The legal regulation of Construction

projects

The Legal & constitutional

Framework;

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 Introduction
 The planning, study, design, procurement,
execution, management & financing of a public
Construction Project brings different types of
Laws in to picture.
 The legal Framework regulates the necessary
inputs to the Construction Project, compulsory
requirements that are necessarily to be taken in
to account in the Construction Project and the
liability dimension that may arise during the
execution of the Construction Project.
 The possible inputs to the Construction Project
are, for example, financial resources, human
resources, land, equipment, constructional plant,
constructional material and other physical
inputs and the like.
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Introduction
 In terms of compulsory requirements
the Construction Project should take
in to account, environmental
requirements, planning and zoning
requirements, safety, oversight, ethical
and other requirements.
 In terms of liability we will consider
the contractual and the extra-
contractual liability of the involving
stakeholders and parties in the
Construction Project.
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 The Constitutional Framework
 According to Article 89(Economic Objectives)
◦ Government shall have the duty to formulate policies which ensure all
Ethiopians can benefit from the country’s legacy of intellectual and material
resources.
◦ Government has the duty to ensure that all Ethiopians get equal opportunity
to improve their economic conditions and to promote equitable distribution
of wealth among them.
 According to Article 90( Social Objectives)
 To the extent the country’s resources permit, policies shall aim to
provide all Ethiopians access to public health and education, clean
water, housing, food and social security.
Therefore, the Construction Project, based on the country’s social and
economic development objectives, program and long term and short term plan,
is a concrete tool to achieve these broad social & economic development goals.

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 Applicable laws for construction projects

The Public Finance Other Public Laws

Law  Land Administration,
The Public Revenue
Expropriation &
The Public
Compensation
Expenditure  Environmental Law
The Public Budget Employment Law
The Public Urban Planning Law
Procurement Building Law
The Public  Protection of Public
Oversight
Utility Networks

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 The Public Finance Law
 The term Public Finance may be defined as a subject that deals with
the provision, custody and disbursement of the resources needed for
the conduct of public or governmental functions.

◦ Public expenditure, which represent the needs of the state;

◦ Public revenues, which are the sources of the funds that are
expended in the conduct of public business;
◦ Financial administration, which deals with the determination of
expenditures & incomes as well as the collecting, handling and
disbursement of public funds.
expenditure, is regulated both by the Law of Financial
Administration including Public Procurement Law;
revenue, is regulated by Tax Laws;
determination of expenditure and revenues, is regulated by the
Budget Law;

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Public Procurement
 Procurement is an important administrative and
financial function and process that allows a
project to obtain optimal value for financial
resources expended on works, goods and
services.
 The effective and efficient use of financial
resources in a competitive and transparent
manner through a sound procurement process
contributes to the achievement of the
operational and strategic goals of a project.

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Public Procurement
 Construction Industry involves procurement and contract
management systems in order to ensure fair competition and
distributions of obligations and rights among stakeholders.
 Competition helps:
◦ the Project Owners’ to acquire the five rights (Counterpart, Cost,
Time, Quality and Quantity) s/he is entitled to
◦ the Project Financiers’ and Regulators’ to value market principles
and effective utilization of finance such that lowest qualified bids
takes the project , and
◦ the Project Providers’ to get impartial and neutral Opportunity for
business.
 Obligations and Rights help to allocate appropriate risks
among contractual parties and their remedial rights. That is,
their entitlements and provisions are clearly stated and
agreed upon.

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Public Procurement
The Public Procurement
• Public Procurement refers to the acquisition by public bodies,
such as government departments and municipalities, of the
various works, goods and services that they need for their
activities.
• The procurement is effected by using public funds or money.
• Procurement Planning
– Any procurement begins with the planning decision to make the
purchase.
– This will involve, in the first place, deciding whether there is a need
for the particular goods and services.
– It will also involve ensuring that the purchaser has the legal power
to undertake the (procurement) transaction, obtaining any relevant
approvals within the government hierarchy and arranging the
necessary funding.

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Public Procurement
• The Tendering, Selection & Contract Phase
– The second phase is then to choose which firm is to be
the provider of the goods or services, and to conclude a
contract with the selected party.
• Contract Administration
– This includes supervising performance to ensure that the
promised works, goods and services are properly
delivered, accepting performance, arranging for payment of
the contractor, dealing with disputes, and various other
contractual matters.

The Public Procurement, thus, focuses on the

second phase i.e. the tendering, selection & the
conclusion of a contract.

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Construction contract within the
Ethiopian context
based on
Public Procurement Agency (PPA)
conditions of contract.

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 GCC
 General Condition of Contract is a document that states
the obligations and rights of the parties and details the
conditions under which the contract is to be carried out.

 These documents are published by different professional

associations, government bodies and also by financers.

 As the construction industry is dynamic those documents

shall be amended / improved through times, FIDIC could be
mentioned as an example it has published different
conditions of contract over the years (1957-1999).

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Background
 As the history of our national conditions of
contract indicates the first was published in 1959
by the Ministry of Housing, the second in 1987
by Building Transport Construction and Design
Authority,
 The third in 1994 by Ministry of Works and
Urban Development and the fourth and the
recent one in 2006 by the Public Procurement
Agency (amended in 2011) of the Ministry of
Finance and Development.
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 Public Procurement Agency
 PPA conditions of contract divided the clauses
in five categories with 62 clauses,
◦ General
◦ Time control clauses
◦ Quality control clauses.
◦ Cost control clauses.
◦ Finishing of the contract,

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General
◦ Under this heading common obligation, rights and
instruction are set out which help to minimize disputes
and simplify the contract administration processes.
 As an example definition and interpretation could be taken,
 “It is in the best interest of all parties to a contract
that they express their intention without ambiguity.
However, the meanings of a contract or some of its
terms is often obscure. More often than not this
becomes a source of dispute between the parties. In
order to settle such disputes, the disputed terms or a
provision has to be interpreted or given a proper
meaning.” [John Murdoch& Will Hughes, third edition,
construction contracts, Law and Management ]
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 General
 The category named ‘General provisions’ is
set in PPA are;
◦ Definition
◦ Interpretation
◦ Communications
◦ Law and language
◦ Priority of documents etc

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 Interpretation(Clause 2.3)
 The documents forming the Contract shall be
interpreted in the following order of priority:
(1) Agreement,
(2) Letter of Acceptance,
(3) Contractor’s Bid,
(4) Special Conditions of Contract,
(5) General Conditions of Contract,
(6) Specifications,
(7) Drawings,
(8) Bill of Quantities or Activity Schedule, and
(9) Any other document listed in the Special Conditions
of Contract as forming part of the
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 Time control clauses
A construction projects consist of many activities.
Each activity requires some time for its completion.
The cost of execution varies with the time
required for its completion. Once the time
required for completion of a project is decided it
may be stipulated in the contract in any of the
following three ways;
◦ On a given date, or
◦ Within a definite number of calendar months, or
◦ Within stipulated number of working days

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 Time control clauses
The provisions made in almost all GCCs usually entitle the
employer to be paid for liquidated damage for delay of
completion time, in order that the contractor should be
careful in avoiding delay in completion.

A construction contract usually stipulates circumstances

under which the time for completion will be extended. A
comprehensive list of valid grounds is to be found in
different GGCs clause.

Example PPA clause 28 (Extension of the intended

completion date), stipulates the occurrence of
compensation events and issues of variations as a ground
for time extension.
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Time control clauses(PPA)
27. Program
28. Extension of the Intended Completion Date
29. Acceleration
30. Delays Ordered by the Engineer
31. Management Meetings
32. Early Warning

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Time control clauses(PPA)
27.Program
27.1 Within the time stated in the Special Conditions of
Contract, the Contractor shall submit to the Engineer for
approval a Program showing the general methods,
arrangements, order, and timing for all the activities in the
Works.
27.3… If the Contractor does not submit an updated
Program within this period, the Engineer may withhold
the amount stated in the Special Conditions of Contract
from the next payment certificate and continue to
withhold this amount until the next payment after the
date on which the overdue Program has been submitted.

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Time control clauses(PPA)
27.Program
27.4. The Engineer’s approval of the Program shall not alter the
Contractor’s obligations. The Contractor may revise the Program
and submit it to the Engineer again at any time. A revised
Program shall show the effect of Variations and Compensation
Events.
28. Extension of the Intended Completion Date
28.1 The Engineer shall extend the Intended Completion Date if a
Compensation Event occurs or a Variation is issued which makes
it impossible for Completion to be achieved by the Intended
Completion Date without the Contractor taking steps to
accelerate the remaining work, which would cause the
Contractor to incur additional cost.

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Time control clauses(PPA)
28. Extension of the Intended Completion Date
28.2 The Engineer shall decide whether and by how
much to extend the Intended Completion Date
within 21 days of the Contractor asking the Engineer
for a decision upon the effect of a Compensation
Event or Variation and submitting full supporting
information.
If the Contractor has failed to give
early warning of a delay or has failed to cooperate in
dealing with a delay, the delay by this failure shall not
be considered in assessing the new Intended
Completion Date.

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 Time control clauses(PPA)
29. Acceleration
29.1. When the Employer wants the Contractor to finish
before the Intended Completion Date, the Engineer will
obtain priced proposals for achieving the necessary
acceleration from the Contractor. If the Employer
accepts these proposals, the Intended Completion Date
will be adjusted accordingly and confirmed by both the
Employer and the Contractor.
29.2 If the Contractor’s priced proposals for an
acceleration are accepted by the Employer, they are
incorporated in the Contract Price and treated as a
Variation.

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Time control clauses(PPA)
30. Delays Ordered by the Engineer
30.1 The Engineer may instruct the Contractor to
delay the start or progress of any activity within the
Works.
31. Management Meetings
31.1 Either the Engineer or the Contractor may require the
other to attend a management meeting. The business of a
management meeting shall be to review the plans for
remaining work and to deal with matters raised in
accordance with the early warning procedure.
.
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31. Management Meetings
• 31.2 The Engineer shall record the business of
management meetings and provide copies of the
record to those attending the meeting and to
the Employer. The responsibility of the parties
for actions to be taken shall be decided by the
Engineer either at the management meeting or
after the management meeting and stated in
writing to all who attended the meeting.

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 Time control clauses(PPA)
32. Early Warning
32.1 The Contractor shall warn the Engineer at the earliest
opportunity of specific likely future events or circumstances that
may adversely affect the quality of the work increase the Contract
Price or delay the execution of the Works. The Engineer may
require the Contractor to provide an estimate of the expected effect
of the future event or circumstance on the Contract Price and
Completion Date. The estimate shall be provided by the Contractor
as soon as reasonably possible.
32.2 The Contractor shall cooperate with the Engineer in making and
considering proposals for how the effect of such an event or
circumstance can be avoided or reduced by anyone involved in the
work and in carrying out any resulting instruction of the Engineer.
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 Quality Control Clauses(PPA)
33. Identifying Defects

33.1 The Engineer shall check the Contractor’s work and notify
the Contractor of any Defects that are found. Such checking
shall not affect the Contractor’s responsibilities. The Engineer
may instruct the Contractor to search for a Defect and to
uncover and test any work that the Engineer considers may
have a Defect.

34. Tests
34.1 If the Engineer instructs the Contractor to carry out a test
not specified in the Specification to check whether any work
has a Defect and the test shows that it does, the Contractor
shall pay for the test and any samples. If there is no Defect, the
test shall be a Compensation Event.
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 Quality Control (PPA)
35. Correction of Defects
35.1 The Engineer shall give notice to the Contractor of any
Defects before the end of the Defects Liability Period, which
begins at Completion, and is defined in the Special Conditions
of Contract. The Defects Liability Period shall be extended for
as long as Defects remain to be corrected.
35.2 Every time notice of a Defect is given, the Contractor shall
correct the notified Defect within the length of time specified
by the Engineer’s notice.
36 Uncorrected Defects
36.1 If the Contractor has not corrected a Defect within the time
specified in the Engineer’s notice, the Engineer will assess the
cost of having the Defect corrected, and the Contractor will pay
this amount.
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Cost Control
37. Bill of Quantities or Activity Schedule
 Bill of Quantities for Admeasurements
Contract
◦ The Bill of Quantities shall contain items for
the construction, installation, testing, and
commissioning work to be done by the
Contractor.
◦ The Bill of Quantities is used to calculate the
Contract Price. The Contractor is paid for the
quantity of the work done at the rate in the Bill
of Quantities for each item.
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38.Change in the Bill of Quantities

If the final quantity of the work done: Differs from the

quantity in the BoQ,

for a particular item,

by >25%, &
The change exceeds 5% of the Initial Contract Price,

The Engineer shall adjust the rate to allow for the change.
The Engineer shall not adjust rates if:

The Initial Contract Price is “exceeded by > 15%”,

Except “with the prior approval” of the Employer.

If requested by the Engineer, the Contractor shall:

Provide a detailed cost breakdown of any rate in the BoQ;

40 Payment for Variations

The Contractor shall provide a quotation for carrying out the

Variation when requested to do so.

The Engineer shall:

Assess the quotation,

Which shall be given within 7 days or
within any longer period stated by the Engineer &
before the Variation is ordered.
If the work in the Variation Corresponds:

With an item description in the BoQ

&
If the quantity of work is within the limit stated
above(125%) or

The timing of its execution do not cause the cost/ unit

quantity to change,

The rate in the BoQ shall be used to calculate the value of

the Variation.
If the cost per unit of quantity changes, or
If the nature or Timing of the work in the Variation does not
correspond with items in the BoQ;

The quotation by the Contractor shall be in the form of new rate;

If the Contractor’s quotation is unreasonable:
The Engineer may order the Variation & make a change to the
CP,

Which shall be based on:

The Engineer’s own forecast of the effects of the Variation.
If the Engineer decides that:
The urgency of varying the work would prevent a quotation
being given &
considered without delaying the work,

No quotation shall be given &

The Variation shall be treated as a Compensation Event.

The Contractor shall not be entitled to additional

payment: for
Costs that could have been avoided by giving early
warning.
42. Payment Certificates

The Contractor shall submit:

Monthly statements of the value of the work executed

Less the cumulative amount certified previously.

The Engineer shall check the Contractor’s monthly

statement and certify the amount to be paid to the
Contractor.
The value of work executed shall include:

The valuation of Variations

&
Compensation Events.
The Engineer may :

“Exclude Any item certified” in a previous certificate

or
Reduce the proportion of any item previously certified
43. payments
Payments shall be adjusted for deductions for

Advance Payments
&
Retention

The Employer shall pay the Contractor:

The amounts certified within 30 days of the date of

each certificate.
If the Employer makes a late payment:

The Contractor shall be paid interest on the late payment in

the next payment.
Interest shall be calculated:
From the date by which the payment should have been made
up to the date when the late payment is made

At the prevailing rate of interest for commercial

borrowing for each of the currencies in which payments are
made.
If an amount certified is increased:
In a later certificate
or
As a result of An award by the Adjudicator/Arbitrator,

The Contractor shall be paid interest upon the delayed

payment

Interest shall be calculated: From the date Upon which

The increased amount would have been certified

in the absence of dispute.