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Investment through Build-Transfer-Operate (BCC) Contracts

Investment 04/01/2024

Vietnam has been rapidly evolving as an attractive destination for foreign investors due to its stable economic growth, strategic location, and proactive government policies. One avenue that investors often explore is the Build-Transfer-Operate (BCC) contract, a unique investment mechanism that holds significance in the Vietnamese legal framework. In this article, Apolo Lawyers (+84) 903.419.479) will delve into the intricacies of investment through BCC contracts in accordance with Vietnamese law.

Investment through Build-Transfer-Operate (BCC) Contracts

Vietnam has been rapidly evolving as an attractive destination for foreign investors due to its stable economic growth, strategic location, and proactive government policies. One avenue that investors often explore is the Build-Transfer-Operate (BCC) contract, a unique investment mechanism that holds significance in the Vietnamese legal framework. In this article, Apolo Lawyers (+84) 903.419.479) will delve into the intricacies of investment through BCC contracts in accordance with Vietnamese law.

1. Build-Transfer-Operate (BCC) Contracts: An Overview

A Build-Transfer-Operate (BCC) contract is a form of investment arrangement commonly employed in large-scale infrastructure projects. In a BCC contract, a private investor, typically a foreign entity, undertakes the construction of a project, transfers ownership to the government or a designated authority upon completion, and subsequently operates the facility for a specified duration to recoup  investment.

Investment through Build-Transfer-Operate (BCC) Contracts

2. Legal Framework in Vietnam

Vietnam has embraced the BCC model as a means to attract foreign investment in key sectors such as transportation, energy, and telecommunications. The legal framework governing BCC contracts in Vietnam is primarily outlined in the Law on Investment and the Law on Public-Private Partnership (PPP).

2.1. Law on Investment:

The Law on Investment in Vietnam provides the general legal foundation for all types of investments, including BCC contracts. It sets out the rights and obligations of investors, regulatory approvals, and dispute resolution mechanisms. Foreign investors are encouraged to familiarize themselves with the specific provisions related to BCC contracts to ensure compliance with Vietnamese law. Investors and project developers engaging in BCC contracts need to comply with the following aspects:

  • Project Approval: BCC projects must undergo a thorough approval process, including obtaining necessary licenses and permits from relevant authorities. The law outlines the procedures for project approval to ensure compliance with legal and regulatory requirements.
  • Foreign Investment Restrictions: The Law on Investment may specify certain restrictions or conditions for foreign investors engaging in BCC contracts. Understanding and adhering to these regulations is crucial for international investors.
  • Rights and Obligations: The law defines the rights and obligations of investors involved in BCC contracts. This includes responsibilities during the construction phase, transfer of ownership, and the operational period of the project.
  • Dispute Resolution: Legal mechanisms for dispute resolution, such as arbitration, are often addressed in the Law on Investment. Investors should be aware of the available avenues for resolving disputes that may arise during the different phases of a BCC project.

Investment through Build-Transfer-Operate (BCC) Contracts

2.2. Law on Public-Private Partnership (PPP):

The Law on PPP, enacted to promote private sector involvement in public projects, plays a pivotal role in regulating BCC contracts. It provides a comprehensive framework for the implementation of PPP projects, including project selection, bidding processes, risk-sharing mechanisms, and dispute resolution. Investors engaging in BCC contracts must adhere to the guidelines specified in the Law on PPP to ensure the legality and transparency of  investments. Investors and project developers involved in BCC projects should pay close attention to the following aspects outlined in this law:

  • Project Selection: The PPP Investment Law likely outlines the criteria and procedures for selecting projects suitable for the BCC model. This includes considerations for the type of infrastructure, economic viability, and public interest.
  • Bidding Processes: The law may detail the bidding processes for the selection of private investors to undertake the construction, transfer, and operation of the project. Transparent and competitive bidding processes are typically emphasized to ensure fairness and efficiency.
  • Risk Allocation: BCC contracts often involve risk-sharing between the public and private sectors. The PPP law may specify how risks are allocated, mitigated, and managed throughout the different phases of the project.
  • Transfer of Ownership: The conditions and mechanisms for the transfer of ownership from the private investor to the government or relevant authority upon project completion would likely be addressed in the PPP Investment Law.
  • Duration of Operation: The law may stipulate the permissible duration for the private investor to operate and recoup  investment in the project.
  • Dispute Resolution: The PPP Investment Law may include provisions related to dispute resolution mechanisms, outlining procedures for arbitration or other means of resolving disputes that may arise during the course of the BCC project.

3. Key Considerations for Investors

A business cooperation contract (BCC contract) is a contract signed between investors for business cooperation, profit sharing, and product division without establishing an economic organization. BCC contracts are signed between domestic investors in accordance with the provisions of civil law. BCC contracts are signed between domestic investors and foreign investors or between foreign investors carrying out procedures for issuance of Investment Registration Certificates. The parties participating in the BCC contract establish a coordination committee to implement the BCC contract. The functions, tasks, and powers of the coordination board are agreed upon by the parties.Investors eyeing BCC contracts in Vietnam should take into account several critical considerations to navigate the legal landscape effectively:

3.1. Project Selection and Approval:

Before entering into a BCC contract, investors must carefully select projects that align with  expertise and business objectives. Additionally, obtaining the necessary approvals from relevant authorities is crucial to ensure a smooth and lawful commencement of the project.

3.2. Risk Management:

BCC contracts involve inherent risks, ranging from construction delays to operational challenges. Investors should thoroughly assess and manage these risks through diligent due diligence, robust contractual agreements, and adequate insurance coverage.

Investment through Build-Transfer-Operate (BCC) Contracts

3.3. Compliance with Regulatory Requirements:

Strict compliance with Vietnamese regulations is paramount. Investors must navigate licensing procedures, adhere to environmental and safety standards, and comply with local content requirements to foster a positive relationship with regulatory authorities.

3.4. Dispute Resolution Mechanisms:

In the event of disputes, the choice of dispute resolution mechanisms becomes critical. Vietnamese law permits arbitration, and investors should carefully structure  contracts to outline the preferred method of dispute resolution, providing clarity and efficiency.

For further information, please contact us via email at contact@apolo.com.vn or Hotline: (+84) 903.419.479

View more: A Guide to Compliance Unraveling Vietnam Investment License Application

View more: Investing In Assets Such As Land And Houses Of Foreign Investors

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