Addis Ababa Tegbare-id Poly-Technique

College

CONSTRUCTION MANAGEMENT

NTQF LEVEL V

Unit of Competence: Administer Legal Obligations of Construction

Contract
Module Title: Administering Legal Obligations of Construction Contract
LG Code: CON CM5 M01 0919 Lo1 -Lo7
TTLM Code: CON CM5 TTLM 0919 v1

LO 1: Comply with the laws relating to establishing and licensing a

construction contractor

Learning Guide Date: September, 2019 G.C Page 1 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 Instruction
Learning Guide # 01-07
Sheet
This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –
• Sate objectives with link organizational aims.
• State objectives as measurable and with clear time frames
• State objectives with reflected commitment of organizational employee’s
• Identify the objectives realistic and attainable

This guide will also assist you to attain the learning outcome stated in the cover page.
Specifically, upon completion of this Learning Guide, you will be able to –
•
link the objectives are consistent with and to work activities in accordance with
organizational aims
• State objectives as measurable targets with clear times frames
• Reflect in the objectives are Support and commitment of team members
• Identify realistic and attainable objectives.
Learning Instructions:
1. Read the specific objectives of this Learning Guide.
2. Follow the instructions described in number 3 to 8.
3. Read the information written in the “Information Sheets 1”. Try to understand what are being
discussed. Ask you teacher for assistance if you have hard time understanding them.
4. Accomplish the “Self-check 1” in page ___.
5. Ask from your teacher the key to correction (key answers) or you can request your teacher
to correct your work. (You are to get the key answer only after you finished answering the
Self-check 1).
6. If you earned a satisfactory evaluation proceed to “Information Sheet 2” or “Learning guide
2”. However, and so on if your rating is unsatisfactory, see your teacher for further
instructions or go back to Learning Activity #1 and address all.
7. Submit your accomplished Self-check. This will form part of your training portfolio.
8. You are provided additional reference reading materials regarding to set objectives of
Construction Company.
9. Do the “LAP test” in page ___ (if you are ready). Request your teacher to evaluate your
performance and outputs. Your teacher will give you feedback and the evaluation will be
either satisfactory or unsatisfactory. If unsatisfactory, your teacher shall advice you on
additional work. But if satisfactory you can proceed to Learning Guide #2 and so on.

Learning Guide Date: September, 2019 G.C Page 2 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 LO1 Comply with the laws relating to establishing and
Information Sheet-1
licensing a construction contractor

Introduction to the Law of Contract

1. Background
Generally, 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.
2. Definition 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;

 The construction contract clearly fulfils all the elements given to the definition of
contract.

Learning Guide Date: September, 2019 G.C Page 3 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
  The Form of Agreement, in the construction contract, clearly presents the Agreement
reached between the employer & the contractor.

 Contracting with oneself is, in principle, impossible. By way of exception, how it is

possible to contract with oneself?

 The construction contract, in principle, is only binding between the employer & the
contractor.

 This concept is related to the doctrine of the privity of contract.

 Privity of contract means that the contract is only binding only the parties who have
made it. This is true.

 The main contract is only applies between the employer & the main contractor. It
does not apply to sub-contractors or to Engineers.

 There are some exceptions to this rule. Third parties may come to the original
contract. For example, by way of:-

➢ Succession;
➢ Assignment;
➢ Subrogation; and
➢ Other grounds;

 The construction contract reached between the original employer & the original
contractor could be binding to the successor of the employer or the contractor.

 Assignment of rights may bring third parties to the contract. (NB: Please, see Sub-
clause 1.1.2.2 & 1.1.2.3 of Harmonized FIDIC) as to the definition of “Employer” &
“Contractor”, respectively, legal successors of the Employer or the Contractor may
become party to the construction contract.)

 The construction contract obviously creates obligations between the employer & the
contractor.

 Variations may be unavoidable in construction contract. This has been also

accommodated in the definition of contract.

 The employer & the contractor may also agree to terminate their relationship &
therewith liberate themselves from the previously created obligations. It means that

Learning Guide Date: September, 2019 G.C Page 4 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 the parties to the construction contract may extinguish their obligation through a
contract/ agreement.

 A construction contract creates obligations on the employer & the contractor. For
example, the contractor assumes a performance obligation, whereas the employer
assumes a payment obligation.

 The nature of obligation created by a construction contract is that of proprietary or

patrimonial or financial in nature. It does not have a purpose to create status.
3. Elements of Contract

 According to Article 1678 ( Elements of Contract) of the Civil Code:

No valid contract shall exist unless

A. The parties are capable of contracting and give their consent sustainable at law.
B. The object of the contract is sufficiently defined and is possible and lawful.
C. The contract is made in the form prescribed by law.

 The following are the fundamental elements of contract.

➢ Capacity of the contracting parties;

➢ Consent of the contracting parties;
➢ Object of the contract; and
➢ Form of contract, if any;

 Capacity

 Please, see Article 1678(a) of the Civil Code.

 Capacity means competence to enter in to a legally binding agreement.

 Parties entering in to an agreement or contract shall, therefore, be capable of contracting.

 Legal capacity is of two types.
➢ Personal (Own)capacity; and
➢ Representative(Agent)capacity;
 Capacity of persons is legally presumed unless the contrary is proved.
 Persons could be:-
➢ natural (physical) persons; or
➢ juridical (legal) persons;
 Natural Persons
➢ Natural or physical persons are human beings.
➢ Their legal capacity is determined by law.
Learning Guide Date: September, 2019 G.C Page 5 of 20
Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ➢ The scope of capacity of physical persons is relatively unlimited unless the
contrary is proved.
➢ Physical persons are the subject of rights & duties from birth to death. See Article
1 of the Civil Code.
 Legal Persons
➢ Legal persons are of two types in terms of determining their coming in to being
& their legal capacity.

➢ These are:-
• By legislation;
(In case of public bodies); and
• By registration;
(In case of non-public bodies);

➢ The existence of public bodies (Ministries, Commissions, Bureaus, Authorities,

Agencies …) & their legal capacity to enter in to contract & bind themselves
emanates from the Civil Code & the special legal instrument (legislation), which
establishes that specific public body.

➢ The legal capacity of non-public bodies (Plc’s, Share Companies,

Corporations…) & their legal existence comes in to being by registration. The
act of registration by competent public authority confers legal personality &
therewith (limited) legal capacity to enter into contract & bind themselves.

➢ The capacity of legal persons is only related with their purpose or objective, for
which they are created.

 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;

Learning Guide Date: September, 2019 G.C Page 6 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
  Natural persons or legal persons may enter in to contract directly by themselves (in their own
capacity) or through other persons called Agents.

 The power of agents (i.e. their representative capacity) should always be checked, with respect
to construction project, at:

➢ The tendering stage;

➢ The negotiation stage;
➢ The contract signing stage; and
➢ The Contract implementation stage;

 The Power of Attorney creates a derivative legal capacity for agents.

 Agents, thus, acquire legal power, though not original, to participate in construction tender, to
negotiate, and/or to sign a construction contract, in the name & on behalf of the named principal
and to bind the principal thereby.
 A contract concluded by the person not capable under the law may be invalidated at the request
of such incapable person, who is party to the contract. See Art. 1808(1).

 Consent

➢ 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;
 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.
➢ Offer is a legal process which is a declaration of willingness or intent to be bound by
specific terms set out.
➢ Offer may be made:-
• Orally;
• In writing;
• By sign;
• By conduct;
• By specially stipulated manner for acceptance;

 In case of (public) construction contract, offer shall be made in writing.

 Characteristics of Offer
➢ The following are characteristics of a valid offer.

Learning Guide Date: September, 2019 G.C Page 7 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ➢ These are that the offer should be:-
• Certain;
• Communicated;
• Unconditional;
• Distinguished from invitation to treat;
 Certainty
➢ The terms of a contractual offer must be certain or capable of being made certain.
➢ Unless the details of the bargain are certain, the parties could not be expected to reach
any real agreement.
 Communicability
➢ The tender is an offer on the part of the bidder contractor.
➢ The offer, i.e. the tender must be communicated to the offeree, i.e. the prospective
employer.
➢ Unless the bid/tender prepared by the bidder (prospective contractor) communicated
to the (offeree) on or within the specified time in the instruction to bidders, one can
not say that there is a bid or tender.
 Unconditionality
➢ If the offer is accepted, it may go to the creation of an agreement.
➢ For the offer to be valid & acceptable, it should not, thus, be unconditional.
➢ Unconditional offer is not clear, thus not acceptable.
 Not being Invitation to Treat
➢ The following are not offers but invitation to treat:
• Display of goods;
• Advertisement;
• Tender;
➢ Tender
• Invitation for bids or invitation to tender prepared by the employer or the project
are not offers.
• They are invitation to treat.
• Bidders are making offers, for ex. in terms of
o submitting filled & signed Form of Tender;
o priced BOQ;
o alternative proposals, if allowed;
• The employer is within his right to accept or reject such offers, however;

 Termination of Offer
➢ The following could be the way by which the offer could be terminated.
➢ These are:-
• By Death; -of either party before acceptance of the offer;
• By Counter offer; -of the offeree;
• Revocation; -by the offeror, within the time limit;

Learning Guide Date: September, 2019 G.C Page 8 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 • Withdrawal; -by the offeror; within the time limit;
• By lapse of Time; -on part of the offeree, i.e. accepting the offer after the
prescribed time has elapsed;
• By failure to accept in the stipulated manner;- by the offeree, if a specific
mode of acceptance was prescribed in the offer;
• By silence of the offeree; -silence is not acceptance, in principle;
• By Liquidation;- if the offeror construction company has been liquidated
before the offer accepted by the employer;
• By Insolvency;-in case the construction company declared by the court
insolvent, before the offer has been accepted; If the offer were accepted &
contract concluded, that contract is going to be terminated by the employer
on the ground of bankruptcy of the contractor;
• By being adjudged bankrupt;-by the court, before the offer has been accepted;
If the offer were accepted & contract concluded, that contract is going to be
terminated by the employer on the ground of bankruptcy of the contractor;
 Acceptance
➢ Acceptance is a declaration of will to enter in to a legally binding contract.
➢ By acceptance, a contract shall be completed, where the offeree accepts the offer without
any reservation.
 Forms of Acceptance
➢ The following could be forms of acceptance.
➢ These are:-
• Orally;
• In writing;
• By sign;
• By conduct;
• As specially stipulated by the offeror;

 In the construction contract, especially for public works, acceptance in writing is the most
common & legally imperative practice.
 The Letter of Acceptance is a clear example to this.

 Characteristics of Acceptance

➢ Acceptance could be conditional or unconditional.

➢ Conditional acceptance rejects the original offer made by the bidder (offeror) &
creates a counter offer or new offer by the project owner.

Learning Guide Date: September, 2019 G.C Page 9 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ➢ Unconditional or unreserved acceptance of an offer by the project owner creates a
Contract Agreement between the bidder & the project owner subject to other
subsequent actions, ex. negotiation.

➢ In case of Public Projects, approval of the Contract by higher authorities may be

required. In that case, legally, the Contract is not yet concluded until the required
approval is secured.

 Defects in Consent

➢ Consent given in the process of offer & acceptance should be free from defects in
consent or vices of consent, for the contract to be sustainable & enforceable at law.
➢ Defects in consent or vices of consent are the following.
➢ These are:-
• Mistake; see Art. 1697-Art. 1703 of the Civil Code;
• Fraud; see Art. 1704-Art. 1705 of the Civil Code;
• Duress; see Art. 1706-Art. 1709 of the Civil Code;

➢ Mistake
• 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:
o Mistake of law; and
o Mistake of fact;
• Mistake of law could be:-
o Mistake of the law of the country; or
o Mistake of foreign law;
• Mistake of fact could be, common, bilateral or unilateral mistake, and
related to the following factual circumstances.
o Mistake as to the subject matter of the contract;
o Mistake as to the possibility of performance of the contract;
o Unilateral mistake;
o Mistake as to person; in terms of its identity, qualification, and the
fundamental elements of the contract;
• The legal sanction or remedy against mistake is invalidation of the contract
& damages. See Art. 1696 & Art. 1703 of the Civil Code, respectively.

➢ Fraud
• 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:-

Learning Guide Date: September, 2019 G.C Page 10 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 o Decisive fraud; and
o Incidental fraud;
• Decisive fraud is that without the fraud, the person in error or the person
deceived would not have thought of entering in to the contract.
• Whereas, in case of incidental fraud, the fraud has not determined the
person in error or deceived, who even knowing the truth, would have
thought of contracting, but at less onerous terms.
• Legal sanction or remedy, i.e. invalidation of the contract has been
provided for the decisive fraud. See Art. 1696 cum Art. 1704(1) of the
Civil Code.
➢ Duress
• Duress means a threat of imminent danger, which may be a future, or
immediate danger posted against the contractant himself or his nearest
relatives. See Art. 1706 of the Civil Code.
• The legal remedy against duress is invalidation of the contract, which is
the result of duress. See Art. 1696 cum Art. 1706(1).
➢ Invalidation of contract based on defects in consent is governed under Art. 1808
et seq. of the Civil Code.

 Object of Contract

➢ Please, see Article 1678 (b) cum Article 1711 – Article 1718 of the Civil Code);

➢ The object of contract is the very obligations of the contracting parties ex, in the
construction contract, the obligations of the employer and the contractor.

➢ The possible objects, i.e. the obligations of the contracting parties, of contract
are:-
• obligation to do (perform);
• obligation not to do; or
• obligation to deliver;

➢ The obligations of the contracting parties could be divided in to two broad terms:

• Promises; and
• Considerations;

➢ The object of contract (i.e. both promises & considerations) shall be:-

• Sufficiently defined; Art. 1678(b) cum Art. 1714;

• Possible; Art. 1678(b) cum Art. 1715;

Learning Guide Date: September, 2019 G.C Page 11 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 • Lawful; Art. 1678(b) cum Art. 1716(1);
• Not immoral; Art. 1716(1);

➢ The object of a construction contract shall be sufficiently defined.

➢ In the construction contract the whole purpose of all parts of the contract documents
(the BOQ, the Drawing, the Technical Specification, notably, & including the
Conditions of Contract (both General and Special Conditions of Contract), and other
documents) is to sufficiently define the object of the construction contract, i.e. the
very respective obligations of the contractor & the employer.

➢ The contractual obligation of the contractor (i.e. Promises) shall be determined

from the contract documents in terms of:
• What to do: i.e. to construct:-
o water supply dam & systems; or
o irrigation dam; or
o Hydropower dam; or
o other hydraulic structures; or
o road; or
o building; or
o other type of structures;
• In terms of its:-
o scope;
o quality;
o cost;
o time;
o safety; and
o Other aspects of its promises.
➢ The Payment, obligation to do, or (Considerations)and other contractual rewarding
obligations of the employer shall also be sufficiently defined in terms of:
• Payment obligation
o extent of contract price;
o types of payment;
o timing for payment;
o conditions of payment;
o other related issues;
• and other obligations in terms of other benefits,
exchanges, & rewards;

➢ These obligations are the very promises & considerations of the contractor & the
employer in the construction contract, respectively.

Learning Guide Date: September, 2019 G.C Page 12 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ➢ Unless the principle of implied terms or the rule of interpretation of contract supports
to resolve the issue of the object of contract, it is difficult to define the object of
contract by any body else except by the contracting parties themselves.

➢ The object of contract, even though sufficiently defined, it has to be possible or

capable of performing.

➢ Impossibility of performance of ones obligation may relate to physical or legal

impossibility.

➢ Impossibility of performance must not be confused with difficulty of performance

➢ The object of contract shall be lawful. Contract agreements can not serve to achieve
illegal objectives.

➢ There shall not be any contract agreement on legally prohibited matters.

➢ Contracts shall not also go contrary to accepted moral values (as to the principle of
right or wrong) of the society.

➢ If the contract found to be unlawful or immoral, the legal remedy available is

invalidation of the contract at the request of any contracting party or interested third
party. See Art. 1808(2) of the Civil Code.

 Form

➢ Please, see Article 1678 (c) cum Article 1719 – Article 1730 of the Civil Code.
➢ Form may mean types of contract.
➢ Form may also mean the making of the contract orally or in writing.
➢ Should the contract is to be made in certain prescribed form, it means that contract should be made
in writing.
➢ In this case, form is related with the validity & proof of the contract itself.
➢ By form, under these circumstances, we mean the making of the contract in writing, if the law
imperatively prescribes so or if the parties voluntarily wish to do so.
➢ In the absence of the law requiring the contract to be in writing, (see Art. 1719(1), the parties are
free to make their contract as they wish. They can make it orally or in writing. See Art. 1719(2).
➢ Should the parties wish to conclude a type of contract which should be made in writing, any
preliminary contract in respect thereof, shall also be made in writing. See Art. 1721.
➢ This is true in case of a contract of agency, which is a preliminary contract for the basic contract
to be concluded between the agent & the third party.
➢ Should the parties once choose to make or create their contract in writing; any variation (see Art.
1722) thereto shall be made in writing.
Learning Guide Date: September, 2019 G.C Page 13 of 20
Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ➢ Contracts with public (government) body shall be made, legally, in writing. (See Article 1724 of
the Civil Code).
➢ If the contract shall be made in writing, there are two possibilities:
• Preparing fully tailor-made conditions of contract to the project at hand; or

• Using standard conditions of contract suitable for the project at hand;

➢ The first type of contract is called contract of consultation, whereas the second one is called
contract of adhesion.
➢ In public works, the use of standard conditions of contract is common.
➢ Standard conditions of contract could be international or national in origin.
➢ 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.

4. 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:
a) Contract is effective and thus is binding on the contracting parties from the moment of the
conclusion of the contract;
b) Contract can be considered effective after some days are passed from the conclusion of the
contract; and

Learning Guide Date: September, 2019 G.C Page 14 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 c) Contract can be considered effective after the performance of some actions by the contracting
parties; ex.
o Making advance payment a condition precedent for the effectiveness of the contract.
o Securing approval of the contract by higher authorities;
o Other pre-conditions;
• This has a time dimension.

➢ Performance of the Contract (Discharge Dimension)

• The following discussions are focused on the real performance of the contract
as agreed.
• 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: -
• Contractual effects; and /or
• Legal effects;

➢ Contractual Effects

➢ The discussion refers the contractual provisions (Sub-clauses) of the 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 & therewith
remedial rights to & liabilities on the contracting parties.
➢ Effects of contract are, in principle, on the contracting parties, for ex. on the employer
& the contractor.
➢ This principle is called privity of contract or relative effect of contract.
➢ Third parties, in principle, are not entitled to rights or owe no obligation. (See Article
1731(1) cum Article 1952(1) of the Civil Code.
➢ Contracts made by contracting parties have no effect on non-contracting parties.
➢ These non-contracting parties are called, legally, third parties.

Learning Guide Date: September, 2019 G.C Page 15 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 •
The Construction Contract made by the Employer & the Contractor is not binding on the Sub-
contractor.
• The Sub-contract Contract made by the by the Main Contractor & the Sub-Contractor is not
binding on the Employer
• The Consultancy Agreement made by the by the Employer & the Engineer is not binding on the
Contractor.
• The Construction Contract made by the by the Employer & the Contractor is not binding on the
Engineer.
➢ By way of exception, third parties may have rights and/or owe obligations in the contract made
by other contracting parties.
➢ For example, in case of:
• Assignment of benefit or subcontract (under the Harmonised Edition) see Clause 4.5 & Article
1952(1) of the Civil Code;
• Assignment of right to the bank or financial institutions: see (under the Harmonised Edition)
Clause 1.7;
• Subrogation by the Insurance institutions; see Article? Of the Civil Code & Article? of the
Commercial Code;
Succession:
o by contract & operation of the law (ex. for partnerships…); See (under the Harmonised
Edition) Clause 1.1.2.2 for the Employer & Clause 1.1.2.3 for the Contractor; or
o by operation of the law or by will (for natural persons); or
o by legislation (for public bodies);

Dispute Resolution Processes

Construction Claims
– Claim is legally defined as an assertion to right.
– The nature of right may relate to time, financial, or other remedies.
– Claim is therefore a substantive demand, for example, by the Contractor against the Employer.
– The Employer may have its own substantive demand against the Contractor. We can call this
a counterclaim. It is an independent demand originated from the same contractual relationship.
Construction Disputes
▪ Construction dispute may take different forms: dispute in relation to time or cost, time & cost or
otherwise.
Disputes relative to Time
▪ With respect to dispute relative to time or delay the following aspects shall be considered.
▪ With respect to delay the contractor or the employer may have their own respective claims.

Learning Guide Date: September, 2019 G.C Page 16 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 Dispute Resolution, the contractual parties will pass through different dispute resolution system
depending on their acceptance over the proposed compensation varying from the simplest mediation by
the consulting engineer to the final court ruling in the form of litigation. Three types of dispute resolution
systems are well recognized. These are,
The contractual parties will pass through different dispute resolution system depending on their
acceptance over the proposed compensation varying from the simplest mediation by the consulting
engineer to the final court ruling in the form of litigation. Basically, three types of dispute resolution
systems are well recognized. These included:
1. Preventive Dispute Resolution system including partnering, Use of dispute resolution advisors
and Use of Facilitators for early neutral evaluation and advise to prevent the happening of claims
or their consequential disputes
2. Amicable Dispute Resolution system including Negotiation, Mediation, Conciliation and use of
Mini-Trials to administer the claim in a less formal, simple procedure, more flexible, less
adversarial and strictly confidential made so as to avoid the time and cost implication of claim
processing.
3. Judgmental Dispute Resolution System including Adjucation or use of Dispute review board,
Arbitration and Litigation where the formal adjucatory or common law system is applicable to
bring the claim processing.
This sub process where dispute was handled in any form of its resolution systems is termed as Dispute
Resolutions. Such dispute resolution systems require conducive Macro and Messo environments such
us legislations, policies, regulations, etc. above all other things. Once the contractual parties agree on
the final outcome of the claim process then they have reached into a stage where the claim is approved.
Employment contracts
An employment contract establishes the respective rights, responsibilities and duties of an employer
and an employee. You should check any employment contract terms carefully before agreeing to them,
and, if in doubt, seek professional help.
The terms of an employment contract set out what you and your employer can expect of each other.
Contract terms - where can they come from?
Contract terms can come from a number of different sources. For example they could be:
▪ verbally agreed
▪ in a written contract, or similar document
▪ in an employee handbook or on a company notice board

Learning Guide Date: September, 2019 G.C Page 17 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 ▪ in an offer letter from your employer
▪ required by law, like the requirement by your employer to pay you at least the minimum wage
▪ in collective agreements
▪ implied terms
The majority of employees work under open-ended contracts of employment. In other words, the
contract continues until such time as the employer or employee ends it. Many other employees
however, work under fixed-term or specified-purpose contracts which are contracts which end on a
specified date or when a specific task is completed.
Your rights
Any rights you have under a contract of employment, such as for medical insurance, are in addition to
the rights you have in law. In addition, certain employment contracts may seek to limit certain rights
you have in law. Legal rights include the right to be paid the National Minimum Wage, the right to
paid holidays and, for most people, once your employer is covered by rules that are being phased in
from October 2012, the obligation for an employer to enroll you in a pension scheme. You and your
employer can agree to any terms you want, but certain terms seeking to limit your legal rights may be
ineffective.
So, for example, agreements to be paid less than minimum wage will be ineffective.
Your contract
Most employment contracts are in writing – but they don’t have to be. An oral contract is just as
binding but is much harder to prove. Having a written contract provides better certainty and can help
prevent or resolve disputes with your employer in the future.
To protect employees who are not given a written contract, you are entitled to a written statement of
your main employment terms within two months of starting work, no matter how few hours you work
per week.
The statement must give details about:
Employee and employer names
Employment start date
Job title
Pay details
Hours of work and place of work
Holiday entitlement and holiday pay
Sick pay

Learning Guide Date: September, 2019 G.C Page 18 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 Pension schemes
Notice periods
Grievance, dismissal and disciplinary procedures
Express terms and implied terms in a contract of employment
A written contract is usually made up of a mix of two types of contractual terms:
✓ Express terms
✓ Implied terms

Express terms
Express terms are elements of your contract that have been specifically mentioned, either in writing or
agreed orally, by both employer and employee. These may include:
How much you will be paid (including overtime and bonus pay)
Hours of work, including overtime hours
Holiday pay, as well as how much time you are entitled to take off (most full-time workers are
entitled to 28 days and part-time workers get the same amount, in proportion to the number of
days/hours they work)
Sick pay
How much notice is needed to end the contract?
Express terms won’t be in just the contract, but may also be found in:
The job advert
Any letters you receive from your employer
Documents you were asked to sign, such as a staff handbook or manual
Implied terms
an implied term is one which is not set out in a written (or even oral) but which arises because of the
circumstances in which the contract is entered into.
implied terms include
➢ the employer duty to provide a secure, safe and healthy environment for the employee
➢ the employee's duty of honesty and loyal service
➢ an implied duty of mutual trust and confidence between the employer and employee

Employer-Employee Relationship
What Is an Employer-Employee Relationship?

Learning Guide Date: September, 2019 G.C Page 19 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu
 When an employer hires a new employee, he is not just bringing a new member of the workforce
aboard, he is also starting a new relationship. Because employers and employees often work in close
quarters, they necessarily develop relationships. Managing these relationships is vital to business
success, as strong relationships can lead to greater employee happiness and even increased
productivity. To reap these benefits, keep the dynamics of your employer-employee relationship in
mind.
Relationship Basics
Generally, employer and employee relationships should be mutually respectful. The degree of
closeness in these relationships will depend on both the employer and the employee. Some employers
opt to keep their employees at a distance and, in doing so, ensure that there is no confusion as to the
hierarchy that exists between them. Others elect to become friendlier with their employees, seeing this
as a way to ramp up employee happiness. While neither option is entirely right or wrong, it is wise to
avoid getting too close to employees, as doing so can cause the line between employer and employee
to become blurred.
Mutual Reliance
The employer-employee relationship should be one of mutual reliance. The employer is relying upon
the employee to perform her job and, in doing so, keep the business running smoothly. Conversely, the
employee is relying upon the employer to pay her and enable her to support herself, and potentially her
family, financially.
Relationship Building
Just as with all relationships, the employer and employee relationship is one that must develop over
time. Employers can promote the building of relationships by speaking candidly with their employees
about their lives, asking them about their families and learning about their interests. Similarly,
employees can promote the building of this relationship by being open with their employer and sharing
information about themselves and their lives.
Boundaries
Though the type of employee and employer relationship that is considered appropriate varies from
company to company, boundaries exist at almost all companies. Generally, it is unwise for employers
to develop romantic relationships with their employees. Similarly, employers should exercise care to
ensure that the relationship they develop with one employee isn't notably closer than the relationships
they develop with others, as this can lead to concerns regarding favoritism or similar issues of
unfairness within the workplace.

Learning Guide Date: September, 2019 G.C Page 20 of 20

Author: AATPTC Department of Construction
Prepared By : - Ayele Mandefro, Biruk Tibebu and Mikias Alemu