CHAPTER ONE

INTRODUCTION

1.1. Background

The construction industry is the engine of national economy through which the total of physical
development is achieved. The construction industry is a vital element of the economy and has a
significant effect on the efficiency and productivity of other industry sectors. One cannot think
of widespread investment in manufacturing, agriculture, or service sectors unless the
construction results of infrastructure facilities are in place. In some of the developing
countries, the growth rate of construction activity outstrips that of population and of GDP
(Chit Kara, 2004). Previously conducted study found that delayed payment of the contractor
affected the project by causing: loss of productivity and efficiency (71.8%); increase in time-
related costs (71.8%); rescheduling and resequencing of works (69.2%); extension of time and
acceleration (69.2%); as well as prevention of early completion (53.8%). Therefore, this study
will investigate the impact of Contractor’s Payment Delay and its Impact on government
construction Projects with relative to time, budget, and quality specifications.

1.2. Statement of the Problem

Reviewing government construction projects administered under Bole sub city construction
office, it has been noted that payment have not been effecting on the time stipulated in the
agreement due to budget constraints. Consequently, besides for measured value of works, Bole
sub city construction office has been expending additional amount of money to the projects in
the form of Late Interest payment. To this respect, it has been noted that Bole sub city
construction office has expended ETB 5,250,00 in this budget year as late interest payment due
to delay in Contractors’ payment on randomly selected 133 contractors . Besides, late interest
payment may result in other negative impacts; disruption of works, poor quality works, bad
communication between contracting parties, job firing and etc.

In this regard, even though requesting late interest payment and other contractual remedies for
contractors’ payments which have been delayed by the Employer is legitimate, it is less likely
to obtain local Contractors who have been utilizing the opportunity of late interest payment. As
a result of this, the cash flow of the Contractor and the progress and quality of the projects
may be affected.

CHAPTER ONE

INTRODUCTION

This chapter of the study is dedicated to give an insight about the general objective of the study
or the problem leading to the study, to review some literatures about the problem and their
deficiencies in addressing the problem at hand and asserting the significance and purpose of
this particular study for Ethiopian Roads Authority and other interested parties.

1.1Background of the study

Road, as one of the basic infrastructure plays a vital role on the development of a country‘s
development and civilization by connecting rural areas to deliver products to the nearest
market and to services and products from cities to country side. Building roads is a very costly
and need highly educated man power and roads are expected to serve longer period of time
and the organization, Ethiopian Roads Authority has been given the mandate for the
restoration, expansion and maintenance of Ethiopia‘s Federal road network. Its goal is to
improve transport operating efficiency and reduce road transport costs, provide access to
rural areas and develop institutional capacity of the sector (ERA, 2012).

The construction industry is notably different from other industries. Particularly, the industry’s
products must be custom-made to suit the problem for which a solution is sought. Secondly,
because the industry’s products require the integration of ideas and products of many
professionals, problems do arise in managing the interface of the different professionals as
well as their products. The relationship between clients and contractors often presents a
serious management problem. In many cases, contractors indulge in opportunistic behaviors
by attempting to explore and exploit gaps in the contract framework to increase his profits.
Clients on the other hand sometimes unreasonably expect the contractor to do extra work at
the same price (Uyinmwen & Ogbu, 2018).

According to ( ERA, 2019) Contract is defined as an agreement between two parties to

undertake a certain works for the payment a sum amount of money .A contract legally binds
the two parties to undertake the works on one hand and to pay for theworks on the other hand.
In the meantime FIDIC ,(1999) defines contract as an agreement of conditions, a requirements
of the client, tender, specifications and other further documents( if any) that are listed in the
contract agreement.

The Ethiopian Civil code Article 2610 described a construction contract as a contract of work
and labor whereby one a party, the contractor, undertakes to produce a given result under his
responsibility and in consideration of a remuneration that the other party (the client)
undertakes to pay him.

Moreover Article 2876 explained that contract whereby one of the parties undertakes to deliver
to the other party a house, a flat or another building which does not yet exist, is a contract of
work and labor relating to immovable and not a contract of sale. Conditions of contract define
the basic rights, responsibilities, and relationship of the parties involved or the rules by which
each party must comply.

Conditions of contract mostly consist of General Conditions & supplementary conditions.

General conditions contain general clauses that establish how the project is administered and
are intended to be used unchanged for every project. It is usually in the form of published
standard document that include written principals common to most construction contracts.
Supplementary conditions are specially prepared to modify or supplement the general
conditions as needed to accommodate the unique requirements of a specific project Surahyo,
(2018, as cited in Martha, 2019).

Contract Administration is the management of the Contract, which is a part of Project

Management. It is a process of carrying out construction work in a planned manner on behalf
of the appointee. Construction work includes detailed planning; feasibility study etc. The
objective of Contract Administration is developing better relationship between owner and
contractor by reducing conflicts/arbitration (SHAIVAL et al 2015).

Besides A successful contract administration is reliant on an effective communication of the

parties involved. This involves establishing relationships between the parties, defining
responsibilities and determining the most appropriate administrative procedures. The
contractual parties must ensure that the lines of communication are established and kept open
throughout the contract period ( Uher & Davenpont 2009).

As it is indicated in ERA, (2009) due to failure to administer contracts effectively, contracts

resulted to lag behind schedules and variations in contract cost and claims. Currently ERA is
administrating more than 127 projects through the regional Directorate after the awarding of
the construction of the works project to the Contractor and the Construction supervision
Consultants. ERA normally have at least two contracts for each projects i.e. the Supervision
Services Contracts and the

Works Contract. There are also other contracts besides the supervision and works contracts
that they wished to implement. Because of this they tend to be referred the administration of
contracts rather than the administration of projects. (ERA, 2009)

So the study of this research is intended to look in to the contract administration practices of
the authority, after the contracts are awarded to the contractor/consultant, which is in the
implementation process. And also it will try to assess the challenges in the practices of the
contract administration in client‘s perspective. And based on the findings of the gaps
recommendations for improvement will be followed

1.2 Statement of the problem

Accordingly Contract administration is one of the most important jobs related to construction
projects and involves numerous tasks occurring before and after contract execution and work
order issuance. All work must be administered in accordance with the contract specifications,
terms and conditions. It is the process of increasing the probability that the project will be
constructed in substantial compliance with the contract documents. Local construction
industry and local project performance still face several contractual problems such as, delays,
litigation, and additional costs which are the consequences of disputes. Murtaja, (2007, as
cited in Hirut, 2017)

According to California department of general service, (2004) weak contract administration

can cause the project to violate terms of a contract, which can lead to penalties, fines and
potential lawsuits, make projects caught up in daily routines and lose sight of contract
renewals which makes projects operating under expired contracts and makes projects in
having poor reporting relationship with the contractor and leads the two parties losing
benefits of monitoring. Each move made with a contracted entity should be dictated by the
good contract management to avoid the high cost of the contract penalty clause.Tadesse,
Zakari, Zoubier, (2014, as cited in Zewudu, 2016 & Mengesha 2015) which argued that,
regardless of its major role, the construction industry in Ethiopia, like in other developing
countries, faces many challenges in its practice. Some of these challenges are project overruns,
poor quality, inappropriate procurement systems, and a failure to cope with project
requirements and the inability to adopt best practices. They further indicate that, the
performance of construction projects against what was planned can be measured and
evaluated using a large number of performance indicators that could be related to various
dimensions (groups) such as time, cost, quality, client satisfaction, business performance and
safety. Besides time, cost and quality are the three predominant performance evaluation
dimensions and they are the three basic and most important performance indicators in
construction projects. They also stated that the application of sound Project Management and
Contract Administration practices provides construction project stakeholders with the means
to meet their objectives.

Also the Ethiopian road authority (ERA) spent over 53.3 billion birr, nearly quarter of the
country‘s total budget on various projects, following Ethiopian policy to put the road sector
among the top of its development priorities, (Ethiopian Construction, 2016). Macro research
Ethiopia, (2019) showed that the road constitutes as the second largest federal spending item
succeeding to educational allocations. A high priority has been given to the road construction.

According to ERA, (2012) stated that in the recent past years, contracts fail to be administered
effectively and cause the contracts to result in late delivery and to overpriced works.

The researcher assumed that there is gap in the effectiveness of the contract administration
practice of the organization such as, in management of contract changes, claims, resource
mobilization, human resource building, risk, ethical & professional behavior, following up the
organization manuals and guidelines etc.

Therefore, this study was carried out to further assess the existence of the assumed gap and
challenges associated with the practice

CHAPTER ONE

1. INTRODUCTION

The introductory part of the entire analysis is this chapter. It gives some insights into the area
and conclusions where the study is conducted. It states background, statement of the problem,
objectives, significance, scope, limitation, and organization of the study. It begins, thusly, with
the historical backdrop of the research.
1.1 Background of the Study

Construction is the mobilization and use of resources and skilled staff, equipment and facilities
to assemble materials and equipment on a specific site in accordance with drawings,
specifications, and contract documents prepared to serve the purposes of a client. According to
Ethiopian Roads Authority

Modernization and Transformation Initiative with economic growth in Ethiopia expected to

accelerate over the last two decades; the need for modernization in the road sector is
enormous. By taking these needs into consideration and then managing the road network
continuously at a high standard, the road sector is expected to make substantial highway
investments in the coming years.

As with any other construction job, road construction contracts are subject to different forms
of high risks, one of which is a conflict, which can result in failure of project progress and
efficiency through time delay, cost overrun and quality. The construction industry can be a
very complex, high risk and multi-party sector. Therefore, to meet the intended project goals,
in addition to proper project management in all stages of project (i.e. initiation, planning, and
implementation and close out of course with close monitoring and evaluation) shall be carried
out. Therefore, in addition to close supervision, focus is focused on project risk management
and various methods of coping with the risks of conflict shall be given the emphasis.

Claims and Conflict Resolution are discussed as the following, Federation international Des
Ingenieurs

– Conseils (FIDIC), (1987) discuss Claims in construction contracts are a mere request for
contractual remedies mainly by the contractor. During the contract period, various forms of
claims could be prepared and submitted; some may be settled amicably and others may be
resisted. In addition,

Construction contracts mainly involve two parties a contractor and a client with different
obligations under the contract but with the same objective. However, during the performance
of contract, usually differences in opinions between parties in relation to interpretation of the
contracts and the governing laws arises that may end up in dispute and may call for a
mechanism to settle it. The manual also describes Dispute as a difference in opinion on the
interpretation of the contract and its governing laws between the contracting parties. It arises
when a claim by one party is rejected or ignored by another party and it is not accepted by the
claimant. Normally, it requires two sides with conflicting opinions.

These two sides are contractor and employer. The conflicting opinions between the Contractor
and the Engineer could become a dispute when the Engineer is acting on behalf of the
Employer. Claim is defined as a demand or request for something, which one has a right to
have. Claims in construction industry are associated with cost overrun, mismanaged jobs,
legal entanglements and wrong practices on the part of various contractors. Claims are an
integral part of the construction processes, and good claim administration principles are as
important as good engineering, safety and business principles in PPA (2011) in section of
general conditions of the contract.

PPA (2011) also describes a contract as a binding contract arrangement signed between the
public authority and the contractor, consisting of the contractual documents Stated therein,
including all attachments, appendices and all documents referred to in section 7. Although the
road sector has made tremendous achievement in the past few decades in Ethiopia, declining
in the quality and efficiency in the industry has become a big risk. The causes of dispute may
vary from one project to another which might include design errors, changes, and having a
multiple contracting parties, complexity and magnitude of the work, communication problem
with site conditions, insufficient planning, faulty specifications and economic issues.

Successful dispute resolution is to ensure that conflicts are resolved by means of effective and
efficient means to achieve the central purpose of the project for the good of the disputants and
the stakeholders in general. The design of road projects makes them peculiar in that they are
particular to the project and ceremonial construction. In all situations, no systematic solution
can be used. This makes it impossible to foresee how a project will proceed. Therefore, during
the implementation of the contract, many unforeseen circumstances and problems arise that
necessitate revision of the work progress and rectification at a given cost and quality. These
costs are in most cases not part of the original price and are dealt with separately hence we
have the issue of claims and disputes.

Following the expulsion of the Italian occupiers, the Imperial Government of Ethiopia was
persuaded that it was appropriate to create a road agency solely responsible for
rehabilitating/restoring and extending the road network throughout the world. Accordingly,
under decree No. 115/1951, the

Imperial Highway Authority (IHA) was set up as a semi-autonomous body with unique duties
to plan, design, construct and maintain highways. Responsibilities for road construction and
maintenance existed under the Single Autonomous Authority (IHA) for a period of 26 years
(1951-1977). ERA's supervisory body turned out to be the Ministry of Transport and
Communication. The Ethiopian Roads Authority has been re-established under proclamation
133/1978 incorporating, among others, the Rural Roads Department in addition to the
Highway Department according to Ethiopian Roads Authority Modernization and
Transformation Initiative (1980), the Military Government that took power in 1974 reformed
the agency into the Ethiopian Transport Construction Authority (ETCA) by proclamation No.
189/1980 and became answerable to the newly formed Ministry of Construction.

The proclamation enlarged responsibility of the Authority by expanding its task to incorporate
the construction of Airports, Seaports, Railways, and Municipal Roads.

Following the transition from a command-based economy to a market-oriented one in 1991,

with a view to having a strong administration under the leadership of a Board, ERA was
restored by proclamation No.63/1993. As part of it’s restructuring, as part of the Federal
Government's obligation, the government delegated provincial self-government administration
of rural roads and main roads to Age. The role of ERA in rural roads was then limited to
providing, as required by regional governments, support such as overall network planning,
training and technical assistance. ERA was re-established by Decree No. 80/1997 with the aim
of establishing and administering highways and ensuring the quality of road development in
order to cope with current circumstances. In October 2001, with the formation of a new
cabinet of ministers, the Ministry of Infrastructure and, later, the Ministry of Works and Urban
Development were established with the responsibility of improving the nation's infrastructure.
The Jurisdiction of the One of the organizations under the MoWUD and accountable to the
Board of Directors, Ethiopian Highways is responsible for preparing and formulating long-
term and short-term plans and programs for road construction, planning, maintenance of trunk
and main connecting roads, as well as contract management.

The Ethiopian Roads Authority (ERA) has an overall share in the road construction industry in
Ethiopia. There are a range of local and foreign contractors and consultants involved in road
project design, development and maintenance. The Ethiopian Roads Authority currently
administers hundred ninety-five ongoing construction and design projects by splitting them
into regions. In almost every project, the Ethiopian Roads Authority has used direct means of
administering contracts to oversee and manage projects by on-site supervisory consultants. A
strong signal exists that two essential components of construction supervision facilities are
management and operating systems. Given the scope and complexity of projects, nowadays the
concept of managing system and operating system have become core elements to meet client’s
objectives with regard to time, cost and quality. Ethiopian

Roads Authority is currently administering one hundred ninety-five ongoing road construction
and design projects by national and international contracts in nationwide with different
involvement level of stake holders from these projects eleven projects are terminated because
of disputes and allegations raised between the three main parties of the project.

1.2 Statement of the Problem

A construction project is generally recognized as effective when the project's purpose is
accomplished in terms of predetermined targets, which are mostly fulfilled on time, within the
budget and the project's specified standard. In these road construction projects, studies related
to contract management practices, causes of delay and cost control over run and time overlap
in road projects and causes of conflict researchers were conducted.

According to Assegid Getahun, Yolente C. Macarubbo, Alemu Moissa (2016). Assessment of

Construction Dispute Resolution in Ethiopian Somali Regional State Road Projects: A Case
Study on Road Projects in the Region is take one example area in Ethiopia which is in Somali
region disputes have been posed due to design-related problems, inaccessibility of remote
areas, either professionalism or haves been identified from the most frequent causes of
disputes in Somali region.

CHAPTER ONE

INTRODUCTION

1.1 Background

Construction is the process that sets up a portable plant, brings material to the site, and on
completion of the work, and moves the plant away leaving its outputs standing. These outputs
are all immobile structures; buildings, dams, road and tunnels, power plants, airports,
municipal treatment plants, pipelines, etc. Each of these construction processes broadly
divided into different types and different sections with each section requires its own budget and
duration. Construction projects are the organized effort to construct any of the above
constructions.

A contract is simply an agreement between two or more parties in which one party agrees to
perform a specific task or provide goods or a service to another in exchange for something in
return (Darwish,2017). A construction contract (CC) is an agreement of executing the
proposed construction project between the client (owner) and the contractor.

There are different types of contracts in construction project. These different types of contract
(lump sum, unit price, cost plus a fee, incentive, guaranteed maximum price contract and
design-build contract, etc.) determines the cost of the project as well as its duration.

Contract time is the maximum time allowed in the contract for completion of all work
contained in the contract documents (Atreya, 2007). Estimating realistic construction time
becomes increasingly an essence because it often serves as bench mark for assessing the
progress and performance of a project as well as the efficiency of the organization. One of the
critical issues at the early stage of the project is determining the contract duration.

Although many owners require fast completion, a thorough study must be made to determine
the contract duration. Seuk et al. (2008) stated an accurate forecast of contract time is crucial
to contract administration as the predicted duration and associated cost form a basis for
budgeting, planning, monitoring, and even litigation purpose. Where unrealistic contract
duration is imposed, this will obviously force the contractor either to accelerate the progress
of the Assessment of Construction Contract Duration in Road Projects of ERA West District
2020JiT CONSTRUCTION ENGINEERING AND MANAGEMENT Page 2works and neglect
the desired quality, or to perform the works as required but not on time.Atreya (2007) noted
that, the determination of contract time affects not only the actual duration of the construction
project, but also such aspects of construction such as costs, resource planning, selection of
contractors and traffic problems. It was also pointed that an accurate estimation of contract
time reduces the impact of a delayed project on the local economy and provides justification to
contractors during construction claims.

The determination of the duration of an activity in the construction field is a relatively complex
event because of the different variables that may intervene and affect the realization of the
activity. Thus, the completion time of an activity is dependent on many factors. Some of these
factors can be somewhat controlled, such as production rate of construction, while others are
uncontrollable such as weather condition, intensity of traffic as well as the size of the project,
or location of the construction site (urban vs. rural areas), effectively produced variations in
the completion time of a construction project.

Furthermore, the financial condition of the contractor or the timely/untimely delivery of

material may affect the completion date of some activities or even the entire project, (Jaraiedi
and Iskander, 2008).

This study assessed the major factors affecting in setting construction contract duration
(CCD), and suggested recommendations related to the practice of setting CCD for Ethiopian
Road Authority projects in West District (ERA-WD).

1.2 Statement of the Problem

Delays in construction projects due to improper estimation of the project time as Sambasivan
and Soon, (2007) stated is a global phenomenon.

R. Barbosa and A. E. Jungles, (2016), investigated 70%(of the construction projects in United
Kingdom were delivered late from the planned schedule. Especially in Africa, the CCD
adopted traditionally and almost all the road projects practiced 100% timeoverrun.

The CCD that is implemented in road construction projects of the country was not well
planned in proportion to the magnitude of the work. In most road projects, equal amount of
duration/ time of completion is planned for different magnitude of work (for instance, length of
road) and for different amount of budget. This is one of the points that have initiated to
conduct this study.

Assessment of Construction Contract Duration in Road Projects of ERA West District 2020 JiT
CONSTRUCTION ENGINEERING AND MANAGEMENT Page 3

This study also motivated by the unavailability of no researches on conducted on factors that
affect CCD in specifically in road construction in this study area. However, there have been
conducted several studies on delay of the construction projects, Tolera E. (2018) and Birhan B.
(2018) and time overrun of given projects, Siraw Y. (2015) in our country, there was not found
researchs to assess the proportional relationship between the planned time and allocated
budget or magnitude of the project with respect to the CCD. Therefore, this study tried to cover
this study gap.

According to Gondy and Hildreth, (2007) the reasonableness of the contract time included in
contracts is important. They also discussed that if time is insufficient, bid prices may be higher,
and there may be an unusual number of time overruns and contractor claims.