12 Key Clauses in Construction Contracts – Prevent Disputes & Protect Contractors (CÔNG TY LUẬT UY TÍN TẠI TP. HỒ CHÍ MINH)
Lawyer Nguyen Thanh Trung – Managing Partner at HT Legal VN
“Right role – Right rights – Act in accordance with the law”
A detailed breakdown of 12 essential clauses in construction contracts to protect the contractor’s rights – from payment, acceptance, warranty to breach handling – Practical insights by Lawyer Nguyen Thanh Trung, HT Legal VN.
A construction contract is the most critical legal foundation between the contractor and the investor. However, in practice, many contracts are drafted using generic templates lacking specificity, leading to significant risks and disputes.
From the practical experience of Lawyer Nguyen Thanh Trung – Managing Partner at HT Legal VN, this article summarizes 12 crucial clauses that every contractor or construction unit must be aware of to safeguard their rights and avoid legal damages.
1. Quantity, Quality, and Specifications of Materials – Must Be Bound by Technical Documents
- Quotation, drawings, and technical descriptions must form inseparable annexes to the contract.
- Materials must be listed in detail in accordance with national standards (TCVN) to avoid arbitrary investor changes without adjusting the price.
- All changes must be notified in advance (e.g., 15 days) and confirmed in writing.
Practical Note: A contractor once suffered a loss of VND 2.3 billion due to the investor unilaterally removing items without proper minutes. The lack of contractual binding made it hard to claim responsibility or damages, resulting in serious losses from delayed payments alone.
2. Payment Terms – Must Be Clear and Include Penalties for Late Payments
- Specify each payment phase, percentage, and disbursement conditions in detail.
- Include precise payment deadlines such as: “The investor shall make payment within 15 working days upon receipt of valid documents.”
- For late payments: Apply a penalty interest rate of ?%/day or another agreed rate.
Practical Note: Any delay in payment can cause serious cash flow issues for contractors. Without penalties for late payments, financial damages escalate rapidly.
3. Acceptance Documentation – Clarify Authorized Personnel and Responsibilities
- Clearly state the names and titles of those authorized to conduct acceptance.
- Response deadline: No more than 7 days (or another agreed period).
- After the deadline: Considered automatically accepted unless otherwise agreed.
Note: Many disputes arise from poorly documented or unauthorized acceptances. Signatures from unauthorized persons are often rejected by courts.
4. Design Changes – No Addendum, No Construction
- “All changes in design/materials must be documented in an addendum signed before execution.”
- Include terms such as: “If no response is given within 5 days, the contractor may suspend the task and request compensation.”
Practical Note: A contractor followed verbal orders from the investor’s site manager and was later denied payment of over VND 1 billion. A prolonged dispute followed.
5. Site Handover – Include Delay Penalties and Timeline Adjustments
If the site is handed over late by more than 7 days:
- The investor shall compensate (e.g., 0.1% of contract value per day or another suitable rate).
- The construction schedule shall be extended accordingly.
- Other terms may apply to ensure opportunity cost coverage.
Note: Always take photos and videos to document site conditions.
6. Right to Suspend & Terminate Due to Investor’s Breach
Three-step process:
- Notice of breach
- Suspend work after 7 days if not remedied
- Terminate the contract after 15 days if the breach persists
Legal Basis: Pursuant to Article 113 of the Law on Construction 2014 (as amended in 2016, 2018, 2019, 2020, and 2024):
“The contractor has the right to suspend construction when there is a risk to safety or when the employer fails to fulfill contractual obligations.”
7. Payment Security Measures – The Clearer, the Safer
- Bank guarantee: 10–15% from reputable banks, valid through construction + 6 months (or otherwise agreed)
- Advance deposit: 20–30% in a joint escrow account or other form
- Asset collateral: For high-risk projects
Note: Parties are free to agree on appropriate security measures, especially for long-term projects.
8. No Offsetting with Other Contracts
- “Payments under this contract shall not be offset against obligations under any other contract, unless otherwise agreed.”
Note: This is a common tactic for investors to withhold funds to pressure other deals.
9. Warranty Obligations – Define Scope and Limits
Warranty only applies if:
- The defect is due to construction errors
- Confirmed by a technical inspection report
No warranty if:
- Caused by force majeure
- Operational misuse
- Natural wear and tear
Legal Basis: Clause 1, Article 4 of Circular No. 12/2021/TT-BXD (as amended in 2024–2025):
“1. Minimum warranty period for construction works shall be as follows:
a) Not less than 24 months for private houses and grade-3 or higher projects;
b) For main structural components (columns, beams, floors, walls, roofs…): minimum of 60 months for apartment buildings and public works from grade-3 upward;
c) For systems or components (mechanical, electrical, finishing…): minimum of 24 months for grade-I or special-grade projects; 12 months for others.”
10. Subcontractors – Manage Associated Risks
- Must be approved in writing by the investor
- Separate acceptance records, clearly defined liability scope
Practical Note: Always specify separate and joint liability for subcontractors in detail.
SUPPLEMENTARY CLAUSES
11. Force Majeure Events
- Define clearly: natural disasters, epidemics, embargoes, sudden legal changes, etc.
- Require notice within 48 hours, agree on shared risks and costs
12. Construction Insurance
- Investor: Construction works insurance
- Contractor: Professional liability insurance
- Clearly allocate risk responsibilities
13. Dispute Resolution
- Mediation first → Arbitration (VIAC, PIAC…) for disputes over VND 2 billion (or as agreed) → Court where the contract is performed
FAQ – Frequently Asked Questions
Q1: Can prices be adjusted if material costs increase?
A: Only if the contract includes a price adjustment clause or a binding mutual agreement.
Q2: What is the statute of limitations for contract disputes?
A: 3 years from the date the party knew or should have known their lawful rights were infringed (Article 429, Civil Code 2015).
Q3: Can the investor retain the performance bond indefinitely?
A: No. Bonds must be returned upon fulfillment of warranty obligations. Unjustified withholding is a contractual breach and may lead to legal claims.
CONCLUSION: A WELL-DRAFTED CONTRACT = FEWER DISPUTES
A proper construction contract should combine:
- Strict legal precision
- Practical experience
- Cautious drafting, line by line
Based on HT Legal VN’s experience:
- 90% of disputes are avoidable with a properly drafted contract
- Legal drafting costs only 0.1–0.2% of contract value
- But saves 15–35% in potential losses
- 100% satisfaction and peace of mind after legal review
A contract is not just paper – it’s your legal shield.
Draft right – draft fully – draft to protect your own interests.
Note: This article is updated in accordance with Vietnamese law as of July 2025. The content is for reference only and should not substitute legal advice for specific cases.
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