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Torn asunder

Released at: 23:56, 03/11/2014

Torn asunder

Consortiums are a useful contractual arrangement for delivering risky engineering projects but are simply not suitable to all.

by Minh Minh

August 15, 2006 would have been an enjoyable day for the executive board at PEB Steel, signing Contract No Q2007/06 with Campenon Saigon Builders and officially becoming the secondary contractor for Lot No 4 of PetroVietnam’s Ca Mau Gas-Power-Fertiliser Complex. If they could turn back time, though, they wouldn’t have signed on the dotted line, as it was the beginning of a long and exhausting lawsuit relating to the Execution Office of Construction and Installation for the Ca Mau Power Plant - a consortium between Campenon and France’s reputable Vinci Construction Grands Projets.

According to Contract No Q2007/06, PEB was to perform tasks such as issuing full detailed design drawings and execution drawings based on architectural drawings and the technical requirements provided by Campenon and producing structural steel components and transporting them to the site and installing them in accordance with the defined constructional work schedule. The value of the contract was not fixed but was to vary based on the volume of the actual amount of construction materials required.

PEB completed all the work for Lot No 4 and the general contractor, the Vietnam Machinery Erection Corporation (LILAMA), signed a certificate of acceptance on December 27, 2008. Nevertheless, Campenon refused to pay immediately and identified certain issues in a bid to offset part of the payment. The matter remained unresolved until PEB discovered that Campenon had received financial support from LILAMA for rising costs in 2009, 2010 and in 2011, totalling approximately $8 million, which included the excess work performed by PEB. Campenon still refused to pay, explaining that the funds were not meant for secondary contractors. This explanation went against Circular No 09/2008/TT-BXD from the Ministry of Construction (MoC), which specifically states that rising costs must be paid to those who perform the work, regardless of whether they are prime or secondary contractors. The former partners then headed to court.

Two years on and the District Court and Ho Chi Minh City’s Court of Appeal reached similar conclusions: that the case presented by Campenon was unconvincing while PEB’s request for payment, with interest, was reasonable. The key reason why the case dragged on for years, however, was that Campenon sought shared obligations from Vinci, with the latter being a member of the consortium for the project’s Lot No 4. Campenon claimed that both Contract No Q2007/06 and its Addendum No 01 were signed under the name of the consortium and the company should not be forced to bear the entire obligation.

No winner

Contract No Q2007/06 was signed by Mr Michel Bouissou and the Addendum by Mr Marc Lagouardette, despite the fact that neither were legal representatives of Campenon. Authorities determined that while the actual legal representative of Campenon was fully aware of the signing, he made no objection and continued with the contract implementation. Based on Resolution No 04/2003/NQ-HDTP from the Supreme People’s Court, the Council of Judges concluded that the Contract and its Addendum should have a binding effect on both parties.

Pursuant to Licence No 56/2005/BXD-CPTXD from the MoC, the Vinci/Campenon Consortium consists of Vinci - as an independent French legal entity, and Campenon - as an independent Vietnamese legal entity. Consortiums, or partnership contractors, according to the Regulation on the Management of Operations of Foreign Contractors in the Construction Domain (under Decision No 87/2004/QD-TTg from the Prime Minister), means organisations (other than legal persons), including foreign contractors or foreign contractors and Vietnamese contractors, that jointly participate in bidding and perform a contract in Vietnam on the basis of a partnership contract. Moreover, a partnership contract must clearly prescribe the responsibilities of all contractors to the partnership as well as their own responsibilities for the contracted works of the partnership, and also determine the leading contractor of the partnership.

At Point B of Section 1 in the contract signed between Vinci and Campenon, dated November 27, 2005, the two parties specifically agreed that the consortium was not an independent legal entity and that each contractor would maintain legal independence and would be responsible for its own obligations. In Section III, Vinci is noted as responsible for work performed overseas, with a modest scope of work worth just a touch over $4 million, while Campenon is responsible for all operations within Vietnam, totalling over $27 million. The partnership contract fully complies with the laws and regulations of Vietnam and was therefore used by both Courts to determine that Contract No Q2007/06 was between PEB and Campenon, with Vinci having no involvement.

However, an exclusive source told VET that Campenon is a subsidiary of Vinci. On an online human resources recruitment website, Campenon posted the following in the Company Profile section: “Campenon Saigon Builders is a company of Vinci Construction Grands Projets (actively present in Vietnam since 1989 with more than 30 completed projects), a member of the VINCI Group - a French world leading group in construction and associated services.” Another source, however, said that Campenon is a joint venture between Vinci Construction GP - France, a company of the Vinci Group, and SA&E, a company of the Saigon General Construction Corporation. 

Regardless of which source is right, both show that foreign investors use the law to minimise their risk as well as their costs. Domestic companies must draw their own lessons and be more careful when choosing business partners or partnership contractors. “The introduction of alliances, consortiums, or partnership contractors, or whatever you may call them, is a reasonable approach, especially in the extremely difficult context of today’s market,” said Mr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment. “Nonetheless, the outcomes of these arrangements depend on a variety of factors.”

The problem of conflict of interest is the thorniest issue consortiums have to face. Despite the fact that most consortium contracts provide full provisions on the rights and obligations of the parties, when the market changes, as it invariably does, or when a party faces certain difficulties in implementing their part of the deal, conflict of interests and the disintegration of the consortium are inevitable. VET found that the database of the General Department of Taxation shows Campenon as having ceased operations with its taxation obligations still outstanding.

In the real business world, divestment or disintegration is nothing out of the ordinary. Nevertheless, to a certain extent the case of Campenon and Vinci is becoming common. The dissolution of a consortium not only results in slow project progress but also losses to the parties of the consortium as well as related third-parties, as PEB can attest. Above all, once a reputation is gone it is never easy to get it back.

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