3.

The Practice of Contracting in

Construction
Procedures of contracting

Components of a legally binding construction contract

General and special condition of contracts

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 Contracting in Construction
3.1 Procedure for construction contract
1. Invitation to bid;
2. Preparation and Issue of Bidding Documents;
– Bidding Period and Bid Receipt;
3. Bid Opening;
4. Bid Evaluation;
5. Selection of Bidders; and
6. Bid Acceptance, Contract Award and placement

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 1. Invitation to bid
Designed to provide information that enables potential
bidders to decide whether to participate in a bidding
process or not
– Should include
• Date and tender reference number
• Name and address of the procuring entity
• Type of tender (open, short listed)
• Bid evaluation criteria and qualification requirement
• Brief description of work with intended completion period
• Place where to get tender documents and cost of purchase
• Tender requirements (eg bid bond)
• Date and place of submission of tender
• Place and time of opening of tender
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 Preparation and Issue of Bidding
Documents
2. Prepare the bid documents
– The PE should prepare the bid documents in accordance to the
appropriate requirements
– Bids according to SBD should be satisfy the following:
• Language:English
• Currencies of transactions are in Birr
• Documents needed to be submitted:
» Filled bid submission form
» Priced quantities ( Bill of quantities or schedule rates)
» Bid security form (bank guarantee or bid bonds)
» Qualification information form

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 A. Bid Submission Form,

 Should be on a header paper and needs to be signed by the

authorized person
 It demands summary of the major requirements of the bid
documents like:
 Bid price and validity period (usually from 60-120 days
depending on complexity of process)
 Declaration of eligibility of contractor and proposed
subcontractors and suppliers (legal, interest conflict etc)
 Amount of advanced payment (up to 20% for buildings
and 30% for roads)
 Declaration of full consent with the terms of the
documents and acceptance of PE’s right not to accept
lowest bidder 5
 B. Bid security
– Purpose: ensure that bidder accepts the bid if
selected winner and can be fortified if:
– Bidder withdraws the Bid after Bid opening during the
period of Bid validity;
– Bidder does not accept the ‘arithmetic’ correction of the
Bid price,
– In the case of a successful Bidder, if the Bidder fails within
the specified time limit to:
– Sign the contract; or
– Furnish the required Contract Security.

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 B. Bid security
• Bid security in the amount (Birr) and form (certified cheque
or payable order, bank draft, letter of credit, or an
unconditional bank guarantee) as specified by PE
• Recommended amount: B. Security Estimated cont
value
5,000 30,000-500,000
10,000 500,001-1,000,000
50,000 1,000,001-5,000,000
100,000 >5,000.000

• Shall be valid for at least for 28 days after validity of bid or

as extended by bidder
• To be released within one week after conclusion of contract
with successful bidder
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 C. Priced BoQ Signed by authorized

Schedule of Requirements
•Specifications,
• Drawings and
• Bill of quantities form part of the contract
document while the employer also need to provide
•Scope of work to potential bidders

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 C. Priced BoQ or AS Signed by a person
authorized
Scope of work: is a brief description of the work to be performed.
Needs to include:
Adequate description of the work
Site location
Climate and weather information
Site investigation studies and reports
Topographical data
Access details
Details of other ongoing or future works to be carried out
by other contractors during the Contract period
Information regarding disposal, borrow and quarry areas
including royalty payments as applicable
Any other pertinent information regarding the site and the
works
etc 9
 C. Priced BoQ or AS Signed by a person
authorized

• Specification: States the required standards of

workmanship, materials, and performance of the related
goods and services to be procured
• Usually specifies that all the goods and materials
to be incorporated in the works be new, and of the
latest model
• Usually based on standards and codes and need to
be non restrictive
• Drawings: Depict the schematic layout of the work to be
done.
• Can be supplied in a separate document if larger paper
sizes used
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 C. Priced BoQ or AS Signed by a person authorized
• Bill of Quantities or Activity Schedule
–Lump Sum Contract: Activity Schedule
–Admeasurement Contract: Bill of Quantities
–Is comprised of:
» introduction: States inclusiveness of unit prices and
method of measurement used
» Work item: provides clusters of the items in the BoQ in
terms of nature, location etc
» The detailed BOQ
» Days work schedule
» Summary of BoQ

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 C. Priced BoQ or AS Signed by a person authorized
• Priced BoQ (Activity Schedule)
– Provides the rates at which each activity in the BoQ (AS)
is to be performed
• Price should include all duties, taxes, and other levies
payable by the Contractor under the Contract
• Rates and prices can be adjusted if provided in the
SCC

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 C. Priced BoQ or AS Signed by a person authorized
• BoQ includes priced
• days work schedule rate
– Purpose: To provide payment mechanism for unforeseen
items
– Comprises a rated list of the various classes of labour,
materials, and constructional plant for which basic day
work
– Conditions under which the Contractor will be paid for
work executed on a day work basis needs to be stated
• Provisional sum
– A general provision for physical contingencies to be
included in the Summary Bill of Quantities
– Usually used to facilitate budgetary approval
• Precedence: Specification>Drawings>BoQ

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 D. Documents certifying Eligibility and Qualification
Eligibility (for all members in case of JV)
• Legal capacity
– Ethiopian contractor: registration certificate from MoWUD,
Ministry of works, etc demonstrating a registered
contractor
– Trading licence and suppliers registration certificate
– Issuing attorney general for International bidders
• Bankruptcy
• Fulfilled duty to pay tax
• Others
– Conflict of interest: (bidder, subcontractor or joint venture)
never related consultant (potential) or its affiliates (needs
to be declared in bid submission form)
– Not debarred of public procurement for ‘corruption’,
‘fraud’ ‘bid collusion’

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 D. Documents certifying Eligibility and Qualification
 Qualification form (provided in section 4)
Prof, tech, financial, equipment, managerial,
reputation, personnel to execute the work
• Experience in work of similar nature and size in the past (five
years), details of similar work underway (at least 70% complete),
(all as a prime contractor) references (usually from 1-3 projects is
enough)
• Average/total value of work over the past (3-5 years depending
size of contract) should be (usually about 2.5 times estimated
annual cash flow of the project
• Major items of Contractor’s Equipment proposed for carrying out
the Works
– Qualifications and experience of key personnel proposed for
administration and execution of the Contract
• Proposed subcontracts and firms involved
• Financial reports for the last five years 15
 D. Documents certifying Eligibility and Qualification

– Evidence of access to financial resources to meet the

qualification requirements (at least the estimated payment
flow over approximately 3 months at the average)
– Information on current litigation in which the Bidder is
involved
– Proposed Program (work method and schedule).
• In case of JV, beyond all the abov.
• Agreement among all partners of the joint venture showing
– Joint and several responsibility
– One partner is shown as in charge to incur liability and
receive instruction
– The execution of the work is done with the party in charge

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 Bidding Period and Bid Receipt
• During the bidding period, the PE should:
– Hold any pre bid meeting or site visit and issue minutes
promptly;
– Promptly respond to requests for clarifications from
Bidders;
– Issue amendments to the Bidding Documents if
necessary;
– Receive and record sealed bids from Bidders or make a
Bid Box available up to the deadline for bid submission;
– Close bidding at the precise date and time of the
deadline and ensure that no late bids are received; and
–  Keep all bids received secure until the time for bid
opening. 17
 Bid submissions:
– Three signed and sealed in two envelopes (one original,
two copies and clearly marked so)
– Address of PE, name and reference number of tender
and warning not to be opened before bid opening date
to be printed on both envelopes
– Bidder address on inner envelop
– Shall be delivered by deadline, late bides need to be
returned unopened
– Bidders can withdraw, substitute or modify their bids by
giving notice in writing before the deadline

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 3. Bid Opening
• PEs need to ensure that all bids that were received on
time are accounted for, before starting the Bid
Opening
– At the time, place specified and with the presence of
bidders (or legal rep)
– Withdrawals envelopes read first ( not opened) followed by
substitutions (substituted not to be opened) then
modification read out with corresponding bid
– Bidders' names, Bid prices, Discounts, Bid modifications or
withdrawals, Presense or otherwise of Bid Security etc
needs to be announced immediately
– PE needs to prepare a minutes
– No bid to be rejected at opening processes except those
delivered late

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 4.Bid Evaluation
• Bid evaluation process to be strictly confidential
• PEs, at their own description, can ask clarification of
bid but such clarification shouldn’t change the
substance of the bid- except arithmetic error
• Before evaluating a bid: make sure of:
– Satisfaction of eligibility criteria
– Properly signed
– Satisfies required security
– substantially responsive to the requirements:
» Subestantially doean’t affect the scope, quality, or
performance of the Works
» Substantially doesn’t limit Employer’s rights or the
Bidder’s obligations under the Contract
» Doesn’t unfairly affect the competitive position of
other bidders 20
 4.Bid Evaluation
– Error correction:
• Arithmetic
• Subtotals rule over total
• Words rule over figure except for arithmetic
discrepancy
– Evaluation:
• To be in accordance to the evaluation and
qualification criteria specified in the Bidding
Documents
• Shouldn’t include provisional sum but can include,
days work (if competed up on), discounts, variations
or alternative (including operational costs) offers
• No preference margin allowed 21
 5. Selection of Bidders
• Lowest bidder (eligible and qualified)
– Critics: It can often result in unreasonably low bids being
either accidentally or deliberately submitted which may
cause extensive delays, cost overrun, serious quality
problems, increased number of claims, disputes,
litigation etc.
– Modifications:
• France and Portugal: disqualify abnormally low bids
• Italy and Taiwan use nearest to average bids (Italy, lowest
nearest)
– Other use multiple evaluation criteria (e.g. Japan)
• Winner is the one scored the best on the ranked attribute

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 Components of a legally binding construction contract
• The Legal Part
– The Contract Agreement;
– The (latest) Minutes of Meeting, if any;
– The Letter of Acceptance(Award);
– The Tender ( NB: Including the Appendix to Tender, if
any);
– The Special Conditions of Contract;
– The General Conditions of Contract;
• Others, if any

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 Component of contract
• The Commercial Part
– The Performance Security Form;
– The Payment Security Form;
– The Advance Payment Guarantee Form;
– The Bid Security Form;
– The Insurance Forms;
– The Retention Money Security Form;
• The Technical Part
• The Technical Specifications;
• The Drawing;
• The Bill of Quantities;
• Schedule of Requirements, if any;
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 Major Form of Bid

Object: qualification and selection process in order to arrive at best advan

to the client in both price and efficiency!
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 contracting in Construction
–For fixed price contracts:
•Admeasurements (unit price rate) for roads, buildings and other
forms of construction where work may not be well defined
•Lump sum (with activity schedule) contracts for buildings and
works where design is finished and work is well defined
Forms of contract

Fixed price Cost Plus

Lump Sum Unit Price Cost+ % cost Cost+Fixed fee Cost+ Fixed fee with GMP

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 contracting in Construction
» Common forms of project delivery in CI

M a jo r fo rm s o f c o n tra ct

DBB DB CM P PP
• SBD documents suitable for only for ‘price
only’ tendering

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 contracting in Construction
• Documents covered in SBD
– Bidding Procedures
– Instructions to Bidders (Section 1)
– Bid Data Sheet (Section 2)
– Evaluation and Qualification Criteria (Section 3)
– Bidding Forms (Section 4)
– Eligible Countries (Section 5)
– Schedule of Requirements (all in section 6)
– Scope of Works
– Technical Specifications
– Drawings
– Bills of Quantities (or Activities Schedule)
– Contract
– General Conditions of Contract (Section 7)
– Special Conditions of Contract (Section 8)
– Contract Forms (Section 9)

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