INTRODUCTION TO

CONSTRUCTION CONTRACT

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 CI and its Laws
 CI related Public bodies and
Private Organizations
 Construction Projects
Regulatory Frameworks
(Delivery System, Procurement,
 Now we will see Construction
Contract & Claim related laws

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 Writing is usually not necessary to
create a contract. Many everyday
contracts are made without words, for
example when shopping at the
supermarket. A contract made by
spoken and not written words is an
‘oral contract’.

 A contract that is made without words

is an ‘implied contract’. A contract may
be partly oral, partly written and partly
implied. That part which is not implied
is said to be ‘express’.
 Terms of Contract
 Conditions are terms which are
fundamental to the contract and may lead
to breach and/or damage
 Warranties are terms which are
subsidiary to the contract. Can normally
lead only to damages under tort
 Expressed terms are terms clearly stated
in the contract.
 Implied terms are not specifically written
into the contract but are considered by the
courts to be part of the contract
 Exclusion clauses: These are clauses
(terms) that seek to deny liability or limit
liability
 Construction Contract
Contract is a written agreement between or
among two or more parties whereby each
party promises to do or not to do something
and agrees to terms , conditions set out in
the contract.

In other words, A Contract is an Agreement

between two or more parties to do or not to
do something for a certain consideration that
fulfill the following seven requirements:
• Lawful and Capable
• Intent
• Legal and Distinct
• Standard
• Consideration
• Offer and Acceptance
• Agreement
Lawful and Capable is to mean they are legally
allowed to enter into contract and provides
statements of facts (statement of opinion +
Knowledge) for their ability to perform their
obligations.
 Minor

 Considered mentally incompetent or ill

 Under the influence of alcohol and other

drugs

Intent is willingness or consent by the contracting

parties to create a legal contract.

Declare that you have read all the incorporated

documents and are willingly bound by the terms!
Legal and Distinct is a description of both
the promises and considerations (including
rights and obligations) clearly and distinctly
stated and they should be practicable and
legally binding.
Standards can be conditions, forms, formats,
schedules, instructions, etc which are created for use
as part of contracts.

According to the Civil Code of Ethiopia

1960, Art.1727
Any Contact required in writing shall be
supported by a special document signed by
all the parties bound by the contract
 It shall be of no effect unless it is attested
by two witnesses

Consideration can simply be interpreted as ‘price

for the promise’ which involves a benefit accrued
from the offeree in exchange for the promise the
offeror is bound by the contract.
• An Offer is an indication that one party
is willing to be bound by specific terms
set out in the contract.

 An Acceptance is the key for the formation of a

contract which must be absolute, indication of
consent, and communicated to the offering entity
by the offeree.
Types of Contract

Bilateral Contracts are contracts

entered to promise for an obligation
performed in the future where both
(two) parties are mutually bound.

Multilateral Contracts are contracts

entered to promise for an obligation
performed in the future where all
(three or more) parties are mutually
bound.
Contract Agreement when signed forms the
contract document which will be the bases for
Contract Administration. A Construction
Contract Document includes:

•Signed and Sealed Form of Contract

Agreement
•General and Particular Conditions of Contract,

•Technical Specification and Methods of

Measurement,
•Priced Bill of Quantities, Drawings and General
Notes to drawings if necessary, and
•Forms, Formats and Schedules.
 Contents of Contract Documents
 The Legal Part

• The Contract Agreement;

• The (latest) Minutes of Meeting, if any;

• The Letter of Acceptance(Award);

• The Tender ( NB: Including the Appendix to Tender, if any);

• The Special Conditions of Contract;

• The General Conditions of Contract;

• Others, if any;
 Contents of a Contract Documents
 The Commercial Part

• The Performance Security Form;

• The Payment Security Form;

• The Advance Payment Guarantee Form;

• The Bid Security Form;

• The Insurance Forms;

• The Retention Money Security Form;

• Others, if any
 Tender & Contract Documents
 The Technical Part

• The Technical Specifications;

• The Drawing;
• The Bill of Quantities;
• Others, if any;

 The Contract Agreement shall also declare the priority of the

Contract Documents i.e. which Contract Document shall have
precedence or priority over the other in case of ambiguity or
discrepancy between or among the relevant Contract Documents.
 Invalidation of contracts

 Void and voidable contracts

 Reasons to invalidate contract.
 Mistake
 Needs to be fundamental that the plaintiff
wouldn’t have entered the contract had it not
been for the mistake. Not a simple
calculation/arithmetic mistakes
 Fraud (Deception)
 principal frauds can lead to invalidation of contract

Duress
 ‘Duress’ is the compelling of a party to consent to a
contract by threats of grave imminent harm to such
party or his ascendants, descendents or spouse
 Duress can have threefold aspect
 A contract aspect leading to invalidation
 A tort aspect leading to compensation for damages
 A penal aspect leading to punishment under the Penal
Code
 False statement
• false information to another where he knows that
the latter acts upon the information
Discussion on FIDIC conditions of contract
•

FIDIC Condition of Contract

•

FIDIC has long been used as Standard Forms of

•
Contract for use between employers and contractors
on international construction projects.

FIDIC is the international federation of national

•
associations of independent consulting engineers

•Founded in 1913 by the national associations of

three European countries, now with membership
from over 60 countries.
FIDIC TYPES

Conditions of Contract for Works of Civil Engineering

•
Construction (Red Book) Fourth Edition 1987.

Conditions of Contract for Electrical and Mechanical

•
Works including Erection on Site (Yellow Book) 1987.

•Conditions of Contract for Design-Build and Turnkey

(Orange Book) 1995.

Depending on type of contract we have also silver and

•
green type of condition of contracts.
 FIDIC TYPES
FEDERATION ENTERNASIONALE DES ENGENIURS - COUSELS
FIDIC TYPES
 Construction Contracts
 Construction Contract document
stipulates the rights, obligations and
responsibilities of the major parties
involved in the contract: Indirect stakeholders’ boundary

Users

Contractor
Regulatory/Statutory
bodies Suppliers
Client

Direct stakeholders’ boundary

Trade Unions Financing
institutions
Engineer

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The general public
 Contracts
 Why? to protect parties against
defaulting by their contracting party,
if so provide adequate
compensation:
 Facilitate smooth functioning of the industry
 It is one way of managing risk!
• Most (common contracts) are meant to
share risks among parties

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 Contracts
Risk transfers in contracts

Project
Owner
Risk Banks

Risk
General
Contractor
Risk
Risk
Sub-Contractor
Insurance
Risk

Risk should be allocated to party Sub-Sub

Contractor
that is in the best position to 24
manage it.
 Contract Relationships

Construction Team commonly consists of:

 The Client (sometimes called the Promoter or

Employer)

 The Contractor

 The Consultant

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 Contract Relationships

Relationships Between the Parties:

 There is a formal legal contract between the

Client and the Contractor

 There is a formal legal contract between the

Client and the Consultant

 There is no formal legal contract between the

Contractor and the Consultant

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 Major types of contracts common in
Construction

Client

Contractor Consultants
“Works" Contract “Service" Contract

Suppliers
“Goods” contracts
The procurement procedures, evaluation criteria adopted, etc vary substantially
among the above procurements 27
Contents Function and broad outline of contents
Number Heading
Agreements and contract data
Form of Offer and This form formalizes the legal process of offer and acceptance. The following provisions are
Acceptance common to most agreement forms:
Identification and full address of the signing parties, short description of the project and the
work, date of commencement and signature, completion time of the project, the contract
price, and enumeration of contract documents constituting the entire agreement.

Standard or General States the applicable conditions of contract and associated contract specific data that collectively
Conditions of describe the risks, liabilities and obligations of the contracting parties and the procedures
Contract: for the administration of the contract.
Particular or Special This document provides more specific and relevant information and conditions to a particular
Conditions of project. It is a supplementary and modified section of the general conditions of contract.
Contract Special conditions include additional owner requirements.
Pricing data
Activity Schedule / Bill of Records the contractor's prices for providing supplies / services / engineering and construction
Quantities works which are described elsewhere in a specification within the Scope of Work section
of the contract.
Scope of Work
Technical Specifications Specifies and describes the supplies, services, or engineering and construction works which are
& Methods of to be provided and any other requirements and constraints relating to the manner in which
Measurement the contract work is to be performed.
Drawing These are intended to describe the size and dimensional requirements of the project. Many
professionals are involved in developing drawings. These include the architectural,
structural, sanitary, mechanical, electrical, topographic survey, land profile, and detailing.

Appendix to Construction
Agreement:
Miscellaneous
Comprises tabulated and narrative information of the project such as amount and liquidated
damages, interest rates, completion time, amounts of bond and insurances, defects liability
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period, retention, progress payments, advance payment, etc. Some of this information
might be left blank to be filled by the contractor or might be readily provided by the client.
Contents Function and broad outline of contents
Number Heading
Agreements and contract data
Form of Offer and This form formalizes the legal process of offer and acceptance. The following provisions are
Acceptance common to most agreement forms:
Identification and full address of the signing parties, short description of the project and the
work, date of commencement and signature, completion time of the project, the contract
price, and enumeration of contract documents constituting the entire agreement.

Standard or General States the applicable conditions of contract and associated contract specific data that collectively
Conditions of describe the risks, liabilities and obligations of the contracting parties and the procedures
Contract: for the administration of the contract.
Particular or Special This document provides more specific and relevant information and conditions to a particular
Conditions of project. It is a supplementary and modified section of the general conditions of contract.
Contract Special conditions include additional owner requirements.
Pricing data
Activity Schedule / Bill of Records the contractor's prices for providing supplies / services / engineering and construction
Quantities works which are described elsewhere in a specification within the Scope of Work section
of the contract.
Scope of Work
Technical Specifications Specifies and describes the supplies, services, or engineering and construction works which are
& Methods of to be provided and any other requirements and constraints relating to the manner in which
Measurement the contract work is to be performed.
Drawing These are intended to describe the size and dimensional requirements of the project. Many
professionals are involved in developing drawings. These include the architectural,
structural, sanitary, mechanical, electrical, topographic survey, land profile, and detailing.

Appendix to Construction
Agreement:
Miscellaneous
Comprises tabulated and narrative information of the project such as amount and liquidated
damages, interest rates, completion time, amounts of bond and insurances, defects liability
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period, retention, progress payments, advance payment, etc. Some of this information
might be left blank to be filled by the contractor or might be readily provided by the client.
International Construction
Contract
 FIDIC
Conditions of Contract
for Construction
 The GCC
 Why GCC:
 Helps in a fair and adequate method of handling construction
projects;
 Many of the terms of the standard conditions of the contract
may have been tested by courts and hence can be relied upon
to provide similar protection to all who use them;
 Reduces time and effort exerted in preparing contracting
documents

 What do GCCs do?

 Provide the general framework by which construction projects
are governed;
 Are usually drafted to cover common aspects of construction
while specific aspects are left for SCC,s

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Major terms covered in GCCs &PCCs will be
discussed later

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 Contract Relationships

Roles and Responsibilities

The Client:
 Is the project initiator and usually the owner
 Is responsible for appointing the Consultant (“The
Engineer”)
 Selects the Contractor
 Ensures the Site is available for the Contractor
 Agrees to any necessary changes to the Contract
 Arranges payments as required under the Contracts to
both the Contractor and Consultant

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 Contract Relationships
Roles and Responsibilities

The Contractor:

 Is required to carry out the Works within the specified

time in accordance with the Contract’s requirements
and to the satisfaction of the Engineer
 Is required, through a competent and authorised person
to manage/control the construction of the Work. This
involves:
o obtaining required materials
o programming the Works/tasks
o Setting targets for both productivity and
costs
o organising necessary resource
 Is responsible for safety of all Site operations and
methods of construction
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 Contract Relationships

Roles and Responsibilities

The Engineer:
 Is not party to the construction Contract, but to a separate
agreement with the Client
 Is required to exercise all reasonable skill, care and diligence
and act fairly as an intermediary between the Client and the
Contractor
 The Conditions of Contract define the powers and
responsibilities of the Engineer. These powers and
responsibilities involve two distinct roles”
o the Engineer acts as a
representative of the Client, e.g.
issuing drawing; giving
permission for sub-contracting
o the Engineer acts independently,
such as valuer, certifier and
adjudicator 36
 Contract Relationships

Roles and Responsibilities

The Engineer:

 Normally delegates many of his powers, although not all, to the

Engineer‘s Representative, formally notifying the Client and
Contractor
 Provides general Contract Administration, ensuring compliance
by the Contractor with time and quality obligations

 Acts as a Certifier

 Acts as a Dispute Settler

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 Contract Relationships

Client’s Specific Rights and Obligations

Rights
 To be notified of the appointment of Engineer’s
Representative and assistants
 To require the Contractor to complete a Contract Agreement
 To require the Contractor to provide a Performance Security
 To be jointly named on insurance policies
 To be consulted by the Engineer on determinations of
additional costs and/or extensions of time
 To take out insurances (at the Contractor’s cost) in the
event of the Contractor’s failure to do so
 To deduct Liquidated Damages for delay from payments due
to Contractor
 To employ others to carry out remedial works if Contractor
doesn’t do them
 To terminate the Contract upon the outbreak of war
 To proceed to arbitration if dissatisfied with an Engineer’s
decision

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 Contract Relationships

Client’s Specific Rights and Obligations

Obligations
 To appoint the Engineer
 To define those duties of the Engineer which require prior
approval
 To make the Site available
 To make available site investigation data
 To be responsible for his own workmen on Site
 To define time(s) for completion
 To make payments within 28 days of receipt of Interim
Payment Certificates
 To attempt to reach amicable settlement prior to arbitration

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 Contract Relationships

Contractor’s Specific Rights and Obligations

Rights
 To be notified of the appointment of Engineer’s
Representative and assistants
 To be consulted by the Engineer on determinations of
additional costs and/or extensions of time
 To seek consent for work at night or on rest days
 To give notice of substantial completion
 To be paid the value of the Works determined by
measurement
 To receive payments within 28 days of receipt of Interim
Payment Certificates
 To proceed to arbitration if dissatisfied with an Engineer’s
decision

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 Contract Relationships

Contractor’s Specific Rights and Obligations

Obligations
 To execute the Works with due diligence, remedy defects, and provide all
things required
 To take full responsibility for operations and methods
 To execute and complete the Works in accordance with the Contract and
comply with the Engineer’s instructions
 To accept instructions only from the Engineer
 To submit a programme and (if required) method statement
 To submit a revised programme if requested
 To provide full-time superintendence and representative, and replace the
representative if required by the Engineer
 To replace any person when required by the Engineer
 To take out necessary insurances
 To comply with statutes etc. and indemnify the Employer against penalties
 To keep the Site clear
 To suspend the Works if instructed
 To expedite progress if required by the Engineer
 To submit detailed particulars of claims
 To submit monthly statements of amounts due
 To attempt to reach amicable settlement prior to arbitration 41
 Contract Relationships

Engineer’s Specific Rights and Obligations

Rights
 To exercise the authority to be implied from the Contract
 To delegate powers to the Engineer’s Representative
 To issue instructions to the Contractor as necessary
 To request a revised programme
 To withdraw approval of the Contractor’s representative if
necessary
 To require replacement of any member of the Contractor’s staff if
necessary
 To instruct tests on materials
 To instruct a suspension of the Works
 To notify the Contractor to expedite progress
 To make variations he considers appropriate
 To value claims in the absence of details from the Contractor
 To correct or modify Interim Payment Certificates
 To certify if the Contractor is in default 42
 Contract Relationships

Engineer’s Specific Rights and Obligations

Obligations
 To obtain the Employer’s specific approval when required
 To appoint the Engineer’s Representative
 To determine additional costs and/or extensions of time when
appropriate
 To issue the Taking-Over Certificate or instruct the contractor to
complete outstanding works
 To make variations he considers necessary
 To value variations
 To determine the value of the Works by measurement
 To prepare Interim Payment Certificates
 To issue the Defects Liability Certificate
 To give an Engineer’s Decision within the stipulated time stated in
the Contract 43
 FIDIC Parts I and II
 Part I – General Conditions.
 Part II – Conditions of Particular
Application.
 Employer’s Rights I
 To be notified of the appointment of Engineer’s
Rep. and assistants 2.3
 To give consent to assignment of the Contract
3.1
 To require the Contractor to complete a Contract
Agreement 9.1
 To require the Contractor to provide a
Performance Security 10.1
 To be named jointly on insurance policies 21.2
 To be consulted by the Engineer on
determinations of cost & EoT (Various)
 Employer’s Rights II
 To take out insurances (at the Contractor’s cost)
in the event of the Contractor’s failure to do so
25.3
 To deduct Liquidated Damages for delay from
payments due to Contractor 47.1
 To employ others to carry out remedial works if
Contractor doesn’t do them 64.1
 To terminate the Contract upon the outbreak of
war 65.6
 To proceed to arbitration if dissatisfied with an
Engineer’s decision 67.1
 Employer’s Obligations
 To appoint the Engineer 1.1
 To define those duties of the Engineer which require
prior approval 2.1
 To make available site investigation data 11.1
 To be responsible for his own workmen on Site 19.2
 To give the Contractor possession of the Site 42.1
 To define time(s) for completion 43.1
 To make payments within 28 days of receipt of
Interim Payment Certificates 60.10
 To attempt to reach amicable settlement prior to
arbitration 67.2
 Contractor’s Rights I
 To be notified of the appointment of the
Engineer’s Representative and assistants 2.3
 To be consulted by the Engineer on
determinations of additional costs and/or
extensions of time (Various)
 To seek consent for work at night or on rest days
46.1
 To give notice of substantial completion 48.1
 Contractor’s Rights II
 To be paid the value of the Works determined by
measurement 56.1
 To receive payments within 28 days of receipt of
Interim Payment Certificates 60.1
 To proceed to arbitration if dissatisfied with an
Engineer’s decision 67.1
 To terminate employment under the Contract in
the event of default by the Employer 69.1
 Contractor’s Obligations I
 The obligations of the contractor, under
the said conditions of contract, may be
generalized as follows.
 Completion obligation;
 Quality performance obligation;
 Timely performance obligation;
 Obligation to provide securities, &
insurance;
 Obligation to supply information & notice;
 Administrative obligation;
 Obligation up on or after completion;
 Contractor’s Obligations I
 To execute the Works with due diligence,
remedy defects, and provide all things
required 8.1
 To take full responsibility for operations and
methods 8.2
 To execute and complete the Works in
accordance with the Contract and comply
with the Engineer’s instructions 13.1
 To accept instructions only from the Engineer
13.1
 To submit a programme and (if required)
method statement 14.1
 Contractor’s Obligations I

 To take full responsibility for operations and

methods 8.2
 To execute and complete the Works in
accordance with the Contract and comply
with the Engineer’s instructions 13.1
 To accept instructions only from the Engineer
13.1
 To submit a programme and (if required)
method statement 14.1
 Contractor’s Obligations II
 To submit a revised programme if required 14.2
 To provide full-time superintendence and
representative, and replace the representative if
required by the Engineer 15.1
 To replace any person when required by the
Engineer 16.2
 To take out necessary insurances 21,23,24
 To comply with statutes etc. and indemnify the
Employer against penalties 26.1
 To keep the Site clear 32.1
 Contractor’s Obligations III
 To suspend the Works if instructed 40.1
 To expedite progress if required by the Engineer
46.1
 To give notice and submit detailed particulars of
claims 53
 To submit monthly statements of amounts due
60.1
 To attempt to reach amicable settlement prior to
arbitration 67.2
 Engineer’s Rights I
 To exercise the authority to be implied from the
Contract 2.1
 To delegate powers to the Engineer’s
Representative 2.3
 To issue instructions to the Contractor as
necessary (Various)
 To request a revised programme 14.2
 To withdraw approval of the Contractor’s
representative if necessary 15.1
 To require replacement of any member of the
Contractor’s staff if necessary 16.2
 Engineer’s Rights II
 To instruct tests on materials 36.1
 To instruct a suspension of the Works 40.1
 To notify the Contractor to expedite progress
46.1
 To make variations he considers appropriate
51.1
 To correct or modify Interim Payment
Certificates 60.4
 To certify if the Contractor is in default 63.1
 Engineer’s Obligations I
 To obtain the Employer’s specific approval when
required 2.1
 To appoint the Engineer’s Representative 2.2
 To determine additional costs and/or extensions
of time when appropriate (Various)
 To issue the Taking-Over Certificate or instruct
the contractor to complete outstanding works
48.1
 Engineer’s Obligations II
 To make variations he considers necessary
51.1
 To value variations 52.1
 To value financial claims in the absence of
details from the Contractor 53.4
 To determine the value of the Works by
measurement 56.1
 To prepare Interim Payment Certificates 60.2
 To issue the Defects Liability Certificate 62.1
 To give an Engineer’s Decision within 84
days 67.1