School of Civil and Environmental Engineering

CEng5214: CONSTRUCTION MANAGEMENT

Chapter 6
Construction Project Management
Contracts Management

Fasil Tebeje
May 2020
 Contents
Contracts Management

1. Contracts Management
2. Conditions of Contract
3. Contract Administration
4. Obligation and Rights of Parties

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 1. CONTRACTS MANAGEMENT
1.1. General
 Contracts Management is a process of ensuring the
employer and the contractor fulfill all obligations they
agreed upon while signing the contract.
 It is also a process of managing contractual and
commercial issues, from project inception to project
completion.
 Contracts management encompass three main process:
 Contract formulation,
 Contract administration, and
 Contract closeout.

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 1. CONTRACTS MANAGEMENT
1.2. Responsibilities of Contracts Manager
 Contracts manager shall have the following role in the
procurement process and contracts management:
 Know the procurement process;
 Understand contract terms and conditions;
 Make sure contract contains all requirements
(attendance, report, actions and communications)
deemed necessary;
 Identify risk, incorporate mitigation and allocation of
risk in the contract;
 Help tailor the contract to the unique needs of the
situation; and
 Protect the integrity of the project and ability to get
work done.

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 1. CONTRACTS MANAGEMENT
1.3 Contract Formulation
 Contract Formulation: involves two sub processes,
namely; Negotiation and Signing of Contract Agreement.
 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 exclusively which will
become the basis for contractual agreements.
 Contract Agreement when signed forms the contract
document which will be the basis for Contract
Administration.

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 1. CONTRACTS MANAGEMENT
1.3 Contract Administration

 Administration: is a process that ensures the successful

completion of the project under consideration with
substantial compliance of the Terms of the Contract.

 It is managing contract relationships between

contractual parties, reviewing and documenting their
performance to establish required corrective actions and
provide a basis for future relationship, and managing
contract related changes.

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 1. CONTRACTS MANAGEMENT
1.3 Contract Administration
 Contract Administration activities include:
 Identify contractual responsibilities of stakeholders;
 Determining and understanding the construction components of
the project;
 Review submitted (Integrated) Schedules and Breakdowns for
operations such as Organizational Breakdowns, Resources
Breakdowns and Schedules and Time Schedules;
 Record, Monitor and Evaluate Progress of Mobilizations, Works
and Completions;
 Report Project Status daily and/or periodically and
Completions;
 Certify qualities of materials, shop drawings, samples,
workmanships and works;
 Measure Works, Record Site Potentials and Certify Payments
and Completions;
 Administer contract changes; and
 Mediate disputes.
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 1. CONTRACTS MANAGEMENT
1.4 Contract Closeout

 Contract Closeout is completing and settling each

contract, including the resolution of any open item, and
closing each contract applicable to the project.

 It looks into issues related to Maintenance Period and

Remedial works, Dealing with Left Over Claims and
Disputes (if any), Closing of Accounts and Completion
Certificates.

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 2. CONDITIONS OF CONTRACT
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, in order to establish or to
consolidate a fair and just contract.
 Purpose of Conditions of contract include:
 Balanced representation of all relevant industry
participants,
 Fair allocation of risk,
 Manage and mitigate project risks, and
 Facilitate a greater sense of partnership.
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 2. CONDITIONS OF CONTRACT
2.1 General
 Conditions of contract can be international or local.
 International Contract forms:
o ICE contract forms,
o NEC contract forms,
o JCT contract forms,
o FIDIC contract forms.
 Local contract forms:
o MoUDH 1959 contract forms,
o BaTCoDA 1987 contract forms,
o MoWUD 1994 contract forms,
o PPA 2006 contract forms,
o PPPAA 2011 contract forms.

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 2. CONDITIONS OF CONTRACT
2.2 FIDIC Contract Forms
 The Fédération Internationale des Ingénieurs-Conseils, FIDIC
organization was founded in 1913 by France, Belgium and
Switzerland, now with membership from over 60 countries.
 FIDIC contract forms have been accepted worldwide and
subsequently published starting from 1957 to the recent MDB
Harmonized edition in 2006.
 Historical development of FIDIC contract forms:
 1957 -First edition,
 1969 - Second edition,
 1977 - Third edition,
 1987 - Fourth edition, (with further amendments in 1992
and 1996),
 1999 - New four suites (paradigm shift both in structure
and contents), and
 2006 - MDB Harmonized edition. AAU, AAiT, Construction Management, Fasil
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 2. CONDITIONS OF CONTRACT
2.2 FIDIC Conditions of Contract
 Recently (1999 & 2006) FIDIC has published the following
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);
 Short form of Contract: The Short Form (Green Book);
 Conditions of Contract for Construction: For Building and
Engineering Works Designed by the Employer: Multilateral
Development Bank(MDB) Harmonized Edition, March, 2006,
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 2. CONDITIONS OF CONTRACT
2.3 Local Contract Forms
 The evolution of conditions of contract in Ethiopia dates
back to 1959.
 Historical development of local contract forms:
 MoUDH 1959 – General conditions of construction
contracts,
 BaTCoDA 1987 – Standard conditions of contract for
construction of civil works projects,
 MoWUD 1994 – Standard conditions of contract for
construction of civil works projects,
 PPA 2006 – General conditions of contract as part of SBD
not only for works but also for goods and services.
 PPPAA 2011 – General conditions of contract as part of
SBD not only for works but also for goods and services.

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 3. CONTRACT ADMINISTRATION
3.1 General
 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.
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 3. CONTRACT ADMINISTRATION
3.2 Variation
 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.
 The works are defined in the contract and are usually
described in brief at the beginning of the specification or
BOQ.
 Construction contracts contain wide provision for
variation.
 Variations: Sub-Clause 51.1 (MoWUD 1994, FIDIC IV); Sub-clause
13.1 and 13.3 (FIDIC 1999, 2006 MDB);
 Engineer’s power to order variation: Sub-clause 51.2 (MoWUD 1994,
FIDIC IV);
 Valuation 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
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Management, Fasil
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 3. CONTRACT ADMINISTRATION
3.3 Powers and responsibility of 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.

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 3. CONTRACT ADMINISTRATION
3.3 Powers and responsibility of 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).

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 3. CONTRACT ADMINISTRATION
3.4 Delays, time extension and liquidated damage
Delay caused by employer
 If the employer cause delay 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.

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 3. CONTRACT ADMINISTRATION
3.4 Delays, time extension and liquidated damage

Delay caused by contractor

 Delay of progress of works and failure to meet

completion time.

Remedial right of the Employer

 Liquidated damage.

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 3. CONTRACT ADMINISTRATION
3.5 Payment
 The payment procedures are thoroughly dealt in Clause
60 of MoWUD 1994 and FIDIC IV; Sub-clause 14.7-11
FIDIC 1999, 2006 MDB edition as follows:
 Monthly statement (interim payment) for progress
payments,
 Payment on certificate of completion,
 Payment after expiration of period of maintenance,
 Correction and withholding of payment certificates,
 Final account,
 Currency of payment.

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 3. CONTRACT ADMINISTRATION
3.6 Price Adjustment
 It is common to come across price escalation in
construction projects due to the following factors:
 Cost of material,
 Design and specification,
 Project specific factors,
 Competition and market condition, and
 Macroeconomic conditions.
 Therefore 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).
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 3. CONTRACT ADMINISTRATION
3.7 Default of employer and contractor
 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 terminate the
contract).
 Non-payment, late or under payment,
 None or late possession of site,
 Obstruction of works,
 Non-coordination of work of the main contractor,
 Failure to allow the engineer to function in an
independent role,
 Delay in providing drawings, information and
approvals.

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 3. CONTRACT ADMINISTRATION
3.7 Default of employer and 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,
 Defective works or materials.

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 3. CONTRACT ADMINISTRATION
3.8 Suspension
 The Engineer may instruct the contractor to suspend some
or all of the works as appropriate (Sub-clause 8.11 of
FIDIC 1999, 2006 MDB).
 If it continues for more than 84 days, the contractor asks
permission to proceed.
 If the engineer 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).

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 3. CONTRACT ADMINISTRATION
3.9 Termination
 Termination can be a result of completion, discharge of
obligation, default of one party, and 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 the Employer:
 Bankruptcy/Insolvency of the 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
 Suspending the execution of work for 28 days after received
Engineer’s written notice to proceed.
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 3. CONTRACT ADMINISTRATION
3.9 Termination
 Ground of termination by the Contractor:
 Bankruptcy/Insolvency of the employer; being a
company 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, it is
impossible for him to meet his contractual
obligations.
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 3. CONTRACT ADMINISTRATION
3.9 Termination
 If termination is due to default of the Employer, the
contractor has the right to be compensated for the
damages that arise from the termination which include:
 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).
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 4. OBLIGATION AND RIGHTS OF PARTIES
4.1 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 securities, indemnity and
insurance;
 Obligation to supply information and notice;
 Administrative obligation; and
 Obligation upon or after completion.

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 4. OBLIGATION AND RIGHTS OF PARTIES
4.2 Employer’s obligation

 The obligations of the employer, under the FIDIC 1999

and 2006 MDB Conditions of Contract, may be
generalized as follows:
 Payment obligation;
 Risk sharing obligation;
 Acceptance obligation; and
 Other obligations.

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 4. OBLIGATION AND RIGHTS OF PARTIES
4.3 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 of progress of the Works;
o Suspension; and
o Termination.
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 4. OBLIGATION AND RIGHTS OF PARTIES
4.3 Remedial right of the Contractor

Legal remedies
 Specific Performance;
 Cancellation of Contract;
 General damages; and
 Other remedies, if any.

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 4. OBLIGATION AND RIGHTS OF PARTIES
4.4 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; and
o Termination.

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 4. OBLIGATION AND RIGHTS OF PARTIES
4.4 Remedial right of the Employer

Legal remedies
 Specific Performance;
 Cancellation of Contract;
 General damages;
 Other remedies, if any;

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 THANK YOU!

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