Subcontract, the contractual relationship contains so much potential risks

February 20, 2014

In the past few years, there has been a vigorous competition between domestic and foreign contractors and the domestic lost markets just in their “home ground”. According to statistics of  the Ministry of Industry and Commerce, approximately 90% of recent EPC (Engineering, Procurement and Construction Contract) in important areas such as mining, construction, metallurgy, chemical, mechanical, electrical fields etc are run by foreign contractors as a general contractor.

 Accordingly, a number of foreign contractors have rent domestic contractors as a subcontractor who were paid cheaply. Due to lacking experience and doing business unprofessionally, the domestic contractors often suffered from the risks and damages when disputes arose. In addition, with regard to legal aspects of contracts, while the foreign contractors have hired laywers as soon as arriving in Vietnam and used legal services throughout their activities, the domestic contractors merely needed lawyers when  disputes occurred. Due to this practice “not like the others”, a number of domestic contractors had to pay much.

To share views on this matter  Mr. Le Ngo Hoai Phong, head of Da Nang branch office of  Pham & Associates, said that the contractual relationship between a foreign general contractor and a domestic one contains so much potential risks, especially the schedule monitoring, performance appraisals, and settlement/payment. As the foreign general contractor are skilled in negotiating and signing contracts; and usually, the content of a contract is long, complicated and quite difficult to understand; during implementation of the contract, they know well what circumstances need to comply with the contract in oral or in writing. Therefore, in order to reduce the risks to be occurred, the domestic subcontractor should to study the contract thoroughly before signing it; to use legal advices in case of lacking the capacity and experience in the field concerned; to perform the obligations in accordance with the provisions of the contract; in other cases the both parties need to agree in writing before implementation.

Da Nang branch office of  Pham & Associates