3/22/2024

2.1 Principles of Contract Law

 Contract is a written agreement between or among two

CHAPTER 2 or more parties whereby each party promises to do or not
to do something and agrees to terms (conditions and
CONSTRUCTION CONTRACT Warranties) set out in the contract.

 Conditions of Contract are terms in which parties in the

contract are governed by.

Contract must fulfill the following seven

Legal Definition of Contract: requirements:
Elements of Contract
According to the Civil Code of Ethiopia, Art.1675:
 Parties are capable of contracting: Lawful and Capable
 A contract is an agreement whereby two or more  Consent of contracting parties is necessary: Intent/interest
persons as between themselves create, vary or  Object of the contract is sufficiently defined, possible and lawful: Legal
and Distinct
extinguish obligations of a proprietary nature.
 Use of Contract form prescribed by law, if any: Standard

 Payment for the Promise: Consideration

 Constitute two parts: Offer and Acceptance

 Parties enter into Agreement: Agreement

 3/22/2024

Description about Elements of Contract

An offer can remain open unless conditioned for termination
 Lawful and Capable is to mean they are legally allowed to enter using the following ways:
into contract and provides statements of facts and obligation.  Refusal or Counter Offer
 Intent is willingness or consent by the contracting parties to  Closure of the Offering organization
create a legal contract.  Non – Acceptance with in the offer time
 Legal and Distinct is a description of both the promises and  Failure of the offer condition
considerations
 Standards can be conditions, forms, formats, schedules, Acceptance is the key for the formation of a contract which
instructions, etc must be absolute indication of consent.
 Consideration can simply be interpreted as ‘price for the promise’
Agreement though proves the existence of a contract; there
which involves a benefit.
are situations where it can be considered as there isn’t.
 Offer is an indication that one party is willing to be bound by
specific terms set out in the contract.

The purposes of a contract are: 2.2 Types of Construction Contract

 To describe scope of work
 Lump sum contract
 To establish time frame
 To establish cost & payment provisions  Unit price contract
 To Set forth obligations & relationships
 Cost plus fixed fee contract
 To Manage multiple risks
 To Establish control mechanisms  Cost plus percentage of cost contract
 To Minimize disputes
 To Improve economic return on investment
 3/22/2024

1. Lump Sum Contract Cont...

 used for buildings.  One price for the whole contract
 The qualities of the materials required can be calculated with  Lump sum includes costs plus overheads and profits
sufficient accuracy.  Higher risk to contractor
 is more suitable for works for which contractors have prior  Price quoted is a guaranteed price as per contract
construction experience. documents.
 This type of contract is not suitable for difficult foundations,  Payment based on a scheduled percentage scheme
excavations of uncertain charter, and projects (monthly progress claims)

Cont...
 The contractor is free to use means and methods to
complete the work and responsible for proper performance

 Work must be well defined at bid time.

 Fully developed plans and specifications

 3/22/2024

2. Unit Price Contract Cont...

Higher risk to owner
Quote Rates / Prices by units
Ideal for work where quantities can not be accurately
No total final price
established before construction starts.
Re-negotiate for rates if the quantity or work
Require sufficient design definition to estimate
considerably exceeds the initial target
quantities of units
Payment to contractor is based on the measure.
Contractors bid based on units of works
Time & cost risk (shared)

Bill of Quantity 3. Cost plus

 The unit price contracts are usually presented in
 Cost plus contracts are used in situations that make it
the Bill of Quantity.
difficult or impossible for either the owner or the contractor
 The item rate contract is most commonly used for
to predict their costs during the negotiation, bid, and award
all type of engineering works financed by public
process.
or government bodies.
 Factors that may make the calculation of costs impossible
 This type of contract is suitable for works which
include unpredictable and extreme are:
can be divided into various items and quantities.
 3/22/2024

Cont.... 4.1 Cost plus Fixed Fee Contract

 weather conditions  Cost plus fixed fee contract is desirable when the scope and
 known transportation requirements to remote locations, nature of the work can at least be broadly defined.
 combat or war,
 It is essential that the scope and some general details of the work
Two types
1. Cost plus Fixed Fee Contact are defined.
2. Cost plus Percentage of Cost Contract  Drawback is overcome in cost plus fixed fee contract because here
the contractor’s fee is fixed and does not fluctuate with actual cost
of work.

4.2 Cost plus Percentage of Cost Contract 4.3 Cost plus Percentage of Cost Contract

 Instead of awarding the work on lump sum or item rate basis, it

given on certain percentage over the actual cost construction.

 The contractor agrees to do the work in accordance with the

drawings, specifications and other conditions of contract.

 materials and labor are arranged between the client and the
contractor.

 The tendency of the contractor to increase the cost of work to earn

more profit by way of percentage of enhanced actual cost is the
major demerit of this contract type.
 3/22/2024

2.3 Contract Documents 1. Invitation to Tender

Contract document mainly includes:  An initiation letter to the contractor to participate in the
 Invitation to tender, tender with an acknowledgment attached.
 Instruction to tender, 2. Instruction to Tender
 Form of tender, The contractor is given directive of what is required of
 The Agreement, tenderers. It includes:
 Condition of contract( General and Particular),  Tendering procedures, bid bond, data, space, time
 Specification (General and Particular)  Commercial requirements
 Bill of Quantities  Eligible materials, Equipment and services
 Drawings  Scope of work
 Addenda and Appendix to Tender  Eligible bidders
 Fraudulent and fraud practices

3. Form of Tender 4. Agreement

This is a document where the contractor:
 Confirms that he has examined all the tender doc.  The agreement is the document that represents and
 Confirms that he will perform the work reflects the legal contract between the owner and the
 Promises that the validity of the tender is open for a contractor.
certain period
 Shows his understanding that the lowest bid or any after  It is simply a letter that constitutes legal evidence that a
may be rejected contract exists, and forms the basis for its enforcement.
 States that part of the work may only be accepted
 Confirms that he will enter into an agreement if
awarded
 3/22/2024

5. Conditions of Contract
It includes:
 General conditions of contract.
 Supplementary or Special/Particular conditions of
contract.

5.1 General Conditions of Contract(GCC) 5.2 Special Conditions of Contract

 Its purpose is to provide an extension of the General
 is an essential part of the contract that defines the Provisions of the contract to fit the specific project at
responsibilities of the parties involved in the contract- the hand.
owner and the general contractor.
 Items included in the Supplementary Conditions are
 It describes the guidelines that will be used in the entirely subject to the discretion of the owner.
administration of the contract.
 These forms are familiar to all parties concerned, and the
wording is not only clearly understood, but has also been
tested in the courts.
 3/22/2024

It includes:
6. Specifications
 The number of copies of contract documents to be
received by the contractor  may also be known as Technical provisions.
 Survey information to be provided by the owner  They are written instruments to be used in conjunction
with the drawings.
 Materials provided by the owner
 The drawings and the specifications fully describe and
 Changes in insurance requirements define the requirements of the contract, to include the
 Requirements for security and temporary facilities quality that is to be achieved.
 They also guide the contractor through the processes of
 Start date of the construction
ordering materials and construction and installation of
 Cost and schedule reporting requirements the facility.
 Traffic control and street cleaning requirements

7. Bill of Quantities 8. Drawings

 Describe the expected amount of work (measured)  Drawings are the means by which the designer conveys
It sets out: the physical, quantitative, and visual description of the
project to the contractor.
the unit of measurement of works,
 They are also known as plans or blueprints.
the unit price and
 Architectural Drawings
the total cost of the works.
 Structural Drawings
 Sanitary Drawings
 Electrical Drawings
 Mechanical Drawings
 3/22/2024

9. Addenda: Conditions of Contracts

 Any change to the bid documents after they are
released for bidding but before bids are actually Conditions of contact for civil engineering works are
received requires the issuance of an addendum. commonly prepared by four bodies:
 This formal document changes the original bid  Multilateral donors,
documents.  Business Associations,
 At the time of bid opening, bidders must in their bid  Professional Associations and
documents, acknowledge all addenda.  Public Authorities

FIDIC Condition of Contract

 FIDIC is the international federation of national
associations of independent consulting engineers and was
founded in 1913 by the national associations of three
European countries. (France, Belgium and Switzerland).
 FIDIC has now membership from over 74 countries.
members are generally national associations with the
Ethiopian Consulting Engineering and Architects
Association being one.
 3/22/2024

The main conditions of contracts published by

FIDIC conditions of contracts have two parts: FIDIC include:
 1957 – RED BOOK
 General Condition of Contract – where the overall clauses
are stated The very first edition – civil engineering

 Particular Conditions of Contract – where modifications, Contract type – Add Measurement Type
changes and omissions to the general condition of contract  1963 – YELLOW BOOK
are stated. For mechanical and Electrical works
FIDIC has published different conditions of contract over the  1987 – OLD FIDIC
years.
Comprises the RED and YELLOW Books.

 1995 – ORANGE BOOK Ethiopia Conditions of Contract

For Design Build and Turnkey Projects
 In the Ethiopia the first condition of contract was
 1999 – GREEN BOOK
published in 1959 by the Ministry of Housing.
For short period projects ( 6 months)
 Ministry of Works and Urban Development (MoWUD)
Low contract value ($ 500,000) developed a condition of contract based on FIDIC RED
 1999 – SILVER BOOK Book.
For turnkey of power plants, factories and facilities  The most comprehensive standard bid document was
published by the Public Procurement Authority of the
Ministry of Finance and Development. PPA
 3/22/2024

2.4 Contract Administration 1.

2. 3.
 3/22/2024

3. 4.

5. 6.
 3/22/2024

7.

Closing of Contract
Closing of Contract looks into issues related to:
Maintenance Period and Remedial works
Left Over Claims and Disputes
Closing of Accounts
Completion Certificates
 3/22/2024

Maintenance Period and Remedial Works Closing of Accounts

 are subjected to Maintenance Periods (Usually One  Final Accounts together with the release of remaining
Year) in order to reveal quality problems overseen by retention money and performance securities are
supervisors. carried out.
 These often include Sanitary and roof leakages, Poor
quality Door and Window Handles and Locks, Electrical Completion Certificates
Fittings, Structural damages, Cracks, Pavement  This is to entitle that the contractor is no longer
subsidence, Settlement, etc. responsible afterwards if satisfactory performance is
proved by Maintenance Period and its certification,
Left Over Claims and Disputes Outstanding claims and disputes are settled, and
 If claims and disputes are not settled before closing of accounts are made.
provisional certificate of completion, they can be
dealt during this phase.

5.5 Dispute and Claim Management 1. Time Related Claims

 Dispute in simple terms is a difference in a line of  Time Extension only
thought.  Liquidated Damages only
 Claim is mostly concerned with entitlements and  Time Extension and Cost Compensation
liabilities arising under, or as a result of, a legally valid  Concurrent Compensations
contract.
 Bonus
 Claims can be associated with three major categories.  Reliving of Obligation
 3/22/2024

2. Cost Related Claims: 3. Default by Contracting Parties:

Claims associated with monetary compensation where either
Claims associated with non performances of contractual obligations
of the following entitlements or penalties are entertained
such as:
 Additions requiring rate adjustments
 Delay in Payment Certificates
 Price Changes
 Suspensions and Terminations.
 Provisional sum adjustments

Types of Claims
3/22/2024
3/22/2024
 3/22/2024

Cont….
3/22/2024
3/22/2024
 3/22/2024

Pre-by Ermias Solomon. 81