Date፡-________________

Ref. No፡-________________

TO:-Federal Prison Commision

Addis Ababa

Ref.:- Electro Mechanical works of Central Kitchen

Subject:- Request for Clients Final decisions and Support for continuation of
pending Project

ENCL

Dear Sir,

ETA Engineering plc has throughly evaluated the previous drawbacks for clearer
understanding of the client and possible solutions to proceed exectution of central
kitchen works as follow:-

During the years 2014 and 2015, the contractor faced significant challenges due to
the sudden inflation of raw materials and the unexpected inflation of import items.
These factors had a profound impact on the contractor's ability to execute projects
within the scheduled timeframe.

The sudden inflation of raw materials posed a major obstacle for the contractor. As
the prices of essential materials such as steel(RHS) and electro mechanical items
such as coldrooms sky-rocketed, the contractor faced increased costs in acquiring
these resources. This increase in material costs directly impacted the contractor's
profitability and operational efficiency. It became increasingly challenging for the
contractor to procure the required materials within their budget, causing delays in
project execution.

Additionally, the inflation of import items further compounded the contractor's

difficulties. Certain construction projects heavily rely on imported equipment,
machinery, and specialized materials. However, the unexpected inflation of import
items led to soaring prices and increased expenses for the contractor. This, in turn,

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affected the contractor's ability to stick to project timelines, as they had to reassess
their budget and procurement strategies to accommodate the inflated import costs.

As a result of these factors, the contractor experienced significant execution delays

in their projects. The increased material costs, as well as the inflated prices of
imported items, forced the contractor to either renegotiate contracts or seek
alternative suppliers, both of which took time and effort. The delay in obtaining
necessary resources and materials impacted the overall progress of construction
projects, causing setbacks and potentially affecting client satisfaction.

Moreover, the execution delays caused by the inflation of raw materials and import
items had ripple effects on various aspects of the contractor's operations. These
delays not only disrupted project timelines but also impacted other associated
activities such as labor management, scheduling, and cash flow. The contractor had
to adapt to these challenges, finding ways to mitigate the effects of inflation and
minimizing the impact on project delivery.

In conclusion, the sudden day to day inflation of raw materials and the inflation of
import items during the years 2014 and 2015 had a significant impact on the
contractor. The increased costs and delays in acquiring necessary resources affected
the contractor's ability to execute projects within the designated timeframe.
Adapting to these challenges required the contractor to reassess their procurement
strategies, renegotiate contracts, and find alternative solutions to mitigate the effects
of inflation.

Delay of Central Kitchen Electromechanical Work Project

As we inform you about the significant delays that have occurred in the progress of
the Central Kitchen Electromechanical Work Project. Unfortunately, we have
encountered several issues that have contributed to this delay, which I will outline
below:

1. Delay in response for the proposed price amendment: Following the contractor's
request to submit proposed item rates, there was a considerable delay in getting a
response regarding the proposed price amendment. This prolonged process hindered

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
the progress of the project at some of the contractors plan prior to final amendment
of electromechanical works.

2. Delayed response on gas tanker civil works: The civil works necessary for the
installation of the gas tanker also experienced a significant delay. Responses and
approvals for these works took longer than anticipated, leading to an extended
waiting period of more than three months.

3. Late approval of submitted IPC No. 1 and No. 2: The approval process for the
submitted Interim Payment Certificates (IPC) No. 1 and No. 2 faced delays, which
impacted the project's timeline. This created constraints on the contractor's ability to
proceed with subsequent tasks.

4. High-rise of the dollar exchange rate: The recent surge in the exchange rate of the
dollar in the country has had an adverse impact on the procurement of necessary
equipment and materials for the project. The increased costs have strained the
budget and further contributed to the delay.

5. Time taken to finalize the Bank permit: The process of obtaining the required
permits from the Bank for project financing took longer than anticipated. The
additional time consumed in this process affected the project timeline.

6. Lack of local materials in Ziway for gas tanker civil works: A scarcity of local
materials, particularly cement, in Ziway has been a challenge in the construction of
the gas tanker civil works. This shortage has necessitated finding alternative
sourcing solutions, adding further complications to the project schedule.

We understand that these delays have caused inconvenience and dissatisfaction on

multiple fronts. We assure you that we are actively working to address these issues
and minimize any further disruption to the project timeline. Our team is actively
coordinating with relevant stakeholders to expedite the resolution of each problem
listed above.

We sincerely apologize for any inconvenience this may have caused and assure you
of our commitment to completing the Central Kitchen Electromechanical Work

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
Project within the revised timeline. Should you require any further information or
wish to discuss this matter in more detail,

Analyzing all the above issues, we also have come to conclude to proceed the
remaining works of central kitchen electro mechanical works despite the fact that
contract termination may affect both parties as discussed below through the
disadvantages:-

Advantages and Disadvantages of Continuing the Electromechanical Work for

Central Kitchen in Zeway:

Advantages:

1. Project Continuity: By continuing the work with the existing contractor, the
project manager can ensure the continuity of the electromechanical work at the
central kitchen site and minimize the potential delays associated with another
company taking over the work.

2. Experience and Expertise: The current contractor is familiar with the work, site
conditions, and the scope of the project, allowing them to overcome any unforeseen
challenges with minimal delay. Hence, there will be a shorter time needed for the
completion of the project.

3. Minimize Additional Cost: Terminating the contractor will likely result in

additional costs for the client as it would require a new contractor to mobilize their
team and take over the project. Hence, it is often more responsible to continue the
project with the current contractor to avoid these additional costs.

Disadvantages:

1. High Inflation of Imported Electromechanical Items: There has been an increase

in the cost of imported electromechanical items in the country due to inflation.
Hence, the continuation of the work will result in a higher cost for the client and the
contractor.

2. Potential Quality Issues: The construction of the electromechanical work itself

may be vulnerable to issues that can impact its quality. If the work has already been

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
delayed, it may result in inadequate work standards or the introduction of shortcuts
that have the potential to endanger the quality of the work.

3. Legal Matter: If the contractor's delays and other issues have significantly
impacted the quality, cost, or timeline of the project, terminating the contract may
be necessary to protect the client's interests and prevent any further loss.

Hence, it is essential to consider these factors.

If the contractor experiences cash deficits due to the delay in payment caused by the
project, the client can offer several recommendations to support the contractor. Here
are some suggestions:

1. Prompt Payment Release: Prompt payment is one of the most important things
clients can do to support contractors during cash deficit periods. Clients can
consider releasing payments at regular intervals, making it easier for contractors to
manage cash flows.

2. Negotiating Payment Plan: The client and contractor can work together to
negotiate a payment plan that meets both parties' needs. This negotiation can
consider the contractor's projected cash outflows and the client's payment
capabilities.

3. Early Material Payment: Consider making payment on materials ordered before

the work has begun. This can help reduce the contractor's financial burden and
reduce their reliance on their own cash flow.

4. Low-Interest Loan Availability: Clients can also offer to provide low-interest

loans to assist contractors in obtaining necessary financing. This can help to
minimize the cost of borrowing, making it more affordable for the contractor.

5. Rescheduling Work: The client can rearrange project milestones to ease the
financial burden on the contractor. For example, delaying some milestones to when
the contractor is in a more financially sound position can be beneficial.

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
6.Booking Partial Advance Payment: Clients can consider booking partial advance
payment to the contractor based on the finished work’s valuation instead of waiting
for it to be completed and submitted for pay. These suggestions can support
contractors during cash deficit periods and help them continue to work efficiently
without compromising quality.

Request to lesser advance payment reduction instead of 37.5% to attain the full
reduction with in 80% completion of works.

A contribution of less advance payment deduction instead of 37.5%, as the contact

amended price has raised and the advance repayment deduction can be attained
before 80% of the project completion, can benefit both the contractor and the client.

When the contract amended price is raised, it means that the scope of work has
increased or changed, which requires additional resources including labor and
materials. This, in turn, impacts the overall cost of the project. Therefore, it may be
necessary to reconsider the advance payment deduction. A lesser advance payment
deduction can ease the financial pressure on the contractor, facilitating the timely
completion of the project.

Reducing the advance payment deduction can help the contractor get access to the
required finances in a more timely and effective manner, making it easier for them
to purchase materials and pay workers. It also increases the cash flow for the
contractor, which can help in managing other expenses related to the project, such
as equipment rental, permits, and more.

For the client, a lesser advance payment deduction means that they would not have
to release as much money upfront, providing them with an opportunity to exercise
greater control over the project's finances. If the scope of the work is expanded or
changed, clients may need to reassess their budget, and reducing the advance
payment deduction can help them better manage their financial obligations.

Moreover, the amendment in the contract can lead to additional time and cost
implications for the contractor. Accordingly, the reduction of advance

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
payment deduction would provide relief to the contractor from cash flow pressures
due to prolonged project time. In such cases, the contractor can also better allocate
their financial resources, executing the work more efficiently and smoothly.

In conclusion, the contribution of less advance payment deduction can be beneficial

to both the contractor and the client. This can help to facilitate timely project
completion, ensuring timely access to the required finances, and assisting in
managing the impact of changes in the scope of work or contract amendments. By
reducing the advance payment deduction, the contractor can better allocate
resources, helping in their efficient use, resulting in a smoother project execution.

Possible solutions the contractor would like to get on behalf of the client

In order to support ETA in managing its financing shortage and potential project
delays, the client can provide significant cooperation through various means. Here
are some suggested actions the client can take:

1. Extending the contract duration: One way for the client to support ETA is by
extending the contract duration. This would allow ETA to have more time to
complete the project without being burdened by strict deadlines. The extension of
the contract duration can provide ETA with the necessary breathing room to
manage any financing shortage or difficulties they may be facing. It also ensures
that the project can be completed to the required standards without compromising
on quality.

2. Support in replacing bank guarantee as per the bidding document 16.25.3:

The client can also offer assistance by supporting ETA in replacing the existing
bank guarantee with a reliable insurance company. This can be beneficial for both
parties. By replacing the bank guarantee, ETA can potentially free up additional
funds that were previously tied up as collateral. This can help manage any financing
shortage ETA may be experiencing. Switching to a reliable insurance company can
also provide more flexibility and financial stability, ensuring that both the client and
ETA are protected throughout the project execution.

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
3. Facilitating reduced advance payment deduction: Another way the client can
cooperate is by facilitating a reduced advance payment deduction. Instead of the
standard 37.5% deduction, the client can consider a more flexible approach to
advance payment. This could involve allowing ETA to receive reduced advance
payments based on the progress of the project. For example, the client may agree to
make advance payments based on milestones achieved, ensuring that ETA has
access to the necessary funds to keep the project on track. This arrangement can
help alleviate financing difficulties and promote smoother project execution.

4. Arrangements for ETA's advance payment in case of an amendment price

change: In the event of an amendment price change, the client can explore possible
arrangements for ETA's advance payment. This can involve discussing options such
as adjusting the advance payment amount to reflect the revised project cost. By
providing ETA with the necessary advance payment based on the updated
amendment price, the client can ensure that ETA has the required resources to
effectively manage the project's financial aspects. This cooperative approach can
prevent project delays and minimize potential disruptions caused by financing
shortages.

In conclusion, the client's cooperation plays a vital role in supporting ETA's efforts
to manage financing shortages and potential project delays. By extending the
contract duration, facilitating the replacement of bank guarantees, allowing for
reduced advance payment deductions, and arranging advance payments for
amendment price changes, the client can contribute to smoother project execution
and ensure ETA's financial stability throughout the construction process folowing
our assured commitment to continue the project work in the central kitchen.

Sincerely Yours

General Manager

C.C.- ETA Engineering PLC

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Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306
 Head Office

Addis Ababa

Tel:-+251116663161, Mob: - +251 911223933 E-mail:- etaengineeringplc@gmail.com

Address:- 22 Mazoriya in Front of St.Gebreal Hospital KW Tower 3rd Floor Room No306