2.

Contract 2 C
Contentsofthechapter 2.1Principlesofcontract 2.2Typesofconstructioncontract 2.3Contractdocuments 2.4ContractManagement 2.4.1Contractadministrationandclosing 2 4 1 Contract administration and closing 2.4.2Claimsanddisputemanagement

2.Contract 2. Contract
1.1Generalprinciplesofcontract 1 1 General principles of contract
Construction contact basically follow the basic assumptions of contact as defined in the law of contact In the area of construction activities it defines the relationship of the parties involved with regards to their obligations, responsibilities and privileges in the work and it is part of the common law

Partiesinconstructioncontract Parties in construction contract

Elementsofacontract Elements of a contract

Contractrequiresfourbasicelements Contract requires four basic elements
Mutualagreement
Offer & acceptance Offer&acceptance

Legalobjectives Valid consideration Validconsideration Legalcapacityoftheparties

Elementsofacontract(cont.) Elements of a contract (cont.)

Whatismutualagreement? What is mutual agreement ?
Musthaveevidencethattherewasameetingof theminds the minds
Offerclear&unambiguous Acceptanceclearlyacceptingdealoffered p y p g

Elementsofacontract(cont.) Elements of a contract (cont.)

What is a legal objective ? at s ega object e
The thing being contracted for must be legal in and of itself Most construction contracts are legal
Assumes correct party issues the contract

B some contract modifications may b ill l & But difi i be illegal thus, unenforceable
Verbal modifications Modifications beyond scope of the partys authority Cardinal changes

Elementsofacontract(cont.) Elements of a contract (cont.)

Whatislegalcapacity? What is legal capacity ?
Insimplestform,partiesmustbe
Of age Ofage Mentallycompetent

In construction environment, parties must have Inconstructionenvironment,partiesmusthave

Legalauthoritytoissuesandexecutecontracts Mayhavetobeproperlylicensedtohavelegalcapacity

Elementsofacontract(cont.) Elements of a contract (cont.)

What is valid consideration? Whatisvalidconsideration?
In exchange for the offer to perform, the recipient must offer something of value
Money (most typical) promiseoffutureworkorrevenue promise of future work or revenue

Without consideration a contract is not valid & unenforceable

Elementsofacontract(cont.) Elements of a contract (cont.)

Mustacontractbeinwrittenform? Must a contract be in written form?
Generally,no Verbal contract enforceable under proper Verbalcontractenforceableunderproper circumstance But in most cases a construction contract must be Butinmostcasesaconstructioncontractmustbe inwrittenformtobeenforceable

Elementsofacontract(cont.) Elements of a contract (cont.)

Contentofconstructioncontract Content of construction contract
Identityofparties Promises and responsibilities Promisesandresponsibilities Scopeofthework P i Priceandpaymentterms d tt Commercialtermsandconditions P j Projectexecutionplans i l

ProvisionofEthiopianlawofcontract (thecivilcode)
According to George Krzeczunowicz, the Ethiopian law of contract provision can be summarized as,
F Formations of contract ti f t t Effects of contract

Formationofcontract Formation of contract

Everycontractisanagreement,butnotevery y g , y agreementisacontract

Theintroductoryarticlesofthecivilcode enumeratestherequisitesforavalidcontract,
Definitionofcontract AccordingtotheEthiopianlawofcontract(Article 1675ofthecivilcode)
A contact is defined as an agreement whereby two or Acontactisdefinedasanagreementwherebytwoor morepersonsasbetweenthemselves,create,vary,or extinguishobligationofproprietarynature

Elementsofcontract Elements of contract

Novalidcontractshallexistunless, No valid contract shall exist unless 1.The parties are capable of contracting and give their consent sustainable at l i h i i bl law 2.The object of the contract is sufficiently defined and is possible & lawful 3.The 3 The contract is made in the form of prescribed by law if any.

Effectsofcontracts Effects of contracts

1.Performance 2.Judicialvariations& 2 Judicial variations & 3.Nonperformanceofcontract

Performance
The due effects of a contract whether plain or p ascertained by interpretation under are fulfilled by performance Generally this section of the civil code answers the Generallythissectionofthecivilcodeanswersthe following
Whoshallpay(Art1740) Towhomheshallpay(Art174144) Objectofpayment(Art174554) Placeofpayment(Art174554) Place of payment (Art 1745 54) Timeofpayment(Art174554) Transferofrisk(Art174554) (

Judicialvariations Judicial variations

The due effects of a contract whether plain ascertained by interpretation under are fulfilled performance, unless varied by the principles 1731(1),which provides that lawfully formed bind parties or by art the

Nonperformance
where a party does not perform his obligations the obligations, party may, according to circumstances request the enforcement of the contract or on the contrary request or some times declare the cancellation of the contract He may also require that damage caused him by the non performance be compensated

2.2Typesofconstructioncontract

Lumpsumcontract Lump sum contract

Unitpricecontract Unit price contract

In a unit price contract the owner and the contractor agree as to the price that will be charged per unit for the major elements of the project.
The owner/designer will typically provide estimated quantities for the project, then ask contractors to "bid" the job by calculating unit prices for these items and calculating a final price Contractor overhead profit and other project expenses must be overhead, profit, included within the unit prices that are provided

The owner then compares the final prices and selects the low bidder The advantage of this type of contracting method is that in many projects (heavy engineering projects being a perfect example), it is difficult to quantify accurately the work necessary.

Unit Price contract: Example

Unit Price contract: Example

CostPlusFeeTypeContracts Cost Plus Fee Type Contracts

In a costplus contract arrangement, also called a cos p us co ac a a ge e , a so ca ed reimbursable or a time and materials contract, the contractor works on the project and is reimbursed by the owner f i costs, plus i paid either an additional for its l is id i h ddi i l agreedupon fee or is paid a fee that is a percentage of those costs. It is important for the owner to spell out clearly in advance what costs will be reimbursed and which costs are to be covered by the fee. By using this type of contract the contractor can start work without a clearly d fi d project scope, since all k ih l l defined j i ll costs will be reimbursed and a profit guaranteed

Typesofcostpluscontract Types of cost plus contract

1. Cost+percentageofcost 1 Cost +percentage of cost 2. Cost+fixedcost 3. Cost+fixedfee+profitsharing 3 C fi d f fi h i

Cost Plus Fee Type Combinations

2.3Contractdocuments
ConstructionDocuments Includebothbidrequirementsandthecontractdocuments q
Biddingrequirements
NoticetoBidders Instruction to Bidders InstructiontoBidders ProposalForm

ContractDocuments
ContractForms Contract Forms ConditionsoftheContract Specifications(Divisions01through16) Drawings Addenda ChangeOrders Agreement

NOTICETOBIDDERS/INVITATIONTO BID
The document announcing to prospective bidders that design documents are available and job is advertised to contractors who documents who are are capable of completing the work at reasonable price. The purposes of an Invitation to Bid are to attract bidders in sufficient numbers to ensure fair competition numbers competition and to notify all parties who might be interested in submitting proposals

 Itshouldconsistofthefollowingelements: 1. Project Title. State the name of the project, its location, and project number if any any. 2. Identification of Principals. State the name and address of the architect or issuing agency, t th with th d t of i i together ith the date f issue. 3. Time and Place for Receipt of Bids. State the time and place where bids will be received and whether they will be publicly opened or not. p

4.ProjectDescription.
Provide a brief but adequate description of the project, and any unusual features so that the bidder will be the be in a in position to determine whether he or she has the financial and technical ability to undertake the construction of the project.

5.TypeofContract. State whether bids are being solicited for a single or segregated contract and on what basis. 7.BidSecurity. State whether a Bid Bond or other type of bid guarantee will be required to ensure the execution of the contract. 8.GuaranteeBonds. State whether Performance Bonds and Labor and Materials Payment Bonds will be required to ensure the completion of the contract contract.

The Proposal Form

The Proposal Form establish the intent of the contractor to enter into a contract to complete the work specified at the cost indicated in the k f d h d d h proposal. If owner responds by awarding the contract based on proposal, an acceptance of offers results and a contractual relationship is established. Award of notice is communicated to the contractors proposal with a notice to proceed.

Contractdocuments Contract documents

Contract documents (graphic and written) describe (g p ) the proposed construction (the Work) that results from performing services, furnishing labor, and supplying and incorporating materials and equipment into the construction,
A. Contract Forms B.Conditions of the Contract C. Specifications (Divisions 01 through 16) D. Drawings i E. Addenda F. Change Orders

CONTRACTDOCUMENTS CONTRACT DOCUMENTS

A. CONTRACTFORMS . CO C O S
Agreement PerformanceBond PaymentBond Certificates

AGREEMENT
The written document signed by the owner and the contractor that is the legal instrument binding the parties to the contract. h Defines the relationship and obligations between owner and contractor

CONTRACTDOCUMENTS(Cont) CONTRACT DOCUMENTS (Cont)

PERFORMANCE BOND Provides a guarantee that if the contractor defaults of fails to perform, the surety will either complete the contract in accordance with it terms, or provide sufficient funds up to the penal amount for such completion PAYMENT BOND P id a guarantee th t subcontractor, material suppliers, Provide t that b t t t i l li and others providing labor, material goods, and services to the project will be paid CERTIFICATE Includes certificates of insurance, certificates of compliance with applicable laws and regulations

CONTRACTDOCUMENTS(Cont)
B.CONDITIONSOFCONTRACT
Definebasicrights,responsibilities,andrelationshipsof Define basic rights, responsibilities, and relationships of thepartiesinvolvedintheconstructionproject. 2types:GeneralandSupplementaryconditions GENERALCONDITIONS General clauses that establish how the project is to be administered. administered Contain basic expressions of rights, duties, and limitations of the entities involved. Usually in the form of published standard documents that include principles common to most construction Contracts(e.g. FIDIC, Contracts(e g FIDIC MoWUD)

CONTRACTDOCUMENTS(Cont) CONTRACT DOCUMENTS (Cont )

SUPPLEMENTARY CONDITIONS Modify or supplement general conditions as need to provide for requirements specific to a project. They are not standardized d t d di d documents and are prepared f specific t d d for ifi project needs.

C.SPECIFICATIONS C. SPECIFICATIONS
Define the qualitative requirements for products, materials, and workmanship upon which the contract is based and it is organized into 16 Dictionary Definition: "Specifications are written or Printed description of work to be done forming part of the done, contract and describing qualities of material and mode of construction, and also giving dimensions and other information not shown i th d i f ti t h in the drawings." i "

D) ADDENDA )
Written or graphic documents issued to clarify, revise, add to, or delete information in the original bidding documents or in previous addenda addenda. addenda to be issued anytime prior to execution of the contract.

E) CHANGE ORDER:
After the construction agreement has been signed, additions to, deletions from, or modifications of the work to be done are accomplished by change orders. These can be issued any time during the contract period