This content is from: Local Insights

Detailed procedural regulations on infrastructure contracts

The demand for infrastructure improvements in Vietnam in order to continue to attract foreign investment and encourage the domestic economy continues to grow. A key plank in the government's strategy to improve Vietnam's infrastructure has been projects partnered with private enterprises on the build-operate-transfer, build-transfer-operate and build-transfer contract models (here collectively referred to as BOT projects).

Decree 108/2009/ND-CP regulates investment by means of BOT contracts, and on January 27 2011 the Ministry of Planning and Investment promulgated Circular 03/2011/TT-BKHDT which provides detailed implementing regulations for Decree 108, particularly in relation to procedural aspects. On April 5 2011 a further set of guidance in the form of Decree 24/2011/ND-CP was issued with the purpose of modifying some of the articles of Decree 108.

The selection of an investor can be conducted by means of open tendering or direct appointment. In respect of open tendering, domestic open tendering will apply to all projects for which two or more domestic investors register for participation and international open tendering will apply to projects for which no domestic investor registers for participation, or when unsuccessful domestic open tendering has been held.

Circular 03 also states that, if there are any unclear items in the tender invitation documents, an investor has the right to request clarifications from the party calling for tenders. Any clarifications or explanations will be sent to all investors and will form a part of the tender invitation documents.

Where the tender process is domestic only, documents exchanged between parties will be in Vietnamese. However, in the case of international open tendering, documents exchanged between parties should be in English, or in both Vietnamese and English. Furthermore, if there is any difference between the two versions, the English version, not the Vietnamese version, will prevail.

This is unusual, as in other legislation it is usually the Vietnamese version which prevails; but this will at least not leave international investors at a disadvantage to their Vietnamese counterparts.

Tender documents are assessed on their technical merits on two systems: either a pass or fail criterion, or a point-scoring system, scored out of 100 or 1000. With the point-scoring method, an investor is judged as having passed when it has scored at least 70% of the total points for the project. In the case of large-scale and complex projects, this requirement is raised to at least 80% of the total points, with not less than 50% scored in any one scoring category.

Where a bidding investor is successful, Circular 03 specifies that the investor must establish a new project enterprise to carry out the BOT project. This is an important procedural step for investors to remember, and should be factored into the timetable drawn up for the implementation of the project.

Decree 24 amends some provisions of Decree 108, adding another investment sector of: public health, education, training, culture, sports and offices of governmental agencies, increasing the number of fields in which the government supports infrastructure investment projects to six.

The feasibility study report is a vital component in a BOT investment project. Prepared by the authorised state body, it establishes the parameters of the BOT project in question and the bid documentation required, and paves the way for negotiations with the selected investor.

Decree 24 amends the regulations on the content of the feasibility study report. The feasibility study report for a BOT project must contain the following five principal details:

- Analysis of the necessity for and advantages of the implementation of the project in the form of BOT or BTO contract as compared to other forms of investment;

- Determination of goods, services, prices and revenues expected to be collected from the operation of the project;

- Determination of the project construction and duration of the operation, the management and operation methods proposed;

- Determination of conditions for and methods of transfer and receipt of the project; and

- Proposed application of investment incentives and supports and government guarantees (if any)

This further information will be beneficial to potential investors in BOT projects as it will provide them with a clearer idea of the scope of the project and should assist in bid preparation and investment calculations.

Under Decree 24, two categories of government agencies are deemed competent to approve feasibility study reports and project proposals, being:

- the Prime Minister for feasibility study reports and proposals for projects of national importance which arise under the National Assembly's resolutions; and

- ministers, heads of ministerial-level agencies and chairpersons of provincial-level People's Committees for feasibility study reports and proposals of other projects.

However, any use of government guarantees or contributions from the central budget must be approved by the Prime Minister's Office, regardless of the nature of the project.

Juniper Cheng and Mark Fraser

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