Currently, the Vietnamese government is actively promoting public investment to drive economic growth, which has led to an increasing demand for contractors for projects funded by public investment (including state-owned enterprise funds). In the process of implementing construction projects of state-owned enterprises, one important issue that contractors need to pay attention to is advance payment under the contract. This article will discuss some key points regarding this issue.
1. Time of advance payment
Under Article 18.2 of Decree 37/2015/ND-CP, the Employer shall make the advance payment under the contract once the following conditions are met:
i. The construction implementation contract has taken effect;
ii. There is a ground clearance plan as agreed in the contract under the agreement in the construction implementation contract;
iii. The Employer has received an advance payment guarantee as agreed in the contract (if any).
2. Advance payment guarantee
2.1 Cases requiring advance payment guarantee
The requirement for the advance payment guarantee depends on the advance payment amount, as follows:
- For advance payments exceeding VND 1 billion:
Under Article 18.4(a) of Decree 37/2015/ND-CP, before receiving the advance payment from the Employer, the Contractor must provide the advance payment guarantee with a value and currency equivalent to the advance payment amount.
Thus, if the advance payment exceeds VND 1 billion, the parties are required to agree on an advance payment guarantee in the construction implementation contract.
- For advance payments of VND 1 billion or less:
Under Article 18.4(a) of Decree 37/2015/ND-CP, the Contractor is not required to provide the advance payment guarantee in this case. This means that no agreement on advance payment guarantees is needed in the construction contract.
2.2 Value of advance payment guarantee
- For advance payments exceeding VND 1 billion: The value of the advance payment guarantee must equal the value of the advance payment.
- For advance payments of VND 1 billion or less: Since an advance payment guarantee is not mandatory, the parties may mutually agree on an appropriate guarantee value if they still wish to implement an advance payment guarantee.
The value of the advance payment guarantee will gradually decrease in proportion to the amount of the advance payment recovered through each installment between the parties.(1)
2.3 Validity of advance payment guarantee(2)
The validity of the advance payment guarantee is mutually agreed upon by the parties but must remain effective until the Employer has fully recovered the advance payment amount.
2.4 Advance payment guarantee of consortium contractors(3)
Depending on the agreement between the parties, either the lead contractor or each member of the consortium shall pay the advance payment guarantee to the Employer.
3. Advance payment amount
3.1 Minimum amount
Under Article 18.5(b) of Decree 37/2015/ND-CP, the minimum advance payment for construction implementation contracts is specified as follows:
- For contracts valued over VND 50 billion: 10% of the contract value.
- For contracts valued between VND 10 billion and VND 50 billion: 15% of the contract value.
- For contracts valued below VND 10 billion: 20% of the contract value.
If the parties agree on an advance payment exceeding the above minimum levels, the value of the contract corresponding to the advance payment exceeding the minimum level shall not be adjusted in price from the time of advance payment.
3.2 Maximum amount
Under Article 18.5 of Decree 37/2015/ND-CP (as amended by Article 9.2 of Decree 35/2023/ND-CP), Decree 35/2023/ND-CP), the maximum advance payment for a construction implementation contract is 30% of the contract value at the time of signing (including provisions, if any). If the parties wish to advance a higher amount, it must be approved by the competent investment deciders.
4. Recovery of advance payment
Under Article 18.5(dd) of Decree 37/2015/ND-CP, The parties can agree on the schedule for advance payment recovery, provided that the entire advance payment is recovered by the time the Employer has paid 80% of the signed contract value.
(1) Article 18.4(c) of Decree 37/2015/ND-CP.
(2) Article 18.4(c) of Decree 37/2015/ND-CP.
(3) Article 18.4(b) of Decree 37/2015/ND-CP.
See more:
1/ The value of liquidated damage clause in construction contracts
2/ Value-added tax rate for construction implementation contracts from January 1, 2025 to June 30, 2025
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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