A construction company value sits in two time-sensitive things: the capacity grade on its certificate on the purchase date, and the portfolio of ongoing contracts with guarantees still hanging. Both can change value right after the buyer pays if not checked properly.
1. The construction capacity certificate: which grade, how long left
A construction organisation in Vietnam needs a construction activity capacity certificate by grade (grade I, II, III) for each field (survey, design, construction, supervision, project management) under the Law on Construction 50/2014/QH13 (amended by Law 62/2020/QH14) and Decree 15/2021/ND-CP. The certificate attaches to the legal entity and to its key personnel, equipment and experience conditions: in a share deal the certificate travels with the company, but diligence must check each field grade against the works the company is and will be building, the certificate remaining term, and the risk of losing conditions after the deal — if the chief commanders and key engineers who underpin the grade leave after the ownership change, the certificate may no longer reflect real capacity when the regulator inspects or the company bids new packages.
2. Ongoing contracts and change-of-ownership clauses
The ongoing contract portfolio must be read in three risk layers: progress and accepted value against contract value (a quietly loss-making contract is one whose estimated completion cost exceeds its remaining value); clauses on ownership change and contract assignment of the project owner — many construction contracts, especially with foreign owners and public projects, give the owner consent or termination rights when the contractor changes control; and delay penalties accruing or likely to arise. The buyer must also reconcile backlog volume against working capital: a company whose contract portfolio is many times its working capital is living on owner advances.
3. Project guarantees: commitments hanging off balance sheet
Performance guarantees, advance payment guarantees and warranty guarantees issued by banks for the company are hanging commitments the buyer inherits through the entity: advance guarantees release only as advances are offset against payments; performance guarantees get called when the company breaches. Diligence must list every guarantee in force with the bank guarantee credit line and the collateral behind those guarantees (often deposits or assets of the selling shareholders). The most overlooked point is guarantees secured by the sellers personal assets: after closing, the bank may demand collateral substitution, and the company can lose its guarantee line mid-stream if the buyer has not arranged with the bank in advance.
4. Works warranty debts and provisioning
Handed-over works still carry warranty obligations for the contract term and under construction warranty rules; warranty retention money held by project owners is a conditional receivable of the company, while repair costs in coming years are an obligation not yet on the balance sheet. Diligence needs: the list of works inside their warranty period with retention amounts, actual warranty cost history over the last three years to estimate a provisioning rate, and known major quality incidents. A company whose handed-over revenue grew fast in the last two years usually carries a wave of warranty costs falling due exactly during the buyer takeover phase.
5. Conclusion for investors
Buying a construction company is safe when four things are verified: capacity certificates at the right grade, in term, with personnel conditions surviving the ownership change; ongoing contracts free of dangerous change clauses and hidden losses; every hanging guarantee listed with a bank collateral-substitution arrangement; and warranty provisions computed from real history. Missing those layers, the buyer prices a company on past revenue while its risk lies entirely in the future.
Frequently Asked Questions
What grade is the construction capacity certificate, and is it valid?
Check the construction activity capacity certificate for each field under Decree 15/2021/ND-CP: grade I, II or III, remaining term, and whether the key personnel conditions underpinning the grade survive the ownership change — the point most easily lost after a deal.
Do ongoing contracts carry change-of-ownership clauses?
Read every material contract: many construction contracts give the project owner consent or termination rights when the contractor changes control. In parallel, reconcile progress and accepted value against estimated completion costs to detect quietly loss-making contracts.
How are the target project guarantees handled?
List every performance, advance and warranty guarantee in force, the bank line and the collateral behind them. Guarantees secured by the selling shareholders assets need a substitution arrangement with the bank before or at closing so the company does not lose its guarantee line.
How much should be provided for works warranty debts?
Base it on the list of works inside their warranty period, retention money held by owners, and the actual warranty cost rate over the last three years on handed-over revenue. A company with fast-growing handover revenue usually needs a higher provision rate than its books show.
This article has been quality-reviewed by the FLAW AI Legal Council