Professional Documents
Culture Documents
Giz CKM TM
Giz CKM TM
Training Material On
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Training Material on Construction Contract Management
Training Material On
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Table of Contents
Introduction & Objectives
Conceptual Background
Construction: Concept & Scope
Contract: Concept & Categories
Contract & Construction Contract: Formation
Contract & Construction Contract: Effects
Standard Conditions of Construction Contract
Construction Contract Management
Parties & their Legal Status
Scope of their Deal
Contract Documents
Obligations of the Contractor
Obligations of the Employer
Risk Sharing Obligations
Security Management
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Training Material on Construction Contract Management
Training Program On
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
The scope of the training shall encompass, based on design-bid-build delivery sub-system, the
following four interrelated areas: viz., construction & contract; contract & construction contract;
standard conditions of construction contract; and construction contract management;
As related to construction the concept & its scope shall be explored; As related to contract, the
concept & categories of same shall be addressed;
As related to contract & construction contract, the training shall cover the process how contract is
formed in general & construction contract in particular. The training shall also identify & address
the effects of contracts in general & the effects of construction contract in particular;
As related to standard conditions of construction contract, the training shall cover the need for &
the use of general standard conditions of contract for construction projects; the level of general
standard conditions of construction contract and the particular attention to be given in the process
of the preparation of a particular conditions of construction contract for a given construction
project;
As related to construction contract management, the training shall address the concept & scope of
construction contract management; identify the contracting parties to a given construction contract
& their legal status; the scope of their deal and where the scope of their deal recorded viz.,
identification of the construction contract documents. The contract documents so identified form
the foundation for construction contract management. Respective & common obligations (viz., risk
management) of the contracting parties, viz., the employer & the contractor, shall also be identified
& discussed. Security management (based on security instruments originating from the financial
market) shall also be addressed.
Role of the Engineer in construction contract management process shall also be addressed briefly.
Construction contract management process characterized by two key features: in using standard
conditions of construction contracts (as foundation for the said management) & in engaging the
Engineer (the consultant) (in terms of its management process).
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
………………………………………………………………………………………
The Formula
………………………………………………………………………………………………………………
D
KP and/or LP: ROLE
V…?
(Developed by: Zewdu Tefera Worke, Engineering Contracts Lawyer)
………………………………………………………………………………………………………
The Legend
L: Law
K: Contract
P: Persons
D: Delivery
R: Relationship
O: Obligation
L: Liability
E: Enforcement
…………………………………………………………………………………………………………………………………………………………………
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Training Material on Construction Contract Management
The Application
LV: Law…?
KV: Contract…?
PV: Persons…?
DV: Delivery…?
RV: Relationship…?
OV: Obligation…?
LV: Liability…?
EV: Enforcement…?
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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The construction contract clearly fulfils all the elements given to the
definition of contract;
Categories; Application
Categories of contract are of threefold: viz., works contract; services
contract; and contract related to supply of goods;
The principle of the general law of obligations (originating like from contract
under Book IV: Art. 1675-2026) shall also apply to special type of contracts
(see Book V of the Civil Code: Art. 2266-3346) like the construction contract;
see Article 1676 cum 3131-3206 cum 3244-3296 (Public Works Contract);
for public construction contract like water or road or building construction
projects; and
see 1676 cum 2610-2631 (Contract of Work & labour); 3019-3040 (for
Building projects) cum 2610-2631 of the Civil Code; for private construction
contracts;
Contract & Construction Contract: Formation
Background
The formation of any type of contract including construction contract shall
consider the following four ingredients or legal elements: viz.,
capacity: capacity of contracting parties;
consent: consent of contracting parties;
object: object of the contract; and
form: form of contract, if any;
Determination of the capacity of contracting parties is not the subject to be
dealt with under the law of obligations or contract; it is the subject to be
treated by other applicable laws (public law & private law regimes);
Capacity, consent & object are always cumulative for any type of contract;
whereas, form is only required where the law specifically prescribes or
requires;
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Training Material on Construction Contract Management
Capacity:
see the Civil Code Article 1678 (a) cum all possible relevant laws; like
Art. 394 of the Civil Code cum Proc. No. 1097/2018; the State is a person
including its organs (viz., legislative; executive; and judiciary);
Proc. No. 25/1992 cum the specific regulative legal instrument; as related to
federal public enterprises;
Proc. No. 686/2010 cum Proc. No. 1097/2018 (Ministry of Trade &
Industry); cum the Law of Agency Art. 2179-2265 of the Civil Code; the
Law for Authentication & Registration of Documents see Proc. No.
922/2015;
The legal concept of capacity presupposes the existence of persons;
Categories: Persons are of two types:
natural persons: viz., human beings;
legal persons: are of three types again:
public institutions; like ministries; bureaus; public enterprises;
corporate entities like share companies or private limited companies;
public enterprise shall also be considered as corporate entities;
voluntary organizations like non-governmental organizations
(NGOs); associations; and so forth
The relevant persons to a construction contract are: employer &
contractor;
Natural persons (i.e., human beings) acquire their existence by birth;
Whereas, legal persons acquire their legal existence or personality by
different legal instruments depending on whether they are public institutions
or private entities or voluntary organizations;
Public institutions acquire their legal existence or personality by legislation
or by regulation;
legislative instruments: see Proc. No. 1097/2018 for Ministries cum
Article 394 ff of the Civil Code;
regulative legal instruments: like for public enterprises or public
share companies or public universities;
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Training Material on Construction Contract Management
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notice: to receive notice of termination from the employer & to give notice of
termination to the employer;
claims submission; to submit construction claims to the Engineer on behalf of
the contractor;
dispute initiation; to initiate a dispute resolution proceeding in the name & on
behalf of the employer or the contractor;
representation; to represent the contractor in the disputes forums (like
arbitration, litigation…) & in their respective proceedings;
enforcement: to demand the enforcement of the benefit of court judgment or
arbitral award through enforcement proceeding;
appeal: to initiate an appeal proceeding at the court of law, if an award not
final & binding;
set aside; to initiate an award set aside proceeding at the court of law;
Consent:
Consent concerns exchange of the planned deal between the future
contracting parties: viz., in terms of offer & acceptance;
Exchange of offer & acceptance is regulated by the following possible laws:
the law of contract; the law of procurement (in case of public contract);
and/or the applicable international legal instrument (agreement: bilateral or
multilateral);
see the Civil Code Article 1678 (a) cum 1679 -1710 cum 3134-3146 cum Proc.
No. 649/2009 cum the Federal Procurement Directive (2002 E.C);
Consent is a freely declared will of the contracting persons (parties) & it
shows an intention to be bound by such will so declared;
Consent is divided in to two: viz., offer & acceptance;
Consent is the very foundation for contractual/consensual (or promissory)
relationship;
The exchange of offer & acceptance, as related to construction contract, is
governed by the procurement procedure to be followed (as per the law of
procurement) and as per the law of contract;
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
the subject matter so selected; the specific purpose from such subject
matter so selected; and the delivery sub-system so decided; provide
the basis for the allocation of the respective obligations of the
contracting parties under a given construction contract;
Object of contract, in terms of its respective obligation perspective, as
related to building and/or engineering construction, and based on design-bid-
build delivery sub-system, for example, has two dimensions: promise &
consideration;
promise dimension: the contractor promises to execute & complete and
remedy defects in the construction works (like the water related
project); and
consideration dimension: the employer undertakes to pay the contract
price to the contractor;
promise dimension; the employer promises also to appoint the
Engineer & notify the contractor; to handover the construction site
possession & access thereto to the contractor; to deliver the
design/drawing to the contractor; to take over the works, if
completed from the contractor; and so forth
Object of contract has to be sufficiently defined, possible & legal;
Therefore, object of contract has three requirements from the law of contract
perspective: viz.,
sufficiency requirement;
legality/morality requirement; and
possibility requirement;
The sufficient definition of the respective obligations of the employer & of the
contractor shall thus be done through all possible construction contract
documents under consideration;
It thus includes but not limited to the following contract documents:
the Letter of Acceptance;
the Bid (submitted by the contractor initially as a bidder);
the Special Conditions of Contract;
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
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It has a declaratory effect and does away the effects of the terms of the
general conditions of contract declared “not applicable” from the
subsequent deal between the future contracting parties ;
The term to use being: Not applicable…
In this regard, it is strongly advised to follow the relevant Guide prepared
by the respective owner institutions, local or international, of the general
standard conditions of construction contract;
It requires also specific training;
Skill & Caution
contract drafting skill: Ensuring the compatible reading between the
general conditions of contract & the special conditions of contract requires
contract drafting skill;
technical staff: The knowledge and/or information primarily being within
the hands/minds of the technical staff in charge of preparing the standard
bidding document including the special conditions of contract;
construction lawyer: The first task could be done by the technical staff
(knowledgeable project engineers); the final draft special conditions of
contract has to be reviewed by a specialized lawyer, if any, for consistency
purpose with a view to importing the required:
contract policy of the employer;
financial interest of the financial institution; and/or
regulatory requirements of the regulatory body;
to such special conditions of contract;
cross reference: Ensuring consistency with respect to incorporating the
contract policy or financial interest or regulatory requirements of the
employer or financial institution or regulatory body, respectively, requires
undertaking careful clause by clause cross-reference between the general
conditions of contract & the special conditions of contract;
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Training Material on Construction Contract Management
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Training Material on Construction Contract Management
There may be some exceptions to such rule as provided under Article 1731
(1) cum Article 1952 ff of the Civil Code (Third Parties);
The Engineer is a third party say to the specific project related construction
contract signed between the employer & the contractor;
The sub-contractor is a third party to such given construction contract
signed between the main contractor & the employer;
The employer is a third party to such construction sub-contract signed
between the main contractor & the said sub-contractor;
The contractor is a third party to the consulting services agreement signed
between the employer (as a client) & the Engineer (as a consultant or the
Engineer under a given construction contract);
Scope of the Deal
The scope of the deal of the contracting parties (like the employer & the
contractor under a given construction contract) encompasses the following
two broad areas:
It encompasses: K & L
the signed construction contract (K); and
the applicable law (L);
the contract:
the terms of the signed construction contract itself, established based
on the principle of freedom of contract & sufficiency requirement
provides the formidable ground for the deal of the contracting
parties; viz., the employer & the contractor;
see Article 1678 (b)) cum 1711-1718;
the applicable law: shall or may come to apply to the specific construction
contract in two distinct ways; viz., in terms of
express terms of the law; and
implied terms of the law;
express terms of the law: public policy (regulatory) role of the law
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Training Material on Construction Contract Management
the express terms of the mandatory provisions of the law shall apply
to the (construction) contract, as a matter of public policy & legality
requirement and they automatically become the deal between the
contracting parties; see Article 1678 (b) cum 1731 (2);
implied terms of the law: gap filling (facilitative) role of the law
the implied terms of the law apply to the construction contract where
the parties to the construction contract fail to determine the terms of
their deal based on the principle of autonomy of parties & freedom of
contract;
This is evident from the reading of Article 1731 (2) & (3) of the Civil Code;
The issue of applicable law to the contract thus comes from here:
express terms: either to mandatorily regulate the behavior or
obligations of the contracting parties as a matter of public policy (see
Article 1678 (b) cum 1711-1718); and/or
implied terms: to fill the gap, through such implied terms of the
law in the contract, where the parties fail to exercise their freedom
of contract to fix their deal; (illustration: see Article 2619; 3174 as to
time);
Effectiveness:
In construction contract, the issue of effectiveness of contract might
also be considered where the parties to such contract include some
defined pre-conditions in the signed contract for its effectiveness;
Illustration: see Clause 8.1 of the MDB-FIDIC; pre-conditions like
effecting advance payment; making financial arrangement; handing
over of the site & access thereto;
Illustration: see also Article 3144 cum 3143-3145 the Civil Code as
related to possible (further) approval requirement after signing of the
construction contract under consideration;
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Formal interpretation
formal interpretation is undertaken;
by the judge at the court of law; and
by the arbitrator at the arbitral tribunal;
the Courts:
The reason being that the courts are judicial institutions both
constitutionally & legally empowered to do interpretation of law; and
in case of disputes related to contract to interpret the contract (like
construction contract) as well;
arbitration tribunals:
The arbitrator is the one who legally empowered to give its award
based on the principle of law;
this task necessarily requires to interpret both the law and the
underlined (construction) contract to settle the dispute; see Article
3325 ff of the Civil Code;
The difference between such two institutions, the court & arbitration, being
that:
the court being the creation of the law;
whereas arbitration, specially as related to construction, being the
creation of agreement (contract) (i.e., agreement to arbitrate);
Informal interpretation
Informal interpretation may be undertaken;
by the contracting parties themselves; during their claims or disputes
negotiation process or otherwise;
by the Engineer; through providing clarification (as related to
ambiguity or discrepancy or contradiction) & instruction; during its
claims consultation; claims determination or decision process or
contract administration or project supervision or otherwise;
by the Adjudicator/DRE; during its dispute resolution process with a
view to give its decision or recommendation;
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Limitations
There are two limitations on the professional freedom (autonomy) of
the contractor: viz., regulatory limitation; and contractual limitation;
regulatory limitation;
o this limitation comes or originates from the rules & practice of
the contractor’s respective profession; water or building or
road or otherwise;
o this limitation aims to protect public interest; see Article 2616
(1) of the Civil Code;
contractual limitation:
o this limitation comes or originates from the construction
contract under consideration as related to the order of the
client (the employer) as agreed by the contractor as the time of
the making of the contract
o this limitation aims to protect the legitimate interests of the
specific employer under consideration;
o The contractor may not follow the orders of the client (i.e., the
employer) except in so far as it has agreed, at the time of
contract, to comply therewith;
o The construction contract thus provides the ground for such
order by the employer through the Engineer (viz., the
supervision consultant); like variation order; suspension
order; order as related to quality assurance; and so forth;
o see 2616 (1) & 2616 (2) of the Civil Code;
In case there is a change of the contractor during contract performance, its
institutional successor, if any, may continue as contractor; see Clause 1.1.2.3:
MDB-FIDIC;
there are various reasons for the contractor to be changed by another;
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Training Material on Construction Contract Management
Contract Documents
Construction contract (like water works or dam or building or road
construction contract) may contain the following five categories of contract
documents: viz.,
the legal part;
the technical part;
the commercial part;
the technological part, if any; and
the dispute resolution part (re: arbitration clause);
The legal part: may include the following contract documents:
the Form of Agreement , if completed;
the Letter of Acceptance;
the Minutes of Pre-contract Negotiation Meeting, if any;
the Bid (including any Appendixes thereto, if any);
the Special Conditions of Construction Contract;
the General Standard Conditions of Construction Contract;
other identified contract documents, if any;
The technical part: may include the following contract documents:
scope: the Technical Specifications; the Drawing; the Bill of Quantities;
The Technical Specifications: which provides the textual
description of the project & which specifies the quality parameters of
the works (in terms of its workmanship; construction materials;
construction equipments (plant);) under the construction contract;
defines how the project to be done (i.e., method));
The Drawing: which describes graphically the works under the
construction contract; defines what to be done; provides ground for
measurement of works;
The Bill of Quantities: identifies the scope of works, in terms of
those quantities, and provides the basis for valuation of quantities
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The contractor undertakes such obligation by itself & through others: viz.,
through sub-contractors (domestic vs. nominated) sub-contract arrangement,
if nay;
Such completion obligation of the contractor encompasses two time
dimensions: viz.,
performance period; and
defects liability period;
During performance period, the contractor is under such contractual
obligation to:
to execute, to complete & to remedy defects in the works within the
time agreed;
to execute the whole of the Works in accordance with the Contract up
to Take Over of the Works by the employer;
to undertake tests on completion;
see Clause 4.1 cum Clause 8.2; Clause 13; Clause 9; Clause 10 MDB-FIDIC;
During defects liability period, the contractor is under such contractual
obligation to:
execute outstanding works; and
to remedy defects & damages in the works;
see Clause 11.1 MDB-FIDIC;
Extent of Completion Obligation
The scope of completion obligation of the contractor under such contract
may include to undertake the following:
to execute & complete the original scope of work & to remedy
defects in such original scope of work; see Clause 4.1 cum Clause 10
MDB-FIDIC;
to execute variations orders; see Clause 13.1 MDB-FIDIC;
to rectify losses or damages to the works arising out of the
Employer’s Risks; see Clause 17. 4 MDB-FIDIC;
to execute remedial or urgent works; see Clause 7.6 MDB-FIDIC;
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Time Management
Background
MDB-FIDIC (2006):
see Clause 8: Commencement Date, Delay & Suspension
see Clause 8.1: Commencement Date
see Clause 8.2: Time for Completion
see Clause 8.3: Program
see Clause 8.4: cum
see Clause 8.5 cum
see Clause 8.8 cum
see Clause 8.9 cum
see Clause 8.11 cum
see Clause 8.2 cum
see Clause 8.6 cum Rate of Progress
see Clause 9 : Tests on Completion
PPA 2011:
see Clause 41 (Program of Implementation of Tasks); cum
see Clause 71 (Commencement of Works); cum
see Clause 72 (Period of Execution of Works); cum
see Clause 73 (Extension of Intended Completion Date); cum
see Clause 74 (Compensation Events for Allowing Time Extensions);
cum
see Clause 75 (Acceleration) cum
see Clause 27 (Liquidated Damages);
Civil Code:
see Article 1675 cum 1731 cum 3174 (Time);
see Article 1675 cum 1731 cum 2619 (Time);
Other Applicable Laws
Rest & Holidays related laws; re: Program related;
Protocols, if they were helpful…
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see also The Society of Construction Law Delay & Disruption Protocol
UK; October 2002; (First Edition)
see also The Society of Construction Law Delay & Disruption Protocol
UK; February 2017 (Second Edition);
Time related obligation of the contractor is the most complex and thus
difficult issue in the field of construction contract management;
Time obligation of the contractor should be specific; i.e., there must be clear
commencement date & clear completion date; based on these dates Program
is also required;
If there is clear commencement date & completion date, the Program may
help;
Is the program part of the contract document then? Should it be either? If so
how does it help? What are the factors to be considered to prepare the
program (structure)?
What is the basis for time management then? The program or such clear
commencement date & completion date or both?
What is the basis for delay claims then? What about the basis for disruption
claims? Are they (delay & disruption claims) the same or different?
How the delay claims of the contractor are assessed? How about the delay
damages claims of the employer is to be assessed? Do they share same
principle or are they different?
Scope of Time Obligation
The timely completion i.e., on completion date, if any, of the project by the
contractor may depend on multitude of factors contributed both by the
contractor itself and of the employer including the Engineer and so forth;
The issues are discussed in relation to:
mobilization;
commencement;
progress;
completion; and
tests on completion;
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These factors show that the completion of the project on such completion
date, if any, interwoven by the series of contractual obligations to be
discharged by the contractor; by the employer and/or the Engineer; and to
be free from external risk factors;
mobilization: timely & effective mobilization by the contractor ;
site: providing site & access thereto by the employer;
advance: effecting mobilization advance, if agreed, by the employer;
notice: effecting notice to proceed, if required under the contract, by
the Engineer; for the Contractor to duly mobilize & commence
works;
commencement: commencement of the Works, if there is clear cut
commencement date or otherwise; see Clause 8.1 MDB-FIDIC;
progress: proceeding with the progress of the works: see Clause 8.1
cum Clause 8.6 (Rate of Progress) MDB-FIDIC;
this is related to the following situations; like
effective project management on the part of the contractor in terms of
organizing & deploying all the required resources to the project;
achieving the planned production and productivity on the part of the
contractor;
issuing the required working drawings (from time to time) on the part
of the Engineer;
securing the required site & access thereto (from time to time) on the
part of the employer;
approving variations in due time on the part of the Engineer;
certifying payments in due time by the Engineer;
effecting payment on time on the part of the employer;
progress: the Engineer may instruct the contractor to accelerate the progress
of the Works, for which the Contractor is not responsible under the
Contract; see Clause 8.6 MDB-FIDIC
completion: completing the works or section thereof on the originally agreed
or subsequently varied completion date, if any; see Clause 8.2 MDB-FIDIC;
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consider also the effects of delay and/or disruption by the employer, third
parties and/or the Engineer & other grounds;
tests: for the works to be declared completed they have to pass Tests on
Completion: please, also consider the possible contractual obligation of the
employer in doing some of the required tests on completion by itself and/or
providing some input to the contractor to undertake the tests on completion;
see Clause 9 MDB-FIDIC;
Excuse from Time Related Obligation
The following grounds may serve as excusable grounds for the non-
completion of the project by the contractor on the originally agreed
completion date or subsequently varied completion date; viz.,
extension:
due to extension of time for completion; see Clause 8.4 MDB-FIDIC;
delay;
due to delays caused by authorities; see Clause 8.5 MDB-FIDIC;
suspension:
due to suspension of work by the Engineer & its consequences;
see Clause 8.8 cum 8.9 MDB-FIDIC;
suspension:
due to prolonged suspension as related to the suspension order
instructed by the Engineer; provided the performance of the Works
has been resumed after such prolonged suspension;
see Clause 8.11 MDB-FIDIC;
see Clause 20 (Suspension): PPA 2011;
suspension:
due to suspension & deceleration of the Works by the Contractor due
to payment problems;
see Clause 16.1 (h) MDB-FIDIC;
delay:
due to delay in issuing drawings or instructions by the Engineer;
see Clause 1.9 (a) MDB-FIDIC;
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delay:
due to initial delay caused by the employer in providing possession of
Site & access thereto;
see Clause 2.1 (a) MDB-FIDIC;
see Clause 74: Compensation Events for Allowing Time Extension;
PPA 2011;
setting out:
due to setting out;
see Clause 4.7 (a) MDB-FIDIC;
see Clause 49 (Setting out of the Works); PPA 2011;
unforeseeable factors:
due to unforeseeable physical conditions;
see Clause 4.12 (a) MDB-FIDIC;
fossils:
delay encountered by the Contractor due to the discovery & reporting
of Fossils;
see Clause 4.24 (a) MDB-FIDIC;
see Clause 51: Discoveries; PPA 2011;
testing:
due to testing as instructed by the Engineer or for which the employer
is responsible under the Contract;
see Clause 7.4 (a) MDB-FIDIC;
see Clause 81 (Inspection & Testing) PPA 2011;
interference:
due to interference with the Tests on Completion by the Employer;
see Clause 10.3 (a) MDB-FIDIC;
legislation:
due to adjustment for changes in legislation;
see Clause 13.7 (a) MDB-FIDIC;
see also Clause 16 of the PPA 2011: Changes in Law & Regulations;
risks:
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Scope Management
Background
MDB-FIDIC (2006)
see Clause 1.1.6.9 definition & scope of variation;
see Clause 1.1.5.4; definition for Permanent Works;
see Clause 13.1 related to instructed variation;
see Clause 13.2 related to approved variation ; cum
see also Clause 4.1 (a) (b) & (c); (viz., value engineering);
PPA 2011
see Clause 15: Modifications by Change Orders;
Civil Code
see Article 1675 cum 1763 cum 1767 of the Civil Code (contract
variation);
see also Article 3031-3033 of the Civil Code; re: to refuse alterations;
see also Article 3034 of the Civil Code related to approved variation;
Concept
In construction contract, scope is basically related to the broad concept of
variation, viz., variation in the works;
Variation means as per Clause 1.1.6.9 of MDB-FIDIC any change to the
works, which is instructed or approved as variation under Clause 13;
works mean the permanent works (see Clause 1.1.5.4 MDB-FIDIC); like the
water works project;
The changes to the permanent works may result in the following way:
changes to the quality & other characteristics;
changes to the level, positions and/or dimensions of any item of work;
omission of any work it is to be carried out by others;
any additional work, plant, materials or services necessary for the
permanent works including any associated tests on completion,
boreholes and other testing and exploratory works;
changes to the sequence or timing of the execution of works;
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Causes
The causes which may trigger variation during construction could be
diverse;
The following are merely illustrative:
inadequate briefing from the employer side to the designers;
inconsistent & late instruction from the employer/engineer;
incomplete design;
lack of meticulous planning at the design stage;
poor planning of a project;
using typical design for all geographical locations;
lack of coordination of specialists under design work;
late clarification of complex details;
Types
There are different criterion to categorize types of variation;
Based on the definition given above (as per MDB-FIDIC), two types of
variations are identified: viz., instructed variation & approved variation;
FIDIC 4th (1987) plus PPA both the 2006 & 2011 versions have no room for
approved variation;
Instructed Variation
Causes
Under instructed variation, the variation order or instruction is coming from
the employer through the Engineer;
The actual causes which trigger instructed variation may be of the following:
employer: change of requirement by the employer;
engineer: design change and/or instruction(s) by the engineer;
contractor; like unavailability of the required construction material
and/or machinery in the market;
regulatory body: change in regulatory requirements (say as related to
the water works project) by the government;
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the property of the employer brought to the project site for the
execution & completion of the permanent works;
the property of other persons;
Ensuring safety to the permanent works under construction is the clear
contractual obligation of the contractor; see Clause 4.8 cum Clause 18.2
MDB-FIDIC;
Ensuring safety to the neighboring structures, if any, is the legal obligation
of the contractor, as well; see Civil Code Article 2027 ff cum Building Proc.
No. 624/2009;
Ensuring safety of the road & bridges and any other work or structure (in
the country) is the contractual & legal obligation of the contractor;
see Clause 4.14, 4.15 cum 4.16 MDB-FIDIC cum Civil Code Article 2027 ff
cum Building Proc. No. 624/2009;
Ensuring safety to its property & the property of the employer is mainly
contractual but also legal;
Ensuring the safety of the property of other persons is mainly legal but also
contractual;
see Clause 18.3 MDB-FIDIC; and Article 2027 ff of the Civil Code;
Utilities Environment
Public utilities may have the following four dimensions:
water supply network;
waste water network;
electric power network;
telecommunications network;
Ensuring safety to such utility lines is the legal obligation of the contractor;
The employer is also expected during planning & design phase to secure
complete & adequate information (like benchmarks) as to their location &
specific alignment and to give due consideration in the design document;
The following applicable laws may apply to establish the legal liability of the
contractor and/or the employer:
Power & Telecommunications networks:
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see Proc. No. 464/2005 cum the Civil Code Article 2027 ff cum Proc.
No. 624/2009 (Ethiopian Building Proclamation) cum Reg. No.
243/2011 (building regulation);
Water supply networks and/or any hydraulic structure & waste water
networks:
see Proc. No. 10/1995 (issued by the Addis Ababa City Government)
cum Civil Code Article 2027 ff cum Proc. No. 624/2009 (Ethiopian
Building Proclamation) cum Reg. No. 243/2011 (Ethiopian Building
Regulation);
The construction method statement meant for ensuring safety & serves as
risk management tool at the construction project site;
see Clause 4.1 MDB-FIDIC: the contractor is expected to ensure the safety of
its construction operations!
1.2 Obligations of the Employer
Background
The employer shall have many obligations under like the water works
construction contract;
The obligation of the employer has two dimensions: consideration & promise
dimensions:
The consideration dimension relates to its payment obligation whereas other
obligations of the employer are its promise obligation;
The duly performance of such obligations are thus formidable ground for the
successful mobilization, commencement, execution & completion of the water
works construction project under consideration;
The following are some of the fundamental obligations of the employer under
the construction contract:
appointing the Engineer; NB: Key consideration for the Corporation
as supervision consultant;
payment of the contract price;
design related obligations;
site related obligations;
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the “fitness for reasonable purpose” legal requirement for the works
like road or dam or building;
Duty to Notify Problems in Design or Specification
MDB-FIDIC has no specific clause regulating this possible obligation
of the contractor;
FIDIC 4th incorporates such clear contractual obligation; see Clause
8.1 (Contractor’s General Responsibilities);
part of the sub-clause reads, as follows;
The Contractor shall give prompt notice to the Engineer, with a copy
to the Employer, of any error, omission, fault or other defect in the
design of or Specification (see Sub-clause 1.1 (b) (ii) for the Works(see
Sub-clause 1.1 (f) (i) (ii));) (i.e., Permanent Works i.e., the road or
bridge) which he (i.e., the Contractor as defined under sub-clause 1.1
(a) (ii)) discovers when reviewing the Contract (see Sub-clause 1.1 (b)
(i) or executing the Works (see sub-clause 1.1 (f) (i) (ii)); (Emphasis
added);
Site Related Obligation & Management
see Clause 1.1.6.7 Site cum 2.1 Right of Access to the Site; Clause 8.3:
Program; Clause 8 Extension of Time; MDB-FIDIC;
see Sub-clause 1.2 (ee) Site cum Clause 31: Access to the Site; Clause 41:
Program of Implementation of Tasks; Clause 74: Compensation Events for
Allowing Time Extensions Clause 77: Early Warning; PPA 2011;
see all relevant applicable laws; like
Proc. No. 1/1995 the FDRE Constitution;
the Civil Code Article 1460-1488 Expropriation Proceeding;
the federal Rural Land Administration related Laws; like Proc. No.
455/2005; Proc. No. 456/2005; and
the respective regional states rural land administration laws;
the Urban Land Administration related Laws; see Proc. No.
721/2011;
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see the respective urban setting master plan or structure plan or local
development plan; and the respective zoning or planning laws of each &
every urban setting & urban administration;
see the Rural & Urban Land acquisition & compensation related Laws;
regulations; directives; and guidelines; Proc. No. 456/2005 cum Reg. No.
135/2007; re: as related to farmers (as to their land, plants); pastoralists;
urban dwellers (as to land, houses, fences); utilities; and so forth
the employer may require to undertake a socio-economic study including a
Resettlement Action Plan (RAP) to fully address all these complex issues;
Background
The most critical aspect of construction project management issues is related
to providing the required possession site and access thereto by the employer
to the contractor;
Providing the site to the contractor is mainly dependent on the contractor’s
program;
Based on such program and based on the nature of the project, the site is to
be provided to the contractor at once or from time to time;
To acquire all relevant site for the project under consideration, there are
some defined legal requirements to be fulfilled by the employer unless the
project is legally exempted from to undergo such legal requirements;
Concept
Site is defined (see Clause 1.1.6.7) as the places where the permanent works
are to be executed, including storage and working areas, and to which Plant
& Materials are to be delivered, any other places as may be specified in the
Contract as forming part of the Site;
The scope of site could be too broad; it may thus include the following for the
purpose indicated;
site for the permanent work itself and access thereto; say for the dam;
groundwater development; pipe installation/laying (transmission
and/or distribution); other hydraulic structures; building; road;
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see Clause 17.2 (Contractor’s Care of the Works) cum i.e., the
Permanent Works see Clause 1.1.5.4 (re: effects of issuing TOC &
cessation of contractor’s obligation to take care of the Works) re: the
CPA has to be considered here; cum
see Clause 17.7 (Use of Employer’s Accommodation/Facilities) (re:
effects of issuing TOC on the obligation of the contractor as to such
facilities) cum
see Clause 18.2 (Insurance for Works & Contractor’s Equipment); re:
effects of issuing TOC on the cessation of the contractual obligation
of the contractor to insure against such assets;
PPA 2011
see Clause 84: General Principles (for Acceptance)
see Clause 85: Tests on Completion
see Clause 86: Partial Acceptance
see Clause 87: Provisional Acceptance
see Clause 88: Defects liability
see Clause 89; Final Acceptance
see also Clause 58.8 Performance Security (re: discharging the security to
the contractor);
see also Clause 61.3: Retention Money (re: release of the retention money);
see Clause 65: Final Statement of Account (re: following final acceptance
preparing final accounts by the contractor cum Clause 89);
Civil Code
see Article 3274-3281 (Acceptance of Works); re: related to public
construction contract;
see also Art. 2002: Means of Evidence; re: presumptive takeover;
Background
One of the fundamental obligation of the employer under the construction
contract is to take over (accept) the permanent works (the Project) from the
contractor;
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Pre-conditions
For the permanent works to be taken over by the employer the following pre-
conditions have to be fulfilled; viz.,
completion: in terms of scope, the works have to be completed; see
Clause 10.1 MDB-FIDIC
as-built documents: the contractor shall submit as-built documents for
the tests to be undertaken;
tests: the works have to pass tests on completion; see Clause 9.1
through Clause 9.3; MDB-FIDIC;
request: the contractor has to request for the issuance of the taking
over of the works; and see Clause 10.1 MDB-FIDIC;
determination/presumption: the Engineer determined that the works
are completed & passed their tests on completion & thus issued
Taking over Certificate to the contractor or the contract takes
presumption in favor of issuance of such certificate; see Clause 10.1
MDB-FIDIC
The contractor has to complete the works in accordance with the contract;
see Clause 8.2;
The extent of completion may not be absolute; it suffices to be substantial or
reach to the level of practical completion, which is subjective to be
determined by the Engineer, however;
Tests on completion have to be passed by the works as defined in the
contract; retesting may also be required;
The contractor has to request for takeover of the works by the employer
upon the issuance of taking over certificate by the Engineer; it is the
obligation of the employer to take over the works;
The Engineer determines, based on the request of the contractor, whether or
not the works have been completed & the required tests on completion have
been passed by the works;
The scope of takeover of the works by the employer may relate to the whole
of the works or section thereof;
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If all such pre-conditions have been fulfilled, the works are to required,
actually, to be taken over by the employer or the contract takes a presumption
in favor of takeover of the works by the employer;
Takeover
Takeover of the works, in whole or in part, shall be effected through Taking
Over Certificate or by such presumption;
Then the employer said legally has taken over the works;
Effects
The following legal and/or contractual effects shall result from due to actual
or presumptive takeover or otherwise thereof; viz.,
risk: It shifts the risk as related to the works from the contractor to the
employer; see MDB-FIDIC Clause 17.2; see also Clause 17.7 as related to
contractor’s obligation with respect to employer’s accommodations or
facilities for which the contractor being obliged to take responsibility up to
the issuance of the takeover certificate;
insurance: up on issuance of the taking over certificate the contractor’s
obligation to insure the following shall cease; the Permanent Works; the
contractor’s Plant; Materials & Contractor’s Documents; see Clause 18.2
MDB-FIDIC;
defects liability: It marks the commencement of defects liability period or (so
called maintenance period) or defects notification period, within which time
frame the contractor being obliged to remedy defects in the works;
retention: It triggers the release of half of the retention money to the
contractor; see Clause 14.9 2 MDB-FIDIC;
balance retention; the issuance of the defects liability period after the defects
notification period shall trigger the release of the balance of the retention
money to the contractor; provided that where there was no retention security
arrangement; see Clause 14.9 2 MDB-FIDIC;
retention security; It may trigger the deposit of retention money security (for
the balance 50%) by the contractor; see Clause 14.9 MDB-FIDIC;
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final payment;
Advance Payment
see Clause 14.2 MDB-FIDIC;
see also Article 3271 of the Civil Code
paid by the employer to the contractor against the submission of an
unconditional bank guarantee by the contractor;
deducted from each and every interim payment certificate till its full
repayment;
its purpose being for project mobilization;
its management may be left totally to the contractor or may be
subjected to joint management both by the employer & the
contractor;
Interim Payment
see Clause 12 (Measurement & Evaluation) cum 14.3 ff (Payment of
the Contract Price) MDB-FIDIC;
see Clause 59-69 PPA (2011); Payments to the Contractor
see also Article 3269 & 3270 of the Civil Code; re: Payment
the interim payment certificate reflects the quantities so executed
under the contract by the contractor;
the certificate is subjected to measurement (based on the Drawing) &
valuation process based on quantities jointly recorded on site (related
to the BOQ); see Clause 12 MDB-FIDIC; and quality (against the
specification;)
the certificate is prepared & processed monthly provided the agreed
threshold has been met which has to be stated in the special conditions
of contract (or Contract Data);
the certificate may be subjected to possible corrections by the
Engineer;
the certificate is not considered as approval of the works done; that is
left to the final payment certificate;
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Final Payment
see Clause 14.11 ff MDB-FIDIC cum
see Clause 65 of the PPA (2011);
see also Article 3272 & 3273 of the Civil Code;
the preparation of final payment certificate shall follow the format &
procedure acceptable to the Engineer;
Purpose: if such certificate has been prepared & executed, it settles
all the financial balance between the employer & the contractor;
Purpose: such certificate considered as declaration of the final
approval of the works & satisfaction of the Engineer;
Therefore, both the employer & the contractor have to include any
payment and/or that they may request or demand (claim) from the
other in such certificate;
The failure to include such financial requests (in terms of payment
and/or claim) may lead to the loss (waiver) of such financial right
under the contract due to the finality of such certificate;
Effects: such certificate thus may have the following legal effects;
o On the contractor: waiver of its financial right not duly
included in such certificate;
o On the employer: waiver of its financial right not duly included
in such certificate;
o On the Engineer: loss of contractual power under the contract
between the employer & the contractor (called ex officio
effect);
There may be some exceptions to the finality of such final payment
certificate: like fraud or double payment; or work executed by the
contractor after issuance of the final payment certificate;
interim payment & disputes: due to disputes related to such final
payment certificate, the Engineer is required to issue an interim
payment certificate for sums agreed between the employer & the
contractor; the balance under the final payment certificate being
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Common Obligations:
Cost Related Obligations & Management
the following contractual clauses & legal provisions provide the basis for cost management;
MDB-FIDIC 2006
see Clause 1.1.4.1: Accepted Contract Amount re: definition
see Clause 1.1.4.2: Contract Price re: definition
see Clause 1.1.4.3; Cost: re: definition
see Clause 2.5 Employer’s Claims;
see Clause 4.10; Site Data;
see Clause 4.11; Sufficiency of Accepted Contract Amount;
see Clause 4.12; Unforeseeable Ground Conditions);
see Clause 13.1; Variation (re: instructed variation);
see Clause 13.7 Adjustment for Changes in Legislation;
see Clause 13.8 Adjustment for Changes in Cost;
see 4.11 Sufficiency of Accepted Contract Amount;
see Clause 14.1; The Contract Price; re: as related to IPCs;
PPA 2011
see Clause 16: Changes in Laws & Regulations (re: no cost adjustment in
principle;)
see Clause 62: Price Adjustment (subject to stated conditions);
see Clause 69: Claims for Additional Payments
Civil Code
see Article 3261-3273 Payment of Price;
see Article 3183-3189 Unforeseen Circumstances;
see Article 3190-3193 Act of Government; cum Article 1767 (re: variation of
contract; re; contract with public administration;);
Background
One of the project performance criterion will be completion of the project
within the budget allocated;
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The project cost may relate to everything from its capital cost to its operation
& maintenance cost;
All relevant factors during the various phases of the project may contribute
also to the cost effectiveness or otherwise (i.e., cost overrun) of the project;
During tendering phase, for example, the cost estimate to be done by the
future contractor has to consider the following cost relevant factors: see
Clause 4.10 Site Data; 4.11 Sufficiency of Accepted Contract Amount MDB-
FIDIC;
source: sub-contractor’s quotation; quantity takeoffs; and
construction procedure;
caution: knowledge on the current market prices information (for
materials; labor; equipment; consumables;) is essential;
caution: pre-bid site visit for bid estimate is necessary to see problems
ahead of time which may have possible cost implications;
Otherwise, the accepted contract amount deemed to include all costs of the
contractor under the contract; see : see Clause 4.10 (Site Data); 4.11
(Sufficiency of Accepted Contract Amount) MDB-FIDIC;
Concept
The concept of cost as defined in the contract document (MDB) reads;
cost means all expenditure reasonably incurred or to be incurred by the
contractor whether on or off the site, including overhead & similar charges,
but does not include profit;
Causes for Cost Overrun
Conceptually, as related to the construction phase, cost overrun means the
difference between the accepted contract amount & the final contract price;
The final contract price includes all allowable adjustments (see Clause
1.1.4.2: (Contract Price) cum Clause 14.1 (a) MDB) that the project has
experienced during its implementation phase;
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The following may be taken as factors to contribute to the cost overrun of the
construction project during construction phase to determine the final
contract price: viz., market; nature; government; parties;
market driven factors (inflation); as related to labor, material and/or
equipment;
nature driven or act of God factors: adverse or unforeseen grounds
condition or other events of forces of nature;
act of government factor; like change in legislation; regulatory
requirement change;
contracting party driven factors: two factors: viz., variation & claims;
The contract price said to include all tax obligation of the contractor; see
Clause 14.1 (b) MDB-FIDIC;
Due to its nature quantity-based contract may not have certain or fixed
contract price from the beginning, as related to quantities;
Categories of Cost
Based on the definition given to cost, the following two categories of cost
emerge; direct & indirect
Direct cost means the category of cost which represents the cost of the core
permanent or physical works comprising the following;
material cost;
labor cost;
machine/plant cost; and
sub-contractors cost (to the main contractor);
Indirect cost means costs other than direct cost which include the following;
viz., overhead costs & risk costs
overhead costs: project on site costs & project head office (off site)
costs;
risk costs: corporate taxes; risk allowances & insurance related costs;
Implications
The definition of cost & categorization of same in to direct & indirect may
bring the following implications: contractual & legal;
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Contractual implications:
delay claims: to determine the type & assessment of the extent of costs
recoverable from the employer by the contractor as related to its
delay claims; it may cover both the idle costs of the contractor as
related to direct & indirect costs;
disruption claims: to determine the type & assessment of the extent of
costs recoverable from the employer by the contractor; disruption
claim may only cover the direct cost and from this only idle labor &
equipment cost, as related to loss of productivity of such resources;
profit claim: unless specifically provided under the contract, profit
claim is excluded from the definition of cost; see for example the
following MDB clauses which entitle the contractor to profit claim:
Legal implications:
quantum duty: even if the contractor may be entitled to recover some
costs from the employer, it is legally obliged to minimize the extent of
damage;
see Article 1802 of the Civil Code; this legal obligation applies in all
other relevant types contractor’s claims;
Common Obligations:
Risk Sharing Obligations & Management
the following contractual clauses from the MDB-FIDIC & provisions from the Civil Code
may show the sole assumption of risk or sharing of risk by the contracting parties;
MDB-FIDIC 2006
see Clause 3.1 Engineer’s Duties & Authority cum
see Clause 4.10 Site Data cum
see Clause 4.13 Rights of Way & Facilities cum
see Clause 4.19 Electricity, Water & Gas cum
see Clause 4.20 Employer’s Equipment & Free-Issue-Materials cum
see Clause 8.6 (Rate of Progress) MDB-FIDIC cum
see Clause 9.2 Delayed Tests cum
see Clause 11.2 Cost of Remedying Defects cum
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Commercial Code
see the Commercial Code; Insurance: Article 654-712;
Background
Construction project is a risk-prone venture;
At different phases of the construction project, there are different types of
risks;
Risk is defined as a combination of the probability, or frequency, of
occurrence of a defined hazard and the magnitude of the consequences of the
occurrence.
Hazard is a situation that could occur during the life time of a product,
system or plant that has the potential for human injury, damage to property,
damage to the environment, or economic loss.
The following are some of the basic principles/standards for the allocation of
risk:
They are related to: fault, foresee ability, management & incentive.
the fault standard: cost & time impacts of risks caused (or not avoided)
through the fault of a party should be borne by that party;
the foresee-ability standard: he who is best able to foresee the risk is
allocated that risk;
the management standard: he who is best able to control and manage
the risk is allocated that risk;
the incentive standard: risks should be placed on the party most in
need of incentive (presumably already in the ability) to prevent &
control them;
The risk management involves the following steps: risk identification; risk
assessment; risk response; risk management plan; and risk monitoring &
control;
Risk: Contractual Allocation
The very purpose of construction contract document being allocation of risk
to the contracting parties i.e., to the employer or to the contractor;
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applicable law (i.e., the Commercial Code) and based on the particular &
relevant insurance policy;
The following three types of insurance have been identified;
property insurance; ex. for the contractor’s equipment by the
contractor itself;
liability insurance; ex. for the property of the employer and/or the
property of the third party by the contractor;
life insurance; related to life accident and/or sickness;
The details of which being governed under Article 654-712 of the
Commercial Code;
Insurance is part of risk management mechanism;
Security Instruments Management
Background
The following contractual clauses from the MDB-FIDIC & the PPA including the
provisions from the applicable laws may provide some regulations as to security
related issues;
MDB-FIDIC 2006
see Clause 1.1.4.11 Retention Money; re: definition; cum
see Clause 1.1.6.6 Performance Security; re: definition; cum
see Clause 4.2 Performance Security; re: form of security (viz., guarantee vs.
bond as per Contract Data) cum
See Clause 1.1.1.10; re: definition on Contract Data; cum
see Clause 14.2 Advance Payment cum see also Clause 1.1.1.10 Contract
Data; cum
see Clause 14.9 Payment of Retention Money; re: after issuance of the TOC
the possibility for the contractor of substituting for the balance of the
retention money (i.e., 50%) by some form of security as provided under the
particular conditions of contract;
see Clause 18.2 Insurance for Works & Contractor’s Equipment;
see Clause 18.3 Insurance against Injury to Persons & Damage to Property;
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PPA 2011
see Clause 40 Insurance to be Taken by the Contractor;
see Clause 58; Performance Security;
see Clause 61; Retention Monies (guarantee);
see Article 3271 of the Civil Code; (Sums advanced by the administrative
authorities); against guarantee;
see the Commercial Code of Ethiopia on Insurance; Article 654-712;
Civil Code
see Article 3271 of the Civil Code; Sums advanced by the administrative
authorities); against guarantee;
see also Article 1920-1951: Surety ship
Commercial Code
see Article 654-712 Insurance;
Concept & Scope
The concept of security is broad; it may include the following aspects;
contractual security: different contractual security regimes under the
contract;
legal security: security under the applicable law; and
security from the market; based on a given construction contract but
securing & submitting commercial & non-commercial security
instruments notably by the contractor;
contractual security & legal security are discussed somehow in the other
parts of the training;
The security from the market is the focus of our training;
Different securities are required under the construction contract for defined
& different purposes to be secured & submitted by the contractor;
The following are some of the sources of security from the market;
performance security; see Clause 4.2 MDB-FIDIC; see also Clause 58
PPA 2011;
advance re-payment security; see Clause 14.2 MDB-FIDIC; see also
Clause 60.4 PPA 2011;
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Due to this legal nature, the applicable law governing the enforcement
of such security instruments, viz., both guarantee & bond, is the Civil
Code;
see Article 1920-1951 (Surety ship);
Insurance Policies
Insurance policies may serve as a security to the one who benefits
under such policy;
Contrary to the above security instruments(namely, guarantee &
bond), insurance policies are commercial in nature, however;
The applicable law governing their enforcement shall thus be the
Commercial Code of Ethiopia;
see Article 654-712 (Insurance);
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Review Questions on
Construction Contract Management
………………………………………………………………………………………
1. What is Contract & Construction Contract?
2. What do you understand by the very concept & scope of construction?
3. What do you understand by the concept of utility/process plant erection project/erection
contract?
4. Why utility/process plant erection projects are excluded from the concept & scope of
construction & construction contract? Is it correct to exclude them? Why or why not?
5. Identify & discuss the structural difference between construction project/contract and
utility/process plant projects & contracts;
6. What is the difference between construction contract and other categories of contracts (viz.,
service contract, supply of goods contract)?
7. Identify & discuss the fundamental parts of construction contract documents?
8. What do you understand by the concept of method of construction?
9. Does method of construction constitute an integral part of construction contract
documents?
10. What do you understand by the concept of construction work program?
11. Describe the elements or structure of construction work program?
12. Does construction work program constitute an integral part construction contract
document?
13. Why we use standard conditions of construction contract for our construction projects?
14. What is the conceptual basis for each & every standard conditions of construction contract?
15. What is the relationship between general standard conditions of construction contract &
conditions of particular application/special conditions of contract?
16. What do you understand by the very concept of construction contract management?
17. Identify & discuss the fundamental contractual obligation of the Employer under a given
construction contract;
18. Identify & discuss the fundamental contractual obligations of a contractor under a given
construction contract;
19. What do you understand by the concept of consultant or the Engineer? (design vs.
supervision consultant);
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20. Why we need consultants as related to construction projects? like the design consultant or
supervision consultant?
21. Identify & discuss the role of the Engineer (as a supervision consultant) in a given
construction contract;
Exercise Assignment
Pre-contract Negotiation
A certain (public) employer has undertaken a successful tender process and awarded, via a formal
letter of acceptance thereto, a dam (impounding 20 Billion CM raw water) construction project
worth Birr 4 Billion, to a certain public contractor. The project duration would be 500 calendar
days. Before signing the underlined construction contract, both parties decided to hold a pre-
contract negotiation. The respective agendas to be negotiated, as recorded, were of the following.
The delivery sub-system is that of design-bid-build.
Employer’s Agenda
Program;
issue of focus: guiding vs. binding program:
We have reviewed the tender program of the Enterprise;
we found that the Program is good; we demand the said working program to be
critically reviewed & to become an integral part of the upcoming Dam Construction
Contract;
Tests on Completion; the tests; insurance; method;
tests; let us define & specify the tests on completion; Notes; as the public contractor
what are the possible tests on completion to be proposed, if any, on the dam upon its
completion?
insurance: we demand a specific insurance Policy to guarantee the successful tests
on completion; Notes; as the supervision consultant, do you think that there is an
insurance coverage for such possible risks (viz., failing to pass tests on completion);
method: if the dam fails to pass specified tests on completion, without prejudice to
our contractual right to reject the dam, let us agree on the method of measurement
(calculation) of the extent of the loss of benefit/value of the dam with a view to
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reduce the contract price; as supervision consultant, what do you expect from the
successful bidder to be proposed as method of calculation? Advise the public
employer!
Threshold for Interim Payment;
we recommend ETB 20 Million (instead of ETB 10 Million), as a threshold, to
trigger & process every interim payment certificate;
Performance Security;
guarantee: without prejudice to the percentage agreed (viz., 10%), we demand
performance bank guarantee instead of performance bond for the due performance
of the Dam Project;
what do you advise the employer?
Reduction of Bid Price/Accepted Contract Amount;
discount: we demand reduction of the Bid Price which is now an accepted contract
amount (viz., Birr 4 Billion) by 5%;
consider first the feasibility of the agenda;
Advance Payment %;
the project is capital intensive;
we demand the increase of the advance payment, now 10%, to 20% and to be
distributed equally in terms of our financial requirement (cash flow) both in foreign
& local currency;
Advance Re-Payment Security;
guarantee vs. bond:
to ease our initial financial burden & future cash flow, we demand the advance
repayment security to be in the form of bond instead of guarantee;
advise the public employer thereon;
Site Acquisition & Access Plan;
the plan: to determine the timing & extent of our mobilization, we demand a clear
site possession & access plan from the employer side;
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non-encumbrance: we demand also the full encumbrance free and obstruction free
site & its access with a view to avoid any delay;
advise the public employer thereon;
Mobilization Period; timing; program; contract effectiveness;
timing: the proposed mobilization period is 3 months calculated from the signing of
the construction contract; we demand 6 months mobilization period calculated from
the receipt of the full advance payment both in foreign currency (25%) & local
currency (75%);
mobilization program: our proposed Mobilization Program has already been
submitted for your due consideration;
contract effectiveness: we thus consider the effecting of the advance payment as a
condition precedent to the effectiveness of the construction contract;
advise the public employer thereon;
Project Duration;
500 vs. 760: we have observed, in the drawing, a gross error as related to the
quantities to be excavated;
we understand it is very difficult to change the method of construction from
machine-based to blasting;
therefore, we demand the project duration to be increased to 760 calendar days;
Notes: no disclosure from all bidders as to such error during bidding;
advise the public employer thereon;
Financial Arrangement;
we demand, in writing, the availability of the finance (approved budget) for the
whole duration of the Project;
Info: the capital budget for the Project already indicated in the fiscal budget of the
said public institution (the Employer);
Payment Security;
as a contractor, we demand from the Employer an unconditional payment
guarantee from a reputable local bank;
Retention Security;
bond vs. guarantee:
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we demand to submit a local retention bond, instead of guarantee, for the balance of
our retention money upon the issuance of the taking over certificate;
advise the public employer thereon;
Discussion Points
Pre-contract Claims
The above pre-contract negotiation has been finalized in two-week time. The pre-contract
negotiation result has been signed by both parties in the form of Minutes of Meeting of the Pre-
contract Negotiation. Assume that the said public employer, after finalization of the said pre-
contract negotiation, has refused to enter into a contract with the Enterprise for reasons unknown;
Discussion Points
Experience: Have you ever encountered such similar circumstances in your professional
career?
Legitimacy; Is such public employer legitimate to decline to enter in to a contract with
such successful bidder?
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No Legitimacy; If not legitimate, what remedies were available to the successful bidder
against the said employer?
Remedies: If there were some remedies available to the successful bidder, are such
remedies contractual or legal? Justify
Pre-contract Claims
Assume that the head of the said public employer institution ordered the future Engineer (now the
supervision consultant), in the presence of the Successful Bidder’s General Manager & its all
project staff, to instruct the Successful Bidder to commence execution of the works (say the Dam)
(which is an urgent project) by promising to the Successful Bidder to sign the dam construction
contract after his return from abroad that he is due to depart for some urgent public interest. The
supervision consultant has ordered same in writing. The Successful Bidder has mobilized &
executed some works (say 10%) in a month-time. After his return, the head of the said public
employer has refused to sign the dam construction contract for reasons unknown.
Discussion Points
Experience: Have you ever encountered such similar circumstances in your professional
career?
Legitimacy: Is such employer legitimate to refuse to enter in to such construction
contract with the said Successful Bidder?
No Legitimacy; If not legitimate, what remedies were available to the Successful Bidder
against the said employer?
Remedies: If there were some remedies available to the Successful Bidder, are such
remedies contractual or legal? Justify
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