PPP project enterprises are special enterprises in Vietnam. Let’s find out about this issue with Lawyer X through the following situation: “Dear Lawyer! I want to ask what are ppp project enterprises? What kind of contracts do these enterprises usually enter into in Vietnam? Thanks for answering my questions!”
Legal grounds
- 2020 Vietnam Law on Public-Private Partnership Investment.
Incorporation and operation of PPP project enterprises
– After the decision to approve the selection results is issued, the investor shall establish a PPP project enterprise in a form of a limited liability company or a joint stock company that is not a public company with the sole purpose of signing and implementing PPP contracts. The application for enterprise registration shall contain the details prescribed by law on enterprises and the decision on approval of investor selection results.
– PPP project enterprises may issue corporate bonds in accordance with Article 78 of 2020 Vietnam Law on Public-Private Partnership Investment.
– Apart from compliance with the provisions of Clauses 1 and 2 of this Article, the establishment, management, operation, dissolution, and bankruptcy of PPP project enterprises must comply with laws pertaining to businesses or enterprises, and regulations of other relevant laws and PPP contracts.
Classification of PPP contracts
– The group of project contracts applying the mechanism for direct collection of fees from users or underwriting for public products and services, including:
+ BOT contract means the contract under which a PPP project investor or enterprise is assigned the right to build and operate infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise transfers these works or systems to the State;
+ BTO contract means the contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works and systems; after the construction is complete, the PPP project investor or enterprise transfers these works or systems to the State, and is accorded the right to operate these works or systems within a specified period of time;
+ BOO contract means the contract under which a PPP project investor or enterprise is assigned the right to build, own and operate infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise terminates the contract;
+ O&M contract means the contract under which a PPP project investor or enterprise is assigned the right to operate and manage part or the whole of existing infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise terminates the contract.
– The group of project contracts providing the State mechanism whereby payment is made on the basis of the quality of public products and services, including:
+ BTL contract means the contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works or systems, and transfer them after completion; is accorded the right to supply public products and services on the basis of operating and exploiting these works or systems within a predetermined term; the transferee signs a service lease and pays the PPP project investor or enterprise;
+ BLT contract means the contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works or systems, and supply public products and services on the basis of operating and exploiting these works or systems within a specified period of time; the transferee-to-be signs a service lease and pays the PPP project investor or enterprise; upon expiry of such term, the PPP project investor or enterprise transfers these works or systems to the State.
– Mixed contract is the contract which is the result of combination of those contracts prescribed in Clause 1 and 2 of this Article.
– With respect to the projects referred to in Point b of Clause 9 of Article 3 herein, the contract providing the mechanism for direct collection of fees from users shall not be applied to them.
PPP contract documentation
– PPP contract documentation shall comprise the following main documents:
+ PPP contract, including general and specific terms and conditions;
+ Appendices (if any);
+ Contract negotiation minutes;
+ Decision on approval of investor selection results;
+ Bidding documents and other documents clarifying the selected investor’s bidding documents;
+ Invitation for bid and other documents stating amendments and supplements to the invitation for bid.
– If there is any change in any contractual terms and conditions, parties shall need to sign appendices to the contract.
Basics of project execution contracts
– A PPP contract shall contain the following information:
+ Objectives, scale, location and schedule of implementation of a project; time and duration of a infrastructure work or system; the effective date of the contract; contract term;
+ Scope of and requirements concerning engineering, technology and quality of the infrastructure work or system, supplied public products or services;
+ Total investment; capital structure; financial plan, including the financial arrangement plan; public product and service prices and charges, including methods and formulas for setting or adjusting them; state capital invested in a PPP project and the corresponding form of management and use (if any);
+ Conditions for use of land and other natural resources; plans to organize the construction of auxiliary works; requirements for compensation, support and resettlement; assurance of safety and environmental protection; force majeure cases and plans for response to force majeure events;
+ Responsibilities for carrying out licensing procedures according to regulations of relevant laws; design; organization of construction; quality inspection, supervision and management at the construction phase; acceptance testing, settlement of investment capital and confirmation of the completion of infrastructure works and systems; provision of main input materials used for production and business activities of the project;
+ Responsibilities for the operation and commercial use of infrastructure works and systems so that public products and services are provided in a continuous and stable manner; conditions, order and procedures for transfer of infrastructure works and systems;
+ Performance security; rights of ownership, management, and exploitation of assets related to the project; rights and obligations of the PPP project investor or enterprise; the agreement on use of a third-party guarantee service with respect to the obligations of the contract signatory;
+ Plans for response to the circumstances substantially changing in accordance with civil law to continue to perform the contract; response, compensation and punitive measures in case one of the contracting parties breaches the contract;
+ Responsibilities of parties related to information security; reporting regime; provision of information, related documents and explanation about the contract performance at the request of competent authorities, inspection, examination, auditing, and supervising authorities;
+ Principles and conditions for amendment, supplementation and termination of the contract before its expiry; assignment of rights and obligations of the parties; the lender’s rights; procedures, rights and obligations of the parties upon contract discharge;
+ Investment incentives, guarantees, plans to share the revenue increase and decrease, assurance of balancing of foreign currencies, types of insurance (if any);
+ Laws governing the contract and dispute resolution mechanism.
– PPP contract must specify rights and obligations of the contracting authority, the investor and the PPP project enterprise.
– The Government shall regulate sample contracts applicable to types of contracts specified in Article 45 of 2020 Vietnam Law on Public-Private Partnership Investment.
PPP contract performance security
– The PPP project enterprise must provide a contract performance security before the effective date of the contract.
– Based on the scale and nature of each project, the value of a contract performance security shall be specified in the invitation for bid at a determined rate of between 01% and 03% of total investment in the project.
– The validity period of the contract performance security shall start on the effective date of the contract and end on the date on which the PPP project enterprise completes its contractual obligations during the stage of construction of infrastructure work or system under the contract; In cases where it is necessary to prolong the construction period, the investor must extend the validity period of the contract performance security accordingly.
– The PPP project enterprise shall be entitled to return or release the contract performance security after discharge of their contractual obligation to build the construction work or infrastructure system, unless otherwise prescribed in Clause 5 of this Article; As for O&M contracts, the contract performance security shall be returned or released after the investor completes their contractual obligations.
– The PPP project enterprise shall not be entitled to the return or release of the contract performance security in the following cases:
+ Refuse to execute the contract after contract conclusion;
+ Violate agreement made in the contract to the extent of the early termination of the contract as prescribed at Point d of Clause 2 of Article 52 in 2020 Vietnam Law on Public-Private Partnership Investment;
+ Fail to extend the validity period of the contract performance security under the regulations laid down in clause 3 of this Article.
– The Government shall elaborate on the ratio of value of the contract performance security under clause 2 of this Article.
Conclusion of PPP project execution contracts
– A contract shall be signed on the basis of a decision on approval of investor selection result, contract negotiation result or bidding document that remains valid, or investor’s capability information which is updated at the time of contract conclusion and the invitation for bid.
– The investor and the PPP project enterprise may form a party and jointly sign a contract with the contracting authority.
– As for investors in partnerships, all member partners must directly bear their signatures and stamps (if any) into the contract.
Regulations on PPP contract term
– The contract term shall be agreed upon between parties based on the decision on approval of investor selection results.
– The contracting parties may adjust the contract term on condition that the aggregate contract term, including the adjustment period, does not exceed the land allocation or lease term in accordance with the land law, and such adjustment does not change other contents of the project investment policy decision.
– Cases in which adjustment in the contract term is required, including:
+ There is any delay in completing the construction phase or any interruption in the operation of the construction work or infrastructure system due to any substantial change in circumstances as provided in the civil law to the extent that it goes beyond the reasonable control of a contracting party;
+ The project is suspended by the competent authority or other competent authority of the State, except as it is suspended through the PPP project enterprise’s fault;
+ As additional costs incurred due to the competent authority’s request have not yet been determined by the contracting authority after the contract conclusion, in case of failure to obtain permission for such extension, the PPP project enterprise cannot recover these costs;
+ There is any change in planning, policies and related laws to the extent of a reduction in revenue by less than 75% compared with the revenue in the financial plan specified in the contract;
+ The revenue increases by at least 125% compared to the revenue inscribed in the financial plan specified in the contract.
Please see more:
- Instructions for exclusive registration of company logos in Vietnam
- Service of changing the legal representative of Vietnamese enterprises
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Frequently asked questions
After the decision to approve the selection results is issued, the investor shall establish a PPP project enterprise in a form of a limited liability company or a joint stock company that is not a public company with the sole purpose of signing and implementing PPP contracts. The application for enterprise registration shall contain the details prescribed by law on enterprises and the decision on approval of investor selection results.
PPP project enterprises may issue corporate bonds in accordance with Article 78 of 2020 Vietnam Law on Public-Private Partnership Investment.
PPP contract must specify rights and obligations of the contracting authority, the investor and the PPP project enterprise.
Conclusion: So the above is Incorporation and operation of ppp project enterprises in Vietnam. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
