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CIRCULAR

PRESCRIBING MANAGEMENT OF CONSTRUCTION COSTS OF CONSTRUCTION PROJECTS UNDER NATIONAL TARGET PROGRAMS ON SUSTAINABLE POVERTY REDUCTION AND DEVELOPMENT OF NEW-STYLE RURAL AREAS

Pursuant to the Government’s Decree No. 81/2017/ND-CP dated July 17, 2017 defining functions, tasks, powers and organizational structure of the Ministry of Construction;

Pursuant to the Government’s Decree No. 68/2019/ND-CP dated August 14, 2019 on construction cost management;

Pursuant to the Government’s Decree No. 161/2016/ND-CP dated December 02, 2016 on special mechanism for construction management of some projects under national target programs during 2016-2020;

At the request of the Director of the Department of Construction Economics;

The Minister of Construction promulgates a Circular prescribing the management of construction costs of construction projects under National target programs on sustainable poverty reduction and development of new-style rural areas.

Article 1. Scope

This Circular provides guidance on determination and management of construction costs of construction projects under national target programs on sustainable poverty reduction and development of new-style rural areas, small-scale projects, projects involving uncomplicated techniques and those of which only economic-technical report or construction dossier is required.

Article 2. Regulated entities

Regulatory authorities, organizations and individuals involving in the determination and management of construction costs of construction projects under national target programs on sustainable poverty reduction and development of new-style rural areas.

Article 3. Rules for determination and management of construction costs

1. Management of construction costs of construction projects under national target programs on sustainable poverty reduction and development of new-style rural areas must ensure achievement of investment objectives and project efficiency which have been approved, and be appropriate for project scale and local-government budget.

2. Rules and methods of determination of construction costs must be conformable with regulations on construction cost management and the specific mechanism for national target programs on sustainable poverty reduction and development of new-style rural areas.

3. Construction costs must be calculated sufficiently and correctly for each project, construction or contract and in a manner conformable with design requirements, technical instructions, construction conditions and project execution plans. Design and execution of construction works must comply with national technical regulations and standards on construction. Participation by the community in execution of construction works and construction supervision is encouraged, and the use of sample or typical designs, materials, workers and machinery available at local area is prioritized so as to ensure the transparency, thriftiness and efficiency, and provide most of funding for execution works.

Article 4. Construction cost estimate

Construction cost estimate consists of: construction costs, equipment costs, project management costs, construction consultancy costs, other costs, and cost contingency.

1. Construction costs:

a) Construction costs included in the construction cost estimate are determined for main construction works, auxiliary works, and temporary works serving the construction process, or construction parts or work items. Construction costs of construction works, items and structures include direct costs, indirect costs, preliminary taxable income and VAT. Construction costs shall be determined according to Minister of Construction’s Circular providing guidance on determination and management of construction costs.

b) Investors shall determine and manage construction costs according to specific characteristics and conditions of construction works, announced construction estimation norms and methods for determination of construction unit prices or construction unit prices announced by regulatory authorities.

c) With regard to the volume of works executed by people using workers, materials and equipment available in local area and work items funded by people, general administrative expenses and costs of management at the site shall be excluded from indirect costs, and preliminary taxable income and VAT shall be also excluded from the construction cost estimate.

2. Equipment costs:

Equipment costs shall be determined according to Minister of Construction’s Circular providing guidance on determination and management of construction costs.

3. Project management costs:

Project management costs shall be equal to 2,763% of the sum of construction costs and equipment costs (excluding VAT) specified in the approval economic-technical report or construction dossier. Project management costs of offshore construction projects, those located on islands, those located along land borders, those located at communes facing extreme socio-economic difficulties (coastal zones and islands; border communes, safety zone communes; mountainous or ethnic minority villages facing extreme difficulties) as defined according to the Government's regulations shall be adjusted by the coefficient of 1,35.

4. Construction consultancy costs:

a) Surveying costs (if any)

Costs of surveys serving the preparation of economic-technical reports or construction dossiers shall be determined by cost estimation method instructed in the Appendix enclosed with the Minister of Construction’s Circular providing guidance on determination and management of construction costs.

b) Costs of preparation of economic-technical report or construction dossier:

Costs of preparation of economic-technical report or construction dossier shall be equal to 2,5% of the sum of construction costs and equipment costs (excluding VAT), estimated for the volume of works calculated according to design drawings, investment rate or information about costs of projects of similar characteristics or scale, whether they are completed or in progress.

Costs of preparation of economic-technical report or construction dossier in which sample or typical designs announced by regulatory authorities, repeated designs or designs of other projects are used shall be adjusted by the coefficient of 0,8.

c) Costs of preparation of bidding documents and evaluation of bids for construction and procurement works

Costs of preparation of bidding documents and bid evaluation for construction works shall be equal to 0,346% of the construction costs (excluding VAT) specified in the construction contract estimate. Costs of preparation of bidding documents and bid evaluation for procurement works shall be equal to 0,261% of the costs of building materials and equipment (excluding VAT) specified in the procurement contract estimate. In which, the costs of preparation of bidding documents shall be 45%, and the costs of bid evaluation shall be 55%.

d) Costs of construction supervision and installation supervision

Construction supervision costs shall be equal to 2,566% of the construction costs (excluding VAT) specified in the construction contract estimate. Installation supervision costs shall be equal to 0,677% of the equipment costs (excluding VAT) specified in the equipment installation contract estimate. Construction and installation supervision costs of offshore construction projects, those located on islands, those located along land borders, those located at communes facing extreme socio-economic difficulties as defined according to the Government's regulations shall be adjusted by the coefficient of 1,2.

e) Where the application of instructions herein to determination of construction consultancy costs is not appropriate, the construction consultancy costs may be determined by cost estimation as prescribed.

5. Other costs shall be determined by the percentage (%) as regulated by regulatory authorities or estimate or use of values of signed contracts in conformity with law regulations. Where other costs cannot be determined, they may be estimated and included in the construction cost estimate.

6. Cost contingency:

Cost contingency includes provisions for additional quantity of works and contingency for cost escalation during the project execution. Cost contingency shall be determined according to Minister of Construction’s Circular providing guidance on determination and management of construction costs.

7. The construction cost estimate may also include compensation, support and relocation costs (if any).

The construction cost estimate is made according to the appendix enclosed herewith.

Article 5. Appraisal of construction cost estimate

Construction cost estimates of the construction projects applying the specific mechanism under the national target program on sustainable poverty reduction shall be appraised according to the Decree No. 161/2016/ND-CP. Construction cost estimates of other projects shall be appraised according to regulations on construction cost management.

Article 6. Adjustment to construction cost estimate and values of construction contract packages

Construction cost estimates and values of construction contract packages shall be adjusted according to Minister of Construction’s Circular providing guidance on determination and management of construction costs.

Article 7. Transition

Determination and management of construction costs during the transition period shall comply with Clause 1 and Clause 2 Article 36 of the Government's Decree No. 68/2019/ND-CP dated August 14, 2019 and relevant Circulars providing guidance thereof. With regard to the tasks or packages for which contracts have been concluded, the concluded contracts shall remain valid.

Article 8. Effect

1. This Circular comes into force as from February 15, 2020.

2. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Construction for consideration.

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