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February 25, 2026

A New Dawn for Liquidated Damages in Construction Disputes in Vietnam?

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In December 2025, the National Assembly of Vietnam enacted a new Law on Construction, replacing the 2014 Law on Construction as amended in 2020. The 2025 Law on Construction will, in principle, take effect on July 1, 2026, subject to certain exceptions.

Among its notable reforms, one development has attracted particular attention from both legal practitioners and market participants: the introduction of a statutory framework governing predetermined damages, commonly referred to as “liquidated damages.” This marks the first time liquidated damages have been expressly recognized at the level of primary legislation in Vietnam.

While liquidated damages clauses have long been a common feature of construction contracts in practice, their legal enforceability has historically been subject to uncertainty. Although the new provision appears to represent a positive step toward greater legal clarity, it remains an open question whether it is sufficient, on its own, to provide a solid legal basis for the enforceability of liquidated damages clauses in construction disputes in Vietnam.

What’s New?

Article 86.2 of the 2025 Law on Construction provides (emphasis added):

“Compensation for damages shall be determined on the basis of actual damages [or] predetermined damages corresponding to obligations under the construction contracts that are breached [and] the extent of such breaches.”

This provision is significant in that it expressly recognizes predetermined damages, or liquidated damages, as a lawful basis for determining compensation for damage. However, the new law does not define “predetermined damages.” The absence of a statutory definition creates potential ambiguity as to the scope and nature of this concept and may give rise to disputes over how—and whether—a particular contractual clause qualifies as predetermined damages for the purposes of Article 86.2.

Further, Article 86.2 qualifies the application of predetermined damages by requiring that such damages correspond to the obligations not fulfilled and the extent of the breaches. This language suggests a narrowing effect on enforceability: Predetermined damages may only be upheld where they are demonstrably linked to the specific breached obligations and proportionate to the degree of the breaches. As a result, predetermined damages agreed by the parties may still be vulnerable to challenge if they are perceived as insufficiently connected to the relevant obligation or excessive in light of the breach.

Thus, while Article 86.2 represents a positive step toward statutory recognition of liquidated damages, the lack of definitional clarity and the correspondence requirement introduce continued uncertainty as to their enforceability, which will likely be clarified only through future judicial and arbitral practice.

Recommendations for Businesses

Contracting parties to construction contracts may now be more comfortable including liquidated damages clauses, given their express recognition under the 2025 Law on Construction. However, as the new law will not come into effect until July 1, 2026, it is too early to assess the practical application of Article 86.2. To mitigate the potential ambiguities and uncertainties discussed above, businesses may consider the following:

  1. Liquidated damages clauses should be carefully tailored on a contract-by-contract basis to align with Article 86.2 of the new law. Standard templates should be revisited to ensure that any pre-agreed compensation amounts are clearly linked to identifiable obligations or the potential level of breach, rather than framed in broad or generic terms detached from specific performance risks.
  2. There remains a risk that the enforceability of a liquidated damages clause may be challenged if it cannot be demonstrated that the agreed damages correspond to the obligations not fulfilled and the extent of the breach. Accordingly, having readily available evidence will be critical. Detailed and contemporaneous records of progress, delays, cost impacts, resulting losses, and mitigation efforts are likely to be decisive, not only in establishing actual loss but also in substantiating the reasonableness and proportionality of any agreed damages.
  3. The agreed-upon liquidated damages amounts should also be realistic, reflecting a considered assessment of foreseeable risks, and the parties should avoid treating such figures as a mere bargaining convenience. Anticipating the likely consequences of nonperformance and anchoring the agreed amounts to those risks will reduce the likelihood of judicial or arbitral adjustment or refusal. Where parties lack sufficient experience, early engagement of technical or cost experts may assist in strengthening contractual positioning and enhancing the defensibility of pre-agreed damages claims.

In all cases, parties are advised to consult Vietnamese legal counsel when drafting construction contracts or managing disputes to ensure compliance with the evolving legal framework under the 2025 Law on Construction.

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