Contract risk control in Vietnam

Foreign businesses in Vietnam manage contractual risks not simply by signing a "full-term" contract, but by controlling the entire process before, during, and after signing. Many businesses focus on quickly signing contracts to launch projects, neglecting crucial control points.

According to the 2015 Civil Code and the 2005 Commercial Law, contracts must meet conditions regarding validity and content. However, practical application depends on many factors such as industry, partners, and implementation methods. Therefore, each case needs to be assessed individually; a rigid application should be avoided.

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1. Contract risks in Vietnam typically arise at which stages?

Pre-contract signing stage

This is the stage many businesses underestimate. Failure to vet partners or a lack of understanding of the transaction structure can lead to risks from the outset.

A good contract cannot compensate for choosing the wrong partner or misunderstanding the cooperation model.

Contract execution stage

Most problems arise at this stage. Changes in schedule, quality, or scope of work are often not fully documented, leading to disputes later.

If the contract lacks mechanisms for monitoring during execution, the business will lose its competitive advantage.

Dispute resolution stage

When disputes arise, the contract becomes the primary tool for protecting interests. However, if the contract is not designed to handle this situation, the business will face many limitations.

2. Risk Control Methods at Each Stage

Risk Control Even Before Signing a Contract

Understanding the Transaction Structure

Before drafting or signing a contract, businesses need to clarify the nature of the transaction. Who is the primary party, who is responsible, and how will the cash flow be handled? Without a clear understanding of the structure, the contract will not accurately reflect reality.

Checking Partner Information

This is a crucial but often overlooked step. Businesses need to determine if their partner is operating legally, has sufficient financial capacity, and has the experience to fulfill its obligations. This significantly reduces risk from the outset.

Risk Control During Contract Execution

Full Documentation of Changes

In practice, parties often adjust the content of the cooperation agreement via email or quick exchanges. However, if these changes are not clearly documented, the business will have difficulty proving them when needed.

Synchronization Between Contract and Operations

The contract needs to accurately reflect how the business is working. If the actual process differs from the contract content, control becomes difficult.

Monitoring Obligations by Progress

Businesses need to monitor the fulfillment of obligations at each stage, rather than just checking at the beginning and end. This helps detect problems early and minimize losses.

Controlling Financial Risks in Contracts

Designing a Rational Cash Flow

One of the biggest risks is payments not tied to performance. When money is transferred in advance without a control mechanism, the business loses its competitive advantage.

Avoid relying solely on contracts

Contracts are not the only tool to protect cash flow. Businesses need to combine contract terms with actual operations to control financial risks.

During our consulting process, DEDICA has found that many foreign businesses face problems not because of a lack of contracts, but because they cannot control the contract execution process. Businesses that proactively control the process from the beginning often significantly reduce risks and costs. Conversely, when focusing only on dispute resolution, options are often limited.