The construction contract is one of the types of contract characterized by technical factors, product characteristics, subject capacity, and responsibilities of the parties involved in the contract. When participating in the contractual relationship in general, and the construction contract relationship in particular, the parties are obliged to strictly comply with the agreements in the contract. However, during the performance of construction contracts, the contractor may violate the construction schedule. In case the contractor is behind schedule, how will the contractor be penalized? Please follow our analysis below to better understand this issue.
1. General provisions on construction contracts
- The subject: The subject of a construction contract includes the principal and the contractor. The principal can be any individual, enterprise, state agency, social organization or people’s armed forces unit, etc., who have construction needs. The contractor is a construction enterprise that has registered for construction business and must have professional, technical, experience, and financial capacity.
- Rights and obligations of the parties: The rights and obligations of the parties are agreed upon by the parties in the contract, which can include the following basic rights and obligations: The contractor is obliged to perform and hand over part or the whole construction work in accordance with the requirements of the principal within a certain time limit; The principal is obliged to hand over to the contractor data, documents, requirements on the survey, design, construction ground, construction materials, and investment capital on schedule, and have the obligation to accept the test of the project and pay when the work is partially or fully completed.
- In terms of form: The construction contract must be signed in writing with basic contents such as: implementing object; time limit; rights and obligations of the parties; penalties for violations; compensation for damage;
- Regarding types of contracts: Construction contracts shall be categorized according to the characteristics and contents of work to be performed and applied contract prices, which can be mentioned as package contracts, adjustable unit price-based contracts, etc.
2. Schedule, behind schedule in construction contracts
- Schedule is understood as the agreement of the parties on the milestones of completion and handover of major works and products.
- Behind schedule means that the contractor has not properly implemented the time in the work or project as agreed by the parties.
3. Penalty for behind schedule in construction contract
- On the basis of arising: As stipulated in Article 146 of the Law on Construction 2014, amended and supplemented in 2020, the penalty for behind schedule must be agreed upon by the parties and stated in the contracts. Where the parties do not agree and do not state in the contract; or there is an agreement but only expressed verbally and not stated in the contract, the breached party will not be able to apply penalties for violations against the violating party;
- Regarding the level of penalties for violations: For works using state funds, the penalty level must not exceed 12% of the value of the violated contract. Thus, the parties will be able to agree on a penalty, but this penalty must not exceed 12% of the value of the violated contract. In case the parties agree on a penalty with an excess of 12% of the value of the violated contract, the excess shall not be applied, unless the violating party voluntarily bears a penalty and there is no dispute between the parties about the penalty level;
For works not using state funds, the penalty level for violation will be determined based on the provisions of the 2015 Civil Code. Article 138 of the 2014 Law on Construction, amended and supplemented in 2020, has determined that a construction contract is a civil contract, so the penalty for violations, in this case, shall comply with the provisions of the 2015 Civil Code. The penalty shall be agreed upon by the parties without limitation, however, this agreement must not be contrary to the provisions of law and social ethics.
Above is the article “Regulations on penalty for behind schedule in construction contracts”. We hope this article was useful to you.