Tendering
In the July/August 2003 issue of Vietnam legal update we examined the types of tenders allowed under Decree No. 88/1999/ND-CP dated 1 September 1999 as amended by Decree No. 14/2000/ND-CP dated 5 May 2000 and Decree No. 66/2003/ND-CP dated 12 June 2003 (together the Tendering Decrees), selecting tenderers, dealing with foreign tenderers and the conditions for international tenders.

In this issue we examine the process of tendering in more detail. There are differing procedures for tenders involving construction and installation, consultancy, procurement of goods and small scale tender packages. This article concentrates specifically on the procedures for construction and installation. These procedures involve:

  • prequalification of tenderers (where appropriate)
  • formulation of tender invitation documents
  • issue of tender invitation documents
  • receipt of tender invitation letters or notices
  • receipt and retention of tenders
  • tender opening
  • evaluation and classification of tenderers
  • submission of tendering results for approval
  • announcement of the successful tenderer and negotiation for finalising the contract
  • submission of the contract for approval and signing of the contract.

Prequalification of tenderers applies to tender packages of VND 200 billion or more in value. Prequalification documents, comprising instructions and criteria for prequalification and an invitation letter, are issued. Prequalification tenders are then assessed, approved and announced.

Tender invitation documents include the following:

  • a tender invitation letter containing details of the party calling for the tender, an outline of the project and the site, the timing of construction, instructions to tenderers, conditions of participation in the tender and the time and place for receipt of tender invitation documents
  • a tender application form
  • instructions for tenderers including a brief description of the project, the proposed sources of capital for the project, applicable technical standards requirements relating to the ability, previous experience and legal status of the tenderers, site visits and answers to queries
  • preferential conditions and incentives (discussed in detail in the July/August 2003 issue of Vietnam legal update)
  • taxes payable under the law
  • technical designs accompanied by the estimated amount of materials and technical instructions; the designs must satisfy prescribed quality requirements and the estimates must be detailed; the requirements for the quality of the construction and installation must be clearly set out in the tender invitation documents so that tender prices can be properly calculated
  • construction and installation time schedule
  • criteria for assessment (including the method and manner of conversion to the same basis for determining assessment prices)
  • general and specific contract conditions
  • tender guarantee form: the value of the guarantee is to be between one and three per cent of the tender price and it is to be returned to an unsuccessful tenderer no later than 30 days after the date of announcement of the tender results, except where a tender is withdrawn after the closing date or where there has been a breach of the tendering regulations; tender guarantees relate to open or unrestricted tendering and restricted (limited) tendering only
  • the form of contract
  • performance guarantee form: the value of a performance guarantee depends on the size of the project but is not to exceed 10 per cent of the contract value; a performance guarantee applies to all forms of selecting tenderers except for the form of self-management.

Each tender must contain:

  • a proper tender application form being properly signed
  • a copy of the tenderer's business licence
  • documents introducing the capability and experience of the tenderer
  • partnership agreement (if appropriate)
  • tender guarantee
  • technical ability relating to quality, technical specifications, suppliers of building materials and supplies, timetable for performing the contract and solutions and organisation of construction and installation in respect of the tender package
  • tender price accompanied by an explanatory statement and detailed price schedules
  • financial conditions and conditions for payment.

The criteria for assessing tender documents must be stated in full in the tender invitation documents and address:

  • The qualification and experience of tenderers: experience in performing other projects with similar technical conditions in similar geographical conditions, number and qualifications of professional and technical staff directly involved in implementing the project, and financial ability (based on turnover, profits and other financial standards). If a tenderer satisfies all three of the above criteria, the tenderer is considered as being fully capable of, and qualified for, participating in the tender.
  • Technical criteria: capability to meet the technical requirements of the tender invitation documents and the requirements relating to quality of materials and equipment, suitability and feasibility of technical solutions and organisation of construction and installation, protection of environmental hygiene and other conditions including fire prevention and occupational safety, adaptability of construction equipment (quantity, type, quality and availability) and manpower, measures to ensure quality, ability to provide finance (if required), and details relating to the rate of progress of construction, level of partnership and cooperation and satisfaction of other details required in the tender invitation documents. A points score of one to 100 or one to 1000 or a 'satisfactory' or 'unsatisfactory' rating is to be used to assess the technical criteria above. A minimum of 70 per cent of the total technical points (90 per cent for a tender package requiring high technology) must be achieved.

The criteria for applying one common basis in determining assessment prices are:

  • the quantity of materials used for construction and installation
  • operating, maintenance and service expenses
  • other expenses to be paid by the project owner outside the contract
  • contract conditions particularly for payment and progress payments
  • financial conditions (term of loan, interest rate etc)
  • duration of contract.

Tenders are assessed in two stages—a preliminary assessment followed by a detailed assessment. The preliminary assessment will identify and reject those tenderers who fail to satisfy the requirements in respect of their legal status or the requirements of the tender invitation documents.

The detailed assessment is then undertaken in two stages:

  • assessment of technical aspects in order to select a shortlist
  • assessment of financial and commercial aspects.

The technical evaluation is made on the basis of the technical criteria referred to above and, once the tenderers are short-listed, they are subject to a financial and commercial assessment on a common basis. The following are taken into account:

  • error rectification
  • discrepancy adjustment
  • conversion of tender prices into the same currency
  • conversion to a comparable basis
  • determination of assessment prices of tenders.

Tenders are then classified on the basis of assessment prices and a successful tenderer with the relevant contract award price will be proposed.

Any tenderer who:

  • has a proper tender
  • satisfies the basic requirements set out in the tender invitation documents
  • has the lowest assessment price
  • proposes a contract award price not exceeding the approved limit of the tender package, total estimated budget or estimated budget,

shall be considered for the award of the contract.

The Tendering Decrees set out in detail the provisions for the State administration of tendering, inspections and dealing with breaches.

Stocks and shares
Stock market strategy up to 2010
Presently the stock market in Vietnam consists of a Securities Transaction Centre in Ho Chi Minh City on which shares in 21 listed companies and certain bonds are traded.

On 5 August 2003, the Prime Minister issued Decision No. 163/2003/QD-TTg (Decision 163) approving the strategy for developing the Vietnamese securities market up to the year 2010. It's stated aims are to:

  • develop the securities market in scale and operational quality to provide a channel for raising medium and long term investment and development capital and to contribute to developing the Vietnamese financial market
  • maintain order and safety, expand the scale and improve the efficiency of market control and management activities for the protection of the legitimate rights and interests of investors, and
  • gradually improve competitiveness and take the initiative in integrating into international financial markets.

What Vietnam hopes to achieve by implementing the strategy is to:

  • expand the securities market and endeavour to bring the total market value up to between two and three per cent of gross domestic product (GDP) by 2005, and between 10 and 15 per cent of GDP by 2010; this is to be done by focusing on the bond market and by increasing the number of shares of various types listed on the securities market
  • build up and develop securities transactions centres so that the existing Ho Chi Minh City Securities Transaction Centre becomes the Stock Exchange with totally automated systems for providing information about transactions, supervision and markets; in Hanoi the emphasis will be on share-related transactions of small and medium size enterprises with a view to converting the Hanoi Securities Transaction Centre (which has not yet been established) into an over the counter market after 2010
  • set up an independent custody centre and extend custody activities to unlisted shares
  • develop intermediary financial institutions for the Vietnamese securities market by extending the operating scale and scope of business of securities companies; develop securities investment fund companies; encourage the number of securities companies to carry out portfolio management activities; and set up certain reliability assessment companies to assess and classify risks in respect of listed securities and reliability thresholds of Vietnamese companies
  • develop the investment system by establishing a system of professional securities investors comprising commercial banks, securities companies, finance companies, insurance companies etc and expand and develop various forms of securities investment funds.

The State Securities Commission (SSC) is required to coordinate with numerous ministries and bodies to implement Decision 163.

The strategy contained in Decision 163 lists a set of solutions, but the list is really a set of directions that do not spell out how they are to be achieved. For example, the solutions listed in the Decision for increasing the supply of securities to the market comprise:

  • renovating the method of issuing government bonds, including tenders and underwriting, and diversifying the terms of government bonds
  • linking up the process of equitising (or privatising) State owned enterprises (SOEs) to the issue of shares to the public and listing them on the securities market
  • selecting major enterprises and eligible joint stock commercial banks to issue additional shares and be listed on the securities market
  • extending the scope of allowing foreign invested enterprises to be converted into joint stock companies and providing policies to encourage them to list their shares on the securities market (refer to our article on foreign participation in Vietnam's stock market contained in the July/August 2003 issue of Vietnam legal update)
  • encouraging, and making it easier for, various types of work bonds and urban bonds to be listed and traded on the securities market
  • developing other types of securities including call options, company bonds, convertible bonds and investment fund certificates for listing and trading on the securities market
  • supervising and assisting listed companies in implementing best company management practices and accounting and auditing systems.

Foreign investment in Vietnamese enterprises
In our article titled 'Buying shares in Vietnamese companies' contained in the March/April 2003 issue of Vietnam legal update, we reported on the issue of Decision No. 36/2003/QD-TTg dated 11 March 2003 of the Prime Minister on foreign investors contributing capital to, and buying shares in, Vietnamese companies.

The Ministry of Finance (MOF) has now issued Circular No. 73/2003/TT-BTC (Circular 73) dated 31 July 2003 providing guidelines for implementing the regulations contained in Decision 36 (Decision 36 regulations). Circular 73 applies to all activities involving foreign investors contributing capital to, or buying shares in, Vietnamese companies under the Law on Encouraging Domestic Investment and Article 5 of the Decision 36 regulations. Article 5 lists the methods by which foreign investors can buy shares as the purchase of shares in the initial offer of shares of an SOE being equitised; the purchase of shares additionally issued by a joint stock company; or the purchase of shares from existing shareholders of a joint stock company.

The methods of contributing capital to a Vietnamese company comprise:

  • acquiring capital contribution proportions from members of a limited liability company or contributing capital to a limited liability company to become a new member of that company
  • contributing to a partnership or acquiring capital contribution proportions from existing members of the partnership
  • contributing capital to a cooperatives' union or a cooperative.

It must be noted however that the maximum amount (in shares or capital contribution) that foreign investors can hold in a Vietnamese company is 30 per cent and investment is still limited to certain sectors of the economy. If several foreign investors subscribe to contribute capital to, or buy shares in, a Vietnamese company with a value of more than 30 per cent of the company's authorised capital, the company must select a foreign partner by tender or by auction.

Where an SOE is being equitised, it is up to the relevant minister or chairman of a people's committee (depending on whether the SOE is under central or local control) to decide whether foreign investors will be allowed to participate in an initial sale of shares. The structure of the initial sale of shares must be included in the equitisation plan, and only after determining the number of shares to be held by the State and the number of shares to be sold to employees and suppliers will a decision be made whether the balance of the shares will be sold to domestic outsiders or foreign and domestic outsiders.

In the case of a joint stock company, an investment plan or plan for issuing additional shares must be approved by the board of management or shareholders' general meeting (depending on the terms of its charter) and where the company's shares are not listed, the sale of shares must be carried out by itself or through an intermediary financial institution. The company must publish in the mass media its proposal to sell shares to foreign investors together with other information about its activities, capital and funds for the relevant year and the two previous years.

Circular 73 also contains guidelines relating to the price for the sale of shares or contribution of capital and relating to the information to be provided before and after shares are sold to, or capital is received from, foreign investors.

The sale price for shares in an SOE being equitised is determined in accordance with Decree No. 64/2002/ND-CP dated 19 June 2002 of the Government on equitising SOEs; the sale price of shares in an unlisted company will be agreed between the company and the foreign investor but cannot be less than the price offered to domestic investors; and the sale price of shares owned by an existing shareholder can be agreed between the shareholder and the foreign investor but cannot be lower than the initial sale price offered to domestic investors (for an unlisted company) or the sale price quoted on the securities market (for a listed company).

Banking
Co-financing
On 3 April 2002, the State Bank of Vietnam (SBV) issued Decision No. 286/2002/QD-NHNN (Decision 286) on co-financing by credit institutions.

Decision 286 contains numerous definitions: eg, there are two types of contracts involved in a co-financing transaction. A co-financing contract consists of written undertakings by the co-financing members setting out the rights and obligations of those members. A contract for providing co-financed credit consists of written undertakings given by the co-financiers to the borrower setting out the rights and obligations of each party, and this can be in the form of a loan contract, a syndicated loan contract, a contract of guarantee or a co-guarantee.

Co-financing can be by way of loans, syndicated loans, guarantees, co-guarantees or a combination of any of these. One of the co-financing members needs to take on the role of the co-financing coordinator. The definition of 'co-financing coordinator' contained in Decision 286 has now been amended by Decision No. 886/2003/QD-NHNN (Decision 886) dated 11 August 2003 of the SBV to clarify that central people's credit funds or local people's credit funds can only act as co-financing coordinators if they jointly provide a syndicated loan; originally they were not allowed to act as co-financing coordinators.

Decision 886 has also amended Article 4 of Decision 286. Originally local people's credit funds could not be involved in co-financing but they are now allowed to do so provided that they coordinate with central people's credit funds in providing syndicated loans. They must also comply with government regulations and SBV guidelines relating to their organisation and operations.

Legislation
The following important pieces of legislation have been issued over the last few weeks:

Decrees

  • Decree No. 88/2003/ND-CP dated 30 July 2003 providing for the organisation, operations and management of associations.
  • Decree No. 90/2003/ND-CP dated 12 August 2003 providing for the functions, powers, duties and organisational structure of the State Securities Commission.
  • Decree No. 93/2003/ND-CP dated 13 August 2003 providing for the functions, powers, duties and organisational structure of the State audit body.
  • Decree No. 94/2003/ND-CP dated 19 August 2003 providing for the functions, powers, duties and organisational structure of the Vietnam National Administration of Tourism.
  • Decree No. 96/2003/ND-CP dated 20 August 2003 providing for the functions, powers, duties and organisational structure of Vietnam Television.
  • Decree No. 99/2003/ND-CP dated 28 August 2003 issuing regulations on high-tech zones.

Decisions

  • Decision No. 831/2003/QD-NHNN dated 30 July 2003 of the State Bank of Vietnam (SBV) adjusting the compulsory reserve ratio in Vietnamese dong applicable to credit institutions.
  • Decision No. 832/2003/QD-NHNN dated 30 July 2003 of the SBV adjusting the discount interest rate applied by the SBV to credit institutions which are banks.
  • Decision No. 833/2003/QD-NHNN dated 30 July 2003 of the SBV adjusting refinancing interest rates applied by the SBV to credit institutions which are banks.
  • Decision No. 834/2003/QD-NHNN dated 30 July 2003 of the SBV adjusting the maximum interest rate applicable to US dollar deposits of legal entities at credit institutions.
  • Decision No. 162/2003/QD-TTg dated 5 August 2003 of the Prime Minister (PM) on providing guarantees for projects for which investment decisions are issued by the PM to borrow capital from domestic commercial banks.
  • Decision No. 163/2003/QD-TTg dated 5 August 2003 of the PM approving the strategy for developing the Vietnamese securities market up to the year 2010 (reported in this issue).
  • Decision No. 886/2003/QD-NHNN dated 11 August 2003 of the SBV amending, and adding to, the regulations on co-financing by credit institutions issued with Decision No. 286/2002/QD-NHNN dated 3 April 2002 of the SBV (reported in this issue).
  • Decision No. 898/2003/QD-NHNN dated 12 August 2003 of the SBV issuing regulations on discounting and re-discounting applied by the SBV to other banks.
  • Decision No. 909/QD-TTg dated 14 August 2003 of the PM approving a programme for renovating the formulation and issue of, and improving the quality of, legal normative documents.
  • Decision No. 953/QD-TTg dated 25 August 2003 of the PM approving a UNDP funded project VIE/02/015 on supporting the development strategy of the Vietnamese legal system up to 2010.

Circulars

  • Circular No. 73/2003/TT-BTC dated 31 July 2003 of the Ministry of Finance (MOF) providing guidelines for implementing the regulations on capital contributions and share purchases by foreign investors in Vietnamese enterprises (reported in this issue).
  • Circular No. 75/2003/TT-BTC dated 4 August 2003 of the MOF amending Circular No. 18/2002/TT-BTC dated 20 February 2002 of the MOF 1998 relating to implementing the Law on Business Income Tax.
  • Circular No. 76/2003/TT-BTC dated 4 August 2003 of the MOF providing guidelines for insurance for investment and construction.
  • Circular No. 09/2003/TT-NHNN dated 5 August 2003 of the SBV providing guidelines for managing, providing and using the Internet in the banking sector.
  • Inter-Circular No. 77/2003/TTLT-BTC-BYT dated 7 August 2003 of the MOF and the Ministry of Health providing guidelines for implementing voluntary health insurance.

This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.
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