THE MINISTRY OF CONSTRUCTION
SOCIALIST REPUBLIC OF VIET NAM
Independence – Freedom – Happiness
 
No. 05/2007/TT-BXD
Hanoi, July 25, 2007
 
CIRCULAR
GUIDING THE FORMULATION AND MANAGEMENT OF WORK CONSTRUCTION INVESTMENT EXPENDITURES
Pursuant to the Government’s Decree No. 36/ 2003/ND-CP of April 4, 2003, defining the functions, tasks, powers and organizational structure of the Construction Ministry;
Pursuant to the Government’s Decree No. 99/ 2007/ND-CP of June 13, 2007, on management of work construction investment expenditures;
The Construction Ministry concretely guides the formulation and management of work construction investment expenditures as follows:
 
I. GENERAL PROVISIONS ON FORMULATION AND MANAGEMENT OF WORK CONSTRUCTION INVESTMENT EXPENDITURES
1. Work construction investment expenditures means all necessary expenses for constructing new works or repairing, renovating or expanding construction works.
Work construction investment expenditures arc manifested through the criteria of total investment capital at the stage of formulation of a work construction investment project, work construction cost estimate at the stage of execution of a work construction investment project, and value of investment capital payment and settlement upon the completion of construction and commissioning of the work.
2. Work construction investment expenditures are formulated for each specific work as appropriate to the current stage of work construction investment, engineering steps and the State’s regulations.
3. The formulation and management of work construction investment expenditures must ensure investment objectives and efficiency as well as feasibility of work construction investment projects and be based on correct, adequate and reasonable calculations suitable to the actual conditions and objective requirements of the market mechanism.
4. Work construction investors shall bear overall responsibility for management of work construction investment expenditures from the stage of project preparation to the completion and commissioning of works.
5. This Circular provides for the formulation and management of work construction investment expenditures applicable to projects funded with state capital, including state budget capital, official development assistance (ODA), state development investment credit capital, the State-guaranteed credit capital and other investment capital of the Slate. For projects funded with capital of other sources, investors shall decide on the application of the provisions of this Circular.
For ODA projects, if a treaty signed by a competent agency or organization of the Socialist Republic of Vietnam contains provisions on management of work construction investment expenditures different from those of this Circular, the provisions of that treaty prevail.
II. TOTAL INVESTMENT CAPITAL AMOUNTS OF PROJECTS AND WORK CONSTRUCTION COST ESTIMATES
1. Total investment capital amounts of investment projects on construction of works
1.1. Contents of total investment capital amounts of investment projects on construction of works
Total investment capital amount of a work construction investment project (below referred to as total investment capital amount) means all estimated work construction investment expenses stated in the investment decision and serving as a basis for the investor to plan and manage capital in the course of making work construction investment.
Total investment capital amount shall be calculated and determined at the stage of formulation of a work construction investment project according to the project’s contents and basic design. For a project for which only the econo-technical report is required, the total investment capital amount shall be determined according to the construction drawing design.
Total investment capital amount comprises: construction expenses, equipment expenses: ground clearance compensation and resettlement expenses; project management expenses; construction investment consultancy expenses; other expenses and contingency expenses.
1.1.1. Construction expenses include: expenses for building of works and work items; expenses for destruction and dismantlement of old architectural objects; expenses for construction ground leveling and fill-up; expenses for building of makeshift and auxiliary structures in service of construction, and makeshift houses in construction sites for accommodation and construction management.
1.1.2. Equipment expenses include: expenses for procurement of technological equipment (including non-standard equipment which need to be produced or processed), expenses for training and technology transfer; expenses for equipment installation, testing and adjustment; expenses for transportation and insurance of equipment: taxes and related charges.
1.1.3. Expenses for ground clearance compensation and resettlement include: expenses for compensation for houses, architectural objects and crops on land...; expenses for resettlement related to compensation for ground clearance for projects; expenses for organization of ground clearance compensation; land use expenses during the time of construction, and expenses for investment in technical infrastructure.
1.1.4. Project management expenses are those for performance of project management tasks from the stage of project preparation and execution to the completion, takeover test, handover and commissioning of works, including;
- Expenses for elaboration of investment reports, formulation of in vestment projects or econo-technical reports;
- Expenses for performing ground clearance compensation and settlement work under the responsibility of investors;
- Expenses for organization of architectural design contests:
- Expenses for appraisal of investment projects, econo-technical reports and total investment capital amounts; expenses for verification of technical designs, construction drawing designs and work construction cost estimates;
- Expenses for selection of contractors in construction activities;
- Expenses for management of quality, quantity, progress and work construction costs;
- Expenses for assurance of safety and environmental sanitation of works;
- Expenses for formulation of construction norms and unit prices of works;
- Expenses for inspection of material quality and expertise of work quality at the request of investors;
- Expenses for inspection and certification of quality standard conformity of works;
- Expenses for contract performance test, payment and settlement; work construction investment capital payment and settlement;
- Expenses for takeover test and handover of works;
- Expenses for construction commencement and inauguration ceremonies, and publicity work;
- Expenses for performance of other management activities.
When investors lack grounds for determining project management expenses (they are unable to determine total investment capital amounts of projects t but need to make project preparations, they shall make and submit estimates of expenses for this activity to investment deciders for approval, serving as a basis for working out capital plans and organizing the performance of this activity. These expenses will be included in project management expenditures in total investment capital amounts.
1.1.5. Construction investment consultancy expenses include:
- Expenses for construction survey;
- Expenses for elaboration of investment reports (if any), formulation of projects or elaboration of econo-technical reports;
- Expenses for architectural design contests;
- Expenses for verification of technical designs, construction design drawings and work construction cost estimates;
- Expenses for compilation of dossiers of request, dossiers of invitation to prequalification, dossiers of invitation to bids, and expenses for analysis and assessment of dossiers of proposal, dossiers of prequalification participation and bidding dossiers for selecting consultancy contractors, construction contractors, material and equipment provision contractors and construction general contractors;
- Expenses for supervision of construction survey, construction, equipment installment;
- Expenses for elaboration of environmental impact assessment reports;
- Expenses for formulation of work construction norms and unit prices;
- Expenses for management of construction investment costs: total investment capital amounts, construction cost estimates and norms, work construction unit prices, contracts...
- Expenses for project management consultancy;
- Expenses for quality inspection of materials and quality expertise of works at the request of investors;
- Expenses for inspection and certification of quality standard conformity of works;
- Expenses for conversion of work construction investment capital for projects with an execution duration of more than 3 years;
- Expenses for performing other consultancy activities.
1.1.6. Other expenses are necessary expenses not included in above construction expenses, equipment expenses, ground clearance compensation and resettlement expenses, project management expenses and construction investment consultancy expenses, including:
- Expenses for verification of total investment capital amounts;
- Expenses for sweeping of bombs, mines and explosive materials;
- Expenses for work insurance;
- Expenses for transportation of construction equipment and workers to construction sites;
- Expenses for international quality registry and observation of deformation of works;
- Expenses for assurance of traffic safety in the course of work construction;
- Expenses for audit, verification and approval of investment capital settlement;
- Fees and charges as prescribed;
- Expenses for scientific and technological research related to projects; initial working capital amounts for investment projects on construction of works for business purposes, loan interests during the time of construction; expenses for load and non-load trial operation under the technological process before the handover, less the value of recovered products;
- Other expenses.
Some other project expenses, which are not subject to any regulations or cannot be promptly calculated may be estimated for inclusion in total investment capital amounts.
1.1.7. Contingency expenses include those for work volumes which, upon the project formulation, are unforeseeable and those for inflation during the time of project execution.
For projects with an execution duration of up to 2 years, contingency expenses are equal to 10% of the total of construction expenses, ground clearance compensation and resettlement expenses, project management expenses, construction investment consultancy expenses and other expenses.
For projects with an execution duration of more than 2 years, contingency expenses shall be determined based on the following two factors:
- Contingency expenses for the factor of arising work volume, which are equal to 5% of the total of construction expenses, ground clearance compensation and resettlement expenses, project management expenses, construction investment consultancy expenses and other expenses.
- Contingency expenses for the factor of inflation shall be calculated on the basis of the execution duration of projects and the construction price index for each type of work in each construction site.
The construction price index used for calculating contingency expenses for the inflation factor is the average of those of the last three or more years, taking into account possible fluctuations of costs and prices in the region and the world. The duration for calculating contingency expenses for the inflation factor is the execution duration of a work construction investment project.
1.2. Method of determining total investment capital amounts
Total investment capital amounts are determined by the methods defined in Clause 1, Article 5 of the Government’s Decree No. 99/2007/ND-CP of June 13, 2007, on management of work construction investment expenditures, and the guidance in Appendix 1 to this Circular.
2. Cost estimates for construction of works
2.1. Contents of cost estimates for construction of works
Cost estimates for construction of works (below referred to as cost estimates of works) shall be determined for every construction work or work item.
The cost estimate of a work covers construction expenses, equipment expenses, project management expenses, construction investment consultancy expenses, other expenses and contingency expenses of the work.
Cost estimates of works shall be formulated under the guidance in Appendix 2 to this Circular.
2.2. Method of formulating cost estimates of works
2.2.1. Construction expenses:
Construction expenses in cost estimates of works shall be projected for works and work items, auxiliary works and make-shift works in service of construction or parts, to-be-performed jobs or tasks of works and work items. Construction expenses shall be determined by estimation. For auxiliary works and make-shift works in service of construction or simple and common works, construction expenses may be estimated on the basis of the construction expense proportion in the ratio of investment capital for work construction or expense norms in percentage (%) (below referred to as percentage norms).
Estimates of expenses for construction of works and work items shall be formulated under the guidance in Appendix 2 to this Circular.
If construction expenses are calculated for each part to-be-performed job or task of a work or work item, the construction expense in the cost estimate of the work or work item is the total of expenses for each part or to-be-performed job or task.
Estimates of construction expenses cover direct expenses, general expenses, pre-determined taxable income, value-added tax and expenses for make-shift houses in construction sites for accommodation and construction management.
2.2.1.1. Direct expenses:
Direct expenses include expenses for materials (including materials provided by investors), expenses for labor, expenses for use of construction machines and other direct charges.
a/ Expenses for materials, labor and construction machines in direct expenses shall be determined by any of the following methods:
- On the basis of volume and consolidated construction unit price.
- On the basis of volume and consolidated construction unit price.
- Combination of the above two methods.
a. 1. Determination of material, labor and construction machines expenses on the basis of volume and consolidated general construction unit prices.
a. 1.1. Determination of volume:
The volume of construction activities is determined based on the technical design drawing or the working drawing design or to-be-performed jobs of a work or work item and sum up from a group of construction and installation activities in order to form a structural unit or part of the work.
a. 1.2. Determination of consolidated construction unit price;
The consolidated construction unit price shall be formulated corresponding to the list and contents of volumes of construction activities specified at Item a. 1.1 above. The consolidated construction unit price-is formulated on the basis of detailed construction unit prices. The consolidated construction unit price may comprise only material expenses, labor expenses and construction machine expenses or include also all other direct expenses, general expenses and pre-determined taxable income. The method of formulating consolidated unit prices comply with the guidance in Appendix 4 to this Circular.
Detailed construction unit prices used for determining consolidated construction unit prices are determined according to Item a.2.2 below.
a.2. Determination of material, labor and construction machine expenses on the basis of volume and detailed construction unit price
a.2.1. Determination of volume:
The volume of construction activities is determined based on the technical design drawing or the working drawing design or to-be-performed jobs of a work or work item according to the list and contents of construction activities in the detailed construction unit price.
a.2.2. Determination of detailed construction unit price:
A detailed construction unit price is formulated under the guidance in Appendix 4 to this Circular and covers material, labor and construction machine expenses determined on the basis of necessary consumption norms and corresponding material, labor and construction machine prices. A detailed construction unit price may cover only material expenses, labor expenses and construction machine expenses or include also all other direct expenses, general expenses and pre-determined taxable income.
- Material prices are prices of materials transported to construction sites, which are determined appropriate to works and their construction locations. Material prices must be reasonable and accordant with market prices in localities where works are constructed; determined on the basis of price quotations of producers, price information of suppliers or prices already applied to other works subject to the same quality standards or prices announced by localities; and be competitive. If materials are not available on the market or are produced by contractors themselves at the request of investors, material prices must be reasonably set on the condition that they satisfy category, quality, quantity and supply schedule requirements, and are competitive.
Upon formulation of work construction unit prices, it is necessary to cheek the compatibility between prices and categories of materials used in construction of works according to their designs.
- Labor prices must be accurately and adequately inclusive of wages and wage-based allowances (including wage supports) on the basis of the minimum wage level announced by a competent state agency in order to ensure that laborers’ wages are based on common market labor prices in each locality for each category of laborers, specific working conditions of works, and investors’ capital source and financial capability to pay wages.
- Construction machine prices (including machine rent rates) shall be calculated under the Construction Ministry’s guidance on the method of determining construction machine and equipment shift prices applicable to construction works or on the basis of construction machine and equipment price tables announced by localities.
b/ Other direct expenses are expenses for necessary jobs in direct service of work construction, the volumes of which cannot be determined at the designing stage, such as movement of the labor force within construction sites and assurance of labor safety, protection of working environment and surrounding environment, water pumping, mud dredging, tests of materials, etc.
Other direct expenses are equal to 1.5% of total material, labor and construction machine expenses. Particularly for construction activities in road tunnels, hydropower tunnels or mining pits, other direct expenses (including also expenses for operation and regular repair of water supply and drainage, ventilation and electricity supply systems for in-tunnel construction) are equal to 6.5% of total material, labor and construction machine expenses.
If other direct expenses calculated in the prescribed percentage arc unreasonable, that percentage shall be considered and adjusted to suit practical conditions.
2.2.1.2. General expenses:
General expenses include enterprise management expenses, expenses for production management in construction sites, expenses for workers, expenses for construction in construction sites and some other expenses. General expenses shall be calculated in a percentage (%) of direct expenses or labor expenses in cost estimates as prescribed for each type of work.
Each work item of a work of a given type shall be considered an independent work entitled to the set percentage of general expenses applicable to such type of work.
2.2.1.3. Pre-determined taxable income:
Pre-determined taxable income shall be calculated in a percentage (%) of direct expenses and general expenses prescribed for each type of work.
Norms of general expenses and pre-determined taxable income count with the guidance in Table 2.4, Appendix 2 of this Circular.
2.2.1.4. Value-added tax:
Value-added tax on construction activities complies with current regulations.
2.2.1.5. Expenses for make-shift houses in construction sites for accommodation and construction management:
Expenses for building make-shift houses in construction sites for accommodation and construction management are equal to 2% of the total of direct expenses, general expenses and pre-determined taxable income for works arranged in lines outside urban centers and residential areas, such as power transmission lines, post and communication lines, roads, canals and ditches, pipelines, other works constructed in lines, or equal to 1% of the total of direct expenses, general expenses and pre-determined taxable income for other works.
For other special cases (for example, big and complicated works, works on islands, etc.), if expenses for make-shift houses in construction sites for accommodation and construction management calculated in the above percentage are unreasonable, investors shall base themselves on practical conditions to make appropriate estimates of these expenses and bear responsibility for their decisions.
In case of bidding, these expenses must be included in bid package prices and bids, and paid according to prices of signed contracts.
Work construction contractors may use these expenses to build new houses or rent houses in construction sites or rent cars to transport staffs and workers, depending on specific conditions of works.
2.2.2. Equipment expenses
Equipment expenses in cost estimates of works include expenses for procurement of technological equipment (including non-standard technological equipment that need to be manufactured or processed); training and technology transfer expenses; equipment installation, test and adjustment expenses.
Equipment procurement expenses comprise purchase prices (inclusive of designing and manufacture supervision expenses), expenses for transportation of equipment from ports or purchasing places to works, expenses for storage in warehouses or storing yards or keeping of containers in Vietnamese ports (for imported equipment), expenses for equipment preservation or maintenance in warehouses in construction sites, taxes and insurance premiums for equipment of works.
Equipment procurement expenses shall be determined by cither of the following methods:
- For equipment the prices of which can be determined, these expenses may be calculated based on the quantity and category of each type of equipment or the whole technological chain and the price per ton, per unit or per complete equipment chain.
- For equipment the prices of which cannot be determined yet. these expenses may be temporarily calculated according to price quotations of suppliers, manufacturers or market prices of similar equipment at the time of calculation or executed works having similar equipment.
For non-standard technological equipment that need to be manufactured or processed, these expenses shall be determined on the basis of the quantity of equipment to be manufactured or processed and the manufacturing or processing price per ton (or per unit of calculation) suitable to the nature and type of equipment under manufacture or processing contracts already signed or according to product processing prices advised by manufacturers selected by investors or manufacturing or processing prices of similar equipment of constructed works.
Training and technology transfer expenses shall be estimated, depending on specific requirements of each work.
Equipment installation, test and adjustment expenses shall be estimated like construction expenses.
If equipment is selected through bidding, equipment expenses include winning bids and expenses stated in contracts for the aforesaid contents.
Equipment expenses of works shall be formulated under the guidance in Table 2.5 in Appendix 2 to this Circular.
2.2.3. Project management expenses
Project management expenses in cost estimates of works include necessary expenses for investors to organize project management as specified in Item 1.1.4, Part II of this Circular.
Project management expenses may be determined according to the percentage norms announced by the Construction Ministry or estimated.
2.2.4. Construction investment consultancy expenses
Construction investment consultancy expenses in cost estimates of works include expenses specified in Item 1.1.5, Part II of this Circular. For a project involving many works, expenses for elaboration of the investment report, formulation of the project or elaboration of the econo-technical report are not included in work construction investment consultancy expenses in cost estimates of the works.
Construction investment consultancy expenses shall be determined according to the percentage norms announced by the Construction Ministry or estimated.
2.2.5. Other expenses
Other expenses in cost estimates of works include expenses specified in Item 1.1.6, Part II of this Circular and are determined in a percentage norm (%) or estimated. For a project involving many works, expenses for verification of total investment capital amount: expenses for scientific and technological research related to the project; initial working capital, for investment projects on construction of works for business purpose; loan interests for the construction duration; expenses for non-load and load trial operation according to the technological process before handover (exclusive of the value of recovered products) and charges and fees, are not counted as other expenses of cost estimates of works.
For some specialized construction works involving special expenses and ODA-funded works, apart from the expenses specified in Items 2.2.3,2.2.4 and 2.2.5 above, any other related expenses may also be added. Investors shall decide on these expenses and take responsibility for their decisions.
If works of a project require hiring of foreign consultants, consultancy expenses shall be estimated according to current regulations and requirements for use of consultants for works or the value of the signed consultancy contract before being included in cost estimates.
Some other expenses, which are not yet governed by any regulations or cannot be immediately calculated, may be temporarily calculated and included in cost estimates of works for the purpose of projecting operating funds.
2.6. Contingency expenses
Contingency expenses are those projected for arising work volumes and for offsetting inflation during the time of work construction.
For works with a construction duration of up to 2 years, contingency expenses are equal to 10% of the total of construction expenses, equipment expenses, project management expenses, construction investment consultancy expenses and other expenses.
For works with a construction duration of more than 2 years, contingency expenses shall be determined based on the following two factors:
- Contingency expenses for the factor of arising work volume, which are equal to 5% of the total of construction expenses, equipment expenses, project management expenses, construction investment consultancy expenses and other expenses.
- Contingency expenses for the factor of inflation, which shall be calculated on the basis of the construction price index for each type of work in each region and construction duration.
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