Vietnam: new tendering rules 

October 2014  |  EXPERT BRIEFING  |  SECTOR ANALYSIS

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Vietnam’s Law No. 43/2013/QH13 on Tendering (Law 43) came into force on 1 July 2014, repealing Law No. 61/2005/QH11 on Tendering as amended (Law 61), as well as a number of articles relating to public tendering under Law No. 16/2003/QH11 on Construction.

This article highlights the most significant changes introduced by Law 43 from the perspective of foreign bidders.

Wider scope of application

As was previously the case, the new Vietnamese tender rules apply to contractors who provide consulting services, non-consulting services, goods and civil works to capital investments projects using state funds of 30 percent or more of the total investment capital in a project.

Public tendering is required for all capital investment projects implemented by State-owned enterprises and for projects “in which the State or State owned enterprise funds account for less than 30% of the total investment but amount to over VND 500 billion” (currently equivalent to approximately US$24m). The notions of ‘capital investment projects’ and ‘state funds’ are both widely defined.

Procurement of national reserve goods, pharmaceutical and medical supplies, and the selection of contractors in the oil and gas sector all using state funds, as well as outbound investment projects using 30 percent or more state funds or at least VND 500bn of state funds in total investment will be subject to the requirement for a public tender.

One of the most interesting features of Law 43 is that it now expressly applies to the “selection of investors for implementation of investment projects in the form of Public-Private Partnership (PPP) and investment projects that use land”.

Exceptions – direct appointment

Law 43 is more detailed as to the circumstances in which it is possible to resort to direct appointment. Cases in which direct appointment of contractors was permitted under Law 61 remain in place. Law 43 also sets out certain new situations in which direct appointment may apply, such as: in the field of civil engineering design, to the creator of the winning architectural design; and the relocation of infrastructure facilities under direct management of a specialised agency for site clearance. However, the possibility for foreign donors to specify the direct appointment of contractors has been removed.

Procedures and conditions applicable to direct appointment are also more detailed and regulated than in Law 61.

Investors may also be directly appointed in three different scenarios, namely if: (i) only one investor applies for project implementation; (ii) only one investor is capable of performing due to intellectual property rights or commercial secrets or funding arrangements; or (iii) the investor proposes the project which meets the requirements of feasible project implementation and provides the highest efficiency according to the government’s regulations.

Law 43 maintains the possibility for the Prime Minister to approve the direct appointment of a contractor (and now an investor) in special cases.

Participation of foreign bidders

Law 43 maintains, in general terms, similar, fairly restrictive, scenarios where international bidding is permitted. Law 43 opens international bidding to all “investment projects under PPP arrangements and investment projects using land, except for cases of restricted investment stipulated by investment law”.

There remains the obligation to associate with domestic contractors in international bidding, either through a consortium or through subcontracting, except when there are no domestic contractors capable of executing any portion of the procurement package.

Domestic preferential treatment in international bidding is maintained and applicable to foreign bidders where: (i) in the case of supply of goods, costs for domestic production of such goods amount to 25 percent or more of the value of the bidding package; or (ii) in the case of provision of consulting services, non-consulting services and civil works for capital investment projects, domestic bidders (who are in consortium with the foreign bidders) take over 25 percent of the value of the bidding package. The thresholds for preferential treatment entitlement under Law 61 were 30 and 50 percent for (i) and (ii) respectively.

Bidding process

International bidding documents must be published on the national bidding network system and/or “Đấu thầu” (Vietnam Public Procurement Review) newspaper, either in English or in both English and Vietnamese.

The amount of the bid security will range from 1 to 3 percent of the estimated price of the package for contractor selection (Law 61 no minimum) and between 0.5 and 1.5 percent of the total investment for investor selection, depending on the size of the project.

A key change in Law 43 is that it provides for clear and detailed time limits in contractor/investor selection. There are now maximum time limits provided for actions to be undertaken by public entities and minimum time limits to be granted to bidders. The maximum validity period of a bid or proposal is kept at 180 days but there are conditions under which an extension to 210 days is possible.

Evaluation procedures. Evaluation procedures are maintained under Law 43, with the addition of a new ‘two-stage, two-envelope’ procedure which applies to open and limited packages requiring technology of an innovative, complex or highly specialised nature.

Evaluation criteria

Contractors. Law 43 has clarified which criteria (price or quality) should be taken into account in each type of procurement. For non-consulting services, goods, civil works and mixed packages, depending on their scope and technical and financial requirements, the evaluation shall be conducted using either of the lowest bid price method, lowest evaluated price method or the combined technical and price method. For consulting packages, based on their complexity and technical requirements, proposals shall be evaluated using the least cost selection method, fixed budget selection method, quality and cost-based selection method or quality-based selection method.

These different methods mark a significant move away from the pure ‘lowest cost’ approach.

Investors. The government is expected to provide detailed regulations on investor selection methods in the coming months. Law 43 simply provides in broad terms that methods of bid evaluation may include service tariffs, state capital contribution, social benefits, state benefits and combined methods. Bid evaluation criteria are also quite wide as they shall include qualification and experience criteria, technical criteria and financial criteria.

Centralised procurement

Law 43 creates a centralised procurement system, to be implemented by a procurement body, which will apply in procurement of large volumes of the same types of goods and services by one or more state organisation and agency.

Contractual schemes and performance security

Law 43 provides for four types of contracts applicable to public procurement of contractors: lump sum contracts, fixed unit price contracts, adjustable unit price contracts and time based contracts. Lump sum contracts are considered to be the default contract and the use of an alternative type of contract will have to be justified in the contractor selection plan.

In addition, the specified amount of performance security shall range from 2 to 10 percent of the award price in procurement packages. In order to enhance attractiveness for investors, Law 43 does not require a specific high threshold for performance security in cases of high-risk procurement packages. In contrast, Law 61 provided that the amount of performance security could reach up to 30 percent in such cases.

The types of contract in investor selection are also more varied, including BOT, BTO, BOO, BT and other types of contract under investment laws. The specified amount of performance security ranges from 1 to 3 percent of the total investment.

Dispute resolution

Law 43 states courts are responsible for handling disputes in accordance with the laws on civil proceedings. This brings a major clarification to the question that arose under Law 61 as to whether disputes in relation to public procurement are handled as ‘civil’ or ‘administrative’ disputes.

 

Samantha Campbell is a partner and Nasir PKM Abdul is an of counsel at Gide Loyrette Nouel. Ms Campbell can be contacted on +84 8 3823 8599 or by email: samantha.campbell@gide.com. Mr PKM Abdul can be contacted on +84 8 3823 8599 or by email: nasir.pkmabdul@gide.com.

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Samantha Campbell and Nasir PKM Abdul

Gide Loyrette Nouel


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