Global Vietnam Lawyers would like to introduce our valued readers to an article by Mr. Tran Minh Quyet titled “The 2025 Law on Construction – Compensation and agreed damages in construction contracts” published in The Saigon Times, No.7-2026 (1.835) on February 12, 2026.
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The 2025 Law on Construction (effective from July 1st 2026) introduces several new provisions relating to contractual liability in construction activities. Notably, it allows parties to a construction contract to agree in advance on specific amounts of damages corresponding to each contractual obligation that may be breached and the degree of such breach. This provision, from the moment it was announced, has attracted considerable discussion, as it brings up the concept of liquidated damages—a notion familiar in certain foreign legal systems but not articulated clearly in Vietnamese law in general.
To properly assess the significance of the new provision on compensation and agreed damages under Construction Law 2025, it must be analyzed within the broader framework of Vietnam’s civil law principles on damages, as well as in light of the particular characteristics of construction contracts.
Foundational Principle: compensation based on actual loss
In principle, Vietnamese law has consistently regarded compensation for damages as a way to restore the injured party to the financial position that existed prior to the occurrence of the breach. Accordingly, damages must be determined on the basis of actual, provable loss that bears a direct causal relationship to the breach of contractual obligations.
The 2025 Law on Construction does not depart from this principle. The new provision continues to anchor compensation firmly to actual loss incurred, while introducing a novel element: permitting parties to agree in advance on specific amounts of damages corresponding to each contractual obligation that may be breached. In short, through Construction Law 2025, the legislators do not seek to alter the fundamental nature of the rules on compensation for damages, but rather to refine the technical tool for determining liability in a sector of particular nature.
How should “pre-agreed damages” be understood?
Under Construction Law 2025, parties to a construction contract may agree in advance on specified amounts of damages corresponding to the contract and the degree of breach.
With this provision, “pre-agreed damages” in construction contracts do not appear to completely match the meaning of liquidated damages in the strict common law sense of the term. The advance agreement on damages serves a predictive and risk-allocation function, providing the parties with a clearer basis for determining liability in the event of breach. However, Construction Law 2025 employs language that suggests certain limitations. Specifically, by linking pre-agreed damages to the “breached obligation” and the “degree of breach,” the legislators do not confer unfettered discretion on the parties in fixing the amount of damages. This leaves room for courts or arbitral tribunals to review the reasonableness of the agreed sums, particularly in cases where the pre-agreed damages appear manifestly disproportionate to the actual loss.
Scope of application and limitations of the provision
It should be emphasized that the Construction Law is a specialized law governing a distinct category of contractual relationships. The recognition of the parties’ ability to agree on pre-determined amounts of damages is, for now, confined to construction contracts and does not provide sufficient basis to conclude that Vietnamese law has formally embraced liquidated damages as a generally-applied legal doctrine.
Amid the currents of globalization, legal scholars and practitioners have, for many years, had a growing tendency to reconcile differences between the world’s two principal legal systems—the Common Law system and the Civil Law system—in order to create a more facilitative legal framework for cross-border economic cooperation and commercial exchange. Vietnamese lawmakers may be taking initial steps in that direction. While such efforts may carry positive implications, this approach suggests that the legislators are feeling their way forward.
In the absence of a corresponding provision in the Civil Code, it cannot be inferred that Construction Law 2025 opens the door to the broad application of this provision across other areas of law. Should a future trend toward broad application emerge, it would obviously require coordinated amendments at the level of general legislation, together with appropriate control mechanisms to ensure a proper balance between actual loss and the agreed damages.
Observations and a cautious approach
From this perspective, the provision on pre-agreed damages under Construction Law 2025 should be interpreted cautiously, particularly in a sector characterized by high risks and large-scale contracts. The new rule does not alter the foundational principles of compensation for damages under Vietnamese law, nor does it signal a systemic shift in the civil contract law.
As a matter of priority, subordinate legislation should be promptly promulgated to provide detailed guidance on the implementation of the Construction Law. Subsequently, its practical application should be systematically monitored, with lessons drawn from experience—especially from dispute resolution before courts and arbitral tribunals. How competent authorities concretize the provision, the extent to which the agreed amount reflects actual loss, and the capability for refining law in the future will ultimately determine the substantive significance of this provision within Vietnam’s legal landscape.
