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In Vietnam’s construction sector, it is not uncommon for contracts to exist only on paper, while the actual project execution follows a completely different arrangement. A licensed company may sign the contract, but another entity performs the work. Payments may flow through third parties, and project control may lie outside the contractual structure.
These arrangements are often referred to as sham or simulated construction contracts.
When disputes or inspections arise, a critical legal question emerges:
Can a sham construction contract be declared invalid under Vietnamese law?
The short answer is yes—but the legal consequences are far-reaching and often underestimated.
Under Vietnamese law, a sham contract is an agreement that does not reflect the parties’ true intentions, and is often used to conceal another legal relationship or to bypass mandatory legal requirements.
In construction projects, a contract may be considered sham when:
The named contractor does not actually perform the work
The contract is used to satisfy licensing or regulatory requirements only
Another entity controls the project, workers, and execution
Payments and instructions contradict the contractual structure
These arrangements are especially risky in projects involving foreign investors or complex subcontracting chains.
Vietnamese civil law follows the principle that legal substance prevails over contractual form.
This means that when authorities, courts, or arbitral tribunals assess a construction dispute, they will examine:
Who actually carried out the construction work
Who managed the site and labor
Who gave instructions and made key decisions
Who received economic benefits
If the contract does not reflect reality, it may be treated as a sham, regardless of how carefully it was drafted.
A construction contract may be declared invalid if it:
Is used to conceal illegal subcontracting
Violates mandatory construction licensing requirements
Misrepresents the true contracting parties
Is concluded for an unlawful purpose
In these cases, the contract may be invalid in whole or in part, depending on the circumstances.
Once invalidated, the contract no longer provides legal protection as expected.
Many investors believe that declaring a contract invalid will simply “cancel” obligations. In reality, the consequences are far more complex.
Possible outcomes include:
Restoration of parties to their original positions
Reassessment of payment obligations
Allocation of liability based on actual conduct
Exposure to administrative penalties
Increased risk of joint or shared liability
Invalidity does not eliminate responsibility—it often reallocates it in unpredictable ways.
When a sham construction contract is invalidated, liability is usually determined based on actual involvement, not contractual labels.
This means:
The actual performer may be treated as the real contractor
The named contractor may still bear liability for regulatory violations
The investor or project owner may face exposure if they exercised control
In some cases, multiple parties may share responsibility for damages, defects, or accidents.
Beyond civil liability, sham construction contracts can trigger:
Administrative fines
Suspension of construction activities
Revocation of licenses
Increased scrutiny by authorities
These risks can delay projects and significantly impact investment timelines.
In practice, sham contracts arise because:
Projects move faster than legal formalities
Parties prioritize short-term convenience
Licensing constraints are handled informally
Legal review is limited to document signing
Unfortunately, these shortcuts often surface only when disputes or inspections occur.
Once a dispute arises, sham contracts weaken all parties’ positions:
Evidence may contradict contractual terms
Informal arrangements are difficult to prove
Legal responsibility becomes blurred
This uncertainty increases litigation time, cost, and risk.
In some cases, risks can still be mitigated if addressed early.
Possible corrective actions include:
Contract amendments reflecting actual arrangements
Formalization of subcontracting structures
Compliance review and licensing adjustments
However, once disputes escalate, options become limited.
Many businesses assume that reviewing the contract at signing is sufficient.
In construction projects, this assumption is dangerous. Projects evolve, and contracts quickly become outdated.
Without continuous legal oversight:
Contracts drift away from reality
Sham arrangements go unnoticed
Legal exposure increases silently
This is why sham contract risks often emerge too late.
With ongoing legal consultancy, businesses can:
Align contractual structures with actual project execution
Monitor compliance throughout the project lifecycle
Detect and correct risky arrangements early
Reduce the likelihood of invalidity disputes
Proactive legal management is far more effective than reactive litigation.
Foreign investors face heightened risks because:
They rely heavily on local partners
They may not fully understand licensing requirements
They are often removed from day-to-day site operations
Without continuous legal guidance, sham arrangements may form without the investor’s awareness.
DEDICA provides ongoing legal consultancy services for construction projects and FDI investments in Vietnam, with a strong focus on preventing sham contract risks.
DEDICA supports clients by:
Reviewing construction contracts against project reality
Advising on lawful subcontracting and licensing structures
Identifying hidden invalidity risks
Supporting corrective actions before disputes arise
Representing clients in disputes involving contract validity
DEDICA’s approach prioritizes legal substance, compliance, and enforceability, not just formal documentation.
Sham construction contracts in Vietnam can be declared invalid, and the consequences are often more severe than parties expect.
Vietnamese law looks beyond contractual wording to assess who actually performs and controls construction activities. When contracts are used merely as formalities, all parties—contractors, performers, and investors—may face unexpected liability.
By engaging ongoing legal consultancy, businesses can:
Ensure contracts reflect real project structures
Prevent invalidity and compliance risks
Reduce dispute exposure
Protect long-term investment value
📞 Hotline: (+84) 39 969 0012 (Available via WhatsApp, WeChat, Zalo)
🕒 Working Hours: Monday – Friday (8:30 – 18:00)
Contact us today for a free initial consultation with our experienced lawyers!
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