BT (build-transfer) contract deals have become fertile grounds for corruption, experts pointed out at a conference in Hanoi on Thursday.

The contracts, which typically are awarded without bidding, involve private contractors taking on construction projects in exchange for the rights to use one or multiple land plots as payment.

The method is also commonly known in Vietnam as an ‘exchange of land for infrastructure.’

At Thursday’s conference, held by the State Audit Office of Vietnam (SAV), experts examined possible solutions to challenges presented by BT schemes, which seem to have become quite popular amongst local administrations in some Vietnamese localities over the last 20 years.

Unfortunately, this popular method of awarding contracts is also ripe with corruption, according to experts.

While developers are usually expected to review tender offers from select contractors for a project, many of Vietnam’s BT projects apply a “direct appointment of contractors” protocol, meaning the contractor is selected without bidding.

A report released in July by the State Inspectorate of Vietnam shows that 14 out of 15 BT projects under inspection in Hanoi involve directly appointed contractors.

Moreover, BT contractors are typically given the rights to land before even breaking ground on the project.

“A recent audit of 22 BT projects found that most of the contractors were given land before completing construction,” Truong Hai Yen, deputy head of the SAV, told the conference.

There are cases where the price of the land at the time of transfer was much lower than the price at the time when construction on the accompanying project was completed, resulting in losses for the state budget, Yen underlined.

“Moreover, land prices in BT contracts are usually lower than market prices, as they negotiated between only two parties, rather through than bidding,” Yen added.

The financial losses due to these issues in 21 out of 22 projects audited by SAV totaled VND3,815 billion ($168.06 million), a “a massive figure,” according to Yen.

Not all projects must be BT

Experts said the fact that audits of 21 out of 22 BT project contracts were found to have violated legal regulations is worrying.

Le Huy Trong, an SAV auditor, said the current problematic and loose regulation on BT contracts is the main culprit.

“Therefore, BT projects are fertile ground for corruption,” he said. “We should focus on auditing other BT projects to prevent losses and personal interests.”

Dang Van Thanh, an auditing expert, said the legal framework must be improved to prevent collusion between authorities and BT contractors.

He added that the local administration must invite tender offers when selecting BT contractor and auction land usage rights instead of accepting every demand made by businesses.

Pham Quang Tu, an expert from Oxfam, echoed Thanh’s view that the government should transfer land-usage rights to businesses via auction to ensure that prices are consistent with market rates.

“We should only initiate BT schemes in localities that are in real financial distress,” he added.

“For areas with good financial capacity, the government should directly invest in the project and later auction the rights to surrounding lands to avoid state budget losses.”