ARAB ACADEMY FOR SCIENCE, TECHNOLOGY AND

MARITIME TRANSPORT

COLLEGE OF ENGINEERING & TECHNOLOGY

CONSTRUCTION & BUILDING ENG. DEPT.

CB514
CONSTRUCTION CONTRACTS & LAW

Prof. Hesham Bassioni

PhD, MBA, ME, BSc, PMP

1st Semester 2024/2025

R0
 Table of Contents

Introduction .................................................................................................................... 1
Contract Validity Elements ............................................................................................ 5
Contract Types in Terms of Payment Method ............................................................... 6
Project Delivery Systems (PDS) .................................................................................. 16
FIDIC Suite of International Contracts ........................................................................ 20
Tendering Methods ...................................................................................................... 23
Tendering Process/Procedure....................................................................................... 25
Strategic Alliances in Tendering .................................................................................. 29
Contractor Selection Methods for Tendering Award................................................... 30
Public Private Partnership (PPP) ................................................................................. 32
Contract and Tender Documents ................................................................................. 33
Construction Claims..................................................................................................... 39
Dispute Resolution ....................................................................................................... 41
Civil Code and Administrative Law in Egypt.............................................................. 43
Highlights from the Egyptian Civil Code .................................................................... 44
Highlights from the Egyptian Government Procurement Law .................................... 47
 CB514 – Construction Contracts & Law

Introduction

• A project is a temporary endeavour undertaken to deliver a product, service or result.

• Project Management is concerned with meeting project objectives.
• Project objectives can be divided into main and Scope Quality
objectives:
✓ Scope
✓ Time
✓ Cost
✓ Quality
• A trade-off exists between these main objectives, Time Cost
such that the improvement of one can be at the
expense of the others.
• Other goals include
✓ Safety
✓ Environment
✓ Society and community
✓ Stakeholders’ interests
✓ Project teamwork and harmony
• To achieve these project objectives, several parties interact through different kinds of
contractual agreements.
• Project Management processes of Planning, Executing, and Monitoring & Controlling can be
further elaborated in more practical terms as following:

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• Project parties/stakeholders include:

1. Owner
2. Consultant
3. Contractor
4. Other parties/stakeholders

1. Owner:
- An owner can be a public entity (governmental or non-governmental) or a private entity or a
person
- Responsibilities of the owner include:
a) defining the needs and criteria of project (e.g. production of a refinery)
b) defining any special requirements for the project (e.g. nominated supplier)
c) studying the business case and feasibility of the project
d) setting the project budget, required completion dates and milestones
e) providing financing to the project
f) setting the level of involvement of each party including the owner
g) follow-up the progress of the project
h) procure and acquire the services and products of other parties

2. Contractor:
- Owner can choose to contract the project to one prime contractor or several work package
contractors

- Responsibilities of the contractor include:

a) provision of materials, equipment, manpower, financing, services, or know-how in
accordance to contract documents, specifications and designs
b) preparing / providing shop drawings, method statements/risk assessments, quality &
safety plans, and submittals
c) implementing method statement, quality and safety plans
d) preparing an accurate estimate and realistic schedule
e) delivering project on time, within budget and with specified quality and scope.

- Responsibilities of Contractor Technical Office

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3. Consultant:
- Depending on the type of project, consultancy services can be utilized.
- Sometimes called the Engineer, Designer, or Architect (in case of construction projects)
- The project can be one or multiple consultants
- Responsibilities of the consultant include:
a) provision of specialized technical, contractual, or management expertise
b) producing design alternatives
c) conducting feasibility studies
d) providing detailed designs (e.g. architectural, structural, mechanical and electrical) and
specifications to meet owner’s requirements
e) reviewing and approving shop drawings, method statements/risk assessments, quality &
safety plans, and submittals
f) conducting on site or periodic inspections / supervision
g) reporting progress to owner and oversee contractor payments

4. Other Parties:
Subcontractors/Suppliers:
- contracts with the prime contractor to perform some specialised work
- can usually perform work faster and more efficient than the contractor
- subcontractors/suppliers can offer prime contractors specific experiences, additional
resources or financing

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- work of subcontractor/supplier is the responsibility of the prime contractor in terms of the

contractual relationship between the owner and contractor
- a nominated subcontractor/supplier or supplier can be chosen by the owner for a special
quality or experience
- extensive subcontracting can complicate project operations and coordination, create
disputes, and decrease the contractor’s profit margin

Many other project stakeholders exist that have some type of effect on projects, such as:
- banks financing projects
- governments providing regulations and a legal, political and economic environment for
the project
- labour organisations, media, the community, …etc.

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Contract Validity Elements

‫أركان صحة العقد‬

• The legal definition of a contract is “a mutual agreement between two or more parties to do
something in return for something else”.

• Contracts should satisfy the following elements:

a. Capacity or competent parties. ‫األهلية‬

- for a party to enter into a contractual relationship s/he has to be competent, i.e. has to have
the capacity of signing the contract.
- minors, intoxicated, or mentally incompetent persons do not have the capacity or
competence of entering a contractual relationship
- companies have the capacity to work in the type of economic/commercial activity they are
authorised/licensed to.
- authorized company personnel can sign on behalf of the company
- if an incompetent party signs a contract, it is considered legally void.

b. Consent or mutual agreement. ‫الرضا واالتفاق المتبادل‬

- offer and acceptance exists
- contractual parties are not forced, mistaken, tricked, nor deceived into the contract

c. Cause or consideration. ‫المقابل‬

- something is given in return for something else, i.e. the contractor offers his services
(including labor, equipment, and financing) in return for the owners compensation.
- must be fair, valuable and possible.

d. Legal subject matter. ‫قانونية موضوع التعاقد‬

- contract should be legal and not contradict with any prevailing laws, e.g. a building that is
being built in contradiction to existing laws or for an illegal purpose. Another example is
forcing an interest rate that is against existing common law.

e. Proper form. )‫شكل العقد (ركن تطبيقى وليس ركن قانونى‬

- contracts should be in writing (i.e. not oral contracts)
- oral contracts accepted in many international laws but problematic
- contracts should have a certain form (explained later in the course), e.g. contain: general
conditions, special conditions, drawings, specifications, addenda and agreement.

• Legal consequences of Letter of Acceptance ‫ خطاب القبول‬/ Letter of Intent ‫خطاب النوايا‬

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Contract Types in Terms of Payment Method

‫أنواع العقود من حيث طريقة السداد‬

• Many slightly different classifications of contract types exist, but they all more or less come
under the following main categorization:

Construction Contract
Types

Price-based contracts Cost-based contracts

(e.g. lump sum & unit price)

Bill of Quantities (BOQ) in Price Based Contracts

• The BOQ is usually used in price based contracts to: define project scope; and to assist in the
pricing of contract during the tendering phase
• Following are examples of BOQs

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• Owner / Consultant produce an “Unpriced BOQ” in the tender package

• Each of the tendering contractors price the BOQ to produce a “Priced BOQ” as part of their
financial offer

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1. Lump Sum Contract ‫عقد السعر االجمالى او المقطوعية‬

- Contract is based on a single fixed sum for the project, regardless of the actual quantities performed.

- Lump sum however can be either categorised as lump sum with fixed price (also called firm fixed
price FFP) or lump sum with adjustable price.

- Adjustments can be based on financial incentives related to agreed metrics in terms of cost, schedule,
or technical performance (fixed price incentive fee contracts FPIF) or can be based on provisions
to adjust contract price based on changed conditions such as inflation changes or cost increases of
specific commodities (fixed price with escalation or fixed price with economic price adjustment
contract FP-EPA).

- In a normal lump sum contract (FFP), the contractor is responsible for both price fluctuations and
changes in quantities, as per contract documents. The contractor can use the quantities in the Bill
of Quantities (BOQ) or estimate his own quantities and own BOQ. In either case, this is his
responsibility and he assumes its risk.

- Lump sum contracts are suitable when projects are well defined, designs are completed, and a
minimum number of variations / changes are expected, and thus, the project requirements should
be well defined and designs and quantities accurately completed.

- Another case where lump sum contracts are used is the contrary, where the scope of work is difficult
to define (e.g. demolition or repair works) or highly technical and specialised (e.g. chemical process
plants). Although cost-based contracts can be suitable for such contracts, owners might not have
enough trust in the contractor’s accounting system and prefer a lump sum contract.

- The advantages of lump sum contract is the fixation of the final price, except for owner changes,
that is preferential to owners with fixed budgets. Contractor’s interest is to control his costs and
complete the project on-time to avoid additional overhead costs affecting profit margins.

- The increased risk bared by the contractor can cause quality and performance problems. Contractors
can cut costs in various vital areas to increase their profits, thus affecting the quality of work
performed. Furthermore, contractors inflate their prices when changes are requested of them. A
problem inherent with this type of contract is that it takes relatively longer time to prepare the full
design and accurate quantities.

- Payments are made according to a ‘Schedule of Values’ or ‘lump sum breakdown’ in the form of
amounts, weights or percentages for the project (breaking down the lump sum into payment
milestones, different than contractual completion milestones).

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2. Unit Price Contract ‫عقد سعر الوحدة او الفئات‬

- Contract agreement is on the unit price of each cost item and not its quantity, thus the contractor is
paid the agreed unit price times the actual quantities, as per actual performance.

- The risk of overrunning the unit price is that of the contractor, whereas, the risk of actual quantities
is that of the owner. However, when the actual quantities (or total price of an item) vary greatly
some contracts and laws allow the modification of the unit price.

- Project design might not be complete at the time of tendering and signing the contract, and thus the
bill of quantities (prepared by the owner/consultant) in this contract type contains approximate
quantities for guidance to contractors.

- This type of contract is also called measurement, admeasurement, remeasurement, unit-rate, or bill
of quantities contract. Sometimes termed as fixed unit price contract.

- A variation is the Schedule of Rates contract, which is a schedule of the work times without any
quantities, only unit prices for work items. Can be used for repair and maintenance works or for
emergency/contingency matters. Problems in timeframes for price validity, difficulties in
evaluating final contract price and in selecting contractors.

- Another variation is the Time & Material Contracts (T&M). Often used for staff augmentation,
acquisition of experts, and any outside support when a precise statement of work cannot be quickly
prescribed. Unit labor or material rates can be present by the buyer and seller.

- The contractor is paid in a periodic manner, according to the actual quantities performed within a
certain period. Therefore, standardising the method of measurement is essential in such contracts.

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- Advantages include: widely used and well understood; provides flexibility for owner changes;
overlapping of design and tendering allows the project to be completed in shorter time.

- The problem with this type of contract is that the final price of the project is not known until the
project ends, which can pause as a problem to owners with restricted or complicated funding
procedures.

Price Adjustment/Escalation: ‫تغير او تصاعد سعر العقد‬

- Prices in both Unit Price or Lump Sum contracts can be adjusted or escalated based on certain
conditions (usually economic conditions) such as inflation during the life of the contract.

- A typical formula used for adjustment/escalation is the following (FIDIC Red Book 1999):
𝐿𝑛 𝐸𝑛 𝑀𝑛
𝑃𝑛 = 𝑎 + 𝑏 + 𝑐 +𝑑 +⋯
𝐿0 𝐸0 𝑀0
- Whereas:
The adjusted contract / work item value = Pn × The original contract / work item value
Pn is the adjustment multiplier
n is the period within the project life, being month, year, or other period.
a is a fixed coefficient representing profit and overheads portion of the contract / work item cost.
b, c and d, are coefficients representing the estimated portion of each cost element of the contract /
work item cost
Ln, En, Mn are the cost indices or reference prices for period n.
L0, E0, M0 are the base cost indices or reference prices on the base date.

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- The Egyptian Government Procurement Law enforces and escalation formula for contracts of
duration more than 6 months as following:
𝑀𝑛 −𝑀0
Value of compensation or discount =Value of work x Component Coefficient x ( )
𝑀0
Where M0 is the base price for cost component, and Mn is the price of cost component at time n.

‫ نسبة الزيادة أو‬x ‫ معامالتها‬x ‫قيمة التعويض أو الخصم = قيمة األعمال الخاضعة للتعديل من واقع عطاء المقاول عند التعاقد‬
‫الخفض فى األسعار‬

- Some private contracts adopted the following formula after the depreciation of the Egyptian
Pound, post the liberation of the exchange rate:

𝐸𝑛 −𝐸0
Value of compensation or discount =Value of work x Percent of Foreign Component x ( )
𝐸0
Where E0 is the base exchange rate of EPG/USD, and En is the average exchange rate in month n.

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3. Cost-Reimbursement Contract ‫عقد التكاليف الفعلية‬

- In this type of contract, the contractor performs the work and is then compensated or reimbursed for
his actual direct costs plus a fee for his overheads and profit. Also called a cost-plus contract

- The fee can be:

a. A fixed percentage of work
b. A fixed fee (cost plus fixed fee contract CPFF)
c. A fixed fee with a guaranteed maximum price (GMP)
d. A fixed fee with GMP and Target Costing (Bonus/incentive mechanism)

- Goodwill and trust are essential for this type of contractual arrangement

- Examples for using CP contracts are: emergency projects; repairs/refurbishment; maintenance

works; projects with major changes and owner requires full flexibility/control over works; or project
with major uncertainties.

- Usually used when it is difficult to identify the scope of work and enough trust exists in the
contractor’s accounting documentation. Also used when work is needed to start immediately or
when major changes are expected within the project. Contractor expertise can be used in the early
stages of the project.

- The problems associated with this type of contracts is the total cost of project is not known until the
end of the project and the absence of incentive for the contractor to control costs and perform in an
efficient manner, which is partially solved by GMP and Target Costing.

- Relevant contractual issues to be agreed upon include: differentiation of reimbursable costs and
fees; determination of contractor fee; required accounting documentation/procedure; administration
and calculation of fee payments; determination of GMP in a fair manner.

Target Costing

- In order to offer the contractor an incentive to perform efficiently and control costs in cost plus
contracts, a target cost is established with sharing of savings or excess costs.

- If the actual cost of performance is less than the target cost, the contractor shares the profit with the
owner. The same can be done for excess costs.

- Such contracts are termed cost plus incentive fee contracts (CPIF)

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Contractor Fee Diagrams

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Contractor Fee Diagram Example

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4. The Risk Factor in Contract Types ‫المخاطرة حسب نوع العقد‬

- Risk is inherent in projects and financial risk is greatly affected by the type of contract. The
contractor is at risk of profit reduction or conversion to a loss. The owner risks paying a total cost
greater than what he expected.

- The risk allocation between the contractor and the owner can be envisaged as per the following
figure, with the lump sum contract (Bill of firm quantities) and cost-plus with a percentage fee on
both ends of the spectrum.
Contractor's risk

Bill of firm quantities

Bill of approximate quantities

Schedule of rates

Cost-plus & GMP - target cost

Cost-plus & fixed fee

Cost-plus & % fee

Owner's risk

Risk Allocation According to Contract Type

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Project Delivery Systems (PDS)

‫نوع العقد حسب مسئوليات كل طرف‬

An important decision to be made by the project owner is the project procurement method, which is
sometimes called the project delivery options / methods or the project organisational options / choices
/ arrangements.

The main project procurement methods can be categorised as:

1. Traditional Method ‫الطريقة االعتيادية‬

- Sometimes referred to as the Design – Bid – Build (DBB) method.

- Design is conducted by the consultant / Owner

architect, without the contractor’s involvement.
The contractor is then awarded the contract, and
agrees to construct / build the project. Consultant /
Architect

- The relationships between the project parties can

be seen in the shown figure.
Contractor

- A contractual agreement exists between the

owner and his professional advisers (i.e.
consultant / architect) to design the project and Domestic Nominated
supervise its performance. Subcontractor Subcontractor

- Another contractual agreement exists between the owner and the contractor to construct / build the
project.

- Other contractual agreements exist between the contractor and subcontractors that can be either
domestic to the contractor or nominated by the owner.

- The owner’s professional advisors can be under the umbrella of a single consultant / architect
(whether in-house or subcontracted) or can each have a separate contract with the owner, and thus
co-ordinated by the owner’s staff.

- The owner can also have a single contract with one prime contractor or several contracts, each with
a separate prime contractor, such as on a package basis. Again, having several prime contractors
carry out the work requires high co-ordination from the side of the owner, and can might be better
managed by a project manager as can be seen in the following sections.

- All types of contract types are possible with this procurement method, but unit rate is the most
common with some use of lump sum.

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- The problems associated with the traditional method of project procurement rise from the increased
complication of some projects that proposes the increased involvement of the contractor at earlier
stages of the project. This led the way to alternative methods of procurement, as discussed in the
next sections. In addition, project stages are sequential, which can take extended periods of time.
This is particularly a problem with the increased costs of performance and interest rates, thus raising
the cost of financing.

- On the other hand, the advantages of this procurement method lie in the clear roles of various parties
and the wider control of the owner over the project (in terms of time, cost and quality). This control
is also extended to the project design to meet the owner’s original project requirements and criteria.

2. Design and Build ‫التصميم والبناء‬

- The contractor in this procurement method is responsible for both the design and implementation of
the project. The contractor also is responsible for planning, organising and controlling the project,
and in general, fulfilling the owner’s
project requirements and criteria. Owner

- The relationships between project parties

can be seen in the shown figure. Advisory
Consultant

- The main contractual relationship is

between the owner and the contractor for
Contractor
designing and delivering the project.

- The contractor can have contracts with

subcontractors (domestic or nominated) Domestic Nominated Design
and design professionals, or use in-house Subcontractor Subcontractor Professionals

staff and resources.

- The owner might still contract with a professional advisor, or use in-house staff, to oversee the
contractor’s designs and project implementation

- The contractor might enter into some type of joint venture agreement with a design professional to
deliver the design / build contract.

- The owner might have started the design with a design professional or architect, then the design is
completed by a design and build entity. The original design professional / architect is termed the
“bridging architect”, and the design and build entity assumes the full responsibility of the design.

- Design and build is sometimes referred to as a package deal or turnkey arrangement.

- Payment is usually on a lump sum basis, with intermediate payments related to phases of work or
milestones.

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- The main advantages of this method of procurement are that time can be shortened by design and
implementation overlap, responsibility of design and implementation is with a single entity thus
significantly reducing conflicts and disputes.

- The main problems with this type of procurement are its inflexibility to owner’s changes (usually
quite expensive in this arrangement), the possible reduction in quality when hidden cost savings
occur, and the inherent conflict of interest between the roles of the designer and contractor.

- In the oil and gas industry and with process and offshore projects Engineering, Procurement and
Construction (EPC) contracts are common where contractors offer design, procure and build the
project in a manner similar to turnkey projects.

3. Management Contracts

- Increasing in its popularity since the 70s, the management contracts method of procurement depends
on the owner hiring a management contractor to manage and coordinate the design and
implementation of the project. The management organisation does not usually execute any of the
design or project works, which is usually distributed into work packages.

- There are two main variations of management contracts: management contracting and project
management.

Project Management: ‫استشارى إدارة المشروع‬

- A contractual relationship exists with the

Owner
project manager to organise, supervise, and
manage project works in co-operation with the
owner’s design professionals. Project
Technical
Management
Consultant
Consultant
- A contractual relationship exists with the
contractor of each work package with the
owner, i.e. the project manager acts basically
WP1 WP2 WP3
as an agent to the owner. Contractor Contractor Contractor

- The owner usually contracts directly with a design professional.

- The payment arrangement between the project manager and owner is usually on a cost-plus fee
basis, whereas the contracts for each work package contractor is through normal lump sum or unit
rate contracts.

- The advantages of this procurement arrangement includes: the close integration of project work to
the management of the project; close cooperation between project manager and designer helps
overcome technical and managerial obstacles; and design and implementation are performed in

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parallel and work packages are performed in succession as the design of each is completed, thus
shortening the project time.

- The main problems encountered in this method of procurement include: presence of more than one
consultant and a number of contractors; and the final price of the project is uncertain until the last
work package is contracted.

Management Contracting: ‫مقاول إدارة المشروع‬

- A contractual relationship exists with the

Owner
management contractor to organise, supervise,
and manage project works in co-operation with
the owner’s design professionals.
Management Design
Contractor Professional
- The work package subcontractors enter into a
contract with the management contractor.

- The design professional is usually employed by

the owner. If the design professional is employed WP1 WP2 WP3
by the management contractor, the procurement Contractor Contractor Contractor

scheme is called design manage.

- The management contractor is similar to the contractor of the traditional procurement method,
except that he usually does not perform any of the work and is involved in the project from the
beginning stages, including design.

- The management contractor can use lump sum or unit price contracts with each of the work package
contractors.

- Advantages of this type of procurement include: the sharing of work among several contracts
including related risks (especially in large projects); time saving by overlapping design and
implementation and from project manager’s experience in carrying out the project; the involvement
of the project manager’s practical knowledge in the design; and the ability of entering into separate
firm price contracts for different work packages.

- The problems associated with this procurement arrangement include; the uncertainty of the final
project cost; the risks created due to the absence of an overall tender price for completing the works;
and the need for high coordination among work package contractors.

- Management contracts are usually used when an early start to the project is required, design and
implementation are expected to overlap, project is technically complex and changes are expected
throughout the project thus needing the expertise of the project manager, and when the owner has
insufficient staff or specialisation for supervising the project and a considerable number of
contractors are expected to be coordinated in the project.

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FIDIC Suite of International Contracts

The Federation Internationale Des Ingenieurs Conseils (FIDIC) is the International Federation of
Consulting Engineers based in Geneva, Switzerland, founded in 1913 and currently has 82 member
associations.

FIDIC has issued many international documents assisting in the management/procurement of

international projects and has become an international norm to many international projects. Some of
the FIDIC publications and selection process among them according to FIDIC (2016):

Selection of FIDIC Contracts – (Source: FIDIC 2016)

FIDIC Conditions of Contract for Construction – Red Book – First Edition 2017:

1. General Provisions
- Definitions, interpretation, communications, law and language, priority of documents, contract
agreement, and assignment.
- Care and supply of documents, delayed drawings or instructions, employer’s use of contractor’s
documents, contractor’s use of employer’s documents.
- Confidential details, compliance with laws, joint and several liability, limitation of liability and
contract termination.

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2. The Employer
- Right of access to the site
- Assitance
- Employer’s personnel, and employer’s financial arrangements
- Site Data and Items of Reference
- Employer-Supplied Materials and Employer’s Equipment

3. The Engineer
- Engineer’s duties and authority, delegation, instructions
- Replacement of the engineer
- Determinations
- Meetings

4. The Contractor
- General obligations
- Performance security, contractor’s representative, subcontractors, co-operation, setting out, safety
procedures, quality assurance, site data, and sufficiency of the accepted contract amount
- Unforeseeable physical conditions, rights of way and facilities, avoidance of interference, access
route, transport of goods, contractor’s equipment, protection of the environment, electricity, water
and gas
- Employer’s equipment and fee-issue material, progress reports, site security, contractor’s
operations on site, and archaeological and geological findings

5. Subcontracting
- Subcontractors
- Nominated subcontractors

6. Staff and Labour

- Engagement of staff and labour, rates of wages and conditions of labour, persons in the service of
employer, labour laws, working hours, facilities for staff and labour
- Health and safety, contractor’s superintendence, contractor’s personnel, records of contractor’s
personnel and equipment, disorderly conduct, and key personnel

7. Plant, Materials and Workmanship

- Manner of execution, samples, inspection, and testing
- Rejection, remedial work, ownership of plant and materials, royalties

8. Commencement, Delays and Suspension

- Commencement of works, time for completion, programme, and extension of time
- Delays caused by authorities, rate of progress, delay damages, suspension of work, and
consequences of suspension
- Payment for plant and materials in event of suspension, prolonged suspension, and resumption of
work

9. Tests on Completion
- Contractor’s obligations and delayed tests
- Retesting and failure to pass tests on completion

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10. Employer’s Taking Over

- Taking over of the works and sections or parts of the works
- Interference with tests on completion and surfaces requiring reinstatement

11. Defects Liability

- Completion of outstanding work and remedying defects, costs of remedying defects, extension of
defects notification period, and failure to remedy defects
- Removal of defective work, further tests, right of access, contractor to search, performance
certificate, unfulfilled obligations, and clearance of site

12. Measurement and Evaluation

- Works to be measured, and method of measurement
- Evaluation and omissions

13. Variations and Adjustments

- Right to vary, value engineering, variation procedure, payment in applicable currencies,
provisional sums, and daywork
- Adjustments for changes in legislation and for changes in cost

14. Contract Price and Payment

- Contract price, advance payment, application for interim payment certificates, schedule of
payments, plant and materials intended for works, and issue of interim payment certificates
- Payment, delayed payment, payment of retention, statement at completion, application for final
payment certificate, and discharge
- Issue of final payment certificate, cessation of employer’s liability, and currencies of payment

15. Termination by Employer

- Notice to correct
- Termination for contractor’s default, valuation and payment
- Termination for employer’s convenience, valuation and payment

16. Suspension and Termination by Contractor

- Suspension and termination by contractor
- Contractor obligation and payment after termination by contractor

17. Care of the Works and Indemnities

- Responsibility and liability for care of the works
- Intellectual and industrial property rights
- Indemnities by contractor and employer, and shared indemnities

18. Exceptional Events

- Definition
- Notice of Exceptional Event, duty to minimize delay, and consequences of an Exceptional Event
- Optional termination, and release from performance under law

19. Insurance
- General requirements and insurance to be provided by the Contractor

20. Claims, Disputes and Arbitration

- Claims, and claims for payment and/or EOT
- DAAB, amicable settlement, arbitration, failure to comply with DAAB, or no DAAB in place

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Tendering Methods
‫أنواع المناقصات‬

1. Open Tendering ‫المناقصة المفتوحة او العامة‬

- Open to any contractor, thus ensuring fair competition.

- Advertising for the tender is conducted in newspapers or any other media.
- Bid bond or deposit is required to cover costs of tender documents, but mainly to ensure seriousness.
- Not necessarily to choose lowest price.
- Contracts can be of any payment type from a payment standpoint.
- The norm in most governmental agencies but is decreasing in its use in some countries.

Advantages:
- No favouritism and encouragement of competition and new contractors.
- Preventing contractor rings and agreement among tenderers.
- Ensures lower costs in the short term. Argued by some that it causes increase in costs in the long
term
Disadvantages:
- Risk of inexperienced firms winning contracts and causing various problems over the life of the
project, and probably raising the price of implementation in the long term.
- The success rate of winning tenders is decreased with the increased number of firms competing for
contracts, which raises the cost of preparing tenders as a percentage of project cost.
- Tender lists can be quite long and problematic in assessing.
- Larger and more experienced contractors tend to avoid open tendering, unless forced to.

2. Selective Tendering ‫المناقصة المحدودة‬

- A certain number of contractors are invited to tender (say 4 – 8).

- The selected contractors are supposedly seen as suitable for the project.
- Sometimes called single stage selective tendering.

Advantages:
- Ensures only capable and approved firms enter into the tender.
- Tends to reduce the total cost of tendering in the long term than in open tendering.
Disadvantages:
- Tender values tend to be higher than open tendering in the short term.
- Possibility of agreement among contractors or of favouritism.

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3. Negotiated Tendering ‫الترسية بالتفاوض او االمر المباشر‬

- Can be with a single or group of contractors

- If with one contractor it is called nomination or direct order or single tendering ‫االسناد المباشر او التكليف‬,
where the general notion is that it has higher costs, but it is argued that it delivers better value /
quality and can possibly have lower long-term costs. An advantage is possible involvement of the
contractor in the early stages of the project.
- Can be with a group of contractors competitively negotiating in the same room ‫ الممارسة‬or separately,
in both cases bid costs are lowered significantly, which can have its effect on value / quality and
long term costs.

4. Serial Tendering ‫المناقصة المتتابعة‬

- Tender documents are for a phase of a project or for a project that is repeatable in similar projects.
- The contractor is promised subsequent phases or projects, where the prices are negotiated, and the
contractor is expected to provide competitive pricing as his costs and risks are lowered.
- Contractor can lower prices in subsequent phases or projects through: decreasing overhead by
distributing them over a longer period; cost benefits of the learning curve; lowering risks as the
contractor is more familiar with the project.
- The contractor is expected to give his/her best performance in each phase / project in expectation of
contracting the subsequent phase / project.

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Tendering Process/Procedure
‫ اجراءات المناقصة‬/ ‫خطوات‬

• The tendering process/procedure are the steps and guidelines for all contractual parties to follow
in order to select the contractor/supplier
• The process of tendering differs depending on the procedures of the owner.
• Following are examples of the tendering processes.

A. Egyptian Government Procurement Law

A summary of the tender process is:

1. Finding contractors to tender, either through advertisements in open tendering or creating a short
list in selective and negotiated tendering.
2. Contractors submit a technical tender and a financial tender including the bid bond and other
documents.
3. Only contractors who are judged as technically capable are selected for the next step.
4. The offer of best conditions and least price, or based on the best points is selected.

This procedure is based on the concept submitting the ‘Technical Offer’ with the ‘Financial Offer’
simultaneously, where:
- Companies are first filtered based on their Technical Offer
- Successful companies are evaluated to award the contract based on the best offer (Financial Offer
only OR combined Technical + Financial Offers)

B. FIDIC Tendering Procedure

The second edition of the FIDIC Tendering Procedure 1994 provides a suggested general outline of
the tasks and steps to follow in the tendering process. It is illustrated in the following figures.

This procedure is based on the concept of ‘Prequalification’, where:

- Companies are first filtered based on their ‘Prequalification Application’ (company capability to
perform the project only) >>> Prequalification
- Qualified companies are then permitted to the Tender Package and tender towards contracting the
construction works.
- In the tendering stage a Technical Offer (company capabilities + project vision) may or may not
be considered with the Financial Offer.

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FIDIC Tendering Procedure – 1994 a

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FIDIC Tendering Procedure – 1994 b

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FIDIC Tendering Procedure – 1994 c

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Strategic Alliances in Tendering

‫التحالفات االستراتيجية في المناقصات‬

• In the tendering process, strategic alliances between contractors can formed to present offers, sign
the contract, and perform the works.
• Strategic alliances between contractors can be in the form of: Joint Venture; Consortium; Sub-
Contracting.
• Joint Ventures (JVs) in business
terms are essentially a new
company that is formed
between two or more
companies to perform a single
or multiple projects. The new
company is a separate legal
entity, independent that the
companies forming it, i.e. the new company (the JV) can sign contracts and take upon obligations
independently than its shareholders (the original companies forming the JV). The newly formed
company has its separate commercial registration and management, albeit its general assembly
consists of the companies forming the JV.
• A Consortium is where each
company in the alliance signs
the offer and contract, and has
a joint and several liability
‫ المسئولية المتضامنة‬towards the
project owner under the
contract, i.e. the owner can sue
each or all alliance members
regardless of whom is
responsible for any damages or liability towards the owner. The alliance members have to sign a
consortium contract amongst themselves organizing / distributing responsibilities within the
project and specifying their liability towards one another in case of default of any party. The
consortium has a consortium leader ‫ قائد التحالف‬for communications with the owner (as a
representative) of the consortium, but usually has no other privilege not compensation for such a
role.
• The terms of JV and Consortium have long been confused between one another, to the extent that
the Fidic organization once used the term JV contract for the consortium contract among alliance
partners. This has been recently rectified in the 2017 version of the Fidic contract that is now
termed as “Joint Venture (Consortium)” contract. Due to this confusion the terms of
“incorporated” or “corporated” JVs to designate newly formed companies (the main concept of
the JV), and “non-corporated” JVs to describe consortiums.
• Companies can also be allied in a project by having one company be the main contractor and
others serving as subcontracts, in a third form of strategic alliances in projects.

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Contractor Selection Methods for Tendering Award

‫طرق اختيار المقاول للترسية في المناقصة‬

• Problems associated with Least-Price contractor selection ‫الترسية على المقاول‬

‫ األقل سعرا‬been long documented. The problem lies in the outliers in the
distribution of contractor offers usually being awarded contracts, in least-
price contractor selection, whereas, the median offer is statistically the
fairest value of the project contract. This can occur intentionally or via
estimating mistakes by the least-price contractor, and in both cases can
lead to decreased project quality or various problems within the execution of the contract.
• In a review of the UK construction industry, the UK government issued the Latham report in 1994
highlighting this problem, which led to other methods of contractor selection that take into
consideration both the financial and non-financial offers of contractors.
• Many methods have emerged worldwide to tackle this problem including selection by points
‫ الترسية باستخدام النقاط‬such as: Best Value (Weighted Evaluation) and Best Economic Value.
Other methods exist such as eliminating outliers or very low bids, or second least price selection.
Non-financial criteria can include purchase price or extended to other criteria such as life-cycle
cost, technical capability, experience, project approach, financial capacity, production capacity,
business size, warranty …etc.

• Numerical examples of these contractor selection methods can be shown in the following
example:

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• A Procurement Strategy )‫ استراتيجية المشتريات (التدبير‬for a project is determined in the Procurement

Planning phase of the project and in the early planning phases of the project and includes:
Contract type; Project Delivery System; Tendering method; Tendering process; and Contractor
selection method.

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Public Private Partnership (PPP)

• Public Private Partnership (PPP) ‫ شراكة القطاع العام والخاص‬and Private Financing Initiative (PFI) are
emerging contracts internationally that constitute some type of formal partnering between
governments and private sector. Design and build procurement method is usually used within the
Build Own Operate Transfer arrangement (BOOT) or in Build Operate Transfer (BOT). In this
type of arrangement the contractor totally finances the project, instead of the owner, and in return,
a concession period is provided to the contractor to own and operate the project for his own
financial benefit. The project is returned to the original owner after the concession period.

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Contract and Tender Documents

‫مستندات العقد والمناقصة‬

The Tender Package (also termed Tender Dossier or Tender Documents) is prepared by the owner
procurement team, with or without the assistance of a consultant. The tender package contains initial
contract documents in addition to Invitation to Tender and Instructions to Tenders. Further contract
documents coming into force within the execution of the project, and after the tendering phase, are
amendments and change/variation orders.

Contract documents describe the rights and obligations of contracting parties, the work to be
performed and how it is to be performed and paid for. Different contract documents can be combined
into a single document or produces as separate documents, such as the BOQ, Specs and Method of
Measurement. A similar example applies to the Agreement, General Conditions and Particular
Conditions.

Contract Agreement as a Central Contract Document:

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Following are brief descriptions of contract and tender documents:

1. Invitation to Tender / Bid

- A notification to contractors that a bid is requested.
- Can be in the form of a letter, advertisement or request for proposals (RFP), depending on the
tender method.
- Information should include: owner's name and address; name of project; brief description of the
project; name of architect / consultant; place where bidding documents are available; date of
tender closure; and time and place of tender opening.

2. Instruction to Tenderers / Bidders

- Provides guidelines for preparing and submitting tenders.
- Ensures that all bidders have the same information about the project.
- Information should include: defined terms / glossary; standard form for proposal; how to submit
requests for questions; site inspections; guidance for filling the proposal form; receipt and opening
of bids; withdrawal of bids, how contract is awarded; rejection of bids; and postponement of
opening proposals.

3. Agreement
- More sophisticated contracts have the Agreement as a centre point document with references to all
other contract documents, thus rendering them as a comprehensive whole, with documents
complementing one another.
- Includes information concerning the owner, contractor, date and place of project.
- Includes a definition of work in the project.
- Includes provisions for pricing method (e.g. lump sum, cost plus, … etc.), time allowed for
performance, and penalties for late delivery.
- Some standard forms of agreement exist such as JCT & NEC in the UK, AIA in the USA, and FIDIC
for international contracts.

4. Conditions of Contract
General Conditions:
- Conditions applied to projects in general, possibly to many projects of the same owner. They are
not particular nor specific to the project of concern.
- For example, definitions, duties and responsibilities of project parties, contract time, reporting,
payments, changes, schedule, claims, termination of contract … etc.
- Some standard forms for general conditions can be used, such as JCT & NEC in the UK, AIA in the
USA, and FIDIC for international contracts.
- General conditions can also be ad-hoc, developed specifically for or by an owner.

Supplementary/Particular/Special Conditions:
- Written to the needs of a particular project

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- For example, owner provided equipment, drawings, permits, special site requirements, offices,
signs, site access, site security, night work, insurance requirements, equipments or materials
provided by owner, … etc.
- Might contain modifications to general conditions, although this might not be advised as these
changes might not be legally or practically proven.

5. Bill of Quantities
- Itemized by all the work items required by the project. Can be itemized according to a standard
system, such as Construction Specification Institute (CSI) Master Format.
- Columns exist for units, quantities, unit price, and a total price for each item or sub-item.

6. Technical Specifications
- The specifications are for each work item in the Bill of Quantities.
- Provides qualitative and quantitative requirements for materials, equipment and workmanship.
- Can be descriptive, performance (e.g. tests), proprietary, or reference specifications.

7. Method of Measurement
- The manner in which works are measured, so as to minimize or eliminate disagreements on the
quantities of works.
- International standard examples are the Standard Method of Measurement 7th edition (SMM7).

8. Drawings
- Includes all types of drawings for project.
- For example, architectural, structural, mechanical, electrical, fire protection, landscape, plumbing,
shoring, … etc.

9. Queries and Tender Correspondences

- Often contractors provide queries and questions in the tendering process, which are formally
answered by the owner/consultant in the form of emails, faxes, letters, or in a tender
conference/meeting.
- The correspondences or minutes of tender conference/meeting are usually considered as contract
documents

10. Addenda
- Any changes, clarifications, or corrections to the project definition, conditions, designs or
specifications during the bidding period are sent to all bidder in the addenda (i.e. addenda to
contract)
- The Addendum can be declared at the tendering conference/meeting or separately.

11. Contractor's Bid / Proposal / Tender/Offer

- Can be in a standard form, as per owner's preference, to ensure similar bid formats and to highlight
any irregularities.

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12. Bonds / Securities

- Bid Bond.
A security to owner against contractor's refusal to sign contract or proceeding with project when
selected. i.e. ensures contractor seriousness.
- Performance Bond.
A security to owner against contractor's inadequate performance within the project.
- Payment Bond.
A security to owner against contractor's inability or refusal to pay labours and suppliers.

13. Letter of Acceptance

- A letter sent to the contractor, by the owner, formally accepting the contractor offer
- Can be in the form of a letter of intent, with some legal implications
- Might contain additional conditions or contractual information, which has legal implications

14. Notice to Proceed

- A letter from owner to contractor advising the date of which the contract time commences.
- Also termed as Notice to Commence.
- Starts the project clock with all its consequences.

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Contract Documents in the project execution phase include:

15. Amendment
- A contract amendment is an extension or modification to the original contract documents that can
contain modified or further conditions, new/additional work, further or modified completion
milestones, …etc.
- Has to be signed by both owner and contractor

16. Change/Variation Order

- Usually used to document/agree
on minor changes to the
contract in forms of additional
works, modified
specs/dimensions
- Contains a description of work
to be changed, in sufficient
detail
- Contains time/cost impacts of
changes
- Signatures of owner, consultant
and contractor

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Contract and Project Documents Over Construction Project Life Cycle

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Construction Claims
‫المطالبات‬

A Claim is a request by the contractor to the owner/consultant for what he/she thinks is his/her right
in terms of time and monies.

Triggers / Reasons for Claims:

Triggers / reasons of claims include, but not limited to:
- Changes in designs, specifications, dimensions, requirements, sequence of work by
owner/consultant
- Owner suspension of works
- Delayed owner payments
- Delayed owner/consultant approvals or issuance of drawings or necessary information
- Additional works
- Omitted works
- Increased quantities over contractual limits
- Force majeure
- Delays due to third parties / Acts of God
- Liquidated damages / penalties
- Unforeseen subsurface conditions
- Premature/early contract termination

Types of Delays in Construction Contracts and Prolongation Concept

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Important Issues with Claims

- Notices for claims and associated time periods
- Employer claims
- Types of Delays:
Excusable (compensable/non compensable) vs.
non excusable
- Concurrency of delays
- Float ownership
- Cost Calculation in claims
- Delay Analysis Methodologies (DAMs)

Common Types of Claims

- Cost claims
Can be quantified through:
✓ similar BOQ items
✓ Cost / Price breakdowns
✓ Cost Plus or Dayworks

- EOT/time claims
- Prolongation claims
- Omission claims
- Disruption / productivity claims

Common Contents of Claims

- Introduction
- Sequence of Events
- Entitlement
- Quantification
- DOCUMENTATION

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Dispute Resolution

- Once a claim is refuted, it develops into a dispute

- The following methods are most commonly used for Dispute Resolution:

1. Acceptance (Do Nothing) ‫التوافق‬

If one party accepts the other party’s position

2. Negotiations: ‫التفاوض‬
Both parties enter into negotiations with no outside intervention
Can be at project level or top management level

3. Consultation ‫االستشارة‬
One party consults an expert and might accordingly change its position towards the dispute
No formal ruling

4. Conciliation ‫ التوفيق‬or Mediation ‫الوساطة‬

The Conciliator is more of an interventionist who provide probable solutions to the parties
concerned, to settle the dispute. The mediator acts as a facilitator who helps parties in agreeing
by enabling communication between parties.
No formal ruling
Ends with a formal settlement agreement among parties

5. Adjudication ‫التحكيم غير الملزم‬

Adjudication board is formed such as the FIDIC Dispute Adjudication Board (DAB)
Adjudication board evaluates claims, counterclaims and evidence, similar to that of Arbitration
Adjudication board issues a ruling
The losing party can object to the ruling and thus make the Adjudication ruling non-binding

6. Arbitration ‫التحكيم‬
Arbitration Tribunal is formed of an odd number of arbitrators
Arbitration usually follows the procedures of an Arbitration Center or Arbitration Law / Act
Arbitration Tribunal evaluates claims, counterclaims, and evidence
Arbitration Tribunal issues a ruling
Individual country laws / acts can make Arbitration rulings binding and legally enforceable
Possible annulment of an arbitral award by a court

7. Litigation ‫التقاضى‬
In-court procedures by both parties according to country law
Levels of litigation
Final ruling in litigation
Cost and time of litigation

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- Negotiation, Consultation, Conciliation, and Mediation, Adjudication, and Arbitration are

considered Alternative Dispute Resolution (ADR) methods.
- ADR employ non-adversarial (i.e. out of court) ways to adjudicate legal controversies.
- Other forms of ADR exist such as mini trials, neutral evaluations, settlement conferences, and
community dispute resolution programs.

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Civil Code and Administrative Law in Egypt

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Highlights from the Egyptian Civil Code

• Construction contracts are discussed in the Egyptian Civil Code – Part 3 – Chapter 1. The
following are highlights from this law:

A. Contractor:

- Contractor is responsible for the quality of the work, even if part of it is done or supplied by
another party.

- Contractor has to remedy any defective work, or work that contradicts with the construction
contract.

- Owner has a right to terminate contract if contractor does not remedy after owner's notification, or
if remedy is impossible.

- The construction supervising construction and the contractor are jointly responsible for the
constructed facility for a guarantee period of 10 years starting from the project takeover. An
architect or design consultant who did not supervise the works, are not accountable for the 10 year
guarantee period.

- Any clause in the contract that decreases the 10 year guarantee period is considered void, unless
the life of the facility is less than 10 years.

- A 3 year period exists for owner to present a legal lawsuit against the contractor starting from his
knowledge of the defect or failure of the facility.

B. Owner:

- Owner has to takeover the facility in the earliest possible time after construction is finished. A
legal takeover can take place if the facility is complete, contractor sends a notification to the
owner to takeover, and owner refuses takeover.

- Once owner takes over the facility, any outstanding / remaining payments are due to the
contractor.

- If an accident causes any destruction of the facility, before the owner takes over, the contractor is
held financially responsible. In such case, if owner had supplied equipment or material, then the
contractor is responsible for compensating the owner.

- If owner failed to take over or accident was his mistake or because of his defected materials or
equipment, contractor has the right to original payment and compensation.

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- In a unit price contract:

▪ if contractor finds a significant increase in quantities, he should immediately notify the owner
with the estimated increase in contract price, or else his right in additional payment is lost.
▪ if the increase in contract price is large, the owner can stop construction, terminate the
contract, pay the contractor for finished works, without any compensation for lost profits or
works.

- In a lump sum contract:

▪ contractor has no right to increase contract price, unless some error is made by the owner or
by a mutually agreed change order.
▪ Any changes should be in writing, unless the original contract was verbal.
▪ If material or labor prices increased, contractor has no right to increase contract price, unless a
general or national disaster occurs.

C. Subcontractor:

- Contractor can subcontract some or all of the work, but remains responsible for it in front of the
owner.

- Subcontractors and contractors' workers have the right to legally ask the owner for any unpaid
dues concerning the facility. They also have preference, in case of legal seizure upon the owner or
contractor, in the proportion of their debts.

D. Contract Expiration:

- Owner can expire the contract at any time, but has to compensate the contractor for all his
expenses and for expected profits, unless the contractor used his time in other work.

- Contract expires if continuation of work is impossible.

- Contract expires if contractor could not complete contract for circumstances beyond his control.

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E. Difference Between Force Majeure and Exceptional General Events in Egyptian Civil
Code:

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Highlights from the Egyptian Government Procurement Law

Law 182 for Year 2018

• This law is applicable to all government agencies including ministries and local governorates.

• The default tendering method is Open Tendering ‫ المناقصة العامة‬, and other tendering methods
can be used exceptionally with a justified decree issued by the Specialized Authority ‫السطلة‬
‫المختصة‬, as follows:
- Open group tendering ‫الممارسة العامة‬
- Selective group tendering ‫الممارسة المحدودة‬
- Selective tendering ‫المناقصة المحدودة‬
- Double stage tendering ‫المناقصة ذات المرحلتين‬
- Local tendering ‫المناقصة المحلية‬
- Direct order or single negotiation ‫االتفاق المباشر‬

• Some highlights from the law:

- Prequalification is allowed in the tendering process, whereas, only qualified bidders are allowed
to the next tendering stage.

- Double stage tendering has a first stage similar to single stage tendering. In the first stage no
prices or only preliminary prices are discussed. In the second stage negotiations are conducted
for finalising prices.

- A bid bond ‫ التأمين المؤقت‬should be paid with each bid. Maximum bid bond is 1.5% of expected
value of contract.

- The basis or criteria of contractor selection has to be unified, and the offer of best conditions
and least price, or based on the best points is selected. If the winning offer is unusually low, the
bidder is asked of further details to the low offer, whereas, if the selection committee is
suspicious that the low offer cannot be completed according to the price, the offer is eliminated.

- Egyptian goods have a preference over foreign goods in selection within 15% of the least price.
The same applies for services.

- A retainage ‫ التأمين النهائى‬of 5% is required from the company awarded the contract as security to
the owner.

- An advanced payment can be paid in exchange of an approved bank letter of guarantee (LG)
and is amortized from interim payments, with the LG decreased accordingly.

- Government agencies are obliged to make payment within 60 days of contractor submitting the
invoice, or else interest charges are due according to the discount rate of the Central Bank of
Egypt.

- The government agency has a right to vary the contract within a 25% band for quantities of each
work item. Such variations might lead to the extension of project duration.

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- For contracts whose duration is 6 months or more, the government agency is obliged adjust
contract prices for selected materials that mostly affect the contract price. The contractor states
the coefficients of the selected materials for each work item in his/her technical offer. This is
paid every three contractual months starting from the date of opening technical offers.

- Penalties are due for each week of delay with a maximum of 10% of the contract price, in case
of delays not exceeding 10% of project duration, and not exceeding 15% of the contract price
otherwise. Penalties are applied to the outstanding works only, unless these works prevents the
utilization of the facility or project. The government agency still has the right to apply full
damages resulting from delays.

• This law has introduced:

- Obligation of government agency to take over the project upon completion. Contractor has the
right to ask for an unbiased committee to study the reasons of non-taking over.

- Framework agreements ‫االطافاقات االطارية‬

- Tendering for consultants using a pointing system

- Tendering for small and micro enterprises in 20% of government purchases

- Contracting based on private sector initiatives or offers

- Prequalification ‫التأهيل المسبق‬, Expression of Interest ‫ ابداء االهتمام‬, and double staged tending

- Complex tendering such as BOOT ‫البناء والتملك والتشغيل ونقل الملكية‬, BOO ‫البناء والتملك والتشغيل‬,
EPC+Finance ‫التصميم واالشتراء والتشييد‬

- Electronic tendering

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