In the construction industry, payment is a key factor that directly affects project progress, construction quality, and the financial performance of all parties involved. However, payment disputes remain one of the most common and complex issues—especially in the context of Vietnam’s rapidly growing construction sector, both in scale and investment models.

According to statistics from the Vietnam International Arbitration Center (VIAC) in 2022, violations related to payment in construction contracts accounted for 66% of all disputes in the construction field. This alarming figure reflects serious shortcomings in contract drafting, cost control, and the fulfillment of financial obligations between parties.

Payment disputes can arise at any stage of a project—from contract signing, during construction, to final acceptance and settlement. The parties involved often include investors, main contractors, subcontractors, supervision consultants, and sometimes banks or financial institutions. Each party plays a distinct role in contract execution, but when transparency is lacking, contracts are inconsistent, or obligations are breached, disputes become almost inevitable.

Without a robust control mechanism, delayed or refused payments can lead to severe consequences: contractors may face cash flow shortages, projects may be suspended, interest costs may rise, and in extreme cases, businesses may face bankruptcy.

This article will analyze common types of payment disputes, relevant legal frameworks, and propose effective preventive solutions.

1. Types of Payment Disputes in Construction Contracts

According to litigation practice in Vietnam, payment disputes in construction contracts often focus on the following key issues:

• Delayed or refused payment by the investor. This is considered the most frequent issue in payment-related disputes. Even when the contractor has completed the work on schedule, the investor may cite various subjective or objective reasons to refuse payment. Such actions not only cause financial damage to the contractor but also constitute a serious breach of legal obligations. Article 351(1) of the 2015 Civil Code clearly states: “A party that breaches its obligations shall bear civil liability to the entitled party.” In this context, the investor’s failure to pay on time or refusal to pay is a violation of the financial obligations committed in the contract.

• Disagreements over additional work volumes. Disputes often arise over how to calculate and price work performed outside the original contract scope. These additional volumes typically result from design changes, actual site conditions differing from initial estimates, or supplementary requests from the investor. However, determining the method of calculation and pricing for these additions is often the core issue of contention. According to Article 7 of Decree No. 37/2015/NĐ-CP, written confirmation of additional work volumes is required before execution.

• Disputes over final settlement. Final settlement involves consolidating the total value of completed work to determine the final payment between the investor and the contractor. Disputes often occur due to incomplete acceptance documentation or differences in how each party calculates quantities and unit prices. Conflicting interests and lack of cooperation between stakeholders can also lead to unnecessary disputes. The 2014 Construction Law and Decree No. 37/2015/NĐ-CP stipulate that final settlement must be carried out in accordance with the contract terms and acceptance records.

• Issues with price adjustment. In construction, the prices of materials, labor, and equipment frequently fluctuate due to market conditions. When contracts are signed under lump-sum or fixed unit price formats, adjusting prices becomes complex and prone to disputes—especially when actual costs significantly exceed initial estimates. Regulations on price adjustment in construction contracts are outlined in the 2014 Construction Law and guiding documents such as Decree No. 37/2015/NĐ-CP and Decree No. 50/2021/NĐ-CP.

2. Legal Framework Governing Payment Disputes

Under Vietnamese law, the key legal documents regulating payment in construction contracts include:

• The 2014 Construction Law (amended in 2020): Provides comprehensive regulations on construction investment activities.

• Decree No. 37/2015/NĐ-CP on construction contracts: Details various types of construction contracts, contract contents, price adjustments, payment procedures, acceptance, and dispute resolution.

• Decree No. 50/2021/NĐ-CP: Supplements and amends certain provisions of Decree 37/2015/NĐ-CP.

However, in practice, many construction contracts fail to fully incorporate these legal provisions, resulting in complex disputes during implementation.

3. Causes of Payment Disputes

Payment disputes in construction contracts stem from various causes:

• Poorly drafted contracts. Many contracts lack clear provisions regarding payment conditions, deadlines, and procedures. They also fail to address how to resolve issues arising from actual site conditions and do not specify penalties for breaches of payment obligations. This lack of clarity often leads to misunderstandings and disputes.

• Financial difficulties of the investor. Many investors face cash flow problems, lack working capital, or experience delays in bank disbursements. In some cases, they prioritize payments for other projects, resulting in delayed or refused payments. Although financial hardship is not a legally valid reason to withhold payment, in practice, it is a common cause of prolonged debt and payment disputes, making it difficult for contractors to recover their dues.

• Disagreements over construction quality. Incomplete acceptance documentation can give investors grounds to claim that the work does not meet technical or aesthetic standards, even when such claims lack clear evidence. This is often used as a reason to delay or deny payment.

• Changes in design and scope of work. Modifications that are not confirmed in writing or approved before execution frequently lead to disputes during payment. Additionally, the absence of contract clauses addressing design changes or additional work can prevent contractors from claiming payment for extra tasks performed.

4. Consequences of Payment Disputes

Payment disputes can lead to several serious consequences:

• Suspension or delay of construction: When payments are not made on time, contractors may suspend or halt construction to protect their financial interests. This not only affects project progress but also disrupts the supply chain and incurs additional costs such as labor and equipment. In many cases, projects are left unfinished for years, causing significant losses for both investors and related parties.

• Legal expenses: If disputes cannot be resolved through negotiation or mediation, parties often resort to arbitration or litigation. These processes require substantial costs for lawyers, expert assessments, court fees, and other expenses. Moreover, the time required for resolution can be lengthy, affecting the ability to implement other projects and reducing investment efficiency.

• Impact on project timeline: Payment disputes often delay project completion, especially for large-scale projects or those involving multiple phases requiring acceptance. Delays may lead to contract penalties, loss of reputation with clients, and disruption of operational or exploitation plans.

• Damage to cooperative relationships: Financial disagreements are a leading cause of broken trust between investors and contractors. Once trust is lost, future cooperation becomes difficult or impossible. This directly affects business reputation, competitiveness, and long-term sustainability in the construction industry.

5. Solutions to Prevent Payment Disputes

To minimize payment disputes in construction contracts, parties should apply the following measures:

• Draft detailed contracts. Construction contracts must be thoroughly and clearly drafted, with consistency between both parties—especially regarding payment terms. The contract should specify the payment method (e.g., bank transfer, installment payments based on progress, or lump-sum), conditions for payment (e.g., acceptance, complete documentation), deadlines for each payment phase, and the list of required documents for processing payments. Clear provisions provide a solid legal basis for fulfilling obligations and resolving disputes efficiently without unnecessary delays.

• Establish a transparent approval process. Parties should set up a clear and transparent procedure for approving work volumes and payments, involving relevant stakeholders such as supervision consultants, technical teams, and financial departments. This process should define response timelines, responsibilities of each party, and forms of confirmation (e.g., minutes, written documents, emails). A well-defined process ensures objectivity, reduces delays, and facilitates timely payments.

• Maintain complete documentation. Keeping full and accurate payment records is essential to protect the rights of all parties in the event of a dispute. Complete documentation not only proves the value of completed work but also serves as strong legal evidence in arbitration or court proceedings.

• Define a dispute resolution mechanism. Contracts should include clear clauses outlining the dispute resolution process, including steps such as negotiation, mediation, arbitration, or litigation. For arbitration, the contract should specify the arbitration center, number of arbitrators, and the rules to be applied. Pre-defining the resolution mechanism allows parties to respond proactively to conflicts and helps save time and costs compared to handling disputes without a clear direction.

6. Lessons learned from dispute resolution practice

• Drafting contracts in the most detailed manner helps reduce the likelihood of disputes and ensures the rights of all parties involved.

• Any additional work volume must be confirmed in writing before execution to secure payment entitlements.

• Complete payment documentation serves as a crucial legal basis for final settlement or in the event of a dispute.

• Clear provisions on dispute resolution mechanisms enhance the effectiveness of conflict handling and help minimize associated costs.

• Price adjustments must follow a defined method and process that align with market fluctuations.

• Transparent communication between parties is a key factor in ensuring project progress, maintaining cooperation, and preventing unnecessary conflicts of interest.

7. Conclusion

Payment disputes are a common issue in construction contracts in Vietnam, causing serious consequences for all parties involved. These disputes not only result in financial losses but also affect project timelines, construction quality, and the reputation of stakeholders. Drafting detailed contracts, complying with legal regulations, and establishing transparent payment procedures are essential solutions to prevent such conflicts.

Investors and contractors must recognize the importance of clearly defining payment-related terms in construction contracts, in accordance with the 2014 Construction Law, Decree No. 37/2015/NĐ-CP, and Decree No. 50/2021/NĐ-CP. These legal foundations are crucial to ensuring smooth contract execution and minimizing the risk of disputes.

To receive a complete set of sample contract clauses and expert legal advice on how to effectively apply them to your construction project, please contact Harley Miller Law Firm:

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