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- 1. DEBRE TABOR UNIVERSITY INSTITUTEOF TECHNOLOGY DEPARTEMENT OF CIVIL ENGINEERING Contract, Specification and Quantity Survey CHAPTER 2 Contract ABADI TIEUMAY
- 2. Chapter Outline ‡ 2.1. Principlesof Contract Law ‡ 2.2. Types of Construction Contract ‡ 2.3. Contract Documents ‡ 2.4. Contract Management : „ Contract Administration and Closing „ Claims and Dispute Management 2
- 3. Principles of Contract Contractis a written agreement between two or more parties whereby each party promises to do or not to do something and agrees to terms (conditions and warranties) set out in the contract. Conditions of contract are terms in which parties in the contract are governed/ administered with. That is, it is an administrative law which is the legally binding part of the contract. These terms shall be enforceable by law 3
- 4. Parties in constructioncontract 4
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- 7. CONTI Legal definition ofcontract: According to the civil code of Ethiopia, art. 1675: A contract is an agreement whereby two or more persons as between themselves create, vary or extinguish obligations of a proprietary nature. In other words, a contract is an agreement that affects the legal relationship 7
- 8. Conti. European country acontract is defined as an agreement to create, vary and extinguish rights and obligations (See Article 1101 of French Civil Code and Article 305 of German Civil Code).1 In English Law, contract means a promise. In case a person who promises does not perform his promise he should be responsible before the law. This rule was started to be applied in the 14 C.A.D. USA (UCC). Articles 1-201 of UCC defines contract as "in general contract means an agreement between persons from which legal obligation is arisen". 8
- 9. Elements of acontract Contract requires four basic elements – Mutual agreement • Offer & acceptance – Legal objectives – Valid consideration – Legal capacity of the parties Mutual agreement Must have evidence that there was a “meeting of the minds” • Offer ‐clear & unambiguous • Acceptance ‐clearly accepting deal offered, indication of consent, 9
- 10. legal objective The thingbeing contracted for must be legal Most construction contracts are legal, Assumes correct party issues the contract But some contract modifications may be illegal & thus unenforceable Verbal modifications Modifications beyond scope of the party’s authority 10
- 11. legal capacity – Insimplest form, parties must be Of age Mentally competent – In construction environment, parties must have Legal authority to issue and execute contracts May have to be properly licensed to have legal capacity 11
- 12. Valid consideration In exchangefor the offer of performance, the recipient must offer something of value ‐Money(most typical) ‐promise of future work or revenue „Goods or Services – Without consideration a contract is not valid Note: In most cases a construction contract must be in written form to be enforceable. But verbal contract can be enforceable under proper circumstance. 12
- 13. Content of constructioncontract Identity of parties Promises and responsibilities Scope of the work Price and payment terms Project execution plans 13
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- 15. Types of ConstructionContracts Contracts for the execution of civil engineering works are of following type: a) Lump sum contract b) Unit rate contract c) Lump sum and schedule contract d) Cost plus fixed fee contract ‡ e) Cost plus percentage of cost contract A. Lump Sum Contract( Fixed Price) Lump sum contract are typically used for buildings. Difficult to make adjustments. is more suitable for works for which contractors have prior con struction experience. Not suitable for unpredictable conditions. 15
- 16. B. Unit Priceor Bill of Quantity (Fixed Price) Also called Schedule contract ‡ Used for work where it is not possible to calculate the exact quantity of materials that will be required. ‡ Unit‐price contracts are commonly used for h eavy/highway work. ‡ Items whose actual quantity varies from the ‡ estimated quantity by more than 15 or 20%, either a bove or below, are sometimes subject to r enegotiation of the unit price. 16
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- 18. C. Lump sumand scheduled contract ‡ Combines the features of the Lump sum and schedule contracts ‡ Additional items are amounted as per the attached item rate. D. Cost plus ‡ Used when it is impossible to predict their costs during the negotiation, bid, and award process. ‡ Factors: unpredictable and extreme weather conditions, transportation problems, combat or war, or contracts where the amount of effort that will be required depends on another contractor’s work. ‡ Cost plus contracts take many forms: the most common cost plus fixed fee and cost plus a percentage. 18
- 19. D.1. Cost plusFixed Fee Contact ‡ Is desirable when the scope and nature of the work c an at least be broadly defined. ‡ The amount of fee is determined as a lump sum fr om a consideration of the scope of work, its app roximate cost, nature of work, estimated time of con struction, manpower and equipment require ments etc. ‡ The contractor will not be tempted to increase the co st to get more revenue. D.2. Cost plus Percentage of Cost Contract ‡ The tendency of the contractor to increase the cost of work to earn more profit by way of percentage of enhanced actual cost is the major demerit of this co ntract type. 19
- 20. 2.3 contract document Construction“Contract Documents” are the written documents that define the roles, responsibilities, and “Work” under the construction Contract, and legally- binding on the parties (Owner and Contractor). The contract documents serve three purposes: basis for competitive bidding as contract administration documents basis for the settlement of disputes, etc. 20
- 21. 2.3. Contract Documents ‡ Themain contract documents are: 1. „Invitation to tender, 2. „Instruction to tender, 3. „Form of tender „ , 4. „The Agreement, 5. Condition of contract( General and Particular), 6. „Specification (General and Particular), 7. „Bill of Quantities, 8. „Drawings, 9. „Addenda and 10. „Appendix to Tender. 21
- 22. Conti. 1. Invitation totender: An initiation letter to the contractor to participate in the tender with an acknowledgement attached. 2. Instruction to tender :The contractor is given directive of what is required of tenders. It includes: Tendering procedures, bid bond, data, space, time Commercial requirements Information in what shall be submitted with the tender (alternative proposals, etc.) Scope of work Tender basis 22
- 23. Conti.. 3. Form ofTender Confirms that he has examined all the tender documents Confirms that he will perform the work Promises that the validity of the tender is open for certain period Shows his understanding that the lowest bid or any after may be rejected States that part of the work may only be accepted Confirms that he will enter into an agreement if awarded. 23
- 24. Conti… 4. Agreement The agreementis the document that represents and reflects the legal contract between the owner and the contractor. It is letter that constitutes legal evidence that a contract exists, and forms the basis for its enforcement. 24
- 25. Conti… 5. Conditions ofContract The Condition of contract is the document that states the obligations and rights of the parties and detail the conditions under which the contract is to be carried out. It states to what extent should be the relation between the engineer, contractor and client. It includes general and supplementary or special/particular conditions of contract. 25
- 26. Conti.. I. General conditions Itdefines the responsibilities of the parties involved in the contract – the owner and the general contractor. It may be FIDIC, PPA, and others II. Supplementary Conditions The purpose of the supplementary conditions is to provide an extension of the general provisions of the contract to fit the specific project at hand 26
- 27. Conti.. It includes The numberof copies of contract documents to be received by the contractor Survey information to be provided by the owner Materials provided by the owner Changes in insurance requirements Phasing requirements Site visit Start date of the construction Requirements for security and temporary facility Procedures for submittal and processing of shop drawings Cost and schedule reporting requirements Traffic control and street cleaning requirements Responsibilities for testing of materials Actions to be taken in the event of discovery of artifacts or items of historical value 27
- 28. Conti… 6.Adenda Any change tothe bid documents after they are released for bidding but before bids are actually received requires issuance of an addendum. This formal document changes the original bid documents and becomes a part of the bid package. At the time of bid opening, bidders must in their bid documents, acknowledge all addenda. Technically addenda may be issued to change the bid opening date, to modify the original design, to delete or add items, or to correct errors. Addenda may not be issued within about five days of bid opening unless the bid date is also extended accordingly. 28
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- 30. In the EthiopianConstruction Industry the following ‡ standard conditions of contracts are commonly used: „ FIDIC (1987) –Condition of Contract 2006 -Public Procurement Agency(PPA), Standard Bid Document „ 1994- Ministry of Works and Urban Development (MoWUD) „1987 –Building and Transport Construction and Design Authority (BaTCoDA) 30
- 31. FIDIC Conditions ofContracts FIDIC has evolved into a leading body f or development of model standard forms of contract for use in the international construction industry. ‡ FIDIC conditions of contracts have two parts: ‡ „General Condition of Contract „Particular Conditions of Contract 31
- 32. FIDIC Conditions ofContracts „1957 –RED BOOK ‡ for civil engineering works „1963 – YELLOW BOOK ‡ For mechanical and Electrical works „1987 –OLD FIDIC ‡ Comprises the RED and YELLOW Books. „1995 –ORAGE BOOK ‡ For Design Build and Turnkey Projects „1999 –GREEN BOOK ‡ For short period projects ( 6 months) ‡ Low contract value ($ 500,000) „1999 –SILVER BOOK ‡ 32
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- 34. Contract administration Identifying contractualresponsibilities of Stakeholders. „Reviewing the Terms of Contract Documents „ Preparing and Monitoring Responsibility Summary Sheets. Determining and understanding the construction components of the project. ‡ Reviewing the Contract Drawings and Technical Specifications ‡ ‡ Prepare Construction Methods and Over all Sequences Sheets ‡ Review submitted (Integrated) Schedules 34
- 35. Report Project Statusdaily and / or and Co mpletions. Certify qualities of materials, shop drawings, samples, and works. Measure Works, Record Site Potentials and Certify Payments and Completions „ Take off sheet and Schedules are used for M easurement of Works „ Method of Measurement is according to standard practices „ „„Advance, Interim and Final Payments are certified „ Mediate Disputes. 35
- 36. Contract Closing ‡ Closing ofContract looks into issues related to ‡ Maintenance Period and Remedial work s, Dealing with Left Over Claims and Disp utes, if any, Closing of Accounts and Com pletion Certificates. 36
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- 38. 38 In the dayto day progress of the works misunderstandings may occur between the parties to a contract. These misunderstandings may be a result of interpretation of contract documents, request for compensations for damages sustained or request for time extension as a result of delays caused by one party etc. These requests for compensation are called claims In general claims in construction industry are defined as demands for compensation in terms of money, time extension or a combination of these that a party rightly or wrongly believes that he is entitled to Definitions of claims
- 39. Disputable claimarises when a claim of one party is not accepted by the other contracting party or when the decision of a neutral party is not being accepted by any or all the contracting parties. Non-disputable claims are claims acceptable by the contracting parties Claim could be disputable or non-disputable 39
- 40. 40 Claim Administration Procedures Clause 53 FIDIC: The contractor give his intention to claim within 28 days after the event giving rise to the claim has first arisen The contractor shall keep temporary records on the claim issue The engineer examines such contemporary records The contractor shall submit detailed particulars of the amount claimed and the grounds upon which the claim is based The engineer makes determination based on the available records and evidences and arguments produced If the parties to contract agree to this decision, then the claim is resolved If the parties to the contract do not agree to the decision, then the claim will be disputed claim
- 41. 41 Types of claims Contractualclaims Extra-contractual claims
- 42. 42 Contractual Claims Claims madeunder the expressed provisions of contract fall under this category This type of claim forms the largest part of claims and the terms of contract define the situations in which they may be made and how they may be handled
- 43. 43 Extra-Contractual Claims Claims whichhave no basis in the contract documents. These could have their basis in common law or statue law. These could include a claim for damage for: breach of contract breach of warranty breach of an implied term
- 44. Major causes ofclaims Variations Defect in contract document Unforeseen condition Failure in contract administration 44
- 45. There are threemajor types of claims Time Related Claims: Claims associated with delay or in time completion of projects Cost Related Claims: Claims associated with monetary compensation Default by Contracting Parties: Claims associated with non performances of contractual obligat ions 45 Claim administratio n process
- 46. 46 The majorityof claims involve delay of some form. Time is particularly important since a contractor is bound by the contract to construct the works in a specified time, and is liable to pay liquidated damages for late completion, Acceptance by the Engineer of the validity of a claim for extension of time means that the contract completion date is extended.
- 47. 47 Event-claim-dispute range Event occurs Claimarises Contractor gives notice of intention for claim Discussion/ Consultation Engineer determines the sum due to contractor Contractor agrees Claim resolved Contractor disagrees Dispute exists Either party gives notice of dispute Dispute resolution procedure Dispute resolved
- 48. 48 Settlement of DisputeProcedure Clause 67 FIDIC Submission of details by contractor, Review of the dispute by the engineer, The Engineer gives decision, Amicable settlement, or ADR resolution system will be Implemented,
- 49. 49 Construction Disputes ResolutionSystems There are several methods of resolving disputes in the construction industry. Mainly they are categorized as: Preventive, Non-judgmental (amicable), Judgmental,
- 50. Preventive This methodis a mechanism of avoiding disputes rather than allowing issues to grow until they become real dispute, Partnering: It is a process which aims to create a good principal-contractor relationship from the outset, which aims on encouraging contracting parties to have operative team based approach Construction Disputes Resolution Systems (Cont…) 50
- 51. Construction Disputes ResolutionSystems (Cont…) Dispute Review Board (DRB) involves a panel of expert neutral persons being setup at the beginning, DRB members made an independent assessment and visits the site regularly during construction & they keep on advising the parties and solve the dispute among them. 51
- 52. 52 The non-judgmental The non-judgmental methods bring the disputants to a round table and mutually resolve their dispute Negotiation is a common dispute resolution process in which parties themselves, or their representatives, try to solve the dispute without involving any neutral third party. As negotiation is consensual, it requires willingness by both parties to attempt resolution by this method. Construction Disputes Resolution Systems (Cont…)
- 53. 53 Mediation isa dispute resolution mechanism in which a neutral third party meets with the disputants and facilitates negotiation to the parties to come to their own solution. The mediator controls the processes, but he/she does not impose any resolution or opinion on the merits of the case, Promoting a win/win situation, leaving the disputants themselves to control the outcome, Mediation can occur by contractual agreement or after a dispute arises, Construction Disputes Resolution Systems (Cont…)
- 54. 54 Conciliation isa process similar to mediation except that the mediator can express an opinion on the merits of the case, and is required to recommend a solution if the parties fail to agree, Mini-trial Neutral third party brings together senior decision makers from each disputant to hear presentations by junior representatives or their respective legal representatives and help them to negotiate on resolution at private, The representative should have full settlement authority, Construction Disputes Resolution Systems (Cont…)
- 55. 55 Judgmental Adjudicationis a process in which the decision of a third party neutral, named in the contract, is binding upon the parties with respect to any matter in dispute until the contract is complete. Adjudication decision could be challenged through arbitration or litigation, Arbitration is a process where a third party who is independent of parties, but may be selected by them, makes an award determining the dispute,The award is binding and can be enforced at courts, Construction Disputes Resolution Systems (Cont…)
- 56. 56 Litigation isa dispute resolution method whereby the disputant initiates legal action against the other party by going to court, It has a win/lose outcome, It is usually initiated when the disputants cannot agree to other forms of dispute resolution, Construction Disputes Resolution Systems (Cont…)
- 57. 57 Resolve Claims andDisputes Amicably THANK YOU!
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