Addis Ababa University

Faculty of Technology (Southern Campus)

Department of Construction Technology and Management

COTM 508 – Procurement & Contract Management

Wubishet Jekale Mengesha (Dr. Eng)
April, 2006

COURSE DESCRIPTION
Procurement and Contract Management: Processes, Applicable Laws and Regulations; Procurement & Contract D
 Procurement and Contract Management
Course Outline - Table of Content
Chapter 1. Introduction
1.1. General Description
1.2. Procurement & Contract Management Process
1.3. Applicable Laws, Rules, Regulations and Guidelines
Chapter 2. Procurement & Contract Delivery Systems
2.1. Definition, Types and Development
2.2. Logistics, Supply Chain / Network / Management
Chapter 3. Procurement Management
3.1. Introduction and Purposes
3.2. Procurement Methods
3.3. Procurement Management Processes
3.4. Statistical Approach to Procurement
Chapter 4. Contract Management
4.1. Introduction and Purposes
4.2. Contract Management and its Processes
4.3. Contractual Stakeholders and their Roles and Relationships
4.4. Contract Types
Chapter 5. Contract Changes Management System
5.1. Introduction
5.2. Requirement Changes Management System
5.3. Time Changes Management System
5.4. Price Variations Management System
Chapter 6. Claim and Dispute Management System
6.1. Introduction
6.2. Claim Management System
6.3. Alternative Dispute Resolution System
Chapter 7. Procurement and Contract Management in Ethiopia
7.1. Past Developments
7.2. Current Situations
7.3. The Way Forward
 Procurement & Contract Management
Chapter 1. Introduction

1.1. General Descriptions

Construction Industry involves procurement and contract management systems in order to ensure
fair competition and distributions of obligations and rights among stakeholders. Competition helps:

 the Project Owners’ to acquire the five rights (Counterpart, Cost, Time, Quality and Quantity) s/he is entitled to
 the Project Financiers’ and Regulators’ to value market principles and effective utilization of finance such
lowest qualified bids takes the project , and
that
 the Project Providers’ to get impartial and neutral Opportunity for business.

Obligations and Rights help to allocate appropriate risks among contractual parties and their
remedial rights. That is, their entitlements and provisions are clearly stated and agreed upon.

Project Owners shall consider its own particular institutional and technical SWOT (including
access to financing) before selecting which procurement and contract forms to adopt for its
projects. These include the design source, allocation of coordination responsibilities and the
pricing methods.

Each type of contracting affects, in its own way, the allocation of responsibility & the demands
on the Employer for coordination of the project. Through properly allocating these
responsibilities for the project to reflect the results and recommendations SWOT's, Project
Owners’ can rationalize the contract price against its exposure to project risks. Project Owners’
are at liberty to use either its own in-house capacity or to allocate them to one or more other
parties (Private and / or Public).

Procurement and Contract management has a strong linkage and relationship with Construction
Process and Stakeholders Management. The delivery system chosen, the procurement method
adopted and the contract types decided upon determine the construction process involved and the
relationships and roles of stakeholders along the process.

1.2. Procurement & Contract Management Process

Procurement and Contract Management involves three major processes: Contract Planning,
Procurement Management and Contract Management (Figure 1).

Contract Planning: Construction projects are components of a certain business or development

demands. That is, they are formulated if and only if such businesses or development demands
acknowledge their contribution and it is a must to involve them. This requirement is dealt during
the basic / strategic planning phase of the over all business. This phase often pass through the
identification, feasibility and financing
stages of Programs or Projects. Contract is a customary tool used to implement formulated
programs or projects. As a result, contract planning becomes part of this basic / strategic phase.

Figure 1: Procurement and Contract Management Processes

Contract planning includes decisions on proposed Delivery Systems, Procurement Methods and
Contract Types to be followed and used together with its provisions for alterations. This is
because such decisions are related to regulatory requirements such as:

 Ethical (Neutrality, Formality, and Impartiality);

 Economical: (Proof of Competition, Least Qualified and Evaluated Bidder);
 Accountable: (Obligations and Rights);
 HSE (Health, Safety and Environment); and
 Transparent: (Accessibility and Notice of Advertisement).

Procurement and Contract Management processes shall be based upon the approved contract
planning provisions; that is, the contract delivery system, the procurement method and contract
types decided upon. The approved contract provisions can only be changed following the change
process stated in the contract planning document and if and only if:

 the Environment and Context considered are not correctly analyzed or changed,
 their application can remarkably affect the objective of the project, and
 Procurement management process justifies change of the Contract Types.

Once the validity of the contract provisions are checked once again and taken for granted or other
provisions are devised; Procurement Management followed by Contract Management can be
initiated, planned, implemented, monitored and Closed.

Among the three important contract Planning Provisions, Procurement and Contract Delivery
system is dealt in Chapter 2. Procurement Methods and Contract Types are covered in their
respective management chapters (Chapter 3 and 4).

Procurement Management: is a process of selecting individuals or organizations to carry out the

intended services and / or works. Procurement Management is carried out based on the provisions
made during the contract planning phase of the Procurement and Contract Process. It involves the
preparation of procurement documents, their invitation and submission of tender proposals, and
Opening and Evaluation of tenders. On the bases of results from tender evaluations, the
procurement team will recommend the lowest responsive bidder for Contract Management Phase.

The following issues are necessary for a successful Procurement Management phase:
  knowing and ensuring the implementation of procurement related National and International laws,
rules and regulations,
 adherence to the provisions made during the contract planning phase including their change
processes, that is; wrt. Delivery Systems, Procurement Methods and Contract Types,
 establishment of a flexible procurement team, and
 adhering to the principles of Proof of competition, Impartiality, Neutrality, Accessibility and Formality.

Contract Management: is a process of reaching contractual agreement for implementation, its

administration and finally concluding the contract. Similar to the procurement management
process, it shall be based on the provisions decided during the contract planning phase. It involves
negotiation based on tender evaluation recommendations and signing of contractual agreement
followed by its administration for contractual implementation, progress tracking, and changes,
claim and disputes administrations.

The following issues are necessary for a successful Contract Management phase:

 knowing and ensuring the implementation of contract related National and International laws,
rules and regulations,
 adherence to the provisions made during the contract planning phase including their change
processes, that is; writ Delivery Systems, Procurement Methods and Contract Types,
 identifying, recognizing and involving all potential or key stakeholders to form a contract team,
 understanding, mapping and monitoring all contract conditions agreed upon, and
 ability to administer changes, claims and disputes.

1.3. Applicable Laws, Rules, Regulations and Guidelines

The following Rules, Regulations and Guidelines are useful for Procurement and Contract Management:

 Ethiopian Financial Laws and Ethiopian Procurement Regulations by MoFED

 Ethiopian Civil and Procedural Codes by MoJ
 Public Works Related Organizations Establishment Proclamations, their Policies,
Strategies, Duties and Responsibilities, such as MWUD, ERA, MWR, etc by FGovt
 Project Formulation Guideline, Volume II, MoFED, 2000
 ADB, WB, EC and Other Bilateral Donors Policies and IMF Regulations
 INCOTERMS, UNICETRAL and Other Internationally acknowledged Construction
Related Laws and Regulations
 Ethiopian Urban Planning & Building Laws - Draft
 Labor, Business, Intellectual Rights, Environment Protection, etc Laws
 Standard Instruction to bidders, MWUD – 1995
 Standard RFP for Construction Consultancy Services
  General and Particular Conditions of Contract: MWUD, ERA, FIDIC, WB, ADB, EC
 Construction related Codes of Practices such as EBCS 1 – 12 by MWUD
 Construction related CPN, draft – MWUD
 Construction Related Standard specifications by QSAE, MWUD, ERA
 Construction Related Regulations by Municipalities and RBWUD

These are covered in the Course of Construction Laws – COTM ….

Chapter 2. Procurement and Contract Delivery Systems

Processes – Stakeholders – Resources Integrations!

Planning – Implementation Integrations (Front – End Assessment)!
Public – Private Partnership (PPP)! by
Procurement and Contract Delivery System!!!

2.1. Definition,Types and Developments

Procurement and Contract Delivery system is the way Project Owners together with Project
Regulators and Financiers determine the assignment of responsibilities to Project Stakeholders
along the Construction Process. Procurement and Contract Delivery system is often determined
during the Basic Planning phase of Construction Project

Generally, there are six types of Procurement and Contract Delivery systems. These are:

 Force Account,  Finance / Build Operate System (BOT),

 Design Bid Build (DBB),  Construction/Facility Management Consultancy, &
 Design Build (DB) or  Alliances and Outsourcing.
Turnkey,

Such Procurement and Contract delivery systems are developed overtime and are shown in Fig. 2
below. The development was based on problem solving for the previous type and the
Development of the Construction Industry technologically and management wise.

Force Account - Since development started Design Bid Build (DBB) – 1950s / 1987
Design Build (DB) / Turnkey - 1970s Onwards / Mid 1990s Finance / Design Build Operate - 1980s / ……
CM / Facility Management - Mid 1990s / 2000s Alliances & Outsourcing – 2000s / 2000s

Figure 2: The different Procurement and Contract Delivery Systems and their development
overtime

2
.1.1. Force Account
When the Project Owners engage themselves to undertake the project, it is called a force account
delivery system. Often such a system is promoted if the Project Owners believe that there is a
comparative advantage in Cost, Time and Quality issues. Besides, when there is a lack of capacity
from the private sector to undertake very large
and technologically new projects, public companies do undertake such projects using Force account
delivery systems.

These days this type of delivery system is often used when projects are small and places are remote
such that reaching them is difficult and in general they are not attractive enough to call the attention of
Bidders. Besides when projects are spatially scattered and maintenance are to be done for schools,
colleges, health centres etc., such cases can be applied.

2.1.2. Design Bid Build (DBB)

This is the most practiced type of delivery system in the Construction Industry of Ethiopia since the
1987. After project owners did prepare the Basic Planning that identifies construction project
programs, they call upon the participation of Design and / or Supervision Consultants either by
tender or by negotiated contracts. This consultant will carry out the design together with the
necessary tender documents which will be the bases for tendering to select contractors. These
process is called Design - Bid - Build and hence the name for such delivery system.

In this type of delivery system , projects are divided into different packages interfacing to each
other. Though the design and supervision consultant will be the prime professional on behalf of
the owner and largely the administrator of the construction contract; the employer takes the
responsibility of coordinating the various project packages and their respecting interfaces.

Besides, designers have not been required to guarantee results but rather methods. That is,
they are held accountable on the basis of their superior knowledge and sufficient
competency and ability to design with a reasonable degree of technical skills. As a result,
contracts and courts focused on professional duty of care, not results or project goals.
Contractors are also responsible to construct works with due care and diligence and
complete them in accordance with the contract, but they are not held responsible for design
deficiencies.

Since the 1980s, this traditional approach becomes less popular due to the following factors:

 Severe Adversarial relations between the design and contract administration consultant and the contractor
 Fragmented contract for the project owner
 Project owner responsibility for risks associated with the design and contract administration
 Non - Impartiality of the Design and Contract Administration services
 The inability of design and contract administration consultants to cope up with new construction
technologies and constructability issues of their designs
  Severe adversarial relationships between Urban Planners and Architects on the one hand; and
Architects and Engineers on the other hand on building projects
 The indirect contractual obligation assigned for the Design and Contract Administration consultants
 The incompatibility of consultancy fee to the desired activities they are required to provide, etc.

The following standard forms of DBB Conditions of Contract are known for use for such delivery system:

 FIDIC White Book for Consultancy Services (Design and Supervision) and Red Book for Construction Works
 Standard Conditions of Contract for Construction of Civil Works, 1994; MWUD

2.1.3. Design Build (DB) / Turnkey

Design Build or Turnkey Delivery system is a response to problems associated to the last two types
of delivery systems. These were promoting privatization and its business like approach to enhance
the Force Account System and reducing fragmentation, adversarial relations and Project Owners’
risk which are recurrent manifestations in the DBB delivery system.

Design Build or Turnkey by principle reduces numbers of procurement processes engaged in the
fragmented process and employ only one procurement process and a single contractor to provide
the entire Construction Implementation Process (Design and Construction Implementations). In the
1970s, large firms began to offer both design and construction services in order to provide project
owners with a single source for project delivery. At the beginning, this delivery system was limited
to complex projects such as industrial, big plants and big infrastructural constructions.

DB delivery system is common worldwide specifically for Private projects. This led lead
contracting firms to form a team or consortium of designers and specialty contractors who work
together to meet the entire demand. Such services are initiated after the Project Owner built the
project concept during the basic planning phase and brought to the DB Contracting Firms. The
project concept should clearly define the performance criteria such as output, input, waste and any
other performances the employer may desire. This makes an additional responsibility to the
contractor which is ¨fitness to purpose¨ according to the Orange Book of Fidic. Fitness to purpose is
beyond the professional duty of care and places liability on the contractor for any failure of the
design to perform the standards required.

Typical advantages of this system include:

 reducing fragmentation and adversarial relations between designers and constructors;

 minimizing Project owners’ risk transferable due to Designers’ faults;
 accountability and entire responsibility for both design and construction which entitle the employer
to receive completed project is onto a single contractor;
 employers’ responsibility to co-ordinate interfaces between different project elements is avoided;
  single point responsibility minimizes the opportunity to claims by the contractor due to design related issues;
 coordination between design and construction processes will also be enhanced (both in
communication for constructability as well as in fast tracking); and
 the client budget or financial requirement is defined early enough in the development process.

For this type of delivery systems, either joint ventures or firms with large design and construction
capabilities were able to participate.

The disadvantage of this delivery system is loss of control, cost of tender and cost of risks.

 Since limited supervisory role by the employer representative is practiced; which is relatively
flexible and makes the employer distanced from the whole process, the employer has little chance to
understand what is developed and entertain variations in requirements implying loss of control.
 Contractors in order to provide reasonable offer, their tender cost is higher than in the case for DBB
delivery system. This is because they need to carryout acceptable design for project cost offers.
Though it was not practiced often, employers who shared costs related to tendering are informed to
get seriously considered offers. World Bank suggested a Two staged procurement method based first
on technical merit and followed by financial competition and not for more than six bidders.
 The increase in risk transferred onto the contractor will be counterbalanced by the increase in
contract prices which can be taken to include these costs of risks.

Projects carried out using DB delivery system are often called Turnkey Projects because a single
contractor is responsible to hand over the completed facility and let the Project owner to turn the
key and gets in. Often Turnkey projects use Lump-Sum contract type which will be discussed in
section 4.4. The following standard forms of DB Conditions of contract are known for use for such
delivery systems:

 FIDIC Orange Book

 ENAA Model Form International Contract
 ICE Design & Construct Conditions of Contract
 EIC Contract
 AIA Contract Form A191
2.1.4. Finance / Build Operate Transfer (BOT)

Build - Operate - Transfer is a form of procurement and contract delivery system that promotes Public
Private Partnership (PPP) in which a private company is contracted to finance, design, construct, and
operate for a certain period (usually 10 years) and transfer. BOT contractors look to project financiers for
the realization of projects through equity contributions or credits. Such provisions are different from
budgetized finances such that they involve no or limited re – course which means the project owner is not
responsible for any liability other than force majeure and agreed upon claim adjustments. This obliges that
projects should first be viable for revenue generation in order to payback its depts.

The Typical BOT contract is the process whereby a government grants a concession to a project
development company to develop and operate what would normally be a public sector project, for a given
period of time known as the concession period. BOT project involves a potentially complex contractual
structure. The Operation period between completion and transfer gives the contractor an opportunity to
verify the quality of the output of the services and works, and train the employer personnel on how to
manage the facility afterwards. In some BOT contracts, defect liability period will be included in order to
ensure the quality of the facility during transfer. This is because, operators in an attempt to save costs, may
decrease operating and maintenance expenditures towards the end of the concession period.

This delivery system is advantageous because of three major factors:

 it minimizes owners’ scarcity of financial resources;

 It devoid of considerable risks from the project owners and lesson regulatory activities; and
 the facility is well operated and transferred with free of charge or minimum compensations to project owners.

is advisable
Such delivery system requires appropriate packaging of projects and their definition clearly. It to start with
small projects and tries to develop experience and expertise to make such delivery system successful. Most
BOT projects failed because of their built up and engagement in very large projects which is an extremely
risky business for contractors. Consortium of contractors is used to carry out such projects. The increasing
popularity of the BOT project is largely due to a shortage of public funding and the opinion that the facility
will be more efficiently managed by a private entity.

The following standard forms of BOT Conditions of Contract are known for use for such delivery systems:

 FIDIC Yellow Book

2.1.5. Construction / Facility Management Consultancy

Construction Management Consultancy Delivery System is a response to problems associated with DB and
BOT where the Project Owner was not well represented for its benefit and the problem of fragmentation
between Planning and Implementation. As a result, construction management consultancy firm is used to
coordinate all activities from
concept inception through acceptance of the facility. Facility management consultancy adds operation of
facility during operation to Construction Management Consultancy.

Construction Management service in such delivery system include the management activities related to a
construction program carried out during the Basic Planning, Design & Construction Implementation and its
completion process that contributes for the successful completion of projects. The main difference of this
delivery system is that, while all the others involve only during the implementation phase after major
decisions was made during the Basic planning phase of the construction process, it is involved in the whole
construction processes.

Construction Management Consultancy service are particularly attractive to organizations that involve in
construction physical infrastructures such as MoE, MoH, Real Estate Organizations, MoWRs, MoT&C,
etc. Construction Management Consultants then represents Project Owners to carry out the following
services:

 Feasibility studies of Construction related services

 Plan and Monitor the Triple Constraints of Project Performances
 Lead and Organize regulatory systems of the Construction Industry
 Valuation, Quantity Surveying and Procurement and Contract Management Services

2.1.6. Partnering, Alliances, Outsourcing and CE & JIT (Running and Specialized Delivery System)

The need for constructing quicker, cheaper and to a higher quality of physical infrastructure by clients and
at the same time with very minimized or no dispute questioned fragmentation of packaging, costs related to
wastes and overheads, single staged procurement systems, involving in less competitive and comparative
advantage for services and works and existing stakeholders relationships. As a result,

 running delivery system using Partnering and Alliances,

 specialized delivery system using Outsourcing,
 fast tracking, parallel and coordinated implementations using Concurrent Engineering and Just in Time principles

which focuses most on management of relationships and value adding to ensure quicker, cheaper and
quality services and products with less disputes are recent developments. These systems require to
overcome cultural and behavioral barriers among interest groups and control motivated performance based
management. These types of delivery systems are often the bases behind DB, BOT, FM\CM consultancy
delivery systems but their at most and recent developments.

2.2. Logistics, Supply Chain / Network / Management

Shall be covered in Principles of Construction Management, CoTM - …..

Chapter 3. Procurement Management

Impartiality, Accessibility and Neutrality!

Proof of Competition, and Avoidance of Subjectivity!
Formality and Notice of Advertisement!
The Five Rights (Quality, Quantity, Cost, Counterpart and Time)!
Can they be achieved using Procurement???

3.1. Introduction nd
a Purposes

Procurement is a process used to select the lowest competitive and qualified bidder for procuring services or
works or goods from potential competitors based on reasonable relevant criteria. It can also be expressed as a
method used to employ or buy services or works or goods for the value (in the form of money) which
includes reasonable profit. Essentially, a bid or tender is a binding offer or proposal to furnish certain
specified promises for the amount stated in the tender.

Physical infrastructures are cost extensive and appropriate savings obtained through competition are the main
factor behind the procurement process. An effective and efficient procurement method ensures the following
rights called the "Five Rights". These are The Right Quality, The Right Quantity, The Right Cost / Price /, The
Right Counterpart and The Right Time.

The Right Quality: It is indeed wasteful and not necessary to spend time, money and all the efforts for
procuring unqualified services or goods or works. Therefore, it is essential to ensure whether such
procurements are of the right quality. Right Quality is always based on two major factors. These are the
technical expectation and the economic consideration, i.e.; Price & Availability.

While the technical quality can be insured by the provisions of specifications and checking their
conformance reliability of the intended job; the economic consideration can be taken into account by the
competition initiated using procurement processes. This implies that a tender document should, as much as
possible, clearly specify the quality requirements and allow participation of qualified and experienced firms
for tendering.

The Right Quantity: The quantity should be computed carefully and included in the BOQ correctly. This is
because it has an effect on the project cost and site organization which is the bases for offering the right
price. If the quantity is found mistakenly small, it will have consequential effects such as:

 Project Budgeting will be affected due to excess quantities

 Construction planning will be affected and cause under stocking
 Tenderers can manipulate their offer due to it
 Overzealous contract administration is caused, and
 Contractor cash flow will be affected.
On the other hand if the quantity is mistakenly more, it will cause high stocking, more storing places and risk
of spoilage; unhealthy practices due to over budget provisions; and manipulation in tendering. Therefore,
provisions of the right quantity resolve the occurrences of the above stated effects. Two major factors that can
play important role in providing the right quality are Take-off-Sheet Measurements and Resources
Allocations.

The Right Cost / Price /: In strict terms the right cost usually relates itself very much to the quality expected
to accomplish the task. It is clear to say that it is difficult to get the right cost, however to approach it, is a
possibility. That is one of the causes for procurement to be processed. Tendering together with negotiation
and market intelligence techniques is the only way that ensures the right cost and accomplishing the task
successfully. Competition is the bases for determing the Right Cost or Price. Here, the most important
proverb professionals shall attend to is:

“Don’t let the Best be the Enemy of the Good!”

The Right Counter Parts: This is to guarantee that the parties agreeing to accomplish the task shall be fit to
the job. That is, the Project Owner should know what his needs are as accurately as possible, be competent
to act as an Employer and should possess the finance. The Consultant shall exercise reasonable skill, care and
diligence in the
; Performance of his obligations. If authorized to certify, decide or exercise discretion, the Engineer do so
fairly between the client and the third party not as an arbitrator but as an independent professional acts by his
skill and judgement. The contractor shall be able to execute and maintain the task successfully with due care,
diligence and provide all labors including supervision thereof, materials, equipment, etc. Therefore, with the
help of tendering, it is possible to select the right counterparts.

The Right Time: The right time for the provision of resources and accomplishment of obligations of each
party shall be set and agreed. This usually relieves the extra cost incurred on the parties which will make
them to suffer. Besides if the project is not completed at the right time, its effects are devastating. To insure
prevention of such happenings scheduling with regard to right timing is essential.

Purposes: The purposes of a Procurement Management System can be summarized into two major points:

1. To satisfy the need for economy and efficiency, and

2. To provide equal opportunity to competitive bidders.

The successful achievement of these purposes requires the following seven characteristics (Figure 3):

Notice of advertisement: The advertisement shall be made on an official newspaper, mass media, and
notice boards etc. which can enable the advertisement to reach wide range of competitors.
 Notice of Advertisement
Avoidance of Subjectivity Proof of Competition

Characteristics of tendering
Accessibility Impartiality

Figure 3: Seven Characteristics of Tendering

Formality Neutrality
Proof of Competition: Tendering shall be as much as possible proof of competition. Unless otherwise conditi ons
such as complexity, specialisation of projects require restriction to open competition, tenders should be
unlimited competition.

Neutrality: When the specifications are prepared care shall be taken to avoid preference to limited
alternatives, provided quality is not compromised. Therefore when specifications, whether standard or
particular, are prepared; neutrality shall be adhered as much as possible. Besides, the bidding documents
(contract conditions) which the parties agree with shall be balanced so as not to cause disruption of the task
to be accomplished.

Accessibility: The place where bid documents are purchased shall be clearly indicated. The bid documents
shall be complete and clear. The purchasing cost of bidding documents shall be nominal to cover
reproduction and mailing costs. The place, dates and time for submission shall be notified. Sufficient bidding
period shall be given. Besides the amount of bid security should be reasonable enough not to discourage
bidders to participate, usually 1 - 5% of the bid amount is practiced.

Impartiality: During tendering if clarification is requested, do so accordingly but to all participating bidders
lead to partiality or preference. so as not to Often Pre-Bid Submission Meeting is used for this purpose.
Negotiation is not allowed during tender period.

Formality: Strict adherence to the submission & opening of bids, i.e., place, date and time, and rejection of
late and non- responsive bids shall be a formality to all tenders. Besides, forfeiture of bid bonds to those
bidders violating the bid security condition shall also be a formality to all tenders. As part of the formality;
the Employer, the Funding organization, if different from the Employer, the Works to be executed shall
shortly be described.

Avoidance of subjectivity: Criteria for evaluation shall be strictly set out in the instruction to bidders’ part
of the bidding document and all evaluations shall be carried out accordingly. Hence, award will also be done
accordingly for the lowest evaluated and qualified bidder.

3.2. Procurement Methods

Procurement types can be classified based on the things to be procured and the way how they are
procured. There are six bases for classifying procurement methods. These are:

Things Bidders’ Geographic Procurement Procureme

al nt
Bases Procured Coverage Awareness
Coverage Steps
Types Goods Competitive International General Single
Service Negotiated Regional PN Two
s National SpecificP Staged
Works Local N Pre – Qualification
Post - Qualification

 Things to be Procured: Goods Vs Services Vs Works

Based on things to be procured, procurement types can be classified into three major categories; namely,
Procurement of Goods, Services and Works. Depending on the delivery system chosen during the
contract planning phase, mixed types of procurement types can be adopted.

Procurement of Goods: Physical resources used as components for undertaking consultancy services
and/or construction works such as Materials and Equipment’s are made available using Procurement of
Goods.
Procurement of Services: In the construction Industry procurement of services are often termed as
consultancy services procurement. These include services like pre-feasibility and feasibility studies, design
and contract administration of projects, Construction management consultancy services, research or study
based consultancy services, etc.
Procurement of Works: In the Construction Industry procurement of works mean the procurement of
contractors to carry out the actual physical infrastructures.

 Bidders’ Coverage: Competitive Vs Negotiated Tendering

Generally, procurement types can be classified into Competitive and Negotiated Tendering when bidders’
coverage is taken as a basis for classification.

Competitive Tendering: The objective of competitive bidding is to acquire the goods, or works, or services at
the most economic cost to the project owner. This type of tendering is commonly used for the selection of
better and capable winning bidder among the various eligible firms. Competitive bidding can either be Open
or Limited Competitive Bidding in the form their invitations.

As their name implies, while Open competitive bidding allows all eligible bidders to participate; Limited
competitive bidding allows a number of selected firms decided by the Project Owners in consultation with
concerned parties for qualification. The major difference between open and limited competitive bidding is the
addition of qualifying criteria beyond eligibility imposed on the procurement type for limited competitive
bidding.

Limited Competitive Bidding is often used when the nature and urgency of the work justifies to do so. In this
case limited numbers of eligible firms are invited to participate for the bid. Commonly short listing is done
based on the firms past
performance, work load at present, presence of a firm in the vicinity of the projects, knowledge of similar
type of works before and financial and technical capabilities of the firms. Besides, the listing shall take into
account the renewal of licenses of the firm and the specific requirements of the employer. These are some of
the qualifying criteria used for Limited Competitive Bidding. In such tendering, bidders can not be rejected
as non-responsive for being unqualified technically. Usually in such type of procurement, cost of projects
might be higher than expected. To minimise such effects, capable and competent professionals shall
negotiate with the winning firm.

Negotiated Tendering: Under certain circumstances, which shall be rare in practice, direct appointment of an
eligible firm can be exercised by Project Owners. The nomination of this direct invitation is usually based on
good performance, acquaintance with the Project Owner, for supplementary agreements, etc. This kind of
tendering is exceptionally exercised when the project under consideration is very urgent or needs special
skill whereby the required skill is rarely available. The main disadvantage of this type of tendering is that the
price offered can usually be higher than the competitive bidding.

 Geographical Coverage: International Vs Regional Vs National Vs Local Tendering

Procurement can be made using either of the four methods based on geographical coverage: these are
International, Regional, National and Local Tendering. Such types of procurements are generally caused
by three major factors. These are Local Capacity, Financial Sources and Globalization.

When projects could not be carried out by local capacity, project owners are forced to make tendering out
of their localities. Policies of the financial sources dictate the type of tendering geographically. For
instance, donor financed projects are often practicing International or Regional Tendering. The World
trend for Globalization and the principles of Free Trade and Trade Liberalization also encourages
international tendering. In practice, Preference Margins in the range of 7% are applied to local, national
or regional tenderers, which imply tender offers higher than 7 % will be given preference to encourage
local participation.

 Procurement Awareness: General and Specific Procurement Tendering

To enhance proof of competition and increase accessibility, projects are recommended to create
awareness starting from its initiation. Following this requirement, General Procurement Notice is made
during projects planning phase and it is only interests of the bidders are aroused because sufficient tender
documents are not available. This approach is used:

 The Project Owners to

o identify interested bidders to issue Invitations by letters and save time;
o identify bidders relevant for the procurement required; and
o protect loss of cost in preparing lots of tender documents.
 The Bidders to:
o give sufficient time to assess the cost of the project;
 o protect loss of cost only to participate; and
o encourage competent bidders who wary about law-balling to participate.

General Procurement Notice (GPN) is of two types. These two types are based on their purpose why and
when they are notified. The first type is when the purpose is to create awareness and let bidders’ prior
information about upcoming projects such that they can follow up its development and include them in
their plan. This type of GPN is used for procurement of works and goods and is often announced as soon
as the design implementation service is started. The Second type is when the purpose is to determine
interested bidders who could be invited in the form of Limited Competitive Tendering. This type of GPN
is used for procurement of services and is often announced after financial sources are determined. GPN
covers the Employer and its financiers for its project; Description of the project with its probable or
planed implementation time; type of procurement method and address where further information can be
obtained.
General Procurement Notice Further information can be obtained from:

The Gov. of Ethiopia has applied for / received a from thefor Euro which is used towards the,
(1)……………………………...
………………………………….
………………………………….
The project consists of the following components
planned to be completed over the 5 – Year period of(2)……………………………….
…………………………………..
……………………………………..
…
.,..(3)……………………………….
……………………………………..
……………………………………..

Procurement for will be under ICB

Specific
and Procurement Notice (SPN)
IFB will be advertised is anand
in local Invitation for Tender Number
selectedReference or a Request for Proposal when the project is ready
foreignnewspapers.Procurementfor
will be under LCB advertised locally.
for implementation. SPN can be sent to those interested bidders identified following GPN directly. Otherwise, i
should be advertise on the bases of enlarging opportunities. The contents of SPN are similar to The Form t
Invitation to Tender covered in section 3.2. o
f

 Procurement Steps: This includes Single Vs Two Staged; and Pre - Vs Post - Qualification Tendering.

Single or Two Staged Tendering: Procurement can be made using a single or two staged tendering
process. They are related with whether tender packaging for submission separately and their evaluations
are staged for a single or two steps when invitations are made. Often two staged biddings are made for
the submission of technical and financial proposals separately and their evaluations one after the other.
According to Ethiopian Procurement Regulations, the following shall be enforced to use Single or Two
Staged Tendering:

Pre or Post Qualification Tendering: Procurement can also be based on Pre - or Post - Qualification processes.

Prequalification is an internationally accepted practice in procurement management. It would normally be

required for civil works contract of which its nature and cost is large and complex. So far in our country,
there is no regulation on such applications but practiced based on Project Owners, Regulators and Financiers
initiatives. It is a procedure in which
Eligible bidders are invited to provide evidence of their ability to perform the services required by the employer.
Prequalification is desirable because it enables the Employer to establish the competence of companies
subsequently evaluated. It is also in the interest of contractors since, if pre-qualified, they will know that they are
competing against a limited number of other firms, all of whom possess the required competence and capability.

Pre - qualification can be of two types. The First is when companies are already considered qualified
during their licensing requirements which entitled them for a single stage tendering process. For such
types of tendering, the most important tender evaluation criteria become the low priced bid. The Second
is when two staged tendering is used to pre-qualify tenderers’ for their technical competency. Once
bidders qualify for the tender, either the lowest priced bidder or the lowest evaluated bidder based on the
weighted average of the technical and financial scores will be recommended for award.

The advantages of pre - qualification in procurement are:

To the To the Bidder
Employer
 Protect the employer against unqualified bidders  Saves bidders from the cost of preparing bids
 Quicker Evaluation for only pre-qualified bidders  Assure pre-qualified bidders for their bid
considerations
 Ensure award to least evaluated not lowest bidder
 Reduce low balling bidders from participation
 Assess level of interest shown by bidders
 Make bidders to be better planned
 Show competency & methods of implementation

Pre - qualification should be based entirely on the ability of the bidder to carry out the required works
satisfactory. The following criteria are often used in determining this ability of the bidder;
 Experience and past performance,  Organizational arrangement and facilities,
 Health, Safety and Environment Records, if  Financial Status, and
any,
 Schedule of Commitments.
 Capability in respect of personnel and
equipment,

FIDIC, 1994 recommended a procedural Flowchart for Procurement for Prequalification; however, it is
presented here with little modification to suit the current practices (Figure 4).

Post - qualification is a tendering type where Financial Evaluation is carried out first and rank bidders on the
basis of their offer for tender price. That is, Technical Evaluation will be done after the Financial
Evaluation. However, Technical Evaluation is performed step by step starting from the lowest
financially evaluated bidder until technically or cumulatively qualified bidder is determined. The
advantage of this approach is not to loose the lowest financially evaluated bidder and to save
time during technical evaluations. However, Post qualification approaches often cause to fix
evaluators on financial results and be locked and biased for successive technical evaluations.
Discussion Points:
Merit and Demerits of the different Procurement Methods
 Procedure
Employer / Consultant Contractors
Procurement and
Contract Strategy
 Delivery System
 Procurement Method Awareness on Future
Contract  Contract Type Business and Follow Up
Planning Phase  Action Plan

Pre-qualification
Documents  Letter of Invitation
 Information about Collect information about
Tender Document prequalification procedure the project and its location
Preparation  Project Information
 Prequalification Application
Invitation To
Pre-qualify  Advertisement
 Project Scope, Location, Source of  Check Eligibility
Tendering finance  Check Competitive
 Issue, Submission and Opening Advantage
Phase  Collect Information
dates of Tenders
 Instructions to pre-qualify and  Decide to participate
evaluation criteria
Figure 4.: Procedural
Issuance & Flowchart for Pre-qualifying Bidders
Submission of  Organization, Structure & Experience 
Request and Obtain Pre
3.3. Procurement
Pre- Management
qualification Processes
 Resources (Financial, Managerial, – Qualification docs.
Technical, Labor, Plant, Stock, etc)  Request & Obtain
docs.  Current Commitments Clarifications
Procurement Management process can be idealized
 Acknowledge Receipt into three major processes. These and
 Complete include
SubmitPre paration,
Tendering Docs and Relevant
Tendering, and Evaluation (including Award Recommendation) Processes (Figure
Phase Info.5).

Opening &
Analysis of Pre –  Open Tender in the presence of
relevant attendee Attend Tender Opening
Qualification  Evaluate for Eligibility, Technical, Ceremony
Procurement
OrganizationalTeam
, Financial Capability Preliminary Evaluation
Tender Evaluation Tender Document Detail Evaluation
Phase Approval of Tender Docs Award Recommendations
Selection and
Notification of
Tenders  Procurement
Pre-qualified tenderers are selected Tendering
Acknowledge & Confirm Tender
 Winners are Notified
Preparation (Invitation -Intention
Opening) to participate in Evaluation
Tender Evaluation succeeding tender
Phase List of Tenderers
Figure 5: Procurement Management
InvitationProcess
Clarification
Submission and Opening
Procurement ara tion phase is meant for the formation of a Procurement Team; the preparation of Tender
Prep
Documents and their approval for procurement implementations.

Procurement Team: Ethiopian Procurement Regulation states that a Procurement team consisting of a
minimum of five members shall be established. As Tender Evaluation is a joint technical and commercial
exercise, the project owner shall consider that the necessary experts shall be composed in the procurement
team.

Tender Documents are prepared to:

 Instruct bidders on the procedures for the preparation and submissions of bids,
 Inform prospective bidders about the nature of things to be procured,
 Inform bidders about the criteria for evaluation and selection of the successful bidder, and
  lay down the contract conditions, delivery system, procurement methods and contract types of the project.

Tender documents include:

 Form of Invitation to Tender or Request for Proposals;

 Instruction to Tenderers (Standard and / or Particular information) or Terms of References;
 Prequalification Documents if necessary – Refer procurement methods based on stages (Section 3.2);
 Forms of Tender - Refer Contract Documents (Section 4.2);
 Forms of Contract Agreement - Refer Contract Documents (Section 4.2);
 General and Particular Conditions of Contract – Refer Contract Documents (Section 4.2);
 Bill of Quantities and Drawings - Refer Contract Documents (Section 4.2);
 Technical Specifications & Methods of Measurement – Refer Contract Document (Section 4.2); and
 Other Forms, Formats and Schedules – Refer Contract Document Parts (Section 4.2).

Tender Documents shall also be covered in Construction Laws – COTM …..

Form of Invitation for Tender (IFT) is a requisition for interested bidders to participate for the procurement of
services / works / goods. They shall be:
 in accordance with the approved provisions of the contract planning phase and applicable laws
 made public through the wide covering media, newsletter, notice
boards, etc Usually Invitations for Tender include:
 Name and address of Institutions issuing the invitation and Clarification if requested,
 Objective and Requirements of the Invitations,
 Stages and accordingly qualification terms
 Brief descriptions of the project
 Sources of Fund and Eligibility requirements
 Completion time, if necessary
Instruction
 Date, to Bidder
Place,(ITB)
Timeis and
intended to acquaint
Conditions potential
to get, submit competitors
and openwith the nature of the tender and shall provide all
tender
the necessary information to enable bidders to prepare their offer in accordance with the requirements of the Project
documents
Owners. Sample
Whenever Form forit Invitation
necessary, to Tender by particular information which cannot be standardized or
will be supplemented
generalized in the General ITB document. The ITB document includes:
 Introductory Parts covering sources of fund, description of the project, eligibility and qualification
requirements, and necessary obligations concerning the cost of tendering, site visits, etc.
 Tender Document Parts eliciting the contents, clarification and amendment processes.
 Tender Preparation Parts which states the language, documents comprising and their precedence,
form of tender and appendix thereto requirements, and alternative offer and formats and signing of
bids requirements.
 Tender Submission part stressing sealing and marking of bids, deadline for submission of tenders,
and modification and withdrawals.
 Tender Opening and Evaluation Parts covering procedures and criteria for opening and evaluation of
tenders, and preference for domestic or regional preferences.
Approval
 of Tender
TenderAward
Documents: Regulatory
Parts stating requirements
Award criteria enforced
and procedures, for:
and Rejection Rights and
Obligations Samples can be:
 Budgeting, Credit, Assistance and Grant Policies;
 Particular Instruction to Bidders, MWUD 1995
 Health, Safety and Environmental Requirements; and
 FIDIC White Book
 Professional, Ethical and Legal Requirements
 demand checking, renewal and approvals of Tender Documents. Check list for review is the best
practice used for Tender Documents approval.

Prepare Checklist for

 Request For Proposal including Proposed Program and Terms of References
 Architectural, Structural, Electrical and Sanitary Preliminary and Final Designs
 Feasibility Studies for Big Projects
 Road and Bridge Designs
 Water Works Designs
 Contract Documents
Tendering Phase des Invitation, Clarification, Submission and Opening of tenders. Normally open tenders are
 General Points
inclu floated for a etween 30 to 45 days. Limited and Negotiated tenders can be invited between 7 to 15 days.
period b
Invitations shall widened opportunities to the project owner by reaching all potential and eligible
competitors. The invitation to tender shall clearly state:
 the owner and his desirous service or  how long the tender will be floated,
works
 how should the tender offer be packed, and
 eligibility requirements,
 when and where submission and opening of
 place to get further information,
tender will take place.
 where to purchase & submit tender
documents,

Clarifications can either be requested by interested bidder or carried out using a pre - tender clarification
meeting. In both cases, issues clarified shall be sent (written) to all bidders participating for the intended
services or works. The bidders shall submit their offer on or before the submission date and time. Late
bids are automatically rejected.

Tender Opening: Bids shall be opened in public on the date, at the time and place mentioned in the
invitation to tender and stipulated in the tender documents. Ethiopian practice in tender opening for public
construction projects is that, two representatives from MWUD in addition to the Project Owner, Consultant
(if available), and Contractors (Who wish to attend) representatives shall attend during the tender opening
ceremony.

The following will be carried out during tender opening:-

 Tender Attendee members shall take their place and be registered,
 Tender box opened and checked for faulty things,
 Check the tender is the right one,
 Bids will be opened one after the other,
 All necessary data which deem useful such as Project Name, Name of bidder, Bid Bond Amount, Tender
Price, etc. will be read aloud and recorded at the opening of bids.
 Bidders representative shall sign a register to attest their presence during opening, and
 Tender committee members shall sign on the Tender documents.

Sample for Bid Recording Format for Basic Data during tender
opening

Project:
Bid Submission Date:
Employer:
Bid Opening Date:
 Tender Completion Currency Performance Alt. Tender Advance Other
Bidders’ Offer Time Requirement Security Offer Security Payment Rebate Remarks
Name s w/Amoun
t

Procurement Team Bidders Who Choose to Attend Others

Name Signature

Tender Evaluation Phase: is made to determine and make award recommendation for the least evaluated
bidder using preliminary and detail evaluations. The recommended winner may or may not necessarily be the
lowest bidder. Factors such as technical qualification, completion time, commercial terms of the offer, etc are
used in determining the least evaluated bidder.

Preliminary Evaluations are made for Eligibility and Arithmetic Review requirements. Before
commencing the actual evaluation, it is useful and recommended to complete a Basic Data Sheet for
each tender to record key information and enable coding.

Eligibility Requirements: Tenders are subjected to eligibility qualifications before they enter to bid and
their respective evaluations. Most often sited issues considered in eligibility requirements are:

 Valid & Up to date Trade and Professional License,

 Turnover requirements fulfilled
 Valid & Up to date Membership to Financier
Organizations,  Power of Attorney, Signature and Sealing Requirements, and

 Valid provision of Bid Security or Bond,  Appropriate Invitation, Packaging and

 Completeness and submittals of all required Submission Requirements.

documents,

These eligibility requirements together with basic alterations of the conditions of the tender will be considered for
responsiveness or not. If the bidder offer provided weighs a major deviation from the tender condition, the tender
will be considered non - responsive and could not be further considered. But if it is minor deviation, either the
procurement team use their discretionary power to request clarification or the case will be recorded and taken up
during negotiation if the respective winner become the least evaluated tender. When the first approach is chosen, the
bidder is not allowed to change any information that can substantially affect the tender evaluation. For guideline
during tender evaluation; table - outlined when a tender is considered major deviation or not.

Major Deviations Minor Deviations

 Affecting the validity of the bid  Do not affect the triple constraints of the project
 Rejection or Disqualifying conditions stated  Do not result in change of Bid Price
 Substantial effect on the Bid Price  Non conditional tenders

Arithmetic Review: Most tenders are often submitted hastily. As a result, tenders are not arithmetic error free. If
tenders are processed without arithmetic checks, on the first place tenders are not evaluated on the bases of equal
merits and if they become binding contracts being over-sighted, they will be the cause for potential disputes.
Therefore, it is a formal evaluation
process to review arithmetics before carrying out detail evaluations. Arithmetic review can be done if and only
when financial proposals are opened.

Detail Evaluations include Technical, Commercial and Financial Qualification requirements. Evaluations
at this stage should first and foremost critically see the technical and commercial offers and establish
system that can ensure common bases for comparison. Finally, the Financial offer will be updated using
Absolute Results from Commercial comparisons

Technical Requirements: See Pre Qualification, Section

Commercial Evaluation: This includes Benefit Forgone due to Completion Time; Additional Costs due to
differences in Foreign Currency Exchange and Advance Payment requirements ; and Provisions of Domestic
or Regional Preference Margins.

 Benefit Forgone due to Completion Time

When tenders are offered with different completion times, comparisons are made to determine the benefit
forgone taking into account the least acceptable completion time as a basis for competitions. The Benefit
Forgone (BF) due to additional completion time can be computed using the following expressions:
BF = (FV – TO) / (1 + i)n; FV = TO (1 + i)n
TO = Tender Offer after Arithmetic Check; n = Completion time in days
i = Discount Rate = 0.05 % per day = 1.5 % per month; FV = Future Value

 Additional cost due to

o Foreign Currency Exchange requirements
When tenders have provisions to quote different currencies, their comparison will be made based on
determining their effects due to the additional cost incurred fro variations in currency exchange
requirements. It is then recommended to convert all tender prices into one currency; often the
Financiers’ or other widely used and accepted Currency called Common Currency. For currency
conversion, selling rates of Bank published by an official source and applicable for transactions shall
be used.

Additional cost due to Foreign Currency Exchange requirements can then be determined using selling rates at
 15 days prior to tender submission date
 Tender Opening Date
 Decision for Award or Expiry of Tender Validity date
o Advance Payment
When different amounts of advance payment are requested as part of the tender offer, one could not
directly evaluate the tender price and determine the lowest evaluated bidder. This violates the principle
of competition on the same bases. Therefore, the evaluation should take minimum advance payment
request as a basis and consider others for additional cost incurred due to different mobilization
advance requirements.

The Additional Cost due to differences in mobilization advance requirements can be computed from
the following expressions:
 APAC = {(AP x TO) / 100} – PV; PV = A x PWF; A = {(AL%) x TO} / n; PWF = {(1 + i) n – 1} / {i(1 + n)n}
AP = Advance Payment Requirement in %; TO = Tender Offer after
Arithmetic Check; i = Discount Rate = 0.04 % per day; n = Completion time
in days
PWF = Present Worth Factor; PV = Present Value

 Domestic and / or Regional Preference

Domestic or regional preference margin is a provision to give preference to local companies even if their bid
offer is not over by a percentage often equals 7.5 - 10 % for construction works. This implies that domestic or
regional companies can be awarded the tender even if they are not lowest in tender price of the evaluated
bidders using all the other criteria.

A contractor can be eligible for such preference margin if and only if;
 Its legal constitution is in accordance with the Employers’ Country / Region
 It is registered according to rules and regulations of the Employers’ Country / Region
 It has proof that its majority of works are undertaken in the Employers’ Country / Region
 Its majority of capital shares are held by the Employers’ Country / Region nationals
 Its majority of the board of directors members are the Employers’ Country / Region nationals
 Its 50 % key personnel are nationals of the Employers’ Country / Region
 Its arrangement to execute the work should not involve major part of its work or net profit other than
the Employers’ Country / Region Nationals or Co - Companies

Financial Offer Comparison: After all commercial comparisons are considered on the same bases; the Tender offer
will be adjusted based on the Cost - Benefit principle which involves adding costs and benefits foregone. Besides,
the preference margin will also be deducted and Least evaluated Bidder is Determined. That is:

TO evaluated = (TO + BFCT + ACAP + ACFE + ACPM)

Besides, Financial offers per groups of trades of works are compared in order to evaluate whether tenders are front
loaded or not. Front loading often cause disruption of projects or overzealous contractual negotiations.

Rejection of All Tenders though is solely the power of the employer to decide, for the sake of fairness
it is recommended that such rights shall be exercised in the following cases:

 All Tenders are found non – responsive during the Preliminary evaluations
 Evidences of lack of competitions such as collusion among bidders, monopoly, etc
 Lowest responsive offer is found unreasonably high.

The following procedural Flow Chart (Figure …) is recommended for Tendering following the Pre-
Qualification procedural flow chart shown in section …
 Procedure Employer / Consultant Contractors
Procurement
Document  Letter of Invitation  Check Eligibility
 Instruction to Bidders  Check Competitive Adv.
 Conditions of Contract  Collect Information
Tender Document  Decide to participate
 Drawings, Bill of Quantities, Forms,
Preparation Formats and Schedules, etc

Issuance of Tender
Documents  Advertisement or Invitation  Request and Obtain
 Project Scope, Location, Source of Tender docs.
finance
Tendering Phase  Issue, Submission and Opening dates
of Tenders

Clarification and
Site Visit  Arrange date and Time for Pre Bid  Request & Obtain
Submission Meeting Clarifications
 Send all clarifications to all bidders  Request and Visit Site
Tendering  Arrange date and time for site visit  Acknowledge receipt of
Phase  Prepare and Issue Addenda for all all clarifications
Clarifications
Figure …: Procurement Procedure Flowchart.
Submission of
Offer  Receive Offers  Complete and Submit
 Record date and Time of Receipt Offers together with
Tendering  Reject Late Offers Relevant Info.
Phase

Opening of
Tender  Open Tender in the presence of
relevant attendee Attend Tender Opening
 Announce and Record Tenderers and Ceremony
Tender Evaluation all offer information
Phase
Evaluation of
Tenders  Review conformity and completeness
of Tender Provide Clarification if
 Evaluate Alternative tenders and Requested
deviations
 Reject Substantially non Responsive
and non conforming Tender
Tender Evaluation  Approval by Regulator & Financier
Phase
Selection and
Award  Select Least Qualified and Evaluated
Recommendation Bidder
 Propose Award Recommendations
Tender Evaluation  Decide if further Negotiation is
required or not
Phase
Tender Evaluation Example

Given the following Bid Opening Data, Evaluate their offer; that is, determine the Least Evaluated
Tender for Award Recommendations and Write the Tender Evaluation Report.

Project: Fechfachit Campus Tender No.: 001 / 88 Engineer’s Estimate:

Birr 20,877,188.00 Date of Invitation: Sept. 30, 1995 Procurement Method: ICB No. of
Bid Sold: 8
No. of Bids Submitted: 6 Bid Submission Date: Nov. 15, 1996 Bid Validity Period: 45 Cal
Days Selling Ex. Rate 15 days before: 1 USD = Birr 6.30 Selling Ex. Rate for
Evaluation: 1 USD = Birr 6.31 i = 0.05 % per day = 1.5 % per month for Completion Time; i
= 0.04 % per day for Advance Payment computations Domestic Preference Margin = 7.5 %
Tender Tender Security Perf. Adv Com Foreign
No Bidders Cat. Offer (TS) Securit Req’ p Ex. Rebate
TO Amount Type y d Time Req’d
1 DCM 1F
17,630,915.1 31,746 USD CPO 20 20 % 645 55 %
1 % USD
2 CGTS 1 L 22,145,153.1 260,000 USD UIC 10 705
0 %
3 CGCS 1 L 18,146,822.4 250,000 USD AIC 10 705 3%
9 %
4 CECCS 1 F 21,236,399.0 40,000 USD CPO 20 705 50 %
0 % USD
5 CGCA 1 L 24,110,160.0 300,000 USD Cert. 10 20 % 705 15 %
0 Cheq % USD
6 CBAS 1 L 22,766,237.7 250,000 USD EIC 10 20 % 705
5 %
Required Minimum Tender Security = 1 % of TO; F = Foreign Company and L =
Local Company
Tender offer after Arithmetic Check was found as

Tenderers DCM CGTS CGCS CECCS CGCA CBAS

Tender Offer 17,695,206.7 21,200,883.60 18,163,888.9 21,229,904.1 23,885.300.3 20,953,625.2
0 1 1 3 2
Turnover of Companies for the last Five Years
Tenderer DCM CGTS CGCS CECCS CGCA CBAS
s
1991 361,275,260.4 --- --- 2,259,278,000.0 --- 4,571,118.00
0 0
1992 338,197,052.3 --- --- 1,663,141,000.0 --- 9,377,632.00
0 0
1993 432,790,201.3 343,796.00 --- 2,187,401,000.0 --- 12,680,696.0
0 0 0
1994 550,511,109.9 6,659,457.00 --- 2,416,035,000.0 --- 18,377,772.0
0 0 0
1995 --- 22,068,798.0 63,160,062.8 --- 54,145,000.0 18,099,520.0
0 8 0 0
Currency Egyptian Birr Birr USD Birr Birr
Pound
Ex. 1 USD = 2.21 6.25 6.25 1.00 6.25 6.25
Rate**
Required Turnover = 5 Mill. USD taking their maximum turnover over the five
years.
** Exchange rate used is selling price at their maximum turnover within the last
five years.
Tender Evaluation

Introduction
Tender No. 001 / 88 for the project Fechfachit Campus was floated by the …… of FDRE on the 5 th of Oct, 1995. Its
invitation was made on widely covering News paper in Ethiopia and through Ethiopian Embassies worldwide;
namely, the Ethiopian Herald. As a result, eight bidders bought the tender document and six of them submitted their
offer. The Bid was opened on 1st of December, 1955 and basic data (Table 1, Annex 1 – Basic Data Sheet) were
recorded in the presence of the Employer tender committee, Regulatory bodies representatives and bidders who
choose to attend. Besides, Consecutive Coding from R to W were assigned for each tenderers for evaluation
purposes.

Preliminary Evaluation
Preliminary evaluation covered two major parts; Eligibility Responsiveness and Arithmetic Review. For
Eligibility Responsiveness, the six tender offers were critically examined and Table 1 below has summarized the
findings. Valid provision of Bid Security / Bond and Turnover Requirements are separately computed and presented
in Tables 2 & 3 – Annex 2. Accordingly, all bidders except S and W were found responsive for eligibility
requirements and considered for remaining evaluation processes.

Eligibility Requirements R S T U V W
Valid and Up to date Trade and Professional License R R R R R R
Valid and Up to date Membership to Financier Organizations R R R R R R
Completeness and submittals of all required documents R R R R R R
Power of Attorney, Signature and Sealing Requirements R R R R R R
Appropriate Invitation, Packaging and Submission Requirements R R R R R R
Valid provision of Bid Security or Bond ** R R R R R R
Turnover requirements fulfilled ** R NR R R R NR
** Table 2 & 3; Annex 2 showed their eligibility Responsiveness.
For Arithmetic Review, the tender offer of four responsive bidders is checked and their tender offer after arithmetic
check and any additions or reductions due to rebate and alternative offers are tabulated in Table 2 Below.

Table 2: Valid Tender Offer

Tenderers R T U V
Tender Offer 17,630,915.11 18,146,822.49 21,236,399.00 24,110,160.00
TO after
Arithm. 17,695,206.70 18,163,888.91 21,229,904.11 23,885.300.33
Check
% change 0.36 % 0.1 % 0.03 % 0.93 %
Rebate --- 3% --- ---
TO after
Rebate 17,695,206.70 17,618,972.24 21,229,904.11 23,885.300.33
Detail Evaluation
Detail evaluation covered two major parts; Commercial and Equivalent Financial Offer Comparisons. For
Commercial offer comparison, Benefit Forgone due to Completion Time; Additional Costs due to differences
in Foreign Currency Exchange and Advance Payment requirements; and Provisions of Domestic Preference
Margins. The additions due to commercial offer Comparison and their effects to the Tender Offer for
evaluation on equal bases is computed and summarized in Table 3 below. Detail Computations for each
of the commercial offer comparisons are shown in Table 4, 5 & 6 of Annex 3.
Table 3: Summary of Commercial Offer Comparisons
Tenderer R T U V
s
TO after Arithm. Check 17,695,206.70 18,163,888.91 21,229,904.11 23,885.300.33
BF due to Completion Time ---- 516,909.82 622,848.26 700,782.94
Variations
AC due to Advance Payment 452,668.15 --- --- 660,657.28
Variations
AC due to Foreign Exchange
Variations 77,858.91 --- 83,919.62 28,662.37
On Bid Closing 93,430.69 --- 101,903.54 34,394.85
Date On Date of
Decision
Domestic Preference (7.5 %) 1,327,140.45 --- 1,592,242.81 ---
TO for Evaluation
On Bid Closing 19,552,874.21 23,528,914.80 25,275,402.92
Date On Date of 19,568,445.99 18,680,798.73 23,546,898.72 25,281,135.4
Decision

Financial Offer Comparisons

The summary in table 3 above considered impacts due to different commercial offers and determined Tender Offer
of each Bidder for evaluation purpose. Hence, this part checks whether front loading is exercised by tenderers or
not. Table 4 compares each tender value along acknowledged group of trades of works with Engineers Estimates,
Average Tender Offers and Adjusted Tender Offers. Similar table can be used to compare each Tender offer by
Blocks or Lots or Packages.

Table 4: Comparison for Front Loading Identification by Group of Trades

EEs R T U V TOAVG TOADJ % difference R, T, U,
Tenderer V
s A % A % A % A % A % A % A % EEs TOAVG TOADJ
Sub Structure Works
Earth
Works
Concrete
Works
Masonry
Works
Others
Super Structure Works
Concrete
Works
Block
Works
Roof Works (incl. water
proofing
) Carpentry
Works Joinery
Works Metal
Works Steel
Structure
Finishing
Works Glazing
Works
Others
Electrical & Sanitary
Works
Electrical
Installation
Sanitary
Installation
External Works
Landscapin
g External Electrical
Installations
External Sanitary
installations
EEs = Engineers’ Estimate; TOAVG = Average Tender Offer; TOADJ = ¼
EE + ¾ ABA
Award Recommendation
Based on Detail Evaluation result taking foreign exchange at date of decision, Ranking of tenderers is shown in
Table 5 Below. Accordingly, Tender Offer T is recommended for award negotiation.

Table 5: Ranking of Bidders for Award Recommendations

Tenderer R T U V
s
TO after Arithm. Check 17,695,206.70 18,163,888.91 21,229,904.11 23,885.300.33
TO for Evaluation On Date of Decision 19,568,445.99 18,680,798.73 23,546,898.72 25,281,135.4
Ranking 2 1 3 4
Annex – 1: Basic Data Sheet

Project: Fechfachit Campus Tender No.: 001 / 88 Engineer’s Estimate:

Birr 20,877,188.00 Date of Invitation: Sept. 30, 1995 Procurement Method: ICB No. of
Bid Sold: 8
No. of Bids Submitted: 6 Bid Submission Date: Nov. 15, 1996 Bid Validity Period: 45 Cal
Days Selling Ex. Rate 15 days before: 1 USD = Birr 6.30 Selling Ex. Rate for
Evaluation: 1 USD = Birr 6.31 i = 0.05 % per day = 1.5 % per month for Completion Time; i
= 0.04 % per day for Advance Payment computations Domestic Preference Margin = 7.5 %

Tender Tender Security Perf. Adv Com Foreign

No Bidders Cat. Offer (TS) Securit Req’ p Ex. Rebate
TO Amount Type y d Time Req’d
1 DCM 1F 17,630,915.1 31,746 USD CPO 20 20 % 645 55 %
1 % USD
2 CGTS 1L 22,145,153.1 260,000 USD UIC 10 705
0 %
3 CGCS 1L 18,146,822.4 250,000 USD AIC 10 705 3%
9 %
4 CECCS 1F 21,236,399.0 40,000 USD CPO 20 705 50 %
0 % USD
5 CGCA 1L 24,110,160.0 300,000 USD Cert. 10 20 % 705 15 %
0 Che % USD
q
6 CBAS 1L 22,766,237.7 250,000 USD EIC 10 20 % 705
5 %
Required Minimum Tender Security = 1 % of TO; F = Foreign Company and L =
Local Company
Tender offer after Arithmetic Check was found as

Tenderers DCM CGTS CGCS CECCS CGCA CBAS

Tender Offer 17,695,206.7 21,200,883.60 18,163,888.9 21,229,904.1 23,885.300.3 20,953,625.2
0 1 1 3 2
Turnover of Companies for the last Five Years
Tenderer DCM CGTS CGCS CECCS CGCA CBAS
s
1991 361,275,260.4 --- --- 2,259,278,000.0 --- 4,571,118.00
0 0
1992 338,197,052.3 --- --- 1,663,141,000.0 --- 9,377,632.00
0 0
1993 432,790,201.3 343,796.00 --- 2,187,401,000.0 --- 12,680,696.0
0 0 0
1994 550,511,109.9 6,659,457.00 --- 2,416,035,000.0 --- 18,377,772.0
0 0 0
1995 --- 22,068,798.0 63,160,062.8 --- 54,145,000.0 18,099,520.0
0 8 0 0
Currency Egyptian Birr Birr USD Birr Birr
Pound
Ex. 1 USD = 2.21 6.25 6.25 1.00 6.25 6.25
Rate**
Required Turnover = 5 Mill. USD taking their maximum turnover over the five
years.
** Exchange rate used is selling price at their maximum turnover within the last
five years.
Annex - 2: Preliminary Evaluation
Table 2: Tender Security Responsiveness
Tender Tender Security (TS) Selling % TS Typ Responsive
No Bidders Cat. Offer Amount Type Exchange to TO e of - ness
(TO) Rate TS
1 R 1 17,630,915.1 31,746 USD CPO 1USD = Birr 1.13 Vali R
1 6.25 d
2 S 1 22,145,153.1 260,000 USD UIC “ 1.17 “ R
0
3 T 1 18,146,822.4 250,000 USD AIC “ 1.40 “ R
9
4 U 1 21,236,399.0 40,000 USD CPO “ 1.17 “ R
0
5 V 1 24,110,160.0 300,000 USD Cert. “ 1.24 “ R
0 heq
6 W 1 22,766,237.7 250,000 USD EIC “ 1.10 “ R
5
All Tenderers are responsive for Tender Security
Responsiveness
Table 3: Turnover Requirement Responsiveness
Tenderers R S T U V W
1991 361,275,260.4 --- --- 2,259,278,000.0 --- 4,571,118.00
0 0
1992 338,197,052.3 --- --- 1,663,141,000.0 --- 9,377,632.00
0 0
1993 432,790,201.3 343,796.00 --- 2,187,401,000.0 --- 12,680,696.0
0 0 0
1994 550,511,109.9 6,659,457.00 --- 2,416,035,000.0 --- 18,377,772.0
0 0 0
1995 --- 22,068,798.0 63,160,062.8 --- 54,145,000.0 18,099,520.0
0 8 0 0
Currency Egyptian Birr Birr USD Birr Birr
Pound
Ex. Rate 1 USD = 2.21 6.25 6.25 1.00 6.25 6.25
USD Equiv. 249,127,199.0 4,413,759.60 10,105,610.0 2,416,035,000.0 8,663,200.00 2,895,923.20
0 6 0
Responsiveness R NR R R R NR
Required Turnover = 5 Mill. USD taking their maximum turnover over the
five years.
Annex - 3: Commercial Offer Comparisons
Table 4: Benefit forgone due to Completion Time
Rev. Completion Time (n) Differences FV BF = (FV –
No Bidders Cat. Tender Cal. Month in Completion = TO (1 + RTO) /
Offer days s Time i)n (1 + i)n
(RTO)
2 R 1 17,695,206.7 645 21.5 --- --- ---
0
3 T 1 18,151,505.6 705 23.5 2 18.151,505.6 516,909.82
8 8
4 U 1 21,871,577.9 705 23.5 2 21,871,577.9 622,848.26
6 6
5 V 1 23,885,300.3 705 23.5 2 24,609,233.5 700,782.94
3 3
i = 0.05 % per day = 1.5 % per
month
Table 5: Additional Cost due to Mobilization Advance Requirement
Rev. Adv Completion Time A = {(AL PWF= PV APAC = {(AP
No Bidders Tender . Cal. Mont %) x {(1+i)n– =A* x TO) / 100}
Offer Loa day h TO} / n 1} / {i(1+n)n} PWF – PV
(RTO) n
2 R 17,695,206.7 20 645 21.5 164,606.57 18.75 3,086,373.1 452,668.15
0 9
3 T 18,151,505.6 705 23.5 --- --- --- ---
8
4 U 21,871,577.9 705 23.5 --- --- --- ---
6
5 V 23,885,300.3 20 705 23.5 203,279.15 20.25 4,116,402.7 660,657.28
3 9

Table 6: Additional Cost due to Foreign Exchange Requirement

Tenderers R T U V
Tender Offer (TO) 17,695,206.70 17,628,972.24 21,229,904.11 23,885.300.33
Foreign Currency Component 55 % 50 % 15 %
Foreign Exchange 15 days before 1 USD = Birr
TO 6.25
USD Equivalent 1,557,178.19 ---- 1,698,392.33 573,247.21
Local Currency 15 days before TO 9,732,363.69 --- 10,614,952.06 3,582,795.05
Foreign Exchange on Bid Closing 1 USD = Birr
6.30
Local Currency on Bid Closing 9,810,222.60 --- 10,698,871.68 3,611,457.42
Date
Foreign Exchange on date of 1 USD = Birr
decision 6.31
Local Currency on date of decision 9,825,794.38 --- 10.716,855.60 3,617,189.90
Additional Cost due to Foreign Exchange
On Bid Closing 77,858.91 --- 83,919.62 28,662.37
Date On Date of 93,430.69 --- 101,903.54 34,394.85
Decision
 Tender Evaluation Report

Tender Evaluation Report can be written using the following Outlines:

Executive
Summary
Introduction
Evaluation Results
Preliminary Evaluations
Responsiveness Detail Evaluations
Results
Award Recommendations
1. Introduction
1.1. Background
1.2. Basic Data
1.2.1. Tender Opening Records
1.2.2. Engineers’ Estimate
2. Preliminary Evaluation Responsiveness
2.1. Instruction to Bidders Responsiveness
2.1.1. Eligibility
2.1.2. Tender Security
2.2. Form of Tender and Appendices Responsiveness
2.2.1. Form of Tender
2.2.2. Priced Bill of Quantities
2.2.3. Schedule
2.3. Contract Document Responsiveness
3. Detail Evaluation Results
3.1. Basic Data for Comparison
3.1.1. Assignment of Codes and Arithmetic Review
3.1.2. Adjusted and Average Tender Offers
3.2. Commercial Offer Comparisons
3.2.1. Benefit Forgone due to Completion Time Variations
3.2.2. Additional Cost due to Advance Payment Requirements
3.2.3. Additional Cost due to Foreign Currency Requirements
3.2.4. Additional Cost due to Local / Domestic / Regional Preference Margins
3.3. Financial Offer Comparisons
3.3.1. Front Loading Assessment
3.3.2. Ranking of
Tenders
3.4. Award
Recommendations
3.4.1. Recommended Tender Offer
3.4.2. Negotiation Issues
Annexes
Annex – A: Basic Data on Tender
Offer A.1: Pre - Bid Basic
Data
A.2: Tender Opening Records
A.3: Assignment of Codes and Bidders Particulars
Annex – B: Preliminary Evaluation Responsiveness
Annex – C: Detail Evaluation Results
3.4. Statistical Approach to Tendering / Procurement

Most of the construction works are awarded using competitive bidding. It means, Contractors shall
submit their estimates with respect to their offer including the Project Cost. The project cost, in the
estimate, includes the actual cost of the work (the Direct Cost), Overheads cost and Profit (the Indirect
Cost). Besides, the contractor shall consider to minimize risks and complete the project with in the cost
and its completion time. If all goes well, the winner will enjoy with a fair profit and remain competitive
and build his reputations in the Construction Industry.

However, to win a competitive tender, a bidder should keep a step ahead of its competitors through new
and improved techniques of estimating to replace conventional methods and practices. One of these new
and improved methods of obtaining an advantage over competitors is to use statistical approach for
Bidding.

A bidder as a business organization, one of its main objectives is profit making, specifically maximizing
immediate profit. Immediate profit is simply the difference between the amount of the bid and the actual
cost of the work. In competitive bidding, each bidder must submit a sealed bid and the lowest responsive
bidder is awarded the contract. Besides, It is clear that a bidder may either win or loose the contract. This
basic uncertainty is the major problem to contractors. To narrow the gap of this uncertainty, it is evident
that several approaches attained through experience, statistical, and mathematical knowledge can be used
bidders in order to obtain an advantage over their competitors. These approaches to competitive bidding
can provide a useful guide in:
 evaluating chances of being the winner of a contract,
 determining maximum expected profit,
 providing high competition among bidders by narrowing their price variation gaps,
 saving unnecessary bid preparation expenses, and
 saving from losses.
This part covers the concept of expected profit in line with the statistical approach in tendering. To open
the eyes of our contractors in line with these methods will greatly enhance the competitiveness of the
construction industry. However, one of the major limitations of a statistically developed strategy in
competitive bidding is the basic assumption used in determining the probability of competitiveness and
the maximum expected profit there from. That is, the assumption clearly states that the competition will
follow the same general bidding pattern in the future to that they behave in the past. Therefore, it is
essential to update the data which is used to establish the bidding behavior of competitors. Nevertheless
in the absence of other updated information’s, the best guide will be that already acquired.

Expected Profit: Expected profit is defined as the average profit per project that will be realized in the
future considering probability of winning a contract. Computation of the expected profit will help
contractors in finalizing the estimate of their bids. To explain with a simple example, let the cost of
fulfilling a particular contract is 20,000 birr, let the probability of contractors with bid amount of 30,000
birr (Bid A) and 25,000 birr (Bid B) winning the contract is 30% and 70% respectively, the expected
profit for each contractor can be computed as follows:
then the expected profits for bids A and B are computed and tabulated below.

Bidder Bid Amount Actual Cost Imd. profit Pa (%) Exp. profit
(1) (2) (3) (4 = 3 - 2) (5) (6 = 4* 5)
Bid A 30,000 20,000 10,000 30 3,000
Bid B 25,000 20,000 5,000 70 3,500

A bid amount of larger expected profit is the value that the contractor should opt for. In the above
example, the contractor should submit a bid amount of 25,000 birr so that both their probability of
winning and the expected profit to be bigger. Expected profit can only be computed if the probability of a
contractor being awarded the contract for a bid is known or can be determined.

Statistical data of competitors shall be collected to determine the probability of winning a bid. It is
obvious that the probability of a contractor being awarded any particular contract is lying in the range of
zero to unity. It is taken as zero when a contractor is certainly make a bid so high that it is almost
impossible to win the bid and unity when a contractor make the bid so low, that it would certainly be
awarded the contract.

That is, there is a relationship between the probability of award and size of bid relative to cost. This
relationship can be expressed by a. Probability of competitiveness as a basis for a cumulative probability
distribution is defined as the probability of a bid that there will be a competitive bid which will beat
another bid and is determined by the difference of the probabilities of being awarded for the same bids.
To simplify this concept let us take an illustrative example;
 Let the cost of fulfilling a particular contract be 100,000 birr, and
 Let the bid amounts and their probability of award be as given in table below

Then the probability of competitiveness is computed and tabulated as shown below:

Bidder Bid Amounts Prob. of Award Prob. of Comp. Exp. profit

A 90,000 1.00 0.07 = 7 % (90,000-100,000)*1.0 = -10,000
B 100,000 0.93 0.15 (100,000-100,000)*0.93= 0
C 110,000 0.78 0.32 (110,000-100,000)*0.78=7,800
D 120,000 0.46 0.17 (120,000-100,000)*0.46=9,200
E 130,000 0.29 0.16 (130,000-100,000)*0.29=8,700
F 140,000 0.13 0.13 (140,000-100,000)*0.13= 5,200
G 150,000 0.00 0.00 (150,000-100,000)*0.0= 0

From the above table it is easily understood that there is a probability of 0.07 that there will be a
competitive bid of 90,000 birr which would win the bid of 100,000 birr, i.e; Bidder A is competitive over
bidder B by a probability of 7%. The cumulative distribution of the bids should always sum up to unity or
100%. This is to indicate that all possible competitors are considered. Now, assuming that a contractor
has the appropriate cumulative distribution, the maximum expected profit is computed and found as
9,200 birr (See Table Above).

Application of Expected Profit to Tendering

The following preparations shall be exercised by every bidder to use the method of expected profit in
order to determine their position to bid, these are:
collect earlier bid amounts of those contractors tendering for similar projects,
 assembling, classifying and condensing earlier bid amounts for similar
projects, presentation of the data in the form of text, tables and / or
graphs
make analysis of the data with regard to their frequency of bidding, their frequency of winning the
bid, and their ratio with respect to bidders amount and their frequency of occurrence,

Using the above preparation a bidder can obtain the necessary information about the distribution of the
probabilities of award as a function of the bid amount. Since it is a usual practice to announce openly the
bids on large or public contracts, it is possible to learn the bidding behavior of competitors. In
determining their probability distribution, it is assumed that competitors will follow the same general
bidding patterns in the future that they have in the past and three different cases are considered. These
are;
 Case 1: Numbers and Identities of competitors are known,
 Case 2: Number of competitors are known but their Identities unknown,
 Case 3: Numbers and Identities of competitors are unknown.

Case 1: Numbers and identities of Competitors Known

Given the number of competitors’ equals 5, their identities based on collected and analyzed data are as
tabulated below, and let the ratio of Competitors Offer and the Contractor Offer be R. Then the
probability of competitors’ is computed as described below:

In the case of bidder A, the total frequency of occurrence is 53, and the various ratios’ frequencies of occurrences
are known, which gives sufficient information for the determination of the probability of the occurrences.
Considering the ratio of 1.2, out of the total occurrence which is 53, it is found that this ratio occurred 16 times;
therefore the probability of occurrence of the ratio 1.2 is 16 / 53 = 0.30. (It is simply determined by dividing each
frequency of occurrences of the bidder to its total number of occurrences.) Similarly, the probabilities of
occurrences for other ratios and other bidders are determined and shown as the table of probabilities of
occurrences below.

Bidder A Bidder B Bidder C Bidder D Bidder E

R FO Pc FO Pc FO Pc FO Pc FO Pc
0.9 1 0.02 0 0.00 3 0.10 1 0.02 0 0.00
1.0 3 0.06 0 0.00 1 0.03 0 0.00 0 0.00
1.1 7 0.13 5 0.19 12 0.40 8 0.20 0 0.00
1.2 16 0.30 6 0.22 3 0.10 11 0.27 11 0.31
1.3 17 0.32 12 0.44 5 0.17 18 0.44 17 0.47
1.4 6 0.11 1 0.04 4 0.13 3 0.07 3 0.08
1.5 2 0.04 2 0.07 2 0.07 0 0.00 4 0.11
1.6 1 0.02 1 0.04 0 0.00 0 0.00 1 0.03
Sum 53 1.00 27 1.00 30 1.00 41 1.00 36 1.00

The results in table below can be interpreted as follows:

Taking bidder A and R value of 1.3, with a probability of 32%, bidder A has submitted bids on contracts
which were 1.2 times the contractor’s cost estimate. For practical works a more refined breakdown of the
ratios would probably be used.
Now, in order to determine the expected profit, the probability that the contractors bid is lower than the
other bidders individually shall be computed. As described above this varies between zero and unity. The
probability that the contractors bid is lower than the others bidders estimate is determined as follows:

Taking bidder A, Since the lowest bid is 0.9 times bid amount of A, it definitely win the bid which justifies that
the probability that the contractors bid is lower than bid amount A is 100%. Besides, 1.6 times bid amount of A
is the highest bid that any bid greater than this bid’s probability of being lowest is 0%. For other ratios, their
probability will be determined and tabulated below;

Bidder A
R Pc Cum.Pc P (lower)
0.9 0.02 0.02 1.00
1.0 0.06 0.08 0.98
1.1 0.13 0.21 0.92
1.2 0.30 0.51 0.79
1.3 0.32 0.83 0.49
1.4 0.11 0.94 0.17
1.5 0.04 0.98 0.06
1.6 0.02 1.00 0.02
>1.6 0.00 1.00 0.00

Similarly, P (lower) can be computed and tabulated below.

Bidder B Bidder C Bidder D Bidder E

R FO Pc Pa FO Pc Pa FO Pc Pa FO Pc Pa
0.9 0 0.00 - 3 0.10 1.00 1 0.02 1.00 0 0.00 -
1.0 0 0.00 - 1 0.03 0.90 0 0.00 - 0 0.00 -
1.1 5 0.19 1.00 12 0.40 0.87 8 0.20 0.98 0 0.00 -
1.2 6 0.22 0.81 3 0.10 0.47 11 0.27 0.78 11 0.31 1.00
1.3 12 0.44 0.59 5 0.17 0.37 18 0.44 0.51 17 0.47 0.69
1.4 1 0.04 0.15 4 0.13 0.20 3 0.07 0.07 3 0.08 0.22
1.5 2 0.07 0.11 2 0.07 0.07 0 0.00 0.00 4 0.11 0.14
1.6 1 0.04 0.04 0 0.00 0.00 0 0.00 - 1 0.03 0.03
>1.6 0 0.00 0.00 0 0.00 - 0 0.00 - 0 0.00 0.00

Now we have already obtained the probability that the contractor’s estimate is lower than the bidders
estimate. That is, the cumulative probability distribution which gives the probability for any given bid,
expressed as a ratio of the contractor’s cost estimate in which the contractor’s estimate be lower than that
of competitors bid. In other words, the contractor has sufficient information to determine his estimate that
assures him the maximum expected profit. In order to determine the expected profit, the probability
theory should again be called upon when the number of competitor is one or more. To revise the
probability concept behind this the following illustrations are provided:

Addition law: The addition law of the probability theory applies when an event occurs in one of several possible ways, provided
these possible ways are mutually exclusive. And it is calculated as the sum of the probabilities of the occurrences of the
several different possible ways.
Multiplication law: The multiplication law of the probability theory applies when an event occurs in simultaneous occurrence. It is
calculated as the product of the probabilities of the occurrences of the several different possible ways.
In all cases and in any consideration of probabilities, the sum of all possible events must equal unity.
Therefore, the expected profit can also be determined using the above probability theories. Now let us
first take only one competitor (Bidder A), and then the expected profit is computed and tabulated below.

Bidder A
R Pc Cum. Pc P (lower) Pexp
0.9 0.02 0.02 1.00 (0.9c - c)*1.00 = -0.100c
1.0 0.06 0.08 0.98 0.00
1.1 0.13 0.21 0.92 (1.1c - c)*0.92 = 0.092c
1.2 0.30 0.51 0.79 (1.2c - c)*0.79 = 0.158c
1.3 0.32 0.83 0.49 (1.3c - c)* 0.49 = 0.147c
1.4 0.11 0.94 0.17 (1.4c - c)*0.17 = 0.068c
1.5 0.04 0.98 0.06 (1.5c - c)* 0.06 = 0.030c
1.6 0.02 1.00 0.02 (1.6c - c)*0.02 = 0.012c
>1.6 0.00 1.00 0.00 0.00

It is easily observed that a contractor estimate of 1.2 c gives the maximum expected profit of 0.158c,
which is the cost that the contractor should bid for.

Now let us take two competitors which are bidder A and B. The contractor will win this contract if and
only if this bid is found lowest of both bidders A and B. In probability theory this can be explained by an
event of simultaneous occurrence. Therefore, in order to determine the expected profit of the contractor,
the probability that the contractor’s bid be lower than the competitors shall be determined. This
probability is determined as the product of the probabilities of the individual competitors’ probability Pa
(AB).

R Pa(A) Pa(B) Pa(AB)

0.9 1.00 - -
1.0 0.98 - 1.00
1.1 0.92 1.00 0.92
1.2 0.79 0.81 0.64
1.3 0.49 0.59 0.29
1.4 0.17 0.15 0.03
1.5 0.06 0.11 0.01
1.6 0.02 0.04 0.00
>1.6 0.00 0.00 -

The above table now contains the probability for obtaining the bid, if the contractor is to bid lower than
both bidder A and B. From this, the expected profit is determined and tabulated below.

R Pa (AB) P exp
1.0 1.00 0.00
1.1 0.92 (1.1c - c)*0.92 = 0.092c
1.2 0.64 (1.2c - c)*0.64 = 0.128c
1.3 0.29 (1.3c - c)*0.29 = 0.087c
1.4 0.03 (1.4c - c)*0.03 = 0.012c
1.5 0.01 (1.5c - c)*0.01 = 0.005c
1.6 0.00 0.00

From the above table the maximum expected profit is 0.128c which is at 1.2 times the contractors bid.
Similarly the expected profit for more than two competitors can be determined.
Case 2: Numbers of Competitors Known, but Identities Unknown.

Here the numbers of competitors are known, but their identities are unknown. Such a case is exercised
when a contractor enhance his grade to a higher position so that he joined a new team or a new career.
Since specific information about bidders’ is unknown, the concept of “average bidder” shall be used.

Average bidder identities are a hypothetical but typical competitor representing the collective bidding
pattern of the contractor against all competition. If the contractor is faced with only one competitor
whose identities are unknown, then the average bidders’ identity is used for the only unknown
competitors. Generally speaking the average bidder concept is applicable to each of those their identities
are unknown, for others since their identities are known they will be considered as they are. The
probabilities and the expected profit will be determined as described similar to case one above.

Case 3: Both Numbers and Identities of competitors unknown.

In the case where the contractor does not know both the identities and the numbers of competitors,
statistics plays little role in finding too good too be true estimates as to what the contractor shall make his
bid. Such a possibility usually exists in the case where the contractor is a beginner or of whose recording
is not scientific. One of the best ways to approach such a condition is by the way of obtaining an estimate
of the number of competitors and the use of the average bidder concept for determining the identities of
the competitors. Similar to Case 1 & 2, other computation will be computed.

Estimating the number of competitors: The important parameters considered here are the estimated cost
of bidders and the expected number of competitors. Usually, a contractor shall collect past data in order
to enable him to estimate the number of competitors likely to bid on a particular size and type of job. In
so doing some correlation shall be developed between the estimated cost of the bid and the number of
bidders using statistical concept called “regression-correlation.” A graph of the numbers of bidders
versus the contractor’s cost estimates can be prepared for use in cases where both identities and numbers
of competitors are unknown.

If one considers the effect on a bid as the number of competitors is known, the cumulative probability
distribution from the average bidders’ identities can be used. For easy demonstration let us use the
following illustrative example:

 Let the probability that the contractor’s estimate is lower than bid of average bidder and the ratio “R”
of the contractor estimate to the average bidders cost estimate be given in the table below:

R 1.0 1.1 1.2 1.3 1.4 1.5 1.6

Pavg 1.00 0.92 0.64 0.29 0.03 0.01 0.00

Assuming the number of competitors increasing from one to three and the expected profit is calculated
the following values are obtained and tabulated below:
 R Pavg Pexp1 Pavg2 Pexp1 Pavg3 Pexp1
1.0 1.00 0.000c (1.00)2=1.00 0.000c (1.00)3=1.00 0.000c
1.1 0.92 0.092c (0.92)2=0.85 0.085c (0.92)3=0.78 0.078c
1.2 0.64 0.128c (0.64)2=0.41 0.082c (0.64)3=0.26 0.052c
1.3 0.29 0.087c (0.29)2=0.08 0.024c (0.29)3=0.02 0.001c
1.4 0.03 0.012c (0.03)2=0.00 0.000c (0.03)3=0.00 0.000c
1.5 0.01 0.005c 0.00 0.000c 0.00 0.000c
1.6 0.00 0.000c 0.00 0.000c 0.00 0.000c

From the above table it is easily understood that as the number of competitors increases, the amount of
expected profit decreases. This indicates that the number of competitors is the most important variable in
determining the bid with regard to the maximum expected profit determination.
Chapter 4. Contract Management

Rights, Obligations and Remedial Rights!

Scope, Relationships, Processes and Resources! Negotiation, Agreement and Administration! Measurement, Payme
Can they be Binding Contractually!!!

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 of Contract are terms in which parties in the contract are governed / administered with. That
is, it is an administrative law which is the legally binding part of the contract. These promises and terms
shall be enforceable by law and incorporates the rights, obligations and Remedial rights of each
contracting parties.

In other words, A Contract is an Agreement between two or more parties to do or not to do something for
a certain consideration that fulfill the following seven requirements:

 Parties are capable of contracting: Lawful and Capable

 Consent of contracting parties is necessary: Intent
 Object of the contract is sufficiently defined, possible and lawful: Legal and Distinct
 Use of Contract form prescribed by law, if any: Standard
 Payment for the Promise: Consideration
 Constitute two parts: Offer and Acceptance
 Parties enter into Agreement: Agreement

Lawful and Capable is to mean they are legally allowed to enter into contract and provides statements of
facts (statement of opinion + Knowledge) for their ability to perform their obligations. Misrepresentations
of facts both from Fraudulent or Innocence actions are liable for damages and / or rescission.

Intent is willingness or consent by the contracting parties to create a legal contract.

Legal and Distinct is a description of both the promises and considerations (including rights and
obligations) clearly and distinctly stated and they should be practicable and legally binding.

Standards can be conditions, forms, formats, schedules, instructions, etc which are created for use as
part of contracts.

Consideration can simply be interpreted as ‘price for the promise’ which involves a benefit accrued from
the offeree in exchange for the promise the offeror is bound by the contract.
An Offer is an indication that one party is willing to be bound by specific terms set out in the contract. An
offer can remain open unless conditioned for termination using the following ways:
  Refusal or Counter Offer
 Closure of the Offering organization
 Non – Acceptance with in the offer time
 Failure of the offer condition

An Acceptance is the key for the formation of a contract which must be absolute, indication of consent,,
and communicated to the offering entity by the offeree.

An Agreement though proves the existence of a contract; there are situations where it can be considered as
there isn’t. For instance, if contracts violate statutorily prohibited conditions such as promoting gambling;
and / or also violates unlawful conditions by the common law such as agreements to commit civil wrongs,
discrimination, against the benefit of the state, to promote corruption, that devalue the value of one party,
etc.

Following these characteristics; While the contract is understood as the sub - framework of the law which
can be understood as the private law, the law provides a framework within which the services and works
of the construction industry is governed with. Therefore, the significance of any contract is that the
promisee is obliged for their performances against a certain return and if failed to compensate for non -
performance and at the same be time legally enforceable.

On the other hand, A contract is a not a mental state but an act which is a matter of inference from
conduct. That is, the parties are judged not by what is in their minds, but by what they have said or
written or done. Essential Terms, Certainty, Agreements to Agree, Subsequent words or conducts,
Agreements after commencement, Agreement by conduct, Formalities are some issues to be clearly
understood when dealing with contractual matters.

The purposes of a contract are therefore:

 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 mechanisms

Contract can be of three types; namely,

 Unilateral or Optional or If Contract
 Synallagmatic or 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.
 Synallagmatic or 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.

4.2. Contract Management and its Processes

Contract Management is the management of its Processes, Stakeholders and their Performances along the
Planning, Implementation and Monitoring + Evaluation Cycle of the functions of Management.

Contract Management process can be idealized into three major processes. These include Contract
Formulation, Contract Administration, and Closing of Contract Processes (Figure 2).

Negotiations Contract Agreement Closing of Accounts Contract Evaluations

Contract Formulation Contract Administration Contract Closing

Contract Implementation Changes Management

Claims and
Figure 2: Contract Management Disputes Management
Process

Contract Formulati
on: 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 bases for contractual agreements.

Contract Agreement when signed forms the contract document which will be the bases for Contract
Administration. A Construction Contract Document includes:

 Signed and Sealed Form of Contract Agreement and Tender with Appendix if necessary,
 General and Particular Conditions of Contract,
 Technical Specification and Methods of Measurement,
 Priced Bill of Quantities and Drawings, and
 Forms, Formats and Schedules.
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
 the construed parts of the contract document, and
 the Agreement Considerations, the Signing and Sealing places.
Sample Form for Contract Agreement

Form of Agreement
3. In Consideration of the payments to be made by
the Employer to the Contractor as hereinafter
This Agreement hereinafter called “the Contract” is
mentioned, the Contractor hereby covenants with
made on the day of 20 between on the one the Employer to execute and complete the Works
part of hereinafter called “the and Remedy any defects therein in conformity in
Employer” and on the other part hereinafter all respects with the provisions of the Contract.
called ‘the Contractor” / “the Consultant”. 4. The Employer hereby covenants to pay the
Contractor in consideration of the Contract Price
Whereas the Employer is desirous that certain works of such other sum as may become payable under
/ services should be executed by the Contractor / the provisions of the Contract at the times and in
Consultant, viz. and has the manner prescribed by the Contract.
Form of Tender include
accepted the tender for the execution /
 the date and
implementation on which the agreement
completion of suchshall come/ into force
works In Witness Whereof the parties hereto have caused this
services
 and the remedying of any defects therein. Contract / Agreement
the contracting parties and the delegated services administrator, to be and
their addresses signed in called
being their respective
upon
places as of the day, the month and the year first above
Now thisthe services to
Agreement be procured
witnesses in brief
as follows: written.
1. In this Agreement words and expressions shall
 havethe the
general
sameprovisions
meaningssuch as words,
as are meanings andFor
respectively expressions; orderofoftheprecedence
and on behalf Employer and Payment Terms
 assigned to them in the conditions of contract
the construed parts of the contract document, and
herein after refered to.
2.  Thethefollowing
Agreement Considerations,
documents shall bethe Signingtoand Sealing
deemed Signature Date
form and be read and construed as part of this
places. Sample Form
Agreement, viz: of Tender
General and a.
Special Conditions of Contract is the administrative law applicable to the contract which is legally enforcing
The Letter of Acceptance For and on behalf of the Contractor
b. parties.
the contracting The saidTheTender
special conditions are meant for those particular contexts and requirements that can not be
c. The Conditions of Contract (I & II)
standardizedd. andThe generalized into common conditions of contract. Clauses
Specifications in both conditions of contractDate
Signature shall be the
e. The Drawings, and
same. Generally, conditions of contract cover:
f. The Priced Bill of Quantities.
 Definitions and interpretations of terms used in the contract

 Contract documents priorities, supply of drawings, supplementary documents

 Obligations, Rights and Remedial Rights
 Services / Goods / Works, their Measurement and Certifications
 Alterations, Claims and Dispute
Settlement. Samples:
 MWUD, FIDIC, and Other General and Particular Conditions of Contract
 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, methods of work,
equipment and tools to be used, quality of works and workmanships and submittals and sampling for tests
and approvals.

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.

Specifications are of three types: Contract, Standard and Manufacturers’ specifications

Contract Specification 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 inclusions briefly.
Detailed specification can either be the standard specification written to describe the how of the works and
Priced Bill or
services of Quantities
particularand Drawings
to the project under consideration.
Standard Specification is a Technical Specification or Guidelines written to clearly establish the ‘What’ of
the materials or (Sub) Products used or the “How’ of the services, works or goods which can generally be
described for a construction sector such as Buildings, Roads, Water Works, etc.
The following Forms, Formats, Schedules and Breakdown Structures are used in Construction Contracts and are
Manufacturers’ Specification is a technical specification prepared for the products companies produced to
tabulated bellow:
guide specifiers, designers and users. Such specifications include installation, use and maintenance
Forms Formats Schedules Breakdown Structures
instructions and are usually prepared in the form of manual.
Form of Contract Agreement Handing Over Site Formats Work Schedule Organization BS
Form of Tender Change Order Format Material Schedule Work BS
Form of Bid Security Progress Reporting Equipment Material BS
Contract Administration: Contract Administration is a process that ensures the successful completio project n of the
Form of Performance Security Formats Payment Schedule Labor Equipment
under consideration
Form with substantialCertificate
of Adv. Payment compliance of the
Format Terms of
Price the Contract.
Schedule Cash As a result, the BS
BS Labor followi
activities or tasks
Guarantee Formare
of included in Contract Administration services:
Indices Format flow Schedule Cost BS ng
Maintenance Security Comp. Certificate Formats Payment Schedule

 Identifying contractual responsibilities of Stakeholders.

o Reviewing the Terms of Contract Documents
o Extract Monitoring Responsibilities
o Preparing Monitoring Responsibility Summary Sheets

Monitoring Responsibility Summary Sheet

Project: Owner: Contractor: Consultant:

Contract Contract Condition: Owner Contractor Consultant Regulator Financier Overlap

Article Description Resp Resp. Resp. Resp. Resp. Resp
 Determining and understanding the construction components of the project.
o Reviewing the Contract Drawings and Technical Specifications
o Extract the Construction Methods and Sequences
o Prepare Construction Methods and Over all Sequences Sheets
 Review submitted (Integrated) Schedules and Breakdowns for operations such as Organizational
Breakdowns, Resources Breakdowns & 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
o Take off sheet and Bending Schedules are used for Measurement of Works
o Method of Measurement is according to standard practices
o Site Potentials such as material, equipment and Manpower on site together with appropriate site organization
is recorded
o Advance, Interim and Final Payments are certified

Page
Payment Certificate Sheet

Certificate of Payment No. :

Date:

Project: Contract No: Contract Date: Owner: Contractor: Location: Amount (Curr )
Main Contract
Supp. Contract
Contract Change No. 1
Contract Change No.2
Contract Change No.3
Total Sum

As per attached measurements and priced bill of quantities, the value of works executed and / or material supplied and net sum due to the contra

Previous Payments Amount

PC. No. Date Amount Total Sum due to the Contractor
Advance Deductions
1 Previous Payments
2 Rebate ( … % )
 Administer
3 contract changes. Retention (5 % of exc.)
4 Penalty
5 o Issue Change Orders including Clarifications
Advance Repayment
6 o Evaluate and Certify Additions and Omissions
Others
7 Total Deductions
8 o Evaluate and Certify Provisional Quantity and Provisional
Net SumSums
Due to the Contractor
9 o Evaluate and Certify Remedial Rights 15 % VAT
10 Net Sum including VAT
TotaloExc.
Evaluate
VAT and Certify Claims
o Prepare Contract Changes Status Sheet

We Certify that the Contractor is now entitled to the sum of

Certified Approved Seal

 Contract Changes Status Sheet
Project:
Contract No:
Owner:
Contractor:
Consultant:
Contract Changes No:

Contract Changes Description:

 Mediate Disputes.
Contract Changes Initiated by: ContractOwners
ChangeConsent
Initiatedon
Date:
Advice
Consultant
Date: Advisory Date:
Contractor Consent on Advice Date:
Such services are carried out to ensure projects are completed
Change Orders Date: successfully and

 To Follow up and Evaluate Project Cost, Time and Quality.

 To Ensure Health, Safety and Environmental Requirements.
 To Ensure Project fitness for its purpose or intended objective.

The following Seven Points are worth noting as vital issues to consider during Contract Administration Services.

1. The Contractor shares, in most cases, the Owner’s desire for a final product of high quality; however, a
contractor who becomes caught in an irreconcilable conflict between providing that level of quality and
realizing what he believes to be a reasonable profit will …….
2. Construction is recognized as much an art as a science and that the attainment of something less than
perfection is...........by the Owner.
3. Contract Administrator is not a party to the contract between the Owner and the Contractor, but is a
participant in the construction process to promote the successful performance of projects in compliance
with the contract.
4. Successful contract administrators will know and admit the limits of their knowledge and will seek the
assistance of experts in the interpretation and, if necessary, the legal enforcement of the contract.
5. An overzealous contract administrator is a disservice to both the Owner and the Contractor and himself.
6. It is clearly in the financial interest of the contractor that interim payments be maximized, and It is
clearly in the interest of the owner that such payments not exceed the value of work completed; In this
Closing ofsituation,
Contract:theClosing
contractofadministrator
Contract looks
shallinto issueswhat
determine related to Maintenance
is critical Period
for the success andproject
of the Remediin the al works,
interests of fairness to both the owner and contractor.
Dealing
7. with Left Over Claims and Disputes, if any, Closing of Accounts and Completion Certificates.

Maintenance Period and Remedial Works: Construction works are subjected to Maintenance Periods (Usually One Year) in
order to reveal quality problems overseen by supervisors. The focus is not on normal wear and tear but rather
damages seen on the construction components which are solely under the responsibility of the contractor. These
often include Sanitary and roof leakages, Poor quality Door and Window Handles and Locks, Electrical Fittings,
Structural damages, Cracks, Pavement subsidence, Settlement, etc.
Left over Claims and Disputes: If claims and disputes are not settled before provisional certificate of completion,
they can be dealt during this phase.
Closing of Accounts: Final Accounts together with the release of remaining retention moneys and performance
securities are carried out in accordance with the current situation at the time of closing and Final Payment
Certificate is issued.
Completion Certificates: This is to entitle that the contractor is no longer responsible afterwards if satisfactory
performance is proved by Maintenance Period and its certification, outstanding claims and disputes are settled, and
closing of accounts are
made. Completion certificate is a certificate that concludes the contractual agreement and will not be considered
binding there after unless otherwise it is proved illegal

4.3. Contract Types

In Construction Industry, the following eight contract types are so far practiced:

1. Lump Sum Contract, 5. Item Rate or Schedule of Rates Contract,

2. Bill of Quantities or Unit Rate 6. Labor Contract,
Contract,
7. Hybrid Contract, and
3. Cost Plus Fixed Fee Contract,
8. Special Contract
4. Cost Plus Percentage of Cost
Contract,

Lump Sum Contract: When the Project or Tender price is determined and quoted as a total sum of money
without individual ratings to execute the whole of the works and / or services according to the drawings
and specifications, it is called a Lump Sum Contract. In such contracts:

 It is difficult to administer changes and amendments but experiences of similar projects are used as a basis
to this effect,
 Works or services are checked based on the specifications, the conditions of contract or terms of reference
and drawings if any for acceptance and closing of accounts, and
 Payments are agreed at different stages of works or services.

A Lump Sum Contract is more suitable for works of smaller in size and where the contracting parties
have prior experience of similar projects. But it is not advisable for projects with considerable
uncertainties such as; difficult sub surface situation, unusual projects, maintenance projects, etc. A Lump
Sum Contract mainly includes Contract Agreement, Conditions of Contract, Drawings and Technical
Specifications.

Bill of Quantities Contract : When the Project or Tender price is determined and quoted from unit rates
assigned to detailed bill of quantities, it is called a Bill of Quantity Contract. The Bill of Quantity
includes short description of specifications, unit of measurement, quantities and columns for pricing the
unit rate and its total amounts. In such contracts:

 It is relatively easy to administer changes and amendments because actual and assigned quantities can be compared,
 Works or services are checked based on the specifications, the conditions of contract or terms of reference,
drawings if any and the priced bill of quantities for acceptance and closing of accounts, and
 Payments are made based on measurements of executed works and material on site provided on site.

Cost Plus Fixed Fee Contract: When projects are fast – track and required to be completed expeditiously
and where it is difficult to estimate the project cost before, the project expenses called costs will be
recorded and a fixed amount which is agreed upon by the contracting parties will be added as payment to
the contractor. A contract that stipulates to reimburse cost together with an additional fixed fee, it is
called a cost plus fixed fee contract. Such a contract is
desirable when the scope and nature of the work can at least be broadly defined and for important
structures such as monumental buildings which are Time and Quality driven than Cost driven. In such
contracts:

 The work is executed in the best interest of the owner with regard to the project quality and time,
 There is no way that the contractor can loose,
 Changes and Amendments can be accommodated amicably,
 The amount of the fixed fee is determined as a lump sum from a consideration of the scope of the work, its
approximate cost, nature of work, estimated time of construction, manpower and equipment requirements,
and
 The owner could not easily anticipate the final project price and can cause budgetary problems.

Cost Plus Percentage of Cost Contract : This type of contract is similar to the Cost plus fixed fee contract
but its fixed fee is made variable using a percentage of the cost which is meant to cover the overhead and
profit costs of the contractor. Contract Administration becomes intense in such type of contract in order
to protect the interest of the owner. This is because the payment is made by determining the actual cost of
the work plus a certain percentage. The disadvantage of such kind of contract is the tendency to increase
the cost of the work to earn more profit by way of percentage of enhanced actual cost.

Item Rate or Schedules of Rates Contract : A different form of fixed contract but priced based on the unit
rate approach for individual or groups of activities, not the whole project. When accurate specifications
and quantities of work or services could not be determined before executions, provisional quantities
together with acceptable specifications can be included to determine Provisional sums using unit rates.
This type of contract is Item Rate or Schedules of Rates Contract.

Labor Contract: When the Project owner is responsible for the provision of major resources such as
materials and Equipments other than labor, small tools and equipments and their management, it is called
a labor contract.

Hybrid Contract: A contract that combines two or more contract types is called Hybrid Contract. This
type of contract is designed to meet the special requirement of certain classes of works to suit their
particular needs.

Special Contract: As the name implies, in certain circumstances such as use of specializations, urgency,
supplementary nature and continuity of services or works; remoteness and smallness of projects, etc
requires special arrangements. These include:

 Packaged Contract
 Running Contract, and
 Continuing / Supplementary
Contract  Sub Contract

Packaged Contract: In remote areas where there is a need to develop physical infrastructures and their smallness
and cost are too low that contractors are discouraged to participate, projects are grouped to combine two or more
individual contracts so as to arose interests by increasing their costs. A single contract formed from a combination
of two or more separate contract to suit special need of a project owner or financier or regulator is called a packaged
contract. This type of contract becomes feasible in order to promote privatization and discourage Force Account
forms of delivery system.
 Continuing / Supplementary Contract: When a project incurs additional works or services which is within 10 – 15
% of the total contract price but should not be > 25 % can be allowed to supplement to the existing contractor in the
form of Continuing or Supplementary Contract. Such contract is advisable when the project owner is able to save
cost and time due to tendering and mobilization.

Running Contract: This type of contract is becoming popular after projects started to use Alliance and Outsourcing
Delivery System. Such contracts provide goods, services and works at specified intervals or as and when required
by the Project Owner for a certain period of time. The Contract price is often per unit rate of goods, services or
works where the payment is based on actual goods delivered and / or services rendered and / or works executed.
Contract Prices can in some instances be fixed specifically for services.

Sub Contract: This type of contract is made when specialized works are involved in the project package or if the
Project Owner envisaged other tangible as well as intangible benefits by using such a contract type. Competitive
and Comparative advantages can be sought using such a contract type and they are forms of outsourcing and
alliances delivery systems.

Discussion Points:
Merits and Demerits of the different Contract Types
Chapter 5. Contract Changes Management

“In a Perfect construction process, There is no Uncertainty during planning And hence; There are no Changes during
Alas!
There is no Perfect Construction Process!!

5.1. Introduction

The two most important issues considered in contract change management are Uncertainties and
Changes. Uncertainties are issues that can either be difficult to reasonably predict or unknown during the
planning phase of Procurement and Contract Management. Changes are issues requiring alterations
during the implementation of Procurement and Contract Management.

Uncertainties are multi-dimensional. They can be Information related, and / or Time based, and / or
Ambition related; etc. Besides, they deal with complexity, risk, opportunity, ambiguity and chaos
associated with the project under consideration. For instance, when uncertainty is understood as the
difference between the amount of information required to perform the task and the amount of information
already available by the planning team (Figure …); one can clearly understand that uncertainty is the
major factor that conflicts with prediction or planning.

Information Lacking Information Possessed or

or Uncertainty Available

Amount of Information Required

Uncertainty is higher mation.
At the same time, the early phase posses the most probable influencing power on the project during this
phase. That is, the early phase is well known for its highest influencing possibility of the project and
where the available information and knowledge of the overall situation that helps planning is very
minimal (Figure ….).
 Information
Influence and Uncertainty

Cost

Ti

Uncertainty is not only related to the future but also the knowledge of the past as well, that is;
information records and those based on experiences. This indicated that Uncertainty is always with us
and can never be eliminated. Subsequent to this, all decisions about the future is made in the absence of
certainty. What is important from this discussion is not to search for more information until certainty is
build but to recognize that all decisions are and should be made under such uncertainties. In other words,
waiting until uncertainty is eliminated before making decision is an implicit endorsement of the stats quo,
and often an excuse for maintaining it.

Therefore, projects are planned under a certain level of uncertainty. This implies that all projects take
over risks during implementations. This can be therefore one of the major reasons why changes occur
during implementations.

Uncertainties can be mitigated using the following four interventions used in project contracts:

 Absorbing: Understanding projects are planned under uncertainty and changes are expected during
implementations, Provisions in the form of Contingencies, Alterations, etc are made and used to absorb
changes caused by uncertainties.
 Dividing or Splitting: When a project uncertainty is high or there is less past experience, dividing projects
into packages or different phases or to make them smaller sizes, etc is to divide or split to minimize the
uncertainties.
 Postponing: When Contracts could not clearly state specifications, quantities and estimates, they often
place Provisional Quantity or Provisional Sum to postpone uncertainties.
 Transferring: Lump Sum Contracts, DB and BOT delivery systems are some form of contractual
approaches to transfer uncertainties from Owners to Providers.

Changes
Points of Stakeholders’ Views on Changes: Stakeholders’ views and perceptions have considerable
effects on contract changes management. The following classical views are collected and listed for the
different stakeholders’ based on their merits and demerits (Table …):

Project Stakeholders Self initiated changes Others

Project Owners  I know what I want, and I want it badly  Cost and Time overruns are project doers
profits
Implementing  The designer should have thought of
this  The designer is the one at fault
Agencies
 The cost is immaterial and minimal  Variations and Claims are unethical practices
Beneficiaries
 This should not take any more time 
I am Paying for It!
Too Cost and Time
Oriented!!!
Project  Can we gain advantage?  Negotiate to gain profit and extra time
Doers  This is better for you  The designer should have thought of this
Consultants  The designer has short of experience  Can we recover soft costs?
Contractors on constructability  This should not take any more time
Let’s Negotiate!
Too Profit and Claim
Oriented!!!
Project
Regulators
Financiers
Public Works
Abide Laws, Rules
& Regulations
Too ……

Discussion Points:
 Changes Versus Delivery Systems
 Changes Versus Procurement Methods
 Changes Versus Contract Types

5.2. Requirement Changes Management Systems

All projects are planned under the context of uncertainties, what makes them different among each other
is that the type and degree of uncertainties does differ. Accordingly, there are almost no times that
projects are realized without requirement changes. In virtually all contracts, that is why provisions for
requirement changes are retained so that Project Owners can prerogatively make changes during
implementations. For instance, Clauses 51 and 52 of the General Conditions of FIDIC Red Book
provided provisions for Alterations (Additions and Omissions) to enable Project Owners use the Engineer
(the Consultant) to make requirement Changes.

Requirement changes can either be additional or extra or excess and / or omission works. They can cause
review of designs and / or create additional or changes in designs and / or just work orders to instruct
contractors to carryout the requirement changes. While project owners retain the right to requirement
changes, the contractor is obliged to accept as per the conditions of the contract. However, the contractor
is entitled to request and agree upon new or existing rates for such changes.
Change Orders are written instructions, agreed by the Project Owner or His Representative, directing
the Project Doer to make changes with or without the Consent of Regulatory Bodies. Often they are
entertained using standard formats of which Box … provides one of these types.

Change Order Format

Box …: Change Order Format

There are three kinds of Change Orders:

 Unilateral Change Order: is a type of change order that provides the right to any of the parties to make change
s without causing any effect on the other parties or disrespecting any laws, regulations and rules binding
the contract and itself but requires notification to the other parties for knowledge
 Bilateral Change Order: is a type of change order that require the agreement and / or consent of the two
contracting parties (the Project Owners and The Project Provider) to make changes but requires the
respects for laws, rules and regulations binding the contract and itself and requires notification to the
other parties for knowledge
 Multilateral Change Order: is a type of change order that require the agreement and / or consent of the three or
more contracting parties (the Project Owners, The Project Providers, The Project Financiers and / or the
Regulators) to make changes but requires the respects for laws, rules and regulations binding the
contract and itself and requires notification to the other parties for knowledge

Requirement changes based on the different types of change orders modifies contracts in either of or the
combinations of the following three ways:

Time changes only,

Time changes accompanied by Cost Compensations,
and Cost Changes only.

These three ways are subsequently dealt with in their respective sections.

The following flow chart represents the process in which the Management of Requirement Changes can
be handled (Figure …).
 Figure … Management Processes for Requirement Changes

5.3. Time Changes Management System

5.3.1. Introduction

Contract Time can either be Competitively or Directly assigned. In both cases, Time planning can be ma de using
different approaches such as using CPM, PERT, MCS, SP or TOC. Bar Charts, Gantt Charts, Network Diagr ams and
Tables can be used to show Time Plans and Accomplishments. Contractual Agreement finally defines the
Contract Time of a project. The Completion Time of projects include:

 Dates between Contract Agreement and Handing Over of Site,

 Mobilization Period(s),
 Contract Time, and
 Justified and Agreed Supplementary or Extension of Time.

As a result, the following Expressions hold True for Construction Time Competitions (Box …).

Dhos= Dcont + Thos; Dstart= Dhos + Tmob;

Dcomp= Dstart + Tcont + Tjust + Tsupp
If Dact < Dcomp; Bonus, if any
If Dact > Dcomp; Time Overrun and Liquidated Damage

Where, Dhos = Date for Handing Over of Site; DCont = Date for Contract Agreement; Thos = Time between
Contract agreement and handing over of site; Dstart = Date for Start of Construction Works; Tmob = Time
for Mobilization; DComp
= Date for Completion Time; Tjust = Time for Justified Delay; and Tsupp = Time for Supplementary
Works or Agreements.
 Section … discussed progress tracking which is applicable to Completion Time Administrations. Hence,
Planned and Actual Schedules are compared for deviations or compliances which show whether there is a
need for Time Change Management System or Not. Unfortunately, in most instances projects exhibit a
principal dimension measured by such comparison called Time Delays and Overruns.

5.3.2. Time Delays and Overruns

Time delays can occur in components of a project or trades of works, but when their cumulative effect
makes the actual completion time beyond the contract completion time, it is called time overrun.
Contractors in some instances accelerate projects in order to avoid liquidated damages. In this case, though
part of the project did delay; it is compensated which makes the delay irrelevant. However, contractors will
lose some profit if they depend on accelerating options most often.

Generally , Time delays can be classified into the following three categories:

Classic, Concurrent and Serial

Delays Classic Delays
Concurrent delays are delays that occur simultaneously when they were carried out parallelly. Their effect for the
project can be assessed using that part of the work which causes longest delay and its consideration are made as
such. For instance, if a project owner agreed to supply material and irrespective of its delay, if the project faced
adverse weather condition; the project can not be executed. Therefore, both delays could not be counted as serial
delay but concurrent and the one that causes longer delay is considered for time delay computations.
Serial Delays

Justifiable and Non - Justifiable Delays

Justifiable delays are delays that occurred due to causes which are beyond the control of project doer. If delays are
caused by project owners, the contractor or the consultant or the supplier is directly justified for the effects on delay
of the project. Force Majeur will also be one of the causes for justifiable delay.

Non - Justifiable or Non - Execusable Delays are delays that occurred due to negligence to fulfill contractual
obligation and are within the control of the contracting parties. Contractors or Consultants or Suppliers will be
liable for Non - Justified delays.

While Justifiable delays can be either compensable or non compensable; Non - justifiable delays will cause
remedial rights (Section 5.3.3) for the project owners.

Compensable and Non – Compensable Delays

Delay damages can involve additional costs incurred by the contractor as a result of the extended
duration of its performance. These typically include costs of idle laborers and equipment, higher costs of
performance during the later period of time and extended general conditions. Examples of the type of
additional costs associated with delays include:
  Extended or Increased management / supervisory costs
 Additional payment / performance bond premiums
 Additional liability insurance premiums
 Extended equipment / trailer rental costs
 Materials escalation costs
 Unanticipated weather protection
 Idle labor / equipment charges

The other component of delay damages is the unabsorbed overhead associated with the delay period.
Overhead expenses are not usually charged to a particular project, but rather, are combined and deducted
from income produced from all of the company's projects throughout the year. These costs are often
referred to as "Eichlaey" damages, which is the name of the formula most commonly used to calculate
the Overhead expenses portion of a delay claim.

One of the first factors for determining whether you can assert a valid claim for delay damages is your
contract. Unfortunately, many contractors often waive or severely limit their rights to recover delay
damages before even getting out to the project, through their contracts. For example, contract clauses can
be in line with:

 No Damage for Delay, or

 Conditional Recovery,
 Additional Time and Compensation for Delays

The first view expressly prohibits recovering of additional costs incurred as a result of delay, regardless
of the cause in creating the delay. The second view limits ability to recover or make a claim for delay or
impact damages, so that the recovery is very much dependent on causes of delay and their CPM Network.
This obviously excludes recovery for any unjustified delay damages. The third view does not inhibit or
limit rights to recover due to delay damages. By waiving your rights to delay damages before your work
begins, you could be putting your company at significant financial risk if a long unforeseeable delay or
other schedule impact causes you to incur unanticipated costs. Be aware of these provisions, and protect
your right to make a delay claim, if needed. Contractual provisions are not the only factor to consider
when determining whether to make a delay claim. Certainly, the amount of compensable damages and
your ability to prove them are also a part of the decision.

In Evaluating delay claims, five aspects must be taken into account:

 The effective duration of delay

 The effect of delay on work intended to be done
 The costs attributable to the delay
 The nature of costs / expenses
  The resources and acceleration / expediting measures

Generally, the method for calculating the claim or damages is based on the type of claim or theory of
liability. There are two basic theories of liability: Contract or Tort. A breach of contract can be
material, total or partial. The extent of the breach determines the measure of damages. A tort is generally
a civil wrong which entitles compensation for damages. A claim that a contractor was negligent in
performing a certain act can be the basis for a tort liability.

Typical Project Owner Delay Claim Components Include:

When the contractor delays the project, the owner can recover one of two types of damages: liquidated
damages or actual damages.

Liquidated damages are typically used when a determination of actual damages would be difficult if not
impossible to ascertain. The amount of and application of liquidated damages are normally set forth in
the contract. Some subcontracts incorporate the liquidated damage clauses in the prime contract. The
liquidated damage amount for a specific time period are determined before the breach occurred. In
California liquidated damages are generally enforceable. Some contracts attempt to include both
liquidated damages and actual damage clauses. When both clauses are included in the contract the
liquidation damage clause maybe invalid. If the owner caused the delay the liquidated damages provision
will not be enforced. If there are concurrent causes to delay which are attributable to the owner and the
contractor the courts will generally not enforce the clause. However, there are cases where the court has
attempted to apportion the damages.

When there is no liquidated damage provision in the contract the owner will be able to collect its actual
damages. If the owner has any direct involvement in the project its actual damages can include: (1)
additional supervisorial expenses, (2) other additional expenses actually caused by the delay, (3)
overhead expenses incurred during the delay period, (4) if project is intended to be leased reasonable
value of loss of use and the lost rents which could not have been reasonably avoided, (5) if the project is
not intended to be leased reasonable value of loss of use, interest expense, interest expense during the
delay period and (6) any other reasonably foreseeable damages the owner may have incurred including
lost profits from a business.

Typical Contractors Delay Damage Components Include:

The components of a contractors delay claim include: (1) indirect costs that occurred during the extended
performance period, (2) home office overhead that was incurred during the extended performance period,
(3) increased (material escalation) material direct costs that occur during the delay (4) lost productivity
caused by the delay and (5) other damages directly related to and attributable to the delay.

Indirect costs include job site overhead (e.g. project supervision costs), extended general conditions or
extended or unabsorbed overhead, job shack, portable toilet, telephone, insurance, and job site power and
water.

Home office overhead for the extended performance period can be calculated using several formulas. The
Eichleay formula is one method for calculating overhead. The Eichleay formula resulted from a federal
Board of Contract Appeal case against the Eichleay Corporation. The formula is calculated as follows:

Overhead allocable to the contract equals contract billings divided by total billings for the contract
period times total company overhead for the contract period. Daily contract overhead equals allocable
 overhead divided by days of performance. Amount of company overhead equals daily contract overhead
times number of delay days.

The formula cannot be applied to every claim. There are cases which limit its application when there is
not a total suspension of work. The formula is best used where home office overhead incurred and other
jobs did not absorb the overhead. Other methods include modified versions of the Eichleay formula
which are modified to fit the contractors particular delay circumstance such as: (1) segmenting costs to
the delayed project, (2) using the same overhead percentage as that included in the bid and (3) applying
industry published overhead averages.

Direct costs include: (1) Equipment rental costs and equipment ownership expenses (measured through
rate manuals, depreciation, taxes and insurance) during the delay period (2) Field labor if the scope of
work is increased as a direct result of the delay or if the hourly labor rate increases during the delay
period (e.g demobilization and re-mobilization expenses), and (2) Increased material costs if the scope of
work is increased or if the material cost increases during the delay period the contractor will be entitled to
that increased cost.

Delay damages can also include a contractors’ increased labor hours resulting from a loss of the on-site
labors efficiency. Disruption occurs when a contractor cannot achieve the productivity that was originally
anticipated. Productivity can also be impacted by a delays ripple effect. Loss of productivity can be
calculated using several methods. Generally, a productivity claim seeks the increased labor cost.
Typically, each area of lost productivity is determined by comparing the bid to the actual cost. Once, the
area of lost productivity is determined the damages are calculated for each individual item of work or
task where productivity is lost. Some contractors attempt to calculate the claim on a total overrun cost
basis, but such an approach is disfavored. It is thus very important to keep detailed time record when the
project is disrupted. The increased labor factors can be obtained through the following: Use of learning
curves and other similar models, time motion studies, expert witnesses, scientific models, and
comparisons to industry unit pricing standards.

Other damages that may be recovered include: (1) interest on the claim, (2) lost profits on other jobs if it
can be established that due to the delay the contractor couldn't get other jobs during the delay period,
typically, this occurs when a contractor bonding capacity restricts further contracts until the existing
work is completed.

Attorney fees are not recoverable unless there is an applicable attorneys fees provisions. If there is an
attorney's fees provision the prevailing party recovers the fees, but in discretion of the judge. AIA
documents attorneys fees provisions may not always allow the prevailing party to recover attorneys fees.

If the party who has been damaged fails to mitigate damages it may not be able to recover those damages
which could have been mitigated. Thus it is important for the contractor to make reasonable efforts to
minimize the damages it sustains as a result of a delay.

Delay claims require significant documentation.

Pacing Delay
Causes
:
Change Orders, Stop Orders or Suspensions and Force Majeure

Project Owner or Representative; Project Provider; Neither and Both

Project Owner or Representative: When causes are due to Project Owner(s) or their representatives;
project doers are entitled to time extension and compensations if warranted. Such causes can be related to
…..
Project Provider: When causes are due to Project Providers or their sub contractors; project doers are not
entitled to both time extensions and compensations, but are liable for delay damages which will be
payable to the project owner. Such causes can be related to …
Neither: When causes are due to neither the project owners or their representatives, nor the project
providers; project doers are served with only time extensions without any entitlement for compensations
and delay damages. Such causes can be related to ….
Both: When causes are due to both the project owners or their representatives and the project providers;
project doers are are only entitled for time extensions without any provisions for compensations and
delay damages. Such causes can be related to ….

5.3.3. Remedial Rights

Remedial rights are provisions entitled for non performances of the contractual obligation by the
contracting parties. Such rights can be entertained considering the efforts sustained by the contracting
parties in lieu of their duty to mitigate the non – performances. Unless otherwise contracting parties can
prove their effort for their duty to mitigate the occurrences of non performances, remedial rights are not
directly entiltled.

The following remedial rights are well known in construction contracts:

Time Extension: Time extension is a provision for justified time delays. Time extensions may or may not
be entitled for compensations. Using CPM, it is only justified delays that occur on the critical path that is
compensable. In none of the Conditions of Contract, the extension of time clauses do not make any
provisions of payment; and nor do delay and disruption clauses make entitlement of extension of time a
condition precedent to entitlement to compensation. Therefore, entitlement of compensation due to time
extension is strongly associated with causes of delay and whether it is on critical activities or beyond
floats in the case for non critical activities.

The primary effect of time extension is to relieve liabilities of delay damages such as liquidated damages.
However, if found justified for compensation, it will also bring in entitlements for monetary claims.

Liquidated Damage and / or Compensations:

Acceleration: When projects delay or when projects are required to be completed before its time, project
doers are obliged to accelerate their services or works to satisfy the requirements. The project doer is
entitled to compensation and time extension, if and only if delays are justified and at the same time
compensable. Otherwise, the acceleration of projects will only serve to relieve project doers from
liabilities they should cover to the project owners.

Process: Notification; Justifications; Time Impact Analysis; Submission; Review and Approval
 5.4. Price Variation Management System
5.4.1. Introduction
5.4.2. Variations: Additions, Excess in Quantities and Omissions
5.4.3. Provisional Quantity and Provisional Sum Administration
5.4.4. Cost Increase or Decrease
Chapter 6. Claim and Dispute Management System
6.1. Claims Management System

6.1.1.Definition and Types

Claim is mostly concerned with entitlements and liabilities arising under, or as a result of, a legally valid
contract (Hughes & Barber, 1992). A construction claim is therefore can be a demand for payment of
additional compensation, adjustment of the parties' respective contractual obligations, Extension of Time
or compensating delay damages, or any other change with regard to the contractual conditions or terms.
Claim in practice can also be understood in different ways based on the perceptions held by contractual
stakeholders. Wideman, 2001 reflected these views in three expressive definitions; namely

A claim is a disguised form of a blackmail,

A claim is the last chance to bail out of a losing job, and
A claim is an assertion to a contractual right.

Such a perception is one of the major motto behind all the process of Claim Administration and also a
motive for either making claims or not making claims. That is, claim is an emotive word that makes
contractual stakeholders to take sides and think the worst of each other. He further defined construction
claim formally as a legitimate request for additional compensation (cost and / or time) on account of a
change in the terms of the contract.

Further to this, Thesaurus and Synonyms of the word Claim from Microsoft Word, 2003 provided the
following categorical meanings (Table 1).

Table 1: Different interpretations for the word claim

Ask for Right Assert Argue Accusation Receive
Call for Entitlement State Allegation Get
Meanings Demand Privilege Declare Contention Obtain
Apply for Retrieve
Request Collect
Willful Act Legally Properly
Interpretations Supported presented Negotiate Litigate Compensated

The very bases of such interpretations of the word claim indicate that any claim is:

A willful act by the claimant when s/he believes that there is no other way than claiming to compensate for
the loss s/he suffered during relationships,
All of such willful act of the claimant should base on her/his right, entitlement and privilege that can
legally be supported,
All of such willful act by the claimant need to be articulated in such a way that it proved the claim is
properly presented and can be justified,
 Whenever necessary, claim goes through different types of processes when they become disputes among
parties in a relationship, and negotiation can be considered one form of such a process,
When claims reach its utmost and severe stage, its fate is totally geared to the formal litigation process, and
When they are concluded, they are made for compensation for which the claimant intends to retrieve an
entitlement.
Claims can be associated with three major categories that can be understood as the different types of
claims. These are:

 Time Related Claims: Claims associated with delay or in time completion of projects where either of the
following six Entitlements or Penalties are subjected to:
o Time Extension only o Concurrent Compensations
o Liquidated Damages only o Bonus
o Time Extension and Cost o Reliving of Obligation
Compensation
 Cost Related Claims: Claims associated with monetary compensation where either of the following
entitlements or penalties are entertained:
o Additions requiring rate adjustments
o Price Changes
o Provisional sum adjustments
 Default by Contracting Parties: Claims associated with non performances of contractual obligations such as:
o Delay in Payment Certificates
o Suspensions and Terminations
o ..

6.1.2. Claim Administration Processes

Claim administration process is understood as the process for the compensation of any damage, and/or
changes resulted during the implementation of Construction projects which are called entitlements with
quantum. This is because claims require to establish both the liabilities as well as the damages incurred in
any construction contract. Construction contracts allow that all contracting parties will be entitled to
make claims.

The claim administration process is then understood as the process starting from a willful act of the
claimant through claim notification by either of the contracting parties up to and including claims
approval and acceptance by both the Contracting parties for agreed or enforced compensations or
otherwise called claim enforcement.

Either the Contractor or the Employer can initiate the claim administration process. And, in some
instances, the Engineer can also advice on a reasonable incorporation of claims, on behalf of both the
contracting parties, if the engineer believed that without the treatment of such claims, the successful
performance of the project will considerably be affected. This is an obligation in the case of the
Employer, but in no case, used to accrue advantages only to the contractor.

Following the above interpretations for the word claim, accepted national and international procedures,
and findings from a research conducted recently, claim administration process can generally fall into
three major functions (Figure …). These included Claim Submittal, Claim Processing and Claim
Enforcement.

 Claim Notification
 Claim Preparation  Claim Enforcement
 Claim Submittal  Claim Closure

Claim Submittal Claim Processing Claim Enforcement

Figure ….: Claim Administration Process

Claim Handling
 Dispute Resolution
 by
Claim Submittal: This is a process Claim Approval
which the claimant is obliged to claim within a reasonabl e period
of time (28 – 30 days in most contracts) followed by her/his preparation for all substantial docume nts and
legal aspects supporting hers/his entitlements for an official submittal. This constituted that a claim has
been filed for its consideration if all these three sub processes called Claim Notification, Claim
Preparation and Claim Submittal are fully undertaken by the claimant.

Claim Processing: This process initiates checking of the claim whether, it is legally or contractually
supported or not; documents provided are valid and reliable to substantiate the claim for consideration or
not; and overall procedural requirements have been followed or not. After verifying the validity of the
claim proper computations and evaluations will be carried out to present the proposed compensation for
the contractual parties the claim is applicable to. Generally the sub process that undertakes these
requirements is termed as Claim Handling.

The contractual parties will pass through different dispute resolution system depending on their
acceptance over the proposed compensation varying from the simplest mediation by the consulting
engineer to the final court ruling in the form of litigation. Basically, three types of dispute resolution
systems are well recognized. These included:

1. Preventive Dispute Resolution System including Partnering, Use of dispute resolution advisors and Use
of Facilitators for early neutral evaluation and advise to prevent the happening of claims or their
consequential disputes
 2. Amicable Dispute Resolution System including Negotiation, Mediation, Conciliation and use of Mini-
Trials to administer the claim in a less formal, simple procedure, more flexible, less adversarial and strictly
confidential mode so as to avoid the time and cost implication of claim processing.
3. Judgmental Dispute Resolution System including Adjucation or use of Dispute review board, Arbitration
and Litigation where the formal adjucatory or common law system is applicable to bring the closure of
claim processing.

This sub process where dispute was handled in any form of its resolution systems is termed as Dispute
Resolutions. Such dispute resolution systems require conducive Macro and Messo environments such us
legislations, policies, regulations, etc. above all other things. Once the contractual parties agree on the
final outcome of the claim process then they have reached into a stage where the claim is approved.

Claim Enforcement: This is a stage where the approved claim is enforced and finally becomes a closure
therefore two sub processes are included. The claim enforcement process will entertain the inclusion of
the approved claim into payment certificates where their enforcement is due.

Once this compensation or entitlement is due in accordance to the approved claim and its enforcement
requirements, then it is concluded for its closure. In order to account for such an administration process
contracts provide claim clauses with in their provisions in their conditions of contract.

6.1.3. Contract Conditions

Here claim clauses which are set out in the MoWUD's SCC for construction of civil work projects in
Ethiopia, 1994 are considered and given in Table ….. These claim clauses are largely similar to FIDIC's
SCC, 1996 except in the case of delegating Duties and Power of the Engineer by MoWUD. The duties
and power of the Engineer is limited such that it required special approvals of the MoWUD (ERA in the
case of Road projects) in connection with claim clauses causing:

 Repayment to contractors under clause 26.3,

 Cumulative Time Extension Exceeding 15% of the contract time under clause 44,
 Fixing rates under clause 52.2,
 variation exceeding 10% under clause 52.3,
 Increase or decrease of costs under clause 70, and
 Termination of contract under clauses 63 & 69.

From this summary of claim clauses one can generally classify claim entitlements and quanta into two
major types: Claim related to Variations in Time and Cost issues.

Table …: Claim clauses in SCC for construction of civil work projects, MoWUD, 1994
Clause No. Description of claims Entitlement Due to
5.2 Ambiguities or discrepancies among several documents forming the Additional Cost + Time The Contractor
 contract Extensions
6.4 Failure or inability to issue Engineering drawings with in reasonable Additional Cost + Time The Contractor
time causing disruption of progress. Extensions
12 Physical conditions or artificial obstructions which can not be Additional Cost + Time The Contractor
predictable Extensions
18 Additional boreholes or exploratory excavation Additional Cost + Profit The Contractor
20.1 Repairs due to damages, loss or injury from any of the excepted risks Additional Cost + Profit The Contractor
25 Contractor's failure to insure. Repayment successively The Employer
26.3 Compliance with statutes, Regulations, etc. Additional Cost The Contractor
27 Obstructions such as archeological and geological interests or Additional Cost The Contractor
structures
30.2 & 30.4 Protection or strengthening due to special loads to highways or Additional Cost + Profit The Contractor
bridges
30.3 & 30.4 Damages due to extraordinary traffic claims Repayment successively The Employer
31 Use of constructors belongings for other purposes by the Employer Additional Cost + Profit The Contractor
36.4 Tests additional to provided in the contract Additional cost The Contractor
38.2 Uncovering and making openings to inspected works Additional cost The Contractor
39.2 Removal of improper work & Material Repayment successively The Employer
40.1 Extra cost due to suspension Additional Cost + Time The Contractor
extension
42.1 Failure on the part of the Employer for possession on time Additional Cost + Time The Contractor
Extension
47.1 Delay in completion time Liquidated damage The Employer
49.3 Cost due to remedy works other than contractors responsibility Additional cost + Profit The contractor
49.4 Remedy on contractor's failure Repayment The Employer
50 Searching for defects, imperfections, or faults Additional cost +Profit
52.1 Valuation of variations +/- cost The contractor/ The
Employer
63.1 & 63.3 Costs incurred by the Employer due to default by the contractor Repayment The Employer
64 Urgent remedial work made by the Employer Repayment The Employer
65.3 Damage due to special risks Additional cost + profit The Contractor
65.5 Increased costs due to special risks Additional cost
65.8 Payment after termination Additional cost The Contractor/
Repayment The Employer
69 Default by the Employer Additional cost + Time The Contractor
Extension
70.1 - 70.2 Changes in Cost & Legislation Additions / Omissions The contractor/ The
Employer

6.1.4.Major Causes for Claims

Generally, deviations from performance requirements among contractual stakeholders whether it is

related to completion time, or construction cost, or the fulfillment of its quality and its intended purpose,
or safety, health and environmental consequences can trigger claims in construction contracts. Levy,
2000 outlined 11 reasons why claims can be initiated. They are related to
 poor or unclear tender and/or contract documents,
poor or inadequate administration of responsibilities by stakeholders, and
Unforeseen or uncertain situations during execution

causing changes due to variations in requirements. Wideman, 2001 has also identified claim causes into
three main categories:

Changed conditions
Additional works, and
Delay for cost overruns and time extension.

In both cases, they understood that, though complete and 100% clear tender and / or contract documents
can not be drafted due to uncertainties, it is possible to minimize their potentials for breeds of contractual
claims if proper and clear tender document is prepared. And they also recognize in most contracts; errors,
omissions and ambiguities are common places. These, whether caused by poor or unclear tender and/or
contract documents; they can be good causes for changed conditions that incur both more time and
additional expenses.

Long and slow decision making process, Weak stakeholders’ relationships resulting from unhealthy
perceptions towards each other (see Wideman’s definitions), Lack of conducive Macro and Messo
environmental situations, and Subordinating common interests to self-interest serving practices creates
poor and inadequate administration of responsibilities by stakeholders (Wubishet, 2004). Such situations
are good grounds for adversarial relationships that trigger claims and disputes.

Sub surface conditions that can not be reasonably revealed; and Unforeseen Political, Economical,
Societal and Technological uncertainties can also be one of the major factors causing claims. From
several experiences, it becomes a well known fact that construction contracts are susceptible to a variety
of factors that may result in time and/or cost variations where legitimate claims can be considered and
compensated. As a result, claims and disputes in construction contracts can not be totally avoided which
can call upon identifying requirements for making a valid claim.

6.1.5.Requirements for a Valid Claim

Following the above theoretical reviews, what is important to know for stakeholders in construction
business is that they are aware of the following two main requirements:

Know the different ways of how to deal with claims and disputes together with their merit and
demerits, and
Know required procedures and avail necessary documents to make a valid claim.
Following this two requirements, fair and valid claim administration process requires:
 Conducive environment such as Policies, Codes, Standards, Rules and Regulations called “Macro
Environments”. These can be considered as Policy and Regulation related issues. These include:
 Lack of Clear Claim Administration and Dispute Resolution System
Institutional capacity and capability to act as a good link between Macro and Micro Environments such
that their requirements are aligned, developed and work for better relationships called “Messo
Environments”. These can be considered as stakeholders relationships and capacity related issues. These
include:
 Weak Stakeholders Relationships
 Weak Organizational Capacity
Company specific issues that considered internalizing factors with regard to claim making called “Micro
Environments”. These can be considered as weaknesses of construction companies. These include:
 Unhealthy Competition
 Poor Information Management System

Before discussing the major factors outlined above why local contractors could not make claim in the
context of Ethiopia, an observation that has been made along the claim administration processes are
summarized in Table … to …. bellow. This is because these observations can be good grounds for their
explanations.

Discussions based on Observations and Informed Opinions

Table 3a: Claim Submittal process

Processes Regulations Observed Issues
Claims Submittals
 Notification When claims first become apparent, claims  Most claims are often made only after the
notification will1 prevent rejected valid claims. claimant has realized the consequences such as
That is, late claims may deny the opportunity to delay for liquidated damage, or when no or less
observe, investigate, and provide alternative profit is observed.
solutions for the circumstances encountered, and  Local Contractors capacity to claim
are often seen with a degree of suspicion. administration in general is very weak.
 Preparation The claimant shall follow contractual procedures  Local contractors are less experienced and are
and conditions when preparing claims. Records believed to be too less claim oriented.
such as timely claims notification, instructions,  Supporting documents are weak and rarely found
job diary, reports, time sheets, invoices, in the case of local contractors.
photographs, difficulties encountered, and  Practitioners are weak in handling claim
schedules showing planned and executed, shall be preparations
kept to serve as evidences and become supporting
documents during claim submittals.
 Submittals The claimant essentially shall provide a properly  Often contractors are deficient in presenting
documented and verifiable claim to the consultant verifiable claims and often tend to rely on
in charge. This include an executive summary of interpretive advantages of the claim conditions.
the claim; explanation of how events given rise to  Contractors claim submittals are more or less not
the claim; references to the specific contract timely but after facts behind their failure to
clauses related, proves and evidences for the complete the project as per the contractual
claim; a summary of mitigating action to avoid the agreements.
claim; and calculations and justifications for the  Employer's claim has never been caused unless in
amounts claimed in time and/or cost. the case of defenses.

These observations are supported by informed opinions and further clarifications made with stakeholders
in the study. Though mostly claim related issues are less open to the public and researchers and these
observations largely focus on contractors’ side, they can be good inputs for this paper.

Table ….. tried to show the inability of contractors to make claims due to their lack of capacity and
capability with regard to their documentation system and lack of experienced human resources to timely
and contractually submit their valid claims.

Table …..: Claim Processing Process

Processes Regulations Observed Issues
Claims Processing
 Handling The consultant after investigating the claims  The review process by the executing agencies pass
draws out his recommendation and sends to through many public bodies scrutiny depending on their
the executing agency for consideration on his power and duties to approve certain amount of financial
part. limit, and hence a long decision making process.
This review is then passed to MoI for  Executing Agencies capacity to handle claim is very
approval. limited.
 Approval The MoI shall examine the claim and give a  Claim processing is generally less transparent.
final approval.  Local contractors are not often entertained.
The approved claim will then sent to the
claimant for consideration on his part.
 Dispute If there is disagreement, the consultant  Consultants are not providing their impartial services.
Resolution initiates its power for impartial mediation.  Arbitration took often too long.
If mediation fails, the claim will enter its  Arbitration is undertaken by MoI.
final stage of arbitration.

Table …. emphasizes on the nature of claim processing where non transparency dominates due to weak
relationships among stakeholders and also lack of conducive environment for valid claims. There seems
to be unhealthy perceptions which have been reined to cause such weak stakeholders relationships that
make worst the position of making valid claims and often let to pass through a non transparent process.
Table ….: Claim Enforcement Process
Processes Regulations Observed Issues
Claims Enforcement
 Acceptance This process is dependent upon the acceptance  The researcher did not come across a case where claims
of claims by both the contracting parties with accepted by the contracting parties are reversed or
or without dispute resolution. modified by the MoI.
 The researcher has come across three cases after court
ordering, negotiation results in less claim amounts.
 Closure Incorporation of the approved and accepted  Claim amounts became part of the contract.
claims into a contract and perform the
necessary consideration to the claimant will
conclude the claim administration process.

Table …. showed that it is better to use the first two dispute resolution systems (Preventive and
Amicable) and hereby advises for creation of conducive environments for them than the adjucatory
dispute resolution system. Now the three major requirements are discussed below.

Discussions based on Requirements developed from largely literature reviews

Macro Environments: Generally, the Ethiopian Government has allocated an average annual capital
budget of 58.2% for public construction projects between 1997/98 and 2001/02 (Wubishet, 2004). This
trend has continued till today with a variation of between 40 to 60%.

The construction industry is constituted of building, communication, water works and other physical
infrastructures, of which the building sectors consumed considerably low proportion of such capital
budgets (relatively 8%).

Though the importance of the construction industry to the development demands of Ethiopia was well
recognized, its contribution to the GDP, HDI and other economic factors for the country are not well
presented so far. Besides, the Construction Industry was highly fragmented before 2001, and highly
diffused after Ministry of Infrastructure came into place.

As a result of these two major factors, the construction industry till today does not have clear guiding
policies and principles which will help its development visions. Consequently, the construction on site
practices of the primary age has still dominated the Ethiopian construction industry where uses of
construction plants and equipments are very minimal.

Besides, there are no clear claim administration and dispute resolution regulations which creates
conducive and fair environment for appropriate construction contract administrations. In the absence of
such conducive and fair macro environments, the ability of local contractors to make valid claims and
also the ability of regulatory bodies such as MWUD to entertain such claims is very much limited.
Messo Environments: The perception behind contractual stakeholders to one another based on a
classical contractual relationship is a very critical problem that considered claim as a potential ground for
unethical practices. Such a preemptive thought caused protracted and too suspected practices which
prolong adversarial and fragmented approach to contractual relationships.

Besides, Link organizations such as Owners, Beneficiaries and Regulatory authorities together with
contract administration consultants lack capacity in the contract administration process in general.
Predetermined completion time is not well thought of, and scarcity of professionals in the field of
contract management and administration is considerable. As a result of these two Messo factors, it is
mostly unlikely that construction companies can make claims but rather await for possible opportunities
that the regulatory framework provides sometimes.

Micro Environments: Companies in the construction tenders are well recognized for their low balling
characteristics where extremely low costs are offered. This created unhealthy competition which could
not be reasonably controlled by their business and professional associations. Rather it is only from
regulatory body sides where such control are tried to be exercised.

This practice put construction companies at high risk to carry out their obligations which instigated
protracted and overzealous contract administration processes in the form of various claims. But in most
cases these claims are incomplete due to poor documentations and information management systems and
at the same time their presentations are not timely or according to contractual conditions.

As a result, these companies are let with neither be able to present a valid claim nor be able to complete
their contractual obligations. This in turn will cause projects to suffer considerable delay such that claims
are multiplied. The only way out for these companies in such situations is often presenting themselves as
victims of the system or the environment they are operating in.

These unhealthy competitions together with their poor information and documentation management
system are considered vital reasons for the inability of construction companies to make valid claims.
Case Study 7: Example
A project was signed on April 12, 1993 for a cost of Birr 6,047,883.90 and executed with the following conditions;

 Handing over of site is made on.............................Sept. 21, 1993.

 Mobilization time...................................................30 Cal. days.
 Completion time....................................................660 Cal. days.
 Liquidated damages equals 1/1000 per unjustified delay of Cal. days of that part of contract price
limited to 15% of the contract price.
 The Contractor executed Site clearance and some parts of bulk excavation amounting Birr 201,465.56
during the time of removing the minimum interference of obstructions by the Employer.
 The following components of the project costs are as follows;

Project components Cost Scheduled days Remark

Dining hall 563,290.81 150 Cal. days
External roads 205,368.00 90 Cal. days Scheduled
Hay barn 127,132.42 90 Cal. days parallely
Lecture hall seats 229,500.00 30 Cal. days Scheduled
EELCO transformer 90,015.83 10 Cal. days parallely
Workshop roof truss 58,916.00 10 Cal. days
Others 4,772,660.84 -

 The following variations and Excess in quantities are executed;

Variation Variation
Description of works/ Excess in works/
works additions Quantities omissions
Cost 140,496.08 87,631.80 69,760.28

 The following change orders are given during execution;

Description of
work Requested by Approved by Remarks
Workshop roof Employer Consultant Design is
truss changed
Workshop wall Contractor Employer Masonry to
bricks
All down pipes Contractor Employer PVC to GS
sheets

 The following payment certificates are paid to the contractor as given in the table below;

Payment Amount Consultant Employer pay Work executed amount

Certificate Nos. approved Approval date date during payment delay
P.C.N. 05 500,000 Oct. 2, 1994 Jan. 09, 1995 285,000
P.C.N. 07 325,000 Feb. 5, 1995 Mar. 2, 1995 500,000
P.C.N. 08 268,345 Apr. 11, 1995 Jun. 13, 1995 368,945

 The Employer has to pay within 30 Cal. days all payment certificates after approval by the consultant
and is liable for every days of delay to pay within such periods to compensate the contractor the unpaid
sum as per the Bank’s Saving account interest which is 6% per annum compounded semi - annually.

 The project is completed and provisional acceptance was made on January 2,

1996. The contractor claims for Time Extensions are as tabulated below;
 Time Extension Claims:

Claimed
No. Description of Claims Computations dates
1. Due to Variation order amount of 16 Cal.
Birr 140,496.08 (140,496.08 / 6,047,883.90) * 660 = 15,33 days days
2. Due to Excess in quantities amount 7 Cal. days
of Birr 59,633.45 (59,633.45 / 6,047,883.90) * 660 = 6.51 days
3. Design change to relocate Requested by the Contractor dated Oct. 20, 1993 and approval
buildings and roads to insure by the consultant and Employer was made on Oct. 30, 1993.
minimum interference with And the minimum interference were removed by the Employer,
existing trees, electric high tension with the consultation and approval of all public works authority
lines, water supply and sewerage for the regulations proper, on Nov. 20, 1993.
lines, etc. 30 Cal days
4. Design change for two components Requested by the Contractor dated Nov. 20, 1993 and Design
of the buildings, namely Dining changed and approved by the consultant and Employer was
hall and Hay burn made on Dec. 22, 1993 for Dinning hall and Dec. 18, 1993 for 32 Cal.
Hay burn. days
5. Design change for the roof truss of Requested by the Contractor dated May. 4, 1994 and Design
workshop building. changed and approved by the consultant and Employer was 15 Cal.
made on May. 19, 1994. days
6. Change in walling material for Requested by the Contractor dated Apr. 4, 1993 and acceptance
Workshop building by the Employer was made on May. 13, 1994. 23 cal. days
7. Change in down pipes material for Requested by the Contractor dated Aug. 9, 1994 and acceptance
all buildings. by the Employer was made on Aug. 25, 1994. 16 Cal days
8. Fire break out in lecture hall Agreement made on Nov. 2, 1994 to complete within 120 Cal.
producing factory days. Fire breakout on Jan. 20, 1994. Another order was made
to another factory and lecture hall seats completed on May 2, 92 Cal.
1995. days
9. EELCO Transformer installation Request made to EELCO dated Jun. 5, 1994 and Estimate from 60 Cal days
EELCO obtained on Aug. 4, 1994.
10. Change in working days from 6 660 / 30 = 22, then 22 * 4 * 0.5 = 44 Working days 44 Cal.
days a week to 5 days a week days
11. Due to bad weather condition Assume the effect extends itself on the project by 20%, then
during the two rainy seasons in the 120 * 2 * 0.20 = 48 Cal. days. 48 Cal.
construction period. days
12 Permission delay from Request made to Municipality dated Feb. 8, 1994 and
Municipality for the construction permission granted on Mar. 22, 1994.
of External roads and connection to 31 Cal.
the existing Municipal sewer point. days
13. Delay in Payment certificate No. 5 See table above 104 Cal.
and 8. days

 The following table gives information on Changes in cost due to the inflation of Economy to
compute price variations compensations;

Quantity Unit rate of material

Contract Total Executed Executed Based Rate Highest of Based for bid Rate after
Material Document Executed before after for bid before and Rate before increase increase
Increase Increase increase
Cement (Qts.) 250,000 908.57 125.33 783.24 24.14 37.35 37.35 42.22
Coarse aggregate
(M3) 34,788.18 126.43 17.44 108.99 38.00 40.00 40.00 65.00
Timber (M3) 932.79 3.39 0.47 2.92 500.00 1500.00 2000.00 500.00
Steel Reinforcement
(Kg) 237,541 863.20 119.07 744.13 3.00 3.15 3.15 4.20
8mm thick
Chipwood (M2) 520 518.44 None 518.44 8.65 14.65 14.65 17.95
Seco profile
Windows and doors
(Kg) 2610 2608.06 None 2608.06 5.00 5.10 5.10 8.50
Asphalt (Drum) 270 269.95 None 269.95 110.00 285.75 285.75 475.00
Date coverage = Date price
Jan. 26, 1995 - changed = Apr.
Aug. 01, 1995
08, 1995
 N.B. Based for bid is either taken from the basic price list of materials or computed as 60 - 70 % of the unit
prices quoted in the contract document.

Answer the following questions:

Part A

1. Work out the total delay of the Project.

2. Work out the justified delay of the Project.
3. Work out the unjustified delay of the Project.
4. Compute the Liquidated Damage amount to be compensated for the Employer.
5. Compute the unpaid sum compensation to the contractor by the Employer in connection to dalliance
of payment certificates.
6. Compute the compensations due to the contractor and the Employer resulting from changes in cost.
Part B

After computing those in Part A, Describe the project profile and give your recommendations to:

1. the Employer,
2. the contractor, and
3. the consultant.

Taking yourself as their representatives, and Employer’s representative in the case of the Contractor and
vice versa.

Part C

1. How do you make sure the material rates before and after increases are correct?
2. Why is necessary to compute Highest of basic prices for bid and rate before increase?
3. If the contractor exercised default by the Employer during the delay of P.C. No. 8, what would
have been the profile of the project?
4. When do you think the completion time of the project be in order the contractor be released of
the obligation of liquidated damages?

Good Luck
Solutions
Part A
1. Total delay of the project:

Contract Date = April 12, 1993.

Handing over site Date = September 21, 1993 = Commencement Date
Mobilization Time = 30 Cal. days.
Starting Date = Commencement Date + Mobilization Time.
= Sept. 21, 1993 + 30 Cal. days.
= Oct. 21, 1993.
Contract Time = 660 Cal. days.
Completion Date as per the contract = Starting Date + Contract Time.
= Oct 21, 1993 + 660 Cal. days.
= Aug. 12, 1995.
Actual Completion Date = Jan. 2, 1995.
Total delay of the project = Actual Completion Date - Completion Date as per the contract.
= Jan. 2, 1995 - Aug. 13, 1995.
= 143 Cal. days.
Therefore; the total delay of the project was 143 Cal. days.
 2. Justified delay of the project:
Time delay justifications are worked out as tabulated below;

Justified
No. Description of Claims Computations delay
1. Due to Variation order amount (140,496.08 / 6,047,883.90) * 660 = 15,33 Variation + Excess in quantities - Omissions = 140,496.08 + 87,631.80 -
of Birr 140,496.08 days 69, 760.28 = 158,367.60.
2. Due to Excess in quantities (59,633.45 / 6,047,883.90) * 660 = 6.51 17 Cal.
amount of Birr 59,633.45 days Delay justified = (158,367.60 / 6,047,883. 90) * 660 = 17 Cal. days. days
3. Design change to relocate Requested by the Contractor dated Oct. 20, Delay to be claimed is From Oct. 20, 1993 to Nov. 19, 1993 = 30 Cal.
buildings and roads to insure 1993 and approval by the consultant and days. But during this period the contractor executed works amounting
minimum interference with Employer was made on Oct. 30, 1993. And 201,465.56 which saves (201,465.56 / 6,047,883.90) * 660 = 22 Cal.
existing trees, electric high the minimum interference were removed by days. Therefore, delay to be justified sshould be = 30 - 22 = 8 Cal. days
tension lines, water supply and the Employer, with the consultation and
sewerage lines, etc. approval of all public works authority for 30 Cal
the regulations proper, on Nov. 19, 1993. days
4. Design change for two Requested by the Contractor dated Nov. 20, Dinning hall: Completion time as per contract = (Component Cost /
components of the buildings, 1993 and Design changed and approved by Contract price) * contract time = (563.291.81/ 6,047,883.90) * 660 = 62
namely Dining hall and Hay the consultant and Employer was made on Cal. days. Completion time as per schedule is 150 Cal. days. Therefore;
burn Dec. 22, 1993 for Dinning hall and Nov. 18, Completion time for the dining hall will be 150 Cal. days. Delay to be
1993 for Hay burn. claimed is From Nov. 20, 1993 to Dec. 22, 1993 = 33 Cal. days which is
a proportion of the total work; ie, 33 / 660 = 0.05. Therefore delay to be
justified should be = 0.05 * 150 = 7.5 Cal. days. Similarly for Hay burn,
justified delay should be 4 Cal. days. Since both components are 7. 5 Cal.
scheduled parallely, the total justified delay is taken to be 7.5 Cal. days days
4. Design change for the roof Requested by the Contractor dated May. 4, Completion time as per contract = (Component Cost / Contract price) *
truss of workshop building. 1994 and Design changed and approved by contract time = (58,916/ 6,047,883.90) * 660 = 7 Cal. days. Completion
the consultant and Employer was made on time as per schedule is 10 Cal. days. Therefore; Completion time for the
May. 19, 1994. roof truss of the workshop will be 10 Cal. days. Delay to be claimed is
From May. 4, 1994 to May. 19, 1993 = 15 Cal. days which is a
proportion of the total work; ie, 15 / 660 = 0.023. Therefore delay to be 0.23 Cal.
justified should be = 0.023 * 10 = 0.23 Cal. days. days
6. Change in walling material for Requested by the Contractor dated Apr. 4, Since Changes are initiated and requested by the contractor for cost
Workshop building 1993 and acceptance by the Employer was advantage and easy availability with construction, and could he execute
made on May. 13, 1994.
7. Change in down pipes material Requested by the Contractor dated Aug. 9, as per contract if reply delayed, therefore; such delays are not
for all buildings. 1994 and acceptance by the Employer was justifyable.
made on Aug. 25, 1994. -
8. Fire break out in lecture hall Agreement made on Nov. 2, 1994 to Completion time as per contract = (Component Cost / Contract price) *
producing factory complete within 120 Cal. days. Fire contract time = (229,500 / 6,047,883.90) * 660 = 25.05 Cal. days.
breakout on Jan. 20, 1994. Another order Completion time as per schedule is 30 Cal. days. Therefore; Completion
was made to another factory and lecture hall time for the lecture hall seats will be 30 Cal. days. Delay to be claimed is
seats completed on May 2, 1995. From Nov. 2, 1994 to May. 2, 1995 = 92 Cal. days which is a proportion
 of the total work; ie, 92 / 660 = 0.1394. Therefore delay to be justified 5 Cal.
should be = 0.1394 * 30 = 4.2 Cal. days. days
9. EELCO Transformer Request made to EELCO dated Jan. 5, 1994 Completion time as per contract = (Component Cost / Contract price) *
installation and Estimate from EELCO obtained on contract time = (90,015.83 / 6,047,883.90) * 660 = 9.82 Cal. days.
Aug. 4, 1994. Completion time as per schedule is 10 Cal. days. Therefore; Completion
time for the transformer installation will be 10 Cal. days. Delay to be
claimed is From Jan. 5, 1994 to Aug. 4, 1994 = 60 Cal. days which is a
proportion of the total work; ie, 60 / 660 = 0.091. Therefore delay to be
justified should be = 0.091 * 10 = 1 Cal. days. 1 Cal days
10. Change in working days from 6 660 / 30 = 22, then 22 * 4 * 0.5 = 44 The contract time is based on Cal. days, therefore changes in working
days a week to 5 days a week Working days days has no effect on the project. -
11. Due to bad weather condition Assuming the effect extends itself on the Weather conditions shall be considered in the contract time. Unless
during the two rainy season in project by 20%, then 120 * 2 * 0.20 = 48 adverse and unexpected weather conditions pertain to delay the project,
the construction period. Cal. days. no delays shall be justified with this regard.
-
12 Permission delay from Request made to Municipality dated Feb. 8, Completion time as per contract = (Component Cost / Contract price) *
Municipality for the 1994 and permission granted on Mar. 22, contract time = (205,368.00 / 6,047,883.90) * 660 = 22.41 Cal. days.
construction of External roads 1994. Completion time as per schedule is 90 Cal. days. Therefore; Completion
and connection to the existing time for the transformer installation will be 90 Cal. days. Delay to be
Municipal sewer point. claimed is From Feb. 8, 1994 to Mar. 22, 1994 = 31 Cal. days which is a
proportion of the total work; ie, 31 / 660 = 0.047. Therefore delay to be 5 Cal.
justified should be = 0.047 * 90 = 4.23 Cal. days. days
13. Delay in Payment certificate See table above Delay to be claimed From table above = 104 Cal.days. However, the
No. 5 and 8. contractor executes work amounting 285,000 + 368,945 = 653,945
which is a proportion of the total work; ie, 653,945 / 6,047,883.90 =
0.108. Therefore, justified delay would be 104 - (0.108 * 660) = 33 Cal. 33 Cal.
days days

The total justified delay is then, 17 + 30 + 7. 5 + 0.23 + 5 + 1 + 5 + 33 = 98.73 Say 99 Cal. days.
3. Unjustified delay of the project
Unjustified delay = Total delay - Justified delay
= 143 - 99
= 44 Cal. days.
Therefore, unjustified delay of the project is 44 Cal. days.
4. Liquidated damages
The liquidated damage will be applicable for unjustified delays, therefore; the delay to be considered for
this part is 44 Cal. days.
Liquidated damage = 1/ 1000 per unjustified delay of that part of the contract price.
Unjustified delay = 44 Cal. days.
The part of the contract price included in the unjustified delay is:
= (44 / 660) * 6,047,883.90
= 403,192.26
Liquidated damage = (1/ 1000) * 44 * 403,192. 26
= 17,740.46
Limit of liquidated damage = 10% (6,047,883.90)
= 604,788.39. > 17,740.46
Therefore, the liquidated damage of the project is Birr 17,740.46.
5. Unpaid sum compensation
Amount of delayed payment certificate and delayed days:
P.C.N. 05 = Birr 500,000 and delayed for 103 - 30 = 73 Cal. days.
P.C.N. 08 = Birr 268,345 and delayed for 64 - 30 = 34 Cal. days.
Unpaid sum compensation for P.C.N. 05 is computed as:
= 500,000 * (73 / 365) * (6 / 100)
= 6000.
Unpaid sum compensation for P.C.N. 08 is computed as:
= 268,345 * (34 / 365) * (6 / 100)
= 149.50.
The total unpaid sum = 6000 + 149. 50
= 6149. 50.

Therefore, the total unpaid sum compensation = Birr 6149.50.

6. Change in cost compensation

Quantity Unit Rate of Material

Material Executed Highest of Based for bid Rate after Unit rate used for changes
after Increase and Rate before increase increase in cost compensations
Cement (Qts.) 783.24 37.35 42.22 4.87 3,814.38
Coarse aggregate (M3) 108.99 40.00 65.00 25.00 2,724.75
Timber (M3) 2.92 2000.00 5000.00 3000.00 8,940.00
Steel Reinforcement (Kg) 744.13 3.15 4.20 1.05 781.34
8mm thick Chipwood (M2) 518.44 14.65 17.95 3.31 1,716.04
Seco profile Windows and
doors (Kg) 2608.06 5.10 8. 50 3.40 8,867.40
Asphalt (Drum) 269.95 285.75 475.00 189.25 51,088.04
6.2. Alternative Dispute Resolution System

6.2.1. Preventive DRS

6.2.2. Amicable DRS
6.2.3. Judiciary DRS
Chapter 7. Procurement and Contract Management in Ethiopia
7.1. Past Developments
7.2. Current Situations
7.3. The Way Forward
Project Works

1. Compare and Identify Merits and Demerits of the different Procurement and Contract Delivery Systems
2. Compare and Identify Merits and Demerits of the different Procurement Methods
3. Compare and Identify Merits and Demerits of the different Contract Types
4. Compare and Identify Merits and Demerits of General Conditions of Contract for Construction Works: MWUD - 1994,
FIDIC
– Latest, WB – Latest, ADB – Latest,
5. SWOT analysis on Applicable Laws, Rules, Regulations and Guidelines for Procurement and Contract Management

Assignments

1. Procurement Evaluation
2. Contract Administration

Group Discussions

1. Delivery System
2. Procurement Method
3. Contract Types
4. Terms of References
5. Instruction to Bidders
6. Conditions of Contract
7. Advance Payment Provisions
8. Warranties and Guarantees
Case Study 1:

 A Contract for surface water drainage to install 1500 m of 30 cm diameter clay pipes requires trench
excavation to a depth between 3 to 3.5 m.
 The Contractor after excavating 200 m of trench called upon the Engineer for go ahead to lay the pipes.
 In the mean time a nearby 600 m water main bursts and the trench collapses. The water could not be stopped
until two days. Work can not be started until the water main is repaired and it takes three weeks.
 Investigation revealed that there was a bend on the water main with a thrust block close to the edge of the
trench and its effect was not considered when the trench support system was designed.
 The Contractor took 30 days to re-excavate and could not satisfy the original design requirement for a narrow
trench condition (130 cm wide).
 Possible solutions suggested by the Engineer for such a problem is either using cast iron pipe instead of the
clay pipes originally specified or to provide a concrete surrounding the original pipe specified.
 The insurance company accepts the event and agrees to cover the cost for the removal of the materials washed
away, its replacement with borrowed fill for the damaged trench support system, and valid claim due to the
water main thrust.
 The insurer clearly indicate that the costs due to the two possible solutions recommended by the Engineer, any
cost associated with the delay of the work and associated liquidated damages are outside its policy and can not
be covered.

Questions:

 Identify clauses of the conditions of contract related to the case

 Identify possible effects of the case
 As a Contract Administration expert propose a viable advice to the Contractor
Case Study 2:

 A Construction Management Consultant entered into a turnkey contract with a Contractor to design and
construct a large storage warehouse by the River Side.
 The site information investigated by the Contractor showed 0.5 m of made up ground over 6 m of soft clay
overlaying a thick layer of sandy gravel.
 A Foundation Report by the Geo-technical investigation team is driven precast concrete piles 8 m deep to the
sandy gravel level.
 After the contract was made and before the piles are driven, the municipality river conservancy board approved
flood protection works which would raise the bank level by 1.5 m. Accordingly; the Construction Management
Consultant in consultation with the Employer provided a work order to raise the floor level of the warehouse by
1.65 m.
 The Contractor following the work order notified that the precast piles already ordered can not be lengthened
and additional piles are required for additional negative skin friction induced by the rise of the bank level.
 The Construction Management Consultant responds that the foundation type was made by the contractor and
that the valuation should be made by increasing the piling item prices pro rata and the design should have
allowed the negative skin friction even for the 0.5 m fill originally recommended.

Questions:

 Identify clauses of the conditions of contract related to the case

 Identify possible effects of the case
 As a Contract Administration expert propose a viable advice if you are working in
o The Construction Management Consultancy Office
o The Contractor Company
Case Study 3:

 The Main Contractor who contracted to construct a bridge for widening an urban motorway subcontracted the
construction of piling and abutment works.
 The Main Contractor was responsible for the piling design by the contract and this requirement was passed to
the sub contractor.
 After the sub contract has been let, the Municipality which is the Employer and The Engineer at the same time
informed the Main Contractor that noise levels should be limited and that pile driving will not be permitted.
 The Sub – Contractor submits a claim that it had intended to use driven precast piles that it will now have to
use Augured cast in place piles which will take longer and cost more.

Questions:

 Identify clauses of the conditions of contract related to the case

 Identify possible effects of the case
 As a Contract Administration expert propose a viable advice if you are working in
o The Main Contractor Office
o The Sub Contractor Office
o The Municipality Office
Case Study 4:

 The City of Addis Ababa planned to construct four parks for its Millennium celebrations.
 The Works are divided in four lots (A, B, C and D) which are expected for completion within 15, 18, 21 and 24
weeks.
 The substructure work of each section was planned to take five weeks. The remaining works including Road
and Drainage works will be completed by end of 32 weeks.
 Liquidated damages are fixed in the appendix to the form of tender at 1/1000 per day to a limit of 15 % of the
contract price.
 Progress is slower because of three reasons: unavailability of resources, Heavy rainfall during March for four
weeks, and changes in design.
 The changes in design caused revision for Section A and B are ready at the End of week 12 and 22
respectively. Section C and D are unchanged.
 The Electric source which should be available by EEPCO has been delayed by three weeks due to a decision to
increase the power requirement by 200 %.
 The Engineer and the Contractor are pressed by the City Council Millennium Committee to ensure the works
are completed within the time table, even if it involves additional expenses.

Questions:

 Identify clauses of the conditions of contract related to the case

 Identify different alternatives to complete the proposed works
 As a Contract Administration expert propose a viable advice if you are working in
o The AA City Council
o The Engineer Office
o The Contractor Office
Case Study 5
 A Contractor was recommended to make contract with the Employer based on the following Evaluation Result:
 The lowest bidder is disqualified because his price is too low (40 % less than the Adjusted Bid
Estimate computed using a quarter of the Engineers’ Estimate and three quarters of the Average
Bidders Estimate).
 The Employer insisted that the bid shall be awarded to the lowest bidder, and The Employer Representative
disagree and recommended the least evaluated bidder using the +/- 20 % disqualifying criteria.
 The Employer after taking up the case with the financier, they agree to award the contract to the lowest bidder
and Contract was signed between the Employer and the Contractor.
 After the work is progressed the following happened
 The contractor can only execute 25 % of the works within 65 % of the completion time
 Currency is devaluated from Birr 8 to Birr 11 at the 65 % of the completion time
 Before the devaluation 10 % of additional works were carried out by the contractor
 The Regulatory Body allow 33 % compensation for the devaluation but only for justified delays of
executed works and planned remaining works
 The Contractor could only justify 30 % of the total delay
 The Contractor was not yet paid the variation works executed so far
 The Contractor Claimed in addition to the justified time delay, the unpaid amount allowed for the
price escalation compensation and the variation works to be executed

Taking the above case into consideration,

1. Identify clauses of the conditions of contract related to the case and

If you are
2. The Consultant, what will be your action / decision?
3. The Employer, what will be your action / decision?
4. The Regulatory Body, what will be your action / decision?
5. The Financier, what will be your action / decision?
Case Study 6
The Employer was short of budget for five months, and two payment certificates were delayed for more than they
should be due. Consequently, the contractor claimed Time Extension and Employer’s Default and suspended
work after giving notice prior to the Employer. The Employer then paid both the payments after five months and
requested the continuation of the project. The contractor also requested for compromise to his earlier defaults with
regard to his unjustified delay for four months and refused to continue the project before his request settles down.

Taking the above case into consideration,

1. Identify clauses of the conditions of contract related to the case and

If you are
2. The Consultant, what will be your action / decision?
3. The Employer, what will be your action / decision?
4. The Regulatory Body, what will be your action / decision?
Case Study 7
A Contract was signed b/n the employer and the contractor on January 19, 2004 with the following facts:

 Project Cost = 10 Million Birr

 Completion Time = 36 Months
 Liquidated damage = 1 / 100 per delay of Calendar day
 Limit of Liquidated Damage = 10 % of the Project Cost
 Banks interest on saving account = 3 % per annum compounded monthly
 Retention = 10 % of the executed work
 Rebate = 2.5 % of the Project Cost

The Contractor’s progress on January 19, 2006 was found to be 45 %.

Variation works done until January 19, 2006 was amounted to 500,000 Birr.
The 2nd and the 5th payments were delayed for two months amounting Birr 600,000 and Birr 350,000.

As a Consultant workout
1. the total and justified delay of the project
2. the liquidated damage
3. Payments delay compensations
Determine the position of the project and recommend action required?
Assume no other claim is filed by the contractor and / or the Employer.
Case Study 8
A project was signed on May 12th, 2004 for a contract price of Birr 8,050,354.90 and Executed with the following
conditions:

 Handing over of site was made on May 15th, 2004

 Mobilization Time 21 Cal. Days
 Completion Time 800 Cal. Days
 Liquidated Damages equals 1 / 1000 per unjustified delay of cal. Days but limited to 15 % of the total
Contract Price
 The following alterations were made and executed
o Additions Birr 137, 256.00
o Omissions Birr 128,436.00
o Executed amount below quantities Birr 8,820.00
 Payment Certificate No. 06 amounting Birr 670,325.85 was delayed for a total of 90 cal. Days due to
budgetary problems. The Contractor executed during this period Birr 128,000.00
The Contractor’s claims for Time extension were:
 Due to Alterations
 Due to delay in Payment Certificate No. 6
 Design change for roof structure Requested by the Employer on May 12, 2005; and Replied by the
consultant on Sept 20, 2005. The Roofing was scheduled as per the contract from July 2005 to Nov. 2005
whose cost is 1,350,405.35. Work executed during this period, which was parallely scheduled as per the
contract equals Birr 250,000.00
The Project was completed and Provisional Acceptance was made on January 16, 2006.

Part A
1. Determine the total delay of the project
2. Determine the Liquidated damage due to the Employer
3. Determine the unpaid sum compensation due to delay of Payment Certificate No. 06 due to the contractor
Part B
4. After computing those in part A, Write a report on the project profile as a Contract Administrator
Case Study 9: Example
A project was signed on April 12, 1993 for a cost of Birr 6,047,883.90 and executed with the following conditions;

 Handing over of site is made on..............................Sept. 21, 1993.

 Mobilization time...................................................30 Cal. days.
 Completion time....................................................660 Cal. days.
 Liquidated damages equals 1/1000 per unjustified delay of Cal. days of that part of contract price
limited to 15% of the contract price.
 The Contractor executed Site clearance and some parts of bulk excavation amounting Birr 201,465.56
during the time of removing the minimum interference of obstructions by the Employer.
 The following components of the project costs are as follows;

Project components Cost Scheduled days Remark

Dining hall 563,290.81 150 Cal. days
External roads 205,368.00 90 Cal. days Scheduled
Hay barn 127,132.42 90 Cal. days parallely
Lecture hall seats 229,500.00 30 Cal. days Scheduled
EELCO transformer 90,015.83 10 Cal. days parallely
Workshop roof truss 58,916.00 10 Cal. days
Others 4,772,660.84 -

 The following variations and Excess in quantities are executed;

Variation Variation
Description of works/ Excess in works/
works additions Quantities ommisions
Cost 140,496.08 87,631.80 69,760.28

 The following change orders are given during execution;

Description of
work Requested by Approved by Remarks
Workshop roof Employer Consultant Design is
truss changed
Workshop wall Contractor Employer Masonry to
bricks
All down pipes Contractor Employer PVC to GS
sheets

 The following payment certificates are paid to the contractor as given in the table below;

Payment Amount Consultant Employer pay Work executed amount

Certificate Nos. approved Approval date date during payment delay
P.C.N. 05 500,000 Oct. 2, 1994 Jan. 09, 1995 285,000
P.C.N. 07 325,000 Feb. 5, 1995 Mar. 2, 1995 500,000
P.C.N. 08 268,345 Apr. 11, 1995 Jun. 13, 1995 368,945

 The Employer has to pay within 30 Cal. days all payment certificates after approval by the consultant
and is liable for every days of delay to pay within such periods to compensate the contractor the unpaid
sum as per the Bank’s Saving account interest which is 6% per annum compounded semi - annually.

 The project is completed and provisional acceptance was made on January 2, 1996.
The contractor claims for Time Extensions are as tabulated below;
 Time Extension Claims:

Claimed
No. Description of Claims Computations dates
1. Due to Variation order amount of 16 Cal.
Birr 140,496.08 (140,496.08 / 6,047,883.90) * 660 = 15,33 days days
2. Due to Excess in quantities amount 7 Cal. days
of Birr 59,633.45 (59,633.45 / 6,047,883.90) * 660 = 6.51 days
3. Design change to relocate Requested by the Contractor dated Oct. 20, 1993 and approval
buildings and roads to insure by the consultant and Employer was made on Oct. 30, 1993.
minimum interference with And the minimum interference were removed by the Employer,
existing trees, electric high tension with the consultation and approval of all public works authority
lines, water supply and sewerage for the regulations proper, on Nov. 20, 1993. 30 Cal days
lines, etc.
4. Design change for two components Requested by the Contractor dated Nov. 20, 1993 and Design
of the buildings, namely Dining changed and approved by the consultant and Employer was
hall and Hay burn made on Dec. 22, 1993 for Dinning hall and Dec. 18, 1993 for 32 Cal.
Hay burn. days
5. Design change for the roof truss of Requested by the Contractor dated May. 4, 1994 and Design
workshop building. changed and approved by the consultant and Employer was 15 Cal.
made on May. 19, 1994. days
6. Change in walling material for Requested by the Contractor dated Apr. 4, 1993 and acceptance
Workshop building by the Employer was made on May. 13, 1994. 23 cal. days
7. Change in down pipes material for Requested by the Contractor dated Aug. 9, 1994 and acceptance
all buildings. by the Employer was made on Aug. 25, 1994. 16 Cal days
8. Fire break out in lecture hall Agreement made on Nov. 2, 1994 to complete within 120 Cal.
producing factory days. Fire breakout on Jan. 20, 1994. Another order was made
to another factory and lecture hall seats completed on May 2, 92 Cal.
1995. days
9. EELCO Transformer installation Request made to EELCO dated Jun. 5, 1994 and Estimate from 60 Cal days
EELCO obtained on Aug. 4, 1994.
10. Change in working days from 6 660 / 30 = 22, then 22 * 4 * 0.5 = 44 Working days 44 Cal.
days a week to 5 days a week days
11. Due to bad weather condition Assume the effect extends itself on the project by 20%, then
during the two rainy seasons in the 120 * 2 * 0.20 = 48 Cal. days. 48 Cal.
construction period. days
12 Permission delay from Request made to Municipality dated Feb. 8, 1994 and
Municipality for the construction permission granted on Mar. 22, 1994.
of External roads and connection to 31 Cal.
the existing Municipal sewer point. days
13. Delay in Payment certificate No. 5 See table above 104 Cal.
and 8. days

 The following table gives information on Changes in cost due to the inflation of Economy to
compute price variations compensations;

Quantity Unit rate of material

Contract Total Executed Executed Based Rate Highest of Based for bid Rate after
Material Document Executed before after for bid before and Rate before increase increase
Increase Increase increase
Cement (Qts.) 250,000 908.57 125.33 783.24 24.14 37.35 37.35 42.22
Coarse aggregate
(M3) 34,788.18 126.43 17.44 108.99 38.00 40.00 40.00 65.00
Timber (M3) 932.79 3.39 0.47 2.92 500.00 1500.00 2000.00 500.00
Steel Reinforcement
(Kg) 237,541 863.20 119.07 744.13 3.00 3.15 3.15 4.20
8mm thick
Chipwood (M2) 520 518.44 None 518.44 8.65 14.65 14.65 17.95
Seco profile
Windows and doors
(Kg) 2610 2608.06 None 2608.06 5.00 5.10 5.10 8.50
Asphalt (Drum) 270 269.95 None 269.95 110.00 285.75 285.75 475.00
Date coverage = Date price
Jan. 26, 1995 - changed = Apr.
Aug. 01, 1995
08, 1995
 N.B. Based for bid is either taken from the basic price list of materials or computed as 60 - 70 % of the unit
prices quoted in the contract document.

Answer the following questions:

Part A

7. Work out the total delay of the Project.

8. Work out the justified delay of the Project.
9. Work out the unjustified delay of the Project.
10. Compute the Liquidated Damage amount to be compensated for the Employer.
11. Compute the unpaid sum compensation to the contractor by the Employer in connection to
delayance of payment certificates.
12. Compute the compensations due to the contractor and the Employer resulting from changes in cost.
Part B

After computing those in Part A, Describe the project profile and give your recommendations to:

4. the Employer,
5. the contractor, and
6. the consultant.

Taking yourself as their representatives, and Employer’s representative in the case of the Contractor and
vice versa.

Part C

5. How do you make sure the material rates before and after increases are correct?
6. Why is necessary to compute Highest of basic prices for bid and rate before increase?
7. If the contractor exercised default by the Employer during the delay of P.C. No. 8, what would
have been the profile of the project?
8. When do you think the completion time of the project be in order the contractor be released of the
obligation of liquidated damages?

Good Luck
Solutions
Part A
2. Total delay of the project:

Contract Date = April 12, 1993.

Handing over site Date = September 21, 1993 = Commencement Date
Mobilization Time = 30 Cal. days.
Starting Date = Commencement Date + Mobilization Time.
= Sept. 21, 1993 + 30 Cal. days.
= Oct. 21, 1993.
Contract Time = 660 Cal. days.
Completion Date as per the contract = Starting Date + Contract Time.
= Oct 21, 1993 + 660 Cal. days.
= Aug. 12, 1995.
Actual Completion Date = Jan. 2, 1995.
Total delay of the project = Actual Completion Date - Completion Date as per the contract.
= Jan. 2, 1995 - Aug. 13, 1995.
= 143 Cal. days.
Therefore; the total delay of the project was 143 Cal. days.
 2. Justified delay of the project:
Time delay justifications are worked out as tabulated below;

Justified
No. Description of Claims Computations delay
1. Due to Variation order amount (140,496.08 / 6,047,883.90) * 660 = 15,33 Variation + Excess in quantities - Omissions = 140,496.08 + 87,631.80 -
of Birr 140,496.08 days 69, 760.28 = 158,367.60.
2. Due to Excess in quantities (59,633.45 / 6,047,883.90) * 660 = 6.51 17 Cal.
amount of Birr 59,633.45 days Delay justified = (158,367.60 / 6,047,883. 90) * 660 = 17 Cal. days. days
3. Design change to relocate Requested by the Contractor dated Oct. 20, Delay to be claimed is From Oct. 20, 1993 to Nov. 19, 1993 = 30
buildings and roads to insure 1993 and approval by the consultant and Cal. days. But during this period the contractor executed works
minimum interference with Employer was made on Oct. 30, 1993. And amounting 201,465.56 which saves (201,465.56 / 6,047,883.90) *
existing trees, electric high the minimum interference were removed by 660 = 22 Cal.
tension lines, water supply and the Employer, with the consultation and days. Therefore, delay to be justified sshould be = 30 - 22 = 8 Cal. days
sewerage lines, etc. approval of all public works authority for 30 Cal
the regulations proper, on Nov. 19, 1993. days
4. Design change for two Requested by the Contractor dated Nov. 20, Dinning hall: Completion time as per contract = (Component Cost /
components of the buildings, 1993 and Design changed and approved by Contract price) * contract time = (563.291.81/ 6,047,883.90) * 660 = 62
namely Dining hall and Hay the consultant and Employer was made on Cal. days. Completion time as per schedule is 150 Cal. days. Therefore;
burn Dec. 22, 1993 for Dinning hall and Nov. 18, Completion time for the dining hall will be 150 Cal. days. Delay to be
1993 for Hay burn. claimed is From Nov. 20, 1993 to Dec. 22, 1993 = 33 Cal. days which is
a proportion of the total work; ie, 33 / 660 = 0.05. Therefore delay to be
justified should be = 0.05 * 150 = 7.5 Cal. days. Similarly for Hay burn,
justified delay should be 4 Cal. days. Since both components are 7. 5 Cal.
scheduled parallely, the total justified delay is taken to be 7.5 Cal. days days
4. Design change for the roof Requested by the Contractor dated May. 4, Completion time as per contract = (Component Cost / Contract price) *
truss of workshop building. 1994 and Design changed and approved by contract time = (58,916/ 6,047,883.90) * 660 = 7 Cal. days. Completion
the consultant and Employer was made on time as per schedule is 10 Cal. days. Therefore; Completion time for the
May. 19, 1994. roof truss of the workshop will be 10 Cal. days. Delay to be claimed is
From May. 4, 1994 to May. 19, 1993 = 15 Cal. days which is a
proportion of the total work; ie, 15 / 660 = 0.023. Therefore delay to be 0.23 Cal.
justified should be = 0.023 * 10 = 0.23 Cal. days. days
6. Change in walling material for Requested by the Contractor dated Apr. 4, Since Changes are initiated and requested by the contractor for cost
Workshop building 1993 and acceptance by the Employer was advantage and easy availability with construction, and could he execute
made on May. 13, 1994.
7. Change in down pipes material Requested by the Contractor dated Aug. 9, as per contract if reply delayed, therefore; such delays are not
for all buildings. 1994 and acceptance by the Employer was justifyable.
made on Aug. 25, 1994. -
8. Fire break out in lecture hall Agreement made on Nov. 2, 1994 to Completion time as per contract = (Component Cost / Contract price) *
producing factory complete within 120 Cal. days. Fire contract time = (229,500 / 6,047,883.90) * 660 = 25.05 Cal. days.
breakout on Jan. 20, 1994. Another order Completion time as per schedule is 30 Cal. days. Therefore; Completion
was made to another factory and lecture hall time for the lecture hall seats will be 30 Cal. days. Delay to be claimed is
seats completed on May 2, 1995. From Nov. 2, 1994 to May. 2, 1995 = 92 Cal. days which is a proportion
 of the total work; ie, 92 / 660 = 0.1394. Therefore delay to be justified 5 Cal.
should be = 0.1394 * 30 = 4.2 Cal. days. days
9. EELCO Transformer Request made to EELCO dated Jan. 5, 1994 Completion time as per contract = (Component Cost / Contract price) *
installation and Estimate from EELCO obtained on contract time = (90,015.83 / 6,047,883.90) * 660 = 9.82 Cal. days.
Aug. 4, 1994. Completion time as per schedule is 10 Cal. days. Therefore; Completion
time for the transformer installation will be 10 Cal. days. Delay to be
claimed is From Jan. 5, 1994 to Aug. 4, 1994 = 60 Cal. days which is a
proportion of the total work; ie, 60 / 660 = 0.091. Therefore delay to be
justified should be = 0.091 * 10 = 1 Cal. days. 1 Cal days
10. Change in working days from 6 660 / 30 = 22, then 22 * 4 * 0.5 = 44 The contract time is based on Cal. days, therefore changes in working
days a week to 5 days a week Working days days has no effect on the project. -
11. Due to bad weather condition Assuming the effect extends itself on the Weather conditions shall be considered in the contract time. Unless
during the two rainy season in project by 20%, then 120 * 2 * 0.20 = 48 adverse and unexpected weather conditions pertain to delay the project,
the construction period. Cal. days. no delays shall be justified with this regard.
-
12 Permission delay from Request made to Municipality dated Feb. 8, Completion time as per contract = (Component Cost / Contract price) *
Municipality for the 1994 and permission granted on Mar. 22, contract time = (205,368.00 / 6,047,883.90) * 660 = 22.41 Cal. days.
construction of External roads 1994. Completion time as per schedule is 90 Cal. days. Therefore; Completion
and connection to the existing time for the transformer installation will be 90 Cal. days. Delay to be
Municipal sewer point. claimed is From Feb. 8, 1994 to Mar. 22, 1994 = 31 Cal. days which is a
proportion of the total work; ie, 31 / 660 = 0.047. Therefore delay to be 5 Cal.
justified should be = 0.047 * 90 = 4.23 Cal. days. days
13. Delay in Payment certificate See table above Delay to be claimed From table above = 104 Cal.days. However, the
No. 5 and 8. contractor executes work amounting 285,000 + 368,945 = 653,945
which is a proportion of the total work; ie, 653,945 / 6,047,883.90 =
0.108. Therefore, justified delay would be 104 - (0.108 * 660) = 33 Cal. 33 Cal.
days days

The total justified delay is then, 17 + 30 + 7. 5 + 0.23 + 5 + 1 + 5 + 33 = 98.73 Say 99 Cal. days.
3. Unjustified delay of the project
Unjustified delay = Total delay - Justified delay
= 143 - 99
= 44 Cal. days.
Therefore, Unjustified delay of the project is 44 Cal. days.
4. Liquidated damages
The liquidated damage will be applicable for unjustified delays, therefore; the delay to be
considered for this part is 44 Cal. days.
Liquidated damage = 1/ 1000 per unjustified delay of that part of the contract price.
Unjustified delay = 44 Cal. days.
The part of the contract price included in the unjustified delay is:
= (44 / 660) * 6,047,883.90
= 403,192.26
Liquidated damage = (1/ 1000) * 44 * 403,192. 26
= 17,740.46
Limit of liquidated damage = 10% (6,047,883.90)
= 604,788.39. > 17,740.46
Therefore, the liquidated damage of the project is Birr 17,740.46.
5. Unpaid sum compensation
Amount of delayed payment certificate and delayed days:
P.C.N. 05 = Birr 500,000 and delayed for 103 - 30 = 73 Cal. days.
P.C.N. 08 = Birr 268,345 and delayed for 64 - 30 = 34 Cal. days.
Unpaid sum compensation for P.C.N. 05 is computed as:
= 500,000 * (73 / 365) * (6 / 100)
= 6000.
Unpaid sum compensation for P.C.N. 08 is computed as:
= 268,345 * (34 / 365) * (6 / 100)
= 149.50.
The total unpaid sum = 6000 + 149. 50
= 6149. 50.

Therefore, the total unpaid sum compensation = Birr 6149.50.

6. Change in cost compensation

Quantity Unit Rate of Material

Material Executed Highest of Based for bid Rate after Unit rate used for changes
after Increase and Rate before increase increase in cost compensations
Cement (Qts.) 783.24 37.35 42.22 4.87 3,814.38
Coarse aggregate (M3) 108.99 40.00 65.00 25.00 2,724.75
Timber (M3) 2.92 2000.00 5000.00 3000.00 8,940.00
Steel Reinforcement (Kg) 744.13 3.15 4.20 1.05 781.34
8mm thick Chipwood (M2) 518.44 14.65 17.95 3.31 1,716.04
Seco profile Windows and
doors (Kg) 2608.06 5.10 8. 50 3.40 8,867.40
Asphalt (Drum) 269.95 285.75 475.00 189.25 51,088.04