Table of Contents

1. Construction Claims (5%).....................................................................................................................3

1.1. Cause of Construction Claim........................................................................................................3
1.2 Comparison b/n contractor’s claim& Employer’s claim...............................................................4
1. Claims and Disputes (10%)...................................................................................................................5
Claim management.................................................................................................................................5
Resolution Mechanism............................................................................................................................6
2. Cost and price Escalation.....................................................................................................................6
2.3 Business and Regulatory Environment..............................................................................................8
2. Price escalation due to market........................................................................................................8
2. Construction Disputes (5%).................................................................................................................9
2.1 Definition of Dispute..........................................................................................................................9
2.2 Cause of Dispute................................................................................................................................9
2.3 Dispute resolution Mechanism........................................................................................................10
2.4 Comparison between Adjudication and Arbitration........................................................................13
3. Payment (5%)........................................................................................................................................14
3.2 Comparison between interim and final payment............................................................................15
4. Sub-contracting (5%).............................................................................................................................16
7. Project Delivery Systems (5%)...........................................................................................................17
I. Comparative Analysis Exam Questions (20%.....................................................................................18
8. PDS, Forms of Contract & Method of Procurement..........................................................................19
1. Project Delivery Systems:..............................................................................................................19
2. Forms of Contract: -.......................................................................................................................19
3. Method of Procurement: -.............................................................................................................20
9. Obligation of Employer and Contractor.............................................................................................21
10. Delay and Disruption Claims..........................................................................................................21
Delay......................................................................................................................................................21
Disruption..............................................................................................................................................22
11. About Sub-Contractor....................................................................................................................23
4. Time, cost, quality and safety...............................................................................................................25

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 Mgmt. of time, cost and quality under MDB FIDIC................................................................................25
Contract Termination................................................................................................................................25
2. Project Delivery System & Value Engineering........................................................................................26
3. Role of the Engineer (6%)......................................................................................................................26
The Road Project...................................................................................................................................29
II. Case Study Examination Questions (25%)..............................................................................................31
1. The Road Project Case.......................................................................................................................31
11 The Water Supply Project (case similar to our model exam).........................................................32

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Construction Law and Contract (CEng6107) Questions and Answers

1. Construction Claims (5%)

A. The define concept of claims in construction & discuss, at least, five major causes for
construction claims; (2.5%)
Answer: Definition
In the context of construction industry, claims means, assertion of and a substantive demand for
compensation by way of evidence produced and arguments advanced by a party in support of its
case. It is a substantive demand by the contractor to the employer for extension of time or for an
extra payment of an item of work carried out by him on behalf of the employer for which a
readily identifiable amount cannot be ascertained under the term of contract and the employer
may have its own substantive demand against the contractor, this is called counterclaim. It is an
independent demand originated from the same contractual relationship.
A construction claim can also be defined as a demand for payment of additional compensation,
adjustment of the parties’ respective contractual obligations, extension of time or compensating
delay damages or any other change with regard to the contractual conditions or terms

1.1.Cause of Construction Claim

There are different causes of construction claim. Some of the major causes are:
1.1.1 Breach of contract :
The employer may for some reasons breach the contract. This may be due to poor work or failure
to perform, bankruptcy of the contractor etc .if the contractor can prove that the termination
benefited the employer, then he may claim profit on work completed and cost of demobilization.
On the other hand, the contractor may for some reason breach the contract. This may be due to
late payment, bankruptcy of the employer, late issue of drawings, late possession of site, change
of their idea etc.
1.1.2 Poor or unclear tender and/or contract documents;
After the contract was awarded to the contractor due to lack of clarity on the tender document,
for instance, missed quantity for some item of work, fixed foreign currency in the contract
document, lack specifying holidays etc may cause claim.

1.1.3 Poor or inadequate administration of responsibilities by stakeholders

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 When parties in the construction industries practice poor administration or not responsible for
their tasks according to the contract document, claim may be raised by one stakeholder against
the other. For instance late issue of payment, unable to approve working drawing on time etc.
may cause claim by the contractor against the employer. On the other hand, poor coordination of
resource, poor performance of work may cause claim by the employer against the contractor.
1.1.4 Delay and disruption
There are claims raised due to late issue of the drawing, changes of design, late possession of site
etc that disrupt and/or delay the project.
1.1.5 Unforeseen or uncertain situations during execution of the Construction Project
When situation that are not reasonably foreseeable by an experienced contractor by the Base
Date occurred in the construction site, it cause claim by the contractor against the employer.

1.2 Comparison b/n contractor’s claim& Employer’s claim

B. Discuss, in terms of similarities & differences, the procedures for the contractor’s
claims & the Employer’s claims under the MDB FIDIC (2006) Conditions of contract,
if any; Please, read Clause 20.1 & Clause 2.5 respectively, of the said Conditions of
Contract; (2.5%).
Answer
No Similarities Difference
MDB FIDIC clause 2.5 MDB FIDIC clause MDB FIDIC clause MDB FIDIC clause 20.1
(Employer’s Claim 20.1 (Contractor’s 2.5 (Employer’s Claim (Contractor’s Claim)
Claim)
 Claim Notification,  Claim Notification, Claim Preparation Claim Preparation
 The Employer or the  The notice shall be  The employer  The contractor should
Engineer shall give given as soon as should submit his submit a fully detail
notice and particulars practicable, and not detail claim within claim within 42 days.
to the Contractors later than 28 days 28 days.  The contractor should
within 28 days not after the Contractor  The employer is not notify all claims he
including the became aware, or obliged to notify has.
payments(Electricity, should have claim on payments  The contractor is not
water and gas) become aware, of of (Electricity, water entitled to include the
the event or amount of claim he

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 circumstance. and Gas) has.
 The employer may  The contractor shall
include his amount send farther intrim
of claim as a claims at monthly
deduction in the intervals, giving the
Contract Price and accumulated delay
Payment and or amount
Certificates. claimed.

1. Claims and Disputes (10%)

a. The significance of claim to the contractor is to obtain EOT, and/or cost
For the claim to be successful, it has to fulfill certain valid requirements.
These requirements are related to:
 Substantive requirements;
 Procedural requirements; and
 Proof requirements;
The following are the process for claim:
The claims process generally classified in to the following three phases: (Dr. Wubishet)
 Claim Submittal;
 Claim Processing;
 Claim Enforcement;

Claim management
Under MBD-FIDIC

 Intent to claim within 28 days after the occurrence of the event

 Within 42 days after the contractor is aware or should have been aware detail claim
should be submitted to the engineer
 Within 42 days after receiving the claim from the contractor the engineer should respond
with approval with disapproved and detail comments.
 Determination of the claim by the Engineer

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  If the Engineer does not respond within the timeframe defined in clause 20.1, either Party
may consider that the claim is rejected by the Engineer and any of the Parties may refer
to the Dispute Board in accordance with Sub-Clause 20.4 [Obtaining Dispute Board’s
Decision].
Under PPA ( see clause ___)

b. The pre-conditions for the existence of the construction dispute are:

 Contractual agreement
 Initiation of dispute
 Claim

Resolution Mechanism
Under MDB - FIDIC

 Engineer determination  Arbitration

 Amicable settlement  Litigation
 BB

2. Cost and price Escalation

a. Identify the possible cause for the project cost overrun in a given international construction
project where 90% of the construction materials were to be imported from broad.

Answer

It is evident that both internal and external aspects of business setting are present as the prime
contributors to cost overruns. The possible factors that cause for the project cost overrun can be
classified in to three main (broad categories) parts. These are:

1. Macro-Economic Factors
2. Management Factors
3. Business and Regulatory Environment
2.1 Macro-Economic Factors: The cost of construction is basically the cost of money, the
cost of material, the cost of labor and the cost of management. Some of the factors identified
under this category are:
 Fluctuation in prices of raw materials,

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  Unstable cost of manufactured materials,
 High cost of machineries,
 High interest rates charged by bankers on loans received by contract
 High machineries maintenance costs
 High cost of skilled labor
 High transportation costs
2.2 Management Factors: Generally most of the management factors are listed as follows;
1. Fraudulent practices, kickbacks, and 16. Disputes on site
corruption 17. Numerous construction activities
2. Mode of financing and payment for going on at the same time
completed work 18. Inadequate site investigation
3. Improper planning
4. Frequent design changes
5. Lack of coordination between design
team and general contractor
6. Lack of coordination between
general contractor and
subcontractors
7. Contract management
8. Inadequate duration of contract
period
9. Poor financial control on site
10. Additional work
11. Wrong method of cost estimation
12. Inaccurate cost estimation
13. Poor project (site) management/ Poor
cost control
14. Poor relationship between
management and labor
15. Stealing and waste on site

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2.3 Business and Regulatory Environment: Generally most of the business and
regulatory environment
 Long period between design and time of bidding/ tendering
 Domination of construction industry by foreign firms and aids
 Inappropriate government policies
 Inadequate production of raw materials in the country
 Absence of construction cost data
 Inappropriate contractual procedure
 Inadequate labor/ skill availability
 Adverse effect of weather
 Bureaucracy in bidding/ tendering method
 Lowest bidding procurement method
 Litigation
 Scope changes occasioned by inadequate pre contract study
 Scope changes arising from redesign and extensive variation occasioned by change in
brief
 Inadequate preconstruction study
 Work suspensions owing to conflicts
 Inadequate quality/ Ambiguity of contract documents
 Inappropriate contractor policies

2. Price escalation due to market

b. How you are going to manage if price escalation occurs with respect to the specified
materials due to market force under the contract.
Answer

According to clause 47.1 (price adjustment) of the PPA ICB Prices shall be adjusted for
fluctuations in the cost of inputs only if provided for in the Special Conditions of Contract.
If so provided, the amounts certified in each payment certificate, after deducting for
Advance Payment, shall be adjusted by applying the respective price adjustment factor to
 the payment amounts due in each currency. A separate formula of the type indicated below
applies to each Contract currency:

Ln Mn En
pn= A+ b +c +d + etc .
Lo Mo Eo

Where:

pn is a price adjustment factor to be applied to the amount in each specific currency for
each payment certificate;

A is a constant, specified in the Contractor’s Bid, representing the nonadjustable portion in

contractual payments;

b, c, d, etc., are weightings or coefficients representing the estimated proportion of each

cost element (labour, materials, equipment usage, etc.) in the Works or sections thereof, net
of Provisional Sums, as specified in the Contractor’s Bid; the sum of A, b, c, d, etc., shall be
one;

Ln, Mn, En, etc., are the current cost indices or reference prices of the cost elements in the
specific currency of origin at the date 28 days prior to the deadline for bid submission; and

Lo, Mo, Eo, etc., are the base cost indices or reference prices corresponding to the above
cost elements at the date 28 days prior to the last day of the period to which a particular
Interim Payment Certificate is related.

2. Construction Disputes (5%)

a. Please, define construction dispute, discuss the causes for & mechanisms/methods for the
resolution of construction disputes ;( 2.5%)
Answer

2.1 Definition of Dispute

In the context of construction industry, dispute is disagreement between the parties over a claim
in the industries. It comes into being when the claim is not admitted and the claimant does not
accept its rejection. A claim has to be made before a dispute can arise.

2.2 Cause of Dispute

Some of the following are causes of disputes.
2.2.1 Ineffective contract management
Good contract management is a prerequisite for minimizing the occurrence and the severity of
disputes. It should ensure the early identification of potential disputes so that contemporary
records are kept to facilitate their resolution based on fact rather than recollection.

2.2.2 When parties enter into not finalized contract before work commences
2.2.3 Unable to define quality constraints and scope of work prior to tender;
2.2.4 Unclear condition of contracts

2.3 Dispute resolution Mechanism

There are several methods of resolving disputes in the construction industry. The following three
types of dispute resolution systems are well recognized. These are,
2.3.1 Preventive Dispute Resolution System; (by use of partnering, dispute resolution advisors,
facilitators …)
2.3.2 Amicable Dispute Resolution System; (through negotiation, mediation, conciliation, mini-
trial …)
2.3.3 Judgmental Dispute Resolution Systems ;( through Dispute Adjudication Board,
Arbitration, Litigation…).

These are discussed as follows:

2.3.1 Preventive
In the construction industry, there are expert neutrals who may be advisors jointly employed at
the beginning of the relationship of the contracting parties for the purpose of preventing disputes
rather than allowing issues to grow until they become real disputes. These include collaborating,
a unique concept in dispute resolution, that is proactive and which may prevent disputes. It
attempts to deal with problems before they arise, by establishing good working relationships
amongst all the parties.
 Partnering: Partnering is a process which aims to create a good principal-contractor
relationship from the outset. It can lay the foundation for better and more productive
working relationships on the project, by establishing an atmosphere of trust and frankness
in communications. A central objective is to encourage contracting parties to change
from their traditional adversarial relationships to a more co-operative team-based
approach and to prevent disputes.
Partnering has been described as a "covenant of good faith". It is morally persuasive, but is not
intended to alter in any way the duties which otherwise exist or are defined by the contracts
between the parties. If the covenant fails, the fallback is to their legal responsibilities and
relationships defined in law and in the contracts.
 Facilitator: Facilitation is a process whereby an independent outsider becomes involved
in a problem by giving assistance to the parties in dispute through a process of decision-
making without making any binding decisions for the parties. The wide range of matters
that a facilitator may contribute includes information-gathering, fact-finding, holding
meetings, establishing voting criteria and private consultations. Facilitators are experts in
communication, negotiation and mediation skills
2.3.2 Amicable (Non-Judgmental)
The non-judgmental methods bring the disputants to a round table and mutually resolve their
dispute, and such methods are through negotiation, mediation, conciliation, mini-trial, etc.
 Negotiation: Direct negotiation is a common dispute resolution process in which parties
themselves, or their representatives, try to resolve the dispute without involving any
neutral third party. It is a voluntary and an unstructured process agreed by both parties,
privately and confidentially.
 Mediation: Mediation is a mechanism in which a neutral third party meets with the
disputants and facilitates negotiation to help the parties come to their own solution. It is a
voluntary but structured with ground rules agreed upon by the parties.
 Conciliation: Conciliation is a process similar to mediation except that the conciliator
can express an opinion on the merits of the case and is required to recommend a solution
if the parties fail to agree. The power of the conciliators is conferred by status.
 Mini-trial: Another process involving neutral third party in a dispute is the mini-trial,
which brings together senior decision makers from each disputant to hear presentations
by junior representatives or their respective legal representatives and help them to
negotiate on resolution at private. This is mainly used in big projects where the senior
decision makers may not be aware of the real situation and the subordinates may not be
aware of the needs and priorities of the parties.
2.3.3 Judgmental
The very feature of the judgmental form of dispute resolution is that the third party known as the
court judge, the arbitrator or the adjudicator decides the case before him/her for the parties.
The parties to the dispute shall have no control over the process (especially in case of the court
system) and/or the outcome of same in all the three cases. Under the judgmental form of dispute
resolution the following are recognized.
 Adjudication: Adjudication is a process where a third party who is independent of
parties, but may be selected by them, makes an award determining the dispute. The
Award is binding and can be enforced by courts. Adjudication can be defined as a process
whereby an appointed neutral & impartial party is entrusted to take the initiative in
ascertaining the facts & the law relating to a dispute & to reach a decision within a short
period of time.
 Litigation: Litigation (used when all other venues failed) is a dispute resolution method
that is inquisitorial and adversarial, where by the disputant initiate’s legal action against
the other party by going to court. It is costly and results into much delay for the
disputants and may not do justice to the parties. However, the benefit of litigation is that
the court has authority to find out the “truth” from the parties and the enforcement of the
order or judgment is supported by other law enforcement agencies. It is also used when
parties have low resources and need an umpire or when they cannot agree to other forms
of dispute resolution.
 Arbitration: Arbitration is a process whereby parties in dispute agree to submit the
matter in dispute to the decision of a person or persons in whom they have confidence &
trust & undertake to abide by that decision.
 Dispute Review Boards: A Disputes Review Board (DRB) involves a panel of expert
neutral persons being set up at the outset and therefore being available throughout to
provide an independent assessment of the possible causes of disputes. A DRB usually
consists of three members, selected by both the contractor and the owner soon after the
award of the contract. With smaller contracts, the panel might be a single person, which
may be regarded as equivalent to appointing an expert conciliator or mediator for the
duration of the contract.
2.4 Comparison between Adjudication and Arbitration
b. What are the fundamental similarities & differences, if any, between adjudication &
arbitration? Please, read the relevant clauses of PPA & MDB FIDIC Conditions of
Contract; (2.5%)
Answer
Similarity
Adjudication Arbitration
 Decision is given by third party which is  Decision is given by third party which is
neutral neutral
 Decisions are binding and final if neither  Decision are legally binding and but not
parties refer to the arbitration. final when the arbitrator shows
 It is a dispute resolution mechanism. misconduct and rules of evidence used in
 The adjudication shall conduct with arbitration depend on the prior agreement
language for communications defined in between the parties are not kept.
the contract.  It is a dispute resolution mechanism.
 the arbitration shall be conducted in the
language for communications defined in
Sub-Clause FIDIC 1.4 [Law and
Language] [FIDIC clause 20.6]
Difference
  The decision of a third party neutral,  Arbitration is a process where a third party
named in the contract, is binding upon the who is independent of parties, but may be
parties with respect to any matter in dispute selected by them, makes an award
until the contract is complete. At that time determining the dispute. The Award is
the parties may challenge the decision binding and can be enforced by courts.
through arbitration or litigation.  Mostly give decision on many claims, as a
 Mostly give decision on single claim as a result they requires long time for making
result they took less time to give decision. decision.
 The adjudicator knows the site well and  The arbitrator does not know the site but
follow the progress of the work rely on the document to give decision.
 The adjudication shall be conducted in the  The arbitration shall be conducted in
country where the project is conducted. accordance with the arbitration procedure
 The Adjudicator shall give a decision in published by the institution named and in
writing within 28 days of receipt of a the place shown in the Special Conditions
notification of a dispute (PPA 25.1) of Contract (Clause PPA 25.3).
 No time bound for giving decision, the
time depend on the case of the dispute.

3. Payment (5%)

3.1 Please, discuss the importance of payment provisions in the construction contract from the
perspective of the Contractor; (1.50%)
Answer
The following are importance of Provision of Payment for contractor

 It secures the right of the contractor to have payment for the work he has made and
completed as per the contract.
 It control the cash flow of the contractor
 Help the contractor to perform his day to day task without any problem
 Purchase necessary resource for the construction of the project pay wages or salaries of
his worker without problem.
3.2 Comparison between interim and final payment
Identify & discuss, at least, two major differences between interim/progress payment & final
payment; (1.75%)
Answer
Difference
No Interim/progress payment Final payment
 It is a payment made to the  It is a payment made at the completion of a project.
contractor after completing  Once the final payment is made the engineer has no
some amount of work as per power to amend any mistakes.
the agreement on weekly or  Mistakes/disputes are solved through arbitration
monthly interval. process if the following are happened to the final
 If mistakes or correction are payment.
made it can be corrected in  Fraud
the next interim payment.  Claim raised before the issue of the final
 The contractor can request payment (this is possible until defect
interim payment as per SCC liability period only).
of the contract document with  The contractor should submit his final payment
no time limit. certificate after 56 days of receiving the
performance certificate.

3.2 Discuss four major legal & contractual effects of the final payment; (1.75%)
Answer
Some of the legal and contractual effects of final payment are:
3. Once final payment is done the engineer has no power to incorporate any mistakes or
correction of contractor’s claim even if their claim is accepted.
4. Only the arbitration or the court can amend the final payment when
 Frauds exist in the final payment.
 Unjust ices enrichment
 the contractor raised claim before the approval of the final payment
5. It shows the completion of the project
6. It is the event where obligation of parties end
4. Termination of a contract

Clause 15.5: Employer’s Entitlement to Termination

It is legally also called termination for employer’s convenience. it is also recognized

under the law of administrative contract. See also the private law of construction.

Works immediately after termination

a. Following termination valuation at the date of termination has been undertaken in the
presence of both the representatives of the employer & the contractor. This joint
document records the following:
 the status of the executed works
 the financial status of the project under all the monthly payment certificates
effected to the contractor
 the value of construction material on site
 Records the type, number, status of construction machinery, equipment & plant
of the contractor and valuate the entire said asset.
 the value of temporary works including project site office
This helps for determining the rights, obligations and/or remedial rights of the
employer & the original contractor.
b. The contractor stops his/her work PPA. 59.5 (works) If the Contract is terminated, the
Contractor shall stop work immediately, make the Site safe and secure, and leave the
Site as soon as reasonably possible.
b) Assuming that the new contractor engaged by the employer has delayed the
completion of the project. Is the terminated contractor liable for such delay? If
yes, why? If not, why not? Discuss.
According to Clause 15.3 there should be valuation of the works done for financial and
physical status of the project. So if the work is delayed at that time the original
contractor is responsible otherwise he is not.

c) Would your position be different, under question b, if the conditions of contract

were that of PPA (2006)? If yes, why? If not, why not?
1.1 Clause 60 (1) of the (ICB) PPA conditions of contract for Works says that “If
the Contract is terminated because of a fundamental breach of Contract by the
Contractor, the Engineer shall issue a certificate for the value of the work done and
Materials ordered less advance payments received up to the date of the issue of
the certificate and less the percentage to apply to the value of the work not
completed, as indicated in the Special Conditions of Contract. Additional Liquidated
Damages shall not apply. If the total amount due to the Employer exceeds any
payment due to the Contractor, the difference shall be a debt payable to the
Employer.”

4. Sub-contracting (5%)
6.1 The Sub-contractor which has been selected & appointed by the Contractor, indeed with
the approval of the Employer, has gone bankrupt. The Main Contractor has been delayed
in the completion of the project. The Employer has deducted liquidated damages from the
Payment due to the Contractor. The Contractor has argued that for the bankruptcy of the
Sub-contractor the Main Contractor is not responsible. Why the Contractor is or is not
responsible for the delay caused by the selected Sub-contractor? (2.5%)
Answer
Even though the subcontractor (domestic) selected & appointed by the Contractor, indeed with
the approval of the Employer, the legal effect of the subcontract is that the Main Contractor shall
be responsible, to the Employer, for the acts, defaults & neglects of any subcontractor, his
agents, servants or workmen as fully as if they were the acts, defaults or neglects of the Main
Contractor, his agents, servants or workmen.
The approval of the said subcontractor by the Engineer is not a legal ground for the Main
Contractor to escape liability arising out of any acts, defaults or neglects of the Sub-contractor.
In principle, there are no privities of contract between the Employer & the Sub-contractor.
On the basis of the effect of the doctrine of the assignment, a direct legal relationship may be
created by way of assignment of rights of the Main Contractor, under the Main Contract, to the
Employer.
According to Article 3206(1) of the civil code “The approval given by the administrative
authorities to the sub-contract shall not affect the contractual bond between the administrative
authorities and .their contracting party.” And article 3206(2) “The original party shall remain
liable for the works done and supplies made by the sub-contractor as though they had been done
or made by him.”
So due to this the main contractor is responsible for the fault of the domestic subcontractor.
6.2 Would your opinion be different if the Sub-contractor were a nominated one? If yes, why
& if not, why not? (2.5%)
Answer
No because even if, the Sub-contractor were a nominated one since it has a consent of the
main contractor similar to the domestic for any fault of this subcontractor the main contractor
is responsible with the same reason as mentioned above in (a).

7. Project Delivery Systems (5%)

5.1 Discuss the concept of project delivery system by providing illustration to that effect.
Answer
Contract or Project Delivery System is the way Project Owners together with Project Regulators
and Financiers determine the assignment of responsibilities to Project Stakeholders along the
Construction Process.
In the project delivery system the question of who does what is answered,
 For instance if it is DBB
Client: Initiate the project, secure way of financing the project
Consultant: Prepare the tender document, design the project etc
Contractor: Construct the project, prepare work program etc
 If it is DB
Client:
Consultant:
Contractor: The design and construction of the project is its responsibility
  Construction Management
Managing the construction for instance when the owner is illiterate.
 BOT
It is often determined during the Basic Planning phase of the Construction Project.

7.2 Please, thoroughly discuss the advantages & disadvantages of force account project
delivery system vis-à-vis the contract method project delivery system? (2.5%)
Answer
Advantage and disadvantage of Force account vis-à-vis the contract method project delivery
system

No Advantage
1  Mistakes are minimized in the
execution of the document.
 The construction of the project is
faster.
 When the all contractors give more
price than expected.
 If a project exist in difficult area
for instance area with war, disease
for normal contractors
Disadvantage
 Susceptible for making mistake as it
is performed by one party.
 The construction period is limited
kept as there no completion.
 Quality is not that much
 High work load.

Contract Termination
General Course Knowledge Examination Questions
1. Termination of a Construction Contract
Assuming that a construction contract, under MDB-FIDIC conditions of contract has been duly
terminated, by the employer, due to the default of the contractor
a) What are the critical steps to be taken in terms of contract administration immediately after such
termination and why? Discuss.
b) Assuming that the new contractor engaged by the employer has delayed the completion of the project.
Is the terminated contractor liable for such delay? If yes, why? If not, why not? Discuss.
c) Would your position be different, under question b, if the conditions of contract were that of PPA
(2006)? If yes, why? If not, why not?
 Support your arguments by citing the relevant clauses from the respective conditions of contract;
8. Project Delivery System & Value Engineering
Under the design-bid-build project delivery system, the contractor is allowed to make
proposals (say for the improvement of bridge design, through value engineering).
Assuming that a contractor has made a proposal & such proposal has been approved
by the Engineer. Would the contractor become liable for design related problems say for
the collapse of such bridge due to fault design if the proposal were related to some
design works & as such designed by the contractor?

8.1 Define & distinguish DBB & DB project delivery systems; Page limit: not less
than one full page;

please refer jakele note

8.2 Please, discuss whether or not the said contractor is still performing his
contractual obligation under DBB or changed to DB project delivery system?
Discuss your reasons based on MDB-FIDIC or any other applicable conditions of
contract; Page limit: one full page;

According to 13.2 value engineering and clause 4.1 the contractor can have a proposal.
“the Contractor may, at any time, submit to the Engineer a written proposal which (in the
Contractor’s opinion) will, if adopted, (i) accelerate completion, (ii) reduce the cost to the
Employer of executing, maintaining or operating the Works, (iii) improve the efficiency or
value to the Employer of the completed Works, or (iv) otherwise be of benefit to the
Employer,
Clause 4.1 “The Contractor shall design (to the extent specified in the Contract),
execute and complete the Works in accordance with the Contract and with the
Engineer’s instructions, and shall remedy any defects in the Works.”
so the project delivery system is not changed because,
8.3 Is such contractor liable for such design failure, then? If yes, why? If not, why
not? Please, discuss your reasons based on MDB-FIDIC or any other applicable
conditions of contract; Page limit: one full page;
According to clause 4.1 (c) “the Contractor shall be responsible for this part and it shall,
when the Works are completed, be fit for such purposes for which the part is intended
as are specified in the Contract; and “

Clause 13.2: Value Engineering

VE is a new concept introduced in such conditions of contract. it is based on the

principle of benefit sharing flowing from the approval & execution of the proposal made
by the contractor’ the benefit is to be share between the contractor & the employer. The
contractor is also required to submit professional indemnity insurance for its part of
design submitted with its new proposal under such VE process.

I. Comparative Analysis Exam Questions (20%

6.1 Please, compare & contrast the substantive similarities & differences of the two clauses of
the named conditions of contract;
6.2 You may present the comparison in table;
6.3 You have to be exhaustive in identifying the substantive points;
PPA (ICB) 2006 Conditions of Contract
Clause 60. Payment up on Termination
Clause 60.1 If the Contract is terminated because of a fundamental breach of Contract by the
Contractor, the Engineer shall issue a certificate for the value of the work done & Materials
ordered less advance payments received up to the date of the issue of the certificate & less
percentage to apply to the value of the work not completed, as indicated in the Special
Conditions of Contract. Additional Liquidated Damages shall not apply. If the total amount due
to the Employer exceeds any payment due to the Contractor, the difference shall be a debt
payable to the Employer.
60.2 …

MDB FIDIC (2006) Conditions of Contract

Sub-Clause 15.4 Payment after Termination
After a notice of termination under Sub-clause 15.2 (Termination by the Employer) has taken
effect, the Employer may:
a. proceed in accordance with Sub-Clause 2.5 (Employer’s Claims);
b. withhold further payments to the Contractor until the costs of execution, completion and
remedying of any defects , damages for delay in completion (if any), and all other costs incurred
by the Employer, have been established; and/or
c. recover from the Contractor any losses and damages incurred by the Employer and any extra
costs of completing the Works, after allowing for any sum due to the Contractor under Sub-
Clause 15.3 (Valuation at Date of Completion). After recovering any such losses, damages and
extra costs, the Employer shall pay any balance to the Contractor.

8 PDS, Forms of Contract & Method of Procurement

8.2 Please, define, and discuss, in short, the basic features and distinctions between Project
Delivery Systems, Forms of Contract and Method of Procurement by providing three
pertinent examples for each of them under the Ethiopian and the international context.
(5%)
Answer
1. Project Delivery Systems: can be defined as the way Project Owners together with
Project Regulators and Financiers determine the assignment of responsibilities to Project
Stakeholders along the Construction Process. It is often determined during the Basic
Planning phase of the Construction Project. Project delivery systems are basically
classified in to two broad areas:
a. Force Account: When the project owners engage themselves to undertake the project, it is
called a force account delivery system. Such a system is often promoted if the Project
Owners believe that there is a comparative advantage in cost, time and quality.
b. Outsourced: Most of the project delivery methods/systems are found under the category of
outsourcing. The following are some of them.
 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);
2. Forms of Contract: - Form of contract means the type of conditions of contract used
for the procurement of ex. construction works. Form of contract shall suit to the selected
project delivery system. Form of contract may be Classification based on the following
two bases. These are:-
a. method of pricing & payment; and
b. function/responsibility taken by the contracting parties;
a. Based on Method of Pricing & Payment
Based on the method of pricing & payment, the following types of contracts are identified.
 Re-measurement Contract;
 Cost-reimbursable Contract; and
 Lump Sum Contract;
b. Based on Function/responsibility taken by the contracting parties
This form of contract is based on the very obligation(s) assumed by the contractor and/or the
employer under the relevant contract. The possible function or obligation could be construction,
design & construction, financing, design & construction or financing, design, construction &
operation, or management. The following forms of contract are identified.
 Design-Bid-Build
 Design-Build:
 Construction Management
 Design-Build-Operate
 Engineer-Procure-Construct
3. Method of Procurement: - Method of procurement is the procedure by which the
Government solicits offers, establishes terms & conditions, and selects a contractor. Type
of procurement is different from method of procurement. It could be classified in very
many ways.
Classification of Methods of Procurement
Based on the level of competition involved in the process, methods of (public) procurement may
be classified, as follows. These are, according to Sue Arrow smith, & et el., in Regulating Public
Procurement:-
 Formal tendering procedure;
 Less structured methods of competitive procurement; and
 Single source procurement;

9 Obligation of Employer and Contractor

9.2 Please, identify, and discuss, in short, the fundamental obligations of the Employer and
the Contractor within the context of an international construction contract based on MDB
Harmonized FIDIC Conditions of Contract (2006); (5%)
Answer
The General Obligations of the Employer & the Contractor are:

 Not requesting advice from or consultation with the Member regarding the Contract,
otherwise than in the normal course of the DB’s activities under the Contract & the DBA
 Undertaking that the Member not to be appointed as an arbitrator in any arbitration under
the Contract
 Undertaking that the Member not to be called as a witness to give evidence before the
arbitration proceeding
 Undertaking that the Member not to be liable for any claims for anything done or omitted in
the discharge or purported discharge of the Member’s function
 Indemnifying & holding the Member harmless against & from which the Member is
relieved from liability under the DBA
 Providing appropriate security for a sum equivalent to the reasonable expenses to be
incurred by the Member(s)
 Effecting payment to the Member(s) as per the DBA
 Adjustment of Retainer Fee or Daily Fee after 24 calendar months, by agreement
9. Delay and Disruption Claims
9.1 What do you understand by delay & disruption claims? Is there any difference between the
two types of claims? If yes, why? If not, why not? Define the concepts and discuss them in
detail. (5%)
Answer
Delay can be defined as a period during which a contractor cannot employ his resources at
normal intended output, having regard to the nature and amount of work which is available under
the agreed program of working or under any rearrangement of that program.
“Construction period is the time gap between the commencement date and the completion date”
Some of the effects of delay are:
 Time overrun,  Arbitration,
 Cost overrun,  Total abandonment
 Dispute,  Litigation
Disruption may be defined as the effect of an event or a number of events on the efficiency of
execution of the works, irrespective of whether or not there had been a delay to a critical activity.
It can be defined as an interruption to the planned work sequence of flow of work (Bramble and
Callahan, 2005), or as events that impede the contractor from completing the work as planned
Continuous, extensive & cumulative disruption, however, may end in critical delay &
prolongation of the time for completion. Inefficiency, loss of productivity of labour &
uneconomic use of equipment comes under the heading of disruption when they are caused by an
event which is not the responsibility of the contractor.
A proper evaluation of a claim for disruption requires the following pre-requisites.
 An identification & analysis of each of the operations claimed to have been disrupted. It
is not sufficient simply to state that the execution of the works has been disrupted.
 The cause & the manner in which disruption has occurred should be established.
 The figures for the anticipated output. The resources planned & the time required to
achieve the completion of the disrupted operations as calculated in the tender have to be
shown to be achievable.
 The effect of any inefficiency on the part of the disrupted party in carrying out the works
should be properly calculated & its effect included in the calculations of disruption
suffered.
  The number of hours actually logged in the time sheets for the disrupted operation has to
be shown to be accurate.
When records are available & are correct, then the cost of disruption can be simply calculated as
the number of hours actually worked less that originally anticipated in the tender, with the result
being multiplied by the cost of the particular resources disrupted per hour.
When acceleration of the progress of the works is required, the cost may include the expense of,
 Working additional hour;
 Providing additional labour;
 Providing additional or different equipment;
 Advancing the date of delivery of manufactured elements;
Disruptions are events that prevent the contractor completing the work as planned. Many
disruptions to complex projects are planned for at the bid stage because they may be expected to
unfold during the project. For example, some level of rework is usually expected, even when
everything goes well, because there will always be ‘normal’ errors and mistakes made by both
the contractor and employer.
Disruption claims are sometimes included with delay claims but are fundamentally different.
Disruption may not result in delay. Contractors claim that they could not achieve their planned
output because of the Employer’s actions and hence that the damages or extra costs are payable.
Disruption (loss of productivity) results in a delay to the work being carried out and not
necessarily to completion of the Works. The work produced is not changed, it simply takes
longer to complete.
A disruption claim is a claim for alleged disruption or loss of productivity resulting from the acts
or omissions of the Principal or the Principal’s agents. Disruption claims are sometimes included
with delay claims but are fundamentally different. Disruption may not result in delay.
Contractors claim that they could not achieve their planned output because of the Principal’s
actions and hence that the damages or extra costs are payable.

10. Delay and disruption claims

10.1 What do you understand by the concept of delay claims & disruption claims?
Define & discuss them separately. (4%)
Delay claim

A ‘real’ delay may be defined as a period during which a contractor cannot employ his
resources at normal intended output, having regard to the nature and amount of work
which is available under the agreed program of working or under any rearrangement of
that program. “Construction period is the time gap between the commencement date
and the completion date”. If any project is completed beyond the completion (contract)
period it is delayed.
Liability of contract parties towards delay
The categories of responsibilities are:
 Owner (agent) responsible: contractor will be granted time extension and
additional cost, where warranted.
 Contractor (subcontractor) responsible: contractor will not be granted time or
costs and may have to pay damages/penalties.
 Neither party (e.g. act of God) responsible: contractor will receive additional
time to complete the project but no costs will be granted and no damages /
penalties assessed.
 Both parties responsible: contractor will receive additional time to complete the
project but no costs will be granted and no damages/penalties assessed.

Disruption claim
Disruption in the construction industry can be defined as an interruption to the planned
work sequence of flow of work (Bramble and Callahan, 2005), or as events that impede
the contractor from completing the work as planned.
Disruptions are events that prevent the contractor completing the work as planned.
Many disruptions to complex projects are planned for at the bid stage because they may
be expected to unfold during the project. For example, some level of rework is usually
expected, even when everything goes well, because there will always be ‘normal’ errors
and mistakes made by both the contractor and employer.

A disruption claim is a claim for alleged disruption or loss of productivity resulting from
the acts or omissions of the Principal or the Principal’s agents. Disruption claims are
sometimes included with delay claims but are fundamentally different. Disruption may
not result in delay. Contractors claim that they could not achieve their planned output
because of the Principal’s actions and hence that the damages or extra costs are
payable. Contractors claim that they could not achieve their planned output because of
the Employer’s actions and hence that the damages or extra costs are payable.

10.2 Discuss the at least 3 difference between delay & disruption claim

Difference
Delay claim Disruption claim
Disruption (loss of productivity) results in a
delay to the work being carried out and not
necessarily to completion of the Works.
The work produced is not changed, it
simply takes longer to complete.
It will have both contractor and employer Disruption may not result in delay.

Some papers have defined a construction defect as that which makes a project
dangerous, unsafe or causes real damage to the consumer. In general terms, defects or
defective works is where the standard and quality of workmanship and materials as
specified in the contract is deficient. Defects can be Patent Defects or Latent Defects.

10.3 Comparison between MDB-FIDIC and PPA Conditions of Contract Related to Delay.
Under this section of this study comparison shall be made between MDB-FIDIC and
PPA Conditions of Contract related to delay claims. The comparison shall be limited to
those clauses which have relevance to delay and associated delay claims.

No MDB –FIDIC PPA

1 The notice shall be given as soon as • Does not specify a period with in
practicable, and not later than 28 days which the contractor should give
after the Contractor became aware advance notice of claims.
2 Early warning is not recondition for Early warning is a precondition for
 entitlement
entitlement of time or cost claim.
3 The response by the Engineer towards The response by the Engineer towards
delay claim should be within 42 days delay claim should be within 21 days
after receiving the claim. after receiving the claim.
4 Delay in advance payment is not a Late payment of advance loan is a
ground for claim but it changes the Compensable Event.
commencement date.
5 Delays caused by change in legislation Prices shall be adjusted for
entitle the contractor for extension of fluctuations in the cost of inputs only if
time and addition cost. provided for in the Special Conditions
of contract.
6 Force majeures are defined. Force majeures are not defined.
7 The contractor is required within 14 days No specific provision is available.
to give notice in the event of occurrence
of force majeure.
8 Each party is required to minimize delay No specific provision is available.
in the event of force majeure.
9 In the event of failure to give notice to Failure by the contractor to give early
claim within 28 days of the occurrence of warning at the earliest opportunity
a circumstance, the contractor shall nullify his entitlement of the
entitlement shall be
nullified.

11. About Sub-Contractor

There are two types of sub-contractors: preferred (selected or domestic) sub-contractors &
nominated sub-contractors. Save the right of the contractor to object such nomination, the
nomination is carried out by the employer himself.
11.1 Does the Sub-contract Agreement signed between the (preferred/selected) Sub-
Contractor & the Main Contractor create any legal & contractual relationship between the
said Sub-contractor & the Employer? Why/why not? Discuss. (2.5%)
Answer
No, it is not creating any legal and contractual relationship between the said Sub-contractor and
the Employer because even though the sub-contractor (domestic) selected & appointed by the
Contractor, indeed with the approval of the Employer, the legal effect of the subcontract is that
the Main Contractor shall be responsible, to the Employer, In principle, there are no privities of
contract between the Employer & the Sub-contractor. On the basis of the effect of the doctrine
of the assignment, a direct legal relationship may be created by way of assignment of rights of
the Main Contractor, under the Main Contract, to the Employer. According to Article 3206(1) of
the civil code “The approval given by the administrative authorities to the sub-contract shall not
affect the contractual bond between the administrative authorities and .their contracting party.”
And article 3206(2) “The original party shall remain liable for the works done and supplies made
by the sub-contractor as though they had been done or made by himself.”

9.2 Would your opinion be different, if the Sub-contractor were a nominated sub-contractor?
Why/why not? Please, discuss in detail. Please, support your discussion by citing relevant
clauses and/or articles from the relevant conditions of contract & the applicable law,
respectively.(2.5%)
Answer No, because similar to the above reason Even though, the NSC has been selected or
appointed or approved by the Employer/Engineer, there shall be no privity of contract between
the Employer/Engineer & the NSC.
The Main Contractor shall become liable towards the Employer for the acts, defaults or breach
of the NSC

9.3 The Sub-contractor which has been selected & appointed by the Contractor, indeed with the
approval of the Employer, has gone bankrupt. The Main Contractor has been delayed in the
completion of the project. The Employer has deducted liquidated damages from the Payment
due to the Contractor. The Contractor has argued that for the bankruptcy of the Sub-
contractor the Main Contractor is not responsible. Why the Contractor is or is not responsible
for the delay caused by the selected Sub-contractor? (2.5%)

According to Art.3206 (3) of Civil Code the contractor is not responsible for the delay cause by the sub
contactors this is due to the approval of the sub-contractor by the administrative authorities (employer)
shall however imply the exoneration of the contractant (contractor) from the penalties for delay, where
such delay is attributable to the sub-contractor.
The enforcement of liquidated damages clause against the Sub-contractor by the Main Contractor might
be challenged in case of Administrative Contracts (Public Works) on the ground of Article 3206 (3) of the
Civil Code-Sub-contract.

9.4 Would your opinion be different if the Sub-contractor were a nominated one? If yes, why & if
not, why not? (2.5%)

4. Time, cost, quality and safety

a. discuss the importance of Time ,cost quality and safety in the construction project from the
legal /contractual perspective .

Answer

Cost has its proven importance as the prime factor for project success. Most of the significant
factors affecting project costs are qualitative such as client priority on construction time;
contractor’s planning capability, procurement methods and market conditions including the level
of construction activity (Elchaig et al, 2005). A project otherwise completed may not be regarded
as a successful endeavor until and unless it satisfies the cost limitations applied to it. In spite of
its proven importance it is not uncommon to see a construction project failing to achieve its goal
within the specified cost.

Mgmt. of time, cost and quality under MDB FIDIC

+b. Discuses also how Time, cost, quality and safety issues have been managed or regulated
under MDB-FIDIC condition of contact

Answer

According to Clause of 6.1 (Health and safety) under the MDB FIDIC, and clause 19.1 of PPA,
The Contractor shall be responsible for the safety of all activities on the Site. And clause 4.9
(quality assurance) of the MDB, the contractor shall institute a quality assurance system to
demonstrate compliance with the requirement of the contract. Clause 8.2 (Time for completion),
the contractor shall complete the whole work and each section ( if any), within the time for
completion for the works or section (as the case may be).
3. Role of the Engineer (6%)
a) Discuss the different roles of the engineer as contract administrator & project supervisor only during
the execution phase of a construction project. You are expected to mention & discuss three functions
under each type of role;
b) Discuss also the possible five negative effects in contract administration and/or project supervision
during the execution phase of a construction project in the absence of such Engineer.
 You may apply MDB-FIDC or PPA conditions of contract for your analysis; Instruction:

5. Role of engineer

Role of engineer under MDB FIDIC 2006 and PPA

Construction Supervision
With respect to Construction supervision, once work starts on the project, to supervise
or to inspect the work carried out by the contractor in order to ensure conformity with the
design requirements.

Contract administrator
Especially the role of the consultant as contract administrator divided in to the following
distinct role.
a. Agent Role
The agent role is further divided in to power & function.
Power
The following are some of important powers of the consultant.
 Power to make contracts, if authorized by the client;
 Power to instruct variations, if authorized;
 Power to order suspension of the performance of the works, if authorized;
 Power to delegate its functions to assistants, if allowed; (This is true in case of ,
Resident Engineer, Engineer’s Representative, Clerk of Works, Independent
Inspectors, Quantity Surveyors).
Function
The following are some of important functions of the consultant.
Advising the employer;
  On costs of the project;
 on appointment of particular contractors;
 on appointment of subcontractors;
 on rights & obligations of the employer under the construction contract, ( for
example, in relation to taking insurance by the employer),
 on informing the breach of contracts by others(consultants, contractors); Issuing
instructions to the contractor under the construction contract in writing;
 Providing information to the contractor;
 Contract documents;
 contract drawings;
 unprimed bill of quantities and any other amendment thereof(BOQ);
 accurately dimensioned drawings(for the purpose of setting out);
 Inspecting & monitoring of the construction works;
 all the works to be executed under the construction contract,
 to carry out tests of any materials,
 to detect bad workmanship & defect;
 Performing quantity surveying functions;
 Certainly through a qualified quantity surveyor;
 Professional or independent Role;
 Consultative role;

b. Professional Role
The independent role of the consultant may be expressed in the following professional
functions.
 Certification function;
 Other decision-making functions;
Certification Function
 The consultant may certify & issue the following certificates under the terms of
the construction contract.
 Interim Payment Certificates;
 Final Payment Certificate;
  Event Recording Certificates;
 Certificate of non-completion; in case of delay for the purpose of triggering the
machinery of liquidated damages;
 Certificate of practical/substantial Completion certificate;
 Certificate of Completion of making good defects;( or Defects Liability Certificate)

c. Consultative Role
Undertaking Consultation both with the employer & the contractor, under the relevant
construction contract, before making any determination; this role is a new one
introduced through the New FIDIC Red Book. See also Clause 3.5 cum other clauses of
same of the MDB Version of FIDIC;
 Decision Making Function
 This days may be controversial;
 Is taking determination, for example as per Clause 3.5 of FIDIC & MDB
Conditions of Contract by the Engineer a decision?

III. Case Study Examination Questions ( similar to the answer of 2012)

The Water Supply Project: Dam &Water Treatment Plant

10 Case Study Exam. Questions (20%)

The Road Project

a. What are the disputes, if any, between the employer & the contractor? Explain. (5%)
Answer
The disagreement between the contractor and the employer are due to:
 As to taking responsibility for the cost of reconstruction of the two collapsed bridges
including the required additional time.
 Liquidated damages up to 10% to be paid by the contractor.
 Even if ……
b. What type of evidence you need to establish whether or not the collapse of the two bridges
were caused either by design or otherwise? Why? Discuss. (5%)
Answer
To examine the construction of the bridges we need different types of evidences
Documentary evidence
To get documentary evidence we examine the following documents
 Contract document of the project
 The technical specification
 The detail design drawings
 Site book and site diary if recorded
Approval of site requisition of each sequence of work.
 Time of construction
 Any approval give to the materials used in the construction of the two bridges
 Work methodology adopted
 As-built drawing
 Shop drawing
 Design report of the bridge
 The hydrological data of the river used in the calculation of the bridge (if any).
We need to establish the above data because to examine the design status of the bridge and to
check the design of the bridge with the intended purpose
 Laboratory data concerning the material used in the construction
Expert opinion to get Factual wittiness by
 Project site visit
 Photographs of the collapsed bridge
 All laboratories data concerning the construction of the bridge

c. What would be your professional opinion whether or not the contract time being calendar
days or working days? Does it have any legal or contractual effect if the contract time were
either calendar days or working days? Why? Discuss & support your position by doing
some calculations. (5%)
Answer
My professional opinion is it is better to make agreement with Calder days for better
management than working days. Yes
Contractual effect
Liquidated damage
Legal effect
Effect of contract and or legal effect 1731
d. Assuming that the collapse of the two bridges were caused due to poor design, is there any
liability of the engineer towards the employer (i.e. the Client) under their agreement? If
yes, why? If not, why not? Assume that their agreement was based on the PPA
Consultancy Services Agreement ICB 2006. (2.5%)
Answer Yes, because the liability of the consultant shall be seen in light of the:
 Type of professional services they contractually undertake to provide;
 The specific contractual arrangement made between the client & the consultant; and.
 The interpretation of the applicable law;
e. Assuming that the collapse of the two bridges were caused due to poor workmanship, is
there any liability of the engineer towards the employer (i.e. the Client) under their
agreement due to lack of supervision? If yes, why? If not, why not? Assume that their
agreement was based on the PPA Consultancy Services Agreement ICB 2006. (2.5%)
Answer
PPA 17.1

II. Case Study Examination Questions

The Water Supply Project: Dam & Water Treatment Plant

A construction contract has been signed between a certain employer & contractor for the
onstruction of dam & water treatment plant. The contract price being ETB 2 Billion out
of which ETB 1.2 Billion for the construction of the dam & ETB 800 Million for the
construction of the plant. The plant is expected to treat 300, 000 cm water per day. The
completion time shall be 400 days. If delay occurs, the parties have agreed to calculate
liquidated damages of ETB 400, 000. 00/d. The maximum amount of liquidated damages
shall be 10% of the contract price. The dam & the plant have their own sectional
completion dates. The dam has been completed in due time.
The Plant
the plant has been completed 300 days after the agreed sectional completion date for
causes attributable to the contractor;
 the plant capacity has, up on completion, been reduced to 200,000 cm/d;
  the employer requested the payment of liquidated damages up to 10% of the
contract price;
 the employer has also requested the reduction of the contract price due to reduction
of the treatment capacity of the plant;
 The employer has also further requested some amount of money i.e. ETB 900
 Million for the loss of water sales (i.e. up to the design life of the dam & the plant
i.e. 50 years) due to reduction of the treatment capacity of the plant;
 the contractor has argued that the assessment of the liquidated damages shall be
confined to the contract price of the sectional work i.e. the plant but not to the whole
contract price;

 the contractor has also argued that the method for the calculation of the reductionof the
capacity of the plant has never been agreed;
 the contractor has also further argued that loss of water sales has never been agreed
between the contractor & the employer; therefore, the construction company shallnot be held li
able for the situations not provided in the contract;
You are a well-known Construction Management & Claims Specialist in the country. Both
the employer & the contractor have come to your office to solicit your professional adviceto res
olve their disputes.
Examination Questions
a) What are the disputes, if any, between the employer & the contractor? Identify &
discuss their merit;
b) What is your professional opinion on & justifications for the validity of the
contractor’s argument in relation to the maximum extent of the liquidated
damages? Discuss;
c) What are the essential points that you should consider regarding the claims
pertaining to reduction of the contract price?
 Please, refer MDB Clause 9.4 (Failureto Pass Tests on Completion) Discuss;
d) What is the extent of the reduction of the contract price in your professional
approach & method? Why? Discuss. Please, refer the same Clause 9.4 (Failure toPass
Tests on Completion);
e) Is the contractor correct in denying any liability pertaining to loss of water sales? If
yes, why? If not, why not? Discuss.
Please, consider legal liability of the contractor,if any?
f) What kind of dispute resolution mechanism do you suggest for the parties to settle
their disputes, if any, and why? Discuss;
Instructions: You may refer to MDBFIDIC (2006) or PPA (2006) conditions of contract tosuppo
rt your position or argument or analysis;
Short answers like “yes” or “no” have no value unless supported by acceptable reasons &appr
opriate contract clauses and/or the applicable law provisions;

Answer
a. What are the disputes, if any, between the employer & the contractor? Explain. (5%)
Answer
The following are the dispute between the employer and the contractor
 Liquidated damage ( Sectional or total of the project)
 Method of calculation for the reduction of the plant capacity from the agreed contract.
 Loss of water sale as it is not described in the contract document.
b. What are the essential points that you should consider regarding the claims of the
employer pertaining to liquidated damages? (2.5%)
Answer
The essential points are:
 The sectional completion date up on which they agreed. MDB-FIDIC clause 8.2 in relation
with clause 8.7
 The agreed liquidated damage on the daily payment of liquidated damage for the section.
 The duration of delay of the section.
 Notice of the claim by the employer should be submitted to contractor within 28 days
according to MDB- FIDIC clause 2.5.
 The important clause on which the claim is based.
c. What is your professional opinion on & justifications for the validity of the
contractor.’ argument in relation to the maximum extent of the liquidated damages?
(2.5%)
Answer
My professional opinion is according to MDB-FIDIC clause 8.7 (delay Damage) and clause 8.2
the contractor is liable for delay to pay a liquidated damage for the employer. In parallel with this
in this case study as per the agreement of the employer and the contractor the contractor is only
liable for the section that he delayed. Therefore, the contractor is liable only for the plant work
which is delayed for 300 days to pay maximum liquidated damages.

d. What are the essential points that you should consider regarding the claims pertaining to
reduction of the contract price? Please, refer to Clause 9.4 (Failure to Pass Tests on
Completion) of the MDB Conditions of Contract. (2.5%)

Answer
The essential points that we should considered are:
 Contractor’s obligation under the contract
 Can the employer reduce the contract price.
 The reduction value of the contract price shall be appropriate to cover the reduced
value to the Employer as a result of this failure.
 Weather the Method of calculation in the contract data is indicated or not
e. What would be the extent of the reduction of the contract price in your professional
approach & method? Why? Please, refer to Clause 9.4 (Failure to Pass Tests on
Completion) of the MDB Conditions of Contract.
Answer: In my professional approach and method the reduction of the contract price should be
done in two cases:
Case 1 If the method of calculation for reduction of price is indicated in the contract document
the contract price should be reduce
 For reductions in capacity of the plant
 Cost of planning designing, construction and supervision of 100,000CM/d. or cost for
remedying the defect occurred in the plant
Case 2 If the method of calculation is not indicated on the contract document the contractor and
the employer require the reduction of the price to be agreed by both Parties (in full satisfaction
of this failure only) and paid before this Taking-Over Certificate is issued, according to MDB –
FIDIC clause 9.4.
f. Is the contractor correct in denying any liability pertaining to loss of water sales? If yes,
why? If not, why not? (5%)
Answer
Yes, because according to MDB-FIDIC clause 17.6 “Neither Party shall be liable to the other
Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or
consequential loss or damage which may be suffered by the other Party in connection with the
Contract, other than as specifically provided in Sub-Clause 8.7 [ Delay Damages ]; Sub-Clause
11.2 [ Cost of Remedying Defects ]; Sub-Clause 15.4 [ Payment after Termination ]; Sub-Clause
16.4 [ Payment on Termination ]; Sub-Clause 17.1 [ Indemnities]; Sub-Clause 17.4 (b)
[consequences of Employer’s Risks ] and Sub-Clause 17.5 [ Intellectual and Industrial Property
Rights ]”. Therefore, loss of water sale is consequential loss of use of the plant and the contractor
is correct in denying the liability towards this situation.

II. Case Study Examination Questions (25%)

1. The Road Project Case
Answer for the model exam of March 14, 2011(2003E.C)

I. Case related examination Question

A. No, because Under MDB-FIDIC clause 2.1, it stated that, If the Contractor suffers delay
and/or incurs Cost as a result of a failure by the Employer to give any such right or possession
within such time, the Contractor shall give notice to the Engineer and shall be entitled subject to
payment of any such Cost plus profit, which shall be included in the Contract Price.
PPA condition of contract gives the right to the contactor to be compensated by the employer if
the employer does not give access to a part of the site by the site possession date stated in
contactor’s approved work program. So the engineer should accept the contactors claim in terms
of:
EOT
The extension of time by the variation of work and failure to provide access to the site less delay
due to poor performance of the contractor should be accepted by the engineer i.e
EOT = 100+40-30 =110
Cost Recovery
The engineer should approve the 7Million Birr cost due to the variation; however, the
prolongation cost that should be paid to the contractor is only for 10 days which amounts to
=10/40*3Million=750,000 Birr.
A. No, because there was no delay damage, to illustrate this
Total delay of the project is 170 days
Delay due to the employer was 40 days plus 100 days due to repeated order od varied works
which sum up to 140 days
Delay due to poor performance of the contractor id 30 days
Setting off all this we have =170-140-40= -10
This means that the contractor is not liable for the liquidated damages rather he is entitled for
additional money like bonus.
C. No, because the contractor was not performing as per the program or he has poor
performance
D. Yes, the contractor should look in to the EOT of 100 days whether it is reasonable time or not.
? (See the hard copy i. e hand write)