Chapter TwoIntroduction to the Law of Contract Introduction to the Law of Contract 1. Background 2. Definition & Types of Contract 3. Elements of Contract - Formation 4. Effects of Contract 5. Extinction of Contractual Obligations 6. Proof of Contract Background a contract is an agreement or willful promise enforceable at law. However, not all agreements or promises are contracts. Some may lack enforceability at law. A construction contract is a product of an agreement between the employer & the contractor & it is enforceable at law. ‘Enforceable at law’ means that if the agreement reached between the employer & the contractor breached ( deviations occur from the promises) by one of the parties, the aggrieved party, either the employer or the contractor, may bring a legal action against the other to demand the enforcement of its rights with the support of law. Background…Continued The general Law of Contract is governed under the Civil Code from Article 1675- Article 2026. Except otherwise provided by the provisions of the Special Contracts, the provisions of the general Law of Contract shall apply. The Special Contracts are provided under;- the Civil Code; the Commercial Code; the Maritime Code; and Other special applicable laws; Background…Continued Under the Civil Code The following are illustrative of Special Contracts provided under the Civil Code: Contract of Sales ( Article 2266-Article 2407); Contract of Donation ( Article 2427-Article 2470); Contract of Loan ( Article 2471-Article2489); Hiring Sale (Article 2412-Article 2415); NB: This is relevant in case of hire purchase agreements with respect to construction equipment & construction machinery. Contract of Supplies (Article 2416-Article 2426); NB: This is relevant for the supply of Goods. Background…Continued Contracts for the Performance of Services: Contract for Work & Labour (Article 2610-Article 2631); NB: This is relevant for Construction Services. Hiring of Intellectual Work (Article 2632-Article 2638); NB: This is relevant for architectural, consulting engineering services & other professional services. Contract of Work & Labour relating to Immovable ( Article 3019-Article 3040) ( NB: This has specific relevance with respect to Building Contracts); Please, consider these types of contracts with that of the provisions of the Administrative Contract below. Background…Continued Administrative Contracts ( Article 3131-Article 3306); of the Civil Code; NB: Consider also the compulsory application of the provisions of the Law of Administrative Contract in case of Public Procurement as per the Standard Conditions of Contract developed by the Public Procurement Agency(PPA) on the basis of its power provided under Proc. No. 649/2009. Concession of Public Services; (Article 3207-Article 3243); Contract of Public Works (Article 3244-3296); Contract of Supplies ( Article 3297- Article 3306) Background…Continued Contract with respect to Compromise (Article 3307-Article 3324); (NB: This is important in case of direct or assisted negotiation.) Contract with respect to Arbitral Submission (Article 3325-Article 3346); (NB: This is important in case of resolution of construction disputes by way of arbitration.) Definition & Type of Contracts Definition of Contract 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. The definition contains the following elements. These are: That the contract is an agreement; The agreement is to be made between two or more persons; That the agreement is binding between such two or more persons; The agreement is to create, vary & extinguish obligations; The agreement is to create obligations That the nature of obligations is proprietary; Definition of Contract…Continued The construction contract clearly fulfils all the elements given to the definition of contract. The Form of Agreement, in the construction contract, clearly presents the Agreement reached between the employer & the contractor. The most common contract relationships created by modern construction projects are: The owner and design professional The owner and contractor(s) The owner and consultant(s) The contractor and subcontractor(s) The contractor and the surety In principle, contracting with oneself is impossible. Is it possible by way of exception, to contract with oneself? If yes, how? If not, why not? Elements of a contract/Formation of a contract Every contract is an agreement, but not every agreement is a contract. For a contract to be enforceable in front of law, the following requirements must be satisfied. According to Article 1678 ( Elements of Contract) of the Civil Code: Offer and acceptance (Agreement) Competent parties (Legal capacity) Consideration Legality of the object Formalities (some contracts must be in writing or in a form acceptable by law) Elements of Contract . Consent Legal capacity Legality of the object Consideration Formalities Contract 1. Consent Consents sustainable at law Please, see Article 1678 (a) and Article 1679- Article 1710 of the Civil Code) Consent is a declared will of the individual to enter in to contract. It is the willingness of the parties to enter in to a legally binding relation. Consent of the intended contracting parties decomposes in to :- Offer; and Acceptance; If the parties don’t give their consents sustainable at law, a contract wouldn’t be upheld. Here the emphasis is to make sure that the parties making the agreement are doing it so with their full consent. It is to iterate that the parties are willing to be bound Offer Offer is defined as a proposal expressing the declared willingness of the offeror to enter in to an agreement, if the offer is accepted. An offer is an expression that one party is willing to be bound by specific terms which are setout in the contract. (For example a bid by a contractor promising to construct a project constitutes an offer). We say a contract is complete when an offer by one party is accepted without condition by the other party and hence the two parties are willing to be bound by their agreement. According to the Civil Code, an offer or acceptance can be made: In writing or orally By signs normally in use By conduct of the parties Acceptance A contract does not exist until the offer is accepted by the other party (for example when the owner notifies the winning contractor that his offer has been accepted a contract is formed). For an acceptance to be deemed valid, it must be: Absolute - i.e. accepting all the terms of the offer According to art-1694 of the Code, an offer shall be deemed to be rejected and a new offer shall be deemed to be made where the acceptance is made with reservation or does not exactly conform to the offeror. There must be an indication of consent - i.e. silence does not indicate acceptance The acceptance must be communicated to the offeror 2. Capability Capability of parties Capacity means competence to enter in to a legally binding agreement. Legal capacity is of two types: Personal (Own)capacity; and Representative(Agent)capacity; The agreeing parties should be capable of contracting and give their consents sustainable at law According to this provision, no agreement is deemed an enforceable contract if any of the parties is incapable of contracting. Capability of persons is defined in the introductory part of this course as stated in Article 1678(a) of the civil Code. Just as an example, an agreement with a minor (under the age of 18.) is not deemed as an enforceable contract. As is agreements with those considered mentally in competent, mentally ill, under the influence of alcohol and other drugs Capability…continued The following may not have (legal) capacity to enter in to contract & bind themselves. These are:- Minors (under the age of 18); Companies adjudged or declared bankrupt; Judicially interdicted persons; Legally interdicted persons; Persons, whose civil rights are suspended by the judgment of the court; Non-nationals, unless permitted by law or special prerogative; Non-authorized Agents; Agents, whose Power of Attorney has been revoked; Agents , the Scope of their Power of Attorney does not cover the intended transaction(ex. Tendering or Negotiation or Contract Signing, .); and Others; 3. Consideration Consideration is 'the price for the promise'. I.e it is what one party can get from the other party in return for performing contract obligations. Consideration involves a benefit moving from the offeree to the offeror in exchange for the promise. Usually it is money or a promise to pay money but it can also be some other benefit. Consideration must be: Of some value, but not necessarily adequate Additional to the duty in the law Additional to previous contract agreements For a future act • If one party makes a promise and the other party offers nothing in return for that promise, the promise is unenforceable due to lack of consideration. This can best be exemplified by a charity organization withdrawing its promise to do something without expecting anything in exchange. The decision to keep the promise is at the discretion of the charity organization. In case of a construction contract, if a contractor 4. Legality of the object The objects of the contract is sufficiently defined and is possible and lawful The object of the contract is the obligation to perform something. The lack of an object or an effective (defined, possible, lawful, and freely determined by the parties) object prevents the formation of contract, makes it non-existent, of no effect, null and void. Impossible object can be objects that couldn’t be fulfilled by an average person of the contracting party’s capability (for example to sale a house which you don’t have) while illegal objects are those which are not permitted or are immoral to perform. Such activities may be like agreements to commit crimes or civil wrongs, agreements which may injure the state, drug lording/trafficking, promotion of corruption, agreements which limit a person's ability to carry out trade, etc. Please, see Article 1678 (b) cum Article 1711, Article 1718 of the Civil Code) 5. Formalities Form may mean types of contract. Form may also mean the making of the contract orally or in writing. In this case, form is related with the validity & proof of the contract itself. Should the contract is to be made in certain prescribed form, it means that contract should be made in writing. See Art. 1719 The contract is presented in the form provided by law, if any If there is no special form provided by law, the parties can agree the contract to be in the form that suites them. However, the law usually stipulates special form for some trades. For example, a contract involving an immovable object should be in a written form and needs to be registered by the authorities. Similarly, any contract involving public organizations should be in writing. As do contracts of long time such as of guarantee, insurance contracts. See Article 1727 of Civil code Formalities…continued If the contract should be made in writing, the following additional legal formalities have to be fulfilled, namely: There must be a special contract document prepared for that purpose; (ex. Form of Agreement, which summarizes the whole Agreement & sets out the whole contract document); On that document (including on the whole pages of all the Contract Documents) the parties to the contract agreement shall put their signature; see Art. 1728; In case of body corporate, their corporate seal has to be affixed on all parts or pages of the contract documents; The contract agreement shall be attested, at least, by two witnesses. The witnesses shall also sign the contract agreement but only on the designated space in the contract agreement. (Ex. On the last page of the Form of Agreement); see Art. 1729; Then, the contract said to be, legally, formed or created. Formalities…continued Agreement (part 3 section 9 PPA 2006 Contract Form) Procurement Reference No: ----------------- THIS AGREEMENT made the _____ day of _______, _____, between _____________of _______ (hereinafter “the Employer”), of the one part, and ____________ of ________ (hereinafter “the Contractor”), of the other part: Whereas the Employer is desirous that the Contractor execute ______________ (hereinafter called “the Works”) and the Employer has accepted the Bid by the Contractor for the execution and completion of such Works and the remedying of any defects therein for the Contract Price of the equivalent of Ethiopian Birr ________ (___________). NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: 1.In this Agreement, words and expressions shall have the same meanings as are respectively assigned to them in the Contract referred to. 2.In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to execute and Formalities…continued The Employer hereby covenants to pay the Contractor in consideration of the execution and completion of the Works and the remedying of defects therein the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract. The Contract Price or such other sum as may be payable shall be paid __________ percent in Ethiopian Birr. IN WITNESS whereof the parties thereto have caused this Agreement to be executed in accordance with the law specified in the Special Conditions of Contract on the day, month and year indicated above. Signed by ___________________________ (for the Employer) Name:______________________________ Position:__________________________ Signed by ___________________________ (for the Contractor) Name:______________________________ Position:___________________________ Witnesses 1. ----------------------- 2. ----------------------- Effects of Contract Effects of contract may have two dimensions; The time when the contract is considered bound by the contracting parties; and The fulfillment or performance of the set of promises prescribed in the contract; The first dimension relates to the effectiveness of the contract, whereas the second is related to the performance of obligations of the contracting parties under the contract. Effectiveness of the Contract (Time Dimension) This may be expressed in the following three ways: Contract is effective and thus is binding on the contracting parties from the moment of the conclusion of the contract; Contract can be considered effective after some days are passed from the conclusion of the contract; and Contract can be considered effective after the performance of some actions by the contracting parties; ex. Making advance payment a condition precedent for the effectiveness of the contract. Securing approval of the contract by higher authorities; Other pre-conditions, if any; This has a time dimension. Effects of Contract…Continued Performance of the Contract (Discharge Dimension) This concept is related to the Latin maxim: pacta sunt servanda- one who enters into a contract is legally bound or agreement to be kept. Effects of contract may bring:- 1. Contractual effects; and /or 2. Legal effects; Contractual Effects The discussion refers the contractual provisions (Sub-clauses) of the MDB-FIDIC Harmonized Edition Contract Conditions & the Civil Code. According to Article 1731 of the Civil Code: A contract lawfully formed shall be binding on the parties as though they were law; The contents of the contract shall be determined by the parties subject to the mandatory provisions of law; The lawful or valid formation of contract is related with the fulfillment of all the four elements of contract, namely, capacity, consent, object, and form, if any. Validly formed contracts are binding on the contracting parties, as they were law. It means that contracts are producing rights, obligations & privileges & there with remedial rights to & liabilities against the contracting parties. Effects of Contract…Continued Major Areas of Effects of Contract Effects of contract basically concerned with the following four issues. These are;- i. Interpretation of Contract; - (Article 1732-Article 1739 of the Civil Code); ii. Performance of Contract; -Article 1740-Article 1762 of the Civil Code); iii. Variation of Contract; - (Article 1675 & Article 1763- Article 1770 of the Civil Code); iv. Non-performance of Contract; - (Article 1771- Article 1805 of the Civil Code) Effects of Contract…Continued i- Interpretation of Contract Interpretation, generally, means the process of determining the true meaning of a written document. Interpretation is a judicial process, affected in accordance with a number of rules & presumptions. Conditions of contract, based on the principles of interpretation of contract, are interpreted, depending on the circumstances: Interpretation may be classified in to:- Formal interpretation; and Informal interpretation; Effects of Contract…Continued . Interpretation of Contract Formal Informal Interpretation Interpretation By the By the By the contract By the By arbitral Conditio ing Engineer the tribunal ns of (FIDIC Contract parties Clause20.1) court (FIDIC cl. (Civil Code By the 20.6) (FIDICClaus Art. 3307- e1.2) 3324 ) Adjudicato r (Article 25-26 Effects of Contract…Continued ii- Performance of Contract Performance of Contract may mean the carrying out or discharge of the obligation under taken by the contracting parties under the contract. for example, the Contractor & the Employer, under the construction contract i.e. promise dimension; and consideration dimension. The effect of contract is fulfilled by performance of the very contractual obligations of the contracting parties. It means that : the Contractor has executed the works within the time for completion, within the cost agreed, as per the quality specified; and the Employer has paid fully the Contract price, and any other sums agreed under or implied from the contract, to the Contractor; Both parties have discharged their obligations, as agreed. They have given full effect to the contract. Effects of Contract…Continued iii- Variation of Contract Variation of Contract could be done:- By the contracting parties, contractual variation, (as a rule); or By the Court, judicial variation, (as an exception); Variation of Contract by the Parties The contracting parties, in principle, are free to create & vary their contractual agreement. (See Article 1675 of the Civil Code). Variation of contract & its effect are regulated under the Conditions of Contract. See Sub-clause 13-Variations & Adjustments; Harmonized Edition; Variation of contract, under the construction contract, may result from:- Requirement change by the employer, Design change by the engineer; Proposal by the contractor; By variation, parties are giving a modified effect to their contract & perform the Contract, as varied. Judicial Variation of Contract (Article 1763-Article 1770 of the Civil Code) Invalidation of contract! Reasons to invalidate ,Void and voidable contracts Mistake (see Art. 1697-Art. 1703 of the Civil Code) Mistake is defined as a misunderstanding of or erroneous belief about a matter of fact or a matter of law. Mistake is, therefore, divided in to: Mistake of law; and Mistake of fact; Mistake of law could be:-Mistake of the law of the country; or Mistake of foreign law; Mistake of fact could be, common, bilateral or unilateral mistake, and related to the following factual circumstances: Mistake as to the subject matter of the contract; Mistake as to the possibility of performance of the contract; Needs to be fundamental that the plaintiff wouldn’t have entered the contract had it not been for the mistake Not mistakes to the motives that led to the Invalidation of contract! Fraud (Deception) (see Art. 1704-Art. 1705 of the Civil Code) Fraud means a false representation, by means of a statement, conduct made knowingly or recklessly in order to gain a material advantage. Fraud is divided in to:- Decisive fraud; and Incidental fraud; Principal or decisive fraud Vs Incidental fraud (could have contracted but at a higher cost) • Only principal frauds can lead to invalidation of contract, incidental fraud can only lead to compensation (See Art. 1696 cum Art. 1704(1) of the Civil Code). Deceit by a third party is no ground to invalidate a contract unless the contracting party knew the fraud and took advantage of it. May have a three fold effect Invalidation of contract Compensation of injured party Penalty under penal code Invalidation of contract! Duress (see Art. 1706-Art. 1709 of the Civil Code) ‘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 Impending danger may relate to life, person, honor or property Duress by a third party is ground to invalidate but plaintiff may have to pay for damage 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 Invalidation of contract! False statement – false information to another where he knows that the latter acts upon the information – Can be caused by silence Unconscionable contracts – If made by taking advantage of his want, simplicity of mind, senility or manifest business inexperience – Can’t be claimed on the sole reason that it favors one party. Discharge of Contract! Performance – Contract should be substantially completed unless specially required – Eg. Construction contracts are said to be complete at Substantial Completion with provisions for defect correction within the liability period. – Meaning of ‘substantial completion’ may be defined in the Contract (for example completion of all the terms of the contract to the required standard) Agreement • Mutual agreement (agree to cancel the contract) • By Novation (to vary the contract) • By accord and satisfaction (even though there is variation to performance required) Discharge of Contract! Frustration (contract was executable at the time of agreement but subsequent events (out of control of both parties) made it impossible (not harder or more expensive)) • Force majeure (war, earth quake, natural hazard) Breach (failure to carry fundamental obligations under the contract) – Leads to compensation and/or termination – Famous in construction as liquidated damage Types of Contract Contracts may be classified based on certain criterion. • For example, in terms of:- Reciprocity of rights & obligations; Time parameter for the performance of the assumed respective obligations; Form requirement; The presence of freedom of negotiation or not; Obligation of result or diligence; and Other criterion; Types of Contract…Continued Contracts for the execution of civil engineering works are of following type: (a) Lump sum contract (b) Unit rate contract/Unit Price or Bill of Quantity (c) Lump sum and schedule contract (d) Cost plus fixed fee contract (e) Cost plus percentage of cost contract Construction Project Delivery System Design-Bid-Build (D-B-B); Design-Build (D-B); Construction Management (CM At Free & At Risk); Design .Build- Operate (D-B-O); Design-Build-Operate-Maintain (D-B-O-M); Design-Build-Finance-Operate (D-B-F-O); Full Delivery or Program Management; Build-Own-Operate (B-O-T); Build Own Operate Transfer(B-O-O-T); GroupWork & Presentation Assignment (35%) 1. Employer.s Obligation: its Regulation under the MDB-FIDIC & PPA Conditions of Contracts & the Applicable Law: with special emphasis to Design, Site & Takeover 2. Time: its Regulation under MDB-FIDIC & PPA Conditions of Contracts & the Applicable Law: with special emphasis to Delay & Disruption Claims 3. Variation: its Regulation under MDB- FIDIC & PPA Conditions of Contract and the Applicable Law GroupWork & Presentation Assignment (35%) 4.Quality & Quality Deviation: its Regulation under MDB-FIDIC & PPA Conditions of Contracts & the Applicable Law 5. Cost & Cost Overrun: its Regulation under the MDB-FIDIC & PPA Conditions of Contracts & the Applicable Law: with special emphasis to Price Adjustment 6. Payment : its Regulation under MDB-FIDIC & PPA Conditions of Contracts and the Applicable Law 7. Claims & Disputes: their Regulation under MDB-FIDIC & PPA Conditions of Contracts and the Applicable Law: with special Emphasis to Adjudication GroupWork & Presentation Assignment (35%) 8. Contractors Obligation: its Regulation under the MDB-FIDIC & PPA Conditions of Contracts & the Applicable Law: with special emphasis to Design, construction, Quality, Cost, Time Contract Local Construction Public Condition of Contract • The Standard Conditions of Contracts in use in Ethiopia i.e. the Conditions of Contract: » Of the MoWUD( Ministry of Works & Urban Development); and » PPA (Public Procurement Agency) under the Ministry of Finance & Economic Development). • The PPA Conditions of Contract is issued in January 2006 and 2011. • it is applicable to all possible sorts of public procurement. • The 2006 PPA GCC is composed of 62 46 Clauses Public Condition of Contract – It contains the following five parts. – General; (Clause 1-Clause 26) – Time Control; (Clause 27-Clause 32) – Quality Control; (Clause 33-Clause 36) – Cost Control; (Clause 37-Clause 54) – Finishing the Contract; (Clause 55- Clause 62) 47 Public Condition of Contract General (Clause 1-Clause 26) 48 Priority / Precedence • All efforts should be made for the documents to be supportive of each other. – If discrepancy [most GCCs –PPA-also usually clearly stipulated in the PCC] provide provisions for overruling: – Agreement – Letter of acceptance – Contractor’s bid – Special Conditions of Contract – General Conditions of Contract – Specifications – Drawings – Bill of Quantities or Activity Schedule • .ContractProferentum • Ruling law - the law of the country the work in executed.(FDRE) – International contractors prefer international laws and chamber of arbitrations. 49 Communication • Overruling language: As much as possible, in the lang the two parties understand most. – If there are more than one lang used, the overruling language needs to be stated • Communications shall be effective only when in writing. • A notice shall be effective only when it is delivered 50 Employer • Has responsibilities to: • Pay the due payments for the contractor; • Provide the site and right of access to it in due time; • Look into the statutory aspects of the construction such as permission to construct, custom clearance etc; • Employer’s personnel and other contractors to cooperate with contractor; 51 Power of Engineer • His authorities can be limited [by specifying matters he needs to get approval from the Employer on PCC) Care must be taken not to stifle the engineer’s performance by overly limiting his authorities Most issues limited are: Consenting with contractor to the sub- letting of part of the works Certifying additional cost determined Awarding an extension of time 52 • Issuing variation, which exceeds XXX amount • Issuing variation, if the sum of all variations issued has exceeded X% of the Contract Price; • Certifying payment if the contract price will be exceeded; • Issuing any taking-over certificate; • Authorising the use of provisional sums in excess of the monetary limit for variations; • Certifying additional payment • Issuing Defect Liability Certificate – Risky (emergency) situations are always exempted 53 Engineer’s approval • In most cases the Engineer’s approval doesn’t relieve the contractor of his duties. • Even the engineer’s approval of as built drawings may not relieve the contractor of his duties if work wasn’t executed accordingly 54 Sub contract • Subletting • Usually not allowed to sublet the whole work • Is to be held responsible for the performance of his subcontractors; • Require Engineers approval and without the approval of the Employer in writing. • Some countries specify trade contracting in the first place (to encourage SMMEs) • Subletting doesn’t include provision of labor, supply of material according to spec, subcontracting to a pre-declared contractor 55 Risks • Employer's (Excepted) force majuere risks • War, hostilities, rebellion, revolution etc • entitle the contractor for Excusable delays or Excusable compensable delays • Contractor is not normally required to insure for such risks • However, some of these risks are insurable (eg defaults from designer), • Employer can insure for such risks but can also provide the premium to contractor to insure together with 56 contractor’s risks Insurance of work • Under PPA, Contractor need to insure – Loss of or damage to the Works, Plant, and Materials; – Loss of or damage to Equipment; – Loss of or damage to property (except the Works, Plant, Materials, and Equipment) in connection with the Contract; and – Personal injury or death. 57 Further Requirements • Evidence requirment. • Adequacy ( notification of changes) 58 Cost of Insurance • Premium is an amount to be paid for a contract of insurance • Contractor’s should include cost of insurance in their tender • they should be provided details of information , excess levels etc 59 Excess / Deductibles • Purpose of specifying excess levels in tender documents • Excess level affect the premium • Common bases for pricing • Excess levels requires the insured to suffer the first part of any claim . Makes him take care and exclude trivial claims which incur insurers administration costs greater than value of claim 60 others • Remedy on contractor’s failure to insure • Insurance in the joint names • Cross liability clauses • Indemnity 61 Site inspection & Tender sufficiency • Contractor encourage to inspect site before tender and satisfy himself: – necessary information, so far as is practicable, having regard to considerations of cost and time, as to risks, contingencies and all other circumstances which may influence or affect his Tender • form and nature thereof, including the sub-surface conditions, • the hydrological and climatic conditions, • the extent and nature of work and materials necessary for the execution of the Works • the means of access to the Site and the accommodation he may require, • Availability of resource and skill • No enough resource and time to carry out thorough investigation – Employer is asked to make available information • Usually collected for design purpose (design (review) report) 62 • The omens on interpretation lies on the contractor Site inspection & Tender sufficiency • Tender submitted is assumed to made with due consent and satisfaction of contractor – If an unusually adverse conditions occur (which couldn’t have been foreseen by a knowledgeable contractor), contractor can be compensated for time or/and cost. – Interpreting ‘unusually adverse condition’ is a major matter of dispute 63 Time Time Control (Clause 27-Clause 32) 64 Program • Often submitted before signing Agreement Form and needs to be approved by Engineer • Mobilization (if applicable) and detailed work programme. • The details and time for submission to be stated in the special condition of contract. • The Engineer’s approval of the Program shall not alter the Contractor’s obligations 65 Extention of Time Disruption Claims Prolongation Claims Acceleration Concurrent Delays Successive Delays Critical and Non Critical Activities Time at Large 66 Extention of Time...Continued • Usually incorporate possibilities of extension of the intended completion time • Otherwise, given the possibility of change clauses, time may be put at large • Under time at large condition, Contractor expected to complete work in a reasonable time 67 Quality Control (Clause 33-Clause 36) 68 Execution of the work • Contractor is obliged to perform the work, with due diligence, with strict conformity of the contract (provided that it is legally and physically possible) and to the satisfaction of the Engineer • Work to be in accordance to the drawings and specifications • If specs and drawing are generic, work and material to be of the highest quality-that approved by the Engineer • Contractor should care for the work executed and keep it safe • The contractor controls the resources and runs the execution of the work; • The site operations, construction methods and programms of execution should be left for him; – However, Engineer can disapprove programs and construction methods if feels doesn’t conform with contract or safety; 69 Key Resource Deployment • Contractor is expected to comply with: – Key personnel requirements – Key equipment requirements – Make workmanship to the quality specified – Use the appropriately specified materials – keep the operations safe, etc • The Engineer is at liberty to disapprove: 70 Workmanship and Material • Contractor is expected to execute the work – Using quality material and workmanship specified for – If, upon inspection, work is not to quality specified contractor will be asked to rectify • Cost of inspection could be covered by contractor if work was faulty 71 Cost Control (Clause 37-Clause 54) 72 Contract Type • An Admeasurements Contract with a Bill of Quantities • A Lump Sum Contract with an Activity Schedule 73 Change in BOQ • Rate will be adjusted if the increment or decreament of quantity exceeds: – in the Bill of Quantities for the particular item by more than 25% – the change exceeds 5% of the Initial Contract Price. – Both condition have to be satisfied • The rationale for this is that the basis of the tender is no longer be valid if the quantities either increase or decrease substantially. 74 Change in BOQ...Continued • Clients prior approval is required if thereby the Initial Contract Price is exceeded by more than 15 %, . • The Contractor will submit detail costbreak down if requested by the Engineer. 75 Variation • Increase or decrease the quantity of any work (other than by re-measurement). • Omit any such work. • Change the character or quality of any such work. • Change lines, levels, dimensions. • Execute (necessary) additional work. • Change the sequence or timing of construction. 76 Variation...Continued • Variation should be within the scope of the work • Provide provision for procedures and conditions to fix rates of altered items • In most cases, Engineer given the authority to give change orders and fix rates • Note: A contractor is not required to sign, approve or even agree to a variation order. It is an order to do certain works. 77 Variation...Continued • the Contractor shall provide a quotation for carrying out the Variation • If the Contractor’s quotation is unreasonable, the Engineer may order the Variation and make a change to the Contract Price • Provisions for contractor to disagree but still execute 78 Payment • Contractor shall submit to the Engineer monthly statements . • The Employer shall pay the Contractor within 30 days. • Interest(at prevailing bank interest rate) for delayed payment by the client • Minimum interim amount shuld be specified 79 Payment Form • Work Done plus Variations plus Dayworks plus Contract Price Adjustment (CPA) less Retention plus Materials on Site (MoS) less Advance Payment repayment plus Any other amount 80 Compensation Events Failure to give possession of site Delay in issuing drawing Adverse physical, political or economical conditions • Delay in Advance payment . The effects on the Contractor of any of the Employer’s Risks. • Contractar to uncover or to carry out additional tests upon work, which is then found to have no Defects. 81 DayWork Variations where it is necessary or desirable to instruct work on a daywork basis e.g emergency work, or other works where BoQ rates do not apply or cannot be extrapolated. • Daily records. • Monthly statement. 82 Contract Price Adjustment Sub-Clause 47.1. Increases or decreases to be determined in accordance with Part II (Particular Conditions). recommended for projects lasting over one year 83 Methods of Calculating CPA • The most common methods are – Proven Cost Method – Formula Method 84 Cost Control • contractor is required, at tender stage, to detail those elements of his costs which he requires to be subject to CPA. • These details include the actual cost and supplier of the various elements upon which the tender was based. • The contractor is then reimbursed the difference between these “Basic Costs” and the "Actual" invoiced cost of those same items when they are purchased. 85 Proven Cost Method Description Unit Qty Basic Price Current Price Difference CPA Cement qt 200 300.00 400.00 100.00 20,000.00 Diesel l 1000 10 15 5.00 5,000.00 Total CPA for this Month (Birr) 25,000.00 86 Formula Method Pn= a + b Ln/Lo + c Mn/Mo + d En/Eo + etc. Where: Ln, Mn, En, etc., are the current cost indices Lo, Mo, Eo, etc., are the base cost indices PPA uses formula method of CPA 87 Formula Method...Continued • Base date = 28 days prior to the deadline for bid submission • The sources of indices shall be those listed in the Contractor’s Bid, as approved by the Engineer. 88 Retention 5% limit. Withhold 10% of IPC until 5% limit reached. 50% released at Taking Over. 50% released at Defects Liability Certificate. The contractor can replace it with Retention Money Guarantee. 89 Advance Payment • Interest free Up to 30% to the Contractor for mobilization and front end expenses for that specific project • Repaid by deductions from IPC’s. • Exact terms and conditions of this loan contained in Particular Conditions and the Appendix to Tender. • The retention on each IPC is calculated as a % of the total value of work done (including variations, dayworks and CPA) . 90 Advance Payment...Continued • Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer, denominated in Ethiopian Birr in the amount of the advance payment. • The Guarantee shall remain effective until the advance payment has been repaid • The Contractor is to use the advance payment only to pay for Equipment, Plant, Materials, and mobilization expenses required specifically for execution of the contract(supported by invoice) 91 Any Other Sum • Interest on late payments. • Claims. Clause • Bonus Payments (if applicable). 92 Liquidated Damages • Sub-Clause 49.1. • Pre agreed amount stated in the Appendix to Bid • Types of damages by the client – The additional cost of supervision consultants. – Benefit obtained from completion of the project 93 Finishing the Contract (Clause 55-Clause 62) 94 Completion • Contractor shall request the Engineer to issue a certificate of Completion of the Works. • The Employer shall take over the Site and the Works within seven days of the Engineer’s issuing a Certificate of Completion 95 Hand over • Upon substantial completion, contractor can ask for taking over certificate – Work need to pass inspection and contractor promises to rectify defects and complete outstanding works during defect liability period • Taking over can be partial • Final certificate is issued after defect liability period – Contractor is supposed to hand in as built drawings and maintenance manual the work 96 Final Payment • Final payment • Payments after certification of acceptance-after defect liability period • Net balance including retention money • Due within reasonable days of submission of final statement 97 Termination • Contracts can be terminated if one side defaults to annul/nulify the contract. – PPA • Not planned or unauthorised stopage by contractor (for 28 days) • Instruction by engineer to delay the work that stood long (more than 28 days) • Liquidation (other than reconstruction or amalgamation) or bankruptcy by Employer or Contractor; • Certified payments not made for a long time (more than 90 days after certification) 98 Termination • PPA’s provisions – The Engineer gives Notice that failure to correct a particular Defect is a fundamental breach of Contract and the Contractor fails to correct it within a reasonable period of time determined by the Engineer; – Failure to maintain a required Security – Delay more than by the number of days for which the maximum amount of liquidated damages can be paid. – If the Contractor, in the judgment of the Employer has engaged in corrupt, fraudulent, collusive or coercive practices in competing for or in executing the Contract. 99 Termination payments • Termination payments • If a project is terminated due the Employer’s defaults • Payments are to be made as if contract is discharged • Compensations for the losses (including losses in benefits) are also paid 100 Adjudication • Procedures in PPA – Adjudicator to be proposed by the Procuring entity in the BDS – If bidder doesn’t agree can reject, then can be assigned by a specified Appointing body – Contractor should forward issue to adjudicators within 14 days – Adjudicators should give opinion within 28 days – If no party refers the case to arbitration within 28 days, decision by the adjudicators to be binding and final – Irrespective of decision, cost of adjudicator to be shared 101 Contract International Construction Contract Introduction This part of the Course deals about international construction contract based on the FIDIC international Conditions of Contract. The specific FIDIC conditions of contract to be referred shall be that of the MDB Harmonized Edition, 2006. The delivery method adopted by the said conditions of contract is that of design, bid & build (DBB). This condition of contract has been approved by all major international financial and development institutions. Structure of the MDB Harmonized Edition The said condition of contract is divided in to 20 major clauses & 177 sub-clauses; Introduction 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; Introduction 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 Introduction 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. MDB FIDIC Harmonized (Edition 2006) The major clauses are the following: Clause 1: General Provisions Clause 2: The Employer Clause 3: The Engineer Clause 4: The Contractor Clause 5: Nominated Subcontractors Clause 6: Staff & Labour Clause 7: Plant, Materials &Workmanship Clause 8: Commencement, Delays & Suspension Clause 9: Tests on Completion Clause 10: Employer’s Taking Over Clause 11: Defects Liability Clause 12: Measurement and Evaluation Clause 13: Variations & Adjustments Clause 14: Contract Price & Payment Clause 15: Termination by Employer Clause 16: Suspension & Termination by Contractor Clause 17: Risk & Responsibility Clause 18: Insurance Clause 19: Force Majeure Clause 20: Claims, Disputes & Arbitration MDB FIDIC Harmonized (Edition 2006) The said condition of contract has been supported by two appendices. The appendices are related to Dispute Board. These are: General Conditions of Dispute Board Agreement; and Procedural Rules; i.e. in relation to the Dispute Board; Contractual Terminologies A given legislation defines certain terms in terms of the contextual application of that same term in that given legislation. The purpose of that definition is to delimit the scope of application of that relevant term & the interpretation of same. Undefined terms may carry their normal meaning. On the same principle, the MDB Conditions of Contract have defined, under its Article 1.1: Definitions, certain contractual terms Such contractual terms have been divided in to the following 6 parts: The Contract; Parties & Persons; Dates, Tests, Periods & Completion; Money & Payments; Works & Goods; Other Definitions; like Contractor’s Documents, Country, Employer’s Equipment, Force Majeure, Laws, Performance Security, Site, Unforeseeable & Variation; Such contractual terms contain documentary, party related, time, financial, work & other dimensions. Obligations of the Contractor The obligations of the contractor, under the MDB Conditions of Contract, may be generalized as follows. Completion obligation; Quality performance obligation; Timely performance obligation; Obligation to provide securities, indemnity & insurance; Obligation to supply information & notice; Administrative obligation; Obligation up on or after completion; Let examine each of the contractor’s obligations, in turn. 1. Completion Obligation i. Basic Obligation 1. Clause 4.1 During Performance Period Completion of the whole of the Works in accordance with the Contract up to Take Over(Clause 10) of theWorks; 2. Clause 11.1 During Defects Liability Period a. Executing outstanding works; and b. Remedying of defects & damages in the works; ii. Extent of Completion Obligation 1. Clause 15.1 to execute variations orders; 2. Clause 17. 4 rectification of losses or damages to the works arising out of the Employer.s Risks; 3. Clause 7.6 executing remedial or urgent works; 4. Clause 9.1 cum Clause 8.2 (a) carrying out of works to achieve tests on completion for the purpose of Taking Over (Clause 8.2 (b)); Completion Obligation…Continueed iii. Excuses from Completion Obligation Clause 19. 7 due to legal or physical impossibility; see also Article 1678 (b) (lawful & possible) cum Article 1715 (1) (.possibility to be performed) of the Civil Code Clause 17. 3 in case of the occurrence of the Employer’s Risks; Clause 8.8 in case of suspension of the Works by the Employer; Clause 16.1 in case of legitimate suspension of the Works by the Contractor; Clause 16.2 in case of termination of the Contract by the Contractor due to the default of the Employer; Clause 15.5 in case of termination of the Contract by the Employer for its convenience; see also the concept of employer.s termination of contract for its convenience under Article 3180 of the Civil Code; Clause 8.11 in case of termination of the Contract for the whole of the Works due to prolonged suspension caused by the Employer; Clause 19.6 in case of optional termination of the Contract by the Contractor or by the Employer due to prevention of performance by force majeure; see the legal concept & scope of force majeure under Article 1792-Article 1794 of the Civil Code; 2. Quality Performance Obligation Clause 4.1 & Clause 7.1 using materials, plant & workmanship as provided in the Contract specifically in the Technical Specifications; Attributes of quality to be embedded in the Works in terms of; Clause 7.1 (a) in case of Plant; Clause 7.1 (c) in case of Materials; Clause 7.1 (b) cum Clause 6.1 in case of Workmanship; No excuse for defective performance/execution of the Contract/ Works; 3. Timely Performance Obligation Scope of the Obligation Timely & effective mobilization by the is required; Please, also consider the prior performance obligation of the employer (like providing site & access there to, effecting mobilization advance, if agreed, effecting notice to proceed, if required under the contract,.) for the Contractor to duly mobilize & commence works; Commencement Clause 8.1 (Commencement of the Works); Progress: Clause 8.1 cum Clause 8.6 (Rate of Progress); please, also consider the obligation of the Engineer to issue working drawings, certifying payments, approving variations.; Completion: Clause 8.2 (Time for Completion); please, also consider effects of delay & disruption by the employer, third parties and/or the Engineer & other grounds; Passing of Tests on Completion: Clause 9 (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; Timely Performance Obligation… Continued Excuses from Timely Completion Obligation Clause 8.4 due to Extension of Time for Completion; Clause 8. 5 due to Delays caused by authorities; Clause 8.8 cum Clause 8. 9 due to Suspension of Work & its consequences; Clause 8.11 due to prolonged suspension; (NB: If the performance of Work resumed after such prolonged suspension.) Clause 16. 1 (h) due to suspension & deceleration of the Works by the Contractor due to payment problems; Other specified grounds entitling the Contractor to extension of time for completion: Clause 1.9 (a) due to delay in issuing drawings or instructions by the Engineer; Clause 2.1 (a) due to initial delay caused by the Employer in providing possession of Site; Clause 4.7 (a) due to setting out; Clause 4.12 (a) due to unforeseeable physical conditions; Clause 4.24 (a) delay encountered by the Contractor due to the discovery & reporting of Fossils; Clause 7.4 (a) due to testing as instructed by the Engineer or for which the Employer is responsible under the Contract; Clause 10.3 (a) due to interference with the Tests on Completion by the Employer; Clause 13.7 (a) due to adjustment for changes in legislation; Clause 17.4 (a) due to consequences of Employer’s Risks; 4. Obligation to provide Securities, Indemnities & Insurance Securities Clause 4.2 in relation to Performance Security; Clause 14.2 in relation to Advance Payment Guarantee; Clause 14.9 in relation to Retention Money Guarantee; Indemnity Clause 1.13 in relation to compliance with laws; Clause 4.14 in relation to avoidance of interference with the convenience of the public or the access to & use & occupation of all roads & footpaths.; Clause 4.16 in relation to transport of goods; Clause 17.1 in relation to bodily injury, sickness, diseases or death, of any person whatsoever arising out of or in the course of or by reason of the Contractor’s design(if any), the execution & completion of the Works & remedying of any defects therein; Clause 17.5 in relation to intellectual & industrial property rights against & from any other claim which arises out of or in relation to the manufacture, use, sale or import of any Goods, or any design for which the Contractor is responsible; Obligation to provide Securities, Indemnities Insurance & Insurance Clause 18.1 in relation to general requirements (choice of the insurer, terms of insurance, making the insurance in the joint name, providing the policy, providing evidence for the payment of premium, use of the insurance money for the purpose of the Contract,.)in providing specific insurance arrangement; Clause 18.2 in relation to insurance of Works & Contractor’s Equipment; Clause 18.3 in relation to insurance against injury to persons & damage to property; Clause 18.4 in relation to insurance for Contractor’s Personnel; 5. Obligation to supply Information & Notice Information Clause 4.1 (a) & (b) design information, in case where the Contractor is required under the Contract to design part of the permanent Works; Clause 4.24 geological or archeological finds(Fossils); Clause 5.4 submitting evidence in relation to payments made to the nominated sub-contractors, as the Engineer requests; Clause 6.10 details of Labour & Equipment; Clause 8.3 programme & revised programme; Clause 12.1 particulars as requested by the Engineer information pertaining to measurement of Works; Clause 13.5 in relation to provisional sums submission of quotations, receipts , vouchers & accounts or receipts for substantiation of the use of the said sums; Clause 13.6 on use of Day Work items, on daily basis; Clause 14.3 submitting monthly statements to the Engineer for payment purposes; Clause 20.1 contemporary records as per the request of the Engineer; Obligation to supply Information & Notice Notices Clause 1.9 giving notices in relation to delayed drawings or instructions by the Engineer; Clause 1.13 giving of all notices in relation to the execution & completion of the Works & remedying any defects therein; Clause 2.1 giving notice to the Employer in case of failure of the Employer in providing possession of Site; Clause 4.2 in case of submission of the Performance Security copy to the Employer; Clause 4.12 in case of encountering unforeseeable physical conditions: to the Employer; Clause 4.16 notice to be given to the Engineer in relation to transport of Goods & Plant to be delivered to the Site; Clause 7.3 giving notice to the Engineer in case of any work is ready & before it is covered up, put out of sight, or packaged for storage or transport or inspection; Clause 8.4 giving notice to the Engineer in case of request for extension of time (EOT) for completion; Clause 8.9 giving notice to the Engineer in case of suspension of work instructed by the Engineer; Clause 8.11 giving notice to the Engineer in case of prolonged suspension of the Works; Clause 10.1 giving notice to the Engineer in case of requesting the Taking Over of the Works & Sections, if any; 6. Administrative Obligation Clause 1.6 entering into a Contract Agreement; Clause 1.7 (a) securing prior consent for assignment from the Employer; Clause 3.5 duty to consult with the Engineer; Clause 4.4 (b) securing prior consent from the Engineer for Subcontracting; Clause 4.6 providing appropriate opportunities for the Employer’s Personnel and any other contractors employed by the Employer & for personnel of public authorities; Clause 6.1-making arrangement for the engagement of staff & labour; Clause 6.1 Affording opportunity of access to the Site to the Engineer, other personnel & for the public authorities; Clause 7.8 payment of royalties; Clause 20.5 attempting amicable settlement; 7. Obligation upon or after Completion Clause 11.1 remedying defects & completion of outstanding works, if any; Clause 11.11 clearance of Site upon completion; Clause 14.10 submission of Statement at Completion to the Engineer; Clause 14.11 submission of draft Final Statement to the Engineer; Clause 14.11 submission of further information relative to the finalization of the draft Final Statement; Clause 14.12 submitting written discharge to the Employer confirming that the total of the Final Statement represents full & final settlement of all monies due to the Contractor; Any point of discussion