Lecture 3

Chapter: Two
Formation of Construction Contract
– Basics of Contract
– construction contract within the Ethiopian context

Instructor: rahel kahsay

1
 Introduction
 The law is conventionally divided in to topics
according to their legal provenance.
 The law of contract, the law of tort, the law of
property…
 The law related to building and civil engineering
 Sometimes called, “construction law” or “building law”
 Under the Civil Code of Ethiopia construction
contracts are governed by
 the law of contracts.
 The Ethiopian law does not treat construction
contracts as a special case.
2
 cont…

Construction contract is treated mainly under:

• Contracts for works and labor: (Civil Code Art.3019-3040)
Building, repair or installation
• Contracts for public works: (Civil Code Art.3244-3296)
“ a contract whereby a person, the
contractor binds himself in favor of an
administrative authority to construct,
maintain or repair a public works in
consideration of price ”

3
 Major categories of construction law
Construction laws fall in to four major categories
Contract law:
those laws and regulation that affect the making
of contracts, both public and private
Laws governing the execution of work being performed
under the contract:
including the issuance and conformance to the
conditions of the various permits, regulations,
and other requirements
Laws that relate to settling of differences and disputes
Licensing laws

4
 Basics of contract
• Contract law in construction works define the relationship of the parties involved
with regard to their obligations, responsibilities and privileges in the work and are
part of the existing law.
• The law is conventionally divided into topics according to their legal provenance,
the law of contract, the law of property and so forth.
• The Civil Code: Has five books
 Book I : deals with “persons”
 Book II: deals with “family succession” (replaced by a new version)
 Book III: Deals with “goods”
 Book IV: Deals with “obligations”
 Book V: deals with “special contracts”

5
 Cont…..
Generally, a contract is an agreement or willful promise enforceable
at law.
 However, not all agreements or promises are contracts. Some may
lack enforceability at law.
A construction contract is a product of an agreement between the
employer & the contractor & it is enforceable at law.
Enforceable at law. means that if the agreement reached between the
employer & the contractor breached( deviations occur from the
promises) by one of the parties, the aggrieved party, either the
employer or the contractor, may bring a legal action against the other
to demand the enforcement of its rights with the support of law. 6
 Cont…..
The general Law of Contract is governed under the Civil Code from
Article 1675-Article 2026.
Definition of Contract
 According to Article 1675 of the Civil Code: A contract is an
agreement whereby two or more persons as between themselves
create, vary or extinguish obligations of a proprietary nature.
The construction contract clearly fulfils all the elements given to the
definition of contract.
The Form of Agreement, in the construction contract, clearly
presents the Agreement reached between the employer & the
contractor. 7
 Cont…..
In principle, contracting with oneself is impossible
The construction contract, in principle, is only binding between the
employer & the contractor.This concept is related to the doctrine of
the privity of contract.
Privity of contract means that the contract is binding only the parties
who have made it.

8
 The purposes of a contract
are to:
 enforce law or bind conditions between or among the parties agree
to procure services or works or goods.

 clearly show the Terms and Conditions of contracts the parties

agree with.

 clearly show the Rights, Obligations and remedial rights of

performances from the contracting parties.

 clearly show handling provisions for price, completion time,

requirement variations adjustment systems, Changes in cost and
legislations and dispute resolution mechanisms.
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 Basics of contract
 There are basic contents of contract which contracting
parties are expected to understand. These are:
Formation of Contract;
Terms of Contract;
Privity of Contract;
Discharge of Contract; and
Invalidation of Contract.

10
 Formation of a contract
 What should a contract satisfy to be enforceable in front of law?
 According to Article 1678 ( Elements of Contract) of the Civil Code:
 No valid contract shall exist unless
 A. The parties are capable of contracting and give their consent
 sustainable at law.
 B. The object of the contract is sufficiently defined and is possible
 and lawful.
 C. The contract is made in the form prescribed by law.
 The following are the fundamental elements of contract.
 Capacity of the contracting parties;
 Consent of the contracting parties;
 Object of the contract; and
 Form of contract, if any;

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 Capacity
 Please, see Article 1678(a) of the Civil Code.
 Capacity means competence to enter in to a legally binding
agreement.
 Parties entering in to an agreement or contract shall,
therefore, be capable of contracting.
 Legal capacity is of two types: Personal (Own)capacity;and
Representative(Agent) capacity;
 Capacity of persons is legally presumed unless the contrary
is proved.
 Persons could be:- natural (physical) persons; or legal
or juridical persons;

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 Cont…..
 Natural Persons
 Natural or physical persons are human beings.
 Their legal capacity is determined by law.
 The scope of capacity of physical persons is relatively unlimited
unless the contrary is proved.
 Physical persons are the subject of rights & duties from birth
to death. See Article 1 of the Civil Code.
 Legal Persons
 Legal persons are of two types in terms of determining their
coming in to being & their legal capacity.These are:-
 By legislation; (in case of public bodies/institutions); and
 By registration; (in case of non-public bodies/corporate and/or
non-corporate private entities);
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 Cont…..
The following may not have (legal) capacity to enter in to contract &
bind themselves. These are:-
 Minors (under the age of 18);
 Companies adjudged or declared bankrupt;
 Judicially interdicted persons;
 Legally interdicted persons;
 Persons, whose civil rights are suspended by the judgment of the
court;
 Non-nationals, unless permitted by law or special prerogative;
 Non-authorized Agents;
 Agents, whose Power of Attorney has been revoked;
 Agents , the Scope of their Power of Attorney does not cover the
intended transaction(ex. Tendering or Negotiation or Contract
14
Signing, .); and Others;
 Cont…..
 Natural persons or legal persons may enter in to contract:
 Directly by themselves (in their own capacity): or
 Through other persons called agents;
 The power of agents (i.e. their representative capacity) should
always be checked, with respect to construction project, at:
 The tendering stage;
 The negotiation stage;
 The contract signing stage; and
 The Contract performance stage;
 Sometimes also during dispute resolution process/phase;

15
 Cont…..
 The Power of Attorney creates a derivative legal capacity for
agents.
 Agents, thus, acquire legal power, though not original, to
participate in construction tender, to negotiate, and/or to sign a
construction contract, in the name & on behalf of the named
principal and to bind the principal thereby.
 A contract concluded by the person not capable under the law
may be invalidated at the request of such incapable person, who is
party to the contract. See Art. 1808(1).

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 Consent

Please, see Article 1678 (a) and Article 1679- Article 1710 of the Civil
Code)
 Consent is a declared will of the individual to enter in to contract.
 It is the willingness of the parties to enter in to a legally binding relation.
Declare that you have read all the incorporated documents and are willingly
bound by the terms!
Consent of the intended contracting parties decomposes in to :-
Offer; and Acceptance

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 Offer and Acceptance
 Offer is defined as a proposal expressing the declared willingness
of the offeror to enter in to an agreement, if the offer is accepted.
 Offer is a legal process which is a declaration of willingness or
intent to be bound by specific terms set out.
 Offer may be made:- Orally; In writing; By sign; By conduct; By
specially stipulated manner for acceptance;
 In case of (public) construction contract, offer shall be made in
writing.
 A contract is complete when an offer by one party is accepted
without condition by the other party .

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 Cont…..
• Termination of offer:
• The following could be the way by which the offer could be
terminated. These are:-
 By Death; -of either party before acceptance of the offer;
 By Counter offer; -of the offeree;
 Revocation; -by the offeror, within the time limit;
 Withdrawal; -by the offeror; within the time limit;
 By lapse of Time; -on part of the offeree, i.e. accepting the offer after the
prescribed time has elapsed;

 By failure to accept in the stipulated manner;- by the offeree, if a specific

mode of acceptance was prescribed in the offer;
 By silence of the offeree; -silence is not acceptance, in principle;
 By Liquidation;- if the offeror construction company has been liquidated
before the offer accepted by the employer;
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 Cont…..
 By Insolvency;-in case the construction company declared by the court
insolvent, before the offer has been accepted;
 If the offer were accepted & contract concluded, that contract is going to be
terminated by the employer on the ground of bankruptcy of the contractor;
 By being adjudged bankrupt;-by the court, before the offer has been
accepted; If the offer were accepted & contract concluded, that contract is
going to be terminated by the employer on the ground of bankruptcy of the
contractor;
Acceptance
 Acceptance is a declaration of will to enter in to a legally binding contract.
By acceptance, a contract shall be completed, where the offeree accepts the
offer without any reservation.
The acceptance must be communicated to the offeror
 It must be the offeree or his agent which communicates the acceptance

20
 Cont…..
Forms of Acceptance
The following could be forms of acceptance.
These are:- Orally; In writing; By sign; By conduct; As specially stipulated by
the offeror;
 In the construction contract, especially for public works, acceptance in
writing is the most common & legally imperative practice.
 The Letter of Acceptance is a clear example to this.
Offer and acceptance in construction:
Offer by contractor to do a job;
acceptance by client to the terms of the offer.
The issues in negotiation should be included as offer by contractor!

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 Consideration
• Consideration involves a benefit moving from the offeree/client to
the offeror /contractor in exchange for the promise .
• Consideration should be:
 Of some value, but not necessarily adequate
 Additional to the duty in the law
 Additional to previous contract agreements ,For a future act
 If one party makes a promise and the other party offers nothing in
return for that promise, the promise is unenforceable due to lack of
consideration.

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 Objects of the contract
Please, see Article 1678 (b) cum Article 1711 . Article 1718 of the
Civil Code);
 The object of contract is the very obligations of the contracting
parties ex, in the construction contract, the obligations of the
employer and of the contractor to perform something.
 The possible objects, i.e. the obligations of the contracting parties,
of contract are:- obligation to do (perform);obligation not to do; or
obligation to deliver;
 The obligations of the contracting parties could be divided in to two
broad terms: Promises; and Considerations;

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 Cont…..
The object of a construction contract shall be sufficiently defined.
 In the construction contract the whole purpose of all parts of the
contract documents (the BOQ, the Drawing, the Technical
Specification, notably, & including the Conditions of Contract (both
General and Special Conditions of Contract), and other documents like
filled forms) is to sufficiently define the object of the construction
contract, i.e. the very respective obligations of the contractor & the
employer.
The contractual obligation of the contractor (i.e. Promises) shall be
determined from the contract documents in terms of:
What to do: i.e. to construct:- water supply dam & systems; or
irrigation dam; or Hydropower dam; or other hydraulic
structures; or road; or building; or other type of structures;
In terms of its:- scope; quality; cost; time; safety; and other
aspects of its promises.
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 Cont…..
The Payment, obligation to do, or (Considerations) and other
contractual rewarding obligations of the employer shall also be
sufficiently defined in terms of:
Payment obligation: extent of contract price; types of payment;
timing for payment; conditions of payment; other related issues;
and other obligations in terms of other benefits, exchanges, &rewards;
 These obligations are the very promises & considerations of the
contractor & the employer in the construction contract, respectively.
 Unless the principle of implied terms or the rule of interpretation of
contract supports to resolve the issue of the object of contract, it is
difficult to define the object of contract by any body else except by the
contracting parties themselves.
 The object of contract, even though sufficiently defined, it has to be
possible or capable of being performed.

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 Cont…..
The object of contract shall be lawful. Contract agreements can not
serve to achieve illegal objectives.
 There shall not be any contract agreement on legally prohibited
matters.
 Contracts shall not also go contrary to accepted moral values (as to
the principle of right or wrong) of the society.
 If the contract found to be unlawful or immoral, the legal remedy
available is invalidation of the contract at the request of any
contracting party or interested third party. See Art. 1808(2) of the
Civil Code.

26
 Form of contract:
Please, see Article 1678 (c) cum Article 1719 . Article 1730 of the
Civil Code.
Form may mean types of contract.
If no form is provided by law, contracts can be in any form the
parties agreed Otherwise, the contract agreement should be presented
in the form provided by law
For example,
A contract involving an immovable object should be in a written
form and needs to be registered by the authorities
 Long term contracts, such as guarantees insurance etc, and
those entered with public organization should be in writing
In the absence of the law requiring the contract to be in writing, (see
Art.1719(1), the parties are free to make their contract as they wish.
They can make it orally or in writing. See Art. 1719(2).

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 Cont……
• Written contract:
 According to the Civil Code of Ethiopia 1960, Art.1727
 Any Contract required in writing shall be supported by a special
document signed by all the parties bound by the contract
 It shall be of no effect unless it is attested by two witnesses

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 II. Terms of Contract
• The terms of contract are provisions or stipulations in a
valid contract describing some aspects of the
agreements between the parties to contract. The terms
define the rights and obligations of the parties in
accordance with their agreement. The terms can either
be express, implied or statutory
– Expressed terms are terms clearly stated in the
contract.
– Implied terms: are contract terms which are not
written down in a contract or openly expressed at
the time the contract is made, but which the law
implies
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– Example Implied terms

– The contractor will carry out the work in a workmanlike

manner

– The goods and materials will be of good quality

– The materials and work will reasonably fit for the purpose.

– Statutory terms: are terms which are imparted into contracts

by legislation. The Civil Code of Ethiopia, procurement law
and other pertinent legislation are example of these.
– Language and Law (Clause 3 PPA)
The language of the Contract is English and the law governing the
Contract is that of the Federal Democratic Republic of Ethiopia,
unless otherwise specified in the Special Conditions of Contract.
30
• Contract terms can be also be either:

– Conditions: are fundamental to the contract. Failure to

adhere to a condition may result in a breach and/or
damages.
– Warranties-are subsidiary to the main contract. A
breach/violate of warranty will only result in the injured
party suing/charge for damages.

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 III. Privitiy of Contract
 Only parties who enter into a contractual agreement will
have the right to sue or a liability to be sued due to a
contract.
Assignment (Transfer from one person to another)
A debtor may with the consent of the creditor or
without such consent in cases provided by law or usage,
delegate to another the performance of his
obligation.(CC Ethiopia, Art 1976)
– Subcontracting(PPA Clause 7)
– The Contractor may subcontract with the approval of the
Engineer, but may not assign the Contract without the approval
of the Employer in writing. Subcontracting shall not alter the
Contractor’s obligations.
32
 Discharge/set free of Contracts
• by Performance
– A construction contract will be discharged by
performance on the part of the contractor when
all the works has been completed including
maintenance during defects liability period,
the Engineer has issued all the required
certificates and
on the part of the employer when he has paid
all the payments due.

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 Discharge of Contracts
• By Agreement
• Mutual agreement (agree to cancel the
contract)
• By novation : According to Art. 1826, an
obligation may be extinguished by the principle
of novation when the parties agree to
substitute therefore a new obligation which
differs from the original one on account of its
subject or matter.
• Byaccord/agreementand
satisfaction/pleasure: The parties may accept
performance that is different from what was
agreed on in the original contract.
34
 Discharge of Contracts
• By Frustration :
• Occurs when the contract was executable at
time of agreement but subsequent events, over
which the contracting parties have no control,
make it impossible to fulfill the contract
obligations. The Ethiopian civil code deals with
frustration under force majeure.[Art.1792]
–Force majeure (war, earth quake, natural
hazard)

35
 Discharge of Contracts
• Breach
• failure to carry fundamental obligations under the
contract
• Leads to compensation and/or termination
• Famous in construction as liquidated damage

36
 Invalidation of contracts
• Invalidated contract is a contract which is not
binding. The two main factors that can
invalidate a contract are mistake and
misrepresentation.
– Mistake: the term ‘mistake’ is used to
describe the situation in which an ‘offer’
made by one party and its ‘acceptance’ by
the other do not actually corresponds.

37
 Invalidation of contracts
– the mistake must be fundamental to void the
contract ( it is usually be a mistake of fact which
will voids a contract);
• Identity of the subject matter
• Existence of the subject matter e.g. a contract
will be void where the subject matter of
contract has ceased, unknown to the parties
before the time of a contract.
• Mistake by one party to the promise of the
other party (the other party being aware of the
others mistake)

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 Invalidation of contracts
Misrepresentation (False statement):
Misrepresentation may be described as the
making of an untrue statement relating to fact
which includes another party to enter into
contract.
– When misrepresentation occurs, the injured party can
either state or reject the contract. He or she can also
bring as action for either recession/declie and
restitution or damages.

• Fraud (Deception) Cheat!!

• Duress Pressure 39
construction contract within the Ethiopian
context
based on
Public Procurement Agency (PPA)
conditions of contract.

40
 GCC
• General Condition of Contract is a document that states the
obligations and rights of the parties and details the
conditions under which the contract is to be carried out.
• These documents are published by different professional
associations, government bodies and also by financers.
• As the construction industry is dynamic those documents
shall be amended / improved through times, FIDIC could be
mentioned as an example it has published different
conditions of contract over the years (1957-1999).

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• As the history of our national conditions of
contract indicates the first was published in 1959
by the Ministry of Housing, the second in 1987
by Building Transport Construction and Design
Authority, the third in 1994 by Ministry of Works
and Urban Development and the fourth and the
recent one in 2006 by the Public Procurement
Agency (amended in 2011) of the Ministry of
Finance and Development.
 therefore, our discussion focus on the
provisions of the recent one!
42
• PPA conditions of contract divided the clauses
in five categories with 62 clauses,
– General
– Time control clauses
– Quality control clauses.
– Cost control clauses.
– Finishing of the contract,

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 General

– Under this heading common obligation, rights and

instruction are set out which help to minimize disputes
and simplify the contract administration processes.
• As an example definition and interpretation could be taken,
– “It is in the best interest of all parties to a contract
that they express their intention without
ambiguity. However, the meanings of a contract or
some of its terms is often obscure. More often
than not this becomes a source of dispute
between the parties. In order to settle such
disputes, the disputed terms or a provision has to
be interpreted or given a proper meaning.” [John
Murdoch& Will Hughes, third edition, construction
contracts, Law and Management ] 44
• The category named ‘General provisions’ is set
in PPA are;
– Definition
– Interpretation
– Communications
– Law and language
– Priority of documents etc

45
 Interpretation(Clause 2.3)

• The documents forming the Contract shall be

interpreted in the following order of priority:
(1) Agreement,
(2) Letter of Acceptance,
(3) Contractor’s Bid,
(4) Special Conditions of Contract,
(5) General Conditions of Contract,
(6) Specifications,
(7) Drawings,
(8) Bill of Quantities or Activity Schedule, and
(9) Any other document listed in the Special Conditions of
Contract as forming part of the 46
 Time control clauses

A construction projects consist of many activities.

Each activity requires some time for its completion.
The cost of execution varies with the time required
for its completion. Once the time required for
completion of a project is decided it may be
stipulated in the contract in any of the following
three ways;
– On a given date, or
– Within a definite number of calendar months, or
– Within stipulated number of working days
47
 Time control clauses

The provisions made in almost all GCCs usually entitle the

employer to be paid for liquidated damage for delay of
completion time, in order that the contractor should be careful
in avoiding delay in completion.

A construction contract usually stipulates circumstances under

which the time for completion will be extended. A
comprehensive list of valid grounds is to be found in different
GGCs clause.

Example PPA clause 28 (Extension of the intended completion

date), stipulates the occurrence of compensation events and
issues of variations as a ground for time extension. 48
Time control clauses(PPA)

27. Program
28. Extension of the Intended Completion Date
29. Acceleration
30. Delays Ordered by the Engineer
31. Management Meetings
32. Early Warning

49
 Time control clauses(PPA)

27.Program
27.1 Within the time stated in the Special Conditions of
Contract, the Contractor shall submit to the Engineer for
approval a Program showing the general methods,
arrangements, order, and timing for all the activities in
the Works.
27.3… If the Contractor does not submit an updated
Program within this period, the Engineer may withhold
the amount stated in the Special Conditions of Contract
from the next payment certificate and continue to
withhold this amount until the next payment after the
date on which the overdue Program has been submitted.50
 Time control clauses(PPA)

27.Program
27.4. The Engineer’s approval of the Program shall not alter the
Contractor’s obligations. The Contractor may revise the
Program and submit it to the Engineer again at any time. A
revised Program shall show the effect of Variations and
Compensation Events.
28. Extension of the Intended Completion Date
28.1 The Engineer shall extend the Intended Completion Date if
a Compensation Event occurs or a Variation is issued which
makes it impossible for Completion to be achieved by the
Intended Completion Date without the Contractor taking steps
to accelerate the remaining work, which would cause the
Contractor to incur additional cost. 51
 Time control clauses(PPA)

28. Extension of the Intended Completion Date

28.2 The Engineer shall decide whether and by how
much to extend the Intended Completion Date
within 21 days of the Contractor asking the
Engineer for a decision upon the effect of a
Compensation Event or Variation and submitting
full supporting information.
If the Contractor has failed to give early
warning of a delay or has failed to cooperate in
dealing with a delay, the delay by this failure shall
not be considered in assessing the new Intended
Completion Date.
52
 Time control clauses(PPA)

29. Acceleration
29.1. When the Employer wants the Contractor to finish
before the Intended Completion Date, the Engineer will
obtain priced proposals for achieving the necessary
acceleration from the Contractor. If the Employer
accepts these proposals, the Intended Completion Date
will be adjusted accordingly and confirmed by both the
Employer and the Contractor.
29.2 If the Contractor’s priced proposals for an
acceleration are accepted by the Employer, they are
incorporated in the Contract Price and treated as a
Variation. 53
 Time control clauses(PPA)
30. Delays Ordered by the Engineer
30.1 The Engineer may instruct the Contractor to
delay the start or progress of any activity within the
Works.
31. Management Meetings
31.1 Either the Engineer or the Contractor may require the
other to attend a management meeting. The business of a
management meeting shall be to review the plans for
remaining work and to deal with matters raised in
accordance with the early warning procedure.
.
54
31. Management Meetings
• 31.2 The Engineer shall record the business of
management meetings and provide copies of the
record to those attending the meeting and to the
Employer. The responsibility of the parties for actions
to be taken shall be decided by the Engineer either at
the management meeting or after the management
meeting and stated in writing to all who attended the
meeting.

55
 Time control clauses(PPA)
32. Early Warning
32.1 The Contractor shall warn the Engineer at the earliest
opportunity of specific likely future events or circumstances that
may adversely affect the quality of the work increase the Contract
Price or delay the execution of the Works. The Engineer may
require the Contractor to provide an estimate of the expected effect
of the future event or circumstance on the Contract Price and
Completion Date. The estimate shall be provided by the Contractor
as soon as reasonably possible.
32.2 The Contractor shall cooperate with the Engineer in making and
considering proposals for how the effect of such an event or
circumstance can be avoided or reduced by anyone involved in the
work and in carrying out any resulting instruction of the Engineer.
56
 Quality Control (PPA)

33. Identifying Defects

33.1 The Engineer shall check the Contractor’s work and notify
the Contractor of any Defects that are found. Such checking
shall not affect the Contractor’s responsibilities. The Engineer
may instruct the Contractor to search for a Defect and to
uncover and test any work that the Engineer considers may
have a Defect.

34. Tests
34.1 If the Engineer instructs the Contractor to carry out a test
not specified in the Specification to check whether any work
has a Defect and the test shows that it does, the Contractor
shall pay for the test and any samples. If there is no Defect, the
test shall be a Compensation Event. 57
 Quality Control (PPA)

35. Correction of Defects

35.1 The Engineer shall give notice to the Contractor of any
Defects before the end of the Defects Liability Period, which
begins at Completion, and is defined in the Special Conditions
of Contract. The Defects Liability Period shall be extended for
as long as Defects remain to be corrected.
35.2 Every time notice of a Defect is given, the Contractor shall
correct the notified Defect within the length of time specified
by the Engineer’s notice.
36 Uncorrected Defects
36.1 If the Contractor has not corrected a Defect within the time
specified in the Engineer’s notice, the Engineer will assess the
cost of having the Defect corrected, and the Contractor will pay
this amount. 58
 Cost Control
37. Bill of Quantities or Activity Schedule
• Bill of Quantities for Admeasurements Contract
– The Bill of Quantities shall contain items for
the construction, installation, testing, and
commissioning work to be done by the
Contractor.
– The Bill of Quantities is used to calculate the
Contract Price. The Contractor is paid for the
quantity of the work done at the rate in the
Bill of Quantities for each item.
59
 38.Change in the Bill of Quantities

If the final quantity of the work done: Differs from the quantity in
the BoQ,

for a particular item,

by >25%, &
The change exceeds 5% of the Initial Contract Price,

The Engineer shall adjust the rate to allow for the change.
The Engineer shall not adjust rates if:

The Initial Contract Price is “exceeded by > 15%”,

Except “with the prior approval” of the Employer.

If requested by the Engineer, the Contractor shall:

Provide a detailed cost breakdown of any rate in the BoQ;

 40 Payment for Variations

The Contractor shall provide a quotation for carrying out the

Variation when requested to do so.

The Engineer shall:

Assess the quotation,

Which shall be given within 7 days or
within any longer period stated by the Engineer &
before the Variation is ordered.
If the work in the Variation Corresponds:

With an item description in the BoQ

&
If the quantity of work is within the limit stated
above(125%) or

The timing of its execution do not cause the cost/ unit

quantity to change,

The rate in the BoQ shall be used to calculate the value of

the Variation.
 If the cost per unit of quantity changes, or
If the nature or Timing of the work in the Variation does not
correspond with items in the BoQ;

The quotation by the Contractor shall be in the form of new rate;

If the Contractor’s quotation is unreasonable:
The Engineer may order the Variation & make a change to the
CP,

Which shall be based on:

The Engineer’s own forecast of the effects of the Variation.
If the Engineer decides that:
The urgency of varying the work would prevent a quotation
being given &
considered without delaying the work,
No quotation shall be given & The Variation shall be
treated as a Compensation Event.

The Contractor shall not be entitled to additional

payment: forCosts that could have been avoided by giving
early warning.
 42. Payment Certificates

The Contractor shall submit:

Monthly statements of the value of the work executed

Less the cumulative amount certified previously.

The Engineer shall check the Contractor’s monthly

statement and certify the amount to be paid to the
Contractor.
The value of work executed shall include:

The valuation of Variations

&
Compensation Events.
The Engineer may :

“Exclude Any item certified” in a previous certificate

or
Reduce the proportion of any item previously certified
 43. payments
Payments shall be adjusted for deductions for

Advance Payments
&
Retention

The Employer shall pay the Contractor:

The amounts certified within 30 days of the date of each

certificate.
If the Employer makes a late payment:

The Contractor shall be paid interest on the late payment in

the next payment.
Interest shall be calculated:
From the date by which the payment should have been made
up to the date when the late payment is made

At the prevailing rate of interest for commercial

borrowing for each of the currencies in which payments are
made.
If an amount certified is increased:
In a later certificate
or
As a result of An award by the Adjudicator/Arbitrator,

The Contractor shall be paid interest upon the delayed

payment

Interest shall be calculated: From the date Upon which

The increased amount would have been certified

in the absence of dispute.
 43.4 Blank/unfilled Rates

Items of the Works for which: No Rate

or
No price has been entered in

Will not be paid for by the Employer

&
Shall be deemed covered by other rates & prices in the Contract.
 44. Compensation Events

The Employer does not give access to the Site by the Site Possession
Date stated in the Contractor’s approved work program.

The Employer modifies the Schedule of “Other Contractors”

in a way that affects
The work of “the Contractor under the Contract.”

The Engineer orders “A delay”

or
Does not issue “Drawings, Specifications, or Instructions”

Required for execution of the Works on time.

The Engineer instructs the Contractor:
To uncover or
To carry out additional Tests upon work,
Which is then found to have No Defects.

The Engineer unreasonably does not approve a subcontract to be let.

The advance payment is delayed.

The “effects on the Contractor” of any of the Employer’s Risks.

The Engineer unreasonably delays “issuing a Certificate of Completion”.

Ground conditions are:

Substantially more adverse than could reasonably have been assumed

before issuance of the Letter of Acceptance

From the information issued to bidders including: “The Site

Investigation Reports”, “From information available publicly”
&“From a visual inspection of the Site”
The Engineer Gives “An instruction” for dealing with:
An unforeseen condition, caused by the Employer,
or
Additional work required for safety or other reasons.

“Other contractors, public authorities, utilities, or the

Employer” does not work within the dates and other
constraints stated in the Contract, & they cause delay or
extra cost to the Contractor.
Other Compensation Events described in the SCC or
determined by the Engineer shall apply
If A Compensation Event Would:

Cause “Additional Cost”

or Prevent The completion of work before the Intended Completion
Date, The Contract Price shall be increased &/ or The Completion
Date shall be extended.

The Engineer shall decide whether and by how much:

The Contract Price shall be increased &/or

The Intended Completion Date shall be
extended.
As soon as information demonstrating:

The effect of each Compensation Event upon the Contractor’s

forecast cost has been provided by the Contractor,

It shall be assessed by the Engineer,

&
The Contract Price shall be adjusted Accordingly.

If the Contractor’s forecast is deemed unreasonable,

“The Engineer shall adjust the CP based on the Engineer’s own

forecast”

The Engineer will assume that the Contractor will react competently &
promptly to the event.
 Clause 44.4

The Contractor shall not be entitled to compensation to the extent that:

The Employer’s interests are adversely affected

By the Contractor’s not having given early warning

or
Not having cooperated with the Engineer.
 Clause 45 Taxes

Unless otherwise specified in the SCC, the Engineer shall not

adjust the Contract Price

If taxes, duties, and other levies are changed

That subsequently affect the CP.

 47 Price Adjustment

Prices shall be adjusted for fluctuations in the cost of inputs only if

provided for in the SCC.

If so provided, the amounts certified in each payment certificate,

after deducting for Advance Payment, shall be adjusted by
applying the respective price adjustment factor to the payment
amounts due
Ln Mn En
pn  A  b  c  d  etc.
Lo Mo Eo
Where:
pn is a price adjustment factor to be applied to the amount for each
payment certificate;

A is a Constant, specified in the Contractor’s Bid, representing the

nonadjustable portion in contractual payments;

b, c, d, etc., are weightings or coefficients representing

The estimated proportion of each cost element (labour,

materials, equipment usage, etc.) in the Works or sections thereof,

The Sum of A, b, c, d, etc., shall be one

Ln, Mn, En, etc.,

Are the “current cost indices” or reference prices of the cost

elements at the date 28 days prior to the deadline for bid
submission; &

Lo, Mo, Eo, etc.,

Are the “base cost indices” or reference prices corresponding to the

above cost elements at the date 28 days prior to the last day of the
period to which a particular Interim Payment Certificate is related.
The sources of indices shall be:

Those listed in the Contractor’s Bid, As approved by the Engineer.

Indices shall be appropriate for their purpose & shall relate to the
Contractor’s proposed source of supply of inputs.

As the proposed basis for price adjustment:

“The Contractor shall have submitted with his bid the

tabulation of Weightings and Source of Indices, which shall be subject
to approval by the Engineer”
If the value of the index is changed after it has been used in a
calculation:

“The calculation shall be corrected

&
An adjustment made in the next payment certificate”

The index value shall be deemed to take account of all changes in cost
due to fluctuations in costs.
 48. Retention

The Employer shall retain:

From each payment due to the Contractor

The proportion stated in the SCC

Until Completion of the whole of the Works;

On completion of the whole of the Works:

Half the Total amount retained

Shall be repaid to the Contractor
&
Half when the Defects Liability Period has passed
&
The Engineer has certified that

All Defects notified by the Engineer to the Contractor before the end
of this period have been corrected.

On Completion of the whole Works, the Contractor may substitute

retention money with an “on demand” Bank guarantee.
 49. Liquidated Damages
The Contractor shall pay:
Liquidated damages to the Employer
At the rate/day stated in the SCC
For each day that
The Completion Date is later than the Intended Completion Date.

The total amount of liquidated damages shall not exceed the amount
defined in the SCC

The Employer may deduct liquidated damages from payments due to

the Contractor.

Payment of liquidated damages shall not affect the Contractor’s

liabilities.
If the Intended Completion Date:
is extended after liquidated damages have been paid,

The Engineer shall correct

Any overpayment of liquidated damages
By the Contractor
By adjusting the next payment certificate.

The Contractor shall :

Be paid interest on the overpayment,
Calculated from the date of payment to the date of repayment,

At the rates specified in Sub-Clause 43

 50. Bonus

The Contractor shall be:

Paid a Bonus
Calculated at the rate/calendar day
Stated in the SCC For each day
{Less any days for which the Contractor is paid for acceleration}

That the Completion is earlier than the Intended Completion Date.

The Engineer shall certify that:

The Works are complete,
 51. Advance Payment

The Employer shall make:

Advance payment to the Contractor

Of the amount stated in the SCC
By the date stated in the SCC,
Against provision by the Contractor

Of an Unconditional Bank Guarantee

The Advance Guarantee Bond Should be:

In a form & by a bank acceptable to the Employer,

Denominated in Ethiopian Birr
In the amount of the advance payment.

The Guarantee shall remain effective:

Until the advance payment has been repaid,

But the amount of the Guarantee
Shall be progressively reduced
By the amounts repaid by the Contractor.

Interest will not be charged on the advance payment.

The Contractor is to use the advance payment:

Only to pay for Equipment,

Plant, Materials, & mobilization expenses
Required specifically for execution of the Contract.

The Contractor shall:

Demonstrate that
Advance payment has been used
In this way by supplying copies of invoices/documents
The advance payment shall be:
Repaid by deducting proportionate amounts
From payments otherwise due to the Contractor,

Following the schedule of completed percentages of the Works on a

payment basis.

No account shall be taken of the advance payment or its repayment in

assessing:
Valuations of work done,
Variations, price adjustments,
Compensation Events,
Bonuses, or
Liquidated Damages.
 52.Securities

The Contract Security:

Shall be provided to the Employer

No later than 15 days
After Receipt of the Letter of Acceptance &

Shall be issued in the form of:

A Bank Guarantee, or for
Ethiopian Contractors only in the form of a Performance Bond.
The Contract Security shall be:
Issued in the format specified
In the contract &
In an amount specified in the SCC &
By a bank or surety acceptable to the Employer
and denominated in Ethiopian Birr.

The Contract Security shall be valid until:

A date 28 days from the date of issue of the Certificate of

Completion in the case of a Bank Guarantee
&
Until one year from the date of issue of the Certificate of Completion
in the case of a Performance Bond.
 53.Dayworks

If applicable:

The Day works rates in the Contractor’s Bid Shall be used

For small additional Amounts of work
Only when the Engineer has given written instructions

In advance for additional work to be paid for in that way.

All work to be paid for as Dayworks:
Shall be recorded by the Contractor
On forms approved by the Engineer.

Each completed form shall be verified and signed by the Engineer

within two days of the work being done.

The Contractor shall be paid:

For Dayworks subject to obtaining signed Dayworks forms.
 54.Cost of Repairs

Loss/damage to the Works/Materials:

To be incorporated in the Works

B/n the Start Date & The end of
The Defects Correction periods

Shall be remedied by the Contractor at the Contractor’s cost if the

loss or damage arises from the Contractor’s acts/ omissions.
 Finishing the Contract
55 Completion
The Contractor shall request the Engineer:
To issue a certificate of Completion of the Works,
&
The Engineer will do so up on
deciding that the work is completed.

56 Taking over
The Employer shall take over the Site
&
The Works within 7 days of
The Engineer’s issuing a Certificate of Completion.
 57. Final Account
The Contractor shall supply the Engineer with:

A detailed Account of The Total Amount

That the Contractor considers payable under the Contract
Before the end of the Defects Liability Period.

The Engineer shall issue:

A Defects Liability Certificate &
Certify any final payment
That is due to the Contractor
Within 60 days of receiving the Contractor’s account,
if it is correct and complete.
If it is not Correct:
The Engineer shall issue
Within 60 days a schedule that states
The scope of the corrections or additions
That are necessary.

If the Final Account is:

Still unsatisfactory after it has been resubmitted,

The Engineer shall decide on the amount payable
To the Contractor & issue a payment certificate.
 58.Operating & Maintenance Manuals

If “as built” Drawings &/or O& M manuals are required:

The Contractor shall supply them by the dates stated in the SCC.

If not supplied Accordingly:

The Engineer shall withhold the amount stated in the SCC from
payments due to the Contractor.
 59.Termination

The Employer/the Contractor:

May terminate the Contract if:

The other party causes a fundamental breach of the Contract.

 Fundamental breaches of Contract shall include, but shall
not be limited to, the following:

The Contractor stops work for 28 days when:

No stoppage of work is shown on the current Program

&
The stoppage has not been authorized by the Engineer;

The Engineer instructs the Contractor:

To delay the progress of the Works,

&
the instruction is not withdrawn within 28 days;
The Employer or the Contractor is made:
Bankrupt or Goes into liquidation
Other than for a reconstruction or amalgamation;

The Contractor does not maintain a Security, which is required;

A certified payment by the Engineer:

Is not paid by the Employer to the Contractor
Within 90 days of the date of the Engineer’s certificate;
The Engineer gives Notice that:
Failure to correct a particular Defect
is a fundamental breach of Contract
&
The Contractor fails to correct it
within a reasonable period of time
Determined by the Engineer;

The Contractor has:

Delayed the Completion of the Works
By the No. of days for which
The maximum amount of
Liquidated damages can be paid;
If the Contractor, in the judgment of the Employer:
Has engaged in corrupt,
Fraudulent,
Collusive or
Coercive practices
in competing for / in executing the Contract.
"Corrupt practice" means the:

Offering,
Giving,
Receiving or
Soliciting,

Directly or indirectly, of anything of value

To influence the action of a public official in the procurement process

or in contract execution.
"Fraudulent practice" means:

A misrepresentation of facts in order to influence a procurement

process or the execution of a contract;

“Collusive practices” means:

A scheme/arrangement b/n two/more Bidders, with or without the

knowledge of the Employer, designed to establish prices at artificial,
noncompetitive levels

“Coercive practices” means:

Harming/threatening to harm, directly/indirectly, persons/their
property to influence their participation in a procurement process, or
affect the execution of a contract
When either party to the Contract:

Gives notice of a breach of Contract to the Engineer

For a cause other than wrong practices cited above,

The Engineer shall decide whether the breach is fundamental or not.

Despite the above:

the Employer may terminate the Contract for convenience.

If the Contract is terminated:

The Contractor shall stop work immediately
Make the Site safe & secure, &
Leave the Site as soon as reasonably possible
 60.Payment upon Termination

If the Contract is terminated because of:

A fundamental breach of Contract by the Contractor:

The Engineer shall issue:

A certificate For the value of the work done
&
Materials ordered
Less advance payments Received
&
Less the % age of the work not completed,

Additional Liquidated Damages Shall Not Apply

If the total amount due to the Employer:

Exceeds any payment due to the Contractor,

The difference shall be a debt payable to the Employer.

If the Contract is terminated:
For the Employer’s convenience/
Because of a fundamental breach
of Contract by the Employer:

The Engineer shall issue: A certificate for:

The value of the work done,

Materials ordered,
The reasonable cost of removal of Equipment,
Repatriation of the Contractor’s personnel
Employed solely on the Works, &
The Contractor’s costs of protecting/securing the Works,
&
less advance payments received up to the date of the certificate.
61.Property

All Materials on the Site,

Plant,
Equipment,
Temporary Works,
&
Works

Shall be deemed to be the property of the Employer:

if the Contract is terminated because of the Contractor’s default

 62. Release from Performance

If the Contract is:

Frustrated by the outbreak of war

or
By any other event
Entirely outside the control of either party,

The Engineer shall certify that: The Contract has been frustrated.
The Contractor shall:
Make the Site safe
&
Stop work as quickly as possible
After receiving this certificate
&

Shall be paid for all work carried out:

Before receiving it
&
For any work carried out afterwards

To which, a commitment was made.

 The Special conditions of Contract, PPA-2006 Version

The following SCC shall supplement the GCC

Whenever there is a conflict, the provisions herein shall prevail over

those in the GCC
 GCC 2.3

The following documents also form part of the Contract: [list any
other documents e.g. schedule of information provided by the
Contractor].
GCC 3.1

The language of the Contract is English and the law governing the
Contract is that of the Federal Democratic Republic of Ethiopia.
[Amend if an alternative language or law is to be used].

GCC 11.1
The Employer’s risks are as specified in the GCC. [Amend if the risks
in the GCC are to be modified].
 GCC 25.3

The institution whose arbitration procedures shall be used is: [insert

name of institution ]

Arbitration shall take place at: [state place e.g. Addis Ababa or any
other convenient location or delete if arbitration is not applicable]

Where arbitration is not being used, replace the text with

“Arbitration shall not be used under this contract and disputes shall
be resolved in accordance with GCC 25.1”.