Methods of Settling Construction Disputes in Vietnam

Construction disputes are often unavoidable in the dynamic landscape of Vietnam’s rapidly expanding construction sector. 

As the nation experiences a surge in foreign direct investment (FDI) and domestic projects, the construction industry is booming. However, this growth comes with its own set of challenges. The increase in activity has led to a corresponding rise in disputes, highlighting the urgent need for effective resolution mechanisms.

This article discusses the various methods available for settling construction disputes in Vietnam, examining the legal framework that governs these processes and offering best practices for minimizing conflicts. 

By understanding these methods, stakeholders can better navigate the complexities of construction projects and foster a more collaborative environment.

Overview of the Construction Sector in Vietnam

Vietnam’s construction industry has experienced remarkable growth, driven by FDI and government initiatives focused on infrastructure development. In 2023, the sector contributed approximately 7.5% to GDP, underscoring its economic significance. 

Major cities like Ho Chi Minh City and Hanoi are at the forefront of this construction boom, with numerous high-rises, shopping centers, and industrial parks under development. Notably, the southern region has seen the highest concentration of industrial projects.

However, this rapid expansion has also led to challenges, including an increase in disputes related to construction contracts, quality issues, delays, and cost overruns. Rising prices for construction materials, such as steel and sand, have further strained profit margins and project timelines.

Despite these hurdles, the outlook for Vietnam’s construction sector remains promising. The government is committed to infrastructure development, with plans to construct 5,000 km of expressways and 172 national highway routes by 2030. 

Most Common Reasons for Settling Construction Disputes in Vietnam

Construction disputes in Vietnam often arise from various sources, reflecting the complexities of the industry. Understanding these common disputes can help stakeholders navigate challenges more effectively.

Contractual Disagreements

One of the primary causes of disputes are contractual disagreements. These often stem from unclear terms or ambiguous language in construction contracts. Issues related to contract interpretation, scope of work, and responsibilities can lead to misunderstandings between parties. 

For example, if a contract specifies “high-quality materials” without defining what that means, it can result in disputes over whether the materials used meet expectations.

Delays and Disruptions

Delays and disruptions are significant sources of conflict in construction projects. Unforeseen circumstances, such as adverse weather conditions or supply chain disruptions, can derail project timelines. 

When projects fall behind schedule, disputes often emerge over penalties and claims for damages, as parties argue about who is responsible for the delays. This situation is particularly challenging when contracts impose strict deadlines.

Quality of Work

Disputes concerning the quality of work are prevalent. If completed work fails to meet specified standards or shows defects, conflicts can arise. These disputes may involve substandard materials or inadequate quality control, leading to financial losses and reputational damage. 

For instance, if an investor discovers that the materials used do not meet durability certifications, they may demand repairs or replacements, resulting in a dispute over liability.

Payment Issues

Payment-related disputes frequently occur, often involving disagreements over payment schedules, amounts, or conditions. 

Contractors may claim they are owed more than clients are willing to pay, leading to legal battles that can stall projects. This is especially common when additional work is requested or when project costs exceed initial estimates.

Safety Violations

Another common source of disputes involve safety violations. If construction sites fail to adhere to safety regulations, resulting in accidents or injuries, disputes can arise over liability and compensation. 

These issues not only affect project timelines but can also lead to legal repercussions for the parties involved, making it essential to prioritize safety compliance.

Design Changes

Design changes initiated by the owner can also lead to disputes. When an investor requests modifications to the project after construction has begun, it can affect timelines and costs. 

For example, if an investor decides to add new features that require significant redesign, the contractor may demand additional payment and time, leading to disagreements over the extent of the changes and their impact on the original contract.

Given the complexities of construction projects, it is crucial for all parties involved to understand their rights and obligations under Vietnamese law and to be aware of the available methods for dispute resolution. 

By being proactive and informed, stakeholders can minimize the risk of disputes and foster a more collaborative working environment.

Legal Framework Governing Construction Disputes

Navigating the legal landscape of construction disputes in Vietnam requires a solid understanding of the various laws and regulations that shape the industry. 

Here’s a closer look at the key components of the legal framework:

1. Vietnamese Civil Code: Governs general contractual obligations and liabilities, providing a basis for resolving contractual disputes.
2. Construction Law: Specifies regulations related to construction activities, including project management, quality control, and safety standards.
3. Law on Commercial Arbitration: Outlines procedures for arbitration, a preferred method of dispute resolution in the construction industry.
4. Decree No. 37/2015/ND-CP (as amended from time to time): Details construction contract management, including the formation, performance, and settlement of construction contracts.
5. Decree No. 06/2021/ND-CP (as amended from time to time): Focuses on the quality management and maintenance of construction works, essential for disputes related to construction quality.

By understanding this legal landscape, stakeholders in Vietnam’s construction industry can navigate disputes more effectively. It fosters a culture of compliance and collaboration, ultimately leading to better project outcomes.

Methods of Settling Construction Disputes in Vietnam

The process of settling construction disputes in Vietnam involves several structured methods, primarily governed by the Law on Construction 2014 and the Civil Procedure Code 2015. 

The resolution process can be categorized into negotiation, mediation, arbitration, and litigation:

1. Negotiation

Negotiation is often the first step in resolving disputes and is best suited for situations where parties have a willingness to communicate directly. It works well when the issues are relatively straightforward and both sides are open to finding a solution.

This method is flexible, cost-effective, and maintains confidentiality, making it a preferred choice for many parties. However, it relies heavily on the goodwill and cooperation of both parties, and the outcomes are not legally binding unless formalized in a subsequent agreement.

Advantages:

• Cost-effective and quick.
• Preserves business relationships.
• Flexible and confidential.

Disadvantages:

• May not be effective if parties are entrenched in their positions.
• No formal structure, leading to potential imbalances in negotiation power.

2. Mediation

If negotiation fails, mediation can be pursued. This involves a neutral third party who facilitates discussions between the disputing parties to help them reach a resolution. 

This method provides a structured environment for dialogue, allowing for creative solutions that might not emerge in direct negotiations. Mediation is less formal than arbitration or litigation and can be quicker and less costly. 

Mediation is also cost-effective and faster than litigation, but it requires both parties to be willing to compromise, as any agreement reached is non-binding unless formalized.

Advantages:

• Cost-effective and faster than litigation.
• Confidential and private.
• Preserves relationships and allows for creative solutions.

Disadvantages:

• Non-binding unless an agreement is reached and formalized.
• May be ineffective if parties are not willing to compromise.

3. Arbitration

Arbitration is a more formal method where disputes are submitted to an arbitration center. For arbitration to be valid, there must be a prior agreement between the parties to resolve disputes through this method, either within the contract or as a separate agreement. 

The arbitration process is governed by the Law on Commercial Arbitration 2010, and the decision made by the arbitrator is final and enforceable, with limited grounds for appeal. 

This method is often favored in international transactions due to its efficiency and the confidentiality it offers.

Advantages:

• Binding and enforceable decision.
• Faster and less expensive than litigation.
• Confidential and specialized expertise of arbitrators.

Disadvantages:

• Costs can still be significant.
• Limited grounds for appeal.
• Can be as adversarial as litigation, potentially harming relationships.

4. Litigation

If other methods fail, parties may resort to litigation in the People’s Court. The jurisdiction of the court depends on the nature of the dispute and the parties involved. 

Generally, district-level courts handle most construction contract disputes, while provincial-level courts address more complex cases. The court process is more formal and can be lengthy, with strict procedural rules. 

Judgments from the court are enforceable by state authority, providing a clear resolution to the dispute.

Advantages:

• Binding and enforceable decision.
• Formal process with clear rules and procedures.
• Ability to appeal decisions.

Disadvantages:

• Expensive and time-consuming.
• Public process, which can harm reputations.
• Adversarial nature can damage business relationships.

Process for Resolving Construction Disputes in Vietnam

According to the Law on Construction 2014 and the Civil Procedure Code 2015, the process for settling construction disputes in Vietnam follows a structured approach:

Step 1: Start with Negotiation

When a dispute arises, the first step for the parties involved is to sit down and discuss the issue. This informal negotiation allows each party to express their concerns and work towards a mutual understanding.

The main goal here is to identify the key issues and explore potential solutions together. If an agreement is reached, it’s important to document it in writing to ensure both sides are clear on the terms.

Step 2: Move to Mediation

If negotiations don’t lead to a resolution, the next step is to involve a neutral third party, known as a mediator. The mediator’s role is to facilitate the conversation and help both parties find common ground.

Mediation provides a more structured environment for discussions, encouraging creative solutions that might not have been considered during direct negotiations. Any agreement reached should be formalized in writing, as it won’t be legally binding until documented.

Step 3: Consider Arbitration

If mediation doesn’t work, the parties can choose to go to arbitration, provided they have agreed to this method beforehand, either in their contract or in a separate agreement.

In arbitration, the dispute is presented to an arbitration center, where an arbitrator, or a panel of arbitrators, listens to both sides and makes a binding decision. This process is typically faster and more confidential than going through the court system.

Step 4: Pursue Litigation

If mediation fails to resolve the construction dispute, the subsequent step is litigation, which is governed by specific provisions within the Vietnamese legal framework.

Disputes of this nature are typically adjudicated in the People’s Courts, which include district, provincial, and the Supreme People’s Court. The appropriate court is determined by the complexity of the case. 

The Law on Construction 2014, amended in 2020, serves as the primary legal framework, delineating the rights and obligations of parties involved in construction contracts and outlining dispute resolution procedures.

Once a judgment is rendered, it is legally binding. The prevailing party may seek enforcement through the relevant authorities if the losing party fails to comply, as stipulated in the Civil Procedure Code.

Step 5: Enforce the Decision

Following the issuance of a judgment or arbitration award, the winning party is entitled to seek enforcement through the appropriate authorities. The losing party is legally obligated to adhere to the decision, and non-compliance may result in further legal action.

Choose Russin & Vecchi for Effective Mediation

Settling construction disputes in Vietnam can be a complex journey, but with the right partner, it doesn’t have to be.

At Russin & Vecchi, we pride ourselves on being a leading law firm that expertly navigates the intricacies of construction law. Our dedicated team understands the unique challenges of the rapidly evolving construction sector, and we are here to provide tailored legal services that align with the specific needs of your project.

Our experienced attorneys are well-versed in the Law on Construction, the Civil Code, and the Law on Commercial Arbitration. This expertise ensures that you receive informed and strategic guidance throughout the dispute resolution process. We specialize in facilitating negotiation and mediation, fostering collaborative solutions that not only resolve disputes but also preserve valuable business relationships.

With Russin & Vecchi, you can approach disputes with confidence and focus on successfully completing your projects.

Contact us today to see how we can help!