Positive changes under Vietnam's new Law on Construction

Simplified procedures and contract innovations 6 min read

Vietnam’s new Law on Construction (LOC) seeks to support the government's rapid nation-building agenda, notably by reducing administrative procedures and enhancing contract flexibility. Enacted in December 2025, the new LOC will take effect on 1 July 2026, albeit with certain articles having already coming into effect on 1 January 2026.

This Insight highlights key changes that investors and contractors should be aware of, with a focus on private sector projects.

Reduced administrative procedures: greater autonomy comes with greater responsibility for project owners

The new LOC eliminates several official design appraisal and permit requirements, aiming for a single administrative procedure from project inception to construction readiness. With less oversight and involvement from authorities at the outset of projects, construction owners will bear more responsibility to ensure compliance. This shift will necessitate a new approach to licensing and project management by investors. For incoming investors and lenders, this shift may require a different strategy as they seek comfort on compliance and risk given the reduced number of permits available for due diligence.

Key changes to project designs and approvals include:

1. Feasibility Study (FS) design flexibility: investors are now permitted to opt to use FEED (Front End Engineering Design) or technical designs for purposes of their feasibility studies instead of basic designs. This welcome flexibility can help investors save time and cost during the design stage, especially for large projects where FEED may need to be done in practice anyway.
2. FS appraisal: for 'investment-business projects' (ie not public investment projects and not PPP projects), completion of environmental procedure(s) is no longer a prerequisite for FS appraisal by either the authority or the investor. Note that fire safety design appraisal remains part of the FS appraisal process by authorities.
3. National defence and security projects: for 'critical projects involving national defence and security assurance', the Ministry of Defence and the Ministry of Public Security must provide opinions prior to project approval. The list of critical projects involving national defence and security assurance will be determined by the Ministers of Defence and Public Security. Additionally, some projects will be considered as projects serving national defence and security assurance' for which FS and technical report appraisal will be subject to regulation by the Ministers of Defence and Public Security.
4. Appraisal of later stage designs: under the new LOC, the authorities will no longer be involved in appraising designs after a project's FS is approved such as technical and construction drawing designs. Project owners will be responsible for conducting these appraisals, granting them more project management autonomy. However, this change also requires owners to be diligent with details and modifications made to later-stage designs compared to those approved in the FS. The new LOC expressly allows limited adjustments in later design stages provided that key project parameters remain unchanged. Certain important construction works must undergo design verification to ensure proper appraisal and design control by the project owner. Unauthorized changes to approved designs affecting safety, environment or fire prevention are prohibited, and non-compliant construction may be subject to demolition.
5. Expanded construction permit exemptions: the scope of construction permit exemptions has been broadened. Under the new LOC, projects will be exempt from construction permits if the FS has been appraised and approved. Under the existing LOC, exemptions applied only if designs post-basic design stage were appraised by the competent authority. Other new grounds for exemption under the new LOC include: construction works of investment projects using special investment procedures (as regulated under the Investment Law, being projects located in specialized zones such as industrial zones, high-tech zones and international financial centers); construction works located on land used for public security and national defence purposes; and offshore construction works of investment projects that have been allocated sea area by the competent authority. While the broader category of exemptions is a positive change, if a construction work is construction permit exempt, the project owner is required to send a notice on construction commencement to the local authority, often accompanied by documentation similar to that required for a construction permit application.

Recognition of market practices in construction contracts

The new LOC adopts a number of very liberal changes to construction contract requirements. While such changes still need to be tested through time and dispute resolutions, they are notable and generally welcomed by industry as an effort to align with internationally recognised construction contract templates and principles which, in turn, developed to clearly allocate risk.

1. Content of a construction contract: the LOC clarifies that the article listing contents of construction contracts is optional, so parties are not required to include every provision listed in such article.
2. Application of the Civil Code to construction contracts: the new LOC makes clear that the Civil Code applies to construction contracts where specific regulations are not provided by the LOC. This addresses previous uncertainty regarding whether the Commercial Law or Civil Code takes precedence in the case of construction contracts, a matter which has a significant impact on penalty caps, statute of limitations and late payment interest, among other points.
3. Recognition of liquidated damages and indemnity: the new LOC formally, and significantly, recognizes the concepts of 'pre-determined damages corresponding to the breached contractual obligation and the extent of the breach' and 'compensation for third-party damages as agreed in the construction contract' in construction contracts. Draftsmen from the Ministry of Construction have recently confirmed in a public seminar that these changes are intended to acknowledge market practices regarding liquidated damages and indemnities, which are widely used in construction contracts in practice, despite general lack of certainty over their validity under Vietnam law. While subject to further testing during implementation, these are very welcome changes and offer much greater certainty to contracting parties.
4. Force Majeure events and fundamental change in circumstances: force majeure is now defined to include natural disasters, environmental catastrophes, fires, epidemics, national security emergencies, strikes, embargoes and other cases provided by relevant laws. Fundamental change in circumstances in construction activities include: changes in state policies or laws, unforeseen geological conditions and other cases as defined by relevant laws. The determination of them must meet the conditions set out in the civil law. Since the current LOC does not cover these topics in detail, the new changes offer stakeholders clearer guidance on what they might include. However, the new LOC does not explicitly state that parties can agree on different/additional force majeure events or fundamental changes in circumstances, which ideally should be permitted.
5. Contract language priority: if the construction contract involves a foreign party, the languages used will be Vietnamese and other language(s) as agreed. The new LOC now affirms what was previously not clear, which is that parties to a construction contract can agree that a language other than Vietnamese can prevail. 

Next steps

Overall, Vietnam’s new LOC marks a significant shift toward streamlined procedures and more commercially aligned contracting practices. While these reforms offer investors and contractors greater autonomy and clarity, they also place increased responsibility on project owners to ensure rigorous compliance and risk management.

Interested parties should now:

• review existing project timelines and design processes against the new appraisal and permit rules
• reassess due‑diligence and oversight strategies in light of reduced state involvement
• update construction contract templates to reflect the clarified legal basis for liquidated damages, indemnities and force majeure
• prepare internal teams for the heightened scrutiny required when owners assume a greater role in design verification and compliance control.