Training Material on: Construction Contract Management

Ethiopian Construction Works Corporation (ECWC)

Training Material

On

Construction Contract Management

For

Addis Ababa Justice Bureau Professionals

Developed & delivered

By

Zewdu Tefera Worke

(Engineering Contracts Lawyer)

Legal Consultant & Trainer, ECWC

Organized & delivered by: Zewdu Tefera Worke, Legal Consultant & Trainer, ECWC Page 1
 Training Material on: Construction Contract Management

Training Material On

Construction Contract Management

………………………………………………………………………………………
Presentation Outline

1. Training Overview
2. Contract: Concept & Categories
3. Contract & Construction Contract: Formation
4. Contract & Construction Contract: Effects
5. Role of the Engineer
6. Standard Conditions of Construction Contract
7. Construction Contract Management
7.1 Background
7.1.1 Parties & their Legal Status
7.1.2 Scope of their Deal
7.1.3 Contract Documents
7.2 Construction Contract Management
7.2.1 Obligations of the Contractor
7.2.2 Obligations of the Employer
7.2.3 Common Obligations of the Contractor & the Employer
7.3 Security Instruments Management
8. Reflections: DB-based Construction Contracts

Annexes

 Review Questions
 Case Studies (Pre-construction Contract)

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 Training Material on: Construction Contract Management

I. Introduction & Objectives

 Introduction to the Training

The scope of the training shall encompass, based on design-bid-build delivery sub-system, the
following four interrelated areas: contract & construction contract; the role of the Engineer;
standard conditions of construction contract; and construction contract management;

As related to contract & construction contract, the training shall cover the process how contract is
formed in general & construction contract in particular; the resulting effects of such formed
contracts in general & effects of construction contract in particular;

As related to standard conditions of construction contract, the training shall explore the need for &
the use of general standard conditions of construction contract for construction projects; the level
of general standard conditions of construction contract (international vs. local) and the particular
attention to be given in the process of the preparation of a particular conditions of construction
contract for a given construction project.

Though the Engineer is not a party to the construction contract, construction contract management
process is unthinkable without the involvement of the Engineer. This part of the training shall thus
define the Engineer, identify & discuss the threefold prominent role of the Engineer in a given
construction project management process, viz., agent role; professional role; and consultative role.

As related to construction contract management, the training shall explore & address the concept
& scope of construction contract management; identify the contracting parties; the scope of their
deal (contract & law) & also identify where the scope of their deal recorded viz., identification of
the construction contract documents. The construction contract documents so identified form the
foundation for construction contract management. Respective & common obligations of the
contracting parties, viz., the employer & the contractor, shall also be identified & discussed.
Security management (based on security instruments originating from the financial market) shall
also be identified & addressed, separately.

Construction contract management process, at least, characterized by two key features: in using
standard conditions of construction contracts (as foundation for the said management) & in
engaging the Engineer (in terms of its management process).

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 Training Material on: Construction Contract Management

 Objectives of the Training

At the end of the training, the trainees are able:

 to define & understand the concept, formation & effects of contracts in general;
 to define the concept and scope of construction & understand the formation & effects of
construction contract;
 to identify & understand the need, level, structure & content of general standard conditions
of construction contract & particular conditions of construction contract;
 to identify & understand the role of the Engineer in the construction contract management
process;
 to define & understand the concept, scope & process of construction contract management;
and to identify the critical contractual stakeholders therein (viz., the employer & the
contractor) including their status, scope of their deal & their respective & common
obligations;

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 Training Material on: Construction Contract Management

Formula on

Construction Contract & Law

………………………………………………………………………………………………………………

D
+KP and/or +LP: ROLE
V…?
Developed by:

Zewdu Tefera Worke,

Engineering Contracts Lawyer: (2014)

………………………………………………………………………………………………………

1.1 Formula Legend: L: Law; K: Contract; P: Persons; and/or: cumulative

with/alternatively (K and/or L); D: Delivery; R: Relationship; O: Obligation; L:
Liability; E: Enforcement; V: Variability (context) of all the above concepts (viz.,
LKPDROLE);

…………………………………………………………………………………………………………………………………………………………………

1.2 Formula Application: LV: Law…?; KV: Contract…?; PV: Persons…?; DV:
Delivery…?; RV: Relationship…?; OV: Obligation…?; LV: Liability…?; EV:
Enforcement…?; V: Variability (context) of all the above concepts….?;

………………………………………………………………………………………………………………

1.3 Systems derived from the Formula: D: Delivery System; K: Contract

System; L: Legal System; P: Person related System; R: Procurement System; OL:

Construction Contract Management System; E: Enforcement System;

………………………………………………………………………………………………………………

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 Training Material on: Construction Contract Management

Systems Application

………………………………………………………………………………………………………

 D: Delivery System
 self-performance; force account method;
 non-self performance: outsourced or contract method;
 construction contract: specific delivery sub-system to be followed by a
construction contract, if the project were outsourced;
 K: Contract System
 formation of contract;
 effects of contract; and
 proof of contract;
 L: Legal System
 civil law legal system; or non-civil law legal system;
 legal framework based on specific legal system;
 construction contract: follows the specified or agreed legal system; known as
applicable law (L) to the contract (K);
 P: Person related System
 scope: natural persons; legal persons (institutions);
 relationship: legal (L) and/or contractual (K) relationship (R) between such
persons;
 P appearing in contractual arrangement as contracting party;
 construction contract; contracting parties: employer and contractor;
 third party: concept of relative effect of contract & third party comes in to
consideration; like
 the Engineer being a third party to the contraction contract signed
between the employer & the contractor;
 the sub-contractor being a third party to the construction (main)
contract signed between the employer & the contractor;

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 Training Material on: Construction Contract Management

 the employer being a third party to the construction sub-contract

signed between the main contractor & the sub-contractor;
 R: Procurement System
 option: competitive path; or non-competitive path;
 selection criteria: financial (like least price) or otherwise (like design
competition);
 procurement system being the route to go to contractual and/or legal
relationship (R);
 O & L: Contract Management System
 performance of (construction) contract;
 non-performance of (construction) contract;
 conformance of performance & non-performance;
 E: Enforcement System
 scope: save prevention; twofold;
 claims management system;
 disputes management system;
 claims management system
 construction contract: follows its own claims management system;
 disputes management system
 construction contract: may follow purely its own construction
disputes management system (viz., based on the concept of alternative
dispute resolution (ADR)); or the public justice system (viz.,
litigation);
 Focus; The training focuses on O & L; viz., on construction contract management
system;

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 Training Material on: Construction Contract Management

II. Contract & Construction Contract

 Contract: Definition

 According to Article 1675 of the Civil Code: A contract is an agreement

whereby two or more persons as between themselves create, vary or
extinguish obligations of a proprietary nature.
 All contracts are agreements but not all agreements are contracts;
 Concept
 That the contract is an agreement;
 The agreement is to be made between two or more persons (like the employer
& the contractor);
 That the agreement is binding between such two or more persons; this
concept is related to the doctrine of privity (relative effect) of contract;
persons outside of such contractual relationship are called third parties and
are not party to such contract; like the Engineer under the construction
contract; like the sub-contractor under the main construction contract;
 The agreement is to create, vary & extinguish (terminate) obligations;
 The agreement is to create obligations; obligations on the employer &
obligations on the contractor;
 That the nature of obligations is proprietary (financial/economic); like
construction;
 The construction contract clearly fulfils all the elements given to the
definition of contract;
 Application
 The principle of the general law of obligations (originating like from
contract) shall also apply to special type of contracts like the construction
contract;
 see Article 1676 cum 3131-3206 cum 3244-3296; for public construction
contract like water or building or road construction projects; and

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 see 1676 cum 2610-2631 cum 3019-3040 of the Civil Code; for private
construction contracts;
 Formation of Contract
 Background
 The formation of any type of contract including water construction contract
shall consider the following four ingredients or legal elements: viz.,
 capacity: capacity of contracting parties;
 consent: consent of contracting parties;
 object: object of the contract; and
 form: form of contract, if any;
 Determination of the capacity of contracting parties is not the subject to be
dealt with under the law of obligations or contract; it is the subject to be
treated by other applicable laws (related to public law & private law
regimes);
 Capacity, consent & object are always cumulative for any type of contract;
whereas, form is only required where the law specifically prescribes or
requires;
 The discussion hereunder shall be made with reference to construction
contract like water construction contract;
 Capacity:
 see the Civil Code Article 1678 (a) cum all possible relevant laws; like
 Art. 394 of the Civil Code cum Proc. No. 1263/2021; the State is a person
including its organs (viz., legislative; executive; and judiciary);
 Proc. No. 25/1992 cum the specific regulative legal instrument; as related to
federal public enterprises;
 Proc. No. 1150/2019; cum the Law of Agency Art. 2179-2265 of the Civil
Code; the Law on Authentication and Registration of Documents Proc. No.
922/2015;
 The legal concept of capacity presupposes the existence of persons;
 Persons are of two types:
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 natural persons: viz., human beings;

 legal persons: are of three types:
 public institutions; like ministries; bureaus;
 corporate entities like share companies or private limited companies;
or public corporations;
 voluntary organizations like non-governmental organizations
(NGOs); associations; and so forth
 The relevant persons to a construction contract are: employer &
contractor;
 Natural persons (i.e., human beings) acquire their existence by birth;
 Whereas, legal persons acquire their legal existence or personality by
different legal instruments depending on whether they are public institutions
or private entities or voluntary organizations;
 Public institutions acquire their legal existence or personality by legislation
or by regulation;
 legislative instruments: see Proc. No. 1263/2021 for Ministries plus
respective regional Bureaus cum Article 394 ff of the Civil Code;
Proc. No. 74/2021 Addis Ababa City Government legislation;
 regulative legal instruments: like for public enterprises or public
share companies or public corporations or public universities;
 Private entities (to become contractors) (like private limited companies or
share companies) acquire their legal existence or personality by business
registration; see Proc. No. 1263/2021 cum Proc. No. 980/2016 cum 1150/2019
cum Regulation No. 392/2016 cum Regulation No. 461/2020;
 The legal capacity of public institutions (to serve as employers emanates
from their formative legal instrument);
 The legal capacity of private entities (to serve as contractors) emanates not
from the registration itself but from their formative & operative document,
which is contractual in nature, and which provides the required legal
capacity & empowerment (for example to the general manager of such

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 Training Material on: Construction Contract Management

company) to act in the name & on behalf of the company; like to negotiate &
to enter in to (construction) contract;
 Thus legal capacity emanates from two sources: from the law & from the
contract;
 Agents acquire their derivative legal capacity from contract; this lead us to
the concept of the law of agency; see Article 2179-2265 of the Civil Code;
 Implications
 Having the required legal capacity results to enter in to legal transactions
and as related to construction it may have the following implications, as well;
 bid purchase: to purchase & participate in the construction project bid;
 bid submission: to sign on the tender document (i.e., the bid);
 negotiation: to negotiate on the planned (draft) construction contract, if the
bidder found to be successful in the tender evaluation process;
 contract signing: to sign the final construction contract documents with the
employer;
 contract performance: to perform the construction contract by the contractor
or on behalf of the contractor;
 instruction: to receive instruction from the Engineer;
 payment: to receive payment from the employer;
 suspension: to take suspension of works order from the Engineer;
 notice: to receive notice of termination from the employer & to give notice of
termination to the employer;
 claims submission; to submit construction claims to the Engineer on behalf of
the contractor;
 dispute initiation; to initiate a dispute resolution proceeding in the name & on
behalf of the employer or the contractor;
 representation; to represent the contractor in the disputes forums (like
arbitration, litigation…) & in their respective proceedings;
 enforcement: to demand the enforcement of the benefit of court judgment or
arbitral award through enforcement proceeding;

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 appeal: to initiate an appeal proceeding at the court of law, if an award not

final & binding;
 set aside; to initiate an award set aside proceeding at the court of law;
 Consent:
 see the Civil Code Article 1678 (a) cum 1679 -1710 cum 3134-3146 cum Proc.
No. 649/2009 cum the Federal Procurement Directive (2002 E.C), if
applicable;
 Consent is a freely declared will of the future contracting persons (parties) &
it shows an intention to be bound by such will so declared;
 Consent is divided in to two: offer & acceptance;
 Consent is the very foundation for contractual/consensual (or promissory)
relationship;
 The exchange of offer & acceptance, as related to construction contract, is
governed by the procurement procedure to be followed (as per the law of
procurement) and as per the law of contract;
 The process of exchange of offer & acceptance may resemble as follows:
 invitation for bids: the employer issues publicly (as a matter of
transparency requirement) invitation for bids;
 bid purchase: eligible & interested bidders purchase the bid
document;
 bid submission: bidders, based on the instruction to bidders,
prepare their bid & submit same to the employer;
 bid opening: the employer receives & officially opens the bids
submitted & so received
 bid evaluation: the employer evaluates the bids so received;
 award: the employer awards the contract to the winner (who
becomes the future contractor under the construction contract, if
completed);

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 acceptance: based on its award decision, the employer writes to the

successful bidder a letter of acceptance;

 pre-contract negotiation: following such letter of acceptance, (pre-

contract) negotiation may be undertaken between the employer & the
future contractor;
 contract signing: following successful pre-contract negotiation, all
construction contract documents have to be signed between and by
the employer & the selected contractor;
 contract approval: sometimes an approval from some defined
regulatory and/or financing institution may be required for the signed
contract to be effective; see Article 3134 cum 3143-3145 of the Civil
Code, if applicable;
 see also Clause 8.1 cum 16.2 (i) of the MDB-FIDIC (2010) which gives
a contractual right to the contractor to terminate the contract if the
conditions for the effectiveness of the contract were not fulfilled up to
180 days;
 The bid submitted by the bidder contractor constitutes an offer, whereas the
decision of the award together with the letter of acceptance constitutes an
acceptance;
 The letter of acceptance may not by itself constitutes a contract specially as
related to public construction contracts;
 Object:
 see the Civil Code Article 1678 (b) cum 1711-1718 cum the signed
construction contract;
 Object of contract basically gives us the respective obligations of the
contracting parties under a given contract;
 From the construction industry perspective, the doctrine of object of contract
has to be seen from the following three critical considerations; namely.,
 subject matter: from the specific type of construction project
perspective like building and/or engineering construction;

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 purpose of the project; the purpose of the specific subject matter

project so selected under building and/or engineering construction
project; and
 delivery system: from the concept of delivery system perspective
(viz., the selected delivery sub-system);
 subject matter of the contract:
 by object of contract it means the definition of the subject matter of the
contract under consideration;
 as related to construction contract is it related to: building
construction? or engineering (like water project related)
construction? building and/or engineering construction integrated
with industrial/process plant (like dam construction with water
treatment plant) construction?
 purpose of the project;
 by purpose of the project it means the specifically selected
construction project type from the given subject matter: like building
and/or engineering project;
 from engineering related projects like water related projects: dam
construction or water transmission line construction or water
distribution network construction and so forth;
 each specific water related project has its own purpose: therefore,
each specific type of construction project differs in terms of its design
content & the construction process from one another;
 this determines the specific foundation for the respective obligations
of the contracting parties;
 delivery sub-system:
 the specific delivery sub-system so selected determines at least the
following three issues: scope of obligation; scope of risk allocation;
and liability dimension;

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 scope of obligation: the specific project delivery sub-system so

selected for the project (subject matter then purpose) under
consideration shall determine the scope of the respective obligations of
the contracting parties; (viz., as related to design, construction,
operation and/or payment);
 risk allocation: the delivery sub-system so selected also determines
the risk allocation scheme of the contract under consideration
towards the contracting parties; (viz., as related to design,
construction, operation and/or payment);
 liability dimension: the delivery sub-system so selected shall also
determine the dimension of liability followed under the contract
towards the contracting parties; (design liability, operation liability
and/or construction liability;)
 respective obligations:
 the subject matter so selected; the specific purpose from such subject
matter so selected; and the delivery sub-system so decided; provide
the basis for the allocation of the respective obligations of the
contracting parties under a given construction contract;
 Object of contract, in terms of its respective obligation perspective, as
related to building and/or engineering construction, and based on design-bid-
build delivery sub-system, for example, has two dimensions: promise &
consideration;
 promise dimension: the contractor promises to execute & complete and
remedy defects in the construction works (like the water related
project); and
 consideration dimension: the employer undertakes to pay the contract
price to the contractor;
 promise dimension; the employer promises also to appoint the
Engineer & notify the contractor; to handover the construction site
possession & access thereto to the contractor; to deliver the

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design/drawing to the contractor; to take over the works, if

completed from the contractor; and so forth
 Object of contract has to be sufficiently defined, possible & legal;
 Therefore, object of contract has three requirements from the law of contract
perspective: viz.,
 sufficiency requirement;
 legality requirement; and
 possibility requirement;
 The sufficient definition of the respective obligations of the employer & of the
contractor shall thus be done through all possible construction contract
documents under consideration;
 It thus includes but not limited to the following contract documents:
 the Letter of Acceptance;
 the Bid (submitted by the contractor initially as a bidder);
 the Special Conditions of Contract;
 the General Standard Conditions of Construction Contract;
 the Technical Specifications;
 the Drawing;
 the Bill of Quantities;
 These contract documents form the required contractual & legal foundation
for construction contract management;
 Form:
 see the Civil Code Article 1678 (c) cum 1719-1730 cum other applicable
laws;
 The issue of form is related to whether or not a given contract is to be made
in writing or otherwise, namely, orally/verbally;
 Unless the law requires, a contract could be made in writing or verbally;
 As per Article 1724 of the Civil Code, the law specifically requires that
contract to be made with government shall be made in writing; see 1678 (c)
cum 1724;

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 Training Material on: Construction Contract Management

 This is fundamentally important in case of public construction contract like

water construction projects; see Article 3131-3206 (administrative contract)
cum 3244-3296 (contract of public works);
 If the construction contract is to be made in writing as a matter of public
policy, there are two options to make;
 tailor-made: to prepare a detailed tailor-made construction contract;
or
 standard: to use a suitable standard conditions of construction
contract (i.e., based on the chosen delivery sub-system);
 The construction industry, in Ethiopia, uses standard conditions of
construction contract;
 see the discussion on standard conditions of construction contract as one of
the basic features of construction contract & its management;
 All contract documents so made an integral part thereof have to be signed
by the employer and the contractor, witnessed by witnesses and respectively
sealed & delivered;
 Such signed construction contract documents become the foundation for
construction contract management;
III. Standard Conditions of Construction Contract
 Purpose
 The whole purpose of standard conditions of construction contract is to
sufficiently define the respective contractual obligations of the contracting
parties to the construction contract viz., the employer & the contractor;
 see Article 1678 (b) of the Civil Code;
 Standard conditions of construction contracts are thus the means:
 obligations & rights: to define the content & structure of the
respective obligations & rights of the contracting parties to the
construction contract;

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 liabilities & remedial rights: to define the respective liabilities &

remedial rights of the contracting parties under the construction
contract; and
 risk allocation: to identify & to allocate & distribute respective
risks to such contracting parties;
 Importance
 It is virtually unthinkable about the management of a modern construction
project and its contract without using standard conditions of construction
contract;
 The legitimate reasons could be of the following;
 Proven documents: standard conditions of construction contract
are tested through time & experience in the construction industry.
 Standard communication: standard conditions of construction
contract provide a common means of communication to the
stakeholders of the construction industry: to the employer; to the
contractor; to the Engineer; to the Sub-contractors; to the
regulators; to the financiers; to the construction dispute resolution
professionals (experienced in alternative disputes resolution (ADR) or
otherwise); to the insurance companies; to the banks; and so forth.
 Norm: standard conditions of construction contract provide a useful
construction industry-wide norm as related to construction project
management processes & practices;
 Risk: standard conditions of construction contract provide also a
formidable ground for the identification, assessment & management
of construction related risks inherent in the construction process
especially by the contractor and also by the construction risk insurers.
 Efficiency: standard conditions of construction contract save time,
cost & energy comparing to preparing a tailor-made conditions of
construction contract for each & every construction project every
time;

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 Framework: general standard conditions of construction contract

provide a framework or basis for the concretization of general
conditions of contract as related to:
o the actual project under consideration (viz., the subject matter
of the contract);
o based on the specific subject matter of the project provide &
regulate the purpose of such construction project;
o actual location of the project (rural vs. urban setting);
o actual contracting parties (structuring respective obligations);
through special conditions of contract (based on the delivery
sub-system so selected);
 Source
 The following three institutions are identified as sources for the development
of standard conditions of construction contract; viz.,
 governmental (regulatory) institution;
 financial institution; and
 professional institution;
 governmental institution;
 like the current Public Procurement Property Administration Agency
(PPA for short);
 established as per Proc. No. 430/2005; and re-established as per Proc.
No. 649/2009;
 financial institutions;
 like the World Bank; the African Development Bank or the African
Development Fund;…
 like their own previous standard contract or the harmonized one like:
MDB-FIDIC (2006 & 2010 version);
 professional institutions;
 like FIDIC; the ICE (Institute of Civil Engineers in the UK…);
international chamber of commerce (ICC in Paris);

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 In Ethiopia, there was/is a practice to use all types of standard conditions of

construction contract;
 Level
 Standard conditions of construction contract could be prepared at
international or local level;
 Therefore, in the construction industry, we may have the following standard
conditions of construction contract based on their level;
 international: international standard conditions of construction
contract; and
 local: local standard conditions of construction contract;
 In Ethiopia there was & there is a practice to use all such levels of standard
conditions of construction contract;
International Standard
Conditions of Construction Contract
 Background
 Among the international standard conditions of construction contract, the
one prepared & issued by FIDIC is prominent in the international
construction industry including in Ethiopia;
 FIDIC is a French abbreviation which stands for: Federation Internationale
Des Ingenieurs-Conseils;
 It is an international association of national consulting engineers
associations;
 FIDIC has been established in 1913 by five European countries in Europe;
 Since 1957, FIDIC prepared & issued standard conditions of construction
contract & related publication as related to:
 civil engineering works;
 electro-mechanical engineering works; and
 consulting engineering services;
 Its relevant standard conditions of contract are identified simply by their
particular color; For example:

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 Red Book: The Red Book being dedicated to Civil Engineering

Works;
 Yellow Book: Yellow Book being dedicated to Electro-mechanical
Engineering Works (known as Plant);
 White Book: White Book being dedicated to Consulting Engineering
Services since 1991;
 FIDIC Standard Conditions of Construction Contract
 FIDIC has prepared & issued the following editions of the Red Book;
 First Edition; 1957;
 Second Edition; 1969;
 Third Edition; 1977;
 Fourth Edition; 1987; Fourth Edition (a supplement) Summer 1992;
Fourth Edition (further amendment) November, 1996;
 New Red Book
 FIDIC has also prepared & issued in 1999 the New Red Book; and the
second edition released in 2017;
 These conditions of construction contract have no any resemblance in
structure & content with the former FIDIC editions (1957-1987);
 Based on the 1999 FIDIC New Red Book all relevant international
financial institutions have agreed to issue a common (harmonized)
standard conditions of construction contract in 2006;
 It is called MDB-FIDIC standard conditions of construction contract
(also known as Pink Book);
 Its full & formal designation reads as follows; The Conditions of
Contract for Building and Engineering Works Designed by the
Employer: Multilateral Development Banks (MDB) Harmonized
Edition, March, 2006-FIDIC New Red Book;
 MDB-FIDIC has also its 2010 second edition or version;
 The focus of the training shall be on MDB-FIDIC (2010) international
standard conditions of construction contract;

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 Features
 MDB-FIDIC (2006 & 2010) has the following basic features;
 works: it clearly shows to apply both for building & engineering
works;
 delivery system: it follows a design-bid-build project delivery sub-
system;
 payment system: it follows ad measurement (based on quantities)
payment system;
 Engineer: the role of the Engineer is clearly provided;
 dispute method: it contains settlement & judgmental (both dispute
board & arbitration) dispute resolution methods;
 DB Agreement; in case of dispute board, it contains a form of
agreement to be signed by the three parties: the employer; the
contractor & the members of the said dispute board;
Systematic Grouping of the
Major Clauses of MDB-FIDIC
………………………………………………………………………………
 Some authors (like Bunni, 2005 ) re-group, logically, based on the New Red Book FIDIC
1999, which is the basis for MDB-FIDIC, the 20 clauses of the said FIDIC like this:
 Clauses 2-4: Persons: provide the right, obligations and liabilities of the
employer & the contractor and the role, duties & powers of the Engineer; this is the
basis for the triangular arrangement or system of the construction contract
management process;
 Clauses 5-7: resources; which include nominated sub-contractor; staff & labour;
plant, materials; and workmanship;
 Clauses 8-10: time: which deals with commencement, delay and suspension; tests
on completion; and employer’s taking over of the works;
 Clauses 11: defects liability period: it deals a single issue viz., defects liability
period;

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 Clauses 12-14: financial: it deals with monetary terms: measurement &

valuation; variations & adjustments (of the contract price); and contract price and
payment;
 Clauses 15-16: termination: deals with termination of contract by the employer;
and by the contractor; the latter includes suspension of work by the contractor as
well;
 Clauses 17-19: risks: deals with risks (allocation of same); insurance arrangement
(by whom); and force majeure (including its consequences);
 Clause:20: enforcement: deals with claims, disputes, dispute board; settlement
and arbitration;

Local Standard Conditions of Construction Contract:

Background
………………………………………………………………………………
 The use of local standard conditions of contract in Ethiopia, up to recent times,
seems to be based on adaptation from international standard conditions of
construction contract notably that of FIIDC;
 This is evident from the following “local” standard conditions of construction
contracts; viz.,
 The 1959 MoUDH General Conditions of Construction Contract; (developed
or adopted & issued by Ministry of Urban Development & Housing);
 The 1987 BaTCoDA Standard Conditions of Contract for Construction of
Civil Work Projects; (developed or adopted & issued by Building and
Transport Construction Authority);
 The 1994 MoWUD Conditions of Contract for Construction Works (1994);
developed or adopted by Ministry of Works and Urban Development;
 These standard conditions of contracts were based on the respective FIDIC Red
Book versions;
 The PPA Standard Conditions of Construction Contract

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 It is for the first time in the history of the Ethiopian construction industry
that an attempt was made to develop & issue a local standard conditions of
construction contract including the full standard bidding documents in 2006;
 This was done by such government institution known as PPA: the Public
Procurement Agency (as per its initial formative legislative instrument i.e.,
Proc. No. 430/2005); and
 now formally known as PPPAA: Public Procurement & Property
Administration Agency (as per the new re-establishment legislative
instrument i.e., Proc. No. 649/2009);
Features
 Delivery system: The PPA standard conditions of construction contract are based on
Design-Bid-Build project delivery sub-system;
 Payment system: The type of contract could be based on BOQ, in which case it
becomes measurement based; or based on Activities Schedule, in which case it
becomes lump sum;
 The payment system adopted in case of ad-measurement is obviously BOQ based;
 the Engineer: The role of the engineer is clearly recognized;
 Nature of contract: The PPA standard conditions of construction contract are
expressly qualified as an administrative contract; See Article 3132 (a) of the Civil
Code, which provides for the legal regulation of public construction contract; see
Article 1675 cum Article 3131-3206 cum Article 3244-3296 (Contract of Public
Works) like public water project construction;
 dispute method: The dispute resolution methods adopted were adjudication and then
arbitration;
 Notes: the PPA 2011 has not provided such kind of dispute resolution methods
except for specific institutions like Ethiopian Roads Administration (ERA) which
has a clear legal power to settle construction disputes out of court (if not waived);

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Special Conditions of Construction Contract (SCC)

Background
 The general standard conditions of construction contract works in line with the
special conditions of construction contract;
 The purpose of the special conditions of construction contract thus being to
augment & concertize the operation of the general standard conditions of
construction contract as related to the actual contracting parties & the specific
project under consideration;
 The scope of concretization of the general conditions of construction contract
through the special conditions of contract may encompass the following points but
not limited to: issues like related;
 to the contracting parties;
 to the subject matter of the project;
 to the type thus purpose of the construction project;
 to the location of the project selected;
 to the payment & type of currency;
 to the applicable law;
 to dispute resolution system & method;
 to any terms of the contract said to be concretized through the special
conditions of contract as required by or stated under the general conditions
of construction contract & the contract policy of the project owner (i.e., the
future employer);
 This concretization is to be done during tender document preparation stage but
before issuing the tender documents (also known as tender dossier) to the bidders;
SCC: Process
 The concretization process of the general conditions of contract to the special
conditions of contract may take the following different forms; add; replace; amend;
delete; and not applicable;
 Addition:

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 Addition may come in to picture in to the following two ways: within or

without
 Addition within the existing clauses of the general conditions of contract; or
 Addition without or beyond the existing clauses of the general conditions of
contract; the new clause number continues where the general conditions of
contract ends;
 The term to be used being: Add the following …
 Replacement
 This is done to do away with the effect of the existing clause within the
general conditions of contract (by deletion) and to replace it by a new terms
of contract;
 The term to be used being: Delete & Replace…
 Amendment
 This is done to modify the effects of the existing clause of the general
conditions of contract by the new one introduced through the special
conditions of contract;
 The term to be used being: Amend…
 Deletion
 Deletion may come in to picture in to the following two ways: to delete & to
replace or to delete it altogether;
 In case of “to delete & to replace” the effect of the existing clause in the
general conditions of contract has been deleted but replaced with new terms
(deal);
 In case of “only to delete” the effect of the existing clause of the general
conditions of contract has been altogether removed from the terms of the
contract and therewith the deal;
 The term to use: delete & replace; or delete the following clause;
 Not Applicable;
 This is done to do away with the effects of the general conditions of contract
in the terms of the contract

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 It has a declaratory effect and does away the effects of the terms of the
general conditions of contract declared “not applicable” from the subsequent
deal between the future contracting parties ;
 The term to use being: Not applicable…
 In this regard, it is strongly advised to follow the relevant Guide prepared by the
respective owner institutions, local or international, of the general standard
conditions of construction contract; It requires also specific training;
SCC: Skill & Caution
 contract drafting skill: Ensuring the compatible reading between the general
conditions of contract & the special conditions of contract requires contract drafting
skill;
 technical staff: The knowledge and/or information primarily being within the
hands/minds of the technical staff in charge of preparing the standard bidding
document including the special conditions of contract;
 construction lawyer: The first task could be done by the technical staff
(knowledgeable project engineers); the final draft special conditions of contract has
to be reviewed by a specialized lawyer, if any, for consistency purpose with a view to
importing the required:
 contract policy of the employer;
 financial interest of the financial institution; and/or
 regulatory requirements of the regulatory body;
to such special conditions of contract;
 cross reference:
 Ensuring consistency with respect to incorporating the contract policy or
financial interest or regulatory requirements of the employer or financial
institution or regulatory body, respectively, requires undertaking careful
clause by clause cross-reference between the general conditions of contract &
the special conditions of contract;

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 clarification (bidders):
 From the future contractor side (as bidder), if there is any inconsistency in
this regard, it may be a ground to request clarification from the project
owner;
 claims and/or disputes:
 Lack of consistency may invite discrepancy or ambiguity during the
performance stage of the contract, which may pave the way for construction
claim, and, if not settled well also lead to construction disputes;
 professional care:
 Therefore, utmost professional care has to be taken with a view to prepare a
clear, complete & consistent conditions of contract; this may also apply to the
other standard bidding documents;
 Such caution may also help to have smooth contract management and in
preventing or minimizing construction claims to arise;
 deal conformance: Now the construction contract is ready for its management
process: viz., ensuring conformance to the recorded deal (viz., the signed
construction contract & the applicable law thereto);

Effects of Contract & Construction Contract

………………………………………………………………………………………………………………

 Background
 see the Civil Code: Article 1675 cum 1731 cum 1952 cum 1678 (b) cum 1711-
1718 cum 3131-3206 cum 3244-3296 plus the actually signed construction
contract documents;
 The issue of effect of contract deals with the following two broad issues:
 parties to the contract; and
 content & scope of their deal;

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 Contracting Parties
 The issue of parties to the contract is related to the doctrine of privity of
contract; i.e., contract brings (relative) effects only to the parties to such
contract; namely., on the employer & on the contractor;
 Outsiders, legally known as third parties, in principle, are excluded from the
contract to get neither benefit nor burden;
 There may be some exceptions to such rule as provided under Article 1731
(1) cum Article 1952 ff of the Civil Code (Third Parties);
 The Engineer is a third party say to the specific water project related
construction contract signed between the employer & the contractor (like the
Enterprise);
 The sub-contractor is a third party to such water project related
construction contract signed between the main contractor (like the
Enterprise) & the employer;
 The employer is a third party to such water related construction sub-
contract signed between the main contractor & the said sub-contractor;
 The contractor is a third party to the consulting services agreement signed
between the employer (as a client) & the Engineer (as a consultant or the
Engineer under a given construction contract); like the Enterprise;
 Scope of the Deal
 The scope of the deal of the contracting parties (like the employer & the
contractor under a given water project related construction contract)
encompasses the following two broad areas:
 It encompasses: K & L
 the signed construction contract (K); and
 the applicable law (L) to such contract;
 the contract:
 the terms of the signed construction contract itself, established based
on the principle of freedom of contract & sufficiency requirement

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provides the formidable ground for the deal of the contracting

parties; viz., the employer & the contractor (like the Enterprise)
 see Article 1678 (b)) cum 1711-1718;
 the applicable law: shall or may come to apply to the specific construction
contract in two distinct ways; viz., in terms of
 express terms of the law; and
 implied terms of the law;
 express terms of the law: public policy role of the law
 the express terms of the mandatory provisions of the law shall apply
to the (construction) contract, as a matter of public policy & legality
requirement and they automatically become the deal between the
contracting parties; see Article 1678 (b) cum 1731 (2);
 implied terms of the law: gap filling role of the law
 the implied terms of the law apply to the contract where the parties to
the construction contract fail to determine the terms of their deal
based on the principle of autonomy of parties & freedom of contract;
 This is evident from the reading of Article 1731 (2) & (3) of the Civil Code;
 The issue of applicable law to the contract thus comes from here:
 express terms: either to mandatorily regulate the behavior or
obligations of the contracting parties as a matter of public policy (see
Article 1678 (b) cum 1711-1718); and/or
 implied terms: to fill the gap, through such implied terms of the law
in the contract, where the parties fail to exercise their freedom of
contract to fix their deal; illustration: see Article 2619; 3174 as to
time;
 Effectiveness:
 In construction contract the issue of effectiveness of contract might
also be considered where the parties to such contract include some
defined pre-conditions in the signed contract for its effectiveness;

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 Illustration: see Clause 8.1 of the MDB-FIDIC; pre-conditions like

effecting advance payment; making financial arrangement; handing
over of site;
 Illustration: see also Article 3134 cum 3143-3145 the Civil Code as
related to possible further approval requirement after signing of the
construction under consideration;
 Scope of Effects of Contract
 The issue of effects of contract encompasses the following four areas:
 interpretation of contract;
 performance of contract;
 variation of contract;
 non-performance of contract;
 The four issues have been provided for & governed under Article 1732-1805
of the Civil Code;
 Interpretation:
 see Article 1732-1739 of the Civil Code cum other applicable laws cum the
signed construction contract;
 purpose:
 the objective of contract interpretation is to reach to the true meaning
of the terms of the contract document; and
 then to determine who bears the benefit or burden from the result of
such interpretation process;
 Rules of contract interpretation have been provided under the Civil Code;
 The first rule of interpretation states:
 no interpretation in case of clear contract terms;
 The other important rule of interpretation being:
 in case of doubt the benefit of doubt goes to the debtor; this is true in
case of interpreting standard conditions of construction contract; the
benefit of doubt goes to the contractor (like the Enterprise) since it is
not the one who prepares such construction contract documents;
 also called contra proferentum rule;
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 From institutional perspective, two types of interpretation may be identified:

 formal interpretation; and
 informal interpretation;
 Formal interpretation
 formal interpretation is undertaken;
 by the judge at the court of law; and
 by the arbitrator at the arbitral tribunal;
 the Courts:
 The reason being that the courts are judicial institutions both
constitutionally & legally empowered to do interpretation of law; and
 in case of disputes related to contract to interpret the contract (like
construction contract) as well;
 arbitration tribunals:
 The arbitrator is the one who legally empowered to give its award
based on the principle of law;
 this task necessarily requires to interpret both the law and the
underlined (construction) contract to settle the dispute; see Proc. No.
1237/2021;
 The difference between such two institutions, the court & arbitration, being
that:
 the court being the creation of the law;
 whereas arbitration, specially as related to construction, being the
creation of agreement (contract) (i.e., agreement to arbitrate);
 Informal interpretation
 Informal interpretation may be undertaken;
 by the contracting parties themselves; during their claims or disputes
negotiation process or otherwise;
 by the Engineer; through providing clarification (as related to
ambiguity or discrepancy or contradiction) & instruction; during its
claims consultation; claims determination or decision process or
contract administration or project supervision or otherwise;

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 by the Adjudicator/DRE; during its dispute resolution process with a

view to give its decision or recommendation;
 The construction contract document also contains some rules of
interpretation in the relevant contract documents such as:
 in the Contract Agreement, if completed; in terms of establishing the
hierarchy of construction contract documents & the rule of
interpretation to be followed in case of ambiguity or discrepancy
between and/or among such contract documents listed;
 in the General Conditions of Contract; in the definition part of same;
for example, see MDB-FIDIC under Clause 1, has defined certain
terms and/or phrases grouped under the following categories; viz..
 The Contract;
 Parties & Persons;
 Dates, Tests, Periods & Completion;
 Money & Payments;
 Works & Goods; and
 Other Definitions; like Contractor’s Documents; Country;
Employer’s Equipment; Force Majeure; Laws; Performance
Security; Site; Unforeseeable; and Variation;
 in the Special Conditions of Contract; in the definition part of same;
 in the other part of the construction contract documents; like under
the BOQ; the Drawing; the Technical Specification;
 Performance:
 see the Civil Code: Article 1740-1762 cum 3131-3206 cum 3244-3296 plus the
signed construction contract documents;
 By performance of construction contract it means to discharge the respective
contractual obligations of the employer & the contractor as per the signed
construction contract;
 Performance of construction contract has the following two dimensions;
 promise dimension; and
 consideration dimension;

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 Promise dimension may relate to the contractor & to the employer;

 to the contractor; generally, in terms of its contractual obligation as
related to execution & completion of works and remedying of defects
therein;
 to the employer; in terms of its obligation related to appointment of the
Engineer; design; site handover; takeover of the works if completed;
…;
 Consideration dimension being related to the employer; viz.,
 as related to its payment obligation;
 The level of detail & complexity of contract performance by the employer &
the contractor, with respect to their respective contractual obligation, is
provided & regulated by their relevant construction contract documents; re:
1678 (b) sufficiency requirement is crucial here!
 The whole purpose of construction contract management process & goal is
thus to achieve the realization of the performance of say the water works
construction project by ensuring the discharge of the respective contractual
obligations of contracting parties, viz., the employer & the contractor (like
the Enterprise);
 Construction contract management thus means ensuring conformance to
their deal;
 Variation:
 see the Civil Code Article 1675 cum 1763-1770 cum 3131-3206 cum 3244-
3296 plus the signed construction contract documents;
 Variation may have two dimensions within the construction contract context:
 textual variation; meant variation of the terms of the contract; and
 physical variation; meant variation in the works;
 Textual Variation:
 Contracting parties, as they are free to create their contractual terms,
they are also free to vary same;
 This type of variation is called textual variation as provided &
regulated under Article 1675 cum 1763-1770 of the Civil Code;

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 This type of variation is mostly effected through supplementary

agreement as related to construction projects (or Addendum);
 Variation in the Works:
 Variation in the works is the second type of variation which has
nothing to do with changes in the terms of the contract but the works;
 This type of variation is effected during the performance period of the
construction contract through the variation order issued by the
Engineer;
 Each & every variation in the works does not need any textual
variation in the management of construction contract;
 The cumulative effect of variation in the works (as provided under the
construction contract) may trigger a textual variation, however;
 Variation in the works recognized, legally, as changes in the work
(see Article 2625) or alteration to the works (Article 3031-3034 ) in the
field of private construction contract;
 This concept is crucial in terms of scope management under a given
construction contract; see Clause 13 of MDB-FIDIC; see Clause 15 of
the PPA (2011);
 Non-Performance:
 see Article 1771-1805 cum 3131-3206 cum 3244-3296 under the Civil Code
plus the signed construction contract documents;
 Non-performance of contract results in the failure to perform or discharge the
underlined contractual obligation assumed by that specific contracting party,
either the employer or the contractor under the relevant signed construction
contract;
 If the contracting party responsible for such performance obligation fails
(then becomes the defaulting contracting party),
 remedial right: the other contracting party (the non-defaulting party)
is entitled to some form of remedial right; and

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 liability: such defaulting contracting party is becoming liable for such

remedial right towards the other contracting party (the non-
defaulting party);
 Non-performance thus brings with it the following four interrelated issues;
 obligation: who was responsible for what (obligation dimension);
 liability: what results from non-performance against whom (liability
dimension);
 remedial right: who is to be entitled to benefit from enforcement of
such liability (remedial rights dimension);
 quantum of remedial right: to what extent he (the one who benefits
from) is entitled to such remedial rights; (quantum of liability
dimension);
 Obligation Dimension
 Who was responsible for what provides the contracting party
responsible for a defined type of performance or obligation;
 From this perspective, we may have two dimensions: promise &
consideration dimensions;
 The promise dimension may relate to the contractor or the employer,
as the case may be;
 The promise dimension as related to the contractor expressed in
terms of its execution, completion & remedying defects obligation;
therefore, it is said to be that the contractor was contractually under
obligation for execution & completion of the works; and remedying
defects in the works;
 The promise dimension as related to the employer may be related to
its obligation like as to design or site handover or takeover obligation;
therefore it is said to be that the employer was contractually under
obligation for design or site handover or takeover;
 The consideration dimension being related to the employer; as related
to its payment obligation; therefore it is said to be that the employer
was contractually under obligation for payment;

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 Therefore, the contractor as related to execution of the works, and the

employer as related to say design or site or takeover and payment is
their respective obligations;
 Liability Dimension
 The failure to discharge or to perform such respective contractual
obligations by the employer or the contractor brings with it a liability
against the employer or the contractor, as the case may be;
 towards the other party, i.e., the employer towards the contractor; or
the contractor towards the employer;
 Remedial Right Dimension
 Therefore, the employer or the contractor, as the case may be, is the
one to benefit from the enforcement of such liability against the
contractor or the employer, respectively;
 Remedial right may emanate from the applicable law or from the
signed construction contract;
 The legal remedial rights as provided under the Civil Code, may take
the following three forms; viz., specific performance; cancellation of
contract; and general damages;
 The contractual remedial rights could take the following three forms:
viz., time or cost or both time and cost; and others like suspension of
works or termination of contract;
 Quantum of Remedial Right Dimension
 Liability as specified in terms of specific remedial rights has quantum
dimension specially as related to time and/or cost;
 Quantum may be expressed as follows: how many days of extension of
time (EOT) to be granted to the contractor; how much cost (viz., in
terms of additional payment) to be given to the contractor;
 This is evident in case of construction claims & dispute management;

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IV. Role of the Engineer

 Background
 In case of large scale & complex construction projects, depending up on the
type of project delivery sub-system, which requires the engagement of
consultants, it is unthinkable without consultants to plan, study, design
and/or manage the said projects;
 Consultants may provide their services either institutionally or individually;
 Their services may generally relate to the following three areas:
 project preparation;
 project implementation; and
 knowledge transfer (like training);
 Project preparation services may relate to:
 feasibility studies; and
 design services;
 Project implementation services may relate to:
 tender document preparation;
 procurement assistance to the client;
 project supervision; and
 contract administration;
 The focus of the training shall thus be on the services of consultants, as “the
Engineer” during the implementation phase of a given construction project
(like water works project) as related to continuous design function; project
supervision; and contract administration;
 Legal Base
 legal base; the services of consultants has been recognized by & regulated
under the Ethiopian law;
 legal designation: the law is called the law of professional services or hiring
of intellectual services under the Civil Code:
 see Article 1675-2026 cum Article 2632-2638 cum 2632 (2) cum 2610-2631;
 see also all special laws cum Article 2632 (3);

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 Legal Features
 Consultants like the Engineer provide services which legally have the
following features/nature;
 intellectual/professional nature;
 independent nature;
 personal nature;
 incorporeal nature; and
 technical nature;
 Professional Nature
 the professional nature of the services of consultants is clear;
 the law itself has declared it as an intellectual service;
 see Article 2632 (1) of the Civil Code;
 they enjoy: management autonomy; schedule autonomy; and method
autonomy;
 Independent nature
 the independent nature of consulting services has two dimensions:
 independent contractor dimension; and
 free from conflict of interest dimension;
 the doctrine of independent contractor applies to consultants as well, as per
Article 2632 (2) cum 2616 of the Civil Code; it has again two dimensions:
legal and professional;
 legal dimension: consultants enjoy the following autonomies;
 legal autonomy: consulting firms are legally independent thus
enjoying legal personality different from the employer or the
contractor or any other third party;);
 organizational autonomy: consulting firms having their own
institutional set up (subject to project requirement)); and
 financial autonomy: consulting firms having their own source, cost
structure & management of same; subject to legal & regulatory
requirements;

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 professional dimension: it means that professionally consultants are

independent from their clients; they have to follow the rules of their
profession;
 conflict of interest dimension: as related to this consultants are faithful
advisors to their clients; they are thus required to protect the
legitimate interests of their clients; from this it follows that they are
not expected to place themselves in a situation which brings conflict of
their interest with that of the client:
 the origin of such conflict of interest may be of twofold: their own
interest and/or the interest of a third party with whom the consultants
may have;
 Personal Nature
 consultants are hired for their individual (corporate or otherwise)
professional ability & competence;
 personal: they are thus required to discharge their professional obligations
personally;
 see Article 2633 (1) of the Civil Code;
 assistants: the law also recognizes & allows consultants to have their
assistants (like Engineer Representative or quantity surveyor;…);
 see Article 2633 (2) of the Civil Code;
 in case of complex projects, the scope of assistance may include: sub-
consultancy agreement; or joint venture arrangement;
 Incorporeal Nature
 the professional services of consultants is intangible; that is why it is said to
be incorporeal;
 this nature of the services of consultants distinguishes the services of
consultants from that of the works contract which is tangible;
 Technical Nature

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 the services of consultants i.e., the Engineer, is technical since the

construction project management (like design or project supervision &
contract administration) is technical in nature;
 such services clearly require technical knowledge from the Engineer about
the project to be designed or managed;
 this nature of the services of consultants distinguishes the services of the
Engineer, as consultant, from other non-technical consulting services;
 in 2006 the PPA has prepared & issued separate SBD for technical
consultancy services & non-technical consultancy services;
 for technical services the PPA has also prepared & issued the 2011 version of
standard form for Request for Proposal;
 Role of the Engineer
 During the implementation phase of a construction project(like water works
project), the Engineer, as a consultant, may have two categories of roles:
 agent role; and
 professional role;
 That will be the next point of discussion;
 Agent Role: Legal Basis
 The legal basis that the Engineer has an agent role is Article 2636 (1) of the
Civil Code: this sub-article reads as follows: Whosoever hired out his
(intellectual) work shall undertake to carry out in the best interest of his
client, …and…; (emphasis added)
 The Engineer, based on his contractual agreement with this client, acts as
the agent of the employer in the management of construction contract;
 This is evident from the reading of a clause in the MDB-FIDIC: see Clause
3.1: The Employer shall appoint the Engineer who shall carry out the duties
assigned to him (i.e., to the Employer) in the contract;
 The Engineer is not a party to a construction contract but performs the
contractual obligations of the employer (as an agent) in the name & on behalf
of the employer (his client/principal);

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 Therefore, there is, legally, an agent & principal relationship between the
Engineer & the Employer, as a client;
 This agent & principal relationship between the Engineer & the employer (as
his client & principal) is regulated by their consulting services agreement
(destined for construction project management) & the provisions of the Law
of Agency; see Article 2179-2265 of the Civil Code;
 Under the agent role of the Engineer, it is the very mission of the Engineer to
best protect the legitimate interests of the Employer i.e., its client or
principal;
 The nature of such relationship between the Engineer & his principal (the
Employer) is thus contractual;
 Types of Duties
 The following types of duties may reveal the agent role of the Engineer in the
management process of a construction project & contract;
 Two types of agent role has been identified: power & function;
 Power
 The power of the Engineer may reveal itself in the following instances: like
the power;
 to instruct the contractor to do variations; see Clause 13.1 MDB-
FIDIC; Clause 15 PPA;
 to instruct the contractor to suspend the performance of the works;
see Clause 8.8 MDB-FIDIC;
 to delegate its power to its assistants; see Clause 3.2 MDB-FIDIC;
 Function
 The function of the Engineer may reveal itself in the following instances:
 Advising: like on costs of the project..;
 Providing information: like providing working drawing to the
contractor..;
 inspecting & monitoring: works or materials (by himself or through
professional inspectors) or workmanship or defects; and

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 quantity surveying: through assistants like quantity surveyors;

 Legal Implications
 Both in case of such power exercise & function, the acts, defaults or neglects
of the Engineer (as agent of the employer or the client) are considered,
legally, the acts, defaults or neglects of the employer or the client;
 see Sub-clause of the MDB-FIDIC the Engineer is part of the Employer’s
personnel;
 The contractor shall then resort to the employer to secure its remedial rights,
if any, like in case of variation claims (as related to power) or delay claims
(as related to function; due to failure to give working drawings to the
contractor in due time);
 Professional Role: Legal Basis
 The legal basis for the professional role of the Engineer is Article 2636 (1) of
the Civil Code: the sub-article reads as follows: Whosoever hired out his
(intellectual) work shall undertake to carry out …in conformity with the
practice & rules of his profession; (emphasis added)
 The Engineer is a professional;
 His profession, as a matter of public policy, is regulated by law:
 The regulation of his profession encompasses the following three phases:
EEE:
 Entry: the entry to the profession: through professional certification
process, registration & licensing process;
 Exercise: the continuous exercise of such profession (through annual
renewal of his professional & business license); and
 Exit: the termination of the exercise of his profession (due to say
professional negligence or professional misconduct; like by revoking
the professional & business license);
 On such regulatory requirement & process the employer (the client) has no
influence or power;

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 Due exercise of one’s profession, as a matter of public policy, is therefore a

matter of public interest;
 The dimensions of the issues involved here are thus legal;
 The liability of the consultant or the Engineer as related to his professional
negligence is legal (as a matter of public policy & protection of public
interest) as regulated under Article 2031 of the Civil Code(Professional
Fault); and
 not contractual as in the case of agent role (see the specific client &
consultant contract plus Article 2179-2265 of the Civil Code);
 Types
 The following are illustrative to professional role of the Engineer: viz.,
 design;
 supervision;
 certification; and
 determination;
 The design function of the Engineer is clear;
 The Engineer becomes liable for design during construction in the following
two instances;
 the Engineer (now the supervision consultant) was the designer
himself; or
 the Engineer (now the supervision consultant) has assumed design
liability by reviewing & accepting all design documents done by
another (design) consultant;
 Supervision is aimed to ensure quality of the project;
 Certification is related to: payment & event
 payment certification; like monthly payment & final payment;
 event certification; like performance or non-performance
certification of the contractor (like completion);
 Decision is related to: claims & other matters;

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 claims determination; determination on the claims of the

contractor; see Clause 20.1 cum 3.5; the claims of the employer; see
clause 2.5 cum 3.5 under the MDB-FIDIC;
 other determinations; see Clause 3.5
 The idea behind such professional role of the Engineer is that the Engineer
has to follow the practice & rules of his profession in discharging his duties
as related to certification & decision making; see also Article 2636 (1) cum
2616 (1);
 The Engineer is not expected to follow or to protect the interests of the client
but the rules & practice of its profession;
 Legal Implications
 liability: The Engineer himself becomes legally liable if he found to be
professionally negligent in terms of its design and/or supervision related
professional services;
 The Engineer may become legally liable for the error or omission that it has
committed in undertaking its professional services;
 see Article 2636 (2) cum 2031 (i.e., its extra-contractual or legal liability) cum
Article 2632 (2) of the Civil Code;
 The dimension of the legal liability of the Engineer may extend:
 to the client;
 to the contractor; and
 to the general public;
as the case may be;
 No contractual commitment is needed on the part of the Engineer to become
liable legally since its liability originates not from contract but from the law:
 see Article 2031 (Professional Fault) under the Extra-contractual liability
regime;
 The client is not liable for the professional negligence of the Engineer; this is
thus based on the independent & professional status of the Engineer;

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V. Construction Contract Management:

Background

………………………………………………………………………………………………………………

 Contracting Parties & their Status

 The contracting parties to the signed construction contract are:
 the employer; and
 the contractor;
 Such signed construction contract only binds, in principle, the employer &
the contractor; see Article 1675 cum 1731 (1) cum 1952 of the Civil Code;
 The following are not party to the construction contract signed between the
employer & the (main) contractor: for example, the Engineer; the Sub-
contractors (nominated, domestic);
 The Employer:
 initiator: The employer is the one who initiates the idea or plan of a
construction project under consideration;
 financer: the employer is the financer of the project; save the role of
international financial institutions in providing the necessary financial input
to the project in terms of loan or grant or aid;
 owner: the employer is the owner of the physical facility up on its
completion; save in certain circumstances where the executing agency & the
final operator of the project being different;
 independent: the employer is independent:
 legal autonomy: the employer enjoys legal autonomy (based on
formative legal instruments in case of public employers;); it has its
own legal personality different & independent from the contractor,
the engineer or any other persons);
 organizational autonomy: the employer enjoys organizational
autonomy; having its own structural set up;

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 financial autonomy: the employer enjoys financial autonomy; in

terms of its source, cost structure & management of same;
 management autonomy: the employer enjoys management
autonomy; to run its business and/or project based on its own
structure, system & resources including its human capital;
 professional: the employer may or may not be a professional;
 The employer may engage a consultant in various phases of the construction
project:
 project study services:
o to get project study services (project planning; reconnaissance
study; pre-feasibility study; feasibility studies; environmental
studies (impact, risk & mitigation measures related); socio-
economic studies; compensation and/or resettlement action
plan (RAP) studies;) as related to some defined construction
project say building; engineering (infrastructure); and/or
industrial;
 delivery system;
o to get a recommendation & advice on the choice of appropriate
project delivery sub-system & their range of implications as
related to the contemplated construction project;
 design services:
o to get the complete/detail design or otherwise of the
construction project under consideration based on the delivery
sub-system selected & decided;
 bidding documentation:
o to get a complete standard bidding documents ready for
invitation for bids based on the delivery sub-system selected &
decided;
 procurement services:

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o to get a procurement assistance services with a view to select a

qualified contractor based on the recommendation of the
consultant;
 project supervision services:
o to get project supervision services from the consultant;
 contract administration services:
o to get construction contract administration services from the
consultant;
 In case of public institutions, as employers, there is an issue of legal
substitution of the former employer by the new employer;
 See the definition given to Employer; under Sub-Clause 1.1.2.2: MDB-
FIDIC;
 The Contractor;
 The legal status of the contractor is different from the employer;
 Two issues are important here: viz., the contractor’s independence status &
its professional status;
 independent status:
 the contractor, based on the doctrine of independent contractor, is
independent from the employer; see Article 2616 (1) of the Civil
Code;
 This legal status of the contractor brings with it the following
fourfold autonomies, viz., legal; organizational; financial; and fiscal
autonomy;
 legal autonomy:
 the contractor enjoys legal autonomy; it has its own legal personality
(based on its formative legal instrument viz., regulation) different &
independent from the employer; the engineer or any other person;

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 organizational autonomy:
 the contractor enjoys organizational autonomy;
 it has its own structural set up but subject to project requirement, if
any;
 financial autonomy:
 the contractor enjoys financial autonomy; in terms of its revenue
source; cost structure & management of same;
 fiscal autonomy
 the contractor enjoys fiscal autonomy; in terms of its tax; fiscal
privilege, if any and fiscal obligations;
 Implications
 being independent & professional brings with it important legal &
contractual obligations & liability:
 legally & contractually: to be liable for his own acts, defaults or
neglects & of its sub-contractors acts, defaults or neglects towards the
employer & third parties; and
 legally & contractually: as to its obligation & liability in terms of its
design method related, if any; and construction method related;
 professional:
 the contractor is a professional; it knows what, when and how to do
in terms of its contractual & technical obligations under a given
construction contract;
 the contractor performs its contractual obligation as it wishes & by
complying the rules of its profession; see 2616 (1) of the Civil Code;
 The professional status of the contractor brings with it the following
threefold autonomies viz., management autonomy; schedule
autonomy; and method autonomy;
 management autonomy:
 the contractor enjoys management autonomy; to manage the
construction project as it wishes; see Article 2616 (1) of the Civil
Code;

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 schedule autonomy:
 the contractor enjoys schedule/program autonomy since it knows
what (activities), when (sequencing) to do;
 method autonomy;
 the contractor enjoys method autonomy since it knows how to do it;

 Limitations
 There are two/three limitations on the professional freedom
(autonomy) of the contractor: viz., regulatory limitation; legal
limitation; and contractual limitation;
 regulatory limitation;
o this limitation comes or originates from the rules & practice of
the contractor’s respective profession (like from building
and/or infrastructure or industrial construction);
o this limitation aims to protect public interest; see Article 2616
(1) of the Civil Code;
 legal limitation;
o this limitation is related to the law of administrative contract
re: public construction contract;
o the employer there enjoys prerogative power over the
contractor: like direction of the works; supervision of the
work;
 contractual limitation:
o this limitation comes or originates from the construction
contract under consideration as related to the order of the
client (the employer) as agreed by the contractor as the time of
the making of the contract
o this limitation aims to protect the legitimate interests of the
specific employer under consideration;

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o The contractor may not follow the orders of the client (i.e., the
employer) except in so far as it has agreed, at the time of
contract, to comply therewith;
o The construction contract thus provides the ground for such
order by the employer through the Engineer; like variation
order; suspension order; order as related to quality assurance;
and so forth;
o see 2616 (1) & 2616 (2) of the Civil Code;
 In case there is a change of the contractor during contract performance, its
institutional successor, if any, may continue as contractor; see Clause 1.1.2.3:
MDB-FIDIC or other comparable standard form of construction contract;
 there are various reasons for the contractor to be changed by another; in
such case the principles of the law of succession may apply;
 Contract Documents
 Construction contract (like water works construction contract) may contain
the following five categories of contract documents: viz.,
 the legal part;
 the technical part;
 the commercial part;
 the technological (E&M)part, if any; and
 the dispute resolution part;
 The legal part: may include the following contract documents:
 the Form of Agreement , if completed;
 the Letter of Acceptance;
 the Minutes of Pre-contract Negotiation Meeting, if any;
 the Bid (including any Appendixes thereto, if any);
 the Special Conditions of Construction Contract;
 the General Standard Conditions of Construction Contract;
 other identified contract documents, if any;
 The technical part: may include the following contract documents:
 the Technical Specifications; the Drawing; the Bill of Quantities;

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 The Technical Specifications: which provides the textual

description of the project & which specifies the quality parameters of
the works (in terms its workmanship; construction materials;
construction equipments;) under the construction contract; defines
how the project to be done (i.e., method));
 The Drawing: which describes graphically the works under the
construction contract; defines what to be done;
 The Bill of Quantities: identifies the scope of works, in terms of
those quantities, and provides the basis for the measurement &
valuation of quantities to be executed; it is both a technical &
financial document;
 The commercial part:
 The commercial part of the contract may include the following contract
documents (i.e., commercial security instruments originating from & issued
by banks or insurance companies including insurance policies):
 security instruments like: for security management
 Advance Re-payment Guarantee/Bond;
 Performance Bond /Guarantee;
 Retention Money Bond/ Guarantee; and
 other security instruments, if any;
 These documents are the basis for our discussion as related to security
instruments management;
 insurance policies like: for risk management
 Insurance for Works;
 Insurance for Personnel;
 Insurance for Plant & Equipment;
 Insurance as related to Third Part Liability; and
 other insurance policies, if any;
 The technological part:

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 may include process related documents as related to electro-

mechanical (EM) part of the works, if any;
 like for elevation works in building projects;
 like signaling, communication, electrical, mechanical works in railway
construction projects;
 The dispute resolution part:
 it is basically related to an arbitration clause in a given construction
contract, if any;
 an arbitration clause, even though it is already part of the main
construction contract document (under the general and/or special
conditions of contract, if any) it is legally a separate contract
document based on the doctrine of severability of such arbitration
clause from the underlined construction contract;
 see Proc. No. 1237/2021 the new piece of legislation on arbitration &
conciliation;
 see for example, Clause 20.6 MDB-FIDIC (on arbitration);
 see Clause 26: Disputes Settlement PPA 2011 (viz., arbitration) if
applicable;
 The type, size and/or complexity of the construction project may have its own
legitimate impact on the scope of the relevant contract documents;
 Work Program; do you think that this important document forms an
integral part of a given construction contract document? If so, why? If not,
why not? Discuss
 Scope & Basis
 Under this part of the training, the main & respective obligations of the
contractor & of the employer have been presented;
 As to the obligations of the contractor it may include the following twofold
interrelated obligations: viz., promise; and risk sharing obligations;
 Promise: Completion Obligation;
 Derivative key Obligations to Completion obligation;

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o Quality Related Obligation;

o Time Related Obligation;
o Scope Related Obligation;
o Cost Related Obligation; and
o Safety Related Obligation;
 Risk Sharing Obligation;
 As to the obligations of the employer, it may include the following threefold
interrelated obligations: viz., promise; consideration; and risk sharing
obligations;
 Promise related Obligation
o Engineer Related Obligation;
o Design Related Obligation;
o Site Related Obligation;
o Permit related Obligation
o Takeover Related Obligation;
 Payment (Consideration) Obligation; and
 Risk Sharing Obligation;
 As common obligation of the contractor and of the employer, cost & risk
related obligations shall also be discussed separately;
 Security instrument management issues shall also be discussed as related to
the commercial part of a given construction contract;
 The discussion is mainly based on MDB-FIDIC international Standard
Conditions of Construction Contract;
 Some cross references may also be made to the relevant clauses of PPA 2011;
 Some cross references may also be made to the relevant applicable laws like
the Civil Code or otherwise;

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Obligations of the Contractor

………………………………………………………………………………………………………………

 Background
 The contractor may have different obligations under a construction contract;
 The following are some of the fundamental obligations of the contractor
under the construction contract;
 These are:
 Promise: Completion Obligation;
 Derivative to Completion Obligation;
o Quality Related Obligation;
o Time Related Obligation;
o Scope Related Obligation;
o Cost Related Obligation; and
o Safety Related Obligation;
 Risk Sharing Obligation;
 These issue areas are the basis for construction contract management;
Promise:
Completion Management
 Basic Obligation
 see Clause 4.1 cum 7.6 cum 8.2 (a) (b) cum 9.1 cum 13.1 cum 11.1 cum 17.4
cum 19.7 cum MDB-FIDIC;
 see Clause 34: General Obligations (of the Contractor) PPA 2011;
 The basic obligation of the contractor under the construction contract shall
read:
 to execute the works;
 to complete the woks; and
 to remedy defects in such works;

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 The contractor undertakes such obligation by itself & through others: viz.,
through sub-contractors (domestic vs. nominated) sub-contract arrangement,
if nay;
 Such completion obligation of the contractor encompasses two time
dimensions: viz.,
 performance period; and
 defects liability period;
 During performance period, the contractor is under such contractual
obligation to:
 to execute, to complete & to remedy defects in the works within the
time agreed;
 to execute the whole of the Works in accordance with the Contract up
to Take Over of the Works by the employer;
 to undertake tests on completion;
 see Clause 4.1 cum Clause 8.2; Clause 13; Clause 9; Clause 10 MDB-FIDIC;
 During defects liability period, the contractor is under such contractual
obligation to:
 execute outstanding works; and
 to remedy defects & damages in the works;
 see Clause 11.1 MDB-FIDIC;
 Extent of Completion Obligation
 The scope of completion obligation of the contractor under such contract
may include to undertake the following:
 to execute & complete the original scope of work & to remedy
defects in such original scope of work; see Clause 4.1 cum Clause 10
MDB-FIDIC;
 to execute variations orders; see Clause 13.1 MDB-FIDIC;
 to rectify losses or damages to the works arising out of the
Employer’s Risks; see Clause 17. 4 MDB-FIDIC;
 to execute remedial or urgent works; see Clause 7.6 MDB-FIDIC;

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 to carry out works to achieve tests on completion for the purpose of

Taking Over; see Clause 9.1 cum Clause 8.2 (a) cum 8.2 (b); MDB-
FIDIC;
 Specially passing tests on completion is a critical obligation which
may have serious contractual consequences against the contractor;
see Clause 9.4 MDB-FIDIC;
 Completion obligation of the contractor thus related to time; scope; and
quality parameters of the contract/the project;
 Excuses from Completion Obligation
 The contractor may be excused from its completion obligation on the
following contractual and/or legal grounds;
 The grounds may generally relate to:
 impossibility; legal and/or physical impossibility;
 risk; as related to the employer risk under the contract;
 suspension; by the employer or the contractor;
 termination; by the employer or the contractor;
 impossibility:
 due to legal or physical impossibility;
 see Clause 19. 7 MDB-FIDIC;
 see Clause 18 PPA 2011 (Force Majeure);
 see also Article 1678 (b) (i.e., possibility of obligation legal
requirement;) cum 1715 (1) cum 1792-1794 (Force Majeure) of the
Civil Code;
 risks:
 in case of the occurrence of the Employer’s Risks;
 see Clause 17. 3 MDB-FIDIC;
 suspension:
 in case of suspension of the Works by the Employer;
 see Clause 8.8 MDB-FIDIC;
 suspension:

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 in case of legitimate suspension of the Works by the Contractor as

related to payment; see Clause 16.1 MDB-FIDIC;
 termination:
 in case of termination of the Contract by the Contractor due to the
default of the Employer as related to payment;
 see Clause 16.2 MDB-FIDIC;
 termination:
 in case of termination of the Contract by the Employer for its
convenience;
 see Clause 15.5 MDB-FIDIC;
 see also Clause 21.2 (o) of the PPA 2011;
 see also the concept of employer’s termination of contract for its
convenience under Article 3180 of the Civil Code;
 termination:
 in case of termination of the Contract for the whole of the Works due
to prolonged suspension caused by the Employer; see Clause 8.11
MDB-FIDIC;
 termination:
 in case of optional termination of the Contract by the Contractor or
by the Employer due to prevention of performance by force majeure;
see Clause 19.6 MDB-FIDIC; see also the legal concept & scope of
force majeure under Article 1792-1794 of the Civil Code;
 under such circumstances the contractor is not in contractual and/or legal
position to complete the project under consideration;
 Role of Sub-contractors
 see Article 1675 cum 1731 cum 1952 cum 3201-3210 of the Civil Code;
 see Clause 4.4 MDB-FIDIC for domestic sub-contracting;
 see Clause 14 PPA (2011) for domestic sub-contracting;
 see Clause 5 MDB-FIDIC for nominated sub-contracting;
 Engagement of sub-contractors considered to be part of the broad
completion obligation of the contractor;

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 Sub-contractors are of two types: domestic & nominated sub-contractors;

Derivative Obligations to

Completion Obligation
………………………………………………………………………………………………………………

 Quality Management
 see Clause 7 (Plant, Materials & Workmanship) cum Clause 9 (Test on
Completion Clause 11 (Tests After Completion); other relevant parts of the
MDB-FIDIC;
 see Clause 37 (Control & Supervision of the Works); Clause 80 (Origin &
Quality of Works & Materials); Clause 81 (Inspection & Testing); Clause 82
(Rejection); 85 (Tests on Completion) of PPA 2011;
 the Technical Specifications of the project under consideration;
 see also the applicable laws regulating the quality of construction materials;
re: quality infrastructure;
 see Article 3282 (for public projects) or Article 3039 (for private projects) of
the Civil Code; re: legal warranty of construction for 10 years after its final
completion & delivery;
 Scope of Obligation
 One of the pillars of construction project is executing the works as per the
quality parameters or requirements specified in the contract;
 The quality performance obligation of the contractor is related to those
quality parameters specified in the contract in terms of materials, plant &
workmanship;
 in case of Plant; see Clause 7.1 (a) MDB-FIDIC;
 in case of Materials; see Clause 7.1 (c) MDB-FIDIC;
 in case of Workmanship; see Clause 7.1 (b) cum Clause 6.1 MDB-FIDIC;
 The quality performance obligation of the contractor has been specified in
detail in the Technical Specification;

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 Deviation from the quality parameters by the contractor may lead to the
issue of defects in construction;
 Defects may relate to workmanship; material; equipment; design; or sub-
surface or geological factor of the project site;
 Defect, Time & Liability Dimension
 Defect as related to the severity of its impact could be:
 structural defect or
 functional defect;
 Defect as related to construction may encompass two relevant time horizons:
 contractual period; and
 legal period;
 The contractual horizon as related to defect is related to:
 performance period; and
 defects liability period;
 In case of performance period, the defect being identified, notified &
remedied; the Engineer has direct power to ensure quality through various
measures: inspecting; testing; retesting by ordering demolishing & re-work
and so forth;
 Up on completion of the project, tests on completion has to be undertaken by
the contractor; the Engineer, under the contract, has broad power to ensure
the quality of works; see Clause 9 of MDB-FIDIC; and Clause 85 of the PPA
2011; like requiring multiple retesting & reduction of the contract price; or
requiring multiple retesting & rejection of the works; demolishing &
reconstruction of the works;
 During the defects liability period remedial works are going to be executed
based on the snag list and/or on those defects found & recorded during such
period for which the contractor is responsible under the contract;
 Performance period & defects liability period are separated by the issuance
of takeover certificate by the Engineer;

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 The contractual period & the legal period (which constitutes the warranty
period) separated by the issuance of defects liability certificate or final
acceptance or taking of possession of the works by the employer;
 Those defects which were apparent, visible & remedied during the contract
period (viz., during performance & defects liability period) are called patent
defects;
 Those defects which were not visible during such contract period are called
latent defects; for such type of construction defects the contractor shall be
legally liable provided those defects were related to construction;
 The liability of the contractor for such latent defects could be for 10 years;
see Article 3282 of the Civil Code; as related to public construction contracts;
see Article 3039 as related to private construction contract;
 the liability of the contractor is called decennial liability;
 Excuse from Quality Obligation
 There is no excuse for defective performance or failure to achieve quality
parameters of the works;
 Consider the issue of variation order as related to the concept of detrimental
variation;
Time Management: Background
 MDB-FIDIC: cum: means to be read in conjunction with
 see Clause 8: Commencement Date, Delay & Suspension
 see Clause 8.1:
 see Clause 8.2: Time for Completion
 see Clause 8.3: Program
 see Clause 8.4: cum
 see Clause 8.5 cum
 see Clause 8.8 cum
 see Clause 8.9 cum
 see Clause 8.11 cum
 see Clause 8.2 cum

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 see Clause 8.6 cum

 see Clause 9 : Tests on Completion
 PPA 2011: cum: means to be read in conjunction with
 see Clause 41 (Program of Implementation of Tasks); cum
 see Clause 71 (Commencement of Works); cum
 see Clause 72 (Period of Execution of Works); cum
 see Clause 73 (Extension of Intended Completion Date); cum
 see Clause 74 (Compensation Events for Allowing Time Extensions); cum
 see Clause 75 (Acceleration) cum
 see Clause 27 (Liquidated Damages);
 Civil Code: cum: means to be read in conjunction with
 see Article 1675 cum 1731 ff cum 3174;
 see Article 1675 cum 1731 ff cum 2619;
 Other Applicable Laws
 Rest & Holidays related laws; re: Work Program related;
 Time related obligation of the contractor is the most complex and thus difficult issue
in the field of construction contract management;
 Time obligation of the contractor should be specific; i.e., there must be clear
commencement date & clear completion date; based on these dates Work Program
is also required;
 If there is clear commencement date & completion date, the Work Program may
help;
 Is the Work Program part of the contract document then? Should it be either? If so
how does it help? What are the factors to be considered to prepare a Work Program
(structure)?
 What is the basis for time management then? The Work Program or such clear
commencement date & completion date or both?
 What is the basis for delay claims then? What about the basis for disruption claims?
Are they (delay & disruption claims) the same or different?

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 How the delay claims of the contractor are assessed? How about the delay damages
claims of the employer is to be assessed? Do they share same principle or are they
different?
Scope of Time Obligation
 The timely completion i.e., on completion date, if any, of the project by the
contractor may depend on multitude of factors contributed both by the contractor
itself and of the employer including the Engineer and so forth;
 The issues are discussed in relation to:
 mobilization;
 commencement;
 progress;
 completion; and
 tests on completion;
 These factors show that the completion of the project on such completion date, if
any, interwoven by the series of contractual obligations to be discharged by the
contractor; by the employer and/or the Engineer; and to be free from external risk
factors;
 mobilization: timely & effective mobilization by the contractor ;
 site: providing site & access thereto by the employer;
 advance: effecting mobilization advance, if agreed, by the employer;
 notice: effecting notice to proceed, if required under the contract, by the
Engineer; for the Contractor to duly mobilize & commence works;
 commencement: commencement of the Works, if there is clear cut
commencement date or otherwise; see Clause 8.1 MDB-FIDIC;
 progress: proceeding with the progress of the works: see Clause 8.1 cum
Clause 8.6 (Rate of Progress) MDB-FIDIC;
 This is related to the following situations; like
 effective project management on the part of the contractor in terms of
organizing & deploying all the required resources to the project;

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 achieving the planned production and productivity on the part of the

contractor;
 issuing the required working drawings (from time to time) on the part of the
Engineer;
 securing the required site & access thereto (from time to time) on the part of
the employer;
 approving variations in due time on the part of the Engineer;
 certifying payments in due time by the Engineer;
 effecting payment on time on the part of the employer;
 progress: the Engineer may instruct the contractor to accelerate the progress
of the Works, for which the Contractor is not responsible under the
Contract; see Clause 8.6 MDB-FIDIC
 completion: completing the works or section thereof on the originally agreed
or subsequently varied completion date, if any; see Clause 8.2 MDB-FIDIC;
consider also the effects of delay and/or disruption by the employer, third
parties and/or the Engineer & other grounds;
 tests: for the works to be declared completed they have to pass Tests on
Completion: please, also consider the possible contractual obligation of the
employer in doing some of the required tests on completion by itself and/or
providing some input to the contractor to undertake the tests on completion;
see Clause 9 MDB-FIDIC;
Excuse from
Time Related Obligation
 The following grounds may serve as excusable grounds for the non-completion of
the project by the contractor on the originally agreed completion date or
subsequently varied completion date; viz.,
 extension: due to extension of time for completion; see Clause 8.4 MDB-
FIDIC;
 delay; due to delays caused by authorities; see Clause 8.5 MDB-FIDIC;

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 suspension: due to suspension of work by the Engineer & its consequences;

see Clause 8.8 cum 8.9 MDB-FIDIC;
 suspension: due to prolonged suspension as related to the suspension order
instructed by the Engineer; provided the performance of the Works has been
resumed after such prolonged suspension; see Clause 8.11 MDB-FIDIC;
 suspension: due to suspension & deceleration of the Works by the Contractor
due to payment problems; see Clause 16.1 (h) MDB-FIDIC;
 delay: due to delay in issuing drawings or instructions by the Engineer; see
Clause 1.9 (a) MDB-FIDIC;
 delay: due to initial delay caused by the employer in providing possession of
Site & access thereto; see Clause 2.1 (a) MDB-FIDIC;
 setting out: due to setting out; see Clause 4.7 (a) MDB-FIDIC;
 unforeseeable factors: due to unforeseeable physical conditions; see Clause
4.12 (a) MDB-FIDIC;
 fossils: delay encountered by the Contractor due to the discovery &
reporting of Fossils; see Clause 4.24 (a) MDB-FIDIC;
 testing: due to testing as instructed by the Engineer or for which the
employer is responsible under the Contract; see Clause 7.4 (a) MDB-FIDIC;
 interference: due to interference with the Tests on Completion by the
Employer; see Clause 10.3 (a) MDB-FIDIC;
 legislation: due to adjustment for changes in legislation; see Clause 13.7 (a)
MDB-FIDIC; see also Clause 16 of the PPA 2011: Changes in Law &
Regulations;
 risks: due to consequences of Employer’s Risks; see Clause 17.4 (a) MDB-
FIDIC;
 Remedies:
 The contractor may be entitled to secure time or cost or both in case the
contractor itself were not liable for the delay caused; see the above MDB-
FIDIC & PPA clauses for excuses to the contractor;

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 The employer may also be entitled to delay damages if the contractor were
liable for the delay caused; see Clause 8.7 MDB-FIDIC;
 completion date:
 Such liabilities of the contractor or of the employer may work as
related to time related obligation of the contractor should there be a
clear commencement date, and clear completion date originally
agreed or as subsequently varied;
 time at large:
 if there were no clear commencement date and/or completion date,
the time for completion may become at large and the contractor will
then be entitled to complete the project within a reasonable time;
 see Article 1731 cum 3174 of the Civil Code; (consider also the issue of
implied terms of the law to the contract);
 if time becomes at large, the employer may no longer be entitled to collect
delay damages (under MDB-FIDIC) or deduct liquidated damages (under
PPA) from the contractor;
Scope Management: Background
 MDB-FIDIC
 see Clause 1.1.6.9 definition & scope of variation;
 see Clause 1.1.5.4; definition for Permanent Works;
 see Clause 13.1 related to instructed variation;
 see Clause 13.2 related to approved variation ; cum
 see also Clause 4.1 (a) (b) & (c); (viz., value engineering);
 PPA 2011
 see Clause 15: Modifications by Change Orders;
 Civil Code
 see Article 1675 cum 1763 cum 1767 of the Civil Code (contract variation);
 see also Article 3031-3033 of the Civil Code; re: to refuse alterations in the work;
 see also Article 3034 of the Civil Code related to “approved variation”;

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Scope Management: Concept

 In construction contract, scope is basically related to the broad concept of variation,
viz., variation in the works;
 Variation means as per Clause 1.1.6.9 of MDB-FIDIC any change to the works,
which is instructed or approved as variation under Clause 13;
 works mean the permanent works (see Clause 1.1.5.4 MDB-FIDIC); like the water
works project;
 The changes to the permanent works may result in the following way:
 changes to the quality & other characteristics;
 changes to the level, positions and/or dimensions of any item of work;
 omission of any work it is to be carried out by others;
 any additional work, plant, materials or services necessary for the permanent
works including any associated tests on completion, boreholes and other
testing and exploratory works;
 changes to the sequence or timing of the execution of works;
Scope Management: Causes
 The causes which may trigger variation during construction could be diverse;
 The following are merely illustrative:
 inadequate briefing from the employer side to the designers;
 inconsistent & late instruction from the employer/engineer;
 incomplete design;
 lack of meticulous planning at the design stage;
 poor planning of a project;
 using typical design for all geographical locations;
 lack of coordination of specialists under design work;
 late clarification of complex details;
Scope Management: Types
 There are different criterion to categorize types of variation;
 Based on the definition given above (as per MDB-FIDIC), two types of variations
are identified: viz., instructed variation & approved variation;

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 PPA both the 2006 & 2011 versions have no room for approved variation;
Instructed Variation: Causes
 Under instructed variation, the variation order or instruction is coming from the
employer through the Engineer;
 The actual causes which trigger instructed variation may be of the following:
 employer: change of requirement by the employer;
 engineer: design change and/or instruction(s) by the engineer;
 contractor; like unavailability of the required construction material and/or
machinery in the market;
 regulatory body: change in regulatory requirements (say as related to the
water works project) by the government;
 stakeholder: request from or pressure by the community/ultimate beneficiary
(like in case of changing the road alignment or dam site or dam safety zone
or aquifer location and/or ground water site radius or pipe laying
route/alignment (as related to transmission and/or distribution network) or
otherwise);
 nature: like change in ground conditions in terms of geological and/or
hydrological excluding climatic conditions;
Instructed variation: Procedure
 see Clause 13.1 MDB-FIDIC; variation
 see Clause 15 PPA (2011) Modification;
 see also Article 3031-3032 of the Civil Code cum Article 3033; alteration
 The employer has the right to vary the works & this is done through the order or
instruction of the Engineer;
 The contractor has a contractual obligation to accept & execute variation orders, as
part of its overall obligation to complete the works;
 The overall procedure may seem as follows: instruction; confirmation; proposal;
agreement/determination; execution;
 Instruction: The Engineer instructs the contractor to do the variation; the
instruction should be in writing;

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 Confirmation: If the instruction were oral it has to be subsequently be

confirmed by the contractor in writing;
 Proposal: The contractor proposes how to execute the variation in terms of
time, cost and/or method;
 Agreement/Determination: There must be agreement between the contracting
parties (employer & contractor; the Engineer expected to play its
consultative role here) or determination by the Engineer as to the effects of
such variation (i.e., on time & cost and/or method);
 Execution: The contractor proceeds to execute the works as varied;
 If there were no agreement between the contracting parties on the effects of
variation (time and/or cost), the contractor may have variation related claims;
 As part of variation procedure between instruction of the engineer and before the
contractor’s confirmation & making proposal, the contractor has a contractual
right to refuse variation on the following two grounds: see Clause 13.1 MDB-FIDIC:
 goods related: the contractor cannot readily obtain the goods required for
variation; or
 level of impact: such variation triggers a substantial change in the sequence
or progress of the works;
 The Engineer has to consider and determine on such refusal of the contractor under
the contract; see Clause 3.5 MDB-FIDIC;
 see also Article 3033 of the Civil Code; re: Contractor Refusing Alterations (in the
works);
Instructed Variation; Effects
 Variation may bring the following two major effects: time & cost;
 It may bring from the contractor side not only time & cost, but also method change
& disruption;
 This may have its own implications on the variation related claims of the contractor;

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Approved Variation (VE): Concept & Effects

 see Clause 13.2 MDB-FIDIC; Value Engineering (VE)
 see also Article 3034 of the Civil Code; “approved variation?”
 Approved variation is basically related to the broad concept of value engineering;
 It means that the contractor proposes to trigger variation which brings value to the
works & to the employer, to the project and to itself;
 Such proposal may include design change; then the contractor becomes a designer
for the permanent works; see also Clause 4.1 (a) (b) & (c) MDB-FIDIC; re: design
liability & design liability standard;
 The fundamental objective of the proposed & thus approved variation being to
bring value to the project;
 This is expressed in terms of the following concrete values:
 time: completion time acceleration;
 cost: reduction of cost;
 quality: improvement in quality;
 efficiency: improving the efficiency of the completed works (like in terms of
operation & maintenance cost);
 The procedure is almost the same except that this time the initiation for variation
comes from the contractor side;
 The net benefit accrued will then be shared, equally, between the employer & the
contractor less costs of the contractor to research & develop the proposal;

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Cost Related Obligations & its Management:

………………………………………………………………………………………………………………

Information
 under MDB-FIDIC 2006
 see Clause 1.1.4.1: Accepted Contract Amount re: definition
 see Clause 1.1.4.2: Contract Price re: definition
 see Clause 1.1.4.3; Cost: re: definition
 see Clause 2.5 Employer’s Claims;
 see Clause 4.10; Site Data;
 see Clause 4.11; Sufficiency of Accepted Contract Amount;
 see Clause 4.12; Unforeseeable Ground Conditions);
 see Clause 13.1; Variation (re: instructed variation);
 see Clause 13.7 Adjustment for Changes in Legislation;
 see Clause 13.8 Adjustment for Changes in Cost;
 see 4.11 Sufficiency of Accepted Contract Amount;
 see Clause 14.1; The Contract Price; re: as related to IPCs;
 under PPA 2011
 see Clause 16: Changes in Laws & Regulations (re: no cost adjustment in
principle;)
 see Clause 62: Price Adjustment (subject to pre-conditions);
 see Clause 69: Claims for Additional Payments;
 under Civil Code
 see Article 3261-3273 Payment of Price;
 see Article 3183-3189 Unforeseen Circumstances;
 see Article 3190-3193 Act of Government; cum Article 1767 (re: variation of
contract; re; contract with public administration;);
 Background
 One of the project performance criterion will be completion of the project
within the budget allocated;

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 The project cost may relate to everything from its capital cost to its operation
& maintenance cost;
 All relevant factors during the various phases of the construction project
may contribute also to the cost effectiveness or otherwise (i.e., cost overrun)
of the project;
 During tendering phase, for example, the cost estimate to be done by the
future contractor has to consider the following cost relevant factors: see
Clause 4.10 Site Data; 4.11 Sufficiency of Accepted Contract Amount MDB-
FIDIC;
 source: sub-contractor’s quotation; quantity takeoffs; and
construction procedure;
 caution: knowledge on the current market prices information (for
materials; labor; equipment; consumables;) is essential;
 caution: pre-bid site visit for bid estimate is necessary to see problems
ahead of time which may have possible cost implications;
 Otherwise, the accepted contract amount deemed to include all costs of the
contractor under the contract; see : see Clause 4.10 (Site Data); 4.11
(Sufficiency of Accepted Contract Amount) MDB-FIDIC;
 Concept
 The concept of cost as defined in the contract document (MDB) reads;
 cost means all expenditure reasonably incurred or to be incurred by the
contractor whether on or off the site, including overhead & similar charges,
but does not include profit;
 Causes for Cost Overrun
 Conceptually, as related to the construction phase, cost overrun means the
difference between the accepted contract amount & the final contract price;
 The final contract price includes all allowable adjustments (see Clause
1.1.4.2: (Contract Price) cum Clause 14.1 (a) MDB) that the project has
experienced during its implementation phase;

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 The following may be taken as factors to contribute to the cost overrun of the
construction project during construction phase to determine the final
contract price: viz., market; nature; government; parties;
 market driven factors (inflation); as related to labor, material and/or
equipment;
 nature driven or act of God factors: adverse or unforeseen grounds
condition or other events of forces of nature;
 act of government factor; like change in legislation; regulatory
requirement change;
 contracting party driven factors: two factors: viz., variation & claims;
 The contract price said to include all tax obligation of the contractor; see
Clause 14.1 (b) MDB-FIDIC;
 Due to its nature quantity-based contract may not have certain or fixed
contract price from the beginning, as related to quantities;
 Categories of Cost
 Based on the definition given to cost, the following two categories of cost
emerge; direct & indirect
 Direct cost means the category of cost which represents the cost of the core
permanent or physical works comprising the following;
 material cost;
 labor cost;
 machine/plant cost; and
 sub-contractors cost (to the main contractor);
 Indirect cost means costs other than direct cost which include the following;
viz., overhead costs & risk costs
 overhead costs: project on site costs & project head office (off site)
costs;
 risk costs: corporate taxes; risk allowances & insurance related costs;
 Implications
 The definition of cost & categorization of same in to direct & indirect may
bring the following implications: contractual & legal;
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 Contractual implications:
 delay claims: to determine the type & assessment of the extent of costs
recoverable from the employer by the contractor as related to its
delay claims; it may cover both the idle costs of the contractor as
related to direct & indirect costs;
 disruption claims: to determine the type & assessment of the extent of
costs recoverable from the employer by the contractor; disruption
claim may only cover the direct cost and from this only idle labor &
equipment cost, as related to loss of productivity of such resources;
 profit claim: unless specifically provided under the contract, profit
claim is excluded from the definition of cost; see for example the
following MDB clauses which entitle the contractor to profit claim:
 Legal implications:
 quantum duty: even if the contractor may be entitled to recover some
costs from the employer, it is legally obliged to minimize the extent of
damage;
 see Article 1802 of the Civil Code; this legal obligation applies in all
other relevant types contractor’s claims;

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Safety Related Obligation & its Management:

………………………………………………………………………………………………………………

Information
 MDB-FIDIC
 see Clause 4.1: Method of Construction;
 see Clause 4.18: Protection of the Environment;
 see Clause 6: Staff & Labour;
 see Clause 4.16 (Transport of Goods);
 PPA 2011
 see Clause 45: Health & Safety on Sites;
 see Clause 46: Safeguarding Adjust Properties;
 see Clause 47: Interference with Traffic;
 see Clause 48: Cables & Conduits ;
 Other Applicable Laws
 see Proc. No. 1156/2019: the Labour Proclamation (Law);
 see Proc. No. 624/2009 Ethiopian Building Proclamation;
 see Regulation No. 243/2011: Ethiopian Building Regulation;
 see also all Ethiopian Building Codes; consider also the Euro Code;
 see Proc. No. 464/2005: Power & Telecommunications Network
Proclamation;
 see Proc. No. 299/2002: the Law of Environmental Impact Assessment;
 see Proc. No. 300/2002: the Law on (integrated) Environmental Pollution
Control;
 see also applicable ILO Conventions; ILO Protocols; and so forth;
 see also UN Conventions like on climate change; …
 Civil Code
 see Article 2027-2161 of the Civil Code: Extra-contractual Liability;
 The other important obligation of the contractor is related to safety;
 The concept of safety has to be understood very broadly;

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 It may relate to the safety of the following ecologies: to

 the natural environment;
 the heritage environment;
 the human environment;
 the built-environment; and
 the utilities environment;
Natural Environment;
Scope & Safety
 The natural environment may include both the bio-sphere (plants, animals & micro-
organisms) & the physical environment (water, soil & air);
 Such obligation of the contractor embedded into two broad environmental
objectives: viz., to ensure sustainable development & to ensure environmental safety
(by preventing environmental pollution);
 The obligation of the contractor is both contractual & legal: it is contractual as per
Clause 4.18 of MDB-FIDIC; it is legal as per all the applicable laws of Ethiopia
enacted for the protection of the natural environment;
 If the water works construction project were subject to environmental impact
assessment (indeed it is), the first obligation rests with the employer (as proponent
of the project) to undertake such environmental impact studies with a view to
secure environmental clearance for the project under consideration from the
competent federal or regional regulatory institutions;
 The contractual & legal obligation of the contractor, in this regard, being thus to
implement the mitigation measures developed & approved in such EIA document
including based on such environmental management plan, if any;
 The protection of the heritage (historical & cultural) environment, as the legacy of
the past generation, is part of such EIA study & approval process;

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Human Environment: Scope

Health & Safety
 The human environment may have three dimensions:
 the labor & staff of the contractor or contractor’s personnel as defined; see
Clause 1.1.2.7 cum Clause 4 cum 6.7 MDB-FIDIC; the employer personnel;
see as defined; see Clause 1.1.2.6 cum 18.3 MDB-FIDIC;
 the general public; see the relevant applicable laws;
 the end user of the completed project;
 The safety obligation of the contractor as to its staff & labor (its personnel broadly)
is both contractual & legal; see the contract of employment cum the applicable laws
& regulations; for its own staff & labour; and contractual as related to its sub-
contractors; see Clause 4 MDB-FIDIC;
 The safety obligation of the contractor as to the employer’ s personnel is
contractual; see Clause 1.1.2.6 cum Clause 18.3 MDB-FIDIC;
 The safety obligation of the contractor towards the general public is legal; the Civil
Code shall apply as related to its extra-contractual liability; see Article 2027-2161 of
the Civil Code; plus see also Proc. No. 624/2009 as related to building projects;
Built-Environment:
Scope & Safety
 The built-environment may encompass the following six dimensions:
 the permanent works under construction by the contractor;
 any neighboring structure or work proximate to the works project under
construction;
 any road or bridge or any other work or structure off the project site;
 the property of the contractor on site intended for the execution of the
permanent works (i.e., the construction materials & equipments/plant);
 the property of the employer brought to the project site for the execution &
completion of the permanent works;
 the property of other persons;

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 Ensuring safety to the permanent works under construction is the clear contractual
obligation of the contractor; see Clause 4.8 cum Clause 18.2 MDB-FIDIC;
 Ensuring safety to the neighboring structures, if any, is the legal obligation of the
contractor, as well; see Civil Code Article 2027 ff cum Building Proc. No. 624/2009;
 Ensuring safety of the road & bridges and any other work or structure (in the
country) is the contractual & legal obligation of the contractor;
 see Clause 4.14, 4.15 cum 4.16 MDB-FIDIC cum Civil Code Article 2027-2161 cum
Building Proc. No. 624/2009;
 Ensuring safety to its property & the property of the employer is mainly contractual
but also legal;
 Ensuring the safety of the property of other persons is mainly legal but also
contractual;
 see Clause 18.3 MDB-FIDIC; and Article 2027-2161of the Civil Code;
Utilities Environment:
Scope & Safety
 Public utilities may have the following four dimensions:
 water supply network;
 waste water network;
 electric power network;
 telecommunications network;
 Ensuring safety to such utility lines is the legal obligation of the contractor;
 The employer is also expected during planning & design phase to secure complete &
adequate information (like benchmarks) as to their location & specific alignment
and to give due consideration in the design document;
 The following applicable laws may apply to establish the legal liability of the
contractor and/or the employer:
 Power & Telecommunications networks:
 see Proc. No. 464/2005 cum the Civil Code Article 2027-2161 cum Proc. No.
624/2009 (Ethiopian Building Proclamation) cum Regulation No. 243/2011
(Ethiopian Building Regulation);

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 Water supply networks and/or any hydraulic structure & waste water
management network:
 see Proc. No. 74/2021 (issued by the Addis Ababa City Government) cum
Civil Code Article 2027-2161 cum Proc. No. 624/2009 (Ethiopian Building
Proclamation) cum Regulation No. 243/2011 (Ethiopian Building
Regulation);
 The construction method statement meant for ensuring safety & serves as risk
management tool at the construction project site;
 see Clause 4.1 MDB-FIDIC: the contractor is expected to ensure the safety of its
construction operations!

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Obligations of the Employer:

Background

……………………………………………………………………………………………………………

 The employer shall have many obligations under the construction contract;
 The obligation of the employer has two dimensions: consideration & promise
dimensions:
 The consideration dimension relates to its payment obligation whereas other
obligations of the employer are its promise obligation;
 Risk sharing obligation also forms part of employer’s obligation;
 The proper performance of such obligations are thus formidable ground for the
successful mobilization, commencement, execution, progress & completion of the
construction works under consideration;
 The following are some of the fundamental obligations of the employer under the
construction contract: under promise obligation;
 appointing the Engineer;
 design related obligations;
 site related obligations;
 takeover related obligations;
Appointment of the Engineer
 see Clause 3.1-3.5 MDB-FIDIC; cum the Engineer
 see Clause 1.2 (n) MDB-FIDIC cum the Site
 see Clause 12 cum Clause 14 MDB-FIDIC cum the Measurement & Payment
 see Clause 12: Engineer & Engineer Representative; of PPA 2011;
 see also the applicable laws; like Article 1675 cum 2632-2638 cum 2610-2631 of the
Civil Code as related to the contract between the engineer & the client;;
 see also the applicable laws; like Article 2632-2638 cum 2179-2265 (Law of Agency)
of the Civil Code as related to the role of the consultant;
 see all the applicable laws: Article 2632 (3) cum all relevant special laws as related
to the role of the consultants;

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 The modern construction project management necessarily requires the role of the
Engineer;
 This is very true specially in case of design-bid-build project delivery sub-system;
 For the Engineer to play its agent & professional role, the employer is required
under the construction contract to appoint such Engineer;
 The Engineer, in effect, is required for the following purposes:
 for continuous design & design related function;
 for project supervision;
 for contract administration; and
 for claims determination;
 The non-appointment of the Engineer by the employer will endanger the smooth
mobilization, commencement, completion and remedying of the works and the
certification of payment to the contractor;
 This may lead to delay in construction; delay or non-payment in the construction
process for which the contractor being entitled to claim under the contract;
 The Engineer discharges its expected professional and managerial functions directly
by itself, through assistants and/or by securing specific approvals from the
employer;
 The action of the Engineer which requires the prior specific approval from the
employer shall be specified in the special conditions of contract;
 The following are some of the actions which require the approval of the employer as
provided under the general conditions of contract; viz.,
 claim related: extension of time and/or additional cost;
 variation related: instructed variation;
 variation related; approved variation;
 currencies related: on the extent of applicable currencies;
 The Engineer shall discharge its duties within a given time scale;
 The contractor is bound to comply with the instructions of the Engineer;

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Design & Design Management:

Background
 Design is one of the critical inputs to the construction process;
 Even if during the design phase the design for such construction project has been
prepared, the employer still need continuous design and/or design related services
from a professional;
 That professional is now the Engineer as supervision consultant;
 During construction phase, therefore, we have to identify the contractual role &
liability of the employer, the designer & the contractor as related to design;
Design & the Employer
 Under design-bid-build project delivery sub-system, it is certain that the design is
done through a professional designer;
 It becomes thus the contractual matter between the design professional & the client
(now the employer under the construction contract);
 Since there is no contractual relationship between the designer & the contractor, the
contractual obligation for design vis-à-vis the contractor rests with the employer;
 Therefore, the employer is obliged under the construction contract, through the
Engineer, to provide design information & instruction;
 Should there be any failure in providing such design information or working
drawing, it is the contractual obligation thus liability of the employer to pay for the
consequences like in case of delay in issuing drawings to the contractor; see Clause
1.9 MDB-FIDIC;
Design & the Engineer
 The Engineer, as supervision consultant, continues its design & design related
obligation under its contract agreement with the client;
 The Engineer serves as the source of design information, clarification in this regard;
 The obligation of the employer towards the contractor as related to design
information & clarification remains with the employer;

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 The Engineer is professionally liable for design error and/or omission under the
applicable law based on the principle of skill & care and professional diligence then;
if that diligence not achieved becomes the ground for professional negligence;
 see Article 2636 cum 2616 cum 2031 (Professional Fault) of the Civil Code;
Design & the Contractor
 The contractor, in terms of its legal status, is a professional;
 Its design related obligation of the contractor may be seen from two perspectives:
temporary & permanent works;
 Temporary Works:
 The first & obvious design obligation of the contractor comes as
related to temporary works;
 the contractor is responsible for the design & construction of
temporary works including its adequacy;
 see Clause 1.1.5.7 MDB-FIDIC;
 Permanent Works:
 During construction phase, the contractor may have certain design
related obligations & therewith possible design liability as related to
permanent works; see Clause 1.1.5.4 MDB-FIDIC
 This could be revealed in the following three instances: viz., as related
to: partial design; and substantial design; duty to notify design error;
 Partial Design: Clause 4.1 MDB-FIDIC
 if the contractor is required under the contract, it may design part of
the permanent works;
 in such a case, the contractor shall become liable for such design
based on the principle of design liability fit for its reasonable purpose
intended; see Clause 4.1 (c) MDB-FIDIC;
 Fitness for purpose design liability is the highest level of design
liability as opposed to design liability based on skill & care and
diligence;
 see also Clause 34 (1) of PPA (2011);
 Substantial Design: Clause 13.2 MDB-FIDIC

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 The contractor may propose, by its own initiative or otherwise, and

the Engineer may approve the design of the contractor under the
concept of value engineering;
 In such a case, the contractor shall become liable for such design to fit
for its reasonable purpose intended; see Clause 13.2 (b) cum 4.1 (a)-
(d) MDB-FIDIC;
 Fitness for reasonable purpose design liability is the highest level of
design liability standard as opposed to design liability based on skill &
care and diligence; 13.2 cum 4.1(c);
 see also Article 2622 (Warranty against Defects i.e., as related to
works) cum
 see also Article 2287-2300; 2332; 2344-2346 of the Civil Code as
related to private construction contract; which provisions regulating
the “fitness for reasonable purpose” legal requirement for the works
like road or dam or building;
 Duty to Identify & Notify Problems in Design or Specification
 MDB-FIDIC has no specific clause regulating this possible obligation
of the contractor;
 FIDIC 4th incorporates such clear contractual obligation; see Clause
8.1 (Contractor’s General Responsibilities);
 part of the sub-clause reads, as follows;
 The Contractor shall give prompt notice to the Engineer, with a copy
to the Employer, of any error, omission, fault or other defect in the
design of or Specification (see Sub-clause 1.1 (b) (ii) for the Works(see
Sub-clause 1.1 (f) (i) (ii));) (i.e., Permanent Works i.e., the road or
bridge) which he (i.e., the Contractor as defined under sub-clause 1.1
(a) (ii)) discovers when reviewing the Contract (see Sub-clause 1.1 (b)
(i) or executing the Works (see sub-clause 1.1 (f) (i) (ii)); (Emphasis
added);

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Site Related Obligation & its Management

………………………………………………………………………………………………………………

Information

 Contract Provisions
 see Clause 1.1.6.7 Site cum 2.1 Right of Access to the Site; Clause 8.3:
Program; Clause 8 Extension of Time; MDB-FIDIC (2010);
 see Sub-clause 1.2 (ee) Site cum Clause 31: Access to the Site; cum Clause 41:
Program of Implementation of Tasks; cum Clause 74: Compensation Events
for Allowing Time Extensions cum Clause 77: Early Warning; PPA (2011);
 see all relevant applicable laws; like
 see Proc. No. 1/1995 the FDRE Constitution;
 see the Civil Code Article 1460-1488 Expropriation Proceeding, if the
concepts were applicable;
 see the federal Rural Land Administration related Laws; like Proc. No.
456/2005;
 see Proc. No. 1161/2019 Expropriation of Land Holdings for Public
Purposes, Payments of Compensation and Resettlement of Displaced People
Proclamation, which repeals & replaces Proc. No. 455/2005;
 see Regulation No. 472/2020: the regulation which regulates the valuation,
compensation issues;
 the respective regional states rural land administration laws;
 the Urban Land Administration related Laws; see like Proc. No. 721/2011;
 see the respective urban setting master plan or structure plan or local development
plan; and the respective zoning or planning laws of each & every urban setting &
urban administration;
 see the Rural & Urban Land acquisition & compensation related Laws;
regulations; directives; and guidelines; Proc. No. 1161/2019 cum Regulation No.
472/2020 (Expropriation and Valuation, Compensation and Resettlement Council of
Ministers Regulation), which repeals & replaces Regulation No. 135/2007; re: as

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related to farmers (as to their land, plants); pastoralists; urban dwellers (as to land,
houses, fences); utilities; and so forth
 the employer may require to undertake a socio-economic study including a
Resettlement Action Plan (RAP) to fully address all these complex issues;
Site: Background
 The most critical aspect of construction project management issues is related to
providing the required possession site and access thereto by the employer to the
contractor;
 Providing the site to the contractor is mainly dependent on the contractor’s
program;
 Based on such program and based on the nature of the project, the site is to be
provided to the contractor at once or from time to time;
 To acquire all relevant site for the project under consideration, there are some
defined legal requirements to be fulfilled by the employer unless the project is
legally exempted from to undergo such legal requirements;
Site: Concept
 Site is defined (see Clause 1.1.6.7 under MDB-FIDIC) as the places where the
permanent works are to be executed, including storage and working areas, and to
which Plant & Materials are to be delivered, any other places as may be specified in
the Contract as forming part of the Site;
 The scope of site could be too broad; it may thus include the following for the
purpose indicated;
 site for the permanent work itself and access thereto; say for the dam;
groundwater development; pipe installation/laying (transmission and/or
distribution); other hydraulic structures; building; road;
 site for camp establishment and access thereto;
 site for temporary works; like detour…; re: access road;
 site for quarry development and access thereto;
 site for storage and access thereto; for construction plant, materials
including some specified goods like explosives, consumables…;
 site for dumping construction debris (i.e., for cart away) and access thereto;

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 site for any other project related purposes and access thereto;
 Site by itself may not serve its purpose unless there is a right to access to the
designated project site;
 The site so provided to the contractor will remain, contractually, within the
possession right of the contractor; nobody is allowed to enter in to the site without
the permission or prior approval of the contractor except for those employer’s
personnel designated under the contract;
 The contractor is required under the contract to return back the site upon
completion of the project and/or the termination of the contract;
Site & Legal Requirements
 In Ethiopia both rural & urban land is a public property since 1975;
 There are rural & urban land management laws based on the FDRE Constitution;
 Some defined legal requirements may be important for the acquisition of land (site
in its broadest sense) unless there is a legal exemption there from:
 following planning & zoning requirements, if applicable for the project; see
Clause 1.13 cum 2.2 MDB-FIDIC;
 following land acquisition procedure, if applicable for the project;
 effecting some payment as related to (rural and/or urban) land acquisition, if
any, if applicable; and
 payment of compensation for the properties situated within the project
site/land, if applicable for the project;
 These are regulated respectively by rural & urban land management laws and
payment of compensation as related thereto;
 All obligations as related to site acquisition of land has to be complied with by the
employer in due time;
Site Related Problems
 Site, as defined, is a physical pre-requisite and a critical input to the construction
project; see Clause 8.1 cum 2.1 MDB-FIDIC;
 The legal obligation of the employer has to be discharged before the actual
construction implementation begins i.e., during project planning, study & design
phases;

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 Site plus access thereto is required for the following purposes during project
implementation period like under the road construction contract:
 to mobilize the project; like for project camp establishment;
 to commence the project; for the permanent & temporary works;
 to progress with the project; for the temporary, permanent works plus for
quarry site and so forth;
 to complete the project;
 If the employer, based on the contractor’s program, if any, fails to provide the site
& access thereto, the project may suffer delay for which the employer is
contractually liable to compensate the contractor in terms of time and cost plus
profit; see Clause 2.1 MDB-FIDIC; see also PPA (2011) Sub-clause 74
(Compensation Events);
Takeover Obligation & its Management
………………………………………………………………………………………………………
Information
 under MDB-FIDIC
 see Clause 1.1.3.5 definition of Takeover Certificate; cum
 see Clause 4.1 (d) (re: as-built documents) cum ;
 see Clause 4.21 Progress Reports cum
 see Clause 4.23 Contractor’s Operations on Site cum
 see Clause 6.10 Records of Contractor’s Personnel & Equipment cum
 see Clause 8.2 (b) Time for Completion cum
 see Clause 8.4 Extension of Time for Completion; cum
 see Clause 8.7 Delay Damages; cum
 see Clause 1.1.3.4 (re: definition of Tests on Completion) cum 9.4 (c) (Failure to
Pass Tests on Completion) cum
 see Clause 10.1 (Taking Over of Works & Sections) cum
 see Clause 10.2 (Taking Over of Parts of the Works) cum
 see Clause 10.3 (Interference with Tests on Completion)cum
 see Clause 10.4 (Surfaces Requiring Reinstatement) cum
 see Clause 11.1 Completion of Outstanding Work & Remedying Defects cum
 see Clause 11.3 (Extension of Defects Notification Period) cum

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 see Clause 13.1 (Right to Vary) cum

 see Clause 14.2 (Advance Payment re: fate of the advance payment not fully repaid
up on the issuance of the Taking Over Certificate) cum see also Article 3271 of the
Civil Code (settlement vs. installment);
 see Clause 14.4 (Schedule of Payments re: last paragraph related to Taking Over
Certificate) cum
 see Clause 14.6 (Issue of Interim Payment Certificate) (re: TOC its correlation with
minimum level of works executed for IPC purpose) cum
 see Clause 14.9 (Payment of Retention Money) (re: effects of TOC;) cum
 see Clause 14.10 (Statement at Completion) (re: effects of issuing TOC) cum
 see Clause 14.14 (Cessation of Employer’s Liability) (re: effects of issuing TOC as
related to preserving the payment rights of the contractor for works executed after
issuing the TOC & final payment certificate) cum
 see Clause 17.2 (Contractor’s Care of the Works) cum i.e., the Permanent Works
see Clause 1.1.5.4 (re: effects of issuing TOC & cessation of contractor’s obligation
to take care of the Works) re: the CPA has to be considered here; cum
 see Clause 17.7 (Use of Employer’s Accommodation/Facilities) (re: effects of issuing
TOC on the obligation of the contractor as to such facilities) cum
 see Clause 18.2 (Insurance for Works & Contractor’s Equipment); re: effects of
issuing TOC on the cessation of the contractual obligation of the contractor to
insure against such assets;
 under PPA 2011
 see Clause 84: General Principles (for Acceptance)
 see Clause 85: Tests on Completion
 see Clause 86: Partial Acceptance
 see Clause 87: Provisional Acceptance
 see Clause 88: Defects liability
 see Clause 89; Final Acceptance
 see also Clause 58.8 Performance Security (re: discharging the security to the
contractor);
 see also Clause 61.3: Retention Money (re: release of the retention money);
 see Clause 65: Final Statement of Account (re: following final acceptance preparing
final accounts by the contractor cum Clause 89);

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 under the Civil Code

 see Article 3274-3281 (Acceptance of Works); re: related to public
construction contract;
 see also Art. 2002: Means of Evidence; re: as related to presumptive
takeover;
Takeover: Background
 One of the fundamental obligation of the employer under the construction contract
is to take over (accept) the permanent works (the Project) from the contractor;
 There are however certain pre-conditions to be fulfilled on the part of the
contractor and the Engineer for takeover of the permanent works by the employer;
 Takeover of the works also bring some important contractual & legal effects as
between the employer & the contractor;
Takeover: Concept & Types
 Types: threefold; viz., scope based; time based; and proof based.
 Takeover of the permanent works by the employer, based on scope, may take two
forms; see Clause 10.1 cum 10.2 MDB-FIDIC;
 sectional takeover, if any; or
 takeover of whole of the works;
 Takeover of the permanent works by the employer may take, based on time, two
forms:
 provisional (acceptance) takeover (effected through issuing TOC by the
Engineer); see Clause 10 MDB-FIDIC; and
 final takeover (acceptance) (effected through issuance of DLC by the
Engineer); see Clause 11 MDB-FIDIC;
 As per the applicable law, provisional acceptance is a joint ascertainment of the
works made immediately after completion of the works; see Article 3274 of the Civil
Code;
 As per the applicable law, final acceptance is the act whereby the employer
definitively appropriate the works after having ascertained that the contractor has
performed his obligations in its entirety;
 see Article 3279 of the Civil Code; Final Acceptance

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 Takeover of permanent works, based on its legitimacy or proof, may take two
forms: viz.,
 actual takeover (based on issued TOC)(constitutes documentary proof); or
 presumptive takeover (based on non-issuance of TOC); see Clause 10.1 (final
paragraph for presumptive takeover) MDB-FIDIC; constitutes presumptive
proof;
 Takeover is to be effected through a formal document known as a Taking Over
Certificate to be issued by the Engineer to the contractor;
 see Clause 1.1.3.5 MDB-FIDIC;
Takeover: Pre-conditions
 For the permanent works to be taken over by the employer, the following pre-
conditions have to be fulfilled; viz.,
 completion: in terms of scope, the works have to be completed; see Clause
10.1 MDB-FIDIC
 as-built documents: the contractor shall submit as-built documents for the
tests to be undertaken;
 tests: the works have to pass tests on completion; see Clause 9.1 through
Clause 9.3; MDB-FIDIC;
 request: the contractor has to request for the issuance of the taking over of
the works; and see Clause 10.1 MDB-FIDIC;
 determination/presumption: the Engineer determined that the works are
completed & passed their tests on completion & thus issued Taking over
Certificate to the contractor or the contract takes presumption in favor of
issuance of such certificate; see Clause 10.1 MDB-FIDIC
 The contractor has to complete the works in accordance with the contract; see
Clause 8.2;
 The extent of completion may not be absolute; it suffices to be substantial or reach
to the level of practical completion, which is subjective to be determined by the
Engineer, however;
 Tests on completion have to be passed by the works as defined in the contract;
retesting may also be required;

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 The contractor has to request for takeover of the works by the employer upon the
issuance of taking over certificate by the Engineer; it is the obligation of the
employer to take over the works;
 The Engineer determines, based on the request of the contractor, whether or not the
works have been completed & the required tests on completion have been passed by
the works;
 The scope of takeover of the works by the employer may relate to the whole of the
works or section thereof;
 If all such pre-conditions have been fulfilled, the works are to required, actually, to
be taken over by the employer or the contract takes a presumption in favor of
takeover of the works by the employer;
 Takeover
 Takeover of the works, in whole or in part, shall be effected through Taking
Over Certificate or by such presumption;
 Then the employer said legally has taken over the works;
Takeover: Effects
 The following legal and/or contractual effects shall result from due to actual or
presumptive takeover or otherwise thereof; viz.,
 risk: It shifts the risk as related to the works from the contractor to the
employer; see MDB-FIDIC Clause 17.2; see also Clause 17.7 as related to
contractor’s obligation with respect to employer’s accommodations or
facilities for which the contractor being obliged to take responsibility up to
the issuance of the takeover certificate;
 insurance: up on issuance of the taking over certificate the contractor’s
obligation to insure the following shall cease; the Permanent Works; the
contractor’s Plant; Materials & Contractor’s Documents; see Clause 18.2
MDB-FIDIC;
 defects liability: It marks the commencement of defects liability period or (so
called maintenance period) or defects notification period, within which time
frame the contractor being obliged to remedy defects in the works;

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 retention: It triggers the release of half of the retention money to the

contractor; see Clause 14.9 2 MDB-FIDIC;
 balance retention; the issuance of the defects liability period after the defects
notification period shall trigger the release of the balance of the retention
money to the contractor; provided that where there was no retention security
arrangement; see Clause 14.9 2 MDB-FIDIC;
 retention security; It may trigger the deposit of retention money security (for
the balance 50%) by the contractor; see Clause 14.9 MDB-FIDIC;
 site clearance; the contractor is required to clear the site up on issuance of
such certificate; see Clause 10.4 MDB-FIDIC;
 delay damages: the issuance of taking over certificate shall cease the
assessment of delay damages against the contractor, if any or may result the
reduction of same; see Clause 10.2 MDB-FIDIC;
 variation: the issuance of taking over certificate marks the time for not
issuing any variation order by the Engineer to the contractor; see Clause 13.1
MDB-FIDIC;
 advance payment; if the advance payment has not been repaid before the
issuance of Taking over certificate, the whole of the balance then
outstanding, if any, shall become due to the employer; see Clause 14.2 MDB-
FIDIC cum Article 3271 of the Civil Code;
 statement at completion; (after 84 days) of the issuance of the Taking over
Certificate shall trigger the submission of statement at completion by the
contractor; see Clause 14.10 cum 14.14 MDB-FIDIC;
 operation: the provisional acceptance triggers the use (operation) of the
works as completed by the employer;
 defects liability; the final takeover of the works releases the contractor to
remedy defects; Article 3281of the Civil Code;
 legal warranty; the final takeover or possession of the works triggers the
commencement of the legal warranty period for the works as related to
construction; see Article 3282 of the Civil Code; as related to public
construction contract;

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 Takeover Related Problems

 Problems with respect to takeover may originate from the following three
sources;
 from the contractor;
 from the employer; and
 from the Engineer;
 From the contractor: see Clause 9.4
 Contractor related problems as related to takeover may come from
failure to pass tests on completion including repeated tests on
completion of the works;
 If the works fail to pass tests (plus repeated tests) on completion the
following alternative but serious contractual consequences may result;
see Clause 9.4 MDB-FIDIC; namely;
 ordering further retesting;
 rejection of the works in whole or in part; and
 reducing the contract price by issuing takeover certificate;
 From the Employer: see Clause 10.1 MDB-FIDIC
 The other problem as related to takeover is refusal on the part of the
employer to take over the works;
 this problem has been resolved contractually through presumptive
takeover;
 From the Engineer: see Clause 10.1 MDB-FIDIC
 The problem as related to takeover may come from the Engineer in
rejecting the issuance of the takeover certificate;
 This problem may be encountered by the contractor where the
Engineer takes a position viz., either the works are not completed in
accordance with the contract or to its satisfaction or the works are not
completed substantially;
 This problem has been resolved contractually through presumptive
takeover;

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Payment Obligation & its Management:

………………………………………………………………………………………………………………

Information
 under MDB-FIDIC 2010
 see Clause 1.1.1.9 Bill of Quantities; re: definition cum
 see Clause 12 Measurement & Evaluation “valuation?” cum
 see Clause 1.1.4.1 Accepted Contract Amount cum
 see Clause 1.1.4.2 Contract Price cum; re: definition
 see Clause 1.1.4.9 Payment Certificate; re: definition cum
 see Clause 1.1.4.7 Interim Payment Certificate; re: definition cum
 see Clause 14 Contract Price & Payment;
 see Clause 14.2: Advance Payment;
 see Clause 14.3: Interim Payment;
 see Clause 1.1.4.4 Final Payment Certificate; re: definition cum
 see Clause 1.1.4.6 Foreign Currency;
 see Clause 1.1.4.8 Local Currency; re: definition cum
 see Clause 15.4 Payment After Termination;
 under PPA 2011
 see Clause 32: Payment cum
 see Clause 59: General principles (re: payment) cum
 see Clause 60: Advance Payment cum
 see Clause 61: Retention Monies cum
 see Clause 62: Price Adjustment cum
 see Clause 63: Valuation of Works cum (unit rate based vs. lump sum)
 see Clause 64: Interim Payment cum
 see Clause 65: Final Statement of Account
 see Clause 66: Direct payment to Sub-contractors
 see Clause 67: Delayed Payments cum
 see Clause 68: Payments to Third Parties cum

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 see Clause 69: Claims for Additional Payment

 under Civil Code
 see Article 1678 (b) cum 3261-3273 Payment of Price;
 see also Article 2623; as related to the doctrine of entire contract;
 under Other Laws
 see also the specific fiscal year federal budget law, if applicable (re; budget
subsidy and/or sustainable development program (SDP));
 see the specific fiscal year (regional) budget law;
 see the (federal) financial administration laws (Proc. No. 648/2009) plus its
amendments, if any;
 see the (regional) financial administration laws and their amendments, if
any;
 see the (federal) procurement laws (like Proc. No. 649/2009) & procurement
directives, if applicable;
 see the specific regional procurement laws & procurement directives, if any,
and their amendments;
 see specific relevant federal legal instrument ratifying finance (like loan or
aid) from international (bilateral or multilateral) source; and consider their
various legal implications on a Construction Project;
Payment Obligation:
Background
 One of the fundamental obligations of the employer is payment obligation viz., to
pay the agreed contract price to the contractor;
 This obligation provides us the consideration dimension of a construction contract;
see Article 1678 (b) of the Civil Code;
 Payment could be in cash or in kind;
 Payment in cash is the usual way of remunerating the contractor under the
construction contract; see Article 1678 (b) cum 3244 (Contract of Public Work) of
the Civil Code, if applicable;

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 As per the applicable law, as related to private contracts, the employer is obliged to
pay to the contractor if the contractor completes the whole of the works or section
thereof and if the employer accepts such work, in whole or in part; see Article 2623
of the Civil Code;
 Completion of the works & acceptance of such works are, therefore, the pre-
conditions for payment or for the contractor to have a mature right to payment;
 This is related to the broad concept of the doctrine of entire contract;
 In the modern construction contract there are different ways of determining the
pricing mechanism under the contract: viz.,
 quantity based;
 lump sum based;
 cost plus based;
 Consider also the relationship between delivery system and payment system;
Payment: Types
 MDB-FIDIC identifies the following three types of payments; viz.,
 advance payment;
 interim payment; and
 final payment;
 Advance Payment
 see Clause 14.2 MDB-FIDIC;
 see Clause 60 PPA (2011);
 see also Article 3271 of the Civil Code;
 paid by the employer to the contractor against the submission of an
unconditional bank guarantee by the contractor;
 deducted from each and every interim payment certificate till its full
repayment;
 its purpose being for project mobilization;
 its management may be left totally to the contractor or may be subjected to
joint management both by the employer & the contractor;

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 Interim Payment
 see Clause 12 (Measurement & Evaluation) cum 14.3 ff (Payment of the Contract
Price) MDB-FIDIC;
 see Clause 59-69 PPA (2011); Payments to the Contractor
 see also Article 3269 & 3270 of the Civil Code; re: Payment
 the interim payment certificate reflects the quantities so executed under the
contract by the contractor;
 the certificate is subjected to measurement (based on the Drawing) &
valuation process based on quantities jointly recorded on site (related to the
BOQ); see Clause 12 MDB-FIDIC
 the certificate is prepared & processed monthly provided the agreed
threshold has been met which has to be stated in the special conditions of
contract (or Contract Data);
 the certificate may be subjected to possible corrections by the Engineer;
 the certificate is not considered as approval of the works done; that is left to
the final payment certificate;
 Final Payment
 see Clause 14.11 ff MDB-FIDIC cum
 see Clause 65 of the PPA (2011);
 see also Article 3272 & 3273 of the Civil Code;
 the preparation of final payment certificate shall follow the format &
procedure acceptable to the Engineer;
 Purpose: if such certificate has been prepared & executed, it settles all the
financial balance between the employer & the contractor;
 Purpose: such certificate considered as declaration of the final approval of
the works & satisfaction of the Engineer;
 Therefore, both the employer & the contractor have to include any payment
and/or that they may request or demand (claim) from the other in such
certificate;

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 The failure to include such financial requests (in terms of payment and/or
claim) may lead to the loss (waiver) of such financial right under the contract
due to the finality of such certificate;
 Effects: such certificate thus may have the following legal effects;
 On the contractor: waiver of its financial right not duly included in
such certificate;
 On the employer: waiver of its financial right not duly included in such
certificate;
 On the Engineer: loss of contractual power under the contract
between the employer & the contractor (called ex officio effect);
 There may be some exceptions to the finality of such final payment
certificate: like fraud or double payment; or work executed by the contractor
after issuance of the final payment certificate;
 interim payment & disputes: due to disputes related to such final payment
certificate, the Engineer is required to issue an interim payment certificate
for sums agreed between the employer & the contractor; the balance under
the final payment certificate being subjected to dispute resolution process;
see Clause 14.11 MDB-FIDIC;
Payment Related Problems
 Payment related problems may originate from three sources:
 from late certification or partial certification (i.e., as related to measurement
related problems) by the Engineer;
 from late or non-payment by the employer and other grounds;
 from lack of financing arrangement or disbursement under the loan or aid;
 To maintain & improve the cash flow of the contractor, discharging the payment
obligation of the employer is so critical;
 If there is any delay in payment or non-payment at all, the contractor may have
certain less critical and critical remedial rights against the employer under the
contract;
 Such less critical remedial right may include demanding interest or financing
charges for late payment from the employer; see Clause 14.8 MDB-FIDIC;

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 see also Clause 67 of the PPA (2011); delayed payments

 Critical remedial rights available to the contractor may include the following; viz.,
 deceleration or reduction of the progress of the works by the contractor; see
Clause 16.1 MDB-FIDIC;
 suspension of the works by the contractor; see Clause 16.1 MDB-FIDIC; and
if the contractor resumes work after suspension the employer is required to
entitle the contractor extension of time and additional cost plus profit; see
Clause 16.1
 termination of the contract by the contractor; see Clause 16.2 MDB-FIDIC;

Risk Sharing Obligation & its Management:

……………………………………………………………………………………………………………

 Information
 the following contractual clauses from the MDB-FIDIC & provisions from the Civil
Code may show the sole assumption of risk or sharing of risk by the contracting
parties;
 under MDB-FIDIC 2010
 see Clause 3.1 Engineer’s Duties & Authority cum
 see Clause 4.10 Site Data cum
 see Clause 4.13 Rights of Way & Facilities cum
 see Clause 4.19 Electricity, Water & Gas cum
 see Clause 4.20 Employer’s Equipment & Free-Issue-Materials cum
 see Clause 8.6 (Rate of Progress) cum
 see Clause 9.2 Delayed Tests cum
 see Clause 11.2 Cost of Remedying Defects cum
 see Clause 11.6 Further Tests cum
 see Clause 15.4 Payment After Termination cum
 see Clause 17.2 Contractor’s Risks cum
 see Clause 17.3 Employer’s Risks cum

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 see Clause 17.4 Consequences of Employer’s Risks cum

 see Clause 17.5 Intellectual & Industrial Property Rights cum
 see Clause 17.6 Limitation of Liability cum
 see Clause 18.2 Insurance for Works & Contractor’s Equipment cum
 see Clause 18.3 Insurance against Injury to Persons & Damage to Property
cum
 see Clause 19.6 Optional Termination, Payment & Release;
 under PPA 2011
 see Clause 16: Changes in Laws & Regulations
 see Clause 18: Force Majeure
 see Clause 27: Liquidated Damages (re: direct deduction of such damages by
the employer);
 see Clause 31: Access to the Site
 see Clause 40: Insurance to be Taken by the Contractor
 see Clause 43: Sufficiency of Bid Prices
 see Clause 44: Exceptional Risks
 see Clause :49: Setting-out the Works
 see Clause : 67: Delayed Payments
 under Civil Code
 see Article 1792-1794: Force Majeure
 see Article 3177: no sanction against the public employer if no payment
effected by same to the contractor;
 see Article 3183-3189 Unforeseen Circumstances; cum
 see Article 3190-3193 Act of Government; cum
 see Article 1767: re: variation of contract; contract with public
administration;);
 Commercial Code
 see Insurance related laws & insurance policies: Commercial Code of
Ethiopia: Article 654-712: Insurance

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Risk: Background
 Construction project is a risk-prone venture;
 At different phases of the construction project, there are different types of risks;
 Risk is defined as a combination of the probability, or frequency, of occurrence of a
defined hazard and the magnitude of the consequences of the occurrence.
 Hazard is a situation that could occur during the life time of a product, system or
plant that has the potential for human injury, damage to property, damage to the
environment, or economic loss.
 The following are some of the basic principles/standards for the allocation of risk:
 They are related to: fault, foresee ability, management & incentive.
 the fault standard: cost & time impacts of risks caused (or not avoided)
through the fault of a party should be borne by that party;
 the foresee-ability standard: he who is best able to foresee the risk is allocated
that risk;
 the management standard: he who is best able to control and manage the risk
is allocated that risk;
 the incentive standard: risks should be placed on the party most in need of
incentive (presumably already in the ability) to prevent & control them;
 The risk management involves the following steps: risk identification; risk
assessment; risk response; risk management plan; and risk monitoring & control;
Risk: Contractual Allocation
 The very purpose of construction contract document being allocation of risk to the
contracting parties i.e., to the employer or to the contractor;
 Such risk allocation could be express and/or implied;
 The non-balanced risk allocation under the construction contract may generate
construction claims and then disputes;
 There are two broad categories of risks in construction contract. These are:
 risks that lead to death, bodily injury and/or physical loss or damage; and
 risks that lead to economic loss and/or time loss;

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 Risks that lead to death, bodily injury and/or physical loss or damage may arise due
to defective design, defective material, defective workmanship, Acts of God, fire,
human error, and failure to take adequate precaution;
 Such types of risks may or may not be insurable by the insurance market;
 Risks that lead to economic loss and/or time loss involve the following;
 late possession of the site;
 delay in receipt of information necessary for timely construction;
 changes in design; and
 variations to the original contract;
 Such risks are characterized as resulting from default in the obligations specified in
the contract and as augmented by the applicable law;
 On the employer side the following may lead to economic loss or time loss risks:
 delay in performance and cost overrun;
 defective design by or on behalf of the Engineer;
 non-performance; like delay in payment;
 Such risks may not be insurable by the insurance market, however;
 On the contractor side the following may lead to economic loss or time loss risks:
 Delay in performance; resulting in payment of liquidated damages by the
contractor; see Clause 8 MDB-FIDIC;
 additional costs; due to various reasons; inefficiency or otherwise;
 defects; patent defects (to be remedied during performance like rework &
during defects correction period) or latent defects (i.e., after issuance of
defects liability certificate to be regulated by the applicable law; see Article
3282 of the Civil Code) for public construction contract like road;
 non-performance; due to various reasons as provided under Clause 15 MDB-
FIDIC; and also under the applicable law; legal remedies are provided
under the applicable law like specific performance or general damages or
cancellation of contract; performance bond could be the remedy for the
employer;
 Such risks may not be insurable by the insurance market, however;

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 Employer’s Risks
 The risks under Clause 17.3 MDB-FIDIC are the risks of the employer;
 Such risks may or may not be insurable by the insurance market;
 Contractor’s Risks
 the following are the risks of the contractor; viz., risks; under MDB-FIDIC
related:
 to works under construction; see Clause 18.2
 to contractor’s equipment; see Clause 18.2
 to the property of the employer; see Clause 18.3
 to contractor’s personnel; see Clause 18.4
 to employer’s personnel; see Clause 18.3
 to the property of third parties; see Clause 18.3
 Such risks could be insurable by the insurance market;
Insurance: Overview
 If ownership of risk has been determined through the contract document, the
contracting party who carries such risk may have an insurable interest to insure
such risk; see Clause 18 (Insurance) MDB-FIDIC;
 However, all risks may or may not be insured against by the insurance market;
 If the risk is to be insured, the insurer (i.e., the insurance company) & the insured
(say the contractor) enter in to an insurance contract as per the applicable law (i.e.,
the Commercial Code) and based on the particular & relevant insurance policy;
 The following three types of insurance have been identified;
 property insurance; ex. for the contractor’s equipment by the contractor
itself;
 liability insurance; ex. for the property of the employer and/or the property
of the third party by the contractor;
 life insurance; related to life accident and/or sickness;
 The details of which being governed under Article 654-712 of the Commercial Code;
 Insurance is part of risk management mechanism;

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Security Instruments & their Management

 The following contractual clauses from the MDB-FIDIC & the PPA including the
provisions from the applicable laws may provide some regulations as to security
instruments related issues;
 under MDB-FIDIC
 see Clause 1.1.4.11 Retention Money; re: definition; cum
 see Clause 1.1.6.6 Performance Security; re: definition; cum
 see Clause 4.2 Performance Security; re: form of security (viz., guarantee vs.
bond as per Contract Data) cum
 See Clause 1.1.1.10; re: definition on Contract Data; cum
 see Clause 14.2 Advance Payment cum see also Clause 1.1.1.10 Contract
Data; cum
 see Clause 14.9 Payment of Retention Money; re: after issuance of the TOC
the possibility for the contractor of substituting for the balance of the
retention money (i.e., 50%) by some form of security as provided under the
particular conditions of contract;
 see Clause 18.2 Insurance for Works & Contractor’s Equipment;
 see Clause 18.3 Insurance against Injury to Persons & Damage to Property;
 under PPA 2011
 see Clause 40 Insurance to be Taken by the Contractor;
 see Clause 58; Performance Security;
 see Clause 61; Retention Monies (guarantee);
 under Civil Code
 see Article 3271 of the Civil Code; Sums advanced by the administrative
authorities); against guarantee;
 see also Article 1920-1951: Surety ship
 under Commercial laws
 see Commercial Code of the Empire of Ethiopia: Article 654-712; on
insurance laws & insurance policies;

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Security: Concept & Scope

 The concept of security is broad; it may include the following aspects;
 contractual security: different contractual security regimes under the
contract;
 legal security: security under the applicable law; and
 security from the market; based on a given construction contract but
securing & submitting commercial & non-commercial security instruments
notably by the contractor;
 contractual security & legal security are discussed somehow in the other parts of the
training;
 The security from the market is the focus of our training;
 Different securities are required under the construction contract for defined &
different purposes to be secured & submitted by the contractor;
 The following are some of the sources of security from the market;
 performance security; see Clause 4.2 MDB-FIDIC; see also Clause 58 PPA
2011;
 advance re-payment security; see Clause 14.2 MDB-FIDIC; see also Clause
60.4 PPA 2011;
 retention money security; see Clause 14.9 MDB-FIDIC; see also Clause 61
PPA 2011;
 insurance policy; see Clause 18 MDB-FIDIC; see also Clause 40 PPA 2011;
 The contractor has no contractual right to demand payment security from the
employer except to request the financial arrangement in writing; see Clause 8.1 (b)
(Commencement of Works; re: financial arrangement serves us here as a pre-
conditions for the commencement of the Works) cum Clause 2.4 (Employer’s
Financial Arrangement);
 The contractor, however, is obliged under the contract to secure & submit some
defined security instruments for due performance of its obligation under the
contract;
 Among such security instruments performance; advance re-payment; and retention
are some;

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Security Instruments
 Performance, advance re-payment & retention money related securities may be
provided by the banks or insurance companies;
 The term security stands here both for guarantee & bond;
 If they were issued by the banks we call the specific security instrument a
guarantee;
 If they were issued by insurance companies, we call the specific security instrument
a bond;
 From construction contract management perspective, the following are worth to
note:
 the security instruments issued by the banks (viz., the guarantee) are mostly
unconditional or on demand;
 the security instruments issued by the insurance companies (viz., the bond)
are conditional;
 The nature of such two security instruments to be issued by the banks &
insurance companies being non-commercial;
 Due to this legal nature, the applicable law governing the enforcement of
such security instruments, viz., both guarantee & bond, is the Civil Code;
 see Article 1920-1951 (Surety ship);
Insurance Policies
 Insurance policies may serve as a security to the one who benefits under such policy;
 Contrary to the above security instruments (namely, guarantee & bond), insurance
policies are commercial in nature, however;
 The Civil Code may not be applicable to govern insurance policies except in its
general contract nature;
 see all insurance business regulating laws;
 see Proc. No. 1243/2021 the new Commercial Code of Ethiopia; see Proc. No.
166/1960; Book Three (Carriage & Insurance (see 654-712)) continue to apply until
they be replaced by a new law;

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Review Questions on

Construction Contract & its Management

………………………………………………………………………………………………………………

1. What do you understand by the concept of Contract?

2. What do you understand by the concept of Construction Contract?
3. What do you understand by the very concept & scope of construction?
4. Identify & discuss the structural difference between construction project/contract and
utility/process plant projects & contracts;
5. What is the difference between construction contract and other categories of contracts (viz.,
service contract, supply of goods contract)?
6. Identify & discuss the fundamental parts of construction contract documents?
7. What do you understand by the concept of method of construction?
8. Does method of construction constitutes constitute an integral part of construction contract
documents?
9. What do you understand by the concept of construction work program?
10. Describe the elements or structure of construction work program?
11. Does construction work program constitute an integral part construction contract
document?
12. Why we use standard conditions of construction contract for our construction projects?
13. What is the basis for each & every standard conditions of construction contract?
14. What is the relationship between general standard conditions of construction contract &
conditions of particular application/special conditions of contract?
15. What do you understand by the very concept of construction contract management?
16. Identify & discuss the fundamental contractual obligation of the Employer under a given
construction contract;
17. Identify & discuss the fundamental contractual obligations of a contractor under a given
construction contract;
18. What do you understand by the concept of consultant or the Engineer?
19. Why we need consultants as related to construction projects? like design consultant or
supervision consultant?
20. Identify & discuss the role of the Engineer (as a supervision consultant) in a given
construction contract;

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Case Study
Pre-contract Negotiation
A certain (public) employer has undertaken a successful tender process and awarded, via a formal
letter of acceptance thereto, a dam construction project (impounding 10 Billion CM raw water
inclusive of the dead storage) worth Birr 4 Billion, to a winning contractor. The project duration
would be 500 calendar days. Before signing & finalizing the construction contract, both parties
decided to hold a pre-contract negotiation. The respective agendas to be negotiated, as recorded,
were of the following. The delivery sub-system is that of design-bid-build (DBB).

Employer’s Agenda
 Work Program;
 consider also whether or not work program being: a guiding vs. binding document?:
 We have reviewed the tender program of the successful bidder (the future
contractor);
 we found it is good; we demand the said working program to be critically reviewed
& to become an integral part of the upcoming Building Construction Contract;
 Tests on Completion; the tests; insurance; method;
 tests; let us define & specify the tests on completion; Notes; as the contractor what
are the possible tests on completion to be proposed, if any, on the building upon its
completion?
 insurance: we demand a specific insurance Policy to guarantee the successful tests
on completion; Notes; as the contractor, do you think that there is an insurance
coverage for such possible risks (viz., failing to pass tests on completion)?;
 method: if the building fails to pass specified tests on completion (if any), without
prejudice to our contractual right to reject the building, let us agree on the method
of measurement (calculation) of the extent of the loss of benefit/value of the building
to the employer with a view to reduce the contract price (viz., partial recovery of the
contract price paid to the contractor);
 Threshold for Interim Payment;
 we recommend ETB 20 Million (instead of ETB 10 Million), as a threshold, to
trigger & process every interim payment certificate (IPC);

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 Note: consider its impact on Work Program; Productivity Plan; Cash Flow Plan of
the contractor, if any;
 Performance Security;
 guarantee: without prejudice to the percentage agreed (viz., 10%), we demand
performance bank guarantee instead of performance bond for the due performance
of the Building Project;
 Note: consider in your discussion the difference between the two forms of securities:
viz., bond & guarantee;
 Reduction of Bid Price/Accepted Contract Amount;
 discount: we demand reduction of the Bid Price which is now an accepted contract
amount (viz., Birr 4 Billion) by 5%;
 Note: consider & discuss the contractor’s policy, if any, on margin of profit as a
contractor;

Agenda of the Successful Bidder

(the Contractor latter on )
 Advance Payment %;
 we demand the increase of the advance payment, now 10%, to 20% and to be
distributed equally in terms of our financial requirement both in foreign & local
currency;
 Note; you may assume certain percentage to be paid in foreign currency for certain
aspect of the building work like elevator;
 Advance Re-Payment Security;
 to ease our initial financial burden & future cash flow, we demand the advance
repayment security to be in the form of bond (from insurance) instead of guarantee
(from the bank);
 Note: consider in your discussion the difference between the two forms of securities:
viz., bond & guarantee; and the Client’s policy on this;
 Site Acquisition & Access Plan;
 the plan: to determine the timing & extent of our mobilization, we demand a clear
site possession & access plan from the employer side;
 non-encumbrance: we demand also the full encumbrance-free site (viz., free from
any obstructions) & its access with a view to avoid any delay;

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 Mobilization Period; timing; program; contract effectiveness;

 timing: the proposed mobilization period is 3 months calculated from the signing of
the construction contract; we demand 6 months mobilization period calculated from
the receipt of the full advance payment both in foreign currency (25%) & local
currency (75%);
 mobilization program: our proposed Mobilization Program has already been
submitted for your due consideration;
 contract effectiveness: we thus consider the effecting of the advance payment as a
condition precedent to the effectiveness of the construction contract;
 Project Duration;
 500 vs. 760: we have observed, in the drawing, a gross error as related to the
quantities to be excavated;
 we understand it is very difficult to change the method of construction from
machine-based to that of blasting;
 therefore, we demand the project duration to be increased to 760 calendar days;
 Notes: no disclosure from all bidders (including the successful bidder) as to such
error in the drawing during bidding;
 Financial Arrangement;
 we demand, in writing, the availability of the finance for the whole duration of the
Project;
 otherwise we may consider to act on our contractual rights like to terminate the
contract;
 what would be your response to this as an employer?
 Payment Security;
 as a contractor, we demand from the Employer an unconditional payment
guarantee from a reputable local bank;
 Retention Security;
 we demand to submit a retention bond, instead of guarantee, for the balance of our
retention money upon the issuance of the taking over certificate;
 Note: consider in your discussion the difference between the two forms of securities:
viz., bond & guarantee;

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 Training Material on: Construction Contract Management

Discussion Points
 Concept; what we call, conceptually, this kind of negotiation (pre-contract negotiation)?
 Non-negotiability; Is there any non-negotiable agenda raised from the Employer’s side?
Identify & discuss; why it is non-negotiable? Give reasons;
 Non-negotiability: Is there any non-negotiable agenda raised from the Successful Bidder’s
(the future Contractor) side? Identify & discuss; why it being non-negotiable? Give
reasons;
 Position of the Contractor: What is your respective position on each negotiable agenda
raised by the Employer? Discuss one by one;
 Position of the Employer: What is your respective position on each negotiable agenda raised
by the Successful Bidder (the Contractor)? Discuss one by one;
 Integration with contract; Assume that both negotiating parties have agreed on such
identified & negotiable items; How do you incorporate those negotiated & agreed terms
within the underlined building construction contract?

Pre-contract Claims
The above pre-contract negotiation has been finalized in two-week time. The pre-contract
negotiation result has been signed by both parties in the form of Minutes of Meeting of the Pre-
contract Negotiation. Assume that the said employer, after finalization of the said pre-contract
negotiation, has refused to enter into a contract with the Successful Bidder (the Contractor) for
reasons unknown;

Discussion Points
 Is the employer legitimate to decline to enter in to a contract with the Successful Bidder?
 If not, what remedies were available to such Successful Bidder against the said employer?
 If there were some remedies available to such Successful Bidder, are such remedies
contractual or legal? Give your reasons why it is contractual or legal remedy;

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Pre-contract Claims
Assume that the head of the said employer institution ordered the future Engineer (to act as the
supervision consultant), in the presence of the Successful Bidder’s General Manager & his project
staff, to instruct such Successful Bidder to commence execution of the works as related to the
building (which is an urgent project) by promising to such Successful Bidder to sign the building
construction contract after his return from abroad that he is due to depart for some urgent
business. Based on the written instruction of the Engineer, the Successful Bidder has mobilized &
executed some works. After his return, the head of the said institution has refused to sign the
building construction contract for reasons unknown.

Discussion Points
 Is the employer legitimate to decline to enter in to a contract with such Successful Bidder
(the contractor)? Give reasons;
 If not, what remedies were available to such Successful Bidder (as the contractor) against
the said employer? Identify the specific remedies;
 If there were some remedies available to such Successful Bidder, are such remedies
contractual or legal? Give reasons why it is contractual or legal remedy;
 If the building construction site were totally changed by informed decision of the
government (regulatory institution), would that be a legitimate ground for the employer
institution not to indemnify or compensate such Successful Bidder (as a contractor);
 Does the change of the building construction site impact any possible remedial right of such
Successful Bidder (as a contractor) if available under the contract or the law?

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References
Laws

1) Proc. No. 1/1995: The Constitution of the FDRE

2) Proc. No. 165/1960; The Civil Code of the Empire of Ethiopia
3) Proc. No. 166/1960: The Commercial Code of the Empire of Ethiopia
4) Proc. No. 1243/2021: The (new) Commercial Code of Ethiopia
5) Proc. No. 25/1992: The Public Enterprises Proclamation
6) Proc. No. 648/2009: The Federal Financial Administration Proclamation
7) Proc. No. 649/2009: The Federal Procurement & Property Administration Agency
Proclamation
8) Proc. No. 980/2016: Commercial Registration & Licensing Proclamation;
9) Proc. No. 1150/2019: Commercial Registration & Licensing (Amendment) Proclamation;
10) Proc. No. 721/2011: Urban Land Lease Administration Proclamation
11) Proc. No 922/2015: Authentication and Registration of Documents Proclamation
12) Proc. No. 1263/2021: Definition of Powers & Duties of the Executive Organs of the FDRE
13) Proc. No. 74/2021: Definition of Powers & Duties of the Executive Organs of the AA City
Government
14) Proc. No. 1156/2019; Labour Proclamation
15) Proc. No. 1161/2019: Expropriation of Land Holdings for Public Purposes, Payments of
Compensation and Resettlement of Displaced People Proclamation
16) Proc. No. 1210/2020; The Federal Government Public Projects Administration and
Management System Proclamation
17) Proc. No. ….specific Fiscal Year Budget Proclamation of the FDRE: scope: fourfold;
Recurrent Expenditure; Capital Expenditure; Subsidy Appropriation to States; Support for
Achievement of Sustainable Development Goals (SDGs);
18) Proc. No. ….specific Loan Ratification Proclamation: twofold: multilateral; bilateral;
19) Proc. No. Proc. No. 464/2005: Power & Telecommunications Network Proclamation;
20) Proc. No. 299/2002: the Law of Environmental Impact Assessment Proclamation;
21) Proc. No. 300/2002: the Law on (integrated) Environmental Pollution Control
Proclamation;
22) see also applicable ILO Conventions; ILO Protocols; and so forth; re; Safety
23) see also UN Conventions on climate change & sustainable development;
24) Proc. No. 624/2009; Ethiopian Building Proclamation

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 Training Material on: Construction Contract Management

25) Proc. No. 1079/2018: Ethiopian Geospatial Information Agency Reestablishment

Proclamation

Laws/Regulations

26) Regulation No. 243/2011; Council of Ministers Building Regulation

27) Regulation No. 365/2015: The ECWDSC establishment Council of Ministers Regulation;
28) Regulation No. 379/2016; Federal Documents Authentication and Registration Agency
Establishment Council of Ministers Regulation
29) Regulation No. 440/2018: Definition of Powers, Duties and organization of the Geospatial
Information Institute Council of Ministers Regulation
30) Regulation No. 472/2020: Expropriation and Valuation, Compensation and Resettlement
Council of Ministers Regulation
31) Regulation No. 392/2016: Commercial Registration & Licensing Council of Ministers
Regulation
32) Regulation No. 461/2020: Commercial Registration & Licensing Council of Ministers
(Amendment) Regulation

Standard Contracts

33) The 1959 MoUDH General Conditions of Construction Contract; (developed or adopted &
issued by Ministry of Urban Development & Housing);
34) The 1987 BaTCoDA Standard Conditions of Contract for Construction of Civil Work
Projects; (developed or adopted & issued by Building and Transport Construction
Authority);
35) The 1994 MoWUD Conditions of Contract for Construction Works (1994); developed or
adopted by Ministry of Works and Urban Development;
36) The FPPA Conditions of Contract for Works (January, 2006);
37) The FPPPAA Conditions of Contract for Works (November, 2011)
38) FIDIC Conditions of Contract for Construction for Building and Engineering Works,
designed by the Employer, (First Edition 1999; Second Edition 2017 the New Red Book);
39) MDB-FIDIC Harmonized Edition (Pink Book) (First Edition 2006; Second Edition 2010)
Conditions of Contract for Construction, designed by the Employer;
40) FIDIC New Yellow Book: Conditions of Contract for Plant- Design–Build for Electrical &
Mechanical Plant, and for Building & Engineering Works (the New Yellow Book: First
Edition 1999; Second Edition 2017), designed by the Contractor;

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41) FIDIC Conditions of Contract for Engineer-Procure-Construct: EPC/Turnkey Projects

(Silver Book: First Edition: 1999; Second Edition: 2017);
42) The FIDIC Conditions of Contract for Design-Build-Operate (Gold Book 2008);
43) The FIDIC 1994 Standard Conditions of Construction Sub-contract: to work in conjunction
with FIDIC 1987 Standard Conditions of Construction Contract
44) The FIDIC (2011) Conditions of Sub-contract for Construction: For Building &
Engineering Works Designed by the Employer: to be used in conjunction with FIDIC 1999
(New Red Book) and MDB-FIDIC 2006/2010 (Pink Book) Standard Conditions of Contract
for Construction

Books
45) Bunni N. G., The FIDIC Forms of Contract, Third Edition, 2005;
46) Corbett, E.C., FIDIC 4th : A Practical Legal Guide, 1991
47) Axel-Volkmar Jaeger & Got-Sebastian Hok, FIDIC-A Guide for Practitioner, Spring
Verlag Berlin Heidelberg 2010;
48) Rene David, Commentary on Contracts in Ethiopia, as Translated by Michael Kindred,
Published by the Faculty of Law, Haile Sellasie I University, Addis Ababa, 1973;
49) George Krzeczunowicz (Professor of Law), Formation & Effects of Contracts in Ethiopian
Law, Faculty of Law, Addis Ababa University, Addis Ababa, Ethiopia, 1983;
50) Girma Gizaw (Dr.), Ethiopian Contract Law-General Provisions, 2nd Edition, 2007;
51) Tilahun Teshome (Professor of Law), Basic Principles of Ethiopian Contract Law (in
Amharic), Addis Ababa University, October, 1995, Published by the Research &
Publications Department, Federal Supreme Court, Addis Ababa, 1996;
52) Henrik Lando & Caspar Rose, On the Enforcement of Specific Performance in the Civil law
Countries, June, 2004;
53) Van Deventer, The Law of Construction Contracts, 1993;

Websites
54) www.fidic.org (for all FIDIC Publications)
55) www.icc.org (for International Chamber of Commerce (ICC) materials )
56) www.chilot.et (for Ethiopian laws)
57) www.ilo.org (for international labour organization (ILO) documents)
58) www.unclimatechange.org (for climate change related materials)

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