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Procurement Management and Contract Administration
CoTM 4242
Chapter One
Introduction
Instructor: Andualem Endris (M.Sc)
andu0117@yahoo.com
College of Engineering,
Construction Technology and Management Department
WHAT IS A
CONTRACT?
Definitions
According to FIDIC:
Contract means the General Conditions, the
Supplementary Conditions, the Specifications, the
Drawings, the Bill of Quantities, the Tender, the Letter
of Acceptance, the Contract Agreement.
History of construction contracts
Formal construction contracts have been
around since 1870, J. Murdoch and W. Hughes
(2001).
Between 1200-1600 AD construction work
was undertaken by master craftsmen
organized into guilds.
History of construction contracts
...contd
By 1800 AD the contracting system emerged
and many works required designs to be
complete, including estimates for materials
and labour.
This marked the beginning of construction
contracts as we know them today.
Need for contract comes with many short falls
to be managed which can be termed as risks.
The following are some of the risks:-
Construction risk
Owners risk is due to the following factors:
Will the contractor be able to carry out work as per
specifications?
Can the work be completed within quoted cost and
time?
Will the plant/project perform at the required level?
Will the contractor stay on job till its completion?
Will the contractor co-operate with the owner and
rectify defects later?
Will the relationship continue?
Does he/she understand his/her intent fully?
Construction risk contd
Contractors risk is due to the following
factors:
Termination of work before its completion
Prompt payments
Reimbursement for extra claims
Penalization for failures beyond his control.
Interruptions in progress and change of scope
Compensation for pure escalation.
Construction risk contd
Other construction risks include
1. The unforeseen:
unexpected ground conditions
unpredicted weather conditions
a shortage of materials in the market
a shortage of skilled labour
accidents, whether by fire, flood or carelessness
innovative design that does not work or proves
impossible to construct.
The length of the contract.
Construction risk contd
2. Projects vary in the time needed for
completion, from days to years. During that
time the risk allocation agreed at the time of
contracting can change substantially. This is
especially so with regard to the availability of
materials and its costs. A contractor may
have bought the job because work was
scarce at the time and the price of
components was low.
Construction risk contd
3. The number of participants, and parties in the
project and the corresponding length of
contractual chain cause their own problems. The
risk of insolvency increases, the longer the chain.