4contract Administration 1

CONSTRUCTION CONTRACT
MANAGEMENT
Contract Administration
January 2021
1. Contract Administration
 The purpose of contract administration is to see that
the contract is properly administered in parallel with
the execution of works.
 It is also to ensure that the contractor receives fair
and
proper payment for the works executed;
 Main issues to be considered in contract administration:
 Variations;
 Powers and responsibility of the engineer;
 Delays, Time extension, and Liquidated damage;
 Payment;
 Price adjustment;
 Default of employer and contractor;
 Suspension;
 Termination; and
 Claims and disputes. 3
2. Variation
2.1 Introduction
 Construction project usually undergoes through a
complex process, which requires close cooperation
and coordination among the stakeholders.
 The construction process is influenced by
highly changing variables and unpredictable factors
that could result from different sources.
 The different stages of construction projects
inception/conceptual
are, stage, development,
procurement,
design construction, testing and commissioning
and operation.
 Design plays an important role in improving
the development of construction industry. A good design
will enhance value generation, reduce variation,
dispute and improve the work flow.
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2. Variation
2.1 Introduction
 Therefore change is a fact of life for construction

project and it is inevitable.
 Changes or variations result from the
necessity to
circumstances
modify aspects that
of thedevelop
construction project
during the in reaction
process.
to construction
 Variations common in all types of
projects.
are The construction
nature and frequency of
variation occurrences vary from one project to another
depending on various factors.
5
2. Variation
2.2 Variation: Definition
“Variation work is the work that can be imposed with
in the contract documents. It is a change or alteration to
the plans or specifications for a number of reasons
implicit in the original agreement, these reasons
could include, but are not limited to, omissions in the
design documents, recognition of better methods or
materials to achieve the required effect, resolution of
problems recognized, resolution of unforeseen
conditions not anticipated, and similar adjustments
with in the intent of the original contract.”
6
2. Variation
2.3 Causes of Changes
2.3.5 Variation Provisions
 Variation is the addition, omission or alteration of
works in terms of quality, form and function
necessary to complete the works contained in the main
contract.
 Construction contracts provision for variation.
 Sub-clause
Variations: 13.1 and 13.3 (FIDIC 1999
Sub-Clause 51.1 -(MoWUD
2016); 1994,
 Engineer’s
FIDIC IV); power to order variation: Sub- 51.2
clause
 (MoWUD
Valuation 1994, FIDIC IV);
of variation: Sub-clause 52.1 (MoWUD
1994, FIDIC IV)
 Engineer’s power to fix rates: Sub-clause 52.2
(MoWUD 1994, FIDIC IV); and
 Variation exceeding 10% (15%): Sub-clause
52.3 (MoWUD 1994, FIDIC IV).
16
GCC - PPA
15.1:The Engineer shall have power to order any
modification to any part of the works necessary for the
proper completion and /or functioning of the works.
Such modifications may include additions, omissions,
substitutions, changes in quality, quantity, form,
character, kind, position, dimension, level or line and
changes in the specified sequence, method or timing of
execution of the works. No order for a modification
shall have the effect of invalidating the contract, but the
financial effect, if any, of all such modifications shall be
valued in accordance with GCC Clauses 15.5 and 15.7.
GCC PPA
15.2:All change orders shall be issued in writing, it being
understood that:
a) if for any reason, the Engineer shall find it necessary to
give an order orally, he shall as soon as possible
thereafter confirm the order by an change order;
b) if the Contractor shall confirm in writing an oral order
given for the purpose of GCC Clause 15.2 (a) and the
confirmation shall not be contradicted in writing
forthwith by the Engineer, an change order shall be
deemed to have been issued for the modification.
A change order for modification shall not be required for
increase or decrease in the quantity of any work where such
increase or decrease is the result of the quantity exceeding or
being less than that stated in the bill of quantities or price
schedule, as the result of valuation of works laid down in
GCC Clause 63.
GCC PPA
15.5:The prices for all modifications ordered by the Engineer in accordance
with GCC Clause 15.2 and 15.4 shall be ascertained by the Engineer in
accordance with the following principles:
a) where work is of similar character and executed under similar
conditions to work priced in the bill of quantities or price schedule it
shall be valued at such rates and prices contained therein;
b) where work is not of a similar character or is not executed under
similar conditions, the rates and prices in the contract to be agreed
through negotiation between the Engineer and the Contractor shall
conform to the prevailing market price;
c) if the nature or amount of any modification relative to the nature or
amount of the whole of the contract or to any part thereof shall be
such that in the opinion of the Engineer any rate or price contained in
the contract for any item of work is by reason of such modification
rendered unreasonable, then the Engineer shall fix such rate or price
as in the circumstances he shall think reasonable and proper;
d) where a modification is necessitated by default or breach of contract
by the Contractor, any additional cost attributable to such modification
shall be borne by the Contractor
GCC PPA
15.6 On receipt of the change order requesting the
modification, the Contractor shall proceed to carry out
the modification and be bound by these GCC in so
doing as if such modification were stated in the
contract. The works shall not be delayed pending the
granting of any extension of time for completion or
adjustment to the contract price. Where the order for a
modification precedes the adjustment to the contract
price, the Contractor shall keep records of the costs of
undertaking the modification and of time expended
thereon. Such records shall be open to inspection by the
Engineer at all reasonable times.
15.7 Where on provisional acceptance an increase or reduction
in the total value of the works resulting from a change order, or
from some other circumstance which is not caused by the
Contractor's default, exceeds 25% of the initial contract price (or
as modified by addendum), the Engineer shall, after consultation
with the Public Body and the Contractor determine any reduction
from the contract price as a consequence of the application of
GCC Clause 15.5. The sum so determined shall be based on the
amount by which the increase or decrease in value of the works
exceeds 25%. The sum shall be notified by the Engineer to the
Public Body and the Contractor and the contract price adjusted
accordingly.
15.8 The total value of the works resulting from a change order
shall not exceed 30% of the total value of the initial contract price.
3. Powers & Responsibilities of the Engineer
 The Engineer, not a party to the contract between
the employer and the contractor, is in fact empowered
under various clauses of the MoWUD 1994, PPA 2006,
FIDIC 4th edition and FIDIC1999, 2006 MDB
conditions of contract.
 These powers include to:
 Give instructions;
 Make decisions and/or determinations; and
 Order variations, etc.
 The above decisions are binding on the parties to
the contract unless and until they are subsequently or
varied by DRB, ADR or an arbitrator.
17
3. Powers & Responsibilities of the Engineer
 The engineer is considered as:
 Impartial third party in MoWUD 1994 and

FIDIC IV (Sub-clause 2.6); in dispute
settlement under FIDIC IV (clause 67.1); in
giving determination on matters in relation to the
contract - PPA 2006 Clause 4.1; and FIDIC 1999,
2006 MDB clause 3.5.
 Agent to the employer in FIDIC 1999, 2006

MDB
(Sub-clause 3.1) and PPA 2006 (clause 4).
18
4. Delays & Time Extension
4.1 Delays
Delay caused by employer
 If the employer delayed in site
handover/possession (MoWUD 1994 Sub-clause 42.1;
FIDIC IV clause 42.2; and FIDIC 1999, 2006 MDB sub-
clause 2.1) and to effect payment (MoWUD 1994 and
FIDIC IV Clause 60).
 If the Engineer failed to give instruction and notice
on
time, do not provide drawings on time, etc.
Remedial right of the contractor
 Financial claim; and
 Time extension.
 Delay of progress of works and failureto
Delaycompletion
caused by time.
contractor meet
Remedial right of the Employer
 Liquidated Damage 19
4.2 Grounds for Extension of Time according to FIDIC
 The following factors are the major grounds
for
Extension
 Opening of Time.
up and inspection of defective
work;
 Delay inonthethe
supply
partofofinformation;
nominated sub-
suppliers;
 contractors/
 The execution of work not forming part of
the contract;
 The supply of materials by the employer;
 The exercise by the government of any power
which directly affects the works;
 Carrying out of work by statutory power; and
 Failure by the employer to give access
over Employer’s land.
20
for
Extension of Time.
 Clause 8.4(a) due to Variation;
 Clause 8.4 (c) due to exceptionally adverse
climatic conditions;
 Clause 8.4 (d) due to unforeseeable shortages in the
availability of personnel, or Goods caused by
epidemic or governmental action;
 Clause 8.4(e) due to any delay, impediment
or prevention caused by or attributable to the
Employer, the Employer’s personnel (including
the Engineer see Clause 1.1.2.6) or the
contractors;
Employer’s other
21
for
Extension of Time.
 Clause 8.4(b) - Clause 1.9(a) due to delay in
issuing drawing & instructions by the Engineer
to the Contractor;
 Clause 8.4(b) - Clause 2.1(a) due to
delay in
providing access to the Site by the Employer;
 Clause 8.4(b) Clause 4.7(a) due to delay caused
due
to error in Setting out;
 Clause 8.4(b) - Clause 4.12(a) delay
due to
unforeseeable physical conditions; 22
for
Extension of Time.
 Clause 8.4(b) - Clause 8.8 delay caused
by
suspension as ordered by the Engineer;
 Clause 8.4(b) - Clause 8.11 delay caused due to
prolonged suspension provided the Contractor
opted for resuming the performance of the Works
after such prolonged suspension, omission;
 Clause 8.4(b) - Clause 16.1(h) delay caused to the
Contractor due to suspension or reduction in
the progress of the Works due to delay in payment;
23
73.1The Contractor may request an extension of the Intended
Completion Date if he is or will be delayed in completing the contract by
any of the following causes:
(a) Exceptional weather conditions in the Federal Democratic
Republic of Ethiopia;
(b) Artificial obstructions or physical conditions which could not
reasonably have been foreseen by an experienced Contractor;
(c) Compensation Event occurs or a change order for modification is
issued which makes it impossible for completion to be achieved by
the Intended Completion Date;
(d) Administrative orders affecting the date of completion other than
those arising from the Contractor's default;
(e) Failure of the Public Body to fulfill his obligations under the
Contract;
(f) Any suspension of the works which is not due to the Contractor's
default;
(g) Force majeure;
(h) Any other causes referred to in these GCC which are not due to the
Contractor's default.
5. Payment
 The provisions relating to payment concern the way
the
contractor is paid by the employer.
 The primary obligation upon the employer is to give
the contractor the sum of money which forms
the consideration for the contract.
 Money must be paid promptly and fully unless there
are
specific reasons for withholding it.
24
5. Payment
5.1 Contract Price
 The contract price is dealt with in different
ways by
different contracts.
 If the contract is ad-measurement, the bid by
the contractor is based upon the work described
and quantified in the contract bills.
 If any quantities are altered because of variations in
the client’s requirements, then the contract sum
will be altered. Otherwise, the contract price is the
amount of the tender.
25
5. Payment
5.2 Time of Payment
 It is common practice in the construction
industry, for
payment of the contract sum to be made by installments.
 This is because the total value of each contract forms a
large proportion of a contractor’s annual turnover.
 Payment by installments should eliminate the need
for the contractor to borrow money pending final
payment.
 The time of payment should be as clearly depicted in
the
contract document.
26
5. Payment
5.3 Payment Obligation according to FIDIC
5.3.1 Payment of the contract price
 Clause 14.2 - Clause 14.7(a) in relation to Advance
Payment.
 Clause 14.7(b) in relation to Interim Payment.
 Clause 14.13 - Clause 14.7(c) in relation to
Final Payment.
 Clause 14.9 in relation to the Retention Money.
27
5. Payment
5.3.2 Other Payment Obligations (relative to claims
or
other wise)
 Clause 1.9(b) payment of cost & profit due to delay
in
issuing drawings & instructions by the Engineer;
 Clause 2.1(b) payment of cost & profit due to
delay caused in providing access to the Site;
 Clause 4.7 payment of cost & profit due to
error in
Setting out;
 Clause 4.12(b) payment of cost due to delay caused
by
unforeseeable physical conditions;
 Clause 4.24(b) payment of cost in case of 28
5. Payment
or
other wise)
 Clause 7.4(b) payment of cost in case of
Testing for which the Employer is responsible;
 Clause 8.9(b) payment of cost in case of suspension
of Works;
 Clause 10.3(b) payment of cost & profit in
case of
interference with Tests on Completion;
 Clause 11.6 payment of cost in case of further tests
for
which the Employer is responsible;
 Clause 13.7 cum 14.3(b) payment of cost in
case of 29
5. Payment
or
other wise)
 Clause 13.8 payment of cost in case of Adjustment
for Changes in Cost.
 Clause 14.3(a) cum Clause 13.2 payment of
additional payment to the Contractor derived from
savings due to the effects of Value Engineering.
 Clause 14.8 payment of financing charges in
case of
delay in payment.
 Clause 15.4( c ) entitlement to a balance of costs, if
any, in case of termination of the Contract by the
Employer due to the default of the Contractor, after
completion of the Works by the Employer or another30
5. Payment
or
other wise)
 Clause 16.1(b) payment of cost & profit in case
of suspension & reduction of the progress of the Works
by the Contractor;
 Clause 16.4 payment of any loss or damage sustained
by the Contractor due to termination of the Contract by
the Contractor due default of the Employer;
 Clause 17.4(b)cum Clause 17.3(f) & (g) payment of cost
& profit in case of Employer’s risks;
 Clause 19.7 payment of costs in relation to
Plant, Materials, other costs & liabilities, cost of removal
of the Temporary Works, cost of the repatriation of
Contractor’s Personnel; 31
6. Price Adjustment
6.1 General
 It is common to across adjustment in
construction
come projects due to the following factors:
price
 Changes in legislation;
 Changes in cost.
 There fore price escalation provisions are stated in
many contract forms.
 Two methods of price adjustment:
 Basic price (base date price) (Clause 70.1
MoWUD 1994;
FIDIC IV edition, clause 13.7 FIDIC 1999, 2006); and
 Indices/Adjustment formula (clause 47.1 PPA 2006, clause
13.8 FIDIC 1999, 2006 MDB).
32
6. Price Adjustment
6.2 Purpose
 The purpose of a Price Adjustment clause is to provide
a mechanism for reimbursing contractors for changes
in input prices over which they have no control at all.
 The adjustment to be applied to the amount
otherwise payable to the Contractor, as valued in
accordance with the appropriate schedule and
certified in payment Certificates, shall be determined
from formula for each of the currencies in which the
contract price is payable.
Ln En Mn
Pn  a  b c d  ........
Lo Eo Mo
33
7. Default of Parties
7.1 Default of Employer
 Breach of contract by the employer (Sub-clause 69.1 of
MoWUD 1994 and FIDIC IV); Clause 16 of FIDIC 1999,
2006 (outlines employers default as a basis for
contractor’s entitlement to suspend and the
terminate contract).
 Non-payment, late or under payment;
 Substantially fails to perform his obligation
under the Contract
 Bankrupted;
 Interfere in Engineer’s certification process
35
7.2 Default of Contractor
 Breach by the contractor includes (Sub-clause 63.1
of MoWUD 1994 and FIDIC IV); Clause 15.2 of
FIDIC 1999, 2006 (outlines contractors default as a
basis for Employer’s entitlement to suspend and
terminate the contract)
 Abandonment or total failure to complete;
 Delay in completion; and
 Defective works or materials.
36
7.3 Suspension
 The Engineer may instruct the contractor to
suspend some or all of the works as appropriate
(Sub-clause8.11 of FIDIC 1999, 2006 MDB).
 If it continues for more than 84 days, the contractor
asks permission to proceed.
 If theengineer fails to respond within 28 days
the
contractor can terminate the contract.
 The contractor has a right to suspend or reduce
progress of work giving 28 days prior notice, if he
is not paid within 28 days after the Engineer approved
the payment certificate and delivered to the employer as
per sub-clause
60.10 (FIDIC IV Sub-clause 69.4).
37
3.4 Termination
 Termination can be a result of completion, discharge
of
obligation, default of one party, force majeur etc.
 One of the contracting party has a right to terminate
the contract on the ground of breach by the other party.
 Ground
 of termination by of
Bankruptcy/Insolvency thetheEmployer:
contractor;
 Failure to execute the work in accordance with
the contract; failure to proceed with due diligence;
neglect in carrying out obligations under the contract,
 Abandoning the contract;
 The contractor has, to the detriment of good
workmanship, defiance of the Engineer’s instruction to
the contrary, and Assigning (sub-let) any part of the
contract; and
38
3.4 Termination
 Ground of termination by the Contractor:
 Bankruptcy/Insolvency of the being a
company
employer; goes into liquidation, other than for
the purpose of a scheme of reconstruction
or amalgamation;
 Failure of the employer to make payment within
the
time stated by the contract;
 Obstructing or interfering with the issue of
any
certificate by the engineer;
 Replacing the engineer against the
reasonable objections of the contractor; and
 Employer giving formal notice to the contractor
for unforeseen reasons, due to economic dislocation,39
3.4
Termination
 If termination due to default of the Employer,
contractor has the right to be compensated the
damages
for that arise from the termination which include:the
 Idle equipment and workmen;
 Material on site;
 Forced demobilization; and
 Anticipated profit.
 If termination is due to the default of the contractor:
 The employer may use contractor’s equipment
for completion of the works as he thinks proper
after termination (FIDIC IV Sub-clause 63.1).
 Contractor’s equipment on site are deemed to be
the property of the employer (PPA 2006 Sub-
clause 61.1).
40
8. Obligation & Right of Parties
8.1 Contractor’s Obligation
 The obligations of the contractor, under the FIDIC
1999 and 2006 MDB Conditions of Contract,
may be generalized as follows:
 Completion obligation;
 Quality performance obligation;
 Timely performance obligation;
 Obligation to provide indemnity and
securities, insurance;
 Obligation to supply information and
notice;
 Administrative obligation; and
 Obligation upon or after completion.
41
8.2 Employer’s Obligation
 The obligations of the employer, under the most

standard Conditions of Contract, may be
generalized as follows:
 Payment obligation;
 Risk sharing obligation;
 Acceptance obligation;
42
8.3 Remedial right of the Contractor
 The remedial rights of the contractor, can be
contractual
and legal remedies.
Contractual remedies
 Financial
remedies:
o Cost;
o Profit;
o Financing
charges; and
o Indemnity.
 Extension of time;
 Other remedies:
o Deceleration 43
3. Remedial right of the Contractor
Legal remedies
 Cancellation of Contract;
 General damages;
44
8.4 Remedial right of the Employer
 The remedial rights of the Employer, can be
contractual
and legal remedies.
Contractual remedies
 Financial remedies:
o Delay damages;
o Indemnity; and
o Deduction of
contract price.
 Extension of time
(in case of defects
liability period);
 Other remedies:
o Suspension;
45
CONSTRUCTION CONTRACT
MANAGEMENT
Contract Documents
January2021
4. Remedial right of the Employer
Legal remedies
 Specific Performance;
 Cancellation of Contract;
 General damages;
46
3. Contract Documents
 Contract Documents (graphic and written) describe
the proposed construction (the „Work‟) that results
from performing services, furnishing labor, and
supplying and incorporating materials and
equipment into the construction.
 Include the following construction documents :
 Contract Agreement;
 Conditions of Contract (General and Specific);
 Specifications and Bill of Quantities (BOQ);
 Drawings;
 Addenda; and
 Supplementary Contracts (Change Orders).
12
3.1 Contract Agreement
 The agreement is the document that represents
and reflects the legal contract between the owner
and the contractor.
 The purpose of the agreement is to record in
written form those items agreed between the owner
and the contractor.
 It is simply a letter that constitutes legal evidence that
a
contract exists, and forms the basis for its enforcement.
 The Contract Agreement shall also declare the priority
of the Contract Documents i.e. which Contract
Document shall have precedence or priority over the
other in case of ambiguity or discrepancy between or
among the relevant parts of the Contract Documents.
13
3.1 Contract Agreement
 The agreement should contain:
 The date of agreement;
 The names and address of contracting parties;
 A brief description of the scope of work;
 A list of contract documents with their
precedence
(reference to other documents);
 The signatures of contracting parties and witnesses;
 International construction documents are also often
based on industry-prepared standard forms.
14
3.2 Standard Conditions of Contract
3.2.1 General
 Conditions of Contract is the main component of a
contract which outlines the guidelines and
relationships of parties to successfully manage the
project.
 Standard forms of contract developed for
construction activities have mostly been drawn up by
independent professional organizations, rather than
by one of the parties to the contract.
  Balanced
Purpose representation
of Conditions of all relevant
of contract include:
industry participants;
 Fair allocation of risk;
 Manage and mitigate project risks; and
15
3.2.1 General
 The condition of contract is a document that states
the obligations and rights of the parties and detail
conditions under which the contract is to be carried out.
 Some of the clauses in the conditions of contract are:
 Definitions & interpretations;
 Duty & responsibilities of the engineers;
 Contract period;
 Method of payment and periods;
 Retention money;
 Payment for materials on site.
16
3.2.1 General
 Some of the subjects to be defined in the conditions of
contract are:
 Escalation (wages, cost of
materials);
 Procedures on sub contracting;
 Insurance & indemnities;
 Liquidated damages;
 Extension time; and
 Conditions for contract termination.
17
3.2.1 General
A. General Conditions of Contract, GCC
 Defines the responsibilities of the parties involved in the
contract, the owner and the general contractor. It
describes the guidelines that will be used in the
administration of the contract.
 The conditions are intended to govern and
regulate the
obligation of formal contract.
 Various standard forms of General Conditions have
been developed by different organizations such as
FIDIC, ICE, JCT, MoWUD and PPA etc.
 These forms are familiar to all parties concerned, and
the wording is not only clearly understood, but has also
been tested in the courts. 18
3.2.1 General
B. Special Conditions of Contract, SCC
 The purpose of the Special Conditions is to provide
an extension of the General Provisions of the contract
to fit the specific project at hand.
 It is also known as Conditions of Particular
Application, CPA.
 They serve as amendments to the General
Conditions.
 Items included in the Supplementary Conditions
are entirely subject to the discretion of the owner.
19
3.2.1 General
C. Categories of Contract Forms
 Conditions of contract can be international or
domestic.
 International Contract forms:
o ICE (Institution of Civil Engineer) contract forms;
o NEC (New Engineering Contract) contract forms;
o JCT (Joint Contracts Tribunal) contract forms; and
o FIDIC contract forms.
 Domestic contract forms:
o MoUDH 1959 contract forms; o
BaTCoDA 1987 contract forms; o
MoWUD 1994
contract forms; o PPA 2006 21
3.2.2 FIDIC Contract Forms
 The following editions are relevant respect to
with
 First Edition
international constructionAugust,
contract1957;
( Red
 Second Edition July, 1969;
Book)
 Third Edition March, 1977;
 Fourth Edition September, 1987;
 Fourth (a Summer 1992
Edition supplement)
; (NB: Amendments with regard to some of the
Provisions of the Conditions of Contract);
 and
Fourth Edition (further amendment)
1996 (NB: in relation to Dispute
November,
Board, Payment on Lump Sum Basis and
Adjudication
Certification.)
Late
23
3.2.2 FIDIC Contract Forms
 Recently (1999 - 2016) has published the
following
FIDIC conditions of contract. These are:
 Conditions of Contract for Construction for Building
and Engineering Works Designed by the Employer:
The Construction Contract (New Red Book);
 Conditions of Contract for Plant and Design-Build for
Electrical and Mechanical Plant, and for Building and
Engineering Works, Designed by the Contractor: The
Plant and Design/Build Contract (New Yellow Book);
 Conditions of Contract for EPC/Turnkey Projects:
The EPC/Turnkey Contract: (Silver Book); and
 Short form of Contract: The Short Form (Green Book).
 Conditions of Contract for Construction: For
and
Building Work Designed by the
Multilateral
Engineering Development
s Bank (MDB) Harmonized
Employer:
24
3.2.3 PPA Contract Forms
 The PPA, under its legal mandate provided under
The Public Procurement Proclamation, it has
prepared & issued certain standard tender & contract
documents for the purpose of public procurement.
 The conditions of contract are applicable to
the
procurements of the federal government.
 It has been in practice since January 2006.
 It recently revised by PPPAA since August 2011.
26
3.2.4 PPA/PPPAA Contract Forms
 The Standard Conditions of Contract cover the following
types of procurement.
 These are Standard Conditions of Contract for
the procurement of:-
 Consultancy Services;
 Non-consultancy Services;
 Works; and
 Goods; Including Simple Request for Quotations
& Local Purchase Order;
27
 The Standard Conditions of Contract for the purpose
the
of of have been prepared
International
procurement Competitive
Works Bidding
for (ICB) &
National Competitive Bidding (NCB), separately.
 User’s Guide has been also prepared, separately, both
for
the ICB & the NCB.
 The conditions of contract are based on Design-
Bid- Build project delivery system.
28
 The type of contract could be based on BOQ, in
which case it becomes measurement based. Or
based on Activities Schedule, in which case it becomes
lump sum.
 The role of the engineer is envisaged.
 The documentation is divided in to the following
three parts, namely,
 Bidding Procedure;
 Schedule of Requirements; and
 Contract.
29
3.3 Specifications
 Specification is a written standard to be used
in conjunction with the drawings, so together
with drawings and the specifications fully describe and
define the requirements of the contract, to include the
quality that is to be achieved.
 Specification may also be know as Technical Provisions.
 They supplement the drawings and provide
information that cannot be shown in graphic form,
or information that is too lengthy to be placed within the
drawings.
 They guide bidders in the preparation of cost
proposals
as well as field execution of the work.
 They also guide the contractor through the processes
of ordering materials and construction and
30
3.3 Specifications
 It helps as a standard assuring the critical
performance
and other requirements for the works.
 Specifications provide information regarding:
 The quality of materials;
 The quality of workmanship;
 Erection and installation methods; and
 Measurement, test and inspection
requirements and methods.
31
3.3 Specifications
 Specifications have restricted application, usually
specific
to a item or work operation. The designer or
specification writer is therefore able to
responsibility for each provision of the specifications
assign
to the desired specific party.
 Specifications must satisfy these basic criteria:
 Technical accuracy and adequacy;
 Definite and clear stipulations;
 Fair and equitable requirements;
 A format that is easy to use during
bidding and construction;
32
3.4 Drawings
 Drawings are the means by which the designer
conveys the physical, quantitative, and visual
description of the project (physical structure) to the
contractor.
 They are also known as plans or blueprints.
 The contract drawings are organized into
sections numbered sequentially. Drawings for a
project may include the following type:
 Structural drawings;
 Geometric Design;
 Pavement Design;
 Drainage Design; and
 Schedule for ancillary works, like: road marking,
road signs, guide posts
33
3.5 Addendum
 Any change to the bid documents after they are
released for bidding but before bids are actually
received requires the issuance of an addendum.
 This formal document changes the original
bid documents and becomes a part of the bid package.
 At the time of bid opening, bidders must in their
bid
documents, acknowledge all addenda.
 Technically addenda may be issued to change the
bid opening date, to modify the original design, to
delete or add items, or to correct errors.
 Addenda may not be issued within about five days of
bid opening unless the bid date is also extended
accordingly.
34
4. Bond/Guarantee Forms
4.1 General
 A bond or guarantee is an arrangement under which the
performance of a contractual duty owed by one
person
(A) to another (B) is backed up by a third party (C).
 What happens is that C promises to pay B a sum
of money if A fails to fulfill the relevant duty.
 In this context A is commonly known as the
principal debtor or simply principal; B is called the
beneficiary; and C is called the bondsman, surety or
guarantor.
35
4.2 Bid Bonds
 Bid Bonds guarantee that the bidder will carry
out the
terms of a contract at the bid price upon award of the bid.
 Thus it is a guarantee that a contractor will enter
into a contract at the amount of bid and post the
appropriate performance bonds, providing financial
assurance that the bid has been submitted in good faith.
 These bonds are used by owners to pre-
qualify contractors submitting proposals of contracts.
36
4.2 Bid Bonds
 Bid bonds have two purpose:
 To guarantee that the contractor will enter into
a contract if determined to be the lowest
responsive bidder and
 To guarantee the contractor will provide the
required payment and performance bonds, and
insurance policies.
 When the performance and payment bonds have
been submitted, the contractor is released from the
bid bond obligations.
38
4.2 Bid Bonds
Bid Withdrawal
 If a bid is withdrawn before the bid is opened, the
bid security shall be returned to the bidder. No action is
taken against the bidder or bid security if a bidder is
permitted to withdraw the bid before award.
 Conversely, a successful bidder may not withdraw the
bid after bid opening without forfeiture of bid security,
unless the bidder can establish by clear and convincing
evidence that a non judgmental mistake was made in the
bid.
 If withdrawal of a bid after bid opening is permitting,
no action may be taken against the bidder or bid security.
39
4.3 Performance Bond
 The Contractor, upon receiving the Letter of
Acceptance, shall obtain and provide to the Employer
before signing the Contract, the Performance Guarantee
in the value of ten percent of the Contract Sum, as a
guarantee of the proper execution of the Works in
accordance with the Contract.
 This guarantee shall be issued by a licensed bank
or financial institution acceptable to the Employer.
 The obtaining of such guarantee shall in all respects be
at the expense of the Contractor.
 The Performance Security shall be valid until a date
28 days from the date of issue of the Certificate
of Completion.
40
4.3 Performance Bonds
 Performance bonds guarantee the performance of
the contract requirements at that stated bid price. In
effect, the surety is saying it guarantees the
performance of the contractor, or it will complete the
project as described in the plans and specifications.
 Performance guarantee the contractor
faithfully
Bonds perform will
the contract. contract or the terms of
 This protects the owner thefrom financial loss should
the contractor fail to perform the contract in accordance
with its terms and conditions.
41
 While a bid bond is submitted with the bid,
a performance bond is submitted by the winning
bidder upon award of the contract.
 The surety is in the position of being asked to
guarantee the contractor‟s performance.
 Therefore, the contactor must demonstrate an ability
to perform before the surety is willing to issue
performance bonds.
42
 If a contractor defaults on performance of the
contract,
the surety has three basic choices:
 Buy back the bond. This amounts to giving
the owner a check for the amount of the penal
value of the bonds.
 Replace the contractor. Negotiate or advertise
for bids for the purpose of obtaining another
contractor to finish the work.
 Finance the contractor. The bonding company
runs the risk of spending more than the value of the
bond, but this is still a common option
because the contactor is familiar with the project.
43
4.4 Advance Payment Bond
 These are bonds or guarantees given to the owner by the
contractor assuring the owner that the contractor will
pay back any advance payment that he has received.
 The Employer shall make advance payment to
the Contractor of the amounts stated in the PCC by the
date stated in the PCC, against provision by the
Contractor of an Unconditional Bank Guarantee in a
form and by a bank acceptable to the Employer
in amounts and currencies equal to the advance
payment.
 The Guarantee shall remain effective until the
advance payment has been repaid, but the amount
of the Guarantee shall be progressively reduced by the
amounts repaid by the Contractor.
 Interest shall not be charged on the advance payment.
45
4.4 Advance Payment Bond
 The Contractor is to use the advance payment only to
pay for Equipment, Plant, Materials, and
mobilization expenses required specifically for
execution of the Contract. The Contractor shall
demonstrate that advance payment has been used in this
way by supplying copies of invoices or other documents
to the Project Manager.
 The advance payment shall be repaid by
the Contractor,
deducting following amounts
proportionate schedule
fromof payments
otherwise dueof tothe Works on a paymentcompleted
percentages
the basis. No
account shall be taken of the advance payment or
repayment
its in assessing valuations of work done,
Variations, price adjustments, Compensation Events,
Bonuses, or Liquidated Damages.
46
4.5 Defects Liability Security
 After primary taking over, 2.5% guarantee is submitted
to employer for defect liability, valid for 365 days or
as stipulated in PCC.
4.6 Insurance Certificates
 Insurance for Works (CAR),
 Insurance against Injury to and Damage to
Persons Property ,
 Insurance for Contractor‟s Equipment,
 Insurance for Contractor‟s Personnel.
47
THANK
YOU!
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CONSTRUCTION CONTRACT

 Therefore change is a fact of life for construction

 Impartial third party in MoWUD 1994 and

 Agent to the employer in FIDIC 1999, 2006

 The obligations of the employer, under the most

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