NO&T Asia Legal Review
Under Vietnamese law, an investor may acquire land for developing a project by one of the following methods: (A) participating in a land auction, (B) participating in a tender to select investors, (C) obtaining land allocation or lease from the State without auction or tendering, or (D) receiving transfer of land use rights from existing land users.
Recently, the National Assembly of Vietnam has enacted several new/amended laws (including Investment Law (“LOI”) 2020, Tendering Law (“LOT”) 2023 and Land Law (“LOL”) 2024) to reflect new policies that auction and tendering methods (i.e., methods (A) and (B) above) are the two principal ways to obtain land allocation or lease from the State, in which tendering method is anticipated to be the most common for large projects. The basic differences between auction method and tendering method are that in the auction method, the State offers a vacant land and a detailed master plan to the investor, whereas in the tendering method, the land clearance and the detailed master plan may not be completed, but the State undertakes to handle or support these tasks.
In this article, we give an overview of the history of previous laws and then discuss some key contents of the new/current tendering procedure for selection of investors to implement a project that uses land as set out under current law.
The legal concept of “tendering for selection of investor for a project” was stipulated as early as 2000 under Decree 04 dated 11 February 2000 on the implementation of the LOL 1993 (as amended 1998), although only built transfer (“BT”) projects were the subject of the tendering regulations under this decree.
The tendering scope was expanded to include residential development projects, industrial park development projects, economic zone development projects and business/production projects (beside the BT projects) under the LOL 2003. However, the LOL 2003 and its implementing decrees did not fully provide specific tendering regulations for selection of investors. Likewise, the LOT 2005 and its implementing decrees were also silent on the same.
In the absence of the tendering regulations, the Ministry of Planning and Investment (“MPI”) issued Circular 03 dated 16 April 2009※1 regarding the manner of selecting investors for implementing certain important projects which needed to use land. But there seem to be only a few cases where the investors were successfully selected for development of projects in the country through tendering process.
In the period of 2010-2020, thanks to the enactment of the LOL 2013, the LOT 2013 and their implementing decrees, the regulations on tendering for selection of investor started to develop. Yet, there were still certain complaints about the ambiguous provisions under these laws and regulations (especially provisions on scoring and referenced land prices) and as a result, the selection of investor through the tendering process was still difficult and uncommon at the time.
In an attempt to push the tendering for selection of investor as one of the main methods for granting land allocation or lease to the investors (together with the auction method), Vietnam has enacted the LOI 2020, the LOT 2023, the LOL 2024, and their implementing decrees. Notably, the Vietnamese government has recently issued Decree 115/2024 dated 16 September 2024 on tendering for selection of investor to implement a project that uses land (“Decree 115”) to perfect the tendering regulations.
The key contents of the tendering procedures and mechanism set out under these laws and regulations comprise:
Forms of bidding: The LOT 2023, which regulates both tendering for selection of contractor of a project/work and tendering for selection of an investor of a project, provides that the tender may be organized in the form of either “open bidding” or “limited bidding” depending on the technical/technological requirements or characteristics of the relevant projects. As a major change, the LOT 2023 and Decree 115 make clear that foreign investors (individuals or organizations) may participate in an international bidding.
International bidding: International bidding may apply for cases other than the following cases※2: (i) projects in the list of industries and trades that are not yet accessible to foreign investors according to the provisions of the investment law; (ii) projects that need to be bid on domestically due to the requirements for ensuring national defense, security, social order and safety; (iii) projects implemented in areas with restricted land use, sea areas with restricted use for foreign investors, economic organizations with foreign investment capital according to the provisions of the land law and relevant laws; (iv) projects with a total investment capital of less than VND800 billion (equivalent to approximately USD32 million); and (v) projects that have been announced and notified to invite interest in organizing international bidding, but no foreign investors have participated.
The National Bidding Network System (“NBNS”): NBNS is an information technology system managed and operated by the MPI for bidding activities with the aim of unifying the management of bidding information and conducting bidding online. The bidding information (including details of project) must be posted on the NBNS except for projects or bidding packages containing information classified as State secrets. Notably, according to the LOT 2023, as from 1 January 2025, online bidding shall apply to all bidding packages, except for cases where bidding is not conducted on the NBNS as prescribed by the Vietnamese government. However, Article 62 of Decree 115 limits the online bidding to domestic bidding only and makes clear that online bidding shall not apply to international bidding.
Scoring system: Investors may be approved as winning the bid when they have the highest overall scores on capacity, experience, business investment plan, land use efficiency, and/or investment efficiency in developing industries, fields, and localities※3. According to Article 45 of Decree 115, the total scores (ensuring a total proportion of 100%) are built based on the combination of the following three scores: (i) capacity and experience scores, (ii) business investment plan scores, and (iii) land use efficiency scores or investment efficiency scores for industry, sector and local development (depending on the category of projects), for example:
Scoring system | Development of urban area projects or rural housing projects | Development of public use facilities with profit-making purpose projects, social housing projects, re-construction of apartment buildings, etc. | Development of energy projects |
Percentage (%) of total scores | |||
Capacity and experience scores | 20% to 30% | 30% to 40% | 5% to 10% |
Investment and business plan scores | 20% to 30% | 30% to 50% | 5% to 10% |
Land use efficiency scores | 40% to 60% | N/A | N/A |
Investment efficiency scores for industry, sector and local development | N/A | 10% to 40% | 80% to 90% |
Total scores | Max. 100% | Max. 100% | Max. 100% |
Notably, the land use efficiency is only applicable to urban area projects or rural housing projects, whereas the investment efficiency is applicable to other projects that require tendering for selection of investors.
In respect of land use efficiency, Article 48 of Decree 115 stipulates that the competent authority shall determine a “minimum ratio of contribution to the state budget” (called “m”), which is the average increase ratio after auction of land use rights calculated per unit of land area (m2) of qualified referenced land plots, land funds, and land parcels※4 and is calculated according to a sophisticated formula set out under Article 48.3 of Decree 115. The investor then proposes a “ratio of contribution to the state budget” in the bidding documents (called “M”) which is based on “m” specified in the bidding invitation, in which M must be equal to or higher than m. The winning investor shall contribute to the state budget an amount being the result of M multiplied by the amount of land use fee or land rent and this contribution amount shall be made at the same time with the payment of land use fee or land rent.
With respect to the investment efficiency for industry, sector and local development, Article 49 of Decree 115 contemplates several criteria for evaluation. The criteria for evaluation varies depending on the types of projects. In particular, the evaluation is built on the basis of one of the following criteria: (i) the minimum value in cash paid to the state budget; (ii) the minimum revenue ratio paid to the state budget; (iii) the price frame, maximum price according to the provisions of the law on prices, the law on management of sectors and fields; (iv) the minimum number of public works without business purposes based on the list of projects and works requiring investment of the locality where the project is implemented; (v) the minimum value of social assistance activities or other social welfare activities for social protection beneficiaries, determined by the value in cash or the number of people supported based on the list of social protection beneficiaries or social assistance activities of the locality where the project is implemented; (vi) the maximum threshold of type, level of toxicity and total amount of pollutants discharged into the environment according to the provisions of the law on environmental protection; and (vii) the land use area, maximum land use coefficient.
Project contract: The winning investor and the competent authority shall sign a “project contract” which shall include the following key contents※5: (i) project implementation progress; scale and total investment capital; conditions for land use and other resources (if any); (ii) responsibility for implementing land clearance and compensation and organizing the construction of auxiliary works (if any); (iii) contract term (i.e., from the time the project contract takes effect until the investor completes its obligations to perform the commitments proposed in the bidding documents and other obligations as agreed upon by the parties in the project contract); and (iv) performance guarantee (e.g., performance bond of 1% to 3% of total investment capital).
Settlement of petition: When the investors consider its/his/her legitimate rights and interests are affected, the investors may submit a petition requesting the relevant authority (or the bid inviting party) to review the matters arisen in the process of selecting investors (including the results of selecting investors). However, the investors may choose to submit either the petition to the relevant authority or complaint/denunciation to a competent authority or initiate a lawsuit. If the investors file a lawsuit, complaint, or denunciation while in the process of resolving their petition, the resolution of the petition shall be terminated immediately.
The recent developments on the tendering regulations for selection of investors to implement projects which use land indicate the determination of the Vietnamese government in making this method more transparent and workable. However, the regulations are still new to the market and therefore practical feasibility is yet to be determined. In any case, since the tendering method is mainly designed for using uncleared land for projects and allows the winning investors to advance fund to the relevant authority for land clearance, it should become a common method of acquiring land for development of investment projects in Vietnam in the future, in addition to the auction method.
*1
Circular 03 provides a broad category of projects subject to the tendering process for the selection of the investor, including residential development for sale or lease and other commercial developments at favorable locations.
*2
Article 11.2 of the LOT 2023.
*3
Article 63 of the LOT 2023.
*4
Under Article 48.4 of Decree 115, the referenced land plots, land funds, and land parcels must have the same land use purposes and similar locations, and the successful auction prices in the most recent years. As to the similar locations, it is deemed as within one district; however, if the referenced land plots cannot be found within such a district, land plots in neighboring districts or even in the same province may be used. Likewise, with respect to the time limits, the standard limit is 3 preceding years; however, if such limit is not available, the limit can be extended to 4 – 7 years.
*5
Articles 71 through 76 of the LOT 2023. In addition, Appendix III of Decree 115 provides the components of a project contract (which comprises of contract document, general conditions, specific conditions and contract appendices).
This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.
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