Nguyen Vu Bao Ngoc, attorney at the Hanoi Bar, and
Sophie Charles, lawyer Flécheux, Ngo & Associés
Vietnamese law on tendering gradually develops, following Vietnam’s increasing involvement in global trade and investment. According to the 2005 official legislative program of the Vietnamese National Assembly issued by National Assembly Resolution No. 35/2004/QH11 dated November 25, 2004, an ordinance on tendering is due to be adopted this year.
With this respect, in the frame of this article, we would like to address some issues raised by the current legal texts on tendering.
The tendering procedure was codified, for the first time under Vietnamese law, by a specific and distinctive legal text in 1996, namely Decree No. 43/CP dated July 16, 1996. This Decree was amended in 1997 and replaced in full in 1999 by Decree No. 88/1999/ND-CP dated September 1st, 1999 (hereinafter referred to as Decree No. 88). In general, provisions of Decree No. 88 are in line with international provisions on tendering and in particular, with provisions on tendering set forth by major international donors such as UNDP, ADB, etc. and may be considered as almost complete guidelines in the field of tendering in Vietnam.
For the time being, the tendering procedure in Vietnam is subject to the following current legal texts:
- Decree No. 88/1999/ND-CP dated September 1st, 1999;
- Decree No. 14/2000/ND-CP dated May 5, 2000;
- Decree No. 66/2003/ND-CP dated June 12, 2003;
- Circular No. 04/2000/TT-BKH dated May 26, 2000 of the Ministry of Planning and Investment detailing the implementation of Decree No. 88/1999/ND-CP and Decree No. 14/2000/ND-CP;
- Circular No. 01/2004/TT-BKH dated February 2, 2004 of the Ministry of Planning and Investment detailing the implementation of Decree No. 66/2003/ND-CP; and
- Decree No. 16/2005/ND-CP dated February 7, 2005 stipulating in detail the selection of tenderers in the field of construction.
(hereinafter collectively referred to as the “Regulations on tendering”)
Despite having covered all basic provisions on tendering as well as being amended several times, Decree No. 88 and its implementation texts remain inadequate in some aspects. On the one hand, enterprises still face up many difficulties, in practice, in the implementation of these texts. On the other hand, it is time-consuming for relevant authorities to provide detailed guidelines on their implementation. These guidelines of the relevant authorities are, in general, only for specific cases and may not constitute general rules applicable to all the subjects of tendering procedures.
Well aware of these inadequacies and the necessity of upgrading the provisions on tendering, Vietnamese legislators have proposed that an ordinance on tendering must be approved this year (cf. Resolution No. 35/2004/QH11).
Compulsory tendering
Article 2.2.d of Decree No. 88 provides that, when an entity with foreign owned capital needs to select a partner for its investment project and finds two or more investors wishing to participate in this project, this entity must inevitably proceed with the tendering procedure as regulated by the Regulations on tendering.
In our opinion, this provision remains unclear for the interpretation and implementation in practice.
As regards its wording, this provision may be interpreted as providing that, in this case, the project must inevitably be subject to tendering.
In order for this provision to be logical, it may be interpreted as follows: the tendering procedure shall only be compulsory with respect to the selection of partner (i) in the preliminary phase of (ii) projects which are on the list of projects calling for investment issued by central or provincial authorities.
But with another interpretation, the Regulations on tendering shall be compulsory for all of foreign-owned capital projects in the course of operation in Vietnam or for all of projects which are initiated by investors themselves (and not on the list of projects calling for investment issued by central or provincial authorities). With this interpretation, the implementation of the Regulations may be difficult.
In case a Vietnamese private limited liability company wishes to cooperate with a foreign partner and two or more investors want to participate, it may be difficult to request from the Vietnamese limited liability company to proceed with the compulsory tendering procedures whatever the project’s size.
If the purpose of this provision is to govern enterprises with foreign-owned capital in the course of operation in Vietnam, this provision may become a real burden for enterprises with 100% foreign-owned capital or joint-venture enterprises in which State capital accounts for less than 30%.
Limits to the applicability of this provision may be provided to avoid red tape and disincentive to cooperation or investment. Thus, compulsory tendering in accordance with the Regulations on tendering could be limited to the preliminary phase of projects, which are on the list of projects in which investment is called by central or provincial authorities, and to cases where two or more investors wish to participate to the projects. As regards outstanding projects with foreign-owned capital in Vietnam, requirements in Article 2.2.b of Decree No. 88 may be held as sufficient.
Goods
The definition of “goods” in Article 3.15 of Decree No. 88 should be redefined in accordance with the definition of “goods” in the Commercial Law.
Goods are defined in the current Commercial Law (article 5.3) as “machinery, equipment, raw materials, fuel, materials, consumer goods, other moveable assets in circulation in the market, residential houses which are used for purpose of leasing, sale and purchase or other business purpose”.
The current Commercial Law is due to be amended this year (according to the 2005 official program of the National Assembly). In the 8th draft of the amended Commercial Law, the definition of “goods” has been generalized to cover “all of movable property including property will be created in future (except for money), property annexed to land and property rights.”
Accordingly, the term of goods to be mentioned in the draft Ordinance on tendering may acknowledge the new definition on goods of the amended Commercial law.
Authorized authorities
The current regulation makes reference to different authorities competent to decide on, launch and evaluate, the tendering process. As regards the terms of “Project Owner”, “Party calling for tenders” and “Authorized person” in the form of a joint-venture company, under the Regulations on tendering, these entities/persons are defined as follows:
(i) The Project Owner is….
(ii) The party calling for tenders, according to the definition of Article 3.7 of Decree No. 88 is the project owner, the investor, or the lawful representative being a legal person of the project owner or the investor delegated with the responsibility of carrying out tendering,
(iii) The authorized person, according to Article 3.8.c of Decree No. 88 is the board of management or the authorized head in accordance with law; it means the board of management or the general director of the joint-venture.
The tendering process may be sometimes very difficult to implement, particularly in joint-venture companies.
For instance, in some cases, the party calling for tenders is reasonable to report to the project owner, which must thenceforth report to the authorized person in order to take the final decision.
The tendering process may be sometimes very difficult to implement, particularly due to process requirements, which can be unreasonable for a joint venture, indeed:
If the general director is considered as the authorized person (according to Article 3.8.c of Decree No. 88), the joint-venture company (party calling for tenders) must first report to the project owner (which has contributed to the capital of the enterprise), which must then report to the general director, who will make the final decision.
It is an irrationality as far as the decision making process of a joint venture is concerned. Indeed, the project owner is, in principle, above the general director in the vertical chain of command, but the tendering regulations provides in fact that the general director makes the final decision, and not neither the project owner nor his representatives of the board of management.
If the board of management is considered as the authorized person (according to Article 3.8.c of Decree No. 88), the joint-venture company must report to the project owner, which must thenceforth report to the board of management. This process is also unreasonable and may be very time-consuming. Indeed, the board of management of a joint-venture is composed by the representatives of the project owner, so this process means in fact that the investors, so the project owner, will be consulted twice before making the decision, first time directly consulted, and the second time through their representatives, who will be responsible to make the final decision.
Number of tenderers
As regards the limited tendering form, pursuant to the Regulations on tendering, the number of experienced and capable tenders shall not be below five. Otherwise, the party calling for tenders will have to report it to the investor. In case of less than five tenders, after having reviewed the proposals, the investor shall report to the authorized person, who will make the decision. In practice, with this form of selecting tenders, this limitation could be difficult to comply with, as only a few tenderers may satisfy the requirements of the tender package.
It appears that the legislators want to avoid the subjectivity of a party calling for tenders or of a project owner. However, in practice, a party calling for tenders may not fulfill the requirement of a number at least of five experienced and capable tenders. In such a case, this party must spend more time for the procedure of seeking for approval of the authorized person.
Prior consent
Also under the form of a joint-venture company, many enterprises must face a difficulty regarding the regime of “written consent of the legal representative of the owner in case of a State owned enterprise participating in project investment”. Indeed:
According to Article 52.5 of Decree No. 88, amended by Decree No. 16, the board of management of a joint-venture shall approve tendering plans for projects and tendering results of all tender packages for projects (*) on the basis of the written consent of the legal representative of the owner in case of a State-owned enterprise participating to the investment project.
According to the provisions of Circular No. 01/2004/TT-BKH (hereinafter referred to as “Circular No. 01”), legal representative of the owner shall be the board of management of a State corporation or the owner of a State-owned enterprise, which is involved in a joint venture or shareholding project.
By this interpretation of the written consent of the legal representative of the owner, the tendering process in joint-venture enterprises may be delayed and in particular in case of a lack of cooperation between the parties of the joint-ventures. Consequently, a tendering procedure may be blocked if a written consent of the legal representative of the owner is not obtained.
The law requires that tendering plans and tendering results of all tender packages must be approved by the board of management of the joint-venture company on the basis of the written consent of the legal representative of the owner. However, we may consider that, once the board of management of the joint-venture approves tendering plans and tendering results of all tender packages, such an approval includes already the approval of the Vietnamese party to the joint-venture. A written consent of the legal representative of the owner shall constitute a second approval of the Vietnamese party to the joint-venture. These provisions of law involuntarily create in favor of the Vietnamese party to the joint-venture a right of “veto” to decisions of the board of management.
Furthermore, as far as the time limit for a written consent is concerned, Circular No. 01 provides a time limit of 20 days as from the date of receipt of the proper file. However, Circular No. 01 is silent on the consequence of the non respect of this time limit by the legal representative.
Circular No. 01 could provide an “automatic mechanism of consent”, in which, upon the expiry of the 20-day time limit, if the legal representative of the owner has not issued any answer, it shall be deemed to have approved the tendering plans for projects and tendering results of all tender packages for projects.-
Note:
(*) Particular in the case of consultancy tender packages valued at one billion Vietnamese dong or more and in the case of procurement of goods or construction and installation at five billion Vietnamese dong or more.-