Circular No. 05/2008/TT-BXD dated February 22, 2008 of the Ministry of Construction guiding the adjustment of prices and construction contracts in response to fluctuations in prices of raw materials, fuels and construction materials

CIRCULAR

GUIDING THE ADJUSTMENT OF PRICES AND CONSTRUCTION CONTRACTS IN RESPONSE TO FLUCTUATIONS IN PRICES OF RAW MATERIALS, FUELS AND CONSTRUCTION MATERIALS

Pursuant to the Governments Decree No. 17/2008/ND-CP of February 4, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Construction;

Pursuant to the Governments Decree No. 99/2007/ND-CP of June 13, 2007, on the management of work construction investment expenses; and Decree No. 03/200S/ND-CP of January 7, 2008, amending and supplementing a number of ankles of Decree No. 99/2007/ND-CP;

Based on the Prime Ministers instruction in Document No. 164/lTg-CN of Jamuuy29, 2008, on the adjustment of prices and package contracts;

After consulting the Ministry of Planning and Investment and the Ministry of Finance, the Ministry of Construction guides the adjustment of prices of raw materials, fitels and construction materials (below collectively referred to as construction material prices) and construction contracts in response to price fluctuations beyond the control of investors and contractors as follows:

1.1. The adjustment of construction material prices applies to bidding packages which have been being executed at package contractual prices or fixed unit price-based contractual prices.

1.2. To adjust contractual prices of contracts which have been performed from package contractual prices or fixed unit price-based contractual prices into adjustable price-based contraciual prices in response to fluctuations in construction material prices which are beyond the control of investors and contractors.

2. Adjustment principles

2.1. Construction material prices shall be adjusted for construction and installation volumes performed, from 2007. which are affected by fluctuations.in construction material prices resulting in higher construction costs which are beyond the control of investors and contractors (below referred to as construction and installation volumes affected by price hikes).

2.2. Investors and contractors shall determine construction and installation volumes affected by price hikes and price adjustment levels, and bear responsibility for such determination.

2.3. In adjusting package contractual prices or fixed unit price-based contractual prices into adjustable price-based contract prices, it is necessary to identify the scope, method, bases and time of adjustment, which must only be applied from the time of price fluctuation determined by investors and contractors according to the implementation progress.

2.4. Investors shall report to investment deciders for consideration and decision any adjustment of construction material prices which will result in an excess of the approved total investment capital and affecting the investment efficiency of statecapiml-fundcd projects.

2.5. For construction investment projects executed under the Governments Decree No. 99/2007/ND-CP of June 13, 2007, on the management of construction investment expenses, their construction investment expenses shall be adjusted under the Governments Decree No. 99/2007/ND-CP and guiding documents.

3. Methods of adjusting construction material prices

Construction material prices may be adjusted for each construction contract, each bidding package and the whole project. Additional expenses arising from the adjusmient of construction material prices shall be stated in estimates of additional construction costs to serve as a basis for the adjustment of contractual prices, bidding package prices, cost estimates of works and total invesunent capital.

Based on the terms of each contract, additional construction costs may be estimated using adjustment coefficients of material expenses or to offset direct material expenses. Additional construction costs shall be estimated pursuant to the Appendix to this Circular.

4. Adjustment of construction cost estimates of works after making additional construction costs

4.1. For bidding packages for which contractors have been designated and projects will be self-implemented or contractors have been selected but construction contracts have not yet been signed or are being perfonned (at package contractual prices or fixed unit price-based contractual prices), investors shall estimate additional construction costs under the guidance in Section 3 above for use as a basis for the adjustment of construction cost estimates of works.

4.2. Forbidding packages, work items or works for which contractors have not yet been selected, investors shall adjust their cost estimates according to current regulations.

4.3. The adjusted construction cost estimate of a work shall be determined by adding additional construction cost estimates to the approved construction cost estimate of the work.

5. Adjustment of bidding package prices after making additional construction cost estimates

Investors shall adjust bidding package prices by adding additional construction cost estimates determined under Section 3 to approved successful bids.

For state capital-funded projects, if the adjusted price of a bidding package does not exceed the approved price, the investor may decide to approve that price. If the adjusted price of a bidding package exceeds the approved price but does not result in an excess of the total investment capital, the investor may decide to approve and shall report it to the investment decider. If the adjusted price of a bidding package results in an excess of the approved total investment capital, the investor shall report it to the investment decider for consideration and decision.

6. Adjustment of total investment capital after making additional construction cost estimates

For state capital-funded projects, if the adjustment of construction material prices results in an excess of the approved total investment capital and affects project investment efficiency, the investor shall report it to the investment decider for consideration and decision. Ministers, heads of ministerial-level or government-attached agencies, presidents of provincial-level Peoples Committees, presidents of economic groups, or chairmen of boards of directors of state corporations may decide on the adjustment of the total investment capital of projects in which the investment has been decided by the Prime Minister.

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1. Subjects and scope of application