CIRCULAR

GUIDING THE ELABORATION AND MANAGEMENT OF THE CONSTRUCTION EXPENSES FORTHE CONSTRUCTION WORKS OF INVESTMENT PROJECTS

Pursuant to the Government's Decree No.52/1999/ND-CP of July 8, 1999 promulgating the Regulation on Investment and Construction Management;
In order to apply the managerial mechanism to the construction works of investment and construction projects using the State budget capital, the State-guaranteed credit capital. the State's development investment credit capital, the State enterprises' development investment capital, the self-mobilized capital of State enterprises and/or commercial credit capital not guaranteed by the State prescribed in Articles 10, 11 and 12 of Decree No.52/1999/ND-CP, the Ministry of Construction hereby guides the elaboration and management of the construction expenses for the construction works of investment projects as follows:

I. GENERAL PROVISIONS

1. The construction expense for the construction works of an investment project is the total expense needed for building a new construction work or renovating, expanding or technically equipping an existing construction work. Due to the characteristics of the production process and the characteristics of the construction products; each construction work shall require its own construction expense which is determined according to the size, characteristics, technical nature as well as technological requirements of the construction process.

In each stage of the investment and construction process the construction expense is demonstrated through the norm of the total investment amount in the investment preparation stage, the total cost estimate of the construction work, the cost estimate of the construction items in the investment execution stage, the payment and settlement prices of the construction work’s investment capital when construction is completed and the project is put into exploitation and use.

The total investment amount is the total amount of all investment and construction expenses (including the capital for initial production) and is the project’s maximum expense limit determined in the investment decision. The construction work’s total cost estimate and total value to be settled when construction is completed and the project is put into exploitation and use shall be within the limit of the total investment amount already approved or adjusted as prescribed in Article 25 of the Regulation on Investment and Construction Management issued together with the Government’s Decree No.52/1999/ND-CP of July 8, 1999.

2. The expense for the construction of a work shall be determined on the basis of the work volume, the State's system of economic and technical norms and criteria as well as policies and regimes compatible with the objective market factors in each period of time and be managed in accordance with the Regulation on Investment and Construction Management issued together with the Government's Decree No.52/1999/ND-CP of July 8, 1999.

...

...

...

II. CONTENTS OF THE CONSTRUCTION EXPENSE FOR CONSTRUCTION WORKS IN DIFFERENT INVESTMENT STAGES

1. The total investment amount

The total investment amount, which is analyzed, calculated and determined in the stage of making the feasibility study report (or the investment report) of the project, includes the expenses for the investment preparation (conducting survey, making and evaluating the project's feasibility study report), the expense for preparation for the investment execution (land and crop compensation, relocation of inhabitants and projects on the construction ground, transfer of the land-use right..., survey, designing, elaboration and evaluation of the design, total cost estimate and bidding expense, completion of the investment procedures, building of roads, electricity and water supply systems in service of construction, the support area, workers' make-shift houses (if any), the expense for the investment execution and construction (construction and installation, procurement of equipment and other related expenses), the expense for production preparation to put the project into exploitation and use (the expenses for training, test run, trial production, hiring of specialists during the test run time), the initial working capital for production (for production projects), bank interests payable by the investor during the investment execution time, the insurance premium and the reserve expense.

For group A projects and a number of projects which have special requirements permitted by the Prime Minister, apart from the above-mentioned contents, their total investment amount shall also include the expenses for project-related scientific and technological research.

The detailed contents, the method and bases for the calculation of the total investment amount shall comply with the guidance of the Ministry of Planning and Investment.

2. The total cost estimate of a construction work

The total cost estimate of a construction work is the total of expenses needed for the investment in building the construction work, which are calculated in detail in the technical designing or construction technical designing stage. The total cost estimate includes: construction and installation expenses, the equipment expense (including technology(ies), various kinds of non-standard equipment to be manufactured and/or processed (if any) and other equipment and facilities in service of production, working and daily-life activities), other expenses and the reserve expense (including the reserve expense for price inflation and for newly arising work volume).

The expense items in the total cost estimate of a construction work include the following specific contents:

2.1. The construction and installation expense, including:

...

...

...

- The expense for leveling the construction ground;

- The expense for building make-shift and support facilities in service of the construction (roads, electricity, after, workshops, etc..), make-shift houses at the construction site for accommodation as well as construction control (if any);

- The expense for building construction items;

- The expense for installing equipment (for equipment which needs to be installed);

- The expense for major movement of the construction equipment and labor force (in cases of appointment of bidders, if any).

2.2 The equipment expense, including.

- The expense for procurement of technological equipment (including non-standard equipment to be manufactured or processed (if any), other equipment in service of production, working and daily-life activities of the construction work (including equipment which needs or does not need to be installed);

- The expense for transport from the port(s) or the place(s) of purchase to the construction site, the expense for storage at warehouses and/or storing yards or containers storage (if any) at the Vietnamese port (for) imported equipment), the expense for preservation and maintenance of equipment in the warehouses and/or storing yards at the construction sites;

- Taxes and insurance premiums for construction equipment.

...

...

...

Due to the particular characteristics of these expenses, the contents of each expense shall be categorized according to the various stages of the investment and construction process. Specifically:

a/ In the investment preparation stage:

- The expense for making the pre-feasibility study report for Group A projects or Group B projects (if the level competent to decide investment have a written request therefor), the feasibility study report for common projects and projects which only make investment reports.

- The expense for project propagation and/or advertisement (if any);

- The expense for scientific and technological research pertaining to the project (for Group A projects and same projects with special requirements permitted by the Prime Minister);

- Fee for evaluation of the feasibility study reports of investment projects.

b/ In the investment execution stage:

- The expense for construction commencement of the construction work (if any):

- The expense for compensation and implementation organization during the process of making land and crop compensation, relocation of inhabitants and projects on the construction site; expenses for resettlement and rehabilitation work (for construction works of investment projects that require resettlement and rehabilitation);

...

...

...

- The expense for construction survey, construction work's design, the expense for experimental model (if any), the expense for compilation of bidding dossiers, analysis and appraisal of the results of bidding for construction and installation, procurement of equipment; the expenses for construction supervision and equipment installation and other consultancy expenses...;

- The expense for the project management board;

- The expense for security protection and environmental protection during the construction process (if any);

- The expense for inspection and evaluation of the construction quality (if any);

- The expense for making and evaluating the unit prices of the cost estimate; the expense for management of the construction work;

- The work construction's insurance premium;

- Land administration fee;

- Fees for evaluation of the technical design or technical-construction design, the total cost estimate of the construction work, the bidding results.

c/ In the stage of completion of construction and putting the project into exploitation and use:

...

...

...

- The expense for dismantling make-shift and support facilities in service of construction, and make-shift houses (after deducting the recovered value), etc.

- The expense for cleaning up the construction, organizing the test operation before acceptance, the inauguration and hand-over of the construction work;

- The expense for training technical workers and production managerial staff;

- The expense for hiring operation and production specialists during the test run period (if any);

- The expense for raw materials, energy and labor for the non-loaded and loaded lest run process after deducting the recovered value of products), etc.

2.4. The reserve expense.

- The reserve expense is an amount to be used only as reserve capital for work volumes arising due to changes in design at the investor's request which is approved by the competent level, for unforeseeably arising work volume, and for price inflation during the project implementation course.

3. The construction and installation cost estimate for construction items

The construction and installation cost estimate for construction items is the expense needed for completing the volume of construction and installation work of the construction items, which is calculated on the basis of the construction drawing design or the technical-construction design.

...

...

...

3.1. The before-tax value of the construction and installation cost estimate, including: The material cost, the labor cost, the expense for construction machines, the general expense and the pre-calculated taxable income.

3.2. The after-tax value of the construction and installation cost estimate, including: the before-tax value of the construction and installation cost estimate and the output value-added tax amount.

4. The payment price

4.1. For cases of bidding, the payment price shall be effected according to the construction tempo and the bid-winning price (for package contracts) or according to the bid-winning unit price and the conditions recorded in the contract between the investor and the construction enterprise (for contracts involving price adjustments).

4.2. For cases where appointment of bidders is permitted, the payment price shall be effected according to the value of the approved cost estimate of each construction item or the entire construction work on the basis of the volume and quality tests before acceptance in each period of payment.

5. The settled investment capital

The settled investment capital is the total of all lawful expenses already paid during the investment and construction process.

The detailed contents of the settled investment capital shall comply with the guidance of the Ministry of Finance.

III. BASES FOR ELABORATING THE CONSTRUCTION EXPENSE FOR THE CONSTRUCTION WORK IN THE INVESTMENT EXECUTION STAGE

...

...

...

1. The pre-feasibility study report (if any) and the feasibility study report or the investment report approved by the competent authorities.

2. The technical design dossier, the construction drawing design or the technical-construction design.

3. The construction and installation work volume calculated according to the design and compatible with the list of basic construction unit prices.

4. The list and quantity of technological equipment (including non-standard equipment to be manufactured and processed (if any)), other equipment which needs or does not need to be installed according to the requirements of the production technology(ies) of the construction work to serve production, working and daily-life activities.

The design consultancy organizations shall be accountable for the degree of completeness, accuracy, and reasonability of the contents stated at Points 3 and 4 above.

5. The price calculated per one area unit or one use capacity unit of the common construction items: It is the criterion for determining the average construction and installation expense for completion of an area unit or use capacity unit or structure unit of each common type of house or construction item built according to a typical design or an economically reasonable design. This price level shall be calculated on the basis of the before-tax value of the cost estimate of various construction and installation operations or structures within a house or construction item (civil, industrial, communications, irrigation, etc.), excluding expenses not directly for construction and installation operations within a house or construction item such as expenses for building roads, water supply and drainage, electricity outside the house... and expenses for the equipment of the house or construction item.

6. The basic construction unit price: The basic construction unit price, issued by the provincial-level People's Committees, includes direct expenses for materials, labor and the expense for the use of construction machines calculated per separate construction and installation work volume or a construction and installation structure part and determined on the basis of the basic construction cost estimate.

For important construction works of the State involving large construction volumes and complicated technical requirements, which are permitted to make their own unit prices, these unlit prices can be set on the basis of the basic construction unlit price and compatible with the design steps issued by the competent authorities.

7. The equipment prices shall be determined according to the bidding results, the competitive sale offers on the procurement of equipment, or the market commercial information.

...

...

...

9. The limits of expenses, charges and fees calculated in percentage % or according to price indices, including:

- The expense for compensation for land and crops, relocation of inhabitants and projects on the construction ground, the expense for the resettlement and rehabilitation work (for construction works of investment projects requiring the resettlement and rehabilitation) shall comply with the Government's regulations, the guidance of the Ministry of Finance and competent agencies.

- Land rental or the land use right transfer fee shall comply with the Government's regulations and the competent agencies' guidance.

- The common spending limits, the survey cost, the design expense, the expense for the project management board, the expense for investment and construction consultancy, the evaluation fees (for the feasibility study report, technical design or technical-construction design, total cost estimate, cost estimate of the construction work...) shall comply with the guidance of the Ministry of Construction, the Ministry of Finance and other competent agencies.

- The land administration fee, other fees, taxes, insurance premium... shall comply with the guidance of the Ministry of Finance.

10. The relevant regimes and policies issued by the Ministry of Construction and other competent agencies.

IV. METHOD OF ELABORATING THE CONSTRUCTION EXPENSES FOR CONSTRUCTION WORKS IN THE INVESTMENT EXECUTION STAGE

1. The total cost estimate of a construction work

The total cost estimate of a construction work shall be determined according to the following principle and method:

...

...

...

- For projects with simple or common technical requirements or model design, which require the technical design only, the total cost estimate shall be elaborated according to the technical-construction design.

1.1. The construction and installation expense

1.1.1. For construction items which require the technical design before the construction drawing design, the construction and installation expense shall be determined on the basis of the construction and installation volume stated in the technical design and the basic construction unit prices of various construction and installation operations or structures which are elaborated in conformity with the technical design.

1.1.2. For construction items which only require the technical-construction design, the construction and installation expenses shall be determined on the basis of the construction and installation volume stated in the technical-construction design and the basic construction unit price issued by the provincial-level People's Committee of the locality where the work is constructed.

1.1.3. For common construction items, the construction and installation expenses shall be determined on the basis of the total floor area or the design capacity of the construction items and the price per area unit or use capacity unit of the construction item as mentioned at Point 5, Section III above.

1.1.4. For construction items of the support facilities, make-shift houses of construction workers in service of construction and installation of the construction works of investment projects already decided by the competent level in the total investment amount, the construction and installation expense for these construction items shall be calculated as follows:

1.1.4.1. Regarding the construction of the support facilities

The expense for constructing the support facilities shall be drawn up in a separate construction and installation cost estimate depending on the concrete design according to the size and characteristics of each construction item within the support facilities but the total expense for constructing and installing these construction items must not exceed the level of expenses written in the total investment amount already approved by the competent authorities.

The construction and installation cost estimate for these construction items shall be determined according to the method described in Appendix No.2(*) of this Circular.

...

...

...

The expense for building the construction workers' make-shift houses shall be calculated on the basis of the demand for this kind of make-shift houses but must not exceed 2% of the construction and installation value in the approved total cost estimate of the construction work (for construction works far from the populated areas, construction works built along various lines (roads, canals of grade 1, forestry paths, wire lines)) and must not exceed 1% of the construction and installation value in the approved total cost estimate of the construction work (for the rest of construction works).

The expense for building the support facilities, construction workers' make-shift houses shall be calculated in the price of bids (for construction works where the bidding is applied) or included in package contracts (for construction works where bidders are appointed by the competent authorities).

1.2. The equipment expense:

The equipment expense shall be determined according to the quantity of each kind of equipment and the value per ton or unit of equipment of the equivalent kind, in which the value per ton or unit of equipment includes: The buying price, expenses for transport from the port or the buying place to the construction work, storage and container charges (if any) at a Vietnamese port (for imported equipment), expenses for their preservation and maintenance in the warehouse or storing yard at the construction site, taxes and insurance premiums for construction equipment. In case of bidding, the equipment price shall be the bid-winning price which consists of the above, mentioned contents and other expenses (if any) written in the contract.

Particularly for non-standard equipment which needs to be manufactured and/or processed, the expense for these kinds of equipment shall be determined on the basis of the quantity of such equipment, the manufacturing or processing cost per ton or unit suitable to the nature and type of the non-standard equipment and other related expenses as mentioned above.

1.3. Other expenses:

These expenses are those other than the construction and installation expense, the equipment expense, which are classified according to the different stages of the investment and construction process as stated in Clause 2.3, Point 2, Section II of this Circular. These expenses shall be determined according to the limits calculated in percentage (%) or a concrete price index and divided into two groups:

- The group of expenses and fees which are determined according to the limits calculated in percentage (%), including the design expense, the expense for the project management board, the evaluation fee and other consultancy fees, etc.

In which, the expense for the project management board shall be calculated according to the size and type of the construction work. The determined value of the percentage (%) limit and the method for calculation of this expense shall be as prescribed in Appendix No.3 (*) attached to this Circular.

...

...

...

1.4. The reserve expense:

According to regulations the limit of the reserve expense in the total cost estimate is calculated equal to 10% of the total of the construction and installation expense, the equipment expense and other expense stated at Points 1.1, 1.2, and 1.3 above.

The order and method of elaborating the total cost estimate of a construction work shall comply with the guidance in Appendix No.1(*) attached to this Circular.

2. The cost estimate of construction and installation of construction items

The cost estimate of construction and installation of a construction item shall be determined on the basis of the construction and installation work volume which is calculated according to the design, the basic construction unit price issued by the provincial-level People's Committee or the construction unit price of the construction work (for construction works entitled to set their own unit price), the limit of the general expense, the pre-calculated taxable income and the output value added tax.

The method of elaborating the cost estimate of construction and installation of a construction work shall comply with the guidance in Appendix No.2(*) attached to this Circular.

V. MANAGEMENT OF THE CONSTRUCTION EXPENSE FOR A CONSTRUCTION WORK AT THE INVESTMENT EXECUTION STAGE

1. Regarding the cost estimate limit

The limit of the basic construction cost estimate shall be studied and issued by the Ministry of Construction for uniform application nationwide. The basic construction unit price issued by the provincial People's Committees or the basic construction unit price of a construction work (for construction works entitled to set their own unit price) must be made on the basis of the above-mentioned cost estimate limits. For construction and installation operations or construction structures which are not yet on the list of cost estimate limits currently applied, the ministries with specialized construction activities and the localities shall have to study and work out these limits after consulting the Ministry of Construction for application.

...

...

...

- The Construction Services of the provinces and centrally-run cities shall assume the prime responsibility and coordinate with the other provincial/municipal Services with specialized construction activities in working out the expense limits for construction and installation operations, which use supplies, materials and new construction technologies of construction works in the localities and submit them to the Ministry of Construction for application. The provincial/municipal Construction Services and other Services with specialized construction activities shall not be allowed to work out a temporary agreement or supplementing and/or adjusting the cost estimate limits of construction and installation operations so as to make the construction work unit price.

2. Regarding the basic construction unit price

2.1. The basic construction unit prices are drawn up in the provinces and centrally-run cities (referral to as local unit prices), issued by the presidents of the provincial People's Committees, and only used for elaborating cost estimates of the construction items or construction works, or for determining the construction and installation expense in the total cost estimate of the construction works in the localities (the set of basic construction unit prices of other localities must not be used). They serve as basis for holding construction and installation bidding for all construction works of the central and local levels, regardless of the investment-or construction-deciding levels in such localities. Particularly for the sets of basic construction unit prices of Hanoi, Ho Chi Minh city, Hai Phong, Da Nang and Can Tho, before they are issued, supplemented or amended, there must be written consent of the Ministry of Construction (within 30 days from the date of receipt of the written request). The provincial/municipal Construction Services shall assume the prime responsibility and coordinate with the concerned agencies (of Finance, Pricing, Communications, Agriculture and Rural Development) in elaborating the basic construction unit prices according to the principle and method guided by the Ministry of Construction.

2.2. For the State’s important construction works involving a large construction volume and complicated technical requirements, a number of construction works with special requirements or a number of construction works with unique conditions, they shall be allowed to work out their own unit prices (the basic construction unit prices of the construction works) according to the unit price-making method guided by the Ministry of Construction. The Ministry of Construction shall consult the investment-deciding level in setting up a board on the construction works’ unit prices and issuing these construction works’ own unit prices.

3. Regarding the total cost estimate of construction works

All construction works, regardless of whether biddings are organized or bidders arc appointed therefor, must make their total cost estimates according to the contents, principles and method guided in this Circular.

Before the total cost estimate is submitted by the investor to the competent level for approval, it must be evaluated by the agency which has the construction management function and is assigned to evaluate it. The agency evaluating the total cost estimate must ensure the evaluation contents prescribed in Clause 2, Article 37 of the Regulation on Investment and Construction Management and shall be responsible before law for the evaluation results and contents as mentioned above. When necessary, the agency evaluating the technical design and the total cost estimate shall consult the agency approving the technical design and the total cost estimate in hiring a consultancy organization (or specialist) to conduct the evaluation. In this case, the evaluation fee shall be used for the hiring of the consultancy organization (or specialist) to conduct the evaluation. Particularly for the total cost estimates of the construction works of Group A projects, the Ministry of Construction shall organize the evaluation thereof.

The total cost estimate approved by the competent level must not exceed the total investment amount already approved.

3.1. The total cost estimates of the construction works of Group B and Group C projects, which use the State budget capital, the State's development investment credit capital or the State-guaranteed credit capital of the ministries, branches, central agencies or State corporations, shall be approved by the persons competent to decide investment after they are evaluated by the construction management agency of the investment-deciding level or by the specialized agency with the function to manage the construction unit prices and cost estimates of the ministries with specialized construction activities (for projects where the investment-deciding level has no such functional agency).

...

...

...

3.3. A construction work’s total cost estimate which is approved by the competent person shall be the maximum limit of the construction expense for the construction work, serve as basis for organization of the bidding and management of expenses after the bidding. The person competent to approve the total cost estimate shall be responsible before law for the approved contents as prescribed in Clause 2, Article 38 of the Regulation on Investment and Construction Management and other law provisions.

- In cases where a Group A project is divided into component projects (or sub-projects), the total cost estimate of the construction works of each component project (or sub-project) shall be made like that of the construction works of an independent investment project. The evaluation and approval of the total cost estimate of the construction works of each component project (or sub-project) shall be effected in the same way as the construction works of Group A projects.

- In separate cases, if a construction work of a Group A or Group B project still has its total cost estimate to be approved or does not have enough conditions for making its total cost estimate, it must have its total cost estimate approved by the competent level no later than after it has completed 50% of the value of the construction and installation volume of the entire construction work.

+ Where the capital amount of each construction item has been determined in the investment decision but it is necessary to commence the construction of the construction work, there must be the cost estimate of the construction item already approved by the competent level.

+ For the cost estimates of the construction items of the construction works of the component projects belonging to the above-mentioned groups of projects, before being approved by the investor, these cost estimates must be evaluated by the specialized agency with the function to manage the construction unit prices and cost estimates. The cost estimates of the construction items already approved by the investor must not exceed the cost estimate of the construction works of the component project within the total cost estimate of the entire construction work already dawn up and submitted to the competent level for approval.

3.4. The time for evaluation of the total cost estimate must not exceed 45 days for the construction works of Group A projects, 30 days for those of Group B projects and 20 days for those of Group C projects alter the evaluating agency receives the full and valid dossiers.

4. Adjustment of the construction expenses for construction works

The approved total cost estimate of a construction work as well as the approved cost estimate of a construction item or a separate construction and installation operation may be adjusted and supplemented but must not exceed the total investment amount already approved by the competent level.

4.1. Where the investment-deciding level permits a change in the design of a number of components or items of the construction work, when remaking the cost estimate for these parts or items at the same price level of the approved total cost estimate, which results in an increase in the approved total cost estimate (including the reserve expense), the investor must remake the total cost estimate and conduct the revaluation thereof for submission to the competent level for approval.

...

...

...

4.3. The adjustment of the construction expense for a construction work shall be effected on a monthly or quarterly basis by determining the amounts to be made up for and reduced or separately adjusting each expense item in the cost estimate, which shall be then synthesized to determine the final to-be-adjusted amount of the construction work’s cost estimate.

The Construction Services of the provinces and centrally-run cities shall assume the prime responsibility with the participation of the Finance- Pricing Services and concerned agencies in determining the prices of materials transported at the construction and installation site on the basis of the periodical notices issued jointly by the Construction and Finance-Pricing Services regarding the prices of various kinds of construction supplies and materials at the concentrated selling place or the manufacturing places in their province or city, which shall serve as the basis for determining the amounts to be made up for and reduced in the material expense in the cost estimate.

Where there is a major change in the prices, wages and the relevant regimes and policies, the provinces and centrally-run cities and the investors (for construction works permitted to make their own unit prices) shall have to rework out a set of the basic construction unit prices in accordance with the State regulations.

4.4. The payment of the investment capital for construction works where bidding is organized or the bidders are appointed shall comply with the contents of Article 49 of the Regulation on Investment and Construction Management and the guidance of the Ministry of Finance.

VI. ORGANIZATION OF IMPLEMENTATION

This Circular shall be uniformly applicable nationwide from the date of its signing for issuance. The Ministry of Construction’s earlier guiding circulars having the contents related to this Circular are now annulled.

MINISTER OF CONSTRUCTION




Nguyen Manh Kiem