Amendments necessary in Law on Bidding

The price of construction materials and gasoline have increased sharply, pushing construction contractors into a state of dilemma. Many contractors who are currently involved in completing public investment projects such as highways are worried with the spiraling costs of materials. 
Amendments necessary in Law on Bidding ảnh 1 Illustrative photo
The Vietnam Association of Construction Contractors (VACC) has asked the Government for support with a suitable mechanism, such as a price compensation mechanism. However, so far this has not been approved because it is not yet among the provisions in the Law on Bidding.
The price of construction materials has skyrocketed since the middle of 2020 and is continuing to rise even now. Construction contractors are also plagued with an acute shortage of workers, after many workers were laid off or left their jobs during the Covid-19 pandemic. According to a recent recommendation made by VACC, for projects and works invested with state budget capital it is necessary to adjust the total investment and accept payment to the contractor according to the current market unit price. This is being seen as a solution to resolve the problems of construction contractors.
The VACC recommendation that the State adjust the total investment and accept to pay the unit price to the contractor according to the market unit price is difficult for the Government, because this request is beyond their authority and not in accordance with the provisions of the Law on Bidding. The Government also cannot arbitrarily favor construction contractors who are executing public investment projects amid the current price storm, because of the existing regulations in the Law on Bidding. According to the provisions of Article 67 of the Law on Bidding 2013, the contract price after adjustment must not exceed the approved bid package price or estimate. This means that the adjusted contract price must be within the approved bid package price bracket or estimate.
In the current situation of the price of iron, steel, cement, soil, stone, sand, and gravel or in the sharp increase in gasoline and diesel prices today, it is clear that construction contractors are facing immense difficulties. Even by prolonging the progress time stated in the contract the difficulties will not go away in the long-term, because the bottleneck lies in the unit price according to the anchor market at the time. Therefore, the solution to resolve long-term difficulties for construction contractors is to prioritize on adjusting the amendments and supplements to the contents of construction contracts specified in Article 67 of the Law on Bidding 2013. The amendments must be in the direction of accepting payment of unit prices for contractors according to market unit prices.
The above inadequacies are not unfamiliar to localities. After facing immense pressure due to slow construction progress of public investment projects, many localities have submitted documents to the Government proposing that the National Assembly amend a number of provisions in the Law on Bidding in view of more realistic situations. For example, in Appendix 1 of the list of provisions there are 29 laws proposed to be amended and supplemented immediately, together with Official Dispatch No. 1079 of the Prime Minister for Can Tho and Binh Dinh, and proposed amendments to the Law on Bidding 2013.
One of the current shortcomings is implementing projects under public-private-partnership (PPP) investment contracts. This is an investment project with private capital and social resources. This contract is usually signed in the form of a package contract, or a fixed unit price contract with payment based on the actual volume when checking the unit price of steel, cement, etc. Usually, contractors will negotiate the price and buy in advance from the raw material supplier. For example, a construction contractor who buys steel and pays for it six months in advance agrees on a fixed price and will be able to pledge within six months without worrying about market impact. There are other works that sign the contract and the actual unit price compared with the contract fluctuates three percent to five percent, which can be absorbed, but above this amount there is cause for bankruptcy, especially so if the price fluctuates more than 40 percent.

Saigon Investment

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