The contract says “complete in 12 months” but by month 15 the contractor still hasn’t finished — how much can the investor penalize? This is the most practical question in every schedule dispute. The answer has 3 layers: contractual agreement, statutory caps and damage compensation beyond penalties.
This article guides penalty calculation for construction delays under the 2025 Construction Law, Decree 210/2026 and its relationship with Article 301 of the 2005 Commercial Law.
1. First principle: penalties must be agreed in the contract
The 2025 Construction Law provides: bonuses, penalties for construction contract breaches and damage compensation must be agreed by the parties in the contract (Point k, Clause 4, Article 82 lists this among the contract contents; the duty to agree it in the contract is at Clause 1, Article 86). The practical consequence is clear: a contract without a penalty clause cannot trigger penalties — the aggrieved party is left only with damage claims under the Civil Code and the Construction Law. When drafting, the penalty clause is indispensable “insurance”.
2. How delay penalties are calculated
Basic formula: Penalty = penalty rate (%) × value of the breached contract portion.
- Penalty rate: as agreed in the contract (e.g., 0.05%/day of delay, or 10% of the delayed work value);
- Breached portion value: the value of the delayed work portion, not the entire contract value — unless the whole project is delayed.
Example: a VND 100 billion contract, item X worth VND 20 billion delayed 30 days; the contract agrees 0.1%/day on the delayed portion’s value, capped at 10% of the breached portion. Penalty = 0.1% × 20 billion × 30 days = VND 600 million (below the 2 billion cap) → penalty of VND 600 million.
3. Penalty cap: 12% for public investment and PPP projects
For construction works under public investment or PPP projects, the 2025 Construction Law caps construction contract penalties at 12% of the breached contract portion’s value. This is a hard limit: even if parties agree a higher rate, the excess is ineffective. For other-funded projects, penalty levels are as agreed — the general reference framework is Article 301 of the 2005 Commercial Law (max 8% of the breached obligation’s value), but construction contracts are governed by specialized law, so the Construction Law prevails.
4. Penalties and damage compensation are independent
An often-missed point: beyond agreed penalties, the breaching party must also compensate damages to the other party (and third parties, if any) per contractual agreement and law. Delay damages may include: extended project management costs, loan interest, standby site/machinery rental, profits lost from delayed operation. The two sums accumulate if the contract so provides — penalties do not “cover” all losses.
5. Establishing “delay”
To penalize, “delay” must be proven against something:
- Contract schedule (Article 10, Decree 210/2026): master schedule, detailed schedules, agreed completion, acceptance and handover milestones — the “measuring stick”;
- Compare the actual completion date against agreed milestones;
- Exclude validly extended periods under the contract and time affected by force majeure or fundamental change of circumstances.
Dispute practice shows: contracts stating only vague schedules (“complete in 12 months” without detailed milestones) make proving delay very difficult.
6. Accompanying measures for contractor delays
Beyond monetary penalties, the awarding party may: require the contractor to accelerate (acceleration costs borne by the breaching party); suspend contract performance; terminate the contract and bring in a replacement contractor (Article 85 of the Construction Law, Decree 210/2026) — with cost differences compensated by the breaching party.
Frequently asked questions
Q: Is a 1-day delay penalizable?
A: In principle, delay against agreed milestones is a breach — even 1 day. But well-drafted contracts usually provide a “grace period” or progressive penalties to avoid petty disputes.
Q: Is a contractor penalized for storm-caused delays?
A: If storms qualify as force majeure under contractual agreement and law, the contractor is exempted for the affected period — but must notify promptly and prove it.
Q: Is claiming both penalties and damages “double punishment”?
A: No. Vietnamese law treats breach penalties and damage compensation as two independent remedies with different functions (sanction vs consequence remediation). They accumulate unless the contract or law excludes it.
In a construction schedule dispute and need penalty calculations? Contact us for advice.
This article was prepared by the FLAW AI Legal Council. Content is pending QA Council review before submission for approval; information is for reference only and does not replace legal advice for your specific case.
