Presentation Contract Adiministration - AACRA

CONSTRUCTION MANAGEMENT INSTITUTE
Training
on
Contract Administration
for
Addis Ababa City Roads Authority
(Day-1)
Presenter: Yoseph Kidane, PMP
October 2022
Training Outline:
1. Introduction to Contract
a) Formation of Contract
b) Effects of Contracts
c) Extinction of Obligation
d) Extra-Contractual Liability
2. Types of Construction Contract
3. Types of Project Delivery Methods
4. Construction Contract Documents
5. Contract Administration
1.1 Definition of Contract
 It is an agreement between two or more parties which is enforceable
in law.
 It can have different forms; like, Simple Contract, Verbal Agreement,
Signing of an accepted offer, signing and witnessing formal
document.
 Normally, it consists of an offer by one party to do something and an
acceptance of the offer by another.
 Any acceptance must be unconditional, otherwise it would be
construed as a counter offer.
The following legal elements need to be in place before a
contract can be considered legally binding and enforceable
a) Offer and Acceptance
b) Intention to create legal relations
c) Consideration
d) Legal Capacity
e) Illegal and Void Contract
What is a Construction Contract?
Made between two or more parties (A Constructor and an Owner), i.e., to
say, an offer is made by the contractor to carry out the works for a certain
amount to be paid by the Employer.
Governing Law of Contract

The governing law of the Contract is the law of the Federal Democratic
Republic of Ethiopia (Civil Code, Labour Law, Tax Laws, Criminal Law, etc.);
like as mentioned in Sub-Clause 5.1(b) of the FIDIC 1987 and Sub-Clause 8.1
of the PPA.
1.2 Formation of Contract
Contracts are valid only (Ethiopian Civil Code)
• when parties are capable of contracting and give
their consent sustainable at law
• the object of the Contract are sufficiently defined
and is possible and lawful; and
• The contract is made in the form prescribed by law,
if any.
i) Consent
• A contract shall depend on the consent of the
parties who defines the object.
• Silence where an offer is made shall not amount to
acceptance.
• But an offer to continue or vary an existing contract
or to enter into a subsidiary or complimentary
contract may be accepted by silence.
i) Consent
• A contract made between absent parties shall be deemed
to be made at the place where and time when the
acceptance was sent to the offeror.
• An offer shall be deemed not to have been made where
the offeree knows that it is withdrawn before he knew or
at the time when he knows the offer.
• An offer is deemed to be rejected where the acceptance is
made with a reservation or does not exactly confirm to
the terms of the offer.
i) Consent (Defects in Consent)
• Invalidation of contract: if a party gave his consent by
mistake or under deceit or duress.
• Mistake – it should be decisive and fundamental
• Fraud – Where a party resorts to deceitful practices
• False Statements – Where a party is in bad faith or by
negligence made false statements.
• Duress – where the acts of duress led a party to believe
that he was threatened with imminent danger to life
ii) Objects of Contracts
• The object of a contract shall be freely determined
by parties.
• Objects must be defined. A contract shall be of no
effect if obligations of parties cannot be
ascertained with sufficient precision; even the
court may not make that contract under the guise
of interpretation.
2. Formation of Contract
ii) Objects of Contracts
• Objects must be possible ( a contract shall be of no effect if
obligations relate to a thing or fact which is impossible and
such impossibility is absolute).
• Unlawful or immoral object: if obligations of parties in a
contract have unlawful or immoral purpose, it shall have
no effect.
• Court cannot order a contract to be performed where it
has unlawful or immoral purpose.
iii) Form of Contracts
• A contract shall be valid where the parties agree;
and no special form shall be required unless
otherwise provided.
• Where a special form is expressly prescribed by
law, such form shall be observed.
• A contract made in a special form shall be varied in
the same form.
iii) Form of Contracts
• Any contract binding the government shall be in
writing; and each party shall affix his handwritten
signature thereto.
• Any contract required to be in writing shall be of no
effect unless it is attested by two witnesses who
shall be of age and not judicially interdicted
1.3 Effects of Contract
Principles
• The provisions in the contract are binding on the
parties as though they are law.
• The contents of the contract shall be determined by
the parties subject to the mandatory provisions of
the law.
i) Interpretation of Contracts
 All Contracts have as much exhaustive and detail as they
can to cover all issues in express terms
 Terms would be implied if they are not expressly stated in
the contract.
 Agreed Terms and Conditions in the Contract cannot
unilaterally be changed nor re-written by courts; unless it
has an unlawful or immoral purpose in view.
i) Interpretation ….. Cont’d
 No obligation can impliedly be imported that are
inconsistent with the express terms of the contract
 Ethiopian Civil Code, Article 1738, any ambiguities in the
contract document would be construed against the Drafter
of the Document.
 During interpretation, common intention of the parties
shall be sought
i) Interpretation ….. Cont’d
 Positive interpretation (to make the contract effective than
ineffective)
 Interpretation in accordance with the context:
 Provisions in a contract be interpreted through one another
and each provision shall be given the meaning required by the
whole contract.
 Ambiguous terms shall be given the meaning as is more likely,
having regard to the subject matter of the contract.
ii) Performance of Contracts
• Each party is required to perform his obligation in
the manner provided in the contract; and diligently
• Each party is also required to perform his obligation
within the time fixed by the contract; failing a
specific provision in the contract will entitle each
party to carry out his obligation within a reasonable
time.
ii) Performance of Contracts
• One party may not impose unilaterally on the other
party a time which has not been agreed upon for
the performance of his obligations
• Non performance by one party of his obligations
shall not entitle the other party to fail to perform
his side of the bargain.
1.3 Effects to Contract
iii) Variation of Contracts
• A contract shall remain in force even though obligation
assumed by one or both parties become more onerous
than they foresaw on making of the contract.
• Effect of changes may be regulated by the parties; not
by the court, in the original contract or in a new
agreement
• All other variations in accordance with the contractual
and/or legal provisions.
1.3 Effects to Contract
iii) Non-Performance of Contracts
• Innocent party may require enforcements of contract
cancellation if the defaulted party does not carry out
his obligations under the contract; and may also
request the damage caused to him be made good.
• Notice is required from the innocent party to remind
the defaulted party to carry out his obligation.
1.4 Extinction of Obligation
• Obligation could be extinguished if the work is
performed and completed in accordance with the
contract.
Other Causes of Extinction:
• If invalidated or cancelled
• If one or both parties to the contract enforce the
provisions.
• If both parties mutually agree to remove/change the
existing obligations.
1.4 Extinction of Obligation
ii) Termination of Contracts
• A contract may terminate where the parties so
agree.
• Based on the contractual and/or legal provisions
• A contract which is terminated shall no longer be
performed .
• Termination shall have no retrospective effect.
1.5 Extra-Contractual Liability
• Everyone is liable for the damage he causes to
another by an offence; and is required to make it
good.
• The damage could be by an activity in which he
engages or by an object he possesses.
• An offence may consist in an:
 Intentional act or mere negligence
 Act or failure to act.
1.5 Extra-Contractual Liability
• Some of the extra-contractual liability are resulted
from:
 Professional faults
 Intent of injure
 Abuse of power
 Infringements of Law (ignorance of law is no excuse)
 Hierarchical order ( shall not relieve the doer of the act)
 Etc.
There are three types of Construction contracts
i) Measurement Contract
ii) Fixed Contract
iii) Cost Plus Contract
i) Measurement Contract
• No fixed contract price
• Total final cost depends on the actual volume of
work executed.
• The scope is defined for each unit of work, but the
total volume/quantity of work is not clear
• The work can begin sooner than Fixed-Sum Contract
• Increases the Employers’ risk in terms of cost.
ii) Fixed Sum Contract
• The Cost is strictly certain
• It is preferred if the scope is well defined;
otherwise the Employer will pay more
• If the scope is not well defined, the contractor may
add more reserve to his offer
• The Contractor has most of the risk
ii. Fixed Sum Contract
Derivatives of Fixed Sum Contract
• Fixed Price Incentive Fee (FPIF)
• Fixed Price Award Fee (FPAF)
• Fixed Price Economic Price Adjustment (FPEPA)
• Purchase Order (PO)

Fixed Price Incentive Fee (FPIF)

• An additional incentive fee is given if a pre-defined
performance criteria is met.
Example: The Contract Amount is ETB800million, if
the project is completed before the deadline, an
additional ETB300k will be paid for each day from the
actual to the Contractual Completion date.
Fixed Price Award Fee (FPAF)

• An additional limited award fee is given if a pre-
defined performance criterion is subjectively met.
Example: The Contract Amount is ETB80million, if
more than 70% of the users like the design of the
Website, an additional 400k award will be paid for
every 10% more, with a maximum award of
ETB1.0million
Fixed Price Economic Price Adjustment (FPEPA)

• Due to Economic reasons, contract price increases
every year.
• The price fluctuation may be difficult to predict
realistically.
• Most road construction in Ethiopia with a Design-
Build project delivery method.
Purchase Order (PO)
• Simplest Contract Type.
• Unilateral
Advantages of Fixed Sum Contract

• Total cost is known.
• The workload for the Employer is less
• The Contractor tries to work more carefully
• One of the most common contract type
Disadvantages of Fixed Sum Contract
• Contractor may claim extra payments for unnecessary
change orders.
• Contractor may try to cut the scope or quality on the
sly
• Preparing tender documents takes time for the
Employer
• Might be expensive if the scope of the project is
unclear
iii) Cost-Plus Contract
• Employers pay each cost of the contractor plus his
profit and overhead.
• Riskiest contract type for the Employer
• Preferred if the scope of work is uncertain
• Cost of the Contractor should be monitored.
Derivatives of Cost-Plus Contract
• Cost Contract (CC).
• Cost Plus Fixed Fee (CPFF)
• Cost Plus Fee (CPF)
• Cost Plus Incentive Fee (CPIF)
• Cost Plus Award Fee (CPAF)
Cost Contract (CC)
• The Employer only pays for the cost of the work
done by the Contractor; employers don’t pay for
any profit.
Example: works being carried out by non-profit
organization.
Cost Plus Fixed Fee (CPFF)
• The Employer pays for the costs of the contractor
plus a fixed fee.
Cost Plus Fee (CPF)
• The Employer pays for the costs of the contractor
plus a fee.
• This fee is not fixed; it is determined as a
percentage of total costs.
• Riskiest contract type for the Employer
Cost Plus Incentive Fee (CPIF)
• The Employer pays for the cost of the work plus a
target fee.
• A target fee is calculated in accordance with some
performance criteria. There is also a target cost.
Example: For a construction project, a contract is
signed with a target cost of ETB800million and a target
fee of ETB10million. Cost savings will be shared as 70%
to the Employer and 30% to the Contractor.
Cost Plus Award Fee (CPAF)
• Almost similar to Cost Plus Incentive Fee, but there
are two main differences.
1. In CPIF, the fee was a potential award but in
CPAF, it may be either an award or a penalty.
2. In CPIF, the performance criteria are more likely
to be objective but in CPAF they may be
subjective.
Cost Plus Award Fee (CPAF)
Example: An electronic devise will be produced by the
Contractor. All Costs plus ETB2million of fee will paid
to the contractor and also there will be a maximum
amount of ETB400k award if the end product meets
all of the specification listed in the contract.
3. Project Delivery Methods
i) General Contracting
 It is also known as Design-Bid-Build
 It separates design from construction
 The Employer assumes design responsibility for his
substantially completed design
 Widely used in the construction industry; particularly, on
public projects
 Is more prone to time and cost overrun
 Can accommodate variations (priced directly)
i) General Contracting
Employer
Supervision
Design
Contractor Consultant/
Consultant Engineer
Nominated Sub
Sub Contractor Contractor
i). General Contracting
Essentially there are two forms of General Contracting
1. Lump Sum Contract
2. The Re-Measurement Contract
• For lump sum contract, the work is completely
predetermined; and hence risks of fluctuations in cost
and time fall on contractors.
• A re-measurement contract is for projects where it is
impossible or very difficult to formulate a complete
design before commencement.
ii) Design – Build Contracting
 Fast-track project delivery method
 The Contractor takes the leading role in taking
responsibility for design and construction.
 Employers must produce its statement of
requirements or design and performance criteria
 Constructability of designs is better ensured

 Ensure guaranteed maximum price.
 Though tendering cost be higher, cost and time
overrun as a result of insufficient design will be
reduced to the client
 Not suitable for clients that frequently change their
mind.
 Has innovative derivatives of DB; like DBOM, DBFO,
Employer
Concept Supervision
Design Contractor Consultant/
Consultant Engineer
Design Sub-
Sub Nominated
Contractor/
Contractor Sub Contractor
Own Force
iii) Construction Management Contracting
 Not formally known in Ethiopia’s construction industry.
 A Construction Manager will be employed by the client who
will be responsible for employing
o a design firms and administer the design contract,
o procure various subcontractors to construct as per the design and
o administer the contract by representing the client.
 The mode of payment for this construction manager is
usually based on monthly fee.
iii) Construction Management Contracting
Employer
Construction Sub- Design Structural

Manager Contractors Consultant Engineer
iv) Management Contracting
 Like General Contracting it is a “Build Only” contract.
 A Management Contractor will be employed by the client
who will be responsible for employing
 Other Sub Contractors,
 Manage the interface among the Sub contractors
 Responsible for all the construction operations.
iv. Management Contracting
Employer
Management Quantity Design Structural

Contractor Surveyor Consultant Engineer
Works Works
Contractor Contractor

Major Components of Contract Documents
a) Contract Agreement
b) Conditions of Contracts
c) Technical Specification
d) Drawings
e) Bills of Quantities
f) Other documents

Part of the Document that shall not be altered
a) General Conditions of Contracts
b) Standard Technical Specification
• These documents are general and be used for all

projects.

Part of the Document that shall be customized
a) Conditions of Particular Application/ Special
Conditions of Contract
b) Special Provision to the Standard Technical
Specification
5. Contract Administration
Hence, Contract Administration is all about
• Know what the Contract requires
• Do what the Contract Requires
• Do not do anything else without proper
documentation
There are three phases in a Construction Contract:

I. Pre-construction Period
II. Construction Period
III. Post-Construction Period
5.1 Pre-Construction Period
i. Pre Commencement Meeting
ii. Possession of Site and Access Thereto
iii. Insurance, Bonds and Guarantees
iv. Work Programme
v. Parties Obligations
vi. Advance Payments
i. Pre Commencement Meeting
• Better to conduct before possession of site is granted.
• The main points of discussion at this meeting shall
contain at least:
 Role and Responsibilities of each staff/ party
 Delegation of powers
 Key dates of approval and status of work programme
i. Pre Commencement ….Cont’d
 Requirements for named, nominated and selected
domestic sub-contractors
 Procedures of Interim valuations and certification
 Procedures for measurement, records, notices,
particulars
 Procedures for monitoring of progress, photographs,
videos, etc.
5.1Pre-Construction Period
ii. Possession of Site and Access Thereto
According to Article 40(3) of the Constitution: Land is a common
property of the nations, nationalities and Peoples of Ethiopia
and shall not be subject to sale or to other means of exchange.
 Clients are in the best position to handle land issues
 Failure to give possession of site and access
 Definition of Possession of Site and Access
 Why Spoil Area expropriated by contractors?
ii. Possession of Site and … Cont’d
• In most Conditions of Contract, time is specified within which
the client is obliged to grant access and possession of site to
the contractor. FIDIC 1987 Edition Sub-Clause 42.1.
• Failure to grant possession of site will entitle the contractor for

any extension of time provided that it affects the time for
completion and/or additional cost.
• But outright refusal of granting possession of site may be

deemed as a repudiatory breach by the Employer and may
entitle the contractor to terminate the contract.
ii. Possession of Site and … Cont’d
• Access: is defined as the right given to the contractor to
access the whole or part of the site so that he could explore,
investigate and communicate with any stakeholders as to
the site. It shall not necessarily be obstruction free
• Possession: is defined as the right given to the contractor to
takeover all responsibility within the possessed section of
the site and carry out all the permanent works. It shall be
obstruction free.
iii. Bonds, Guarantees and Insurance
• A Bond is an undertaking to pay a sum of money.
• Bonds are from Insurance Company while Guarantee is from Bank.
• Basically there are two types of Bonds
 Conditional Bond and Unconditional Bond
 Conditional bonds require sufficient proof of the Contractor’s
failure to meet the stated conditions.
 Unconditional Bonds does not require proof of contractor’s
non performance. Paid on demand.
 The usual bonds are Bid Security, Performance Bond,
Advance Payment Bond, Retention Bond.
Bid Bond: to secure the bid/tender submitted by the
bidder until the bid validity period expires. In the local
government funded project; especially, in the road sector,
local firms are allowed to deliver conditional bonds. This
requirement is during the tender stage.
iii. Bonds, Guarantees …Cont’d
• Performance Bond: It is to secure the performance of the
contractor during the contract period. Like Bid Bond, conditional
bonds could be issued by local firms.
 As per Sub-Clause 10.2 of the FIDIC 1987, the validity of
the performance security is up to expiry of the DLP.
 Detail condition on Performance Security is stated in Sub-
Clause 58 of the PPA’s GCC.
• Advance Payment Bond: This is to secure the amount paid
to the contractor as interest free that shall be against an
Unconditional Bond.
• Retention Money Bond: ditto like Advance Payment Bond
Insurance
• Both Sub-Clause 21.1 of the GCC in FIDIC and Clause 40 of
the PPA GCC require contractor to take out insurance:
 For the entire works (Contract Amount)
 Additional 15% of the Works Contract Amount for any
contingency
 Contractor’s Equipment
 Third Party Liability
iii. Bonds, Guarantees ….Cont’d
• Some of the Employer’s Risks are not an obligation for insurance
(like war, civil war, rebellion, revolution, insurrection, etc..)
• Employer must approve the insurer for all insurance; and also
the terms of the policies.
• Works must be insured in the joint names of the Employer and

Contractor.
• Engineer to check the insurance covers all Employer’s interest
and recommend for approval.
• Points to check when examining Insurance Policies
 Amount of Cover: check if it covers all works, plant and
materials and other things on site
 Excesses/ Deductibles : require guarantee for high
excesses.
 Exceptions
 Period of Insurance
 Termination of Policy
 Cross Liabilities: in the case of joint policies, check
that one party claim for damages caused by another
 Motor Vehicles: all vehicles of the contractor and
Engineer.
 Definition of site; should not exclude quarries
 Omnibus Policies : Contractor might have taken out
iv. Work Programme
Things to consider when developing realistic work
Programme
 analyzing definition of all activities laid out in the
project scope management,
 identifying activity sequencing,
 estimating the number of work periods that will be
needed to complete individual activities,
 analyzing activity durations and resource requirements
and
 finally ensure the contractor’s work schedule meets all
the above requirements.
 helping to control changes to the project schedule
Clause 14.1 of the FIDIC 1987 Edition GCC requires a Work

programme…… PPA in its Clause___ of the GCC
v. Parties Obligations
Contractor’s Obligation
 Primarily the contractor’s obligation is to complete.
 To complete on Time
 To pay damages
 Not to harm third parties
 To comply with applicable laws and liability
 Implied Obligation to minimize adverse effects of delay
 To cooperate and Notify
Sub-Clause 8.1 of the FIDIC 1987 GCC and Clause 34 of the PPA (detail one)
Employer’s Obligation
 Primary Obligation is to pay for the works executed
 Equally important obligation is to grant obstruction free
possession of site and Access thereto.
 To appoint a competent and qualified Engineer for the works
contract administration. Re-appoint a new one if the former
fails to discharge his duties and responsibilities.
 A general implied duty not to hinder the contractor’s effort to
complete the work
 To supply the necessary instructions, information, plans and
drawings
 Issue timely decisions on technical and contractual issues that
requires its consent.
Engineer’s Roles and Responsibilities
 Establish qualified and competent site and head office
staffs
 Inspect, sampling and testing
 Determine Extension of time and financial compensation in
consultation with both parties
 Obtain prior consent of the employer where required
 Prepare and Issue Engineer’s Instruction and Variation
Order
 Closely follow up of Employer’s Obligation
Engineer’s Roles and …. Cont’d
 Routinely advise the Employer on cost update, obstruction
status
 Prepare and certify interim payments
 Issue taking over and Defect Liability certificates
 Implement quick decision-making process
 Require Client’s Approval where required.
 Also required to discharge all duties and responsibilities as
depicted in the supervision consultancy contract.
vii. Advance Payment
 There are two forms of Advance Payment in Construction
Contracts
 Advance Payment for Mobilization
 Advance Payment for Material
 Mobilization by the Contractor’s and commencement of the
works require a huge capital outlay.
 Advance Payment is set in the contract to assist the
contractor’s cash flow until he gets his first payment. Usually
vi. Advance Payment
 What makes Advance Payment different from Down Payment?
Is it Interest Free for the Employer; in case of delay?
 Need to be paid timely against an Unconditional guarantee
 Subjected to interest for late payment.
 May entail delay to time for completion of the project.
 Reason for breach of contract by the Employer.
vii. Advance Payment
 Material Advance is to be paid in the interim payment
certificate which would be recoverable after the material is
incorporated into the permanent works.
 Material advance is usually intended for major items; like
cement, bitumen, steel bar, etc.
 If advance to materials is paid, it is to mean that the
ownership is transferred from contractor to the Employer.
5.2 Construction Period
i. Quality Control and Inspection
ii. Progress Meetings
iii. Notices, Records and Contemporary Records
iv. Measurement and Payment
v. Changes and Change Orders
vi. Rate of Progress
vii. Delay
viii. Liquidated Damages
ix. Suspension of Works
x. Default of Parties
i. Inspection and Quality Assurance/Quality Control
Inspection and Testing
• The Supervisory staffs are responsible to monitor and verify
the project is being constructed in accordance with the
contract specification and drawings.
• Inspectors have the authority to reject both unsatisfactory
workmanship and materials.
• Inspectors shall provide daily inspection reports indicating
work performed , inspections and tests carried out, non-
conformance noted.
5.2Construction Period
i. Inspection and Quality ….Cont’d
• Daily reports must be completed daily, be neat and legible,
and fully describe the work.
• Off-site inspection could be carried out upon approval of the
client.
• Inspectors shall note the time, place, type and, if available
tests
• All the supervisory staffs shall be familiar with all testing
requirements of the contract.
• Ensure that calibration and re-calibration of testing
equipment is carried out in accordance with the testing
specification and standards
• Sometimes on-site testing may be subcontracted to a
qualified testing laboratory consultant.
• Ensure that staffs responsible for conducting testing are fully
trained in conducting, checking of equipment and
maintenance of records.
Quality Control
• It is an operational technique to fulfill requirements for
quality
• Consists of activities required to meet the specified
requirements.
• Checklist and forms are used to control qualities in
compliance with the project requirements.
Quality Assurance
• To provide adequate confidence that a product or service
will satisfy given requirements of quality
• Usually requires a continuing evaluation of factors that
affect the design and specification
• Meeting must be kept to a minimum
• Three categories of persons should attend
 Who can inform,
 who can advise and
 who can decide
• The correct minutes with at least the following points:
 Accurate Records of the meeting
 Decision taken
 Responsibility of action taken (outstanding)
 Accurate forecast or projections
 Prompt distribution of minutes
• Minutes must be signed by representatives
iii. Notices, Records and Contemporary Records
• Contractors should comply especially if condition precedent
• Should be clearly set out (the Contractual provisions,
sufficient information for the reviewer to know the actual
or likely effects of the events)
• Unfortunately, it creates a hostile reaction
• After notices are served, contemporary records would be
kept that illustrates the effects of the event
• Good practice: Joint Recording
Contemporaneous Records
Contemporaneous Records are the sources for evaluating,
supporting and successfully defending the issues of cause and
effect in a delaying and/or disrupting events. These records
shall be kept to ensure that they are:
• Contemporaneous with the event
• Made by or based on information from persons with
knowledge of the event; and
• Sufficiently detailed to permit a third person to
reconstruct project activities solely from them.
iv. Measurement and Payment
Measurement
The measurement of executed works is usually as stated in the
Technical Specification in conjunction with the Technical
Drawings, and any preamble to the Bill of Quantity.
• No other method could be employed other than the
specified one.
• Attendance during measurement of executed works.
iv. Measurement and ….Cont’d
• Quantities: the method of measurement specified in the
Specification will be employed to quantify the value of the
executed works.
• Measurement of Lump sum Items: breakdown the items in
agreement with the Engineer.
• The breakdown shall be reasonable to compensate the
contractor for the executed works in that particular lump
sum items.
• Terms and conditions in Contracts stipulate the method of
payment to be employed in the contracts
• Method of payment could be either Stage Payment, Unit-
Price Payment, Lump Sum Payment or a combination of
these.
• Interim payments on a Lump Sum Contract requires a
breakdown of the Lump Sum item.
• This breakdown should give a detailed list of the
components of the work with a cost assigned to each
component.
• In the Unit Price Payment, a complete quantity take off
from the drawings be checked and discrepancies be
corrected.
• Work installed must be measured on a daily basis recorded
in the Inspector and Project Office.
• Lump sum items in a Unit Price Contract shall be broken
down; especially, if the amount is large and construction
period is extended over several days.
• The Engineer is entitled to correct or modify the
contractor’s monthly statements; he will not certify the
payment until the amount exceeds the minimum limit set
in the Contract.
• During the construction period, all payments are deemed
provisional or interim that could be corrected anytime until
the final account is made.
• Once interim payments are certified by the Engineer, the
Employer are not allowed to correct or modify; but forward
its comments to be considered in the ensuing payments.
• Payment will be effected to the contractor as per the actual
measurement taken.
• For payment purpose, the customary way of measuring a
specified item is to measure the whole executed works of
that item and deduct the amount paid for that particular
item. This will avoid errors made earlier.
• Employers are not entitled to pay any money to
subcontractors except for nominated sub-contractors (if the
main contactor fails to pay)
• Payment shall be due to the Contractor within the agreed
period of time; interest will be paid otherwise.
• Failing to pay the contractor may entitle the contractor to
reduce the volume of work, suspend and later terminate
the contract.
Fluctuations
• Fluctuation is the rise or fall of the prices of construction inputs; like
material, labour and/or equipment during the course of construction.
• In longer time contracts, the risk is allocated mostly to Clients using a
prescribed formula or direct reimbursement. Base/Current indices or
prices.
• Any change in legislation after the contract could be considered to adjust
the price of the contract by reimbursing the contractor with an equal
amount
Excersice -1
The contract for an asphalt road construction project identified
cement, bar and equipment as adjustable items. The duration of the
contract was 2 years. The project suffers delay due to Employer’s risk
event (late removal of obstructions) for 12 months. However, within
the contract period, the price of bitumen rose to 3 folds of what the
price was at the making of the Contract. Can the contractor be
compensated for the rise of the price of bitumen? If yes, how?
Provisional Sum and Prime Cost Sum
Provisional Sum
• are used for work that has not been finalized or for costs
unknown at the time the contract is prepared.
• Does not necessarily imply any obligation on the part of the
employer to spend them.
• The contract administrator must issue instructions to spend
these sums.
Prime Cost Sum
• For works by specialized firms like, nominated sub-
contractors that usually have been selected prior to the main
contractor.
• The contractor has no control over the pricing of this work,
• Prime cost is taken to mean that the contractor will be fully
reimbursed for any valid expenditure.
 Any changes to contracts from what has been anticipated at the
making of the contracts could be regarded as variation.
 According to Sub-clause 51.1 of the GCC of FIDIC or Sub-clause

15.1 of the GCC of PPA, variations are an increase or decrease in
quantity, omission, change in character or quality, change in
levels, lines, positions, change in sequence or timing of
• Causes of Variations: Variations could arise either from the
insufficiency of the original design, change in mind by the
client, as a result of mitigation measures, etc.
• Which Variations do require Order? Except for quantity
decrease or increase of certain items of the work.
• Sub-Clause 15.2 of the PPA GCC requires instruction to be
given in writing. Oral instruction should also be confirmed
in writing ASAP.
• If the Contractor sends confirmation of oral instruction and
same is not contested by the Engineer, it will be deemed as
instructed in writing.
• Sub-Clause 15.3 of the PPA GCC requires the Engineer to
notify the Contractor about the modification and instruct
him to submit a proposal so that after review of the
Contractor’s proposal the Engineer either issue a variation
order or reject.
• Whereas FIDIC does require the Engineer to instruct the
Contractor to carry out the varied works without having
any proposal from the contractor’s side.
• Absence of Variation Clause: contractors would be entitled
to negotiate a new rate for that piece of work of variation.
• Scope of Variations : Within the general scope of the
contract and that does not go to the root of contract.
Valuations of Variations
• Valuations according to Sub-Clause 52.1 of the GCC of FIDIC
1987 Edition, unless the Engineer find it the contract rate as
inapplicable, it will be used for valuation of the varied
work. Further stated that if there is no applicable rate in
the contract for varied work, the rate in the contract will be
used as basis for establishing a new rate.
• The PPA General Conditions, Sub-Clause 15.5 states the
contract rate will be applicable for varied works of similar
character or executed under similar conditions. However, it
does not state the use of the contract rate as a base for
valuation of varied work for that no rate has been fixed in
the contract.
Exercise - 2
A dredging company entered into a contract agreement with
the Addis Ababa Water and Sewerage Authority for the
dredging, supply & installation of a 3.5km long pipe line.
The contract requires the contractor to dispose the excavated
material to a nearby river but without having any
environmental impact.
However, while the construction has been going on, the
contractor receives an instruction from the Engineer in which
he is instructed to fill, compact and work on landscaping on a
designated place.
Exercise - 2
Therefore, please answer the following
1. Discuss if this a variation
2. Is this variation within the scope of the contract?
3. Can the Engineer instructs the contractor?
4. How can we valuate this work?
Exercise - 3
A contractor has signed a contract agreement with the Road
Authority for the construction of a gravel road from A to B.
During the construction period, an administrative decision was
made by the government to change all gravel roads under the
Federal network to Asphalt (DBST); and this contractor is issued
a variation instruction.
Does the contractor has the right to object this variation? Is it
out of scope of the works?
Exercise - 4
An Employer signed a contract agreement with a contractor for
the construction works of a road project. However, as the
Employer was late in appointing a supervising Engineer,
delegated its own staff to act as an Engineer who issued a notice
to commence. Later after 6months, a Supervising Engineer is
assigned who replaced the acting Engineer. During the period,
the Contractor were not given lands for quarry, no approval for
setting out works, and accordingly claimed for EOT and
submitted to the new Engineer who determined an EOT and
recommended for award. However, the client instead of
awarding an EOT, decided to shift the Commencement date to be
with that of the Engineer. How do you see it?
• Contractors are expected to achieve reasonable progress of
works to enable them complete the project on time.
• Contractors too slow shall expedite the progress of works
and comply with the time for completion.
• If slow progress of works is solely due to the Contractors’
fault, Engineers are required to instruct the contractor to
expedite the progress of the works.
• Care should be taken before issuing instruction to
accelerate; as acceleration cost is substantially higher than
prolongation cost, if the Contractor is entitled for any
denied extension of time claim.
vii. Delays
Types of Delay
 Excusable and Compensable Delay: A delay for which the
Client is entirely responsible; like possession of site.
 Excusable but Non-Compensable Delay: A delay beyond
the control of both parties; like Adverse Weather,
Earthquake. It is also termed as Delay due to Neutral
Event
 Inexcusable/Culpable Delay: A delay for which the
Contractor is entirely responsible; like delay due to poor
progress;
 Concurrent Delay: at-least two events occurring at the
same time of which one of them is Employer related delay
while the other is Contractor’s own delay;
 Parallel Delay: at-least two events occurring at the same
time but unlike Concurrent Delay, here the responsible
party for the events are either the Employer or the
Contractor; not both.
• Liquidated Damages – a genuine covenanted pre-estimate
of loss.
• Claimed without proof of loss
• There is no bar to limit a genuine pre-estimate loss in non-
commercial projects.
• When to challenge the Employer on the excessive amount
of LD?
• How is it calculated? – usually the maximum to be
recovered between one third and two-third of the Contract
Period
• Penalties– to force the contractor to complete in terrorem.
• It is intended to penalize the defaulted party
• Can excessive liquidated damage amount be considered as
penalty?
• Does the court interfere in the commercial bargains?
Suspension is defined as a stoppage of work on any or all
activities in all or part of the works for a certain duration.
Major Causes of Suspension
–Delay in Payment;
–Design Revision;
–Availability of Obstructions.
Effects of Suspension
–Reduction of Rate of Progress
–Stoppage of work
–Termination of Contract
 The Contractor will suspend progress of works or any part
thereof up on the order of the Engineer.
 Obligation to protect the works during the suspended
period rests on the contractor
 The Contractor is entitled for an extension of time and any
additional cost as a result of suspension of works unless
the suspension is due to the fault of the contractor, by
reason of climatic condition or necessary for the safety or
proper execution of the works.
 If suspension last for 120days (according to Sub-Clause
20.5, PPA) or 84 days (Sub-Clause 40.3, FIDIC 1987) then the
contractor by giving notice may terminate (if all works were
suspended) or omit (if parts of the works were suspended)
 However, in PPA General Conditions, Sub-Clause 20.3
imposes a condition precedent for a notice to be served by
the contractor within 30 days after receipt of the order;
which otherwise no payment would be due.
 Besides, it shall be highlighted that in PPA General
Conditions, Clause 20 it is not clear whether the contractor
will be entitled for extension of time if he suspended the
work for instance due to normal climatic condition.
 On the other hand, FIDIC 1987 Sub-Clause 40.1 is clear that
the Contractor is not entitled both extension of time
and/or additional cost for climatic condition, contractor’s
fault, suspension necessitated for the proper execution of
the works or for the safety of the works.
x. Default of Parties
Defaults of Contractors
 Has repudiated the contract
 persistently and flagrantly neglecting to carry out his
obligations under the contract
 becomes insolvent, involuntary bankruptcy, liquidation or
dissolution
5.2Construction Period
 notwithstanding that the other party has committed
no fault, when the contract has become useless to
the public service or unsuitable for its requirements
- Ethiopian Civil Code Article 3180.
 Sub-Clause 63.1 of the FIDIC (1987) GCC or Sub-
clause 21.2 of PPA General Conditions.
Default of Employer
• failing to pay the contractor entitle him to suspend and later
terminate the contract.
• outright refusal to give possession in the first place
• Delay in giving possession of site and omission of the work
together may entitle the contractor to terminate
• wrongful ejection of the contractor from the site
 where an intervention by the employer has its effect to upset
the general economy of the contract - Ethiopian Civil Code
Article 3182.
 Sub-Clause 69.1 of the FIDIC (1987) GCC or Sub-clause 21.3 of
PPA General Conditions.
Exercise - 5
An Employer for a building construction contract arranged a
supply of cement from cement factories to the contractor. For
that they signed a supplementary agreement that the cement
should only be used for the project, and not complying with this
condition would result in the void of the supplementary
agreement and the money for the cement will be taken away
forthwith. Then when the client learnt that the contractor used
so much of the cement to other projects, after having the advise
from the Engineer, gave notice to termination and subsequently
terminated the contract. How do you see the Employer’s action?
5.3 Post Construction Period
i. Taking Over
ii. Statement At Completion
iii. Defect Liability Period
iv. Final Account
v. Additional Works and Change Orders
Taking Over
• The project has to be substantially completed before it is
taking over provisionally.
• Preparation of snag list (arrangement for joint inspection)
• Substantial Completion shall be the stage the Employer will
get the service of the project (like; the road is opened for
traffic and all the required service the road is to furnish is
completed).
• In most conditions of contracts, prior consent of the
Employer is required for issuing the certificate.
Statement at Completion
• All measurements of the executed works must be final
• Price indices of each adjustable material shall also be final
Final Account
• It includes all outstanding payments including approved
claims/disputed amount/etc
• Letter of discharge that relieve the Employer from any
liabilities thereafter.
Retention Money
• The main purpose of retaining a certain percentage of the
certified sum from each IPC is for the employer to
guarantee for the rectification by the contractor of any
defects observed during the performance of the contract
but completed and certified section and during the defect
liability period.
• Half of the Retention Money could be released after
provisional taking over.
• Could be replaced by an Unconditional Bank Guarantee.
Defect Liability Period

• Usually one year or 365 days
• In Design-Bid-Build Contract, the purpose of DLP is to
warrantee for any patent defects (defects from poor
workmanship).
• It goes to 3 to 4 years if it counts to design related defects.
• Valid performance bond and insurance
Can we order a variation during the defect liability

period?
THANK YOU!

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CONSTRUCTION MANAGEMENT INSTITUTE

Governing Law of Contract

Derivatives of Fixed Sum Contract

• Fixed Price Incentive Fee (FPIF)

• Fixed Price Award Fee (FPAF)

• Fixed Price Economic Price Adjustment (FPEPA)

• Purchase Order (PO)

Fixed Price Incentive Fee (FPIF)

Fixed Price Award Fee (FPAF)

Fixed Price Economic Price Adjustment (FPEPA)

Purchase Order (PO)

• Simplest Contract Type.

Advantages of Fixed Sum Contract

ii) Design – Build Contracting

ii) Design – Build Contracting

Construction Sub- Design Structural

Management Quantity Design Structural

4. Construction Contract Documents

4. Construction Contract Documents

• These documents are general and be used for all

4. Construction Contract Documents

There are three phases in a Construction Contract:

• Failure to grant possession of site will entitle the contractor for

• But outright refusal of granting possession of site may be

• Works must be insured in the joint names of the Employer and

Clause 14.1 of the FIDIC 1987 Edition GCC requires a Work

 According to Sub-clause 51.1 of the GCC of FIDIC or Sub-clause

Defect Liability Period

Can we order a variation during the defect liability

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