Contract lecture Note

WOLLEGA UNIVERSITY
Institute of Technology
Department of civil
Engineering
7/26/2017
1
Compiledby:JifaraC@WUIOT
CONTRACT
Compiled By: Jifara C. (Ass. Lecturer @WU, IOT)
Year: 2017

OBJECTIVES
At the end of this session student will be
able to:
 Define contract
 Identify requirements of contract
 Identify purposes of contract
 Discharge of contract
 Classify contract
 Discuss about Contract management
process
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1. Contract
Contract is an agreement between or among two
or more parties where parties abide by the law.
(Civil code of Ethiopia, Art.1675)
‘All contracts are an agreement but not all
agreements are contract.’ why???
The terms of a contract are legally binding and
are enforced by codes of law.
 In other words, A Contract is an Agreement
between two or more parties for a certain
consideration that fulfill contract requirements.
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1.1. Introduction

2. REQUIREMENTS OF CONTRACT
 To be enforceable in front of law contract
should satisfy the following requirements
 According to civil code of Ethiopia (Art. 1678)
No valid contract shall exist unless this
requirements:
Offer and acceptance
Competent parties
Consideration
Legality of the object
Formalities
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1. OFFER AND ACCEPTANCE
Offer
Is an indication that one party is willing to be
bound by specific terms set out in the
contract.
According to civil code of Ethiopia Art. 1681 ,
an offer or acceptance can be made:
 In writing
 Orally
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OFFER AND ACCEPTANCE
Acceptance
 Contract is complete when an offer by one party
is accepted without complaint by the party.
 An Acceptance is the key for the formation of a
contract which must be;
 Absolute ; accepting all the terms of the offer.
 An indication of consent; silent does not indicate
acceptance. (Art. 1682)
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CONT’D
2. Competent parties (legal capacity)
 Competent parties are those people who have the
legal and mental ability into binding contract.
 The following persons are incompetent to enter into
a contract.
 Minors (under the age of 18)
 Those considered mentally incompetent
 Mentally ill
 Under the influence of alcohol and other drugs
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3. Consideration
 Consideration involves a benefit moving from the offeree to
the offeror in exchange for the promise.
 It involves price for promise.
 There must be payment for the service performed
4. Object of contract
 The object of contract is the obligation to perform
something.
 The subject matter of contract must be :
 Defined
 Possible(art.1715)
 Lawful and
 Freely determined by the parties
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CONT,…
5. Formalities
 Usually, the form of contract is provided by the law.
 If no form is provided by law contracts can be in any
form the parties agreed with.(art. 1719)
 Otherwise contract agreement should be presented in
the form provided by the 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.
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3. PURPOSES OF A CONTRACT
The purposes of a contract are :
 To bind conditions between or among the parties
 To clearly show the Terms and Conditions of
contracts the parties agree with
 To clearly show the Rights and Obligations of
contracting parties
 To clearly show remedial measures in cases for non
– performances
In other ways the purpose of the contract is to
produce:
 A quality construction project
 On time construction project
 Construction project with in budget
 Safely executed project
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4. TYPES OF CONTRACT
As a general Contract can be of three types;
namely,
1. Unilateral or Optional or If Contract
2. Bilateral, and
3. Multilateral
I. Unilateral or Optional or If Contracts are
contracts which are recognized by law, where the
promise by one party is binding and if the
performance is carried out by the other party who is
not bound merely by embarking on the
performance required.
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UNILATERAL CONTRACTS….
 A one to all contract
Example :
X promises a reward to anyone who will find his lost wallet.
X bound himself to the promise, but no one is bound to search
for the lost wallet. But if Y, having seen the offer, recovers the
wallet and returns it, he is entitled to the reward.
1 Offeror Many
Offerees
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II. Bilateral Contracts are contracts entered to
promise for an obligation performed in the future
where both (two) parties are mutually bound.
A one to one contract
III. Multilateral Contracts are contracts entered to
promise for an obligation performed in the future
where all (three or more) parties are mutually
bound.
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Offeror
The person who
make the offer
Offeree
The person to whom
the contract was
made
Example : Sale of goods contract
• The Buyer promises to pay the price
• The Seller promises to deliver the goods

ASSIGNMENT 1
List different types of constriction contract and explain
each of them clearly.
Submission Date: Next Week
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5. DISCHARGE(TERMINATION) OF CONTRACT
 There are four ways in which a contract can be
discharged.
1. Performance
 In order to be fully discharged from a contract the
parties must have completed all the obligation set in
the terms of contract.
2. Agreement
 By mutual agreement
 The parties may mutually agree to release each other from
their contractual obligation and cancel the contract,
 By novation:
 The parties may substitute the existing contract with new
contract.
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3. Frustration
 Occurs when the contracts was executable at the time
of agreement but subsequent events, over which the
contracting parties have no control, makes it
impossible to fulfill the contract obligations.
 Example
Force majeure (war, earth quake, natural hazard )
4. Breach
 Occur when a parties fail to carryout its fundamental
contractual obligations under the contract.
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5.DISCHARGE(TERMINATION) OF CONTRACT…

17
Contract
Formulation
Contract
administration
Closing of
contract
Negation
Contract agreement
Contract document
Closing of accounts
Contract evaluation
Contract Implementation
Change management
Claim & dispute management

1. CONTRACT FORMULATION
Negotiation: is a process by which Project
Owners together with their professional
representatives’ deal with the recommended
winner of the tender on the requirements of
the tender.
Contract Agreement: when signed forms the
contract document which will be the bases for
Contract Administration.
Contract Document: are the basis on which
a construction contract is carried out. In case
there is a conflict between the order of
precedence of the documents may be set.
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4.2.1CONTRACT FORMULATION CONT…
A Construction Contract Document includes the
following by their order of precedence:
Signed and Sealed Form of Contract
Agreement
Letter of acceptance
Form of Tender with Appendix,
Particular Conditions of Contract
General Conditions of Contract,
Technical Specification
Drawings
Priced Bill of Quantities
Forms, Formats and Schedules.
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CONTRACT FORMULATION CONT…
A. Agreement
 is a short document signed by both parties
Form of Contract Agreement varies from contract to
contract but is generally composed of:
The date on which the agreement shall come into
force
The contracting parties and the delegated services
administrator, their addresses and being called upon
The THINGS to be procured in brief
The general provisions such as words, meanings and
expressions; order of precedence and Payment
Terms
The construed parts of the contract document, and
The Agreement Considerations, the Signing and
Sealing places
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21
Sample Form for Contract Agreement
Form of Agreement
This Agreement hereinafter called “the Contract” is made
on the ___ day of __ 20 __ between on the one part
__________ of ________ hereinafter called “the Employer”
and on the other part _______ hereinafter called ‘the
Contractor” / “the Consultant”.
Whereas the Employer is desirous that certain works /
services should be executed by the Contractor / Consultant,
viz. _________________ and has accepted the tender for
the execution / implementation and completion of such
works / services and the remedying of any defects therein.
Now this Agreement witnesses as follows:
1. In this Agreement words and expressions shall have the
same meanings as are respectively assigned to them in
the conditions of contract herein after referred to.
2. The following documents shall be deemed to form and
be read and construed as part of this Agreement, viz:
a. The Letter of Acceptance
b. The said Tender
c. The Conditions of Contract (I+II)
d. The Specifications
e. The Drawings, and
f. The Priced Bill of Quantities.
3. In Consideration of the payments to be made by the
Employer to the Contractor as hereinafter mentioned, the
Contractor hereby covenants with the Employer to execute and
complete the Works and Remedy any defects therein in
conformity in all respects with the provisions of the Contract.
4. The Employer hereby covenants to pay the Contractor
in consideration of the Contract Price of such other sum as
may become payable under the provisions of the Contract at
the times and in the manner prescribed by the Contract.
In Witness Whereof the parties hereto have caused this
Contract / Agreement to be signed in their respective places as
of the day, the month and the year first above written.
For and on behalf of the Employer
_________________ _______________
Signature Date
For and on behalf of the Contractor
__________________ _______________
Signature Date

B. Letter of acceptance:
This is a confirmation of acceptance by the
employer of the contractors offer.
The letter of acceptance contains:
Acceptance of contract price
Instructions;
To Submit the Contract Security
specified in the Contract by the date
stated.
To proceed with the execution of the
works
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A Letter of Acceptance must not be issued prior
to obtaining all required approvals, including
From the Tender Committee
From head of the Procuring Entity
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C. Form of Tender and its appendix
The appendix to tender mainly defines the following
Amount of performance bond
Minimum amount of insurance
Time for issuing notice to commence
Time for completion
Amount of liquidated damage
Limit of liquidated damage
Period of maintenance period
Percentage of adjustment of provisional sum
Percentage of retention
Minimum amount of interim certificates
Rate of interest up on unpaid sums
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D. Conditions of contract
Conditions of Contract is the administrative law applicable to
the contract which is legally enforcing the contracting parties.
(PPA Section 7 & section, 8)
It includes
General condition of contract:
Special condition of contract,
Generally, conditions of contract cover:
Definitions and interpretations of terms used in the
contract
Contract documents priorities, supply of drawings,
supplementary documents
Obligations, Rights and Remedial Rights
Services / Goods / Works, their Measurement and
Certifications
Alterations, Claims and Dispute Settlement
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THE GENERAL CONDITIONS
 GCC are usually prepared to set out
procedures of general application which can
be used for different types of projects without
any modifications.
 Define the responsibilities of the parties
 Spells out the procedures for administration
of the contract
 One of the most important tools to control
risk on a construction project
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THE CONTENTS OF GCC
 Lists and gives a brief description of the
documents that form the contract
 Document precedence incase of discrepancy
 Duties and responsibilities of the owner and
the contractor
 About award of work to a subcontractor
 The time, cost, quality Control for the work
 The mode and frequency of payment
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About bonds and insurances
Definition of change of work and the
steps to be followed incase of change
orders
The system for dispute resolution
miscellaneous provisions such as
 the governing laws
 requirements for inspections and tests
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THE CONTENTS OF GCC…

THE SPECIAL CONDITIONS OF CONTRACT (SCC)
Are used to supplement, modify, or expand the
General Conditions
Are modified as a standard contract to a specific
project.
Clauses in both conditions of contract shall be
the same.
Contents of SCC
Number of copies of contract documents
Survey information to be provided by the
owner
Materials provided by the owner
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CONTENTS OF SCC …
 Changes in insurance requirements
 Site visits
 Start date of the construction
 Procedure for submittal and processing
 Cost and scheduling reporting requirements
 Responsibilities for testing of materials
 Actions to be taken
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E. Specifications
Specification defines the quality expected to
each trade of items.
Specifications are statements describing
the nature and class of work,
materials to be used,
labor to be employed and methods of work,
equipment and tools to be used,
quality of works and workmanships and
submittals and sampling for tests and approvals.
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Specifications govern when it does not fit with
drawings and it serves the following purposes:
Guide bidders to arrive fair tender prices
during procurement
Be bases for execution and supervision Of
works and delivery of goods during
implementation
Help in purchasing of materials, hiring of
workmen and provisions of equipment, and
Help in accepting the different items of
services and works and delivery of goods.
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F. Drawings
Drawings have the following functions:
Drawings form a model of designers idea
Drawings have the following functions:
It is a means to convey intentions of
designers to contractors.
Drawings form a record of what has been
done i.e. as built drawings
G. Bill of quantities
Bill of quantities are list of items defining briefly
the works to be done and quantities of the work
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CONT…
H. Forms, Formats, Schedules…
The following Forms, Formats, Schedules and
Breakdown Structures are used in
Construction Contracts and are tabulated
bellow:
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Forms Formats
Form of Contract Agreement Handing Over Site Formats
Form of Tender Change Order Format
Form of Bid Security Progress Reporting Formats
Form of Performance Security Payment Certificate Format
Form of Adv. Payment Guarantee Price Indices Format
Form of Maintenance Security Comp. Certificate Formats

CONT…
Schedules Breakdown Structures
Work Schedule Organization BS
Material Schedule Work BS
Equipment Schedule Material BS
Labor Schedule Equipment BS
Cash flow Schedule Labor BS
Payment Schedule Cost BS
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2. CONTRACT ADMINISTRATION
It ensures the successful completion of the project
under consideration with substantial compliance
of the Terms of the Contract.
As a result, the following activities or tasks are
included in Contract Administration services:
Identifying contractual responsibilities of
Stakeholders.
Reviewing the Terms of Contract
Documents
Extract Monitoring Responsibilities
Preparing Monitoring Responsibility
Summary Sheets
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4.2.2 CONTRACT ADMINISTRATION CONT,…..
 Determining and understanding the construction
components of the project.
 Reviewing the Contract Drawings and Technical
Specifications
 Extract the Construction Methods and
Sequences
 Prepare Construction Methods and Over all
Sequences Sheets
 Review submitted (Integrated) Schedules and
Breakdowns for operations such as:
 Organizational Breakdowns,
 Resources Breakdowns &
 Time Schedules.
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4.2.2 CONTRACT ADMINISTRATION CONT,…
Record, Monitor and Evaluate Progress of
Mobilizations, Works and Completions.
Report Project Status daily and / or periodically and
Completions.
Certify qualities of materials, samples, workmanships
and works.
Measure Works, Record Site Potentials and Certify
Payments and Completions
 Take off sheet and Bending Schedules are used for
Measurement of Works
 Site Potentials such as material, equipment and
Manpower on site together with appropriate site
organization is recorded
 Advance, Interim and Final Payments are certified
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2 CONTRACT ADMINISTRATION CONT,…
 Administer contract changes.
 Issue Change Orders including Clarifications
 Evaluate and Certify Additions and Omissions
 Evaluate and Certify Remedial Rights
 Evaluate and Certify Claims
 Prepare Contract Changes Status Sheet
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2 CONTRACT ADMINISTRATION CONT,…
 Mediate Disputes
Such services are carried out:
 To ensure projects are completed successfully and
 To Follow up and Evaluate Project Cost, Time and
Quality.
 To Ensure Health, Safety and Environmental
Requirements.
 To Ensure Project fitness for its purpose or intended
objective.
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3. CLOSING OF CONTRACT
 Closing of Contract looks into issues related to:
 Maintenance Period and Remedial works,
 Dealing with Left Over Claims and Disputes, if any,
 Closing of Accounts and
 Completion Certificates.
Maintenance Period and Remedial Works:
 Construction works are subjected to Maintenance Periods
(Usually One Year) in order to reveal quality problems
overseen by supervisors.
 The focus on damages seen on the construction
components which are solely under the responsibility of
the contractor.
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3. CLOSING OF CONTRACT CONT,...
 Left Over Claims and Disputes:
 If claims and disputes are not settled before provisional
certificate of completion, they can be dealt during this
phase.
 Closing of Accounts:
 Final Accounts together with the release of remaining
retention moneys and performance securities are carried
out in accordance with the current situation at the time of
closing and
 Final Payment Certificate is issued.
 Completion Certificates:
 Completion certificate is a certificate that concludes the
contractual agreement and will not be considered binding
there after unless otherwise it is proved illegal.
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END!!!
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THANK YOU !!!

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