Remarkable changes in Bidding Law 2023

The National Assembly of Vietnam on June 24, 2023 adopted the Bidding Law No. 22/2023/QH15 which will replace the existing Bidding Law No. 43/2013/QH13 from January 1, 2024. Duong Anh, senior partner of VILAF law firm, analyzes major points of the new law and their possible impacts.

Scope of application

The Bidding Law 2023 extends its scope of application to govern activities for selection of contractors to implement bidding packages of investment projects of not only State-owned enterprises (SOEs) but also enterprises which are wholly owned by SOE(s). This amendment has drawn much attention from investors during the drafting of the law.

Previously, at the drafting stage, with the aim to impose stricter management of the State’s capital invested in enterprises, Article 2 of the draft Bidding Law 2023 (version dated 6 April 2023 submitted to the National Assembly) proposed that the selection of contractors to implement bidding packages of investment projects of enterprises in which SOE(s) holds more than 50% of charter capital would also be subject to the Bidding Law 2023. This proposal was controversial and not appreciated by investors, especially foreign ones who enter into joint ventures with SOEs.

The obstacles for applying the bidding procedure are attributable to its length and complexity. If enacted, this above proposal would create a heavy administrative burden and extra costs for enterprises in which SOE(s) hold more than 50% of charter capital. It is further noted that the Law on Management and Use of State Capital in Enterprises and its implementing Decree 91/2025/ND-CP already set out a statutory regime on the management of State capital invested in enterprises and the outward investments by SOEs, which do not require SOEs which hold more than 50% of the charter capital in another enterprise to procure the latter to comply with the Bidding Law and its regulations when implementing an investment project.

The National Assembly has taken into account comments from investors and voted against the proposal of the draft Bidding Law 2023 to extend the scope of application of the Bidding Law 2023 to enterprises in which SOE(s) hold more than 50% of charter capital. Instead, only enterprises in which SOE(s) hold 100% of charter capital will be subject to the Bidding Law 2023. This proves that Vietnam is determined to create and maintain a friendly investment environment where the voices of investors are heard and the benefits for investors in the private sector are assured and balanced with the State’s.

Selection of investors

Article 2.3 of the Bidding Law 2023 provides two cases which are subject to the bidding for selection of the investor for an investment project, specifically: (i) investment projects using land subject to mandatory bidding for selection of the investor as provided for by land laws and regulations; and (ii) other investment projects which are subject to the selection of investors through a bidding process pursuant to specialized laws.

As far as investment projects using the land referred to above are concerned, Article 2.3 of the Bidding Law 2023 appears to resolve the existing conflict between land laws and the bidding laws with respect to selection of investors. Specifically, Article 1.3 of the Bidding Law 2013 and Article 1.1 Decree 25/2020/ND-CP (as amended) provide that mandatory biddings shall apply for the selection of investors in investment projects using land for civil construction works with one or more functions comprising commercial housing, head offices and working offices; and commercial and service spaces.

Meanwhile, Article 118 of the Land Law 2013 requires for the auction of land use rights (LURs) for projects of construction of residential housing for sale, lease or hire-purchase, or investment in construction of infrastructure for assignment or lease. Those provisions in the two laws overlap in certain areas; however, it is not clear as to which law would prevail in case of overlapping.

The lawmakers have drawn a clear line under the Bidding Law 2023 between those areas subject to auction for LURs and projects subject to bidding procedures under the draft new Land Law. While waiting for the draft new Land Law to be passed by the National Assembly (expected early next year), Article 96.3 of the Bidding Law 2023 provides that the Bidding Law 2013 and its implementing regulations shall continue being applied for the selection of investors for investment projects using land.

Similar to the Bidding Law 2013, the Bidding Law 2023 allows the selection of investors through either domestic bidding (where only domestic investors can participate in bidding) or international bidding (where both foreign and domestic investors can participate in bidding). With respect to international bidding, Article 15.2 of the Bidding Law 2013 currently only prohibits foreign investors from participating in bidding for those projects subject to investment restrictions under investment laws.

Article 11.2 of the Bidding Law 2023 however prohibits international bidding in other cases. In particular, Article 11.2 of the Bidding Law 2023 lists out five cases in which international bidding shall be prohibited, specifically: (i) projects in any sector for which market approach is not allowed for foreign investors according to the provisions of investment laws; (ii) projects for which domestic bidding is required due to national defense, national security, social order and safety reasons; (iii) projects that will be implemented in any land or sea areas where the use by foreign investors and foreign-invested enterprises is restricted under land laws and relevant regulations; (iv) projects with a total investment capital of less than VND800 billion (approx. $34 million); and (v) projects that do not fall into any of the aforementioned cases and have been invited international bidders but no foreign investor has participated or expressed an interest.

Further, with respect to the criteria for assessment of bids for selection of investors for investment projects, the Bidding Law 2023 provides a more detailed set of criteria as compared to the Bidding Law 2013. According to Article 58.2 of the Bidding Law 2013, the bids submitted by investors are assessed based on three criteria, including: (i) capacity and experience, (ii) technical criteria and (iii) financial criteria. Article 62.2 of the Bidding Law 2023 nevertheless requires that any bid submitted by investors must be assessed based on three criteria, including: (i) criteria to assess investors’ financial capacity, capacity in capital arrangement and experience in similar projects; (ii) criteria to assess the project implementation plan proposed by the investors, including technical, social and environmental criteria; and (iii) criteria to assess the efficiency of land use and the efficiency of investment in the development of business sectors, fields and localities.

With respect to projects that have special requirements on conditions for investment, management and development of the relevant business sector pursuant to relevant laws, the bid invitation may provide requisite demands that each bid must satisfy to each of the three criteria. Any submitted bid will be scored on a 100-point or 1,000-point scale. The investor with a valid bid, has satisfied the assessment criteria and has achieved the highest total score will be selected.

Contracts with selected investors

Article 73 of the Bidding Law 2023 for the first time stipulates the main contents of the contracts entered into between the competent authority and those investors selected from the bidding process, which comprise: (i) information about contracting parties, the effective date and the contract term; (ii) information about the investment project, including objectives; address; implementation schedule; scale and total investment capital; conditions for use of land and other resources (if any); plans and requirements with respect to land compensation, support, resettlement and construction of auxiliary works (if any); safety and environmental protection; force majeure events and plans to deal with force majeure events; (iii) responsibilities to conduct procedures on land compensation, support, resettlement and construction of auxiliary works (if any); land allocation or land lease (if any); (iv) investor’s responsibilities to perform their undertakings proposed in the bid; the establishment of a project company to manage the project implementation (if any); (v) contract performance security; principles and conditions for contract amendments and termination; the transfer of contracting parties' rights and obligations; and (vi) governing law and dispute resolution methods. The Bidding Law 2023 further requests that the Government provide further guidance on the contract terms and conditions in the upcoming time.

Different from the Bidding Law 2013, the Bidding Law 2023 under Article 75 requires selected investors to perform contract performance security before or at the effective date of the signed contracts by obtaining (i) a guarantee letter from a domestic credit institution or a foreign bank's branch that is established pursuant to Vietnamese law, or (ii) a guarantee insurance certificate issued by a domestic non-life insurer or a foreign non-life insurer's branch that is established in Vietnam. This regulation is stricter than the regulation under Article 72 of the Bidding Law 2013 which does not impose any specific form of contract performance security.

Contractor appointment

The Bidding Law 2023 (i.e. Article 22) provides a broader application of “contractor appointment” compared to the Bidding Law 2013. Several cases which are currently subject to special procedures for selection of contractors under Article 26 of the Bidding Law 2013 and Decision 17/2019/QD-TTg dated April 8, 2019 of the Prime Minister shall be allowed to apply the “contractor appointment” under the Bidding Law 2023. These cases include (i) bidding packages for purchase of broadcasting rights; (ii) bidding packages for transporting national reserve goods for relief and aid in case of immediate delivery; (iii) bidding packages for renting a warehouse to store temporarily seized goods; (iv) bidding packages for transportation, loading and unloading of goods temporarily held at seaports or concentrated cargo inspection locations in case there is only one service provider in the port; and (v) bidding packages for importing sports weapons to supply to clubs, schools, and sports training centers for annual training and competition.

Previously, during the drafting of the Bidding Law 2023, the drafting committee proposed a very broad application of the “contractor appointment”, including such cases as bidding packages for construction under urgent orders, bidding packages for resettlement, etc. This proposal however did not receive support from delegates of the National Assembly.

Procurement of medicines and medical supplies and chemicals

Article 53.1 of the Bidding Law 2023 allows centralized procurement in case of procurement of rare drugs or drugs that need to be purchased in small quantities to ensure that there are sufficient drugs to serve the needs of medical examinations and treatment. Customarily, this method only applies in cases of procurement of goods and services in large quantities and of similar categories at one or more agencies or organizations. However, if bidding is separately organized for procurement of rare drugs or in small quantities in each locality, it would be very difficult to choose a supplier given that not many are willing to participate in bidding for procurement of small quantities of drugs. The new provision in Article 53.1 of the Bidding Law 2023 is expected to help tackle this difficulty.

Besides, Article 55 of the Bidding Law 2023 now comprehensively details different ways for medical examination and treatment establishments to select contractors for supply of chemicals, testing supplies and medical equipment, specifically (i) selecting contractors to supply chemicals and testing supplies where contractors are required to supply medical equipment to use the relevant chemicals and testing supplies but are not required to transfer the ownership of medical equipment; (ii) selecting contractors to provide certain technical services under contract terms of five years or less where contractors are required to supply chemicals, testing supplies, medical equipment (without transferring ownership of the medical equipment), spare parts, accessories and related services to operate the medical equipment according to the agreed technical services but are not required to provide workers to operate the medical equipment; (iii) selecting contractors to supply chemicals, testing supplies and medical equipment where contractors will transfer the ownership of the relevant chemicals, testing supplies and medical equipment from the effective date of the contracts between the parties; (iv) selecting contractors to supply medical equipment in accordance with bidding laws; (v) selecting contractors to supply chemicals and testing materials to operate existing medical equipment; and (vi) selecting contractors to provide technical services according to the provisions of the Law on Medical Examination and Treatment.

Last but not least, Article 56 of the Bidding Law 2023 provides more specific incentives to procure domestically-manufactured medicines. Particularly, for medicines being manufactured by at least three domestic manufacturers that meet technical criteria as prescribed by the Ministry of Health and meet requirements in terms of quality and price, project owners may, at their discretion, decide to require contractors to offer bids with medicines of domestic origin only. For medicines announced by the Ministry of Health that (i) are being manufactured by at least three domestic manufacturers on drug production lines that meet the principles and standards of EU-GMP or EU-GMP equivalent; and (ii) that meet technical criteria as prescribed by the Ministry of Health and meet requirements in terms of quality, price and supply capacity, the bidding dossiers must require contractors to offer bids with medicines of domestic origin only.

This regulation is expected to encourage domestic medicine manufacturers to increase investment in modern equipment and production lines, with an aim to improve competitiveness of domestically-manufactured medicines while saving medical examination and treatment costs for people.