4.

Contract Management
4.1. Introduction
Contract is a written agreement between or
among two or more parties whereby each party
promises to do or not to do something and agrees
to terms (conditions and Warranties) set out in the
contract.
Conditions
Conditions of Contract are terms in which
parties in the contract are governed /
administered with.
Fundamental to the contract.
1 Failure to adhere to a condition may result
 4.1 Introduction cont…
Warranties
Warranties are subsidiary to the main
contract.
A breach of warranty will only result in
the injured party suing for damages.
These promises and terms shall be enforceable
by law and incorporates the
rights,
obligations and
Remedial rights of each contracting
parties.
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 Basics of Contract
There are basic contents of contract which
contracting parties are expected to understand.
These are:

• Formation/Elements of Contract;
• Privity/Effects of Contract;
• Discharge/ Extinguish of Contract; and
• Proof of Contract

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 Formation of Contracts
No contract is valid unless it meets all the
requirements of Elements of a contract. Civil
code Article 1678

Elements of contracts are:

a) Consent
b) Capacity
c) Object
d) Form of Contract

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 4.1 Introduction cont…
The purposes of a contract are :
 To enforce law or bind conditions between or among the
parties agree to procure services / works / goods
To clearly show the Terms and Conditions of contracts
the parties agree with
To clearly show the Rights and Obligations of
performances from the contracting parties
To clearly show remedial measures in cases for non –
performances
To identify special risks and their treatment
To clearly show handling provisions for price, completion
time, requirements variations adjustment systems, Changes
in cost and legislations and their dispute resolution
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mechanisms
 4.1 Introduction cont…
Contract can be of three types; namely,
Unilateral or Optional or If Contract
Bilateral, and
Multilateral
Unilateral or Optional or If Contracts are
contracts which are recognized by law where the
promise by one party is binding and if the
performance is carried out by the other party who
is not bound merely by embarking on the
performance required.

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 4.1 Introduction cont…
Bilateral Contracts are contracts entered to
promise for an obligation performed in the future
where both (two) parties are mutually bound.
Such obligations are often termed as Executory.
Multilateral Contracts are contracts entered to
promise for an obligation performed in the future
where all (three or more) parties are mutually
bound.

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 4.2 Contract Management and its
Processes
Contract Management is the management of
its Processes,
Stakeholders and their Performances along
the
Planning,
Implementation
Monitoring and
Evaluation Cycle of the functions of
Management
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Three Contract management Process

Negotiation
Closing of accounts
Contract agreement/
Contract evaluation
Contract document

Contract
Contract Closing of
Administratio
Formulation Contract
n

Contract Implementation
Change management
Claim & dispute management

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 4.2.1Contract Formulation
Negotiation: is a process by which Project
Owners together with their professional
representatives’ deal with the recommended
winner of the tender on the requirements of the
tender.
Contract Agreement: when signed forms the
contract document which will be the bases for
Contract Administration.
Contract Document: are the basis on which a
construction contract is carried out. In case there
is a conflict between the order of precedence of
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the documents may be set.
 4.2.1Contract Formulation cont…
Conflicting matters should be resolved in favour
of the contract documents having the higher
priority:
Signed Form of Contract Agreement with
Appendix
Letter of acceptance
Contractor’s bid if necessary
Particular/special Conditions of Contract
General Conditions of Contract,
Technical Specification
Drawings
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Priced Bill of Quantities
 4.2.1Contract Formulation cont…
A. Form of agreement and its appendix
Form of Contract Agreement varies from contract to
contract but is generally composed of:
the date on which the agreement shall come
into force
the contracting parties and the delegated
services administrator, their addresses and
being called upon
the services to be procured in brief
the general provisions such as words, meanings
and expressions; order of precedence and
Payment Terms
12 the construed parts of the contract document,
 Sample Form for Contract Agreement
Form of Agreement
This Agreement hereinafter called “the Contract” is made
on the ___ day of __ 20 __ between on the one part
__________ of ________ hereinafter called “the
Employer” and on the other part _______ hereinafter
called ‘the Contractor” / “the Consultant”.
Whereas the Employer is desirous that certain works /
services should be executed by the Contractor /
Consultant, viz. _________________ and has accepted
the tender for the execution / implementation and
completion of such works / services and the remedying of
any defects therein.
Now this Agreement witnesses as follows:
1. In this Agreement words and expressions shall have
the same meanings as are respectively assigned to
them in the conditions of contract herein after referred
to.
2. The following documents shall be deemed to form and
be read and construed as part of this Agreement, viz:
a. The Letter of Acceptance
b. The said Tender
c. The Conditions of Contract (I+II)
d. The Specifications
e. The Drawings, and
f. The Priced Bill of Quantities.
3.In Consideration of the payments to be made
by the Employer to the Contractor as hereinafter
mentioned, the Contractor hereby covenants with the
Employer to execute and complete the Works and
Remedy any defects therein in conformity in all respects
with the provisions of the Contract.
4.The Employer hereby covenants to pay the
Contractor ______________in consideration of the
Contract Price of such other sum as may become payable
under the provisions of the Contract at the times and in
the manner prescribed by the Contract.
In Witness Whereof the parties hereto have caused
this Contract / Agreement to be signed in their respective
places as of the day, the month and the year first above
written.
For and on behalf of the Employer
_________________ _______________
Signature Date
For and on behalf of the Contractor
__________________ _______________
Signature Date
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 4.2.1Contract Formulation cont…
The appendix to tender mainly defines the following

Conditions of Contract Pertinent clauses Conditions Conditions of Contract Pertinent clauses Conditions
Language of Contract Clause … English Advance Payment Clause … … % of CP
Applicable Law Clause … Ethiopian Law Interim Certificate
Mobilization Time Clause … … cal. Days Time Clause … … cal. Days
Contract Time Clause … … cal. Days Amount Clause … …
Maintenance Period Clause … … cal Days Interest Rate Clause … Bank’s Rate
Liquidated damages Currency – Types Clause … …..
Amount Clause … … per days of delay Amount Clause … … % of CP
Limit Clause … … % of Contract Price Exchange rate Current
Performance security Clause … … % of Contract Price Retention Amount Clause … % of CP

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 4.2.1Contract Formulation cont…
B. Letter of acceptance:
This is a confirmation of acceptance by the
employer of the contractors offer.
The Letter of Acceptance does not form part of
the Bidding Document
The letter of acceptance contains:
Acceptance of contract price
Instructions
To Submit the Contract Security
stipulated in the Contract by the date
15 stated.
 4.2.1Contract Formulation cont…
A Letter of Acceptance must not be issued prior to
obtaining all required approvals, including
From the Tender Committee
From head of the Procuring Entity and
In addition, ensure that sufficient funds
have been committed for the contract

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 4.2.1Contract Formulation cont…
C. Contractors bid
Contractors bid is the contractors (tenderers)
written offer to carry out the works in accordance
of the contract document
It is a promise by the tenderer that he will carry
out the works with
a specified tender sum and
complying fully with the requirement
of the contract documents.
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 4.2.1Contract Formulation cont…
D. Conditions of contract
Conditions of Contract is the administrative law
applicable to the contract which is legally
enforcing the contracting parties.
General condition of contract: are usually
prepared to set out procedures of general
application which can be used for different
types of projects without any modifications. it
defines:
terms of contract
The rights and responsibilities of the
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parties
 4.2.1Contract Formulation cont…
The special conditions: are meant for those
particular contexts and requirements that can not
be standardized and generalized into common
conditions of contract.
Clauses in both conditions of contract shall be the
same.
Generally, conditions of contract cover:
Definitions and interpretations of terms used in
the contract
Contract documents priorities, supply of
drawings, supplementary documents
19 Obligations, Rights and Remedial Rights
 4.2.1Contract Formulation cont…
E. Specifications
Standard and particular Technical Specification
defines the quality expected to each trade of items or
services whereby confirmation and approval required
are clearly stated.
Specifications are statements describing
the nature and class of work,
materials to be used,
labor to be employed and methods of work,
equipment and tools to be used,
quality of works and workmanships and
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submittals and sampling for tests and
 4.2.1Contract Formulation cont…
Specifications govern when it does not fit with
drawings and it serves the following purposes:
Guide bidders to arrive fair tender prices
during procurement
Be bases for execution and supervision of
services and works and delivery of goods
during implementation
Help in purchasing of materials, hiring of
workmen and provisions of equipment, and
Help in accepting the different items of
services and works and delivery of goods.
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 4.2.1Contract Formulation cont…
Specifications are of three types:
Contract specifications
Standard specifications
Manufacturers’ specifications
Contract specifications: is a Technical
Specification used to supplement drawings for a
particular project which can be of two types
(General and Detailed).
General specifications are written in the bill of
quantities to show the class and type of works and
materials together with workmanship and cost
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inclusions briefly.
 4.2.1Contract Formulation cont…
Detailed specification can either be
the standard specification written to
describe the works or
particular to the project under
consideration.
Standard Specification: is a Technical
Specification or Guidelines written to clearly
establish
‘What’ of the materials or Products used
or
“How’ of the services, works or goods
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which can generally be described for a
 4.2.1Contract Formulation cont…
Manufacturers’ Specification: is a technical
specification
prepared for the products produced by
companies to guide specifiers, designers
and users.
Such specifications include installation,
use and maintenance instructions
usually prepared in the form of manual.
F. Drawings
Drawings have the following functions:
Drawings form a model of designers idea and
24 help to articulate and predict problems with
 4.2.1Contract Formulation cont…
Drawings have the following functions:
It is a means to convey intentions of designers to
contractors.
Drawings form a record of what has been done i.e.
as built drawings
Problems that may appear with regard to drawings are
Notes on drawings may contain items which may
conflict with the provisions of bill of quantities or in
specification.
Coordination between different discipline of the
design
G. Bill of quantities
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Bill of quantities are list of items defining briefly the
 4.2.1Contract Formulation cont…
H. Forms, Formats, Schedules…
The following Forms, Formats, Schedules and
Breakdown Structures are used in Construction
Contracts and are tabulated below:
Forms Formats
Form of Contract Agreement Handing Over Site Formats
Form of Tender Change Order Format
Form of Bid Security Progress Reporting Formats
Form of Performance Security Payment Certificate Format
Form of Adv. Payment Guarantee Price Indices Format
Form of Maintenance Security Comp. Certificate Formats

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 4.2.1Contract Formulation cont…
Schedules Breakdown Structures
Work Schedule Organization BS
Material Schedule Work BS
Equipment Schedule Material BS
Labor Schedule Equipment BS
Cash flow Schedule Labor BS
Payment Schedule Cost BS

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