8/21/2022

2
CONTENTS

3. Contract Management

BAHIR DAR UNIVERSITY 3.1.Contract Formulation

BAHIRDAR INSTITUTE OF TECHENOLOGY
3.2.Contract Administration
FACULITY OF CIVIL AND WATER RESOURCE ENGINEERING

Contract Administration, Specification and Quantity Survey 3.2. 1.Contract Change Management
(Ceng3162)
3.2.2.Claim Management
Chapter - 3
Contract Administration and Claim 3.2.3.Dispute Resolution Method

Nehassie 2014 E.C

3.3.Contract Closing

Contract Management cont..

3. Contract Management
3 4

 Contract Management is the management of Processes,

Stakeholders and their Performances along the Planning,
Implementation and Monitoring + Evaluation of the Cycle of the
functions of Management.

 Contract Management is all activity that occurs in the

contracting Process.

 Contract Management process can be idealized into three major

processes. These include Contract Formulation, Contract
Administration, and Closing of Contract Processes.
Figure 1: Contract Management Process

1
 8/21/2022

Contract Formulation cont..

3.1. Contract Formulation
5 6

 Contract Formulation: involves two sub processes, namely;

Negotiation and Signing of Contract Agreement.

 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
exclusively which will become the bases for contractual
agreements.

 Contract Agreement when the parties signed on the contract

document forms which will be the bases for Contract
Administration.

Contract Administration cont..

3.2. Contract Administration
7 8
 Contract Administration is a process that ensures the successful  In contract administration, the focus is on obtaining supplies and
completion of the project under consideration with substantial services, of requisite quality, on time, and within budget.
compliance of the Terms of the Contract.
 The following activities or tasks are included in Contract
 Contract Administration involves those activities performed by Administration services:
professionals after a contract has been awarded to determine
how well the parties performed to meet the requirements of the  Identifying contractual responsibilities of Stakeholders.
contract.
 Reviewing the Terms of Contract Documents
 It encompasses all dealings b/n the parties from the time the
contract is awarded until the work has been completed and  Extract Monitoring Responsibilities
accepted or the contract terminated, payment has been made,
& disputes have been resolved.  Preparing Monitoring Responsibility Summary Sheets

2
 8/21/2022

Contract Administration cont.. Contract Administration cont..

9 10
 Determining and understanding the construction components  Record, Monitor and Evaluate the Progress of Mobilizations,
of the project. Works and Completions.

 Reviewing the Contract Drawings and Technical Specifications.  Report project status daily and / or periodically and completions.

 Extract the Construction Methods and Sequences.  Certify qualities of materials, shop drawings (set of drawigs),
samples, workmanships and works.
 Prepare Construction Methods and Over all Sequences Sheets.
 Measure Works, Record Site Potentials and Certify Payments and
Completions.
 Review submitted (Integrated) schedules and breakdowns for
operations such as Organizational Breakdowns, Resources  Administer contract changes.
Breakdowns &Time Schedules.
 Mediate Disputes.

Contract change management cont..

3.2.1. Contract Changes Management
11 12
Change management is an important part of construction  Changes are issues requiring alterations during the
implementation of Procurement and Contract Management.
 The two most important issues considered in contract change
management are Uncertainties and Changes. What is variation (change)?
 Uncertainties are issues that can either be difficult to
reasonably predict or unknown during the planning phase of Let us see the following cases:
Procurement and Contract Management.
Case1: Suppose you want to construct G+4 hotel building and work is on
progress. But you decided to make some shops in place of fence in one
 Uncertainties are multi-dimensional. They can be Information of the sides of the hotel.
related, and / or Time based, and / or Ambition related; etc.
Besides, they deal with complexity, risk, opportunity, ambiguity Case 2: Suppose the foundation of the building changed from isolated
and chaos associated with the project under consideration. footing to mat foundation.

3
 8/21/2022

Contract change management cont.. Contract change management cont..

13 Variation/Changes 14
Refer Civil code (Art 3031-3034).
Modification of scope of work as anticipated in the contract
Similar character to the existing scope of work Variation/change is addition, alteration, and omission.

Contractor legally obligated to perform  Directed by the Owner and authorized in the contract
documents.
Changes/Extras

 Independent of construction contract  Additional/Extra is additional work directed by the Owner but
not within the original scope of work.
 Different character -not anticipated by contractor
 May disrupt a Contractor’s plan for the work.
 Contractor not legally obligated to perform but can perform if it
chooses.  Requires close attention to prevent disputes.

Contract change management cont.. Contract change management cont..

15 16
There are three types of variations Examples of constructive variations
Formal/Directed Variations:
 Defective plans and specifications
Directed by an owner using authorization written in the contract  Engineer’s interpretation
documents.
 Improper inspection and rejection
Constructive Variations:
 Change in the method of performance
Is directing a modification to the contract caused by an actor
failure to act.
 Change in the construction sequence
Must be claimed in writing by the contract or within the time
specified in the contract documents in order to be considered

4
 8/21/2022

Contract change management cont.. Contract change management cont..

17 18 Variation Order includes the following elements

Cardinal Variations:
 Identification of change order
Cardinal changes are those that propose major alterations  Description of change
outside the original scope of work; (more than 20%).
 Reason for change
Often require that the entire contract be renegotiated
 Change in unit prices (if applicable)
 Change in contract price
 Change to contract time
 Statement that secondary impacts are included
 Approvals by owner’s and/or engineer

Contract change management cont.. Contract change management cont..

19 20
Causes of change/variation B. Contractor related change
A. Owner related change
 Unavailability of equipment
 Change of plans or scope by the owner.
 Differing site condition
 Change of schedule
 Defective workmanship
 Owners financial problem
 Unfamiliarity with local condition
 Replacement of materials
 Contractors lack of required data
 Change in specification by the owner

5
 8/21/2022

Contract change management cont.. Contract change management cont..

21 22
C. Design consultant related change D. Other change

 Change in design by consultant  Weather condition

 Errors and omissions in design  Safety consideration
 Conflicts between contract document
 Change in government regulation
 Inadequate working drawing detail
 Change in economic condition
 Non compliance design with government regulation
 Unforeseen problem
 Change in specification by consultant.

Contract change management cont.. Contract change management cont..

23 24 Time Delays and Overruns

Effect of Variation/Changes
 Time delays can occur in components of a project or trades of works,
 Time delay, but when their cumulative effect makes the actual completion time
beyond the contract completion time, it is called time overrun.
 Cost overrun,
 Contractors in some instances accelerate projects in order to avoid
 Claim and liquidated damages. In this case, though part of the project did delay; it
is compensated which makes the delay irrelevant. However,
 dispute contractors will lose some profit if they depend on accelerating
options most often.

6
 8/21/2022

Contract change management cont.. Contract change management cont..

25 26
Types of Excusable Delay
Generally , Time delays can be classified into the following categories

Delay  Unusually Severe Weather

 Changes and Extra Work

Excusable Non- excusable  Differing Site Conditions
(EOT granted) (Neither EOT nor
additional pay)  Delays from unforeseeable causes beyond control of
Contractor
Compensable Non-compensable
(Additional pay) (No additional pay)  Labor Disputes

Contract change management cont.. Contract change management cont..

27 Excusable delay may be evaluated from stand point of 28

 In Evaluating delay claims, five aspects must be taken into
Not Foreseeable account:

Beyond the Control  The effective duration of delay

Without fault or negligence
 The effect of delay on work intended to be done
Excusable Delay –Time Consideration
 The costs attributable to the delay
 May entitle Contactor to an extension of time
 The nature of costs / expenses
Contractor not charged Liquidated Damages or
terminated if the Delay is Excusable –Time should  The resources and acceleration / accelerating measures
be forthcoming.

7
 8/21/2022

Contract change management cont.. Contract change management cont..

29 Typical project owner delay claim components: 30

 The components of a contractors delay claim include:
 When the contractor delays the project, the owner can recover
one of two types of damages: liquidated damages or actual  Indirect costs that occurred during the extended performance
damages. period,
 Home office overhead that was incurred during the extended
 Liquidated damages are typically used when a determination of
performance period,
actual damages would be difficult if not impossible to ascertain.

 The amount of and application of liquidated damages are  Increased (material escalation) material direct costs that
normally set forth in the contract. (1/1000 of project cost per occur during the delay.
each days of delay) (0.1 %).
 Lost productivity caused by the delay and;
 When there is no liquidated damage provision in the contract
 Other damages directly related to and attributable to the delay.
the owner will be able to collect its actual damages.

Claim management cont.. 32

3.2.2. Claims Management
31  Effective claim management requires relevant documents that must
 Claim is a willful act by the claimant when she/he believes that be registered and filed so that they can be referred to easily when
there is no other way than claiming to compensate for the loss s/he necessary.
suffered during relationships,
 It includes
 All of such willful act of the claimant should base on her/his right,
entitlement and privilege that can legally be supported,  Documentation of contemporary records

 Classification of claims
 If the Claim does not resolved by the parties it goes to Dispute.
 Generation and avoidance of claims
 Claim management does address the way in which claims should be
administered.  Proper presentation and assessment of claims

 Comprehensive response to claim

8
 8/21/2022

Claim management cont.. Claim management cont..

34
33 Classification of Claims (Bases for Claim (causes))
 Proper Claims Management Avoids:
 By determining their relevant legal bases, construction claims
can be divided into the following categories
 Unnecessary time extension for the employer
1. Contractual Claims: Contractual claims are the claims that fall
 Unnecessary liquidated damages for the contractor within the specific clauses of the contract. (Art 1675- 2026)

 Contractual claim is
 Additional expense for both parties
 Event and remedy specified in Contract
 ‘Cat and Mouse’ relationship between contracting parties
 Breach of contract for which the remedy is specified in the
Contract (Art 1771 of civil code)

Claim management cont.. Claim management cont..

36
35 II. Quasi – contractual claims: Quasi – contractual claims can arise in
2. Extra- contractual
a number of ways, and the most common example is a claim on
quantum merit (‘as much as it is worth’).
I. (Tort) Claim: for which the remedy is not specified in the Contract.
 quantum merit is a claim for the value of services reduced or works
 The contractor here is alleging breach of a duty arising at performed where there is no contractual entitlement to payment.
common law other than in contract.

 The most important tort claim is arise due to:  Art.3032 of Ethiopian Civil Code is related to this type of claim
which states that if there is unexpected alteration of work, the client
 Negligence raises claim to reduce the price, when the price due to the
alteration is reduced from the original one. And also the contractor
quotes to increase the prices when the price for alteration increases
 The responsibility of the 3rd party (Art.2134 of Civil Code ) his expense.Where they do not agree arbitrators are allocated.

9
 8/21/2022

Claim management cont.. Claim management cont..

37 38 Types of Claim
III. Ex-Gratia Claim: Ex-gratia claims are the claims that there is
no ground existing in the contract or the law, but the contractor I. Time Related Claims: Claims associated with delay or in time
believes that he has the rights on the moral grounds, completion of projects where either of the following Entitlements or
Penalties are subjected to:
E.g. additional costs incurred as a result of rapidly increased prices.
 Time Extension only
IV. Counter Claim (set off):Art 1831
 Liquidated Damages only
E.g. if contractor claim on payment delay the client also counter
claim on payment adjustment for omission of work.  Time Extension and Cost Compensation

 Bonus (Acceleration of work by contractor)

Claim management cont.. 39 Claim management cont..

40
 As much as possible claim has to be mitigated / prevented because
2. Cost Related Claims: Claims associated with monetary the successful completion of projects has been thought to depend
compensation where either of the following entitlements or mainly on cooperation between the contractor, consultant, & owner.
penalties are entertained:
 Claim administration has a key role to prevent occurrence of claim;
 Additions requiring rate adjustments  The most important principle in the administration of claims is
the complete knowledge of the text of the contract between
 Price Changes phrases and clauses. In other words, just read the contract
carefully and compare it with existing realities, can recognize the
 Provisional sum adjustments claims are intended.

 Documentation is one of inseparable elements of Claims

administration in all procedures and it has a key role.

10
 8/21/2022

Claim management cont.. Claim management cont..

Claim
41
Administration Process 42
• Claim Identification The documentation usually required for claim analysis and
documentation is derived from the following sources

 Conditions of contract and specifications;

 Construction schedules (original and updated)

 Site diaries (labor, equipment, and material records)

 Progress photographs and videos (with commentary)

 Minutes of site meetings;

 Bills of quantities document;

Claim management cont..

3.3.3. Dispute Resolution Technique
43 44

 Drawing register ~ details of amendments and revisions  Basically, three types of dispute resolution systems are well
made to plans! recognized.These included:

 Daily progress reports (date, weather, temperature, type

and quantity of work, materials delivered, resource  Preventive Dispute Resolution System
assignments and allocation, and so forth)
 Amicable Dispute Resolution System
 Records of inspections and directions;
 Judgmental Dispute Resolution System
 etc…

11
 8/21/2022

Claim management cont.. Claim management cont..

45
I. Preventive Dispute Resolution System 46 ii. Amicable Dispute Resolution System
 including Negotiation, Mediation and Conciliation to administer
 The best way of handling claims is prevention before it rises. the claim in a less formal, simple procedure, more flexible, less
adversarial and strictly confidential mode so as to avoid the time
and cost implication of claim processing.
 Claim prevention can be accomplished most effectively during the
design phase of construction project.  Contracting parties discusses their differences around the table
and mostly the Engineer act as a mediator.
 Before inviting qualified contractor to submit bids for the
construction work the design is sufficiently complete.  The Engineer during this time will guide the parties to focus their
point of discussion on their differences and summarizes their
 The careful preparation of well-considered contract document points of agreements.
offers the next greatest opportunity for claims prevention.
 The speedy and cheapest dispute resolution technique

Claim management cont.. Claim management cont..

47 Negotiation 48 Conciliation

 Negotiations may be conducted on an open basis(that is to say  It involves the appointment of an independent third party, mutually
that the records of the negotiations may be used by the parties in agreed by the parties, to hear both parties' points of view.
any proceedings), or they may be without prejudice.
 The conciliator will usually be a recognized expert on the matters
 If there is agreement on any section of the claim, the contractor in dispute and he will look at the evidence and listen to the
should endeavor to persuade the employer to make the agreement arguments put forward by each side (see Art 3318 -3324 for more.)
open and certify any sums which should to flow from it.
 He will not meet any party in private and all discussions take place
with both parties present.

 He will contribute his own ideas on the merits of the case.

12
 8/21/2022

Claim management cont.. Claim management cont..

49 50
Mediation
 The conciliator's aim will be to bring the two sides together to
discuss all aspects of the matters in dispute and lead them to an  This process is similar to conciliation. However, the mediator
amicable settlement. normally meets the parties separately.

 Mediation proceedings may be conducted with lawyers and

 The conciliator will not make decisions, but he may make other experts to present each party's case to the mediator.
recommendations.
 The mediator will try to find common ground at these separate
 It is to the parties to agree on an acceptable settlement. They meetings and he will try to find means of reaching a settlement.
are not obliged to agree, and if settlement cannot be reached,
the parties may pursue the matter in arbitration or litigation
 The mediator can not give a recommendation only he is a
facilitator to exchanges ideas between parties.

Claim management cont.. Claim management cont..

51 iii. Judgmental Dispute Resolution System: 52 b. Arbitration:

 Arbitration is a form of Alternate Dispute resolution in which the
a. Adjudication parties work out the disputed issue without going to court.

 Adjudication is a process in which the parties to a dispute submit  An impartial third party, known as an Arbitrator, is chosen by the
their cases to a third party (an individual or a panel) for a decision. parties to listen to their case and make a decision.

 The adjudicator may be named in the contract or he may be  The meeting takes place outside court, but is much like a hearing,
agreed by the parties. in that both sides present testimony and evidence.

 As arbitration has been set as a method of relieving the

 Without a contractual provision in the contract, or without the congestion of court calendars, the decision the arbitrator makes
parties' agreement, adjudication cannot be imposed on any party is almost always final, and the courts will only rarely reconsider
unless there are provisions in the law to enforce adjudication. the matter.

13
 8/21/2022

Claim management cont.. Claim management cont..

53 54
c. Litigation
 Arbitration can be binding or non binding
 Litigation is facilitated by the government within federal, state,
 The method is very similar to litigation but offers more speedy and municipal courts. The proceedings are very formal and are
resolution. governed by rules, such as rules of evidence and procedure, which
are established by the legislature.
 Another advantage of arbitration over litigation is that the
arbitrator’s panel is composed of individuals with experience in CI.  Outcomes are decided by an impartial Judge and/or Jury, based on
the factual questions of the case and the application law.
 Standard forms of contract have express provisions for arbitration
in the articles or in the conditions of contract. (See Art 3325 to  The decision of the court is binding, not advisory; however, both
3346 of Ethiopian civil code) parties have the right to appeal the judgment to a higher court.

Claim management cont..

Claim management cont..
55 56 3. Claim Enforcement
 Litigation-court
 Arbitration-binding or non binding/private judge Claim Enforcement: This is a stage where the approved claim is
enforced and finally becomes a closure.
 Adjudication-expert determination
Less
 Conciliation-neutral party + recommendation formal
The claim enforcement process will entertain the inclusion of the
 Mediation-neutral party facilitation approved claim into payment certificates where their enforcement
 Negotiation is due, then it is concluded for its end.

14
 8/21/2022

Contract Closing Cont..

3.4.Contract Closing
57 58 A. Closing of Accounts
 There are a number of concerns that should be addressed after
completion depending on the type of the project:  Final Completion Certificate Issued

Acceptance and Completion Issues  All Payments and Entitlements

 Provisional acceptance(Total or Partial)  Retentions, Bonds and Guarantees Released

 Provisional Completion of Certificate(Total or Partial) B. Contract Evaluations

 Rectification of defects  Evaluate Contracts Closed

 Final Handing over/Acceptance  Determine Lesson Learned
 Final payments and Final Completion Certificate  Propose Interventions

59

Thank You

15