Training

On
Construction Contract
Administration and Claims
(Adama)

Presenter: Yoseph Kidane

01 June 2018
 Outline
1. Contract Administration
i. Definition
ii. Roles and Responsibilities
iii. Time
iv. Payment
v. Risk Management
2. Construction Claims
i. Definition
ii. Types of Claims/ Basis of Claims
iii. Monitoring Delay and Disruption Claims
iv. Formulation and Presentation of Claims
v. Response to Claims
vi. Avoidance, Resolution and Settlement of Claims
vii. Disputes
 1. Contract Administration
1.1 Definition of “Contract”
 An agreement made between two or more parties (A
Constructor and an Owner, in the case of Construction)
 Comprises of various Documents (the Agreement, Letter of
Acceptance, Conditions of Contracts, Technical Specifications,
Drawings, Bill of Quantities, Contract forms, and other
documents as necessary)
 The documents are expected to be consistent with each
other.
 1. Contract Admin…..Cont’d
1.2 Roles and Responsibilities
1.2.1 Employer’s Obligation
Primary Obligation is to pay for the works executed
Equally important obligation is to grant obstruction free
possession of site and Access thereto.
To appoint a competent and qualified Engineer for the works
contract administration
A general implied duty not to hinder the contractor’s effort to
complete the work
To supply the necessary instructions, information, plans and
drawings.
 1.2 Roles and ……Cont’d
1.2.1 Employer’s Obligation
 Issue timely decisions on technical and contractual issues
that requires its consent
 Re-appointing a new Engineer; if the former persistently
neglect his duties and responsibilities
 1.2 Roles and ……Cont’d
1.2.2 Contractor’s Obligation
 Primarily the contractor’s obligation is to complete.
 To complete on Time
 To pay damages
 Not to harm third parties
 To comply with applicable laws and liability
 Implied Obligation to minimize adverse effects of delay
 To cooperate and Notify
 1.2 Roles and ……Cont’d

1.2.3 Engineer’s Role as an Agent

 Establish qualified and competent site and head office
staffs
 Closely follow up of Employer’s Obligation
 Routinely advise the Employer on cost update,
obstruction status
 Inspect, sampling and testing
 Obtain prior consent of the employer where required
 Issue taking over and Defect Liability certificates
 Implement quick decision-making process
 1.2 Roles and ……Cont’d
1.2.4 Engineer’s Role as an Impartial Body

Determine Extension of time and financial compensation in

consultation with both parties
Prepare and Issue Engineer’s Instruction and Variation Order
Prepare and certify interim payments
 1. Contract Admin…..Cont’d
1.3 Time
1.3.1 Commencement of Works
Possession of Site
Securities, Bonds/Guarantees, Insurance
1.3.2 Progress of Works
Work Programme
Monitoring of Progress/ Suspension/Termination
1.3.3 Completion of Works
Taking Over
Obligation of Contractor after completion/ Defect Liability Period
 1. Contract Admin…..Cont’d
1.3 Time
1.3.1 Commencement of Works
•Engineer to Issue Notice to Commence to the Contractor
•Failure by the Contractor to commence with due expedition
•Failure by the Employer/Engineer to issue a Notice to Commence
 Possession of Site and Access thereto
• Article 40(3) of the Constitution: Land is a common property of the
nations, nationalities and Peoples of Ethiopia and shall not be subject to
sale or to other means of exchange
•Clients are in the best position to handle land issues
•Failure to give possession of site and access
•Definition of Possession of Site and Access
•Why Spoil Area expropriated by contractors?
 1. Contract Admin…..Cont’d
 Bonds and Guarantees
 A Bond is an undertaking to pay a sum of money. Bonds are
from Insurance Company while Guarantee is from Bank
 Basically there are two types of Bonds
 Conditional Bond and Unconditional Bond
 Conditional bonds require sufficient proof of the contractor’s
failure to meet the stated conditions.
 Unconditional Bonds does not require proof of contractor’s non
performance. Paid on demand.
1. Bonds and Guarantee…..Cont’d
 The usual bonds are Bid Bond, Performance Bond,
Advance Payment Bond, Retention Bond.
 Bid Bond: to secure the bid/tender submitted by the bidder until
the bid validity period expires. Local firms sometimes are allowed
to deliver conditional bonds.
 Performance Bond: It is to secure the performance of the
contractor during the contract period. Like Bid Bond, conditional
bonds could be issued by local firms.
 Advance Payment Bond: This is to secure the amount paid to
the contractor as interest free that shall be against an
Unconditional Bond
 Retention Money Bond: ditto like Advance Payment Bond
 1. Bonds and Guarantee…..Cont’d
Insurance
 Normally contractors to take out Insurance for the works, motor
vehicles and third parties
 Employer must approve the insurer for all insurance; and also the
terms of the policies
 Works must be insured in the joint names of the Employer and
Contractor
 Engineer to check the insurance covers all Employer’s interest and
recommend for approval
 Points to check when examining Insurance Policies
 Amount of Cover: check if it covers all works, plant and materials
and other things on site
 Insurance…..Cont’d
 Excesses/ Deductibles : require guarantee for high excesses.
 Exceptions
 Period of Insurance
 Termination of Policy
 Cross Liabilities: in the case of joint policies, check that one
party claim for damages caused by another.
 Motor Vehicles: all vehicles of the contractor and Engineer.
 Definition of site; should not exclude quarries
 Omnibus Policies : contractor might have taken out insurance
for all works undertaken by him
 1. Contract Admin…..Cont’d
1.3.2 Progress of Works
•Development of realistic Work Programme
•Revision of Work Programme
•Slow Progress of Works
Things to consider when developing realistic work Programme
• analyzing definition of all activities laid out in the project scope
management,
• identifying activity sequencing,
• estimating the number of work periods that will be needed to
complete individual activities,
• analyzing activity durations and resource requirements and
• finally ensure the contractor’s work schedule meets all the above
requirements.
• Helping to control changes to the project schedule
 1. Contract Admin…..Cont’d
1.3.2 Progress of Works
•Development of realistic Work Programme
•Revision of Work Programme
•Delay/Slow Progress of Works/
Things to consider when developing realistic work Programme
• analyzing definition of all activities laid out in the project scope
management,
• identifying activity sequencing,
• estimating the number of work periods that will be needed to
complete individual activities,
• analyzing activity durations and resource requirements and
• finally ensure the contractor’s work schedule meets all the above
requirements.
• Helping to control changes to the project schedule
 1.3.2 Progress of Works…..Cont’d
Delay/ Slow Progress of Works
Is an adverse impact on timing in relation to what was intended.
Major Categories of Delay
•Delay to Progress: Delay in a particular activity;
•Delay to Completion Date: Delay to the Contract Completion date;
•Delay to the Date for Completion: Delay to the completion date intended
by the contractor;

Types of Delays
•Excusable and Compensable Delay: A delay for which the Client is entirely
responsible; like possession of site.
•Excusable but Non-Compensable Delay: A delay beyond the control of
both parties; like Adverse Weather, Earthquake. It is also termed as Delay
due to Neutral Event
 Delay…..Cont’d
• Inexcusable/Culpable Delay: A delay for which the Contractor
is entirely responsible; like delay due to poor progress
• Concurrent Delay: at-least two events occurring at the same
time of which one of them is Employer related delay while the
other is Contractor’s own delay;
• Parallel Delay: at-least two events occurring at the same time
but unlike Concurrent Delay, here the responsible party for the
events are either the Employer or the Contractor; not both
1.3.2 Progress of Works…..Cont’d
Suspension
Is a stoppage of work on any or all activities in all or part of the
works for a certain duration.
Major Causes of Suspension
– Delay in Payment;
– Design Revision;
– Availability of Obstructions.

Effects of Suspension
– Reduction of Rate of Progress
– Stoppage of work
– Termination of Contract
 1.3.2 Progress of Works…..Cont’d
Termination
Termination of a contract is defined as bringing the contract to an end
regardless of the status of the project.

Defaults by Contractor
•persistently and flagrantly neglecting to carry out his obligations under
the contract
•becomes insolvent, involuntary bankruptcy, liquidation or dissolution
•notwithstanding that the other party has committed no fault, when the
contract has become useless to the public service or unsuitable for its
requirements - Ethiopian Civil Code Article 3180
 Termination…..Cont’d
Defaults by the Employer
• failing to pay the contractor entitle him to suspend and later
terminate the contract.
• outright refusal to give possession in the first place
• Delay in giving possession of site and omission of the work
together may entitle the contractor to terminate
• wrongful ejection of the contractor from the site
• where an intervention by the employer has its effect to upset the
general economy of the contract - Ethiopian Civil Code Article
3182 –
 1. Contract Admin…..Cont’d
1.3.3 Completion of Works
Taking Over
 Substantial Completion/ Provisional Taking Over
 Final Taking Over
Obligation of Contractor after completion
Defect Liability Period
• Patent and Latent Defects
• Commencement of the DLP
• Contractor’s payment during the DLP
• Failure by the contractor to remedy any defects
• Termination during DLP
 1. Contract Admin…..Cont’d
1.4 Payment
• Advance/ Interim/Final Payments
• Variation/ Valuation
• Fluctuation
• Retention Money
• Provisional Sum and Prime Cost Item
• Liquidated Damages and Penalty
 1.4 Payment…..Cont’d
1.4.1- The main and critical obligation of the Employer is paying the
Contractor what is to be due.
Advance Payment: What makes it different from Down Payment?
Is it Interest Free for the Employer; in case of delay?
Interim Payment Certificates: Could be termed as temporary
certification that could be corrected/modified. It is a sum of monthly
statements if the amount of the previous month is less than the
minimum.
Statement at Completion: payment for the whole outstanding
payments of works after substantial completion. Half of the
retention money would also be released.
Final Payment: Covers all eligible payments until the completion of
the DLP. Any claim/dispute should be settled before the final
payment. Letter of Discharge.
 1.4 Payment…..Cont’d
1.4.2 Variation
Any changes to contracts from what has been anticipated at the
making of the contracts could be regarded as variation.
Causes of Variations: Variations could arise either from the
insufficiency of the original design, change in mind by the
client, as a result of mitigation measures, etc.
Which Variations do require Order? Except for quantity decrease or
increase of certain items of the work
Absence of Variation Clause: contractors would be entitled to
negotiate a new rate for that piece of work of variation
Scope of Variations : Within the general scope of the contract and
that does not go to the root of contract.
 1.4 Payment…..Cont’d
Valuations of Variations
– Similar to Contract: for varied work similar to an item in the contract. In
this case the Bill rate will be used.
– Substituted Work: for varied work similar to an item in the contract but
with different characteristics; like sub-base placing at Junctions.
– Change of Circumstances: for varied work due to change in circumstances;
like working seasons (from Summer to Winter), working in difficult social
and environmental situation than anticipated.
– Major Change in Quantity: Occurrence of appreciable quantity variations
(increase or decrease) that affect the OH element of the bill rate.
– Entirely new type of work: This is a varied work with a completely new
items. In this case as far as practicable the tender rate will be used as a
base for building a new rate.
 1.4 Payment…..Cont’d
1.4.3 Fluctuations
• Fluctuation is the rise or fall of the prices of construction inputs;
like material, labour and/or equipment during the course of
construction.
• In longer time contracts, the risk is allocated mostly to Clients
using a prescribed formula. Base/Current indices or prices.
• Any change in legislation after the contract could be considered to
adjust the price of the contract by reimbursing the contractor
with an equal amount
• What if the price of an input that has not been identified as
adjustable material increases substantially?
 1.4 Payment…..Cont’d
1.4.4 Retention Money
 The main purpose of retaining a certain percentage of the
certified sum from each IPC is for the employer to guarantee for
the rectification by the contractor of any defects observed during
the performance of the contract but completed and certified
section and during the defect liability period.
 Could be replaced by an Unconditional Bank Guarantee.
 Performance Bond could not be used alternately for rectification
of defects.
 1.4 Payment…..Cont’d
1.4.5 Provisional Sum and Prime Cost Sum
i. Provisional Sum
 are used for work that has not been finalized or for costs unknown at the
time the contract is prepared.
 Does not necessarily imply any obligation on the part of the employer to
spend them.
 The contract administrator must issue instructions to spend these sums.
ii. Prime Cost Sum
 For works by specialized firms like, nominated sub-contractors that usually
have been selected prior to the main contractor.
 the contractor has no control over the pricing of this work,
 Prime cost is taken to mean that the contractor will be fully reimbursed for
any valid expenditure.
 1.4 Payment…..Cont’d
1.4.5 Liquidated Damages and Penalty
 Liquidated Damages – a genuine covenanted pre-estimate of loss.
 Claimed without proof of loss
 There is no bar to limit a genuine pre-estimate loss in non-commercial
projects.
 When to challenge the Employer on the excessive amount of LD?
 How it is calculated? – usually the maximum to be recovered between
one third and two-third of the Contract Period
 Penalties– to force the contractor to complete in terrorem.
 It is intended to penalize the defaulted party
 Can excessive liquidated damage amount be considered as penalty?
 Does the court interfere in the commercial bargains struck by the
parties?
 1. Contract Admin…..Cont’d
1.5 Risk Management
Risk is an uncertain event or condition that, if it occurs, has an effect
on at least one project objective
Stages of Risks
•Plan Risk Management
•Risk Identification
•Risk Analysis (Qualitative and Quantitatively)
•Risk Response (Retention, Avoiding, Transfer and Mitigation)
•Monitor and Control Risks
 1.5 Risk Management...Cont’d

Four ways of Tackling Risks in the Construction Industry

The Umbrella Approach: Allow every possible eventuality

The Ostrich Approach: Assume everything will be alright
The Intuitive Approach: Trusting once intuition and gut feel
The Brutal Force Approach: focus on uncontrollable risks and try to
force to be controlled- cannot.

1.6 Quality Assurance and Quality Control

 2. Construction Claims
2.1 Definition
• Claims in construction contracts are a mere request for
contractual remedies mainly by the contractor.
• These Remedies could be either Monetary compensation for
damage or time required to complete the remaining works.
• Why practitioners in the construction industry, mainly
Employers and Consultants, are frightened of the term
“Claim”?
• Could it be avoided?
• Could it be minimized?
 2. Construction Claims

2.2 Basis of Claims

i.Contractual Claims – Based on the terms and conditions in the contract
ii.Claims for Breach of Contract - Based on the general law of the contract
iii.Extra-Contractual Claims – Due to negligence
iv.Quantum Meruit Claims - a reimbursement claims for the work
executed through a reasonable sum
v.Ex-Gratia Claims– Payment without obligation
 2. Construction Claims
2.3 Types of Claims
2.3.1 Extension of Time Claims
2.3.2 Financial Claim
 Disruption Cost
 Prolongation Cost
 2.3 Types of Claims…. Cont’d
2.3.1 Extension of Time Claims
•Purpose of Extension of Time Provision
To preserve the Employer’s right for Liquidated Damages
To retain a defined time for completion
To give the contractor relief from his strict duty to complete on time
in respect of delays due to neutral events
•Time for granting of Extension of Time
Contractor’s opportunity to re-programme
Constructive acceleration – due to failure to give EOT within a
reasonable time
2.3.1 Extension of Time …. Cont’d
• Time at large
 Time would be set at large mean the contractor would be forced to
complete the works within a reasonable period of time and the
Employer could no longer rely on the application of Liquidated Damage.
 The only remedy for the Employer is to justify the unreasonableness of
the Contractor’s time for completion of the works and solicit un-
liquidated damages/ General damages.
 Time would be set at large where
 Where there is no Completion date under the contract
 Where there is no power for the employer to extend time
 Where there is no Contract
 Where the provision for extension of time have not been properly
administered; have been misapplied, or have not been utilized
2.3.1 EOT Claims…. Cont’d
• Relevant Events
 Force Majeure
 Adverse Weather
 Possession of Site and Access
 Late issue of drawings
 Variation and extra works
 Civil Commotion, Strikes
 Unforeseen Physical Conditions
• Causation and Concurrency
 Rules for EOT
 EOT when in culpable delay
 2.3.1 EOT Claims…. Cont’d
• Programme, Method Statement
• Delay Analysis
For the extension of time to be granted to the contractor, a three-
part chain of causation has to be proved first:
• An Employer’s Risk Event must occur;
• The event must cause a delay to progress; and
• The delay to Progress must have a knock-on-effect on the
completion date.
• Methods of Delay Analysis
 Measured Mile Technique (affected by disruptive events Vs
Unaffected of the same operation)
 As-Planned Vs As-Built windows analysis
 2.3.1 EOT Claims…. Cont’d
In any claim for an extension of time, it is good practice to include
the following:
•a description of the cause of delay and the contractual provision
which is being relied upon for the extension;
•the date when the delay commenced and the period of delay
(giving details of intermittent effects, if appropriate);
•the date of notice of delay, specifying the reference of the
relevant document;
•a summary of records and particulars relied upon (with copies
included in an appendix);
•a narrative of the events and effects on progress;
 2.3.1 EOT Claims…. Cont’d
 a diagrammatic illustration showing the status of the
programme,
 progress and current completion date prior to the
commencement of the delay;
 a diagrammatic illustration showing the effects of the delay on
progress and the completion date (including subsequent delays
which may have reduced the float in the programme);
 a statement requesting an extension of time for the delay to
completion for the period shown on the submitted illustrations.
 2.3.1 EOT Claims…. Cont’d
EOT Claim Presentation/ Contents
• Introduction: contract particulars (like, Names of the parties; description of the
works, Basic Contract Data, etc.)
• Summary of facts (summary of applications for EOT; EOT awarded; summary of
claims submitted; final account and claims assessed (if any); amount of latest
certificate and retention; payments received; liquidated damages deducted (if
applicable), etc.).
• Basis of claim (Contract provisions relied upon; Civil law provisions; contractual
analysis and explanation of the basis of the claim)
• Details of claim (Full details of every matter, Key dates, events, causes and
effects, etc.)
• Evaluation of claim (calculate, step by step, with explanations and reasons for
the methods
•Statement of claim claimant's alleged entitlements and relief sought
 2.3 Types of Claims…. Cont’d
2.3.2 Financial Claim
 Disruption Cost
• Changes of sequence of works/ or out-of-sequence of works
• Working on piecemeal basis mainly due to late removal of
obstructions, late issue of drawings, etc.
• Delay to individual activities that affect or disrupt other activities
that share similar resources.
• Disruption is loss of productivity, disturbances, hindrances or
interruption of progress which in other words mean that it is the
difference between an intentions and reality as to productivity
 2.3.2 Financial Claims…. Cont’d
 Prolongation Cost
• Prolongation is the continuous existence of the parties on the
project site for a longer period of time beyond the original time
for completion.
• prolongation cost is the actual cost contractors incurred as a
result of remaining on the project site for extended period
beyond the time for completion.
• prolongation cost primarily comprise the contractor’s extended
use of time related resources, notably its site overheads, head
office overheads and other financial charges like bonding,
insurance, etc.
 2. Construction Claims …. Cont’d
2.4 Monitoring Delay and Disruption Claims: Prevention
 Contracts administration
 Possession of site: commencement
 Pre-commencement meeting
 Regular progress meetings
 Instructions and drawing issues
 Site instructions: verbal instructions
 Programme and progress
 Notice: records and particulars
 Delays after the contract completion date
 Minimizing exposure to claims: prevention
 2. Construction Claims …. Cont’d
2.7 Avoidance, Resolution and Settlement of Claims
2.7.1 Claim Avoidance
The three most important lessons in construction contracts are:
•The importance of Records
•The importance of Records; and
•The importance of Records
i) Records
Types of Records
• The Tender,
• Preliminaries,
• Measured or Specified Work,
• Specification and Drawings,
Types of Records ... Cont’d
• Master Work Programme,
• Updated or amended Programmes,
• Variation Orders,
• Notices and Warnings,
• Extension of Time Granted,
• Cost Records,
• Correspondences,
• Records of Site Meetings,
• A resource allocation sheet,
• Site Diaries and
• Photographs.
 i) Records ... Cont’d
 Contemporaneous Records
are the sources for evaluating, supporting and successfully
defending the issues of cause and effect in a delaying and/or
disrupting events. These records shall be kept to ensure that
they are:
• Contemporaneous with the event
• Made by or based on information from persons with
knowledge of the event; and
• Sufficiently detailed to permit a third person to reconstruct
project activities solely from them
 2.8 Disputes Resolution Mechanism
2.8.1 Amicable Settlement
• Contracting parties discusses their differences around the table and mostly
the Engineer act as a mediator.
• The Engineer during this time will guide the parties to focus their point of
discussion on their differences and summarizes their points of agreements.
• the speedy and cheapest dispute resolution technique
• Could be conducted at any time; while the case is in adjudication, Arbitration,
Litigation, etc.
2.8.2 Adjudication
• Like Arbitration Tribunal, it could be a one man (DRE) or three persons panel
(DRB).
• The DRE can only see one case at a time and cannot see the same case again.
• The adjudicator’s decision; whilst binding, is only so until the original dispute
is finally determined by other means.
 2.8 Disputes.. Cont’d
2.8.3. Mediation and Conciliation
– Both are a dispute resolution processes that may or may not result in
dispute being resolved.
– Both must be absolutely independent of the parties to the contract
– Both must talk with each party separately without disclosing any
information discussed with the other party.
– Establish a common platform for the parties and shall bring the
disputed parties for an open discussion upon his guidance.
– The only substantive difference between them is the conciliator make
a recommendation at the end of the process.
 2.8 Disputes.. Cont’d
2.8.4 Expert Determination
 This is similar to adjudication (appointment of a Dispute Board) but
different in principles.
 The similarity is they are both contractual procedures and they involve
an impartial third party carrying out a review of the parties’ rights and
obligations under the contract.
 In expert determination, the expert uses the results of his own
knowledge and investigations in making his determination
 has no obligation at all to tell the parties the extent of his knowledge
that he uses.
 The expert determination is contractually binding on the parties with no
longstop provision.
 2.8 Disputes.. Cont’d
2.8.5 Arbitration
• disputes are resolved by an award made by independent tribunal.
• Arbitration is a private and confidential process for making an award on
the disputed issues; and it is legally enforceable like a court judgment.
• The right to go to arbitration is restricted.

2.8.6 Litigation
• Settling disputes in Court
• Takes longer time and higher cost than any other dispute resolution
mechanism
• Parties have automatic rights to refers their case to Litigation whether
its is mentioned in the contract or not.
Thank you!!!