liability for damages.
4.2 Standardized evidence for effective debt recovery
In addition to the contract, the business should collect, review, and systematize all documents arising during the course of performance as a basis for proving payment obligations, including but not limited to the following documents:
Contract and Scope of work
Including the construction contract, contract appendices, cost estimates, design drawings, supplementary quotations, and documents reflecting adjustments or changes to the scope of work. These serve as the basis for determining the original obligations and any additional work performed.
Construction and acceptance
Including acceptance minutes by stage or work item, site diaries, photos and videos of site conditions over time, as well as emails or messages evidencing completion of work or additional requests. This is a key group of evidence to prove the actual work volume performed.
Payment and debt
Including payment requests by installment, bank transfer records, invoices, debt reconciliation statements, and payment commitments (if any). These documents help determine the amounts already paid, the outstanding balance, and the timing of the payment obligation.
5. Debt recovery process in civil construction
Step 1: Identify the debt
The business should clearly identify and classify the debt into different categories, including amounts with a high likelihood of recovery, amounts that have become due for payment, additional amounts supported by evidence, and amounts still under dispute, in order to adopt appropriate handling measures.
Step 2: Prioritize recovery of undisputed and highly recoverable debts
During the process, priority should be given to requesting payment of clear and undisputed amounts to avoid risks affecting overall cash flow due to disputes over unresolved portions.
Step 3: Standardize acceptance documentation
Acceptance records should be prepared for each work item or construction stage, accompanied by site photos or supporting documents, to serve as evidence of the completed work volume.
Step 4: Review and reconcile outstanding debts
The business should prepare debt reconciliation statements for each payment phase and work with the debtor to confirm figures, while agreeing on a specific payment schedule.
Step 5: Send formal payment requests
Payment requests should be made in writing and sent via email, clearly stating the contractual basis, the amount payable, and the payment deadline, together with relevant supporting documents.
Step 6: Apply contractual legal measures
If the debtor fails to cooperate, the business may apply measures such as sending formal demand letters, suspending construction works, or terminating the contract in accordance with the agreed terms, while preparing records of the current site condition to prevent further disputes.
Step 7: Proceed to dispute resolution before competent authorities
Where negotiation is no longer effective, the business should prepare necessary documents and develop a clear plan to proceed to litigation or other dispute resolution mechanisms before competent authorities.
6. Common types of disputes in civil construction contracts
The Investor fails to make payment under the contract due to financial difficulties
The entitled party should prioritize debt reconciliation and request written payment commitments in installments, while clearly setting out the conditions and timing for applying legal measures if the debtor fails to comply with such commitments.
The Investor refuses to conduct acceptance in order to withhold payment
For work items or values that have not yet been agreed upon, the business should proactively finalize acceptance for smaller portions, supported by site photos and quantity take-off documents, while separating the portions that are eligible for payment to request payment first.
The employer repeatedly requests repairs but still fails to make payment
Each repair should be properly recorded in written minutes, clearly identifying the scope of defects and the portion subject to re-acceptance, while separating unrelated completed work to request payment.
The debtor fails to perform obligations where communications and agreements were mainly conducted via messages
Where the debtor denies previously exchanged or agreed content, the business should collect, review, and prepare relevant materials such as messages, emails, transaction history, and other documents to prove the process of contract formation and performance. At the same time, the business should proactively request debt reconciliation as a basis for dispute resolution.
The parties agree to terminate the contract before completion of the project
Where the parties agree to terminate the contract before completion, a written record should be prepared to fully document the current status of the project, the completed work volume, and the remaining materials and equipment at the time of termination. At the same time, the parties should clearly determine the payment value corresponding to the completed work, any additional costs (if any), and the remaining obligations of each party. Proper and clear documentation of these matters will help minimize the risk of disputes.
7. List of documents to be prepared for legal consultation
Depending on each specific case, the lawyer may request the client to provide additional documents to fully understand the situation and prepare for the next steps of implementation. Accordingly, the documents that the business should prepare include, but are not limited to, the following:
- Construction contract, contract appendices, design drawings, and work breakdown structure;
- Acceptance minutes by stage/work item, or substitute materials such as site photos and videos over time;
- Documentation of additional work, including supplementary quotations and confirmations of changes in the scope of work;
- Payment documents, including payment orders, bank statements, receipts, VAT invoices, and debt reconciliation minutes;
- Official letters, emails requesting payment, and meeting minutes between the relevant parties;
- Other documents relevant to the case (if any).
8. Frequently asked questions
Is it possible to recover debt without signed acceptance minutes?
Debt recovery is still possible even without signed acceptance minutes; however, the business must provide substitute evidence such as construction logs, photos, emails, or other documents demonstrating that the work has been completed.
Can messages be used as evidence?
Messages may be used as evidence; however, they should be formalized (e.g. notarized in the form of a deed of verification) and combined with other supporting documents to enhance their evidentiary value.
Should construction be suspended if the debtor delays payment?
This measure may be applied if permitted under the contract; however, it must comply with the agreed conditions and prior notice requirements to avoid the risk of wrongful breach.
Can claims be made for additional work not recorded in a contract appendix?
Claims may still be made if it can be proven that such additional work was agreed upon and has been performed and put into use; however, this will be more difficult in the absence of written confirmation.
When should a dispute resolution process be initiated?
Where the debtor no longer demonstrates good faith, prolongs delays, faces financial difficulties, changes its legal representative, or dissipates assets, the business should consider applying appropriate legal measures to protect its lawful rights and interests.
Debt recovery in civil construction is not merely a matter of requesting payment under a contract; rather, it is a process that requires businesses to correctly identify the legal relationship and the nature of the case in order to develop an appropriate plan and handling strategy. At the same time, businesses should proactively identify risks, classify receivables, review contractual provisions, and establish a reasonable and legally compliant debt recovery roadmap to ensure the maximum protection of their lawful rights and interests.
In cases where the documents are incomplete, key matters have not been properly recorded, or the debtor no longer demonstrates good faith, the business should work with lawyers at an early stage to review and standardize evidence and develop an appropriate course of action, thereby mitigating risks and improving the actual likelihood of recovery.
