POSTGRADUATE PROGRAM

SCHOOL OF CIVIL ENGINEERING & CONSTRUCTION TECHNOLOGY

CONSTRUCTION TECHNOLOGY & MANAGEMENT
Construction Contract & Law (CEng 6107)

Contractor’s Obligation:
Its Regulation & Management under the MDB-
FIDIC (2006) & the PPA (2011)Conditions of
Construction Contracts & the Applicable Laws
 
 Instructor: ATO ZEWDU TEFERA WORKE

Presented by :

November 28, 2015

 Purpose of Presentation
►To orally elaborate findings of the written assignment
namely,

Contractor’s Obligation: Its Regulation & Management

under the MDB-FIDIC (2006) & the PPA (2011) Conditions of
Construction Contracts & the Applicable Laws
 
 Content of the written Assignment

The paper comprises eleven (11) chapters

Chapter 1, Chapter 2 and Chapter 3 cover the
introduction, literature review and research methodology part of the
paper
Chapters 4, 5 6, and 7 are fully dedicated to obligation of the
contractor in terms of its
- Status
- Selection
- Execution
- Completion
Chapters 8 Gives brief explanation about the role of the engineers
with regard to contractor’s obligations
 Content of the written Assignment (Contd)

Chapter 9 Presents a comparative Analysis on Contractor’s

Execution and Completion Obligations under
- MDB FIDIC 2006,
- PPA 2011 (NCB) and
- Applicable Law

Chapter 10 Presents a case study dedicated to showcase the

concept of CONTRACTOR’S OBLIGATIONS by displaying
factual current practices
by incorporating factual data from current construction contract
and law practice of country taking a sample road construction
project
Chapter 11 Summarizes the paper by concluding the findings
of the group and suggesting recommendations
 CHAPTER 1 - INTRODUCTION
1.1 GENERAL INTRODUCTION
The paper generally presents obligations of the Contractor,
its regulation and Management under
 Conditions of Construction Contracts (MDB-FIDIC
(2006) & PPA (2011)
 Applicable Laws (Civil code, Commercial code, •
Proclamations, Directives, etc)
Gives emphasis to the Status, Selection, Execution
obligation & Completion obligation of the contractor
Written considering
 DBB delivery system
 Road construction projects in Ethiopia under DBB delivery
system
 CHAPTER 1 – INTRODUCTION (Contd)

1.2 SCOPE OF THE STUDY

The paper is limited to
 DBB delivery system,
 Projects under (MDB-FIDIC (2006) & PPA (2011) coc,
 Applicable laws, rules and regulations of Ethiopia
 Road construction projects practices under DBB system, MDB-FIDIC (2006) &
PPA (2011) coc,
Hence applicable laws of international practice or construction practices other
than the road sector has not been analyzed
1.3 OBJECTIVE OF THE STUDY
• to thoroughly understand contractual and legal obligations of the Contractor with
respect to its status, selection, execution & completion obligations
 CHAPTER 2 – LITRATURE REVIEW

2.1 Parties in the construction industry

 In this sub section the
- Parties in the construction industry &
- Elements of Construction contract
Are reviewed for basic understanding of the industry
 Main stakeholders of the construction industry in simple words are
 Employer - owner of the project, provides the work (to Eng. & Contractor)
 Engineer - professional entity appointed by the employer
 Contractor - a body that undertakes contracts from the employer to build
things ( such as buildings, roads, dams
CHAPTER 2 – LITRATURE REVIEW (CONTD)
 CHAPTER 2 – LITRATURE REVIEW (CONTD)

2.2 Construction Contract

what is Contract ?
Simply a legal binding agreement !
According to Civil Code of Ethiopia, Article 1675 a contract is
“an agreement whereby two or more person as between
themselves create, vary or extinguish obligations of a
proprietary nature”
Hence, Construction contract is a form of agreement made between the Employer and the
Contractor for the purpose of constructing or building things.
Civil code Article 1678(b) stated about the Contract validity
no valid Contract shall exist unless the object of the contract is sufficiently
defined and is possible and lawful
 CHAPTER 2 – LITRATURE REVIEW (CONTD)
Conditions of Contract
 Locally or internationally accepted documents
 Depict the terms and Conditions that set the rights & obligations of
contracting parties. (in construction contract rights & obligations of the
employer, the engineer, the contractor and/ or subcontractor if any)
 The conditions of the contract typically contain
 General Conditions of Contract  applicable to most projects
 Special Conditions of Contract  specific to a particular project
 Widely used general conditions of the contracts in Ethiopia include:
 FIDIC, General Conditions of Construction Contract (various
 Public Procurement Agency (PPA) Conditions of Contract for Works (ICB
& NCB)
 Ministry of Works and Urban Development Conditions of Contract
(MoWUD-1994)
 CHAPTER 3 - RESEARCH METHODOLOGY

Adopted research methodology

 comprehensive literature review of variety of sources

 One case study on road construction project

 CHAPTER 4 - STATUS OF THE CONTRACTOR

4.1 Definition of the Contractor

Dictionary Definition
“a person or firm who contracts to build things”.
MDB-FIDIC 2006
“a person(s) named as Contractor in the letter of tender
accepted by the Employer and the legal successors in title
to this person(s).”
 PPA 2011
“a natural or juridical person under contract with a Public
Body to supply works.”
 CHAPTER 4 - STATUS OF THE CONTRACTOR (CONTD)

Legal Definition
- corporate entity
(Formed under proper licensing and registration)
- Contractor is LEGAL PERSON
Contractual Definition
- Contractually recognized after signing of contract
succeeding the fulfillment of legal definition off course
CHAPTER 4 - STATUS OF THE CONTRACTOR (CONTD)

4.2 Legal Status of the Contractor

4.2.1 Category of the Contractor
According to the requirements of MoWUD
Based on the type of work

Category Qualification to Undertaken

General Contractors (GC) buildings, roads, railways, bridges, airports, Dams, water works
etc.
Building contractors (BC) Buildings and supplementary works to buildings.
Road Contractors (RC) Roads & other related Civil Engineering works
Specialized Contractors  Painting and Decorations (SC-PD)
(SD)  Sanitary Installation (SC-SI)
 Wood and Metal Works (SC-WM)
 Landscaping and other related activities (SD-LS)
CHAPTER 4 - STATUS OF THE CONTRACTOR (CONTD)

4.2.1 Category of the Contractor (contd)

Based on project undertaking capacity GC BC and RC Contractors are
further categorized in to 10 Grades
Construction Cost (Birr)
Categories Grade
BC RC GC
300,000,00
GC,BC,RC 1 Above 210,000,000 Above Above 350,000,000
0
300,000,00
GC,BC,RC 2 Up to 210,000,000 Up to Up to 350,000,000
0
225,000,00
GC,BC,RC 3 Up to 160,000,000 Up to Up to 270,000,000
0
154,000,00
GC,BC,RC 4 Up to 110,000,000 Up to Up to 185,000,000
0
GC,BC,RC 5 Up to 54,000,000 Up to 76,000,000 Up to 100,000,000
GC,BC,RC 6 Up to 27,000,000 Up to 38,000,000 Up to 45,000,000
GC,BC,RC 7 Up to 11,000,000 Up to 15,000,000 Up to 18,000,000
GC,BC,RC 8 Up to 5,400,000 Up to 7,500,000 Up to 9,000,000
GC,BC,RC 9 Up to 3,000,000 Up to 4,200,000 Up to 5,000,000
GC,BC,RC 10 Up to 1,000,000 Up to 1,500,000 Up to 1,800,000
 CHAPTER 4 - STATUS OF THE CONTRACTOR (CONTD)

4.2.2 Legal Capacity of the contractor

 Attained after completion of proper registration & licensing requirements of the
state (regional or Federal)
 Has the capacity to enter in to a contract
 Exists despite entrance into a contract
 self-sufficient, self-determined, self-directing & self–governing organization
 Once licensed the contractor is a legal INDEPENDENT person.
LEGAL INDEPENDENCY/ LEGAL AUTONOMY /
refers to its legal capacity to decide free of external controls, pressures and /
or influences
Its liability for its own actions as an independent corporate entity
 CHAPTER 5: SELECTION OF THE CONTRACTOR

5.1 Construction Contract Procurement

Selection is carried out following standard protocols
- Public Procurement Proclamation No. 649/2009, article 33
- Few types of approved procurement methods are
• Open bidding
• Restricted bidding
• Request for quotations
• direct procurement
• Request for proposal, and
• Two stage bidding
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

Two widely used methods of procurement are considered here

1) Direct/Single Procurement Method -
- procurement entity negotiates and enters in to a contract agreement with only a single
contractor
2) Competitive Bidding Procurement Method
 Equi-potential and competent contractors are invited to bid
 Contract is awarded to best bidder based on BID EVALUATION
CRETERAIN
Bidders should qualify to requirements
 possess the necessary professional & technical qualifications
 legal capacity to enter into the contract
 renewed trade license and fulfilled their obligations to pay taxes according to
Ethiopian tax laws;
 that they have a bank account
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

2) Competitive Bidding Procurement Method (Contd)

 A Bidder should study bid documents carefully before entering to the competition
If they don’t meet technical, commercial, and contractual conditions it would be a
waste of time and resources to participate
 If and when decided to compete  Pre-Bid Site visit shall be considered
Issues like
- Accessibility to the project area
- Availability of construction materials
- Ground Conditions (soil types, sliding areas)
- Security conditions of the area (employees ask for additional pay)
The informations helps
 To assess risks, obstacles due to the locations of the site
 To identify a feasible construction methodology
 To work down the a safe cost based on such conditions
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

2) Competitive Bidding Procurement Method (Contd)

Negotiation and Award of Contract
Before contract signing negations meetings might be held
Any form of negotiation that might benefits both parties including correction of errors
takes place
• Arithmetic error investigated during bid evaluation stage
• Request for submission of performance bond to contractor
• Any ambiguities and unfulfilled requirements on the submitted tender
• The Contractor may negotiate on the percentage of advance payment
This leads to offer and acceptance - According to Civil code Art.1681
 “… Offer and acceptance may be made orally or in writing …”
 “The party who makes an offer may stipulate a special form of acceptance”
.
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

5.2 Construction Contract Formation

Contract Formation
 Happens when the contractor signs contract agreement
Contract Documents for major Construction Contract may include;
Agreement, including all appendices;
Letter of Acceptance by the Public Body to the Contractor;
Bid Submission Sheet with Annexes;
The Special COC as an extension of the GCOC (project Particular)
Technical Proposal with technical specification (measurement and payment)
The design documentation (drawings)
For Unit-price contracts → Bill of Quantities and Price Schedule
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

SIGNING OF CONTRACT AGREEMENT

Article 1724 of Civil Code
- Contract with public body shall be made, legally, in writing

Subsequent, CONTRACT SIGNING between employer and contractor is carried

out to seal the deal
 Only valid if signed by legal representatives of both parties
 owners or legal delegate's
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

WHAT ARE EFFECT OF SIGNING CONTRACTS??

 1st Effectiveness of the contract
 2nd PERFORMANCE OBLIGATION (both employer & contractor)
Embedded , NON-Compliance Liability (Contractual & legal)
Contract is effective
- From the moment of conclusion of the contract.
Performance Obligation of the contractor
 is obliged to execute the construction of the works with due care, expedition,
and without delay
Performance Obligation of the Employer
 is obliged to make payments accordingly
Non – Compliance has Legal effects /liabilities/ Civil code (Article 1731 – 1805)
This has a formal procedure and starts by giving NOTICE to the contractor
CHAPTER 5: SELECTION OF THE CONTRACTOR (CONTD)

5.3 Commencement of the Works

 Refers to the date the contractor starts execution of works.
 Very important date / Marks beginning of Contract period/
Pre Conditions for Commencement
 MDB FIDIC Sub-Clause 8.1 [Commencement of Works] states
- Signature of the Contract Agreement by both Parties
- Employer’s Financial Arrangement (optional)
- possession of the Site (necessary permits)
- Advance payment
Engineer shall instruct the contractor to commence works with in
180days from the letter of acceptance.
 CHAPTER 6: EXECUTION OBLIGATION

6.1 Contractor’s Execution Obligation

Execution - refers to carrying out works according
 generally responsible to EXECUTE WORKS IN STRICT ACCORDANCE WITH THE
CONTRACT
 provide the personnel, plant, equipment, material, consumables, goods and services
required for the design (if any) and execution of temporary and permanent works
 Shall also comply with the instruction of the engineer
Contractor’s Execution Obligation
• It’s backbone for completion of the project
• Is contractual and legal obligation
• Non compliance results in consequences
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

Pre- Condition for Execution

1) Signature of the Contract Agreement and Approval by Authorities of the Country
2) Evidence of the Employer’s Financial arrangements
3) Delivery of Site to the Contractor
4) Delivery of Advance Payment
6.2 Mobilization Period, Work Program and Work Methodology
a) Mobilization Period
 time subsequent to commencement for works
 allocated for the Contractor to prepare necessary tools
- such as personnel (Engineers & administrative staff),
- equipment, & machineries, construction materials, establish camp site,
- access to project site (if required), site offices (Engineer’s and Contractor’s),
workshops, laboratory, garage house and accommodation.
- Responsible for proper utilization of the allocated time
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

b) Work Program
 Used to monitor progress of works
 Work program shall be realistic & the utmost way to fulfill requirements of the contract
Includes the following
• Duration of each activity and critical activities
• Resource allocation at each stage of work
• Proposed deployment of plant, equipment, labor, materials
• Proposed temporary works
• Time for inspections of works and required tests
• Projection of earned value at each months
• Nominated Subcontractor’s (if any)
• Drawings and Methods of construction
 In Case of non compliance with the above  Revised work Schedule
 progress evaluation is conducted by comparing the original work plan to the up-to-date
status of the project.
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

b) Work Program (contd)

During evaluation of progress performance of the contractor could be
 Per schedule  Good ~ keep it Up!
 Behind schedule  revise work schedule &
 On accelerated schedule  Good ~ keep it Up!
 Result of contractors improved efficiency - No reward
 compliance to employer’s request – reward is expected
C) Work Methodology
 Shows plan of the techniques, technology applications and management of the
construction
 Submitted along with work program
 Methods Should be up-to-date to the industry – cost + time effective
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

6.2 Design obligation

- Under DBB system –
permanent works - contractor is not obligated to design
Temporary Works - contractor is not obligated to design
 If design of permanent works is included in the contract
- Shall design to the highest of professional and ethical standards
- Liable for the correctness of the design
- Expected to submit all necessary documents
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

6.3 Safety Obligations

 Contractor is responsible for the
 safety of works (both completed and underway)
 safety of all employees
 safety of the general public
 safety of the environment
This obligation is thoroughly described in MDB – FIDIC clause 4.8
For ex. - The Contractor shall:
…(d) provide fencing, lighting, guarding and watching of the Works
until completion and taking over ….
 
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

6.3 Safety Obligations

Civil Code Art. 2549. - Accidents arising from work.
 ”The Employer shall be liable for accidents which the employee suffers arising from
his work.”
\ Contractor is obligated
- To take utmost safety majors and strictly follow safety
protocols
- Provided INSURANCE FACILITIES
 CHAPTER 6: EXECUTION OBLIGATION (CONTD)

6.4 Subcontractor
- A Contractor, has legal autonomy
- undertakes part of the work from the main Contractor
 Could be nominated – knowing to the employer & included in the contract
 Appointed by the contractor – unknown to the employer

The Main Contractor

- responsible to pay the Subcontractor
- responsible to pass requirements of the main contract
(give the technical specifications , design documents & over all schedules)
- responsible for the acts or defaults of any Subcontractor
 CHAPTER 7: COMPLETION OBLIGATION

Completion refers to;

 the completion of all tasks specified in the contract including the passing of the
tests on Completion.
 Contractor is obligated to complete
 within the specified time of completion
 within the specifications of the contract.

 Remedying of defects after tests on completion (if any)

 Submit all “as-built” documents and, design documents of permanent works (if any by the
contractor), operation and/or maintenance manuals (if any)
 Complete environmental safety and protection works
 Time for Completion = contract time + extension of time (if any)
 CHAPTER 7: COMPLETION OBLIGATION (CONTD)

7.2 Tests on Completion

carried out to check adequacy of completed work with respect to
 functionality,
 specification requirements,
 safety requirements
Basic Test on completion in road in road construction projects
Road width and length
Functionality of structures
Schmidt hammer test on structures
Asphalt friction test
Environmental safety audits (re-establishment of quarry and borrow sites planting
of grass and trees) and the likes of these.
CHAPTER 7: COMPLETION OBLIGATION (CONTD)

Test on Completion

Fail Pass
 CHAPTER 7: COMPLETION OBLIGATION (CONTD)

7.3 Post Completion obligation

Defect liability period – contractual obligation
Warranty after Contract completion –legal obligation

→ Defect liability period – commonly 1 year /particular to contract/

→ Warranty after Contract completion – 10years (Civil Code Article
3039)
 CHAPTER 8: ROLE OF THE ENGINEER

8.1 Brief Role of the Engineer

The Engineer’s role before the Contract Award
after project identification and establishment of project objective
the Engineer will have the following role, but not limited to:
 Identify the client’s need and objective
 Identify project specific requirements
 Prepare detail design
 Establish technical specification
 Prepare tender document
 Evaluates the tender and make recommendation
 Prepare contract document
 CHAPTER 8: ROLE OF THE ENGINEER

After Contract Award

Once the Contractor has been selected, the role of the Engineer
shifts to:
 Project Management
 Contract Management
 Inspection
Mainly involved on the following tasks
 Review the contract document and make necessary recommendation for
any changes/modification on the contract document
 Monitor the project activities as per the contract requirement
 CHAPTER 8: ROLE OF THE ENGINEER (CONTD)

 Inspect and control quality of the work

 Check Contractor’s measurement and payment
 Certify and/or recommend Contractor’s payment
 Monitor and report the Contractor’s progress
 Identify problems and propose remedial measures
 Perform tests
 Verify completion of the Contractor’s work
 Prepare contract closeout document and recommends
closeout
 CHAPTER 9: COMPARATIVE ANALYSIS

Comparative Analysis on Contractor’s Execution and

Completion Obligation under MDB FIDIC 2006, PPA 2011
(NCB) and the Applicable Law.

Contractor’s Execution and Completion Obligation, in terms of

 Pre mobilization
 Design
 Work program and methodology
 Safety and security
 Insurance and risk
 Sub-contracting
 Completion
 Post completion
 CHAPTER 9: COMPARATIVE ANALYSIS (CONTD)

Significant differences observed on the comparative analysis on the following

provisions
Contract signing
• MDB FIDIC, Clause 1.6: requires the parties to enter in to a contract agreement
within 28 days after the contractor receive letter of acceptance.
• PPA 2011 (NCB), Clause 46: requires the successful bidder to sign a contract
within (15) days of receipt of notification of award.
Performance security
• MDB FIDIC, Clause 4.2: within 28 days after receiving the Letter of Acceptance.
• PPA 2011 (NCB), Clause 58.1: within (15) days from signing the contract
Commencement date
• MDB FIDIC, Clause 8.1: [Commencement Date]: set pre conditions
 CHAPTER 9: COMPARATIVE ANALYSIS (CONTD)

1. Signing of contract agreement

2. Employer’s financial arrangement (optional)
3. Possession of the site
4. Receipt of advance payment

• Ethiopian civil code, Article 3020 (2): states the evidence of the contract
to be where the contractor has undertaken the work to the knowledge of
the client or received an advance payment from the client.
New provisions under MDB FIDIC Condition of Contract
 Notice of a claim (Clause 20.1), “If the Contractor fails to give notice of a claim within
such period of 28 days, the Time for Completion shall not be extended, the Contractor shall
not be entitled to additional payment, and the Employer shall be discharged from all liability
in connection with the claim.”
 CHAPTER 9: COMPARATIVE ANALYSIS (CONTD)

 Value Engineering (Clause 13.2 (c) ), “if this change results in a reduction in
the contract value of this part, the Engineer shall proceed in accordance
with Sub-Clause 3.5 [Determinations] to agree or determine a fee, which
shall be included in the Contract Price. This fee shall be half (50%) of the
difference between………….”

Post Completion Obligation, the Contractor will not be liable under the
contract after issuance of performance certificate. However, as per Article
3039 of Ethiopian civil code he will be liable for 10 years for any loss or
deterioration of the work as is due to a defect in its execution.
 CHAPTER 10: CASE STUDY

Case Study on Road Construction Contract

 Purpose of the project: Construction of 92Km road to DS4 standard asphalt
surface road
 Project and contract information:
• Financer: Government of Ethiopia and World Bank
• Project length: 92 km
• Date of Contract Signing: July 04, 2014
• Commencement Date: September 23, 2014
• Contract Period: 1095 days
• Defect Liability Period: 365 days
• Contract Amount: ETB 1,133,472, 329.44
 CHAPTER 10: CASE STUDY (COTND)

 Particular Condition of Contract

• Sub-Clause 4.2 (Performance Security): 10% of the accepted contract
amount
• Sub-Clause 17.6 (limitation of Liability): maximum total liability of the
Contractor to the Employer – accepted contract amount
• Sub-Clause 18.3 (Insurance against Injury to Persons and Damage to
Property): maximum amount of third party insurance ETB 3 mill per
occurrence.
 Project Narratives
• Actual project progress 3.49%, the Contractor’s original plan 10.21%
• The Contractor raising a number of issue in the form of clam and notice to
claim, in his opinion, are unfulfilled obligation of the Employer and
considered as a Force Majeure
 CHAPTER 10: CASE STUDY (COTND)

 Concluding remarks
• The Contract more or less include the required provision under the General
and Special condition of contract
• The Contractor performed his obligation as per the contract requirement
• The project progress - not satisfactory, for which he is required to submit
request for EOT for the delay recorded so far if he has justified delay
• Recommended the contractor to prepare realistic work program and
accelerate the work to catch up the slippage.
 CHAPTER 11: CONCLUSIONS AND RECOMMENDATIONS

11.1 Conclusion
 The Contractor has key role for the successful completion of the
project, therefore he is required to fulfill his obligations and strictly
follow all his contractual and legal responsibility.

 It is noted that the standard condition of contracts and other

applicable laws are interchangeable and/or jointly used in
construction projects.
 CHAPTER 11: CONCLUSIONS AND
RECOMMENDATIONS (CONTD)

11.2 Recommendation
Knowledge of construction contract and law is just like the backbone
of the construction project
 It is recommended the course to be given in higher credit hour to
enable the young Engineer to understand the impact of
contractual obligations in the construction project.
THANK YOU