Lucy Consulting Services

Lecture Notes on Consulting Engineering Services Contract
Graduate Program:
Construction Technology & Management
Construction Contract & Law Course
Lecture Notes on
Consulting Engineering Services Contract
Organized & Delivered by
Zewdu Tefera Worke
Engineering Contracts Lawyer
Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 1


Table of Contents
1. Theoretical Background
2. Role of Consultants
3. Types of Consulting Services Contract
4. Forms of Contract
5. Rights, Obligations & Remedial Rights
6. Conflict of Interest
7. Liability of the Consultant
8. Professional Liability Insurance


Lecture Notes on
Delivered by:
Zewdu Tefera Worke
………………………………………………………………………………………………
I. Theoretical Background
 Definition of the Services
 Consultancy services are here discussed in relation to Engineering &
architectural services.
 Engineering & architectural services are important technical & professional
services in building & other civil engineering projects.
 Both services hereinafter referred to as “the consulting services” or “the
consultant”.
 Services of this kind are defined in different documents, as follows.
 According to the World Bank, consulting services means services of
an intellectual & advisory nature provided by consultants using their
professional skills to study, design, and organize specific projects,
advice clients, conduct training and transfer knowledge;
 According to Proc. No. 649/2009 Article 2(4) consultancy service
mean a service of an intellectual & advisory nature provided by
consultants using their professional skills to study, design and
organize specific projects, advise clients, conduct training & transfer
knowledge;
 Is there a difference between the two definitions?
 In case of large scale & complex construction projects, depending up on the
type of project delivery system, which requires the engagement of
consultants, it is unthinkable without consultants to plan, study, design
and/or manage the said projects;
 Consultants may provide their services either institutionally or
individually;

 Their services may generally relate to the following three areas:

project preparation; project implementation; and knowledge
transfer (like training);
 Project preparation services may relate to: feasibility studies; and
design services;
 Project implementation services may relate to: tender document
preparation; procurement assistance to the client; construction
supervision; and project management & contract administration;
 The focus of the training shall thus be on the services of consultants,
as “the Engineer” during the implementation phase of a construction
project as related to design, project supervision & contract
administration;
 Types of Consulting Services
 The World Bank generally classifies types of consulting services in to the
following.
 These are;- Preparation Services; Implementation Services; and Advisory
Services;
 Preparation Services
 Under preparation services, the following services are identified,
namely,
 Sector studies; Master Plans; Feasibility studies; Design studies;
 Implementation Services
 Under implementation services, the following sub-services are
identified, namely;
 Tender document (preparation); Procurement assistance; project
supervision; Project management; Quality management;
Commissioning;
 Advisory Services
 Under advisory services, the following sub-services are identified,
namely,
 Policy and strategy; Reorganization/Privatization; Institution
building; Training/knowledge transfer; Management services;
Technical/operating advice;

 The consulting services of the architect & of the engineer may find its place
in the three stages of a given building or engineering construction project;
like,
 Feasibility studies; (Preparatory);
 Design studies; (Preparatory);
 Tender documentation; (Implementation);
 Procurement assistance; (Implementation);
 Construction supervision; (Implementation);
 Contract administration; (Implementation)
 Training; (Advisory);
 Project management; (Advisory);
 The following are also broad & possible professional services of the engineer
& the architect-(Abbet 1963);
 These are: Engineering & economic feasibility studies & preliminary report;
Preparation of contract plans & specifications; and Supervision of
construction;
 Consultants
 Consultants could be bodies’ corporate or natural persons (individuals).
 Bodies corporate, according to the World Bank, may further be categorized
as consulting firms & other organizations.
 Consulting firms are those whose core business is exclusively the provision
of consulting services.
 The following are some form of legal entities of consulting firms;
Partnerships; Limited Liability Companies; Public Stock Companies;
Government-Owned Enterprises; Foundations & NGOs’;
 Other organizations are those entities with a different mission & cost
structure that only occasionally provide consulting services & may enjoy
subsidies & other privileges.
 These are, for example: U.N. Agencies; Consulting Marketing Groups;
Universities & Research Institutes; Nongovernmental Organizations;
Financial Consultants; Procurement Agents & Inspection Agents;
 Individual consultants may be engaged, for example, in the following
circumstances (the World Bank) for which,

 The experience & qualification of the individual are the

predominant considerations;
 No support from a home office is needed;
 Teamwork or a multidisciplinary approach is not necessary;
 Legal Base
 The services of consultants has been recognized by & regulated
under the Ethiopian law;
 The law is called the law of professional services or hiring of
intellectual services under the Civil Code:
 see Article 1675 cum Article 2632-2638 cum 2632(2) cum 2610-2631;
 Legal Feature of Consulting Services
 Consultants like the Engineer provide services which legally have the
following features/nature;
 These are: intellectual/professional nature; independent nature; personal
nature; incorporeal nature; and technical nature;
 Professional Nature
 the professional nature of the services of consultants is clear;
 the law itself has declared it as an intellectual service;
 see Article 2632 (1) of the Civil Code;
 Independent nature
 the independent nature of consulting services has two dimensions:
 independent contractor dimension; and
 free from conflict of interest dimension;
 the doctrine of independent contractor applies to the consultant as
well, as per Article 2632 (2) cum 2616 of the Civil Code; it has again
two dimensions: organizational and professional;
 organizational dimension: it means that consultants are
organizationally (thus legally) independent from their clients;
 professional dimension: it means that professionally consultants are
independent from their clients; they have to follow the rules of their
profession;

 conflict of interest dimension: as related to this consultants are

faithful advisors to their clients; they are thus required to protect the
legitimate interests of their clients; from this it follows that they are
not expected to place themselves in a situation which brings conflict
of their interest with that of the client:
 the origin of such conflict of interest may be of twofold: their own
interest and/or the interest of a third party with whom the
consultants have;
 Personal Nature
 consultants are hired for their individual (corporate or otherwise)
professional ability & competence;
 they are thus required to discharge their professional obligations
personally;
 the law also recognizes & allows consultants to have their assistants
(like Engineer Representative or quantity surveyor;…);
 in case of complex projects the scope of assistance may extend to:
sub-consultancy contract and/or joint venture arrangement;
 Incorporeal Nature
 the professional services of consultants is intangible; that is why it is
said to be incorporeal;
 this nature of the services of consultants distinguishes the services of
consultants from that of the works contract which is tangible;
 Technical Nature
 the services of consultants i.e., the Engineer, is technical since the
construction project management (like design or project supervision
& contract administration) is technical in nature;
 such services clearly require technical knowledge from the Engineer
about the project to be designed or managed;
 this nature of the services of consultants distinguishes the services of
the Engineer, as consultant, from other non-technical consulting
services;

 in 2006 the PPA has prepared & issued separate SBD for technical
consultancy services & non-technical consultancy services;
II. Role of the Engineer/Consultant
 Background
 The role of the consultant in the construction project may, according to (Bunni
2005) , validly be summarized, as follows;
 These functions are;-
 Study & design function;
 Tender document preparation;
 Construction supervision; and
 Construction administration;
 Design Services
 This role includes the completion of skillful design of the project sought by
the promoter.
 Such design includes, but is not limited to:
 the preparation of drawings which should express & communicate
the details of every aspect of the project to be constructed;
 to draft a specification of the materials to be used;
 to draft the standard of the workmanship to be achieved; and
 to prepare the bill of quantities;
 Tender Document Preparation Services
 With respect to Tender document preparation to prepare all documents
necessary for obtaining a competitive price for carrying out the work by a
competent contractor & to advise the promoter on the tenders received and
on the selection of the contractor.
 Construction/Project Supervision Services
 With respect to Construction supervision, once work starts on the project, to
supervise or to inspect the work carried out by the contractor in order to
ensure conformity with the design requirements;
 Construction Administration Services

 With respect to Construction administration, to administer the contract to

deal with situations as they arise, to certify and to act as an adjudicator of
disputes;
 During the implementation phase of a construction project, the Engineer, as
a consultant, may have two categories of roles:
 agent role; and
 professional role;
 That will be the next point of discussion;
 Agent Role
 Legal Basis
 The legal basis that the Engineer has an agent role is Article 2636 (1) of the
Civil Code: this sub-article reads as follows: Whosoever hired out his
(intellectual) work shall undertake to carry out in the best interest of his
client, …and…; (emphasis added)
 The Engineer, based on his contractual agreement with this client, acts as
the agent of the employer in the management of construction contract;
 This is evident from the reading of a clause in the MDB-FIDIC: see Clause
3.1: The Employer shall appoint the Engineer who shall carry out the duties
assigned to him (i.e., to the Employer) in the contract;
 The Engineer is not a party to a construction contract but performs the
contractual obligations of the employer (as an agent) in the name & on
behalf of the employer (his client/principal);
 Therefore, there is, legally, an agent & principal relationship between the
Engineer & the Employer;
 This agent & principal relationship between the Engineer & the employer
(as his client & principal) is regulated by their consulting services agreement
(destined for project management) & the provisions of the Law of Agency;
see Article 2179-2265 of the Civil Code;
 Under the agent role of the Engineer, it is the very mission of the Engineer
to best protect the legitimate interests of the Employer i.e., its client or
principal;
 The nature of such relationship between the Engineer & his principal (the
Employer) is thus contractual;

 Types of Duties
 The following types of duties may reveal the agent role of the Engineer in the
management process of a construction project & contract;
 Two types of agent role has been identified: power & function;
 Power
 The power of the Engineer may reveal itself in the following instances: like
the power;
 to instruct the contractor to do variations; see Clause 13.1 MDB-
FIDIC (2006);
 to instruct the contractor to suspend the performance of the works;
see Clause 8.8 MDB-FIDIC (2006);
 to delegate its power to its assistants; see Clause 3.2 MDB-FIDIC
(2006);
 Function
 The function of the Engineer may reveal itself in the following instances:
 Advising: like on costs of the project..;
 Providing information: like providing working drawing to the
contractor..;
 inspecting & monitoring: works or materials (by himself or through
professional inspectors) or workmanship or defects; and
 quantity surveying: through assistants like quantity surveyors;
 Legal Implications
 Both in case of such power exercise & function, the acts, defaults or neglects
of the Engineer (as agent of the employer or the client) are considered,
legally, the acts, defaults or neglects of the employer or the client;
 The contractor shall then resort to the employer to secure its remedial
rights, if any, like in case of variation claims (as related to power) or delay
claims (as related to function; due to failure to give working drawings to the
contractor in due time);
 Professional Role
 Legal Basis

 The legal basis for the professional role of the Engineer is Article 2636 (1) of
the Civil Code: the sub-article reads as follows:
 Whosoever hired out his (intellectual) work shall undertake to carry out
…in conformity with the practice & rules of his profession; (emphasis added)
 The Engineer is a professional; His profession, as a matter of public policy,
is regulated by law see Article 2632 (3):
 The regulation of his profession encompasses the following three phases:
known as EEE;
 Entry: the Entry to the profession: through professional certification
process, registration & licensing process;
 Exercise: the continuous Exercise of such profession (through annual
renewal of his professional & business license); and
 Exit: the Exit/termination of the exercise of his profession (due to say
professional negligence or professional misconduct; like by revoking
the professional & business license);
 On such regulatory requirement & process the employer has no influence or
power;
 Due exercise of one’s profession, as a matter of public policy, is therefore a
matter of public interest;
 The dimensions of the issues involved here are thus legal;
 The liability of the consultant or the Engineer as related to his professional
negligence is legal (as a matter of public policy & protection of public
interest) as regulated under Article 2031 of the Civil Code and not
contractual as in the case of agent role (see the specific client & consultant
contract plus Article 2179-2265 of the Civil Code);
 Types
 Three types of the professional role of the Engineer are identified:
 These are:
 design;
 certification; and
 decision;
 The design function of the Engineer is clear;

 The Engineer becomes liable for design during construction in the following
two instances;
 the Engineer (now the supervision consultant) was the designer
himself; or
 the Engineer (now the supervision consultant) has assumed design
liability by reviewing & accepting all design documents done by
another (design) consultant;
 Certification is related to: payment & event
 payment certification; like monthly payment & final payment;
 event certification; like performance or non-performance
certification of the contractor(like completion);
 Decision is related to: claims & others
 claims determination; determination on the claims of the contractor;
see Clause 20.1 cum 3.5; the claims of the employer; see clause 2.5
cum 3.5 under the MDB-FIDIC (2006);
 other determinations; see Clause 3.5
 The idea behind such professional role of the Engineer is that the Engineer
has to follow the practice & rules of his profession in discharging his duties
as related to certification & decision making;
 The Engineer is not expected to follow or to protect the interests of the
client;
 Legal Implications
 liability: The Engineer himself becomes legally liable if he found to be
professionally negligent in terms of its design and/or supervision related
professional services;
 The Engineer may become legally liable for the error or omission that it has
committed in undertaking its professional services; see Article 2636 (2) cum
20131 (i.e., its extra-contractual or legal liability) of the Civil Code;
 The dimension of the legal liability of the Engineer may extend:
 to the client;
 to the contractor; and
 to the general public;
as the case may be;

 No contractual commitment is needed on the part of the Engineer to become

liable legally since its liability originates not from contract but from the law:
see Article 2031 (Professional Fault) under the Extra-contractual liability
regime;
 The client is not liable for the professional negligence of the Engineer; this is
thus based on the independent & professional status of the Engineer;
III. The Selection Process
 The International Context
 The World Bank Approach
 The selection process may depend on the chosen method of selection;
 The World Bank generally recommends the following selection process to
select consultants;
 The process is presented, in summary, as follows;
 Preparation of the TOR of the assignment;
 Preparation of the cost estimate to determine the budget of the
assignment;
 Advertising to invite expression of interest from consultants;
 Short listing to identify consultants qualified for the assignment;
 Preparation & issuance of Request for Proposal(RFP);
 Preparation & submission of proposals by the consultants;
 Evaluation of technical proposals-quality evaluation;
 Evaluation of financial proposal-cost evaluation;
 Final combined quality & cost evaluation to select the wining
proposal (QCBS);
 Negotiations & signing of the contract between the Borrower & the
consultants;
 The FIDIC Approach
 The FIDIC recommends the following selection procedure-process;
 Preparation of terms of reference;
 Pre-qualifying consultants;
 Short listing consultants;
 Requesting for proposals;

 Assessment of proposals;
 Making an agreement;
 The Ethiopian Context
 According to the Guide prepared by the PPA (2006), the following selection
process is adopted for the selection of consultants.
 Selection of Bidders;
 Preparation & Issue of RFP Documents;
 Bidding Period & Receipt of Proposals;
 Proposal Evaluation;
 Proposal Acceptance, Contract Award & Placement;
 Method of Selection
 The International Context
 The World Bank provides the following seven methods of selection of
consultants.
 These are:-
 Quality & Cost Based Selection (QCBS);
 Quality Based Selection (QBS);
 Selection under a Fixed Budget (SFB);
 Least Cost Selection (LCS);
 Selection Based on Consultant’s Qualifications (SBCQ);
 Single Source Selection (SSS);
 Commercial Practices (CP);
 QCBS: it is a method based on the quality of the proposals and the cost of
the services to be provided.
 QBS: it is based on an evaluation of the quality of the proposals and the
subsequent negotiation of the financial proposal and the contract with the
consultant who submitted the highest ranked technical proposal.
 SFB: it is based on disclosing the available budget to invited consultants in
the RFP and selecting the consultant with the highest-ranking technical
proposal within the budget. Consultants are subject to cost constraint, they
will adapt the scope & quality of their services to that budget.

 LCS: under this method a minimum qualifying mark for quality is

established and indicated in the RFP. Shortlisted consultants have to submit
their proposals in two envelopes. The technical proposals are opened first &
evaluated. Proposals scoring less than the minimum technical qualifying
mark are rejected, and the financial envelopes of the rest are opened in
public. The consultant with the lowest evaluated price is selected.
 SBCQ: this method applies to very small assignments for which the cost of a
full-fledged selection process would not be justified.
 SSS: under this method the Borrower asks a specific consultant to prepare
technical & financial proposals, which are then negotiated. There is no
competition.
 FIDIC distinguishes basically two categories of methods of selection of
consultants;
 These are:- Selection by ability; and Price as an element of selection;
 Selection by Ability
 For the purposes of selection by ability the following criterion are
recommended.
 These criterion are:- Technical competence; Managerial ability;
Availability of resources; Professional independence; Fairness of fee
structure; and Professional integrity;
 Price as an Element of Selection
 In case of price as an element of selection, the following methods are
recommended.
 These are:- The two-envelope system; The cost-weighted method;
The budget method; Design comparison method; and Price
negotiation method;
 FIDIC elaborates these selection methods, as follows.
 The Two-envelope System
 It is similar to selection by ability except that consulting engineers
are requested to submit a priced proposal in two sealed envelopes.
 The firs envelope contains the technical proposal exclusive of prices.
 The second envelope contains the proposed prices for the services.
 The Cost-weighted Method

 Under this method of selection, points are assigned in the appraisal

both to ability & experience (e.g. 70%) and to price (e.g. 30%).
 The method therefore, attempts to solve the dilemma of balancing
qualification against price.
 Selection is then made on the basis of the best technical proposal.
 The Budget Method
 The client supplies a budget figure to short listed firms accompanied
by terms of reference outlining the consulting engineering services
required.
 These terms of reference need to be flexible enough to enable
consulting engineers to meet the requirements of the client in an
optimum way & they should clearly state what the client expects the
consulting engineer’s proposal to contain.
 Design Comparison Method
 On some very large & important projects the clients may feel that to
obtain the best benefit from the available technology a design
competition should take place between small groups of selected
consulting engineers.
 The consulting engineers are sometimes requested to put in their fee
proposals and/or estimates of construction costs with designs.
 The design service of all the consulting engineers are usually paid for
at cost.
 Price Negotiation Method
 A small group of consulting engineers are selected on ability and
then asked to negotiate fees.
 The method often degenerates into an auction in which the prices
quoted are dropped successively until all but one consulting engineer
drops out.
 According to the PPA (2006) Guide, the following methods of selection of
consultants have been recommended.
 These are:-
 Quality & Cost Based Selection (QCBS);
 Quality Based Selection (QBS);

 Fixed Budget Selection (FBS); and

 Least Cost Selection (LCS);
IV. Types of Consulting Service Contracts
 The World Bank recommends the following types of contracts.
 These are:-
 Lump Sum Contracts;
 Time-Based Contracts;
 Retainer and/or Success Fee Contracts;
 Percentage contracts;
 Indefinite Delivery Contracts (Price Agreement or Standing Offers);
 Lump Sum Contracts
 used for assignments in which the content & length of the services & the
required output of the consultant are precisely specified, and for these
reasons the consultant generally control the scope of work & duration of
services.
 also used in relatively simple & clearly defined assignments such as planning
& feasibility studies, environmental studies, detailed design of
infrastructures, preparation of databases, and surveys.
 Remuneration is fixed for the life of the contract, and no physical or price
contingencies are normally provided.
 Payments are made in accordance with a contractually agreed upon
schedule at the delivery of an agreed upon product.
 Transfers cost risk to the consultant & provides certainty about the costs to
the borrower;
 Time-Based Contracts
 The consultant, under Time-Based Contract, provides services on a timed
basis according to quality specifications, and consultant’s remuneration is
based on:
 Agreed upon unit rates for consultant staff multiplied by the actual
time spent by the staff in executing the assignment; and

 Reimbursable expenses using actual expenses and/or agreed unit

prices;
 Time –based Contracts
 Transfer cost risk to the client;
 Require monitoring & control assignment and costs by the client;
 Normally include a ceiling on the payments;
 Price escalation should normally included in case where the
assignment lasts for more than 18 months;
 Time-based contracts are recommended for the following situations.
 The nature & scope of the services are such that the TOR cannot be
established with sufficient precision, as may be the case for complex
or unusual assignments that are difficult to define, such as
management of complex institutions or studies of new approaches;
 The duration & quality of services depends on variables that are
beyond the control of the consultants, or the services are related to
activities by third parties-for instance, supervision of
implementation assignments; (ex. the construction project);
 The out put required of the consultants is difficult to assess, such as
for technical assistance, institutional development, or emergency
situations, in which the client needs for assistance may evolve during
execution of the assignment; and
 Transfer of knowledge & training between the consultant & the
client’s trainees is require;
 Retainer …Contracts
 This type of contract is often adopted to remunerate financial &
management advisers who assist the client in the sale of assets, such as
privatization operations.
 Percentages Contracts
 Under this type of contract, consultants receive an agreed upon percentage
cost or of the transaction sale price.
 Used for in the WB-financed projects mainly for procurement and/or
inspection agents for services tat are directly related to the quantity & cost
of the goods or works procured or inspected.

 Indefinite Delivery Contracts

 Refer to contracts in which an individual consulting firm or a consortium is
hired for a specified time period (usually three to five years) to undertake
tasks as and when the need arises.
 The specific work load is unknown at the outset; all that is known is that
advice is likely to be needed in a particular area.
 Indefinite contracts are usually signed because it is anticipated that the
services will have two particular characteristics;
 Clients will need access to immediately available or on-call services
for urgent assignments, and a lengthy competitive bidding process is
unacceptable;
 These services could include experts for urgent remedial actions or
adjudicators in dispute resolutions;
 Each individual piece of advice will be quite mall, making an
expensive competitive selection inefficient, although, when added
together, the amount of advice is substantial;
 Remuneration is based on agreed upon unit rates for staff plus reimbursable
expenses;
 Payments are made either on the basis of the time actually spent or on a
lump sum basis;
 For construction related consultancy services the lump sum & the time
based type of contract are used.
 The FIDIC recommends the following types of contract.
 These are:-
 Lump Sum type of contract; and
 Time –Based type of contract;
 The PPA provides the following two types of contract.
 According to the PPA Guidelines, these are:-
 Lump Sum type of Contract; and
 Time Based type of Contract;

 Lump Sum Contract

 Lump Sum contracts are normally used when definition of the tasks to be
performed is clear & unambiguous, when the commercial risk taken by the
Supplier (the consultant) is relatively low and suppliers are therefore
prepared to perform the assignment for an agreed pre-determined lump
sum price;
 The lump sum price is arrived at on the basis of inputs-including fee rates-
provided by the Bidder;
 Studies are usually carried out on a lump sum basis: for example, surveys,
master plans, economic, sector, simple feasibility and engineering studies;
 Time Based Contract
 Time-based contracts are recommended when the scope of the services
cannot be established with sufficient precision, or the duration and quantity
of services depends on variables that are beyond the control of the Supplier;
 For example, a time-based contract may be appropriate for the supervision
of construction works, where a monthly rate can be fixed, but the number of
man months required is uncertain;
 Other Types of Contracts
 The following are possible type of contracts for consultancy services
elsewhere.
 Such type of contracts resembles that of the construction contract.
 These are:- (Abbet 1963):
 Fee Based on a percentage of the Actual Net Construction Cost;
 Lump Sum Fee Based on a Percentage of the Estimated
Construction Cost;
 Cost plus Fixed Fee;
 Cost plus Fixed Fee with a Guaranteed Ceiling;
 Fee Based on a Time Rate;
 The first two are related to the cost of construction; whereas the rest are not
related thereto;

V. Forms of Contract
 Background
 The form of contract to be prepared for the consultancy services contract should be
a suitable one with the type of contract selected.
 For lump sum type of contract, a form of contract should be selected, which should
be compatible with the financial arrangement.
 For time based type of contract & for others, a form of contract should be selected
to be compatible with the payment system adopted or selected or to be agreed by the
parties.
 The form of contract may contain the following contract documents from different
institutions perspective viz., the World Bank; the FIDIC; and the PPA
 The World Bank
 In case of the World Bank standard conditions of contract;
 The Form of Contract(Agreement);
 The General Conditions of Contract;
 The Special Conditions of Contract;
 The Appendices;
 The FIDIC
 In case of FIDIC standard conditions of contract;
 The Form of Agreement;
 The Conditions of Particular Application;
 Appendices; Appendix A. Scope of Services; (TOR); Appendix B.
Personnel, Equipment, Facilities and Services of Others to be
provided by the Client; Appendix C. Remuneration and Payment;
 The PPA
 In case of the PPA conditions of contract consulting services for ICB:
 The Special Conditions of Contract;
 The Terms of Reference/ Schedule of Requirements;
 The Form of Agreement;
 The Advance Payment Security Form;

 In case of both international & Ethiopian context, the structure of the conditions of
contract seems virtually the same except the level of detailness, depending up on the
type of the consultancy services agreed & the level of complexity of the services
under consideration.
VI. Rights, Obligations & Remedial Rights
 Background
 The following are the summaries of the rights, obligations & remedial rights of the
Client & the Consultant both under the international (FIDIC) & Ethiopian (PPA)
context.
 There is a possibility to consider some privileges to the consultant especially with
respect to tax exemptions.
 The consultant’s obligations are the following:
 These are: Performance obligation; and Other obligations;
 Performance obligations –Clause 3
 The Terms of Reference; - Clause 3 & Appendix A.;
 Performance of the (normal) Services; Clause 4(i)
 Performance of the (additional) Services; Clause 4(ii)
 Performance of the (exceptional) Services; Clause 4(iii) & Clause 28
 Quality of performance/professional skill & care; Clause 5
 Timely performance & completion of services; Clause 22
 Provision of qualified key personnel; Clause 13, 14 & 15
 Reporting obligations; Appendix A (TOR);
 Other obligations
 Exercising professional judgment obligation;-Clause 5(ii)
 Cooperation obligation;-Clause 12
 Avoiding conflict of interest obligation;-Clause 40
 Amicable settlement obligation;-Clause 43;
 The Client’s Obligation
 The client’s obligations are: Payment obligation; Other obligations;
 Payment obligation
 Payment obligation;-Clause 30
 For Normal Services; Appendix C;

 Payment obligation for additional services; -Clause 30(i)

 For Exceptional Services; Clause 30(ii)
 Timely payment obligation; -Clause 31
 Warranty obligation for the transfer of payment;-Clause 32(i)
 Reimbursement obligation in case of reimbursable expenses, if any;-
Appendix C.;
 Reimbursement obligation in case of tax exemption;- Clause (ii)(c);
 Other obligations
 Information obligation;-Clause 7;
 Notice obligation;-Clause 41;
 Decision obligation;-Clause 8;
 Cooperation obligation;-Clause 9; (NB: with respect to entry, exist,
residence, work permit & tax exemption…);
 Provision of Equipment, Facilities, & other Services obligation;-Clause 10 &
Appendix B.;
 Provision of counter-part personnel;-Clause 11 & Appendix B.;
 Insurance obligation;-Clause 19;
 Indemnity obligation;-Clause 18.2;
 Amicable settlement obligation;-Clause 43;
 Remedial Rights
 Remedial Rights of the Consultant;
 Remedial Rights of the Client;
 Remedial Rights of the Consultant
 Financial Remedy
 Additional Compensation: Clause 16.2; if a breach of his duty to
the Consultant is established against the Client; Clause 16.3;
compensation shall be payable if it is considered that either party is
liable to the other; Clause 18.2; indemnification by the Client
against the adverse effects of all claims including such claims by
third parties; Clause 28; in case of abandonment or suspension or
resumption of Services or up on termination of the Agreement;
 Interest: Clause 31 in case of delayed payment;
 Damages: As per the applicable law of the contract;

 Time Extension:
 Clause 25; due to impediment or delay by the Client;
 Clause 26; due to changed circumstances;
 Clause 28; due to the effect of Exceptional Services;
 Other Remedies:
 Clause 27.2;-Termination of the contract;
 Clause 27.2;-Suspension of the performance of the services;
 Remedial Rights of the Client
 Compensation: Clause 16.1;- if a breach of Clause 5(i)-Duty of Care
& Exercise of Authority, is established against the Consultant;
 Indemnity; Clause 18.1; - limitation of liability of either party;
 Damages; As per the applicable law of the contract;
 Other Remedies
 Clause 27.1;-Termination of the contract;
 Clause 27.1;-Suspension of the performance of the services;
 The Ethiopian Context
 The consultant’s obligations are of the following:
 Performance obligation; and
 Other obligations;
 Performance Obligation
 Performance obligation, as per the TOR; Clause 7;
 Quality performance; Clause 5 Duty of Care…
 Timely performance; Clause 22 (Commencement & Completion) & Clause
25 (Delay);
 Provision of personnel; Clause 10;
 Ensuring sound management obligation; Clause 17;
 Employing advanced technology & safe methods obligation; Clause 17;
 Delivering all documentation & software obligation; Clause 23? & Clause 6?
 Other Obligations
 Payment of tax obligation; Clause 9;
 Free from conflict of interest obligation; Clause 18;
 Confidentiality obligation; Clause 19;

 Insurance obligation; Clause 20;

 Securing prior authorization obligation; Clause 21;
 Reimbursement obligation; Clause 32.8;
 Amicable settlement obligation; Clause 36;
 The Client’s Obligations
 Payment obligation;
 Other obligations;
 Payment Obligations
 Payment obligation during the currency of the contract; Clause 30;
 Payment obligation up on termination of the contract; Clause 16.3;
 Final payment obligation; Clause 32.7;
 Timely payment obligation; Clause 33.1;
 Advance payment obligation, if agreed; Clause 33.1;
 Not withholding payment; Clause 34.3;
 Other Obligations
 Confidentiality obligation; Clause 19;
 Cooperative obligation; Clause 26; (NB: relative to entry, residence, exist,
work permit & exchange permits, customs clearance…);
 Providing services & facilities; Clause 28 & Appendix B;
 Providing Counterpart personnel obligation; Clause11 & Appendix B;
 Amicable settlement obligation; Clause 36;
 Remedial Rights of the Consultant
 Additional Payment: Clause 15.4; relative to additional services;
 Interest: Clause 34.4; relative to delay in payment;
 Time Extension: Clause 15.3;
 Other Remedies: Clause 16.2; termination of the contract;
 Remedial Rights of the Client
 Compensation: see Clause 16.1;
 Indemnity: see Clause 18.1;
 Damages: As per the applicable law;
Other Remedies

 Clause 27.1; termination of the contract;

 Clause 27.1; suspension of the performance of the services;
VII. Conflict of Interest
 Definition
 According to the World Bank, conflict of interest is defined, as follows.
 “A consultant conflict of interest (COI) is a situation in which a consultant provides
biased professional advice to a Borrower in order to obtain from that Borrower an
undue advantage for himself, herself or affiliates. Although COI is an easily
understood concept, to identify it & address its consequences, that is, the potential
or actual prejudice to the Borrower’s interests, requires in practice particular
attention & expertise.COI is a concern when the consultant is in a situation in which
its own or its affiliates interests could prevail over the interest of the client.”
 According to FIDIC, conflict of interest is defined, as follows.
 “A consultant conflict of interest (COI) is a situation in which a consultant provides
biased professional advice to a client in order to obtain from that client an undue
benefit for himself, herself or an affiliate & in so doing, places the consultant in a
position where its own interests could prevail over the interests of the client.”
 One of the very features & obligation of the consultant is its professional
independence.
 The potential or actual situation of conflict of interest of the consultant avoids,
minimizes or compromises the high degree of professional independence expected
from the consultant.
 Categories of Conflict of Interest
 According to the World Bank, the following categories of conflict of interest are
identified;
 These are:- Conflicting activities; Conflicting assignments; and Conflicting clients;
 Conflicting Activities
 Under this sub-category of conflict of interest, the following are covered:
 Downstream procurement of goods & works related to the consultant’s
work.
 Example: While under contract on a specific assignment,
consultants are perceived, or actually attempt, to influence the
Borrower’s decisions for their own benefit or that of their affiliates

by specifying, designing, or suggesting that works or equipment be

obtained from their affiliates.
 Downstream provision of consulting services related to the procurement of
works, supply of equipment, and installation by an affiliate of the consultant.
 Example: The consultants supervise the contract implementation of
works executed by a firm with which they are affiliated.
 Downstream conflicting activities closely related to the consultant’s work.
 Example: An investment bank funds the buyer in a sale transaction
after advising the seller on the same transaction.
 Conflicting Assignments
 Under this sub-category of conflict of interest, the following are covered:
 Conflicting assignments by nature, in which the consultants could bias their
advice to be consistent with findings of another of their assignments or those
of their affiliates.
 Example: Consultants carry out environmental audit of a project
designed by them or their affiliates.
 Conflicting downstream assignments in which incumbent consultants create
conditions under which they attain or perceived to attain an undue
advantage over other consultants who may apply for consideration in a
downstream assignment, thus depriving the client of the benefits of full
competition;
 Example: Consultants propose themselves for or accept an
assignment for which they have prepared the Terms of Reference
(TOR) or the RFP under a prior assignment.
 Consultants slant the initial study so that the next phase assignment
demands skills only they can provide, and deprive the Borrower of
the benefits of competition.
 While conducting an assignment, the consultants create for
themselves favorable conditions for getting either an extension or a
directly related assignment that is unnecessary for the client
(featherbedding);

 Conflicting Clients
 Under this sub-category of conflict of interest, the following situation is
covered:
 Consultants work simultaneously for two or more clients whose interests are
in conflict;
 Example: Consultants work for a public water authority and an
electricity company who are competing for use of the same water
resources;
 FIDIC on Conflict of Interest
 According to FIDIC, the following categories of conflict of interest are recognized.
 These are:-
 Conflict between consulting activities & procurement of goods, works &
services;
 Conflict among consulting assignments;
 Relationship with the client’s staff;
 Illustration: Consultant’s, including their personnel & sub-
consultants, that have a business or family relationship with a
member of the client’s staff or of the project implementing agency’s
staff may not be awarded a contract, unless the conflict stemming
from this relationship has been resolved in a manner acceptable to
the client throughout the procurement process & the execution of the
contract;
 EFCA on Conflict of Interest
 According to EFCA (The European Federation of Consultancy Associations), the
following categories of conflict of interest are identified.
 These are:-
 Conflict between consulting activities & the procurement of goods or works;
 Certain conflicts within consulting assignments, for example the preparation
of terms of reference & participation in the resulting tenders;
 The execution of a project or study execution &the evaluation of the same
project or study;
 The design of a project & the study of its impact on the environment;
 Advice given to both government & buyer in, for example, privatization;

 A conflict arising from family or other personal relationships;

 The PPA
 The PPA Conditions of Contract for consultancy services, although has not defined
the concept of conflict of interest, devoted some provisions to the issue of conflict of
interest.
 Remedies/Sanctions against Conflict of Interest
 The following solutions/sanctions are recommended to avoid or minimize the impact
of the consultant’s situation in a conflict of interest.
 The World Bank suggests the following solutions;
 Preservation of independence of the consultant in the procurement process
of the consultant & at different stages of the procurement;
 The consultants should abide by the independence rules of their specific
profession;
 The consultants should disclose any potential conflict of interest that they
consider important;
 According to FIDIC, the following remedies are recommended.
 These are:- prior disclosure; transparency; and independence;
 Prior disclosure;
 A (consulting) firm has an obligation to fully disclose any potential
or real conflict of interest at the earliest opportunity, and to
continuously monitor developments in the firm to ensure that
subsequent events do not affect their previously stated position.
 Transparency;
 A firm at all times be able to provide evidence that it follows a
recognized code of ethics and that the practice is universal
throughout the firm. The firm must be able to defend its actions, or
lack thereof, with documented evidence of conformity to the
conditions of engagement and the conduct of its contractual
obligations.
 Independence;
 A firm must at all times maintain its independence from external
influences that may affect the ability of the firm to hold the interests

of the client paramount, while not overlooking the interests of other

parties identified in the code of ethics.
 According to the PPA Conditions of Contract, no specific contractual sanctions have
been provided.
 The relevant clauses are; Sub-clause 18.1; Sub-clause 18.2 & Sub-clause 18.3;
VIII. Liability of the Consultant
 The liability of the consultant shall be seen in light of the:
 Type of professional services they contractually undertake to provide;
 The specific contractual arrangement made between the client & the consultant;
and
 The interpretation of the applicable law;
 The possible engagement of the consultant may be divided in to the following
assignments, namely;
 Study & design of the project;
 Tender document preparation, evaluation of tenders & recommendation
on award;
 Contract administration;
 The possible areas of the liability of the consultant may cover the following
instances, namely;
 Non-quality or defective performance of the services;
 Delayed performance of the services;
 Non-performance of the services;
 Defective performance of the services may arise, depending on the type of
engagement, the following aspects of deviations, namely;
 Defective design;
 Failure to provide a design free from third parties right in the design;
 Over valuation & certification;
 Under valuation & certification;
 Wrong advice;
 Deficiency in the supervision of the construction works;
 Deficiency in coordination & leadership;
 And so forth;

 The liability of the consultant may come in to picture, in case where the consultant
breaches a duty of care & skill expected of him thereby the client suffers damages as
a result.
 This shows that there is a negligent performance of professional duties under the
contract.
 Is the consultant liable to the client for such negligence?
 Article 2636 of the Civil Code provides, as follows.
 Article. 2636.-Required care and responsibility
(1) Whosoever hires out his work shall undertake to carry it out in the
best interest of his client, conscientiously and in conformity with the
practice and rules of his profession.
(2) He shall not be liable to his client, unless he commits an error, having
regard to the rules of his profession.
(3) The error may consist in an omission or an act detrimental to his
client.
 This is called standard of skill, care and diligence.
 Standard of care is defined, for example in the U.S.A., as follows.
 In performing professional services for a client, defendant (the consultant)
has the duty to have that degree of learning and skill ordinarily possessed by
reputable engineers practicing in the same or a similar locality and under
similar circumstances.
 It is his or her further duty to use the care and skill ordinarily used in like
cases by reputable members of his or her profession practicing in the same
or a similar locality under similar circumstances , and to use reasonable
diligence and his or her best judgment in the exercise of his or her
professional skill and in the application of his or her learning, in an effort to
accomplish the purpose for which he or she was employed.
 A failure to fulfill any such duty is negligence.
 This definition raises three primary issues: locality, similarity and time.
 As to locality, standard of care may vary from place to place.
 As to similarity, the standard of care applied by a particular expert is flavored by
that person’s prior experience. The standard of care for structural engineers, for
example, varies depending up on the structure being constructed.
 As to time, it has two dimensions: past imagination & present concurrence.

 There is a difficulty placing oneself back in time when assessing a

defendant’s (consultant’s) conduct;
 There may be multiple standards of care present concurrently;
 To prove whether or not there was a breach of standard of care by a given
consultant requires the testimony of a qualified expert where the claimed injury and
its cause are beyond common knowledge.
 The following may serve as sources of standard of care:
 Text Papers & Treatise;
 Written Standards & Regulations;
 Firm Guidelines & Manual;
 Quality Assurance or Quality Control Reports;
 Contractual Agreements;
 Expert testimony may not be required on the following two situations:
 Obvious negligence: In many jurisdictions expert testimony is not required
where the negligence is so obvious as to be apparent to the layperson. This
situation occasionally arises in design.
 Negligence Per Se (Failure to follow law): Failure to follow statutes or
regulations may presumptively establish negligence.
 The consultant may require, under the Contract, to secure, provide & maintain a
Professional Indemnity Insurance.
IX. Professional Liability Insurance
 According to FIDIC, professional liability is a term used to recognize the obligation
of a person or firm to compensate those who suffer loss or damage as a result of the
negligent performance of the professional services they have provided;
 Professional liability insurance, more commonly referred to as Professional
Indemnity Insurance, is a mechanism to transfer all or part of the risk to an
insurance company for payment to those who are entitled to be compensated for
their losses due to the negligent performance of a duty of care by the professional.
 For liability to apply the following elements have to be fulfilled;
 There must be a duty to the other party, by contract or by operation of the
law; A breach of that duty by the professional; and Damage to the other
party arising from the negligent conduct of the professional;


Source Materials on
………………………………………………………………………………………
1. The Civil Code of Ethiopia: Hiring of Intellectual Work (Article 2632-Article 2638
cum Article 2610-Article 2631 in relation to Contract of Work & Labour) & also
Formation & Effects of Contract (Article 1675-Article 1805);
2. Consulting Services Manual: A Comprehensive Guide to Selection of Consultants,
The World Bank Document, 2006;
3. FIDIC: Conditions of the Client/Consultant Model Services Agreement (White
Book) 1991;
4. FIDIC: The White Book Guides, 1991
5. FIDIC: Selection by Ability;
6. Engineering Contracts & Specifications, Robert W. Abbett, Fourth Edition, 1963
7. Hudson’s Building & Engineering Contracts: Tenth Edition, J.N. Duncan Wallace,
1970
8. The FIDIC Form of Contract: Second Edition, Nael G. Bunni, 1997;
9. Civil Engineering Construction Contracts: Second Edition, Michael O’ Reilly, 1999
10. Construction Contracts: Law & Management, Third Edition, John Murdoch & Will
Hughes, 2000
11. FIDIC 4th : A Practical Legal Guide: A Commentary on the International
Construction Contract: First Edition, E.C. Corbett, 1991
12. Professional Liability Insurance: A Primer, Prepared by the FIDIC Standing
Committee on Professional Liability, 1991
13. Standard of Care in Professional Liability Actions: A Guide for Design
Professionals, Howard W. Ashcraft, Jr. , Hanson, Bridgett, Marcus, Viahos & Rudy,
LLP, February, 2002:
14. Internationales Consulting Engineering-Rechts Fragen: Erste Auflage, Jutta
Hoffman, 1988;
15. Proclamation No. 649/2009: The Ethiopian Federal Government Procurement &
Property Administration Proclamation;
16. Procurement Directives: issued by the Ministry of Finance & Economic
Development, 2005;

17. PPA Conditions of Contract for Consulting Services: January, 2006

18. PPA User’s Guide to the Conditions of Contract for Consulting Services 2006;

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Lecture Notes on Consulting Engineering Services Contract

Consulting Engineering Services Contract

Organized & Delivered by

Zewdu Tefera Worke

Engineering Contracts Lawyer

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 1

Construction Contract & Law Course

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 2

Construction Contract & Law Course

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 3

 Their services may generally relate to the following three areas:

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Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 5

 The experience & qualification of the individual are the

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 conflict of interest dimension: as related to this consultants are

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Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 8

 With respect to Construction administration, to administer the contract to

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Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 10

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 11

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 12

 No contractual commitment is needed on the part of the Engineer to become

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Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 14

 LCS: under this method a minimum qualifying mark for quality is

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 Under this method of selection, points are assigned in the appraisal

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 Fixed Budget Selection (FBS); and

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 Reimbursable expenses using actual expenses and/or agreed unit

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 Indefinite Delivery Contracts

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 19

 Lump Sum Contract

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Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 21

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 22

 Payment obligation for additional services; -Clause 30(i)

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 23

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 24

 Insurance obligation; Clause 20;

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 25

 Clause 27.1; termination of the contract;

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 26

by specifying, designing, or suggesting that works or equipment be

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 27

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 28

 A conflict arising from family or other personal relationships;

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 29

of the client paramount, while not overlooking the interests of other

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 30

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 31

 There is a difficulty placing oneself back in time when assessing a

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 32

Construction Contract & Law Course

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 33

17. PPA Conditions of Contract for Consulting Services: January, 2006

Organized by: Zewdu tefera Worke, Engineering Contracts Lawyer Page 34

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