Construction warranty obligations: Legal framework and common types of disputes

Disputes concerning construction warranty obligations commonly arise in the construction sector in Vietnam, particularly where the parties fail to reach an agreement on the scope, duration, or allocation of warranty responsibilities. To protect their legal rights and interests, parties should have a clear understanding of the applicable legal framework and adopt appropriate dispute resolution mechanisms when such disputes arise. This article provides an overview of the current legal regulations and examines common forms of disputes relating to construction warranty obligations.

1.Legal regulations on construction warranty obligations

Pursuant to Clause 17, Article 2 of Decree No. 06/2021/ND-CP dated January 26, 2021 of the Government, which provides detailed regulations on quality management, construction works execution, and maintenance of construction works (“Decree 06”), a construction warranty refers to the contractor’s commitment to take responsibility, within a specified period, for remedying and repairing any defects or deficiencies that may arise during the operation and use of the construction work.

Regarding the warranty period, Article 28 of Decree 06 stipulates that the warranty period for work items, newly constructed works, or renovated/upgraded works shall be calculated from the date of acceptance by the employer of the works, as follows:

• Not less than 24 months for special-grade and Grade I works funded by public investment capital or state capital outside public investment;
• Not less than 12 months for other grades of works funded by public investment capital or state capital outside public investment;
• For works funded by other sources, the parties may refer to the above minimum periods for contractual agreement;
• For equipment, technological systems, and construction-installed equipment, the warranty period shall be determined in the construction contract but must not be shorter than the manufacturer’s warranty period, calculated from the date of acceptance of installation and commissioning;
• For work items that have had defects or incidents during construction and have been repaired or remedied by the contractor, the warranty period may be extended based on agreement between the employer and the contractor prior to acceptance.

Regarding warranty value, pursuant to Clause 7, Article 28 of Decree 06, the minimum warranty retention is typically from 3% to 5% of the contract value, specifically:

• 3% of the contract value for special-grade and Grade I construction works;
• 5% of the contract value for other grades of construction works;
• For works funded by other sources, the parties may refer to the above minimum levels.

Regarding the responsibilities of the parties, under Article 29 of Decree 06, upon detection of defects or deficiencies during the warranty period, the employer or the entity managing or using the works is responsible for notifying the contractor and requesting the performance of warranty obligations. The contractor is obligated to carry out the warranty and bear all related costs.

However, the contractor has the right to refuse to perform warranty obligations if the defects are not attributable to its fault or are caused by force majeure events as provided in the contract. If the contractor refuses to perform warranty obligations without valid grounds, the employer is entitled to use the warranty retention to engage other organizations or individuals to carry out the necessary repairs.

Accordingly, Vietnamese construction law has established a relatively comprehensive legal framework governing construction warranty obligations, including warranty periods, warranty value, and the specific responsibilities of each party.

2.Common forms of disputes relating to construction warranty obligations

Disputes relating to construction warranty obligations arise from various causes and may arise at different stages of a project. Below are some common types of disputes in practice in Vietnam:

• Disputes concerning the determination of warranty commencement and duration

This type of dispute arises when parties fail to agree on the acceptance date (the starting point for calculating the warranty period). In practice, many projects lack formal acceptance records, leading to disagreements regarding the warranty period. Additionally, disputes frequently arise where the construction contract does not clearly specify the warranty period.

• Disputes concerning the scope of warranty and allocation of responsibility

These disputes arise when contractors refuse to perform warranty obligations on the grounds that defects are not attributable to them, or when employers request warranty performance for items beyond the contractual scope. Determining whether defects are caused by contractor fault, employer fault, or force majeure often requires specialized technical assessment, which may prolong the dispute.

• Disputes concerning the refund of warranty retention and the release of warranty security upon expiration of the warranty period

This type of dispute relates to the employer’s obligation to refund the warranty retention upon expiry of the warranty period and completion of the contractor’s warranty obligations. In practice, many employers delay the refund or retain the warranty amount without valid grounds, leading to disputes and claims for late payment interest.

In practice, disputes relating to construction warranty obligations are diverse in nature. These disputes often stem from unclear contractual provisions, inadequate acceptance procedures and documentation management, or differing interpretations and applications of legal regulations by the parties. Therefore, clearly and transparently stipulating warranty-related provisions in construction contracts, together with proper implementation of acceptance procedures, technical assessments, and document management, is essential to minimizing disputes in practice.

This article is provided by TNTP on “Construction warranty obligations: Legal framework and common types of disputes”. Clients are invited to follow our upcoming publication for further discussion on dispute resolution methods.

Should you require legal advice or assistance in resolving disputes relating to construction warranty obligations, please contact TNTP for further assistance.

Sincerely,