Answer for the model exam

1) Construction Claims (5%)

a) Please, define the concept of claims in construction & discuss, at least, five major causes for
construction claims; (2.5%)
Answer
In the context of construction industry, claims means, assertion of and a substantive demand for
compensation by way of evidence produced and arguments advanced by a party in support of its
case. It is a substantive demand by the contractor to the employer for extension of time or for an
extra payment of an item of work carried out by him on behalf of the employer for which a
readily identifiable amount cannot be ascertained under the term of contract and the employer
may have its own substantive demand against the contractor, this is called counterclaim. It is an
independent demand originated from the same contractual relationship
Cause of Construction Claim

 Breach of contract
The employer may for some reasons beach the contract. This may be due to poor work or failure
to perform, bankruptcy of the contractor etc .if the contractor can prove that the termination
benefited the employer, then he may claim profit on work completed and cost of demobilization.
On the other hand, the contractor may for some reason breach the contract. This may be due to
late payment, bankruptcy of the employer, late issue of drawings, late possession of site, change
of their idea etc.
 Poor or unclear tender and/or contract documents;
After the contract was awarded to the contractor due to lack of clarity on the tender document,
for instance, missed quantity for some item of work, fixed foreign currency in the contract
document, lack specifying holidays etc may cause claim.
 Poor or inadequate administration of responsibilities by stakeholders
When parties in the construction industries practice poor administration or not responsible for
their tasks according to the contract document, claim may be raised by one stakeholder against
the other. For instance late issue of payment, unable to approve working drawing on time etc.
 may cause claim by the contractor against the employer. On the other hand, poor coordination of
resource, poor performance of work may cause claim by the employer against the contractor.
 Delay and disruption
There are claims raised due to late issue of the drawing, changes of design, late possession of site
etc that disrupt and/or delay the project.
 Unforeseen or uncertain situations during execution of the Construction Project
When situation that are not reasonably foreseeable by an experienced contractor by the Base
Date occurred in the construction site, it cause claim by the contractor against the employer.
b) Please, discuss, in terms of similarities & differences, the procedures for the contractor’s
claims & the Employer’s claims under the MDB FIDIC (2006) Conditions of contract, if any;
Please, read Clause 20.1 & Clause 2.5 respectively, of the said Conditions of Contract;
(2.5%).
No Similarities Difference
MDB FIDIC clause 2.5 MDB FIDIC clause 20.1 MDB FIDIC clause 2.5 MDB FIDIC clause 20.1
(Employer’s Claim (Contractor’s Claim) (Employer’s Claim (Contractor’s Claim)
 Claim Notification,  Claim Notification, Claim Preparation Claim Preparation
 The Employer or  The notice shall be
 The employer should  The contractor should
the Engineer shall given as soon as
submit his detail submit his detail claim
give notice and practicable, and not
claim within 28 within 42 days.
particulars to the later than 28 days
days.  The contractor should
Contractors within after the Contractor
 The employer is not notify all claims he
28 days not became aware, or
obliged to notify has.
including the should have
claim on payments  The contractor is not
payments(Electrici become aware, of
of (Electricity, water entitled to include the
ty, water and gas) the event or
and Gas) amount of claim he
circumstance.
 The employer may has.
include his amount
of claim as a
deduction in the
Contract Price and
Payment
Certificates.

2) Construction Disputes (5%)

Definition of Dispute
In the context of construction industry, dispute is disagreement between the parties over a claim
in the industries. It comes into being when the claim is not admitted and the claimant does not
accept its rejection. A claim has to be made before a dispute can arise.

Cause of Dispute

Some of the following are cause of dispute

 Ineffective contract management

Good contract management is a prerequisite for minimizing the occurrence and the severity of
disputes. It should ensure the early identification of potential disputes so that contemporary
records are kept to facilitate their resolution based on fact rather than recollection.

 When parties enter into not finalized contract before work commences
 Unable to define quality constraints and scope of work prior to tender;
 Unclear condition of contracts
 Dispute resolution Mechanism

There are several methods of resolving disputes in the construction industry. Dispute resolution
may have the following aspects/ dimensions, namely,

 Preventive dimension;
 Amicable settlement dimension; and
 Judgmental dimension;
These are discussed as follows:
Preventive
In the construction industry, there are expert neutrals who may be advisors jointly employed at
the beginning of the relationship of the contracting parties for the purpose of preventing disputes
rather than allowing issues to grow until they become real disputes. These include collaborating,
a unique concept in dispute resolution, that is proactive and which may prevent disputes. It
attempts to deal with problems before they arise, by establishing good working relationships
amongst all the parties.
Partnering

Partnering is a process which aims to create a good principal-contractor relationship from the
outset. It can lay the foundation for better and more productive working relationships on the
project, by establishing an atmosphere of trust and frankness in communications. A central
objective is to encourage contracting parties to change from their traditional adversarial
relationships to a more co-operative team-based approach and to prevent disputes.

Partnering has been described as a "covenant of good faith". It is morally persuasive, but is not
intended to alter in any way the duties which otherwise exist or are defined by the contracts
between the parties. If the covenant fails, the fallback is to their legal responsibilities and
relationships defined in law and in the contracts.
Dispute Review Boards
A Disputes Review Board (DRB) involves a panel of expert neutral persons being set up at the
outset and therefore being available throughout to provide an independent assessment of the
possible causes of disputes. A DRB usually consists of three members, selected by both the
contractor and the owner soon after the award of the contract. With smaller contracts, the panel
might be a single person, which may be regarded as equivalent to appointing an expert
conciliator or mediator for the duration of the contract.
Facilitator
Facilitation is a process whereby an independent outsider becomes involved in a problem by
giving assistance to the parties in dispute through a process of decision-making without making
any binding decisions for the parties. The wide range of matters that a facilitator may contribute
includes information-gathering, fact-finding, holding meetings, establishing voting criteria and
private consultations. Facilitators are experts in communication, negotiation and mediation skills
Non-Judgmental (Amicable)
The non-judgmental methods bring the disputants to a round table and mutually resolve their
dispute, and such methods are through negotiation, mediation, conciliation, mini-trial, etc.
Negotiation
Direct negotiation is a common dispute resolution process in which parties themselves, or their
representatives, try to resolve the dispute without involving any neutral third party. It is a
voluntary and an unstructured process agreed by both parties, privately and confidentially.
Mediation
Mediation is a mechanism in which a neutral third party meets with the disputants and facilitates
negotiation to help the parties come to their own solution. It is a voluntary but structured with
ground rules agreed upon by the parties.
Conciliation
Conciliation is a process similar to mediation except that the conciliator can express an opinion
on the merits of the case and is required to recommend a solution if the parties fail to agree. The
power of the conciliators is conferred by status.
Mini-trial
Another process involving neutral third party in a dispute is the mini-trial, which brings together
senior decision makers from each disputant to hear presentations by junior representatives or
their respective legal representatives and help them to negotiate on resolution at private. This is
mainly used in big projects where the senior decision makers may not be aware of the real
situation and the subordinates may not be aware of the needs and priorities of the parties.
Judgmental

Adjudication

Arbitration is a process where a third party who is independent of parties, but may be selected by
them, makes an award determining the dispute. The Award is binding and can be enforced by
courts. Adjudication can be defined as a process whereby an appointed neutral & impartial party
is entrusted to take the initiative in ascertaining the facts & the law relating to a dispute & to
reach a decision within a short period of time.
Litigation

Litigation (used when all other venues failed) is a dispute resolution method that is inquisitorial
and adversarial, where by the disputant initiate’s legal action against the other party by going to
court. It is costly and results into much delay for the disputants and may not do justice to the
parties. However, the benefit of litigation is that the court has authority to find out the “truth”
from the parties and the enforcement of the order or judgment is supported by other law
enforcement agencies. It is also used when parties have low resources and need an umpire or
when they cannot agree to other forms of dispute resolution.
Arbitration
Arbitration is a process whereby parties in dispute agree to submit the matter in dispute to the
decision of a person or persons in whom they have confidence & trust & undertake to abide by
that decision.

 What are the fundamental similarities & differences, if any, between adjudication &
arbitration? Please, read the relevant clauses of PPA & MDB FIDIC Conditions of
Contract; (2.5%)

Similarity
Adjudication Arbitration
 Decision is given by third party  Decision is given by third party which is
which is neutral neutral
 Decisions are binding and final if  Decision are legally binding and but not
neither parties refer to the arbitration. final when the arbitrator shows
 It is a dispute resolution mechanism. misconduct and rules of evidence used in
 The adjudication shall conduct with arbitration depend on the prior agreement
language for communications defined between the parties are not kept.
in the contract.  It is a dispute resolution mechanism.
 the arbitration shall be conducted in the
language for communications defined in
Sub-Clause FIDIC 1.4 [Law and
Language] [FIDIC clause 20.6]
Difference
 The decision of a third party neutral,  Arbitration is a process where a third party
named in the contract, is binding who is independent of parties, but may be
upon the parties with respect to any selected by them, makes an award
matter in dispute until the contract is determining the dispute. The Award is
complete. At that time the parties binding and can be enforced by courts.
may challenge the decision through
arbitration or litigation.
 Mostly give decision on many claims, as a
 Mostly give decision on single claim result they requires long time for making
as a result they took less time to give decision.
decision.  The arbitrator does not know the site but
rely on the document to give decision.
 The adjudicator knows the site well  The arbitration shall be conducted in
and follow the progress of the work accordance with the arbitration procedure
published by the institution named and in
 The adjudication shall be conducted the place shown in the Special Conditions
in the country where the project is of Contract (Clause PPA 25.3).
conducted.
 No time bound for giving decision, the
  The Adjudicator shall give a decision time depend on the case of the dispute.
in writing within 28 days of receipt of
a notification of a dispute (PPA 25.1)

2) Payment (5%)

 Please, discuss the importance of payment provisions in the construction contract from the
perspective of the Contractor; (1.50%)
The following are importance of Provision of Payment for contractor

 It secures the right of the contractor to have payment for the work he has made and
completed as per the contract.
 It control the cash flow of the contractor
 Help the contractor to perform his day to day task without problem
 Purchase necessary resource for the construction of the project pay wages or salaries of
his worker without problem.

 Please, identify & discuss, at least, two major differences between interim/progress payment
& final payment; (1.75%)
Difference
No Interim/progress payment Final payment
 It is a payment made to the  It is a payment made at the completion of
contractor after completing a project.
some amount of work as per the  Once the final payment is made the
agreement on weekly or engineer has no power to amend any
monthly interval. mistakes.
 If mistakes or correction are  Mistakes/disputes are solved through
made it can be corrected in the arbitration process if the following are
next interim payment. happened to the final payment.
 The contractor can request  Fraud
interim payment as per SCC of  Claim raised before the issue of
the contract document with no the final payment (this is
time limit. possible until defect liability
period only).
 The contractor should submit his final
payment certificate after 56 days of
receiving the performance certificate.
 Please, discuss four major legal & contractual effects of the final payment; (1.75%)
Some of the legal and contractual effects of final payment are:
 Once final payment is done the engineer has no power to incorporate any mistakes or
correction of contractor’s claim even if their claim is accepted.
 Only the arbitration or the court can amend the final payment when
 Frauds exit in the final payment.
 Unjust ices enrichment
 the contractor raised claim before the approval of the final payment
 It shows the completion of the project
 It is the event where obligation of parties end
4) Sub-contracting (5%)
 The Sub-contractor which has been selected & appointed by the Contractor, indeed with the
approval of the Employer, has gone bankrupt. The Main Contractor has been delayed in the
completion of the project. The Employer has deducted liquidated damages from thePayment
due to the Contractor. The Contractor has argued that for the bankruptcy of the Sub-
contractor the Main Contractor is not responsible. Why the Contractor is or is not responsible
for the delay caused by the selected Sub-contractor? (2.5%)

According to Art.3206 (3) of Civil Code the contractor is not responsible for the delay cause by
the sub contactors this is due to the approval of the sub-contractor by the administrative
authorities (employer) shall however imply the exoneration of the contractant (contractor) from
the penalties for delay, where such delay is attributable to the sub-contractor.
The enforcement of liquidated damages clause against the Sub-contractor by the Main
Contractor might be challenged in case of Administrative Contracts (Public Works) on the
ground of Article 3206 (3) of the Civil Code-Sub-contract.

 Would your opinion be different if the Sub-contractor were a nominated one? If yes, why &
if not, why not? (2.5%)
5) Project Delivery Systems (5%)
 Please, discuss the concept of project delivery system by providing illustration to that effect;
(2.5%)
Contract or Project Delivery System is the way Project Owners together with Project Regulators
and Financiers determine the assignment of responsibilities to Project Stakeholders along the
Construction Process.

In the project delivery system the question of who does what is answered,

For instance if it is DBB

Client: Initiate the project, secure way of financing the project

Consultant: Prepare the tender document, design the project etc

Contractor: Construct the project, prepare work program etc

If it is DB

Client:

Consultant:

Contractor: The design and construction of the project is its responsibility

Construction Management

Managing the construction for instance when the owner is illiterate.

BOT

It is often determined during the Basic Planning phase of the Construction Project.

 Please, thoroughly discuss the advantages & disadvantages of force account project delivery
system vis-à-vis the contract method project delivery system? (2.5%)
Advantage and disadvantage of Force account vis-à-vis the contract method project delivery
system

No Advantage Disadvantage
1  Mistakes are minimized in the  Susceptible for making mistake as it
execution of the document. is performed by one party.
  The construction of the project is  The construction period is limited
faster. kept as there no completion.
 W hen the all contractors give  Quality is not that much
more price than expected.  High work load.
 If a project exit in difficult area
for instance area with war, disease
for normal contractors

III. Case Study Exam. Questions (20%)

The Road Project

 What are the disputes, if any, between the employer & the contractor? Explain. (5%)1)
The disagreement between the contractor and the employer are due to:
 As to taking responsibility for the cost of reconstruction of the two collapsed bridges
including the required additional time.
 Liquidated damages up to 10% to be paid by the contractor.
 Even if Th
 What type of evidence you need to establish whether or not the collapse of the two bridges
were caused either by design or otherwise? Why? Discuss. (5%)
The following are the evidence we need to establish:
 Documentary evidence
 Expert opinion
 Project site visit
 Factual wittiness
 Contract document of the project
 The technical specification
 The detail design drawings
 Photographs of the collapsed bridge
 All laboratories data concerning the construction of the bridge
 As-built drawing
 Shop drawing
 Design report of the bridge
 The hydrological data of the river used in the calculation of the bridge (if any).
We need to establish the above data because to examine the design status of the bridge and to
check the design of the bridge with the intended purpose
 Work methodology adopted
 Laboratory data concerning the material used in the construction
 Any approval give to the materials used in the construction of the two bridges
 Time of construction
 Site book and site diary if recorded
 Approval of site requisition of each sequence of work.
We need to establish the above data because to examine the construction of the bridge.
 What would be your professional opinion whether or not the contract time being calendar
days or working days? Does it have any legal or contractual effect if the contract time were
either calendar days or working days? Why? Discuss & support your position by doing some
calculations. (5%)
My professional opinion is it is better to make agreement with Calder days for better
management than working days. Yes
Contractual effect
Liquidated damage
Legal effect
Effect of contract and or legal effect 1731
 Assuming that the collapse of the two bridges were caused due to poor design, is there any
liability of the engineer towards the employer (i.e. the Client) under their agreement? If yes,
why? If not, why not? Assume that their agreement was based on the PPA Consultancy
Services Agreement ICB 2006. (2.5%)

PPA 17.1
Yes, because the liability of the consultant shall be seen in light of the:

 Type of professional services they contractually undertake to provide;

 The specific contractual arrangement made between the client & the consultant; and.
 The interpretation of the applicable law;
 Assuming that the collapse of the two bridges were caused due to poor workmanship, is there
any liability of the engineer towards the employer (i.e. the Client) under their agreement due
 to lack of supervision? If yes, why? If not, why not? Assume that their agreement was based
on the PPA Consultancy Services Agreement ICB 2006. (2.5%)

PPA 17.1

3) The Water Supply Project

 What are the disputes, if any, between the employer & the contractor? Explain. (5%)
The following are the dispute between the employer and the contractor
 Liquidated damage ( Sectional or total of the project)
 Method of calculation for the reduction of the plant capacity from the agreed contract.
 Loss of water sale as it is not described in the contract document.
 What are the essential points that you should consider regarding the claims of the employer
pertaining to liquidated damages? (2.5%)
The essential points are:
 The sectional completion date up on which they agreed. MDB-FIDIC clause 8.2 in
relation with clause 8.7
 The agreed liquidated damage on the daily payment of liquidated damage for the
section.
 The duration of delay of the section.
 Notice of the claim by the employer should be submitted to contractor within 28 days
according to MDB- FIDIC clause 2.5.
 The important clause on which the claim is based.
 What is your professional opinion on & justifications for the validity of the contractor.’
argument in relation to the maximum extent of the liquidated damages? (2.5%)
My professional opinion is according to MDB-FIDIC clause 8.7 (delay Damage) and clause 8.2
the contractor is liable for delay to pay a liquidated damage for the employer. In parallel with this
in this case study as per the agreement of the employer and the contractor the contractor is only
liable for the section that he delayed. Therefore, the contractor is liable only for the plant work
which is delayed for 300 days to pay maximum liquidated damages.
 What are the essential points that you should consider regarding the claims pertaining to
reduction of the contract price? Please, refer to Clause 9.4 (Failure to Pass Tests on
Completion) of the MDB Conditions of Contract. (2.5%)

The essential points that we should considered are:

 Contractor’s obligation under the contract
 Can the employer reduce the contract price.
 The reduction value of the contract price shall be appropriate to cover the reduced
value to the Employer as a result of this failure.
 Weather the Method of calculation in the contract data is indicated or not
 What would be the extent of the reduction of the contract price in your professional approach
& method? Why? Please, refer to Clause 9.4 (Failure to Pass Tests on Completion) of the
MDB Conditions of Contract.
In my professional approach and method the reduction of the contract price should be done in
two cases:
Case 1 If the method of calculation for reduction of price is indicated in the contract document
the contract price should be reduce
 For reductions in capacity of the plant
 Cost of planning designing, construction and supervision of 100,000CM/d. or cost for
remedying the defect occurred in the plant
Case 2 If the method of calculation is not indicated on the contract document the contractor and
the employer require the reduction of the price to be agreed by both Parties (in full satisfaction
of this failure only) and paid before this Taking-Over Certificate is issued, according to MDB –
FIDIC clause 9.4.
 Is the contractor correct in denying any liability pertaining to loss of water sales? If yes,
why? If not, why not? (5%)
Yes, because according to MDB-FIDIC clause 17.6 “Neither Party shall be liable to the other
Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or
consequential loss or damage which may be suffered by the other Party in connection with the
Contract, other than as specifically provided in Sub-Clause 8.7 [ Delay Damages ]; Sub-Clause
11.2 [ Cost of Remedying Defects ]; Sub-Clause 15.4 [ Payment after Termination ]; Sub-Clause
16.4 [ Payment on Termination ]; Sub-Clause 17.1 [ Indemnities]; Sub-Clause 17.4 (b)
[consequences of Employer’s Risks ] and Sub-Clause 17.5 [ Intellectual and Industrial Property
Rights ]”. Therefore, loss of water sale is consequential loss of use of the plant and the contractor
is correct in denying the liability towards this situation.

Exam at March 14, 2011

Case related examination Question
Give

Employe Osiss

Contractor Deseret construction PLc

Consultant Valley consulting Firm

Contract priec 500M =Birr

Completion time 1000 calnder days

Comencemet days delayed 40 days (due to lack of site hand over)

There is time to time varied work

Lack of productivity of the contract delays the project with 30 days

The total delay of the project 170 days

Contractor request

Extension of time (EOT) for delay 40 days for variation 100 days plus prolongation cost for the
delay 3MbBirr

Cost of variation 7Million

The engineer totally rejects the claim of the contractor for EOT and recovery of cost

Employer requested the deduction of LD for the said delay up to 10% of the contract price .The
engineer accept the employer request and deduct from the payment due to the contract

No, the engineer should accept the contactors claim in terms of

EOT
The extension of time by the variation of work and failure to provide access to the site less delay
due to poor performance of the contractor should be accepted by the engineer i.e

EOT = 100+40-30 =110

Cost Recovery

The engineer should approve the 7Million Birr cost due to the variation; however, the
prolongation cost that should be paid to the contractor is only for 10 days which amounts to

=10/40*3Million=750,000 Birr.

B) No, because there was no delay damage, to illustrate this

Total delay of the project is 170 days

Delay due to the employer was 40 days plus 100 days due to repeated order od varied works
which sum up to 140 days

Delay due to poor performance of the contractor id 30 days

Setting of f all this we have

=170-140-40= -10

This means that the contractor is not liable for the liquidated damages rather he is entitled for
additional money like bonus.

C) No, because the contractor was not performing as per the program or he has poor performance

D) Yes, the contractor should look in to the EOT of 100 days weather it is reasonable time or not

Claims and Disputes (10%)

The significance of claim to the contractor is to obtain EOT, and/or cost

For the claim to be successful, it has to fulfill certain valid requirements.

These requirements are related to:

Substantive requirements;

Procedural requirements; and

Proof requirements;

The following are the process for claim:

 The claims process generally classified in to the following three phases: (Dr. Wubishet)
  Claim Submittal;
 Claim Processing;
 Claim Enforcement;
Claim management

Under MBD-FIDIC

 Intent to claim within 28 days after tehe occurrence of the event

 Within 42 days after the contractor is aware or should have been aware detail claim
should be submitted to the engineer
 Within 42 days after receiving the claim from the contractor the engineer should respond
with approval with disapproved and detail comments.
 Determination of the claim by the Engineer

 If the Engineer does not respond within the timeframe defined in clause 20.1, either Party
may consider that the claim is rejected by the Engineer and any of the Parties may refer
to the Dispute Board in accordance with Sub-Clause 20.4 [Obtaining Dispute Board’s
Decision].
Under PPA

Rtrtrttrtr

B) The pre conditions for the existence of the construction dispute are:

 Contractual agreement
 Initiation of dispute
 Claim

Resolution Mechanism

Under MDB - FIDIC

 Engineer determination
 Amicable settlement
 BB
 Arbitration
 Litigation

2)DONE

3) Macro economic factor such as currency, inflation , transportation cost , fluctuation of in

price of rm
Unstrable cost of material

High cost of machinery

High intrest rate

Lone recived by the contractor

High const of skilled labour and maitenace of machineries

World commodity price for basic material

Current state of the local economy

The quality of material and work man ship required

Supply demand of the material

B) price escalation