7 Key Notes for Signing EPC Contracts with Foreign Contractors [2026]

An EPC (engineering – procurement – construction) contract with a foreign contractor is the backbone of major industrial projects — and the source of the costliest disputes. From 1 July 2026, Vietnam’s construction legal framework changes completely (Law 135/2025, Decrees 217/2026 and 212/2026). Here are 7 practical notes for signing EPC contracts with foreign contractors under the new framework — with lessons from the TISCO 2 case.

Note 1: Verify the foreign contractor’s construction operation license

Foreign contractors must hold a construction operation license in Vietnam. Under Article 88 of Construction Law 135/2025/QH15 and Decree 212/2026/ND-CP (on construction practice capacity), a foreign contractor must be licensed before signing and performing an EPC contract.

In practice: require the contractor to present a valid license and cross-check the licensed scope against the EPC package (design? construction? both?). Signing with an unlicensed contractor is a legal risk from day one.

Note 2: Consortium and Vietnamese subcontractors

Foreign contractors are typically required to form a consortium with a Vietnamese contractor or use Vietnamese subcontractors for certain items. The EPC contract should clearly state:

The ratio and scope of each consortium member / subcontractor;
The main contractor’s joint liability for subcontracted work;
The mechanism for replacing a subcontractor that fails schedule or quality.

Note 3: FIDIC templates must be adapted to Vietnamese law

International practice favors FIDIC templates (Silver Book for EPC) — but they must not be applied verbatim. FIDIC clauses need review and adaptation to Vietnamese law, especially:

Price clauses: price adjustment mechanisms, foreign/local currency payment, foreign-exchange compliance;
Force majeure: definition and consequences under Vietnam’s Civil Code, not just the FIDIC definition;
Warranty, acceptance, handover: aligned with current construction quality management rules.

Note 4: Contractor tax — split line items to get the right rates

Foreign contractors are subject to contractor tax in Vietnam. The 2026 framework: Circular 20/2026/TT-BTC + Decree 320/2025/ND-CP on corporate income tax for foreign contractors; Article 30 of Circular 89/2026/TT-BTC on procedures.

Practical tip: in the EPC contract, separate the line items (design, equipment supply, construction, services) because each is subject to a different tax rate. A single lump-sum price without itemization can cause the entire contract value to be taxed at the highest rate. Also specify clearly which party bears the withholding and on-behalf tax payment obligations.

Note 5: Payment, guarantees, and foreign exchange

Performance bonds, advance payment guarantees, warranty guarantees: define the value, duration, and issuance/release conditions of each — typically issued by a reputable bank.
Payment milestones tied to verifiable completion points — never pay on impression.
Foreign exchange: paying a foreign contractor involves foreign currency — comply with foreign-exchange rules on account opening and outward remittance.

Note 6: Design appraisal, fire safety, insurance, and work permits

Mandatory design appraisal: Clause 5, Article 26 of Law 135/2025 — EPC designs must be appraised as required before construction.
Fire safety: fire-safety design approval for covered works.
Construction insurance: specify who buys it and the coverage (all construction risks, third-party liability).
Work permits for the contractor’s foreign specialists: under Decree 219/2025/ND-CP (effective 7 August 2025) — note the new rules on conditions, durations, and exemptions.

Note 7: Dispute resolution clauses — lessons from TISCO 2

TISCO 2 (Thai Nguyen iron and steel project, phase 2) is a costly lesson in EPC contracting with foreign contractors: prolonged disputes over contract termination, liquidation, and compensation. (This article uses the case only to illustrate contracting lessons, not to comment on any party’s legal liability.)

Recommendations for dispute clauses:

Arbitration: choose arbitration (e.g., VIAC under the VIAC 2026 arbitration rules, effective 1 July 2026) over courts — confidential, international, easier enforcement;
Governing law: state the law governing the contract expressly;
DAB (Dispute Adjudication Board): consider a FIDIC-style DAB to resolve issues during construction and avoid the “meltdowns” of notorious EPC projects;
Detailed termination/liquidation clauses: procedures, timelines, valuation of performed work — the biggest blind spot in the TISCO 2 saga.

Frequently asked questions

Does a foreign contractor need a construction license in Vietnam?

Yes, mandatory — under Article 88 of Construction Law 135/2025 and Decree 212/2026/ND-CP. The license must predate signing and performance.

Should we use the FIDIC template verbatim for EPC in Vietnam?

No. FIDIC templates must be adapted to Vietnamese law (price, force majeure, warranty, acceptance, etc.).

How is EPC contractor tax calculated?

Under the 2026 framework (Circular 20/2026/TT-BTC, Decree 320/2025): split line items (design, equipment, construction, services) to apply the correct rates; specify the withholding/on-behalf payment party.

Legal bases (as of 14 October 2026)

Construction Law 135/2025/QH15 — effective 1 July 2026 (replacing Law 50/2014); Article 88 (foreign contractors); Article 26(5) (design appraisal).
Decree 217/2026/ND-CP — construction activity management (effective 1 July 2026).
Decree 212/2026/ND-CP — capacity and licensing of construction operations (effective 1 July 2026).
Circular 20/2026/TT-BTC + Decree 320/2025/ND-CP; Article 30 of Circular 89/2026/TT-BTC — contractor tax.
Decree 219/2025/ND-CP (effective 7 August 2025) — work permits for foreigners.
VIAC 2026 arbitration rules — effective 1 July 2026.

Note: do not cite Construction Law 50/2014, Decree 15/2021, Decree 175/2024, or Circular 103/2014 as current authority.

Contact us

FLAT Law Firm advises on negotiating and drafting EPC/FIDIC contracts with foreign contractors, reviewing tax and guarantee clauses, and resolving construction disputes. Reach us via our contact page.

Transparency note — FLAW AI Legal Council: This article was prepared by the FLAW AI Legal Council and has not been reviewed by a human lawyer. It is general information and does not replace legal advice for specific projects.

This article is awaiting review by the QA Council.