ENGINEERING CONTRACTS

ENGINEERING CONTRACTS

• Engineering contracts aim to serve a purpose of

building a legal relationship that involves exchange
of goods or service for an agreed consideration

• What stand out from other commercial contracts is

the engineering or technical requirements.
 ENGINEERING CONTRACTS
• Engineering contracts calls for a need for negotiation
among parties;
• This essentially is for the purpose of ironing out areas of
the contract to facilitate smooth discharge of obligation
from both parties
• A team with skills in management, technical, financial and legal
evaluates the risks and reward of the contracts. There are four
functions of engineering contracts
1. Planning 2. Achievement of mutual understanding and expectations 3. Financial
management and controls 4. Risk management and allocations
 STRUCTURING CONTRACTS

In most Engineering contracts there is a tripart relationship

which has a direct and indirect characteristic between Client,
Client Representative/Engineer (commonly referred as Project
Manager) and the Contractor.
• Direct Relationship
➢ Between Client and Project Manager/Engineer and between Client and
Contractor
• Indirect Relationship
➢ Between Contractor and Project Manager/Engineer
 STRUCTURING CONTRACTS
In each Respective Contract there are rights and
obligation for each party to the contract. However, due
to the nature of the Engineering Contract, its
structuring has accommodated the obligations that arise
from the indirect relationship between the Contractor
and the Project Manager/Engineer
 Parties to the Contract
RIGHTS OBLIGATIONS

OBLIGATIONS RIGHTS

Employer Contractor

Project Manager
6
 STRUCTURING CONTRACTS
➢Change and Variation in Engineering Contract are very common concepts.
➢Nevertheless, there are Changes that are beyond the allowance given in the
condition of Contract thus they require an addendum by consent of both parties.
❖Caution has however been given to the contracts that permit changes/variations
Variation Limit
➢To avoid extreme changes that may have either positive or negative impact to both
the Client and Contractor
➢In addition to setting limit, there is a need to define clearly what is to be termed
as variation and how it should be treated.
➢Most variations/changes are only binding when they have been supported by
appropriate instructions and given approval by authorized personnel.
 STRUCTURING CONTRACTS

• Waiver in engineering contract is when there is relaxation of terms of

the contract, however, the same is not to be taken lightly and most
engineering contracts have conditions that does not allow for a waiver.
• Contracts are made for purpose of performance. This therefore call for
steps involved in deliverables. And the most important requirement set
in Conditions of Contract is “Testing and Inspection”
• Testing and inspection is done to confirm achievement of requirement
and specification given.
• For Engineering Contracts when tests and inspection do not meet the
requirements then the contractor is obligated to redo
 PRICE 3
▪ Price: The sum amount of money that has to be paid to acquire a given
service or product.
▪ A price doesn't need to be a selected figure or sum, but it does need
to have a component of certainty.
▪ Subsequent methods of payments that could be used are as :
1. Fixed payment.
2. ‘Cost plus’ Basis.
3. Calculated agreed rates or B.O.Qs and Measurement of labor.
4. Reasonable Remuneration for goods provided or services rendered.
 PAYMENT TERMS

• Payment terms: Are the conditions of the payment part of work,

typically specified by the Employer to the Contractor.
CONDITIONS OF PAYMENTS
1. One Payment or series of stage payments.
2. If its Stage payments, the ‘milestones’ for every stage payment.
3. The Currency of payment .
4. The tactic of payment.
5. How each payment is to be secured in favor of the employer.
 RETENTION MONEY

• The basic idea is for the Employer to have some kind of security for
performance towards the contractor.
• The employer 'retains' some of the price money until a stated date or
period after delivery or completion has elapsed.
• The amount might be 5%-10% of the actual price quoted.
• One way of creating a retention fund is simply by providing for the stage
payments.
• The last stage payment will be retained by the employer until a specific
period of time has elapsed.
 PERFORMANCE BONDS OR GUARANTEES

• A performance bond or guarantee is a financial guarantee for

due performance of the contract.
• Contractor may want to negotiate an alternative form of
security against defective performance by the employer.
• Employer holding a performance bond or guarantee has a form
of Security against defective Performance by the contractor.
• Contractors usually seek to use the guarantee as a substitute
for retention money.
 4

Risk and Delivery

 Risk and Insurance
• One among the important functions in preparing for
engineering contracts is that the assessment of the risks.
• The parties are supposed to be conscious on the risks of
packaging, transport, storage, security, and other areas.
• Both parties may have insurance, but it should be clear which
party's insurer is susceptible to pay if a loss should arise.
• It’s important to understand who bears the danger due to the
laws of 'subrogation', which permit an insurance firm to
form use of the rights of the insured party if a claim arises
and is settled with the insured.
 Where does the risk in goods lie?
• The incidence of risk depends upon what the contract
between the two parties actually provides.
1) Unless otherwise agreed, the goods remain at the seller's
risk until is transferred to the buyer, but when the property
in them is transferred to the buyer the goods are at the
buyer's risk whether delivery has been made or not.
2) But where delivery has been delayed through the fault of
either buyer or seller the goods are at the risk of the party
at fault as regards any loss which might not have occurred
but for such fault.
 Terms about delivery
• Delivery terms are used to specify goods delivery:
• There are three basic ways in which terms about delivery can
be set out in a contract.
a) The parties can make arrangements, using their own form
of wordings, setting out their own positions as agreed.
b) Alternatively, the parties may make use of expressions (and
corresponding abbreviations) recognized by law.
c) Alternatively, the parties may wish to make use of and to
refer to INCOTERMS in their contract
 Delivery and Inspection

• A committee should inspect and count the goods in order to ascertain

whether they are correct and complete in accordance with the
agreement
• In case of a technical or scientific test or experiment, an
expert or qualified person in respect of the goods may be
invited for consultation, or the goods may be sent to that
qualified person for test.
• A committee refuses to accept delivery by making a written
dissenting opinion, the committee shall submit it to the
accounting officer for consideration and decision
 Program of Work

A programme must be submitted by the contractor. Engineering contract need

program of work so as to;
➢ To monitor progress of the work.
➢ To control and maintain site facilities.
➢ Interaction of the programme with terms of payment.
➢ Interaction of employers and contractors’ duties.
➢ Interface between the work of one contractor to the work of another contractor
➢ Contractors are obliged to carry out work according to the programme and no changes
whatsoever without the consent of the engineer
 Failure of Contract Performance
FORCE MAJEURE
• Circumstances beyond the control of the parties. Disruption of the performance of a contract that do not
radically change it or make it impossible or illegal e.g. bad weather, failure of public utilities etc.

FRUSTRATION
• This occurs due to radical changes in circumstances, beyond the control of either parties in which the
implementation of the contract is impossible or illegal e.g. death of one of the parties, outbreak of war or
destruction of the subject matter of the contract.

BREACH OF CONTRACT
• Occurs when one party makes it impossible to perform the contract by missing a crucial deadline. This
would be self-induced hence the party responsible would be liable to pay for damages.
 SUSPENSION AND TERMINATION OF ENGINEERING CONTRACTS

SUSPENSION

Suspension by the contractor involves breach as it would mean failure to

adhere to a programme. Clear provisions for suspension should be identified
by the contactor before the contract is made.

Suspension by the employer involves breach since it undermines the

performance of duties and incurs extra costs for the contractor.
 TERMINATION

Engineering Contracts allow for termination by one party thus depriving the other party the right
to terminate the contract, leaving the party to rely on breach of contract putting the party at a
disadvantage. GROUNDS FOR TERMINATION
CONTRACTOR Employer
1.Insolvency of the Contractor Insolvency of the Employer
2.Failure to work as stipulated by the contract Failure to make payments as specified in the contract

3.Negligence of the contract Interfering with the issue of any certificate by the
Engineer
4.Assigning the contract and Suspending the Execution Replacing the Engineer against reasonable objections
of work by the Contractor.
Quality & Fitness for Purpose
• The main objective of engineering contract is to have defect free equipment, plant or works which are
specified, fit and free from abnormalities and performed the required standards.
• The specifications of the equipment or works required should be up to a certain standard that is
acknowledged by the engineer in a specific field. It is not just simply a matter of legal content,
documentation and information in the relevant contract.
• Nor is it a matter of commercial, tactical and experienced expertise. Therefore, it is a collection of all
the things a legal and commercial scene in which several ideas intersect and interrelate.

• Note the main aim of this is to show where the responsibilities lie and to explain and clarify the issues if
a problem should occur, who is responsible and what is to be done.
 SETTING THE COMMERCIAL SCENE
• The matter of quality and fitness should be any legal action. Making sound decisions, where both
parties set the commercial scene, the following issues should be reflected in contract:
a) The feasibility of the project in terms of technicality
b) The viability of the project in terms of it being commercial.
c) Choice of competent, adequate and reliable contractor
d) Clear directions and specifications
e) Clarity of the responsible parties and the responsibility of parties
f) Early identification of defects and deficiencies and a system for eradication of risks
g) Commercial and Financial leverage through the system of payment and/or security
 Quality and fitness for purpose, is simplified in the method of kaleidoscope

Express terms: these are in the

contract documents except where
the contract is made orally.

Implied terms: these are to be

found in the number of acts of the
parliament they are often referred
to as statutory rights and found in
common law
LIABILITIES, EXCLUSIONS AND INDEMNITIES
❑Contract liability is the liability that one party of a contract shoulders
on behalf of another party. the form of liability known as “defects
liability” was looked at.
❑Defect’s liability arises out of a contract existing between two
parties, this means defects liability is contractual in nature.
o Where end user is given a warranty by a manufacturer, the end user
who does not buy directly from the manufacturer the liability is still
contractual, the warranty is enforceable.
❖Defect’s liability is not the only liability that can arise, and the conditions of
each contract should also take account of the other forms of liability.
❖Some of these liabilities may cause death or personal injury to employees or to
third parties.
❖Not only should engineering contracts deal with such liabilities but should also
provide for the taking out and maintenance of the policies of insurance.
For example, breaking a term of the contract by either party, and thereby causes
loss or damage to the other party such as physical destruction of property their
liability may take two possible forms:
✓ The first will be breach of contract which will be the more obvious whereby
there will have been a breach of one or more specific undertakings to take due
to care and the skill.
✓ The other form of liability may exist side by side with the last and the second
form is what is known as “liability in tort”. Consider principal of tort liability
(class reading and discussion)
 NEGLIGENCE
Negligence is the one that occurs for frequently and often. Wherever there is an
incident causing personal injury or death, loss off, or damage to property, it arises.
Wherever any person is in a position in which care is expected of them so as not to
cause such a commotion, it arises. This is known as the “duty of care” and has no
relationship at all to the law of contract. It exists simply because the possibility of
injury loss or damage can be foreseen by reasonable people.

Negligence, nuisance, defamation, breach of statutory duty etc are

several different forms of tort or civil wrongs and liability in tort. The
different kinds of tots have grown up separately and each have their own
rules but, in each case, a failure by one person to take care to avoid
injury loss or damage to the other is where the liability come from.
 Intellectual Property rights

Intellectual Property is the asset value involved in a commercial transaction. Terms of a contract
should be concerned with the creation of and protection of intellectual property.

Intellectual Property rights capable of being created by Contract.

These are relevant in engineering contracts to keep secrecy of agreements, obligations of

confidence, agreements not to compete and similar agreements.

For a purchaser it helps keep the developments a secret from competitors whilst for a Contractor
it helps keep details of contract e.g. price, secret so that contractor’s bargaining power over
different purchasers is not reduced.
 Intellectual Property rights
Intellectual Property rights NOT created by Contract
This is found in the security(indemnity) clause of an engineering contract.
It occurs when one party provides documents to the other of which are to be
made. If these documents infringe the intellectual property right of a third party,
the third party might take action against either or both the contractor or
purchaser. The indemnity clause would place the costs and legal liability on the
party responsible for causing the situation. (class reading and discussion)
 MULTIPARTITE ARRANGEMENTS
These are agreements in which multiple parties are involved. This is
allocation and level at which obligations should be carried out by the
parties involved, communications, chain of instructions and how to
handle liabilities in these types of contracts. Multipartite involve
AGENCY, SUBCONTACTING AND FREE ISSUE
AGENT
An agent as perceived by law, is just a channel between the seller and the
buyer, or between an employer and whole-seller. An agent has no contractual
obligations in the issues of warranty and liabilities involved with the products/
items being delivered.
An agent is just the means facilitating the contract between the seller and
the buyer. If there happens to be any issues with warranty and liabilities of
the items supplied, the seller or manufacturer will be directly responsible,
the agent will not be liable.
The form of tender usually indicate commissions or gratuities of fees to be paid to
agents (Read form of Tender)
• SUBCONTRACTOR
The relationship is such that, the employer is in a contractual
relationship with the main contractor, and the later is again in a
contractual relationship with the subcontractor.
In such contracts the employer is in no means supposed to give
instructions to the subcontractor, and if it happens the employer will be
liable for any damages that may occur as result, more in some cases the
employer might even be obligated to pay the main contractor
compensatory damages if any.
 NOMINATED SUB-CONTRACTORS
An employer may direct or instruct the main contractor to pick a
certain sub-contractor. This sub-contractor is therefore referred to as
the nominated subcontractor.
In this case scenario, if there happens to be a collateral contract
between the sub-contractor and the employer then the main
contractor is revealed of any liabilities that may happen, on the other
hand, if there is no collateral contract the main contractor remains
responsible.
Under normal circumstances the warranty of items purchased is always
granted to the main contractor of the works and not the end user
(employer). (Discussion on performance security and engaging domestic sub-contractors)
• FREE ISSUE
The free issue creates a direct relationship between the seller/manufacture
and the employer. In this case, the employer obtains good straight from the
seller / manufacturer and issues them to the contractor, either to be used
for the works or during the course of work under contract.
ADVANTAGES OF FREE ISSUE
• With free issue, the employer has a commercial advantage of obtaining
the goods at a lower price considering a higher purchasing power he has.
• Moreover, with free issue the employer has an advantage of obtaining
goods at the exact standard that they require
• Warranty issues become less complicated.
 CONSEQUENCES OF FREE ISSUE

•The contractor will not be liable in case of any liabilities of

the goods/items under free issue.
•The employer might in some cases be liable for any issues of
delays or additional costs of the contract that are related to
the free issued goods/items.
Break of responsibility chains in contracts

• The chain of responsibilities in contracts is such that; the employer

instructs the main contractor; the main contractor instructs the sub-
contractor and the sub-contractor instructs the sub sub-contractor.

• This chain of commands and responsibilities creates the order work and
thus the chain of liability in the same manner.

• Major reasons for these break-ups being insolvency between parties

and inequality or incompatibility of terms.
Bonds
 Classification of bonds

What are bonds? Why Bonds?

Bonds and guarantees are provided in order to ensure some form of
security to the employer/purchaser. Bonds are mainly classified based
on their functions. i.e.,
1. Tender / Bid bonds these bonds provided in the stages of tenders,
they are usually a small fraction of the tender mount, in most cases
between 1% to 2.5% of the contract value, they can rarely be up to 5%
of the contract value at maximum. The function of this bond is to
ascertain the purchaser with the ability of the contractor to enter other
form of bonds in the contract, when needs be.
 Classification of bonds

2. Advance payment or down payment bond is another type of bond.

This is usually paid to the contractor by the purchaser / employer and
it is usually refundable when the contactor becomes insolvent. The
function of this bond is mainly to enable the contractor to kickstart the
work.
3. Performance bonds. These are also known as the classic bonds. The
function of this bond is to provide security for the obligations of the
contractor. This bond may very through a wide range, but normally
between 5% to 15% of the contract value. The goal is to enable the
purchaser to pay a new contractor when the existing contractor
defaults.
 How bonds work
• The bond is attached with the contract and the contractor is obligated to fulfill and
submit within a given time, usually seven to 28 days. A bond is a material obligation
and failure to meet this obligation often results into termination of contract.
Things to take note of when making engineering contracts
• A good contract must specify when, where and which goods/items will be free
issued (if any), it must as well put clarity to procedures of dealing with defects of
the goods/items issued whenever needs be.
• Engineers should be keen enough to differentiate between a later of comfort and a
bond / guarantee as they are provided by parent company for their subsidiaries. A
letter of comfort has got no legal value, latter of comfort serves more as a
reference later and gives no guarantee of the contract to be served. Comfort
letters (also called letters of awareness, letters of support, letters of responsibility
and letters of patronage) are a hybrid between a guarantee and making no
commitments at all.
 1. GENERAL PRINCIPLES

2. WORDS, SENTENCES AND

DRAFTING PUNCTUATION

ENGINEERING 3. ARRANGEMENT AND FORM OF

CONTRACTS
DOCUMENTS

4. CONDITIONS OF CONTRACT
5
5. SPECIFICATIONS

6. PAYMENT DOCUMENTS

7. MISCELLANEOUS DOCUMENTS
 GENERAL PRINCIPLES
In engineering contracts, the contract document is a combination of four (4) major
key documents, that is Conditions of Contract (General and Specific), Specifications,
Drawings and Bills of Quantities or Schedule of rates.
Documents however may vary depending on the type of contract. In this regard,
drafting an Engineering Contract requires skills in the engineering field to describe
the engineering requirement and the other is legal for the purpose of incorporating
the appropriate information that carry legal weight and thus legal relationship.
Drafting contract has not been an easy task even for engineers with high
understanding of the legal field. The key is to have understanding of construction
law. The draftsman needs to take extra care in intention of parties to contract.
Expressed intention in the contract carry weight than what parties think or desire
from contract. Thus, expressed intentions should be put in avoiding use of wording
that may result to alternative interpretations.
 GENERAL PRINCIPLES

There are five basic rules to follow in drafting;

➢ prepare a contract list with sections and subsections that can be amended over
time to fit all requirements
➢the section and subsection list should be in an orderly flow that a reader can be
able to understand.
➢addition or omission of items in contract clauses especially those adapted from
standard document should be done after careful consideration of its impact to
the overall contract during its implementation.
➢wording of all the documents should use the clearly known technical and legal
language (its important to retain familiar concepts and technical terms)
➢the use of clear and accurate language.
 GENERAL PRINCIPLES

Do’s and Don'ts

➢refrain form the use of words that can be interpreted
differently
➢Selection of words used should be based entirely by
what the content is to address
➢It is important to have logical arrangement of various
document in a contract
➢it is essential to check thoroughly the drafted contract
for signs of errors and ambiguities.
 WORDS, SENTENCES AND PUNCTUATION
➢Avoiding ambiguity in the document is very essential and care is given in the
use of grammar.
➢Don’t always follow the “correct” grammar however in the context they are
used they make clear sense.
➢English language is rich of words and phrases may mean one thing and
totally different thing. Th technical words do not have more than one
meaning, those for legal however do not share the same facts
• The legal technique in writing requires a sentence to start with Case,
followed by Condition and Legal subject and concluded by Legal action.
• NOTE: it is key to use short sentences. Simple and straight to the point
sentences are important and they avoid ambiguity.
 WORDS, SENTENCES AND PUNCTUATION Cont.

• Avoiding repetition of words and phrases.

• consistency of terminologies during drafting of contract document is very
important, the meaning of words and phrases should not change midway unless for
the entire purpose of changing the word is to alter its meaning in which care
should be taken not to confuse the reader of which is the desired meaning of the
particular word.
• Were there is generalized statement in an Engineering Contract, a further
clarification should be provided within the contract to give emphasise and guide
the user accordingly.
 WORDS, SENTENCES AND PUNCTUATION Cont.

• when drafting engineering contracts, qualifying two or more nouns

should be in a way that it does not result in ambiguous statement that
will call for more than one interpretation
• nouns should only be repeated where the use of their pronouns will
bring ambiguity.
• pronouns are used, the use of masculine and feminine should be used
in referring to nouns and in ways that have in years been logically
accepted.
• In legal documents, capital letter is used in each word in the phrase
for defined phrases or words. And where there is use of un-defined
words, the words are written in italic
 WORDS, SENTENCES AND PUNCTUATION Cont.
• The use of “shall” and “will” in legal context carry different weight in
meaning. Whereas, “shall” is used for more directive that must be
adhered to compared to the use of “will” that gives a remote
allowance for alternative.
• Draftsman should take caution when referring to period of time.
• In most cases the words “from” are used to indicate the beginning of certain
activity, however literature defines the use of “from” in time means starting the
next day whereas the date mentioned in the word from is not counted. Therefore,
it is more desirable to use phrases like “on and from” or “commencing with” to
include the desired dates.
• The use of days and weeks is more appropriate than the use of months as with
months there are some variations from 28 days to 31days in a month.
 WORDS, SENTENCES AND PUNCTUATION Cont.

• Punctuation is very important in giving required meaning to the sentence.

Punctuation like colon, semicolon and dash have been used for defined reasons.
• Colon is usually used to indicating the commencement of item enumeration
within a sentence, a mathematical symbol for ‘is to’ …
• Semicolon have been used to connect two related requirements that would
otherwise be seen as not connected.
• Dash is used at commencement of item enumeration and maybe used with
colon or on its own.
• Other punctuation marks like Commas, Brackets, Inverted Commas, and Hyphens
are used with the same rules applied in English writing.
 WORDS, SENTENCES AND PUNCTUATION Cont.

• In engineering contracts, there are phrases that have Provisos, Exceptions,

Conditions, and Qualifications. These are used where there is an alternative,
where a general rule needs to be varied or modified in its application. To avoid
the risk of ambiguity, exceptions or conditions or qualifications should appear
as closely as possible to the matters to which they refer.

• In drafting engineering contracts, references to other contract documents is

inevitable, thus when doing cross referencing descriptions are referred to the
appropriate Condition or Sub-conditions of if the reference is made from
Conditions of Contract; Clauses or Sub-clauses are used when referring to
Specifications and Items are used when referring to Bills of Quantities or
Schedule of Payments.
ARRANGEMENT AND FORM OF DOCUMENTS
 Order and Logic

• Avoid ambiguities and discrepancies

• Ease of readability of a document
• Each document and section of a document should be strictly limited
to the topics and matters intended to be addressed therein document
or section.
• The order of handling the varied topics in each document should
conform with the natural logic appropriate thereto document.
• Arrangement of a document depends upon the nature of the
document and the view point of the draftsman.
• Arrange documents forming contract of your choice and discuss effect in case of
changes)
 CONDITIONS
OF CONTRACT
 Purpose of Conditions of Contract
“Conditions of Contract” defines the parties and their responsibilities to
every other also as their responsibilities for various aspects of the contract.
FUNDAMENTAL LOGIC OF A CONTRACT
Basic logic of the contract must be as follows:
A. Definition of the parties to the contract
B. Duties of the project manager/engineer and staff team
C. Description of works
D. Duties and responsibilities of the contractor
E. Duties and powers of the employer
F. Payments by the employer
G. Settlement of disputes
Documents which constitute the Contract for Contractor,
(a)Form of Agreement,
(b)Letter of Acceptance 57
(c) Minutes of Negotiations (if any)
(d) Form of Tender
(d) The addenda Nos…..
(e)Special Conditions of Contract,
(f)General Conditions of Contract,
(g)Specifications
(h)Drawings
(i) Bill of Quantities
(j) The completed schedule and other documents including
• the ES Management Strategies and Implementation Plans; and
• Code of Conduct for Contractor‘s Personnel (ES).
Documents which constitute the Contract between the
Purchaser and the Supplier, :
(a) Form of Agreement,
(b) Letter of Acceptance
58
(c) Minutes of Negotiations (if any)
(d) Form of Tender
(e) Special Conditions of Contract,
(f) General Conditions of Contract,
(g) Specifications
(h) Completed Schedules (Price Schedules), and
(i) [Other relevant document(s):
 Commencement and Programme

▪ An important aspect of commencement of any contract is that the contract

planning by the Contractor. This section covers only matters connected with
commencement and programme and will be limited to the following:
a) The commencement of labor and therefore the formal Project manager’s order to
commence
b) The delivering of the location by the Employer and its taking up by the
Contractor.
c) Submission by the Contractor of his programme and of his method of
construction and therefore the project manager’s consent to them.
 General Obligations

The general obligation mentioned are those • Quality of the work.

of the Contractor and isn't intended to • Sub-contracting.
incorporate any of the obligations of the • Setting out.
Employer, but the obligations from the
• Information to be provided to the PM.
contractor depends on the wants of the
employer. Variety of basic items common to • Patent rights and royalties.
most construction contracts: • Materials arising from site clearance and
excavation.
• Sufficiency of tender.
• Transport of outstanding loads.
• Contractor to supply all things required. • Care of the Works.
• Design by Contractor (where required). • Damage to persons and property.
• Safety of operations. • Insurance.
• Facilities for other works.
 Contract Price and Liquidated Damages
▪ Contra-charges and liquidated damages include deferred payments or
payments made by the Employer to other parties on behalf of the Contractor.
▪ Payments fall into three headings:
a) The Tender Price.
b) Additional payments or reductions resulting from Project Manager’s
instructions or from actions arising from the operation of particular clauses
of the Conditions of Contract.
c) Contra-charges which the Employer is entitled to form in accordance with
the Contract
 Certificates and Disputes

The certificate requirements fall under four categories:

a) Payment certificates.
b) Completion certificates and maintenance certificates.
c) Certificates for extension of your time for completion.
d) Certificates associated with various remedies included within the Conditions.
The settlement of disputes that are available to be used on engineering contracts.
These are;
• Arbitration.
• Expert award.
• Conciliation.
 Alternative Dispute
Resolution Methods

Neutral
Mediation
Evaluation

Amicable
Conciliation Arbitration
Sattlement Adjudication Litigation

INFORMAL Formality of procedure FORMAL

H I GH Degree of involvement of parties in the decision LOW

· The Parties resolve the · The dispute is resolved by

Dispute on their own decision made by a third
party.
· The Parties have full
Control over the procedure · The Parties assign control
over the procedure to a Third
Party.

Escalat ion R an ge of D ispu t e R esolu t ion Met hods 63

SPECIFICATIONS
 PURPOSE AND CATEGORIES OF SPECIFICATIONS

The purpose of the specification is to limit the Contractor's methods, materials,

and craftsmanship, either by laying down specific techniques, materials, or
workmanship or by limiting the usage of specific methods.
A specification's provisions can be classified into four categories: -

· General requirements, which include administrative provisions.

· Materials.

· Workmanship.

· Special requirements for manufacturing or construction.

 STANDARD SPECIFICATIONS
There are four distinct types of Standard Specifications.
· Company Standard specifications and Clauses
· National Standard contract Specification issued by Government Departments
· Specifications prepared by National Standards organizations
· Codes of Practice prepared by National Standards organizations or co-ordinating
organizations.
Many large industrial and professional organizations have standard specifications.
However, they may need to be updated or overridden by specific needs in many
cases.
MANUFACTURERS SPECIFICATIONS
NOT included in contract documentation. Manufacturers have specialized knowledge in
relation to the items they create, and as a result, elements of their documentation are
frequently incorporated into contract specification provisions.

They generally fall into 3 categories: -

· Descriptions and properties of the products

· Recommended clauses to be used in contract specifications

· Instructions for use or erection of the product

GENERAL SECTION
It's common to include a "Definition’s clause" at the start of the General section to
define terminology that appear throughout the Specification. When definitions relate
solely to one portion of the Specification, they may be more conveniently supplied at the
start of that part, eliminating the need for a generic "Definitions" clause. The Logical
basis mainly consists of: -

· Detailed descriptions of the Works

· Definition of the Site

· Specific general requirements for design and construction.

· Administrative requirements.
Types of Contracts
• Contracts for works can be classified into two main types:
• 1)Lump sum contracts
• 2)Measure and value contracts
 Lump sum contracts

• These are contracts which the contractor is paid by the employer in lump sum for the whole of
the work which was initially described in the contract.

• In accordance with the terms and conditions of the contract, this lump sum is subjected to
adjustments in respect to the variations of the work. These are most common in building work,
mechanical and electrical engineering work and can be used where quantities of various types
of work cannot be fixed or initially accurately defined in some civil engineering work.

• For civil and building engineering works a tender lump sum is usually attached with detailed
bills of quantities which represent all the individual items for work such as material and
equipment supply and of general preliminary work.
 Measure and value contracts

• This is the type of contract where the contractor is paid by the employer for the quantity
of work carried out, as weighed and valued in the respected manner, subject to
deduction of contra charges as stated and defined in the contract.

• This type of contract is mostly used by civil engineers and includes bills of quantities in
the documentation.

• The bills are used to weigh, measure and value the work carried out in order to arrive at
the final contract sum.

• This can also be used for interim payments, in this type of contract, authorised variations
in the works are valued and measured in accordance with the tender bill items in course
 BILLS OF QUANTITIES

• Bills of quantities are defined as a list of items giving brief ascertaining

descriptions, particulars and an estimated quantity of work comprising the
execution of the work to be performed.
• Bills of Quantities in a standard format consist of columns with headings for item,
description, unit, quantity, rate and amount.
ITEM TASK/DESCRIPTION UNIT QUANTITY RATE/PRICE AMOUNT

• First Column is for numbering and listing the item.

• The Second column contains descriptions of items of work, together with headings
and subheadings relating the items to relevant parts of the works.
• Columns 3 and 4 the unit of measurement and quantities of work so that
tenderers can insert the rate and extend amounts in column 5 and 6 respectively.
 Payment for variations
• Variation something that is slightly different from the usual form or arrangement.
• It is, important to include, within the contract documentation, as much data
concerning the prices for various items of the work as will enable as many as
possible of the variations to be valued at rates Setout in the contract.
• Where bills of quantities or schedules of rates from part of the contract
documentation the prizes and rates in this will be used for valuing those
variations which consists of work similar to the items in the bill or in the
schedule. Items that are dissimilar and the effects of any disruption or
abnormalities to the contract work will still have to be negotiated.
• Project managers' variation orders may have given rise to many serious disputes
incorporating bills of quantities for payments for works involved, hence why it is
advisable to include within the contract documentation as much data concerning
prices for variation items of work.(read and discuss variation order: PPA and PPR)
TYPE OF WORKS CONTRACT
Lump-sum Contracts
❑contracts for a fixed amount for the works as specified and tendered for;
❑ may or may not be accompanied by a priced schedule but when such schedules are
provided; their purpose is to assist in the evaluation of progress payments and for the
pricing of variations;
❑for works, the works shall not (except in respect of variations) be measured for the
purpose of payment.
Schedule of Rates Contracts

❑A contract for which bidders submit rates for the estimated quantities as
set out in a BoQs which forms part of the tendering documents and from
which the lump sum price is derived from the aggregation of sums
tendered based on these quantities and rates.
❑ Payment under a schedule of rates contract is determined by
measurement of the actual quantities completed and at the rates as
tendered.
Cost Reimbursement Contracts

Three forms:
I. Cost plus a fixed sum,
II. Cost plus a percentage of the costs or
III. Cost plus a fluctuating fee
Where cost reimbursement contracts are used, they
are to be arranged whenever possible on the basis of
“cost plus fixed fee” rather than “cost plus
percentage”.
Turnkey Contracts
It involve the engagement of a single contractor to carry out construction
works, supply and install plants and/or equipment.
suitable when there is a great need of integrating the design, engineering,
construction works and the supply of goods or equipment/plants for the
facility
Fixed and Fluctuating Contracts - 1

The fixed price contracts are not subject to any price

adjustments and places upon the contractor maximum
risk and full responsibility for all cost increases.
Fluctuating contracts allow for price adjustments based
upon increases or decreases in the prices of project inputs
such as labour, materials and equipment.
Fixed and Fluctuating Contracts - 2

The fixed price contracts - appropriate for

short duration contracts of up to 18 months
where bidders will be able to forecast the trend
of price changes increases.
Fluctuating contracts - for longer duration
contracts, are recommended.
Types of Consultant contracts and their conditions for use 82

1. Lump sum contracts

• Is used for assignments which the content and the duration of the services and the
required output of the consultants are clearly defined.
• Is for simple planning and feasibility studies, environment studies, detailed design of
standard or common structures, preparation of data processing systems
• Payments shall be linked to outputs (deliverables) e.g. Reports, drawings, BoQ,
bidding documents, software programs etc.
2. Time Based Contracts
• Is used when it is difficult to define the scope and the length of services, either
because the services are related to activities by others for which the completion
period may vary, or because the input of the consultants required to attain the
objectives of the assignment is difficult to assess.
 Time Based Contracts (continue) 83

2. Is used for complex studies, supervision of construction, advisory

services, and most training assignments and payments are based on
agreed hourly, daily, weekly, or monthly rates for staff) and on
reimbursable items using actual expenses and, or agreed unit prices and
the rates for staff include salary, social costs, overhead, fee or profit,
and, where appropriate, special allowances
• 3. Retainer and success fee contracts
• Is used where consultants such as, banks or financial firms, are required for
preparation of companies for sale or merger of firms, notably in privatization
operations
• The remuneration of the consultant may include a retainer and a success fee, the
latter being normally expressed as a percentage of the sale price of the assets
 84
4. Percentage based contracts

• Is used where it is appropriate to relate the fee paid directly to the estimated or
actual cost of the contract
• The contract shall clearly define the total cost from which the percentage is to be
calculated and the consultant or service provider shall be required to indicate his cost
as a percentage of the total cost of the assignment.
• The use of such a contract is recommended only if it is based on a fixed target cost
and covers precisely defined services.
 5. Indefinite delivery contracts 85

• Is used where a PE needs to have "on call" specialized services to

provide advice on a particular activity, the extent and timing of
which cannot be defined in advance.
• Is used to retain "advisors" for implementation of complex projects
,expert adjudicators for dispute resolution panels, institutional
reforms, procurement advice, technical troubleshooting etc.
• Normally for a period of a year or more.
• The PE shall agree on the unit rates to be paid for the experts, and
payments are made on the basis of the time actually used.
 6. Running contract 86

• Is used for contracts in which continuity of expert service is desirable, such as

financial auditing, procurement agency contracts and inspection agency.
• The PE and the firm shall agree on the unit rates to be paid for the experts, and
payments shall be made on the basis of the time actually used.
• The use of running contacts shall be subject to approval of the Authority.
 Contract Management 88

CM refers procedures that allow a employer to verify that the Contractor is

executing the contract in accordance with the terms and conditions of the
contract; Major aspects managed:

Scope

Time

Resources Quality

Cost Communication

Risks Disputes
 Project Delivery Methodologies

Design-Bid/Tender-Build (Traditional)

Nominated
Subcontractor
Employer –
Tendering Process Contractor - Build

Domestic
Subcontractor

Project Manager/
Consultant – Design
& Supervision
 Project Delivery Methodologies
Design & Build

Employer – Contractor – Sub-contractors

Tendering Process Design & Build
Design Engineers

Project Manager/
Consultant –
Supervision
 91

Parties to the Contract for Goods Contract

RIGHTS OBLIGATIONS
OBLIGATIONS RIGHTS

Employer Supplier
 Roles of Consultant/Project Manager
1. Responsible for the correspondence on contractual issues exchanged
between PE and the Contractor;
2. Responsible for keeping the documents during the execution of the
contract;
3. Oversees the execution of the contract;
4. Manages the resolution of problems and up to a point of any disputes/
disagreements
5.Monitors the Contractor‘s performance
6. Responsible to establish a good spirit of project for achievement of
the desired results;
7. Responsible for the closure of the contract.
Roles of Client in Project
• Indemnify the contractor as appropriate;
• Responsible for special risks and any work done by his workmen and
1. omissions of the Project Manager;

• To make available data relating to the project;

2.
• To approve variations;
• To pay the contractor for goods supplied, services rendered or
3. executed works;
 Contractor Responsibilities
• To carry out and complete the contract satisfactorily;
• To provide, labour, materials, plant, equipment and all other things for
1. the satisfactory completion of works or contract;

2. • To give prompt notice to the Project Manager of any error, omission, or other defect
which can be discovered during execution of the project;

• Responsible for the design of Temporary works;

3. • Take full responsibility for the execution of the contract.
 Wrongs in Contract Management 95

❑ Failure to manage well consultant contract can cause:

1. The client is obliged to take control, resulting in unbalanced decisions.
2. Project decisions could not be taken at the right time – or not taken at all.
3. Deliverables will not integrate with time, cost, quality etc
4. Parties may fail to understand their obligations and responsibilities.
6. Project performance will slow down
7. There will be misunderstanding and disagreements.
8. The value for money of project will not be realized.
❑ Ultimately, the contract becomes unworkable
 Causes of Failure to Manage Contracts
1. Poor drafting of terms of reference
2. Poorly drafted contracts.
96
3. Inadequate resources assigned to consultant and contractor’s contract.
4. The client professional does not match with consultant team in terms of skills and
experience
5. Inclusion of inappropriate personnel in project, leading to personality clashes.
6. The duties for consultant in terms of context, complexity and dependences are not
well understood by client
7. Failure to prepare quality and assurance plan.
8. The authorities and parties responsibilities relating to performance/output not clear.
9. A lack of performance measurement/evaluation or benchmarking by the PE.
10. A focus on current arrangements rather than what is the potential for improvement.
11. A failure to monitor and manage retained risks (statutory, political commercial).
12. Lack of effective communication
 Contract Management Activities 97

1. Service Delivery Management

Ensures that the service is being delivered as agreed, to the required
level of performance and quality.
2. Relationship Management
Keeps the relationship between the two parties open and constructive,
aiming to resolve or ease tensions and identify problems early.
3. Contract Administration
Handles the formal governance of the contract and changes to the
contract documentation.
 Summary of Engineering Contract

➢Engineering contracts are based upon or referred to, even when the
terms of the contract have been negotiated between the employer
and a single contractor is what is known as formal tender.

➢A big sum of engineering contracts are the results of competitive

tendering based upon documents issued by the employer which
include a standard tender form for submission of the formal tender.

➢A number of standard conditions have tender forms such as PPRA

conditions, FIDIC Civil and FIDIC M&E conditions which relates
specifically to those conditions and in each case
 CONSTRUCTION CONTRACTS 99

1. What are the things to be considered (including their

importance) in following aspects:

a. Cost control

b. Time control

c. Quality control; and

d. Closure of the project

6/21/2022
 COST CONTROL 100
• BoQ is the base for cost control during execution of construction
project.
• The Contractor shall be paid for the quantity of the work done at the
rate in the Bill of Quantities for each item.
• Monitoring the changes in the Quantities shall follow conditions of
contracts as per GCC cl. 46
• All Variations shall be included in the updated Work Programs produced
by the Contractor
• Payments for Variations shall follow the conditions of contracts as per
GCC cl. 48 6/21/2022

• Payment Certificates
 COST CONTROL 101

• Deductions of Retention.
• Application of Liquidated Damages
• Advance payment
• Performance securities

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 102
TIME CONTROL

• Work program is the base for time control during execution

of construction project.

• Extension of the Intended Completion Date.

• Delays Ordered by the Project Manager

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 QUALITY CONTROL 103
• Quality control and assurance plan is the base for time control during
execution of construction project.
• Identifying Defects.
• Tests.
• Correction of Defects
• Extension of Defect Liability Period
• Uncorrected Defects 6/21/2022
 104
FINISHING THE CONTRACT
• Completion Certificate.

• As Built Drawings

• Final Account.

• Operating and Maintenance Manuals

6/21/2022
THANK YOU 105

END OF COURSE

6/21/2022
 A 106

H N

T K
YOU