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Legal Update

Implementing the Law on Bidding and Selection of Construction Contractors Under the Law on Construction

4 August 2008
Mayer Brown JSM Legal Update

Decree 58/2008/ND-CP ("Decree 58") of the Government dated 5 May 2008 regulates bidding procedures and selection of contractors. Below are some highlights of this decree.

Full Update 
Under the Law on Bidding, investment and development projects financed by the State of at least 30% are subject to mandatory bidding requirements. Decree 58 specifies that this "at least 30%" requirement shall be determined based on total investment capital of each project, not on the total contribution of State capital in the enterprise.
Decree 58 also provides rules to ensure the competitiveness in bidding and independence among contractors, and between contractors and investors. Accordingly, contractors are considered independent (on financial and organizational aspects) of each other if they are not incorporated by decision of the same State agency (except for contractors converted in accordance with the Law on Enterprise 2005) and they do not hold or contribute more than 30% of share or capital of each other. This provision, however, only takes effect from 1 April 2009. Contractors and investors are independent if they do not hold or contribute more than 50% of share or capital of each other.
It should be noted that Decree 58 still provides several preferences for domestic contractors. Consequently, if domestic and foreign contractors are ranked equally in one bidding, domestic contractors are probably favoured (see Article 4, Decree 58).
Selection of Bidders
Bidders will be selected under the forms of: open bidding, limited bidding, appointment of bidders, direct procurement, competitive offers, self- implementation and selection of bidders in special cases. There are different procedures and requirements applied for each form.
Application of appointment of bidders needs to be approved in bidding plan. Special cases (other than those specified in the Law on Bidding and the Law on Construction) where appointment of bidders is applied are: (i) formulation of design for construction planning; (ii) formulation of investment project for construction of works and design for construction of work after bidding to select architectural designs for construction works; (iii) detection and clearance of mines and bombs for site preparation; (iv) bidding packages for consultation or evaluation of strategic report or planning in case of only one qualified bidder; (v) bidding packages for preparation of pre-feasibility study or investment report; (vi) bidding packages for preparation of feasibility study or investment projects in urgent circumstances; (vii) bidding package for construction of statue or copy right related works; (viii) or bidding packages for projects which fall in the list of important projects, urgent projects for national interests and/or energy security and safety as approved by the Prime Minister.
It should be noted that the selection of contractors to implement project shall be carried out in accordance with guidelines of the Ministry of Planning and Investment.
Approval of Bidding 
The bidding plan, the bidding invitation documents and bidding result shall be approved by the "competent person". These competent persons can be the Prime Minister, Ministers or chairmen of people's committee at provincial level or lower level, board of management or director of enterprises.
The board of management, director of enterprises (joint venture, joint stock company and legal representatives of parties in business cooperation contract) shall have authority to approve bidding result of projects (with 30% or more (but lower than 100%) capital contributed by State enterprises) under their decision of investment.
Furthermore, under this new Decree, the bidding plan and the bidding result of projects having 30% or more State capital are no longer subject to written consent from the board of management or director of State enterprise in such joint venture enterprise or joint stock enterprises or business cooperation contracts, as previously required (Decree 111/2006/ND-CP).
Foreign Contractors
Another important change in the new Decree is foreign contractors, after being awarded construction contract, do not have to register their activities with the relevant state authorities as previously provided in Decree 111/2006/ND-CP.  Instead, the investors have the responsibility to report to the Ministry of Planning and Investment, provincial Department of Planning and Investment and other relevant ministries, within 15 days from the effective date or signing of the contracts, the following information:
(i) name of contract;
(ii) name of contractor;
(iii) registered address of contractor in home country;
(iv) address of branch or representative office in Vietnam (if any);
(v) time for implementation of the bidding package and;
(vi) experts (and their ID details) working for the bidding package.
Selected foreign contractors are required to comply with the laws regarding their entry and exit and registration of temporary residence (immigration), import and export, accounting, tax and other relevant regulations of Vietnam.
Other Issues
Violations of bidding regulations may be subject to warning, fines (up to VND 50 million) or prohibition from participation in bidding process (from 6 months to 5 years), depending on the nature and seriousness of the violation.
Standard forms of bidding will be issued by the Ministry of Planning and Investment.
Decree 58 also stipulates the bidding costs, the bidding price, the criteria for the rating of bidding documents as well as the resolution of disputes and contracts between investors and contractors.
Decree 58 takes effect on 29 May 2008 and replaces Decree 111/2006/ND-CP dated 29 September 2006.

For further information, please contact:
Dao Nguyen ( )
Hoang Anh Nguyen ( )
Hong Nang Nguyen ( )

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