3) Construction Law - Lecture Notes - Chapter 3

FTVET, 2023 March 2023
FDRE TVET INSTITUTE
Department of Building Construction Technology

Organized by: Belachew Asteray (PhD)
MSc program- Construction Technology and Management

Construction Contracts Law (CoTM 525)
CHAPTER THREE
ADVANCED CONSTRUCTION PROCUREMENT
RELATED LAWS AND CONTRACT
ADMINISTRATION
By: Belachew Asteray (PhD)
March 2023
March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 1
CHAPTER THREE
ADVANCED CONSTRUCTION PROCUREMENT RELATED LAWS AND
CONTRACT ADMINISTRATION
3.1. Introduction
3.2. Bidding Process and related Laws: Local and International Practices
3.3. Procurement Methods and related Laws: Local and International
Practices
3.3.1. Selection and Contractual Agreement With Consultant
3.3.2. Selection and Contractual Agreement With Contractor
3.4. Contract Administration (Variations; Claims; Insurance in Construction
Industry)
3.4.1. Variations
3.4.2. Construction Claims
3.4.3. Dispute Resolution and Settlement Mechanisms
Price Adjustment
Organized by: Belachew Asteray (PhD) 1

3.1. Introduction
•Procurement means purchasing, hiring or obtaining
• Goods: Raw materials, products, equipment, comodities in solid, liquid
or gaseous form and electricity, services related to supply

• Works: All work associated with construction, reconstruction,
demolition, repair or renovation……
• Services: Any object of procurement other than works, goods &
consultancy services
• Consultancy services
• Service of an intellectual & advisory nature
3.1. Introduction…
• Basic procurement rules
• Records of procurement
• Keep records of procurement for 10 years
• Brief description
• Invitation to bid
• Suppliers names & Address
• Evaluation criteria & summary of evaluation
• Information to suspend or cancel
• Grounds for using procurement procedure
• Non- discrimination
• Candidates shall not be excluded on the basis of nationality, race or criteria not having to do
with their qualification
• Preference Margin
• Up to 15% for goods produced in Eth.
•
March 2023 Up to 7.5% for works carried byOrganized
CoTM 525 Ethiopian nationals
by: Belachew Asteray (PhD) 4

3.1. Introduction
• Procurement Management: It is a process of selecting individuals or organizations to
carry out the intended services and / or works.
• It is carried out based on the provisions made during the contract planning phase.
Method of Procurement
• Method of procurement is the procedure by which the Government solicits offers, establishes terms & conditions,
and March
selects
2023a contractor /consultant/ supplier…
CoTM 525 Organized by: Belachew Asteray (PhD) 5
3.1. Introduction
• Issues that are necessary for a successful Procurement
Management phase:
• knowing and ensuring the implementation of procurement related
National and International laws, rules and regulations,

• adherence to the provisions made during the contract planning phase
including their change processes, that is; wrt. Delivery Systems,
Procurement Methods and Contract Types,
• establishment of a flexible procurement team, and
• adhering to the principles of Proof of competition, Impartiality,
Neutrality, Accessibility and Formality.

3.1. Introduction
• Rules, Regulations and Guidelines that are useful for
Procurement Management:
• Ethiopian Financial Laws and Ethiopian Procurement Regulations by
MoFED
• ADB, WB, EC and Other Bilateral Donors Policies and IMF Regulations
• Internationally acknowledged Construction Related Laws and
Regulations
• Labor, Business, Intellectual Rights, Environment Protection, etc Laws
• Standard Instruction to Bidders.
• Standard RFP for Construction Consultancy Services
• General and Particular Conditions of Contract: PPA, ERA, FIDIC, WB,
ADB, EC
• Construction Related Regulations by Municipalities
• Classification of Methods of Procurement

• Based on the level of competition involved in the process,
methods of procurement may be classified, as follows.

• Formal tendering procedure;
• Less structured methods of competitive procurement; and
• Single source procurement;

Method of Procurement … • Less structured
• Formal tendering Procedure
• Request for proposal
• Single stage tendering • In which detailed technical & cost proposals are sought.
• In which tenders are sought in
response to procurement • Technical & cost evaluations are conducted, and negotiations
with prospective providers may be held.
documentation setting forth the
contract terms and conditions and • This method of procurement permits a procuring entity to
include broad performance parameters in a request for
detailed technical specification. proposals & to seek technological or innovative solutions from
• Tendering may be open to all interested firms.
interested parties or may be restricted • Competitive negotiation
to a limited number of firms from
whom the goods, works, or services • The word negotiation may be used to refer to a competitive
request for proposals type procurement.
are available.
• Competitive negotiation may refer to a very informal and
• Two stage tendering unstructured competitive process.
• In which tenderers submit only • The meaning is therefore different in different countries.
technical information in the first stage • Requests for quotations/shopping
of the procedure.
• Price discussions are typically held • Typically used for commercial or “off-the-shelf” items of low
financial value.
with all or some of the tenderers who
submit technically acceptable tenders Single source
In which a procuring entity considers only one candidate.
• Proclamation No.430/2005
• Determining Procedures for Public • Choice of Methods of
Procurement & Establishing procurement- Eth

Supervisory Agency • Open bidding (tendering)
• Published on January 12, 2005 • Restricted tendering
• It applies to all federal public • Direct procurement
procurement
• Request for proposals
• Objective of the law • Request for quotations
• Economic & effective use of • Two stage tendering
public fund
• Promoting fairness
• Achieving Transparency
• non-discriminatory

• Conditions for use • Conditions for use of direct • Conditions for use of
procurement
Restricted Tendering request for proposal
• Only one candidate can supply or provide
• Goods, works or • For consultancy services or
services are available • For additional deliveries by the original supplier,

from limited number
with limits
• Contracts for which
of suppliers • Additional works which cannot be separated from
the original contract
consultancy services is more
• Time & cost required • New works consisting of repetition of similar works
50% of the contract amount
to examine & evaluate of which the initial contract was awarded on open or
would restricted tender • Conditions for use of
disproportionate to the • Continuation of consultancy services request for Quota
value of goods, works • Original contract has been satisfactorily performed
• Purchase of readily available
or services • Leads to gains in economy & efficiency
goods
• Purchase of goods made under exceptionally
• Estimated value of
contract does not
advantageous condition • For procurement of works or
• In very short term
exceed the threshold • Do not cover routine purchases
services for which there is
set in directives • Head procuring entity has determined it is urgent &
an established market
delay will create serious problem • does not exceed the amount
• When the contract price does not exceed the amount
stated in the directives
stated in directives
•Conditions for use of two-stage tender

• It is not feasible to formulate detailed Spec
• It seeks bids, proposals or offers to various possible means

of meeting its needs
• Because the technical character it necessary to negotiate
with suppliers
• Contract for the purpose of research, study or
development
• No bids were submitted or all rejected and it is unlikely
that new bid will be successful

Open Tendering
• Advertisement • Invitation to bid shall • Contents of the bid documents
contain (minimum) • Instruction for preparing tenders

• Invitation to be • Name address of • Deadline, date, hour & place of
procuring entity submission and opening
published in at • Forms of bid & bid security
least one national • Brief description and
time of delivery • No. of copies to be submitted with
news paper of the original
• Means & conditions • Condition of contract
general circulation for obtaining bid • Specification of requirements
documents & place to
• Time for obtain • Evidence to be provided by the
bidder
preparation not • Place & deadline • Bid validity
less than specified • Place & time for • Evaluation criteria, points given to
opening bids each criteria
in directives • The right to reject all bids prior to
acceptance
OTHERS
• Restricted tendering • Direct procurement • Request for quotations • Two-stage bidding
procedure procedure
• Provisions of open • From as many • First stage- proposals
• Procuring entity shall candidates as possible, at without tender price
tendering shall apply • Technical, quality,

except that: prepare a description least 3
of its need, quality, contractual terms
• Invitation to limited quantity, terms and • Request shall contain & conditions,
number of qualified time of delivery requirement as to professional &
candidates, sufficient to quality, quantity, terms tech. competence
ensure effective • Free to negotiate with & time of delivery
competition • Second stage- final
the sole candidate tenders with prices
• Select among those • Adequate time to with respect to single
registered in suppliers • Any agreement prepare their quotations set of specifications
list reached according to
Art.27(1) shall be • Purchase shall be made • May delete or
• Time for preparation of confirmed by contract from the candidate who modify any aspect
bid shall not be less specified originally
than minimum number signed by both parties meets the requirement &
of days specified lowest price • Any such
• Procurement accord.to modification shall
• Procuring entity will Art.27(2) require no • Insure the candidates be communicated
decide if bid security is signed contract who are in the suppliers to the suppliers
required list have equal
opportunity

• International procurement
• Open international bidding
• Where effective competition cannot be obtained unless foreign firms are invited
• Procurement above threshold to be determined by directives
• Shall observe the provisions of open tendering as well as the following

• Language used in international trade
• News paper sufficient circulation to attract foreign completion
• Shall observe the provisions…..
• Allow sufficient time for bid preparation
• Technical specification, to the extent compatible with national
requirements be based on international standards
• Candidates shall be permitted to express their bids in Ethiopian Birr or
currency widely used in international trade
• General & special conditions shall be of kind used in international trade.
• Other international procedures
• Whenever competitive bidding can not be obtained in open tendering
• Procedures other than open tendering such as restricted bidding or request for proposals shall
be used
• PUBLIC PROCUREMENT AGENCY –PPA 2011
PROCUREMENT AUDIT
• The general objectives procurement audits aim to achieve can be sub-divided into
the following four categories:
i. Strategic - Achieve high level goals, aligned with and supporting the Agency's
vision and mission;
ii. Operational – Executing ethical, economical, efficient and effective public
procurement related operations; and safeguarding public funds against loss due
to waste, abuse, mismanagement, errors, and fraud and other irregularities;
iii. Reporting - Advocating development and maintenance of reliable management
of procurement information and disclosure of that information in timely reports
including fulfilling accountability obligations;
iv. Compliance - Ensuring that procurement activities and processes are in
accordance with the Proclamation, Directive, and other documents governing
public procurement.

3.3. Procurement Methods and related Laws: Local and International Practices

• 1) Evaluation Methodology and Criteria of the Bidding Document
• Evaluation Committee comprised of the following members:

Title Name and Surname Position / Title
1. Chairperson
2. Member
3. Member
4. Member
5. Member
• PUBLIC PROCUREMENT AGENCY –PPA 2011…
• General Information
Procurement Reference Number:
Goods
Procurement Type Services
Works
Consultancy
Subject of Procurement:
Procurement Method:
Type of Contract:
Estimated Start Date
Contract Period
Estimated End Date
Estimated Value of the Contract
Contract Price Adjustment Provisions
Date of Issue of Bidding Document:
Method of Advertisement
Website
Other

• Preliminary Evaluation Proceedings
1. Pre-Evaluation Preparatory Meeting
• The Chairperson and the members of the Evaluation Committee reviewed Bidding
Documents;
• The Chairperson described the purpose and scope of the procurement procedure
concerned, summarized the essential features of the bid procedure to date;
• The Chairperson identified the person for preparation of Report on Examination and
Evaluation of Bids and preparation of files on evaluated bids;
• The Chairperson briefly explained examination and evaluation methodology and
evaluation criteria determined in the Bidding Document;
• All members of the Evaluation Committee have signed the Statement on
Confidentiality and Non-Existence of Conflict of Interest;
• The Chairperson confirmed that no member of the Evaluation Committee has a
conflict of interest or is any way associated with any of the Bidders submitting bids.
2. List of bids that Entered Bid Examination and Evaluation Procedure
No. of Complete Name and
Discounts Conditions
Bidder's Address of the Seat of Bid Price in Bid Security

Offered of Discounts
Envelope the Bidder

3.3. Procurement Methods and related Laws: Local

Bidder: andBidder:
International
Bidder: Practices
DESCRIPTION
Envelope No. Envelope No. Envelope No.
3. 1. Bidder submitted Written statement by a power of

attorney (or notary statement, etc.) proving that the
Preliminary person, who signed the bid on behalf of the
company/joint venture/consortium, is duly authorized
Yes: No: Yes: No: Yes: No:
Examination to do so (ITB Sub-clause );

2. Original and all copies of the bid are typed or written
of Bids in indelible ink and signed by a person duly
authorized to sign on behalf of the Bidder (ITB Sub-
clause );
3. All pages of the bid, except for non-amended printed
descriptive literature, are signed or initialled by the Yes: No: Yes: No: Yes: No:
person signing the bid (ITB Clause );
4. Bid is written in language (ITB Clause ); Yes: No: Yes: No: Yes: No:
5. Bidder has submitted the duly filled in, signed,
stamped, and dated Bid Submission Sheet Form;
stamped, and dated Price Schedule Form;
stamped and dated Bidder Certification of Yes: No: Yes: No: Yes: No:
Compliance Form;
stamped, and dated Technical Offer;
stamped, and dated Bid Security;
10. The Bid Security is in accordance with ITB Clause Yes: No: Yes: No: Yes: No:
11. Offered period of validity of the bid is in line with the
period stipulated in ITB Sub-clause
March 2023 12. OVERALL ADMINISTRATIVE CoTM 525 Organized by: Belachew Asteray
COMPLIANCE Yes: (PhD)
No: Yes: No: Yes: No: 21
4. Evaluation of Legal, Professional, Technical, and
Financial Admissibility of Bids
5. Clarification of Bids
6. Evaluation and Comparison of Bids
7. Currency Conversion
8. Domestic Preference
9. Final List of Bids for Evaluation and Comparison
10. Conclusion
11. Certification of the Report

3.3.1. Selection and Contractual Agreement With Consultant

4. Eligible Consultants
4.1. A Consultant may be a natural person, private, public or government-owned legal entity,
subject to ITC Sub-Clause 4.5, or any combination of them with a formal intent to enter into
an agreement or under an existing agreement in the form of a Joint Venture (JV), consortium,
or association. In the case of a Joint Venture, consortium, or association:
(a). All parties to the Joint Venture, consortium or association shall be jointly and severally
liable, unless otherwise specified in the BDS; and
(b). A Joint Venture, consortium or association shall nominate a Representative who shall have
the authority to conduct all businesses for and on behalf of any and all the parties of the
Joint Venture, consortium or association during the bidding process and, in the event the
Joint Venture, consortium or association is awarded the Contract, during contract
execution.
3.3.1. Selection and Contractual Agreement With Consultant…
• AFRICAN DEVELOPMENT BANK

• Basic Principles
• Apart from the considerations of efficiency and economy, the other
principles underlying the provisions of the Rules of Procedure are the
following:
i. the need for the Bank to give all consultants of member countries equal
opportunity of access to Bank-financed services;
ii. the need for the Bank to encourage the use of national and regional
consultants and to develop the capacities of regional member countries to
provide consultancy services;
iii. the responsibility of selecting the consultant is incumbent, first of all, on the
Borrower; and
iv. the importance of transparency in the procurement process.

3.3.1. Selection and Contractual Agreement With Consultant…

• AFRICAN DEVELOPMENT BANK…
• Selection Process for Consultants
• The principal stages in the selection process, in chronological order, are as follows:
1) preparing the terms of reference and a contract format;

2) preparing the cost estimate and the budget;
3) advertising the acquisition of services by the Bank;
4) preparing a short list of consultants;
5) determining the selection procedures and criteria for selection;
6) inviting the consultants to submit proposals;
7) evaluating proposals and selecting a consultant in view of contract negotiations;
8) negotiating the contract with the selected consultant; and
9) signing the contract.
• The Borrower shall be fully responsible for the selection of the consultant, the control and supervision of his
services and the administration of the contract.
3.3.2. Selection and Contractual Agreement With Contractors
4. Eligible Bidders
4.1. A Bidder may be a natural person, private, public or government-owned legal entity, subject
to ITB Sub-Clause 4.4, or any combination of them with a formal intent to enter into an
agreement or under an existing agreement in the form of a Joint Venture (JV), consortium, or
association. In the case of a Joint Venture, consortium, or association:
(a) All parties to the Joint Venture, consortium or association shall be jointly and severally
liable, unless otherwise specified in the BDS; and
(b) A Joint Venture, consortium or association shall nominate a Representative who shall
have the authority to conduct all businesses for and on behalf of any and all the parties of
the Joint Venture, consortium or association during the bidding process and, in the event
the Joint Venture, consortium or association is awarded the Contract, during contract
execution.

3.3.2. Selection and Contractual Agreement With Contractors …
Open Tendering…
• Bid Security • Submission of tenders • Opening of tenders
• Bids must be • At place , date & time • Tenders shall be

accompanied by bid
security (deposit, bid • Tender shall be opened at the time
guarantee) submitted in stipulated in the bid,
• Security will be writting,signed immediatly
forfeited if a bidder • Receipt showing date • All who submitted
withdraws his bid & time tender received, shall be allowed to be
within the validity where it is impossible
• In case of successful to put the bid document
present
bidder if he repudiates in bid box due to size • Name and tender
the contract or fails to
• Tender received after price shall be
furnish performance announced and a copy
security deadline shall be
returned an opened made available any
bidder on request.
3.3.2. Selection and Contractual Agreement With Contractors…

O • Examination, evaluation • Procuring entity shall not award
p • Contractors may be asked contract to the bidder who
e clarification to assist evaluation • does not provide evidence of
• No change in matter of substance qualification and fiscal and
n registration in suppliers list

• Correction of arithmetic errors
T • Responsive if it confirms to all • does not accept arithmetic error
e requirements set in the bid • is not responsive
n • Minor deviations that do not • Procuring entity shall evaluate
d materially alter or depart from the & compare bids that are
requirements
e responsive
ri • The successful bid shall be
n • Lowest evaluated price or
g • Lowest evaluated bid on the basis of factors affecting the economic value, if specified in the bid document
… • Process to be confidential
• Information not to be disclosed until award is announced
• No bidder shall influence the evaluation
• If any bidder wishes to contact procuring entity it shall be in writing
• not to be requested to modify their bids as a condition for award

3.3.2. Selection and Contractual Agreement With Contractors…

Open Tendering…
• Notification of award & signing
• Prior to expiry of bid validity notify the successful bidder its bid accep.
• Notification of award shall specify the time within which to sign contract
• The unsuccessful bidder will informed who the successful bidder is & why he
lost the bid
• Existence of contract shall be confirmed through signature of contract
document
• Contract shall not be signed prior to receipt of notice by the unsuccessful
bidder & before period spec. in Art.52
• Contract security
• A supplier shall provide the procuring entity with contract security
to make good any default under the contract
• The amount shall be determined by a directive to be issued by the
Minister
3.4. Contract Administration

• Contract Administration is a process that ensures the successful
completion of the project under consideration with substantial
compliance of the Terms of the Contract.

Phases of Contract Management System

3.4. Contract Administration…

• Activities or tasks in Contract Administration services:
• Identifying contractual responsibilities of Stakeholders.
• Reviewing the Terms of Contract Documents

• Extract Monitoring Responsibilities
• Preparing Monitoring Responsibility Summary Sheets
• Determining and understanding the construction components of the project.
• Reviewing the Contract Drawings and Technical Specifications
• Extract the Construction Methods and Sequences
• Prepare Construction Methods and Over all Sequences Sheets
• Review submitted (Integrated) Schedules and Breakdowns for operations
such as Organizational Breakdowns, Resources Breakdowns & Schedules
and Time Schedules.

• Activities or tasks in Contract Administration services:…
• Record, Monitor and Evaluate Progress of Mobilizations, Works and
Completions.
• Report Project Status daily and / or periodically and Completions.
• Certify qualities of materials, shop drawings, samples, workmanships and
works.
• Measure Works, Record Site Potentials and Certify Payments and
Completions
• Take off sheet and Bending Schedules are used for Measurement of Works
• Method of Measurement is according to standard practices
• Site Potentials such as material, equipment and Manpower on site together with
appropriate site organization is recorded
• Advance, Interim and Final Payments are certified

• Activities or tasks in Contract Administration services:….

• Administer contract changes.
• Issue Change Orders including Clarifications

• Evaluate and Certify Additions and Omissions
• Evaluate and Certify Provisional Quantity and Provisional Sums
• Evaluate and Certify Remedial Rights
• Evaluate and Certify Claims
• Prepare Contract Changes Status Sheet
• Mediate Disputes.

Communication in contract administration and construction supervision
Line of communication
• Between client and contractor is through the consultant.

• Between contractor and consultant directly.
• Between client and consultant directly.
• Between contractor and sub contractor directly.
• Method of communication
• Oral communication is possible but it should be followed by written documents
confirming decisions.
• Minutes of meeting should be send to the attendees.
• Giving of approvals, certificates, consents, determinations, notices, requests and
discharges communication shall be in writing and delivered by hand, mail, courier or
agreed electronic mail.
• Every document should be filed.
• Instructions/work order/ not contradicted in writing with in 7 days considered as
accepted [FIDIC 1987,2.5].


• Inputs of contract administration are:
Owner-Consultant agreements
Owner-Contractor agreements
Specifications
Contract drawings
Bid proposals
Change orders
Notices
Others
• The outputs of contract administration is Quality product
with in the allowed time and cost constraint.

• Expectations from contract administrator
• The administrator shall keep the interest of owner. It shall be the
extension of good design team.

• Have good communication skill.
• Know the contents of owner-consultant and owner-contractor
agreements.
• Know and understand project forms
• Have a working knowledge of construction materials,
construction trades, means and methods.
• Understand codes and regulations that govern the project.
• Be open mind, fair, and responsive.


Functions of Contract Administrator--RE
• The functions of the contract administrator is to increase the probability that
the project is built by the contractor in substantial compliance with the
contract documents.
• Role of resident engineers
 The employer seeks the best possible project at the lowest possible cost
Contractors usually caught up in a conflict between providing that level of quality and realizing a
reasonable profit may pursue to profit.
There are many participants who operate with a large sum of money thus there is a definite need to guide
the performance of these bodies in relation to the contract documents in clear focus.
• The resident engineer plays a monitor role reporting to the employer.

• Powers ,functions and duties of the contract administrator is limited by the
contract documents.
• Establishing necessary controls at the beginning ,systematize for
manageability
March 2023
and monitored to a set time table and practiced religiously.37
CoTM 525 Organized by: Belachew Asteray (PhD)

Contract Documents for Contract Administration
Owner-Consultant agreements
Owner-Contractor agreements
Specifications
Contract drawings
Bid proposals
Change orders
Notices
Others
• It is a document that need to be read again and again. During the initiation
phase of the contract management system the contract administrator
should have working knowledge about contracts.
• It specifies the relationship to be implemented and product to be produced.


Phases of contract Administration system
• Construction Contract Administration Initiation
• Construction Contract Administration Planning
• Construction Contract Execution

• Construction Contract Controlling
• Construction Contract Closing
• Contract Administration Initiation Activities
 Reading repeatedly and understanding the contract
Reviewing the drawings and specifications
• Contract Administration Planning
 Responsibility Control Chart
 Project Schedule, Budget
 Methods planning
 Quality Control plan
 Safety and Risk Management plan

• Construction Contract Execution
Issue Work permit Approve Work Done Manage The Contract
Identify Activity from Inspect works Established plan &

your Schedule contract achieved.
Document preparations Review the work Asses Contractor
and plan of the activity following your plan performance
Approve the plan Resolve issues arising Identify performance

during Exec. issues
Issue work permit Approve the work done Resolve performance
issues
Confirm Delivery Time Approve Payment Communicate review
outcome


Construction Contract Controlling
•Controlling involves measuring performance and comparing
with the various plans prepared.

•The variance is then fed into the control system and issues that
cause this deviation shall be identified.
Responsibility Variance ; Claims
Time variance; Time Claims
 Scope Change; Variations
Quality variance; Rework, Rejection, etc
Construction Contract Close out

•Final Settlement of all disputes and Claims
•Collection of Contract documents and all records.(As built

drawings, warranties, etc)
•Inspection of all contract deliverables and project contract
documents and correspondences.
•Acceptance of deliverables and maintenance recommended.
•Verifying all financial accounts related with the work.
•Commissioning of equipment's
•Final payment of the contract.

3.4.1. Variations
• Variation orders are an unwanted, but inevitable reality of every
construction project (Clough and Sears, 1994; O’Brien, 1998; Mokhtar et
al., 2000).
• Construction projects are bound to encounter variation orders; the goal of

the owner, design or construction manager is to limit the number of such
changes (CII, 1994b; Ibbs, 1997a).
• Proper management of variation orders is very significant for all types of
construction projects.
• Variations in drawings and contract documents usually lead to a change
in contract price or contract schedule.
• Variation also increases the possibility of contractual disputes.
Conventionally, variations present problems to all the parties involved in the
construction process.
• Mendelsohn (1997) observed that probably 75% of the problems
encountered on site were generated at the design phase.
3.4.1. Variations…
• There are many reasons for issuing construction variation orders in the
construction process.
• It can be a result of the non-availability or slow delivery of required
materials, or the correction of contract document errors and omissions.

• Identifying the causes of variation orders is very important in order to
avoid potential changes in future projects, or to minimize their effects.
• The construction process is influenced by highly changing variables and
unpredictable factors that could result from different sources. These
sources include the performance of construction parties, resources
availability, environmental conditions, involvement of other parties and
contractual relations.
• As a consequence of these sources, the construction of projects may face
problems which could cause delay in the project completion time (Clough
and Sears, 1994).

• Potential Causes of Variations
• An effective analysis of variations and variation orders
requires a comprehensive understanding of the root causes

of variations.
• The causes of variations were grouped under four
categories:
• Owner related variations,
• Consultant related variations,
• Contractor related variations and
• other variations.
•Potential Effects of variations
• Procurement delay:
• Increase in project cost:
• Rework and demolition:

• Hiring new • Logistics delays:
professionals: • Tarnish firm’s reputation:
• Poor safety conditions:
• Increase in overhead
• Poor professional relations:
expenses: • Additional payments for
• Delay in payment: contractor:
• Quality degradation: • Disputes among
professionals:
• Productivity degradation • Completion schedule delay:

• Controls for Variation Orders
1. Design Stage
2. Construction Stage

3. Design-Construction Interface Stage
• Most Effective Controls for Variation Orders


• Claim is mostly concerned with entitlements and liabilities
arising under, or as a result of, a legally valid contract (Hughes
& Barber, 1992).
• A construction claim is therefore can be

• 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.
3.4.2. Construction Claims…

• Claim in practice can also be understood in different ways based
on the perceptions held by contractual stakeholders.
• Wideman (2001) reflected these views in three expressive

definitions; namely
• A claim is a disguised form of a blackmail,
• A claim is the last chance to bail out of a losing job, and
• A claim is an assertion to a contractual right.
• Such a perception is one of the major motto behind all the process
of Claim Administration and also a motive for either making
claims or not making claims.


• Claims can be associated with three major categories:
• Time Related Claims: Claims • Cost Related Claims: • Default by
associated with delay or in time Claims associated with Contracting Parties:

completion of projects where either monetary compensation Claims associated
of the following six Entitlements where either of the with non
or Penalties are subjected to: following entitlements or performances of
• Time Extension only penalties are entertained: contractual
• Liquidated Damages only • Additions requiring obligations such as:
• Time Extension and Cost rate adjustments • Delay in Payment
Compensation • Price Changes Certificates
• Concurrent Compensations • Provisional sum • Suspensions and
• Bonus adjustments Terminations
• Reliving of Obligation

• Claim Administration Processes
• Claim administration process is understood as the process for
the compensation of any damage, and/or changes resulted

during the implementation of Construction projects which are
called entitlements with quantum.
• The claim administration process is then understood as the process
starting from a willful act of the claimant through claim
notification by either of the contracting parties up to and
including claims approval and acceptance by both the
Contracting parties for agreed or enforced compensations or
otherwise called claim enforcement.


• Claim Administration Processes…

Causes of construction claims
• Causes for claims may be the occurrences of deviations from the promises made
under the construction contract during the performance of the Construction Contract.
• These deviations may reflect themselves in terms of or in relation to :-

• completion time;
• construction cost; • Major Causes of construction claims
• quality performance; and • Extra work/variations
• safety requirements.
• Design change
• Differing soil/site conditions
• Untimely payment
• Limited access to the site
• Defects in plans & specifications
• Failure to approve drawings
• Changes in cost


• Requirements for a Valid Claim
i. Know the different ways of how to deal with claims
and disputes together with their merit and demerits,

and
ii. Know required procedures and avail necessary
documents to make a valid claim.

• The basis of claim/counterclaim is either the contract and/or the
applicable law.
• There are also other basis of claims (like extra contractual or tort
claims).
• Claims under the Contract
• These are of two types:
• Claims as a result of certain anticipated & specified events &
for which a remedy is designated in the contract; and
• Claims as a result of an event where a certain term of the
contract is breached & for which a remedy is designated in the
contract.


• The remedies in both cases may relate to financial
compensation, time extension, & other benefits or remedies.
• Illustrative of remedies under the FIDIC Conditions of

Contract.
• Financial compensation:
• With respect to Variation;
• Measurement Changes;
• Adverse Physical Conditions;
• The Employer’s Risks;
• Compliance with statutes, regulations, price fluctuations, currency & other
economic causes;
• Defects & unfulfilled obligations(NB: It relates to breach of the
Contract);etc
• Time Extension
• Delay in supply of documents or drawings; ( see FIDIC Clause 6.3 & 6.4 )
• Adverse physical obstructions or physical conditions; ( see FIDIC Clause 12.2)
• Fossils & articles of value or antiquity; ( see FIDIC Clause 27.1)
• Tests required but not provided for; ( see FIDIC Clause 36.5)
• Suspension of the progress of the works; ( see FIDIC Clause 40.2)
• Failure to give possession of site; ( see FIDIC Clause 42.2)
• Other Benefits or Remedies
• Termination of contract under the contract and/or the applicable law.
• Suspension of the execution of works;
• Reduction of the progress of the execution of works;


Major causes of disputes
•General consensus:
• Most causes of disputes emanate from alterations.

•Beyond that:
• Most causes are situation and locality driven
• Client [engineer] Vs Contractor relations
• Culture of the given locality
• However, most are still found to be experienced
frequently across border and culture

Dispute Management
Dispute management
Resolution
Preventive
Non-
Judgmental
judgmental


• Dispute Resolution
• Dispute resolution may have the following aspects/
dimensions, namely,
• Preventive dimension;
• Amicable settlement dimension; and
• Judgmental dimension.
• ADR: Alternative Dispute Resolution.
• The concept of ADR is related to alternative to
litigation or sometimes alternative to all binding
decision making process (including the decision of the
arbitrator & adjudicator).

• Both preventive & amicable dispute resolution systems may be categorized under
Alternative Dispute Resolution (ADR).
• There is no any binding or imposed decision by a third party in them.
• Except with respect to the preventive aspect, the Ethiopian law recognizes both the amicable
& the judgmental aspect of dispute resolution systems.
• From preventive & amicable forms of dispute resolution
• Negotiation - Article 3307-Article 3317 of the Civil Code.
• Conciliation- Article 3318-Article 3324 of the Civil Code.
• From the judgmental forms of dispute resolution:
• Litigation (the Court System or the Judiciary System: See Article 78-Article 82 of the
FDRE Constitution); and
• Arbitration (See Arbitral Submission: Article 3325-Article 3346 of the Civil Code &
Article 315-Article 319, Article 350-Article 357 & Article 461(for foreign arbitral
awards) of the Civil Procedure Code) are recognized.


Preventive Aspect
• The following aspects may contribute to the prevention of construction disputes:
• To have a well planned project;
• To have a well designed project;

• To have a clear, accurate & complete tender dossier & document;
• To have a clear, accurate & complete contract document;
• To have a balanced (in terms of allocation & distribution of risks, rights & obligations)
contract document;
• To discharge the expected contractual & legal obligations by the contracting parties.
• The following are some of the internationally recognized dispute prevention
systems.
• Disputes Potential Index (DPI);
• Intelligent Allocation of Project Risks;
• Incentives to Encourage Cooperation;
• Partnering;
• Others;
• Dispute Potential Index

• The Construction Industry Institute, as the result of a study into the causes
of construction disputes & the characteristics of construction projects that

are more likely than others to generate disputes, has developed a
predictive tool called the Dispute Potential Index or DPI.
• DPI identifies the presence of dispute-prone characteristics on a project,
evaluates them, and reports the results to project team members so they
can take action to correct them before they actually generate problems.
• The DPI is in effect a “cholesterol test” of the health of a construction
project. The results of such analysis can be used to take action to eliminate
potential problems & to design dispute resolution systems that will be
suited to resolve particular kinds of problems that are likely to occur.


• Intelligent Allocation of Risks
• The most efficient & cost-effective way to structure project relationship
is to assign each risk to the party who is best able to manage or control
the risk.
• Unrealistic shifting of risks to a party who is unable to manage the risk

can increase bid prices, sow the seeds of countless potential disputes,
create distrust & resentment, and establish adversarial relationship that
can interfere with the success of the project.
• Incentive to Encourage Cooperation
• Incentive techniques are available to encourage cooperation among all participants in the
construction project.
• An example of such an incentive is the establishment by a construction manager or general
contractor of a bonus pool.
• Upon attainment of specific project goals, the bonus will be shared among all sub-
contractors on the project.
• Partnering
• Partnering is a team-building effort in which the parties establish cooperative working
relationships through a mutually developed, formal strategy of commitment and
communication.

Amicable Aspect
• The very feature of amicable settlement is that the disputing
parties shall have full control both over the process & the
outcome.
• There is no third party imposition of solution on the parties to
the dispute.
• The following are some of the highly recognized amicable
settlement methods.
• Negotiation;
• Mediation;
• Conciliation;


Negotiation
• Negotiation is a give & take process, a serious attempt to reach a
settlement agreement.
• Negotiation could be:-

• Direct negotiation; or
• Direct negotiation is held directly between the very parties to the dispute. The
parties may, of course, be assisted by their own internal advisors.
• Assisted negotiation;
• In case of assisted negotiation, mediation & conciliation come in to picture.
• Negotiation requires two qualities or skills:
• knowledge on substance or the subject matter to be negotiated; and
• Knowledge on the art & skill or process of negotiation.

Mediation
• Mediation describes the process of a neutral & disinterested person helping
disputing parties to negotiate a resolution to their dispute.
• Mediation is simply a facilitated or assisted negotiation. To agree or not to

agree is left to the decision of the parties.
• The mediator helps disputing parties to understand the dispute in a way that
will maximize their chances to reach a mutually acceptable & lasting
solution.
• A mediator facilitates the discussion or negotiation. He will never propose
a solution for the settlement of the dispute. He is a mere facilitator
• The advantages of mediation include informality, speed & economy, but
more importantly perhaps, it often leads to an agreed settlement between
the parties rather than an imposed award or judgment.


Conciliation
• Similar to mediation, conciliation is a voluntary form of dispute resolution
where a neutral party, the Conciliator, is appointed to facilitate negotiation

between the parties in dispute & to act as a catalyst for them to reach a
resolution of their dispute.
• The conciliator under the conciliation process, takes a more active role
probing the strengths & weaknesses of the parties’ case, making
suggestions, giving advice, finding persuasive arguments for & against
each of the parties’ positions, and creating new ideas which might induce
them to settle their dispute.

Judgmental Dimension
• The very feature of judgmental form of dispute resolution is that
the third party known as the court judge, the arbitrator or the
adjudicator decides the case 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 forms of dispute resolution the following are
recognized.
• Adjudication ;
• Arbitration; and
• Litigation;


Adjudication
• 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.
• Under the FIDIC Conditions of Contract Dispute Board is
suggested.
• Dispute Board can, according to ICC, be of three types, namely,
• Dispute Review Board (DRB);
• Dispute Adjudication Board (DAB);
• Combined Dispute Board(CDB);

• Adjudication Procedures in PPA
• Adjudicator to be proposed by the Procuring entity in the BDS
• If bidder doesn’t agree can reject, then can be assigned by a

specified Appointing body
• Contractor (???) should forward issue to adjudicators within 14
days
• Adjudicators should give opinion within 28 days
• If no party refers the case to litigation within 28 days, decision
by the adjudicators to be final
• Irrespective of decision, cost to be shared


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.

• According to Article 3325(1) of the Civil Code:-
• The arbitral submission is the contract whereby the parties to a dispute
entrust its solution to a third party, the arbitrator, who undertakes to settle
the dispute in accordance with the principles of law.
• The construction dispute shall also be arbitrable.
• Arbitrability is a matter of public policy. For example, tax matters are
not arbitrable. Administrative contracts are “not arbitrable”. Please,
see Article 315(2) of the Civil Procedure Code of Ethiopia relative to
Administrative Contracts.
• The parties to the dispute control the process but not the outcome i.e.
the decision called the award.

Arbitration…
• The pre-requisite to a valid arbitration are the following:
• The existence of a dispute;

• Agreement to refer the dispute to arbitration when the dispute
arises;
• Agreement to be bound by the award;
• Initiation of the arbitration;

• The following is the procedure under Clause 67

(Settlement of Disputes) of FIDIC for international
construction arbitration.
• Claims made but rejected;
• Construction dispute arises;
• Dispute referred to the Engineer’s decision;
• Decision of the Engineer becomes final unless referred to arbitration;
• Notice of intention to commence arbitration;
• Introduction of procedure for amicable settlement before arbitration but
after notice in respect thereof;
• Amicable settlement becomes unsuccessful;
• Advantages of Arbitration
• In relative terms, the following may be taken as

advantages of arbitration.
• Neutrality; (of the arbitrators)
• Confidentiality; (no publicity of both the process & the outcome)
• Procedural flexibility; (the parties in dispute are capable of designing
their own process)
• Expert arbitrators;
• Speed & cost;

Litigation
• Litigation takes place at the court of law having jurisdiction over the case.
• The courts play here their dispute resolution role.
• The procedure before the court is so rigid & not tailor made to the
construction dispute resolution.
• The clear disadvantage of litigation is that it being the most time
consuming.
• The clear advantage of litigation is that the court itself enforces its own
orders & judgments.
Litigation VS ADR
• Litigation is awfully costly and time consuming due to:

• Sensitive criminal cases
• Ever astronaut civil case
• Complicated nature of construction disputes
• Courts/advisors suggest ADR


Benefits of ADR
• Reduce time to disposition
• Less costly discovery of facts
• More efficient case management

• Increase confidentiality
• Facilitation of early, direct communication and understanding among the
parties of the essential issues on each side of the dispute
• Preservation of ongoing party relations
• Saving in trial expenses
• Providing qualified, neutral experts to hear complex matters.
Selecting appropriate resolution method

• Depends on many factors:
• Content
• Relationship
• Situation, etc
• But should be:
• Fair enough
• Satisfactory
• Efficient
• Effective

Thank you!
•Questions
•Comments

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FTVET, 2023 March 2023

FDRE TVET INSTITUTE

Department of Building Construction Technology

MSc program- Construction Technology and Management

Organized by: Belachew Asteray (PhD) 1

or gaseous form and electricity, services related to supply

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 3

Organized by: Belachew Asteray (PhD) 2

National and International laws, rules and regulations,

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 6

Organized by: Belachew Asteray (PhD) 3

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 7

• Classification of Methods of Procurement

methods of procurement may be classified, as follows.

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 8

Organized by: Belachew Asteray (PhD) 4

Procurement & Establishing procurement- Eth

Organized by: Belachew Asteray (PhD) 5

services are available • For additional deliveries by the original supplier,

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 11

•Conditions for use of two-stage tender

• It seeks bids, proposals or offers to various possible means

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 12

Organized by: Belachew Asteray (PhD) 6

contain (minimum) • Instruction for preparing tenders

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 13

tendering shall apply • Technical, quality,

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 14

Organized by: Belachew Asteray (PhD) 7

• Shall observe the provisions of open tendering as well as the following

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 15

Organized by: Belachew Asteray (PhD) 8

• PUBLIC PROCUREMENT AGENCY –PPA 2011

• Evaluation Committee comprised of the following members:

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 17

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 18

Organized by: Belachew Asteray (PhD) 9

Bidder's Address of the Seat of Bid Price in Bid Security

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 20

Organized by: Belachew Asteray (PhD) 10

3.3. Procurement Methods and related Laws: Local

3. 1. Bidder submitted Written statement by a power of

Examination to do so (ITB Sub-clause );

Organized by: Belachew Asteray (PhD) 11

3.3.1. Selection and Contractual Agreement With Consultant

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 23

3.3.1. Selection and Contractual Agreement With Consultant…

• AFRICAN DEVELOPMENT BANK

Organized by: Belachew Asteray (PhD) 12

3.3.1. Selection and Contractual Agreement With Consultant…

1) preparing the terms of reference and a contract format;

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 26

Organized by: Belachew Asteray (PhD) 13

3.3.2. Selection and Contractual Agreement With Contractors …

• Bids must be • At place , date & time • Tenders shall be

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 27

3.3.2. Selection and Contractual Agreement With Contractors…

n registration in suppliers list

Organized by: Belachew Asteray (PhD) 14

3.3.2. Selection and Contractual Agreement With Contractors…

3.4. Contract Administration

compliance of the Terms of the Contract.

March 2023 CoTM 525 Organized by: Belachew Asteray (PhD) 30