INTRODUCTION TO

CONSTRUCTION CONTRACT

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 Objectives
This short course is designed to give an overview
of the Construction contract requirements for
construction works contracts.

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 Contracts
What? Is the document that specifies the rights,
obligations and responsibilities of the major parties
involved in the contract:
Indirect stakeholders’ boundary

Users

Contractor
Regulatory/Statutory
bodies Suppliers
Client

Direct stakeholders’ boundary

Trade Unions Financing
institutions
Engineer

3 The general public

 Contracts
Why? to protect parties against defaulting by their
contracting party, if so provide adequate
compensation:
 Facilitate smooth functioning of the industry

It is one way of managing risk!

Most (common contracts) are meant to share risks
among parties

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 Contracts
Major risks in construction projects
Project integration

Communication
Scope

Integrated effects of any of

the rest
Communication gap
Scope crippling

Non quality product

Suitability & availability Resource
Quality
Project risk

Defaulting
Delays Cost overrun

Time
Procurement

Cost

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 Contracts
 Risk of defaulting by a contracting parties
 Non performance
 Default performance
 Non [on time] payment

Risk management

Respond to risks
Identify objectives Identify risks Quantify risks Avoid Transfer
Mitigate Accept
Mitigate risk

Transfer risk
Avoid risk

6 Accept risk
 Contracts
Risk transfers in contracts

Project
Owner
Risk Banks

Risk
General
Contractor
Risk
Risk
Sub-Contractor
Insurance
Risk

Risk should be allocated to party Sub-Sub

Contractor
that is in the best position to
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manage it.
 Contract Relationships

Construction Team commonly consists of:

 The Client (sometimes called the Promoter or Employer)

 The Contractor

 The Consultant

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 Contract Relationships

Relationships Between the Parties:

 There is a formal legal contract between the Client and the

Contractor

 There is a formal legal contract between the Client and the

Consultant

 There is no formal legal contract between the Contractor and

the Consultant

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 Major types of contracts common in Construction

Client

Contractor Consultants
“Works" Contract “Service" Contract

Suppliers
“Goods” contracts
The procurement procedures, evaluation criteria adopted, etc vary substantially
among the above procurements
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 Major types of contracts common in
Construction

Assignment: Thoroughly discuss the major:

 Types of procurement adopted
 Procurement procedures followed;
 Evaluation criteria exercised;
 Contracting documents used

In Goods and Services Procurement & Contracting

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Tender & Contract Documents
 The Legal Part

 
• The Contract Agreement;

• The (latest) Minutes of Meeting, if any;

• The Letter of Acceptance(Award);

• The Tender ( NB: Including the Appendix to Tender, if any);

• The Special Conditions of Contract;

• The General Conditions of Contract;

• Others, if any;
 
 
Tender & Contract Documents
 
 The Commercial Part

 
 The Performance Security Form;

 
 The Payment Security Form;

 The Advance Payment Guarantee Form;

 The Bid Security Form;

 The Insurance Forms;

 
 The Retention Money Security Form;

 Others, if any
 
Tender & Contract Documents
 
 The Technical Part  

 The Technical Specifications;  

 The Drawing;
 The Bill of Quantities;
 Others, if any;

 The Contract Agreement shall also declare the priority of the Contract Documents i.e.
which Contract Document shall have precedence or priority over the other in case of
ambiguity or discrepancy between or among the relevant Contract Documents.
 Construction (Work) contracts
Major Components:
Agreement, if any
 Usually made to cater for the ‘acceptable corrections and
modifications’ made during negotiation of the two parties
 Most GCC’s provide a model for the form of agreement: Eg. in
section 9 of PPA’s SBD);
Letter of Acceptance
 Forms part of the contract and is furnished (PPA) at least five
working days after notification of successful bidder

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 Construction contracts
Contractor’s Bid
 Usually supplied in bid submission form
 It stipulates summary of the major requirements of the bid
documents like:
 Bid price and validity period (usually from 60-120 days
depending on complexity of process)
 Declaration of eligibility of contractor and proposed
subcontractors and suppliers (legal, conflict of interest, etc)
 Amount of advanced payment (up to 20% for buildings and
30% for roads)
 Declaration of full consent with the terms of the documents
and acceptance of PE’s right not to accept lowest bidder

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 Construction contracts
Construction contracts
Special Conditions of Contract
General Conditions of Contract
Specifications
Drawings
Bill of Quantities or Activity Schedule

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 Contents Function and broad outline of contents
Number Heading
Agreements and contract data
Form of Offer and This form formalizes the legal process of offer and acceptance. The following provisions are
Acceptance common to most agreement forms:
Identification and full address of the signing parties, short description of the project and the
work, date of commencement and signature, completion time of the project, the contract
price, and enumeration of contract documents constituting the entire agreement.

Standard or General States the applicable conditions of contract and associated contract specific data that
Conditions of collectively describe the risks, liabilities and obligations of the contracting parties and the
Contract: procedures for the administration of the contract.
Particular or Special This document provides more specific and relevant information and conditions to a particular
Conditions of project. It is a supplementary and modified section of the general conditions of contract.
Contract Special conditions include additional owner requirements.
Pricing data
Activity Schedule / Bill of Records the contractor's prices for providing supplies / services / engineering and construction
Quantities works which are described elsewhere in a specification within the Scope of Work section
of the contract.
Scope of Work
Technical Specifications Specifies and describes the supplies, services, or engineering and construction works which are
& Methods of to be provided and any other requirements and constraints relating to the manner in which
Measurement the contract work is to be performed.
Drawing These are intended to describe the size and dimensional requirements of the project. Many
professionals are involved in developing drawings. These include the architectural,
structural, sanitary, mechanical, electrical, topographic survey, land profile, and detailing.
Miscellaneous
Appendix to Construction Comprises tabulated and narrative information of the project such as amount and liquidated
Agreement: damages, interest rates, completion time, amounts of bond and insurances, defects
18 liability period, retention, progress payments, advance payment, etc. Some of this
information might be left blank to be filled by the contractor or might be readily provided
by the client.
 Contents Function and broad outline of contents
Number Heading
Agreements and contract data
Form of Offer and This form formalizes the legal process of offer and acceptance. The following provisions are
Acceptance common to most agreement forms:
Identification and full address of the signing parties, short description of the project and the
work, date of commencement and signature, completion time of the project, the contract
price, and enumeration of contract documents constituting the entire agreement.

Standard or General States the applicable conditions of contract and associated contract specific data that
Conditions of collectively describe the risks, liabilities and obligations of the contracting parties and the
Contract: procedures for the administration of the contract.
Particular or Special This document provides more specific and relevant information and conditions to a particular
Conditions of project. It is a supplementary and modified section of the general conditions of contract.
Contract Special conditions include additional owner requirements.
Pricing data
Activity Schedule / Bill of Records the contractor's prices for providing supplies / services / engineering and construction
Quantities works which are described elsewhere in a specification within the Scope of Work section
of the contract.
Scope of Work
Technical Specifications Specifies and describes the supplies, services, or engineering and construction works which are
& Methods of to be provided and any other requirements and constraints relating to the manner in which
Measurement the contract work is to be performed.
Drawing These are intended to describe the size and dimensional requirements of the project. Many
professionals are involved in developing drawings. These include the architectural,
structural, sanitary, mechanical, electrical, topographic survey, land profile, and detailing.
Miscellaneous
Appendix to Construction Comprises tabulated and narrative information of the project such as amount and liquidated
Agreement: damages, interest rates, completion time, amounts of bond and insurances, defects
19 liability period, retention, progress payments, advance payment, etc. Some of this
information might be left blank to be filled by the contractor or might be readily provided
by the client.
 The GCC
 Why GCC:
 Helps in a fair and adequate method of handling construction projects;
 Many of the terms of the standard conditions of the contract may have been
tested by courts and hence can be relied upon to provide similar protection
to all who use them;
 As contracting parties get used to them, can help in stabilizing the industry
and bid prices;
 Reduces time and effort exerted in preparing contracting documents
 What do GCCs do?
 Provide the general framework by which construction projects are
governed;
 Are usually drafted to cover common aspects of construction while specific
aspects are left for SCC,s
 Generally accused to favor the party who promulgates them
 FIDIC- Engineers
 AGC- contractors

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 Major terms covered in GCCs &PCCs will be
discussed later

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 Contract Relationships

Roles and Responsibilities

The Client:
 Is the project initiator and usually the owner
 Is responsible for appointing the Consultant (“The Engineer”)
 Selects the Contractor
 Ensures the Site is available for the Contractor
 Agrees to any necessary changes to the Contract
 Arranges payments as required under the Contracts to both the Contractor
and Consultant

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 Contract Relationships

Roles and Responsibilities

The Contractor:

 Is required to carry out the Works within the specified time in accordance with the
Contract’s requirements and to the satisfaction of the Engineer
 Is required, through a competent and authorised person to manage/control the
construction of the Work. This involves:
o obtaining required materials
o programming the Works/tasks
o Setting targets for both productivity and costs
o organising necessary resource

 Is responsible for safety of all Site operations and methods of

construction

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 Contract Relationships

Roles and Responsibilities

The Engineer:
 Is not party to the construction Contract, but to a separate agreement with the Client
 Is required to exercise all reasonable skill, care and diligence and act fairly as an
intermediary between the Client and the Contractor
 The Conditions of Contract define the powers and responsibilities of the Engineer.
These powers and responsibilities involve two distinct roles”

o the Engineer acts as a representative of the Client, e.g.

issuing drawing; giving permission for sub-contracting
o the Engineer acts independently, such as valuer, certifier
and adjudicator

 Has no power to relieve the Contractor of any of his contractual

obligations

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 Contract Relationships

Roles and Responsibilities

The Engineer:

 Normally delegates many of his powers, although not all, to the Engineer‘s
Representative, formally notifying the Client and Contractor
 Provides general Contract Administration, ensuring compliance by the Contractor
with time and quality obligations

 Acts as a Certifier

 Acts as a Dispute Settler

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 Contract Relationships

The Rights and Obligations of the Client, the Contractor and the Engineer:

 It is important that all involved in a Contract are aware of their rights and
obligations
 It is particularly important that the Client is aware of his involvement and
where he is required to act.
 Untimely action may lead to delays and increases in cost. The main
requirements are:
o those clauses defined in the Conditions of Contract and in the consultant’s services agreement
where the Engineer is required to seek the specific approval of the Employer before exercising
such authority
o the provision of drawings and instructions relating to the Employer’s design of the permanent
works within a reasonable time
o handing over the Site and access to enable the contractor to commence and proceed with the
execution of the works in accordance with the programme
o payment to the Contractor, and possibly sub-contractors, of the amount certified by the Engineer
by the due date.

in addition:
o the obligation upon the Engineer to consult with the Employer (and Contractor) on some 25
occasions within the Contract, prior to making decisions as to time and money.

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 Contract Relationships

Client’s Specific Rights and Obligations

Rights
 To be notified of the appointment of Engineer’s Representative and assistants
 To give consent to assignment of the Contract
 To require the Contractor to complete a Contract Agreement
 To require the Contractor to provide a Performance Security
 To be jointly named on insurance policies
 To be consulted by the Engineer on determinations of additional costs and/or extensions of time
 To take out insurances (at the Contractor’s cost) in the event of the Contractor’s failure to do so
 To deduct Liquidated Damages for delay from payments due to Contractor
 To employ others to carry out remedial works if Contractor doesn’t do them
 To terminate the Contract upon the outbreak of war
 To proceed to arbitration if dissatisfied with an Engineer’s decision

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 Contract Relationships

Client’s Specific Rights and Obligations

Obligations
 To appoint the Engineer
 To define those duties of the Engineer which require prior approval
 To make the Site available
 To make available site investigation data
 To be responsible for his own workmen on Site
 To be responsible for his own workmen on Site
 To define time(s) for completion
 To make payments within 28 days of receipt of Interim Payment Certificates
 To attempt to reach amicable settlement prior to arbitration

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 Contract Relationships

Contractor’s Specific Rights and Obligations

Rights
 To be notified of the appointment of Engineer’s Representative and assistants
 To be consulted by the Engineer on determinations of additional costs and/or extensions of
time
 To seek consent for work at night or on rest days
 To give notice of substantial completion
 To be paid the value of the Works determined by measurement
 To receive payments within 28 days of receipt of Interim Payment Certificates
 To proceed to arbitration if dissatisfied with an Engineer’s decision
 To determine employment under the Contract in the event of default by the Employer

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 Contract Relationships

Contractor’s Specific Rights and Obligations

Obligations
 To seek the Employer’s prior consent to assignment of the Contract
 To execute the Works with due diligence, remedy defects, and provide all things required
 To take full responsibility for operations and methods
 To execute and complete the Works in accordance with the Contract and comply with the Engineer’s instructions
 To accept instructions only from the Engineer
 To submit a programme and (if required) method statement
 To submit a revised programme if requested
 To provide full-time superintendence and representative, and replace the representative if required by the
Engineer
 To replace any person when required by the Engineer
 To take out necessary insurances
 To comply with statutes etc. and indemnify the Employer against penalties
 To keep the Site clear
 To suspend the Works if instructed
 To expedite progress if required by the Engineer
 To submit detailed particulars of claims
 To submit monthly statements of amounts due
 To attempt to reach amicable settlement prior to arbitration

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 Contract Relationships

Engineer’s Specific Rights and Obligations

Rights
 To exercise the authority to be implied from the Contract
 To delegate powers to the Engineer’s Representative
 To issue instructions to the Contractor as necessary
 To request a revised programme
 To withdraw approval of the Contractor’s representative if necessary
 To require replacement of any member of the Contractor’s staff if necessary
 To instruct tests on materials
 To instruct a suspension of the Works
 To notify the Contractor to expedite progress
 To make variations he considers appropriate
 To value claims in the absence of details from the Contractor
 To correct or modify Interim Payment Certificates
 To certify if the Contractor is in default

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 Contract Relationships

Engineer’s Specific Rights and Obligations

Obligations
 To obtain the Employer’s specific approval when required
 To appoint the Engineer’s Representative
 To determine additional costs and/or extensions of time when appropriate
 To issue the Taking-Over Certificate or instruct the contractor to complete outstanding works
 To make variations he considers necessary
 To value variations
 To determine the value of the Works by measurement
 To prepare Interim Payment Certificates
 To issue the Defects Liability Certificate
 To give an Engineer’s Decision within the stipulated time stated in the Contract

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 Contract Supervision

Traditional Supervision Team

 The Engineer
On Site
 The Engineer’s Representative (Resident Engineer)
 Assistant Resident Engineer
 Structural Engineer
 Materials Engineer
 Measurement Engineer
 Surveyor
 Inspectors
 Materials technicians
 Survey Technician

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 Contract Supervision
The Specification
 Supplies a detailed description of the works to be carried out
 Gives the character and quality of the materials and workmanship required

End Product Specification

 An end product is specified – how Contractor achieves generally unimportant
 e.g. The in-situ density of the completed layer shall not be less than 98% of the
maximum dry density determined in accordance with the requirements of
AASHTO T-180 method D.

Method Specification
 Dictates the way to carry out the work
 Risk of liability falling on Client if completed work is unsatisfactory
 e.g. The number of passes can be specified for a given type pf plant on different soils
for a specified layer thickness and moisture content.

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 Contract Supervision
The Specification
The layout of a Specification can vary and various forms have been used by ERA
in the past; all future work will use ERA’s:
Standard Technical Specifications - 2002
This is divided into the following sections:

 Series 1000 General

 Series 2000 Site Clearance
 Series 3000 Drainage
 Series 4000 Earthworks
 Series 5000 Subbase, Road Base and Gravel Wearing Course
 Series 6000 Bituminous Surfacing and Road Bases
 Series 7000 Rigid Pavements
 Series 8000 Structures
 Series 9000 Ancillary Works
 Series 10000 Testing Materials and Workmanship

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 Contract Supervision

Compliance with the Specification

 Compliance is ensured through regular monitoring and testing of the materials

and work by the Supervision Team
 Test requirements detailed in the Specification as standard methods to prove
compliance will be included in the Contractor’s Contract Sum
 Test not stated in the Specifications, but requested by the Engineer, will be paid
for by the Client, unless they show non-compliance

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 Contract Supervision
Supervision Requirements

 The success of any project, product, or process is directly linked to quality

 It is necessary to have in place a procedure that enables a systematic approach
 Has to provide a regime of regular monitoring and reporting

The objectives of quality management are:

 Planning – requires a clear understanding of the project so that all key elements are
incorporated within the procedures
 Control – the quality system requires regular testing and monitoring to ensure compliance or
remedial action
 Reporting – a proper programme will ensure the quality system is being applied and is
addressing the needs of the project

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 Time and the Contract

Time and the Contract are inseparable:

e.g.
- Notice to Commence
- Time for Completion
- Contractors Programme
- Defect Liability Period
- Curing time
- Extension of Time
- Delivery dates
- Delays
- etc. etc.

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 Time and the Contract
The Importance of Records

 Put it in Writing

 Implement a Correspondence Management System

 Maintain a Filing System

 Keep Comprehensive Site Records

 As Built Drawings

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 Contract Administration System

The Most Valuable Tool Available

The system should be set up by the Engineer’s Representative at

commencement and should cover all aspects of the Contract

 Responsibilities of the parties

 Time

 Quality

 Measurement and payment

 Claims and Disputes….. Etc.

The system should be formalised in a Contract Administration Manual

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 Contract Administration System

Contract Administration Manual

 States clearly who does What, Where, When, How and Why.

 States all separate elements, activities and items to be carried out

 Includes activities by supervision team, on-site and off-site

 It makes reference to quality control, but usually separate quality
control manuals are produced

• See your notes for an example of a procedure for the preparation and responsibilities
for Daily Diaries and Reports.

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 Contract Administration System

Start-Up Procedures
During the first few days and weeks of a contract, there are a number of important actions
which must be undertaken by the Employer, by the Contractor and by the Engineer (and,
where appropriate, the Engineer’s Representative, acting on behalf of the Engineer).
The actions listed below are those that are the responsibility of the Client:

• If the Engineer is not named in the Contract, the Employer must promptly notify the
Contractor of his identity.

• The Contractor must be given possession of such portions of the site as are necessary to
proceed with the Works programmed in accordance with the Clause 14 Programme,
(including, in those cases when it is the Employer’s responsibility under the Contract, any
areas of land required for temporary works.) Further possessions of Site, in accordance with
the Contractor’s programme of works must not be delayed.

• The Contractor must supply, to the Employer, any performance securities required. The
formats and acceptability of these securities must be checked (the Employer may wish to get
the national bank of the country to advise on this). When a satisfactory performance security
has been submitted, the Employer should be advised to return the Tender Bond.

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 Contract Administration System

Start-Up Procedures
The actions listed below are those that are the responsibility of the Client:

• The Employer must issue to the Engineer copies of all relevant documentation,
including all contract documentation, drawings and other design information.
The Engineer (and the Engineer’s Representative) must keep secure any
confidential documentation (particularly including the Contractor’s Bills of
Quantities) and must decide which documents are appropriate to issue to his
site staff.

• If there is any delay in finalising the Contract Agreement, copies of the tender
documentation, tender notices, the completed tender, the Letter of Acceptance
and other relevant correspondence must be supplied to the Engineer’s
Representative, as a basis for administering the contract.

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 Contract Administration System

Start-Up Procedures
The actions listed below are those that are the responsibility of the Client:

• All Contract Documentation, drawings and other design information, necessary

for the Contractor to commence the works, must be formally issued to him.

• Contact should have previously been made with any utility authorities whose
installations may be affected by the Works. The Engineer’s Representative
should familiarise himself with the current situation in this respect and should
ensure that any requirements of the Contract are followed.

• Copies of relevant reports and data, including design site investigation,

materials and site survey must be supplied by the Employer, to the Engineer.

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 Contract Administration System

Concluding a Contract

The following requirements are necessary towards the end of the Contract:

• Taking-Over Certificate - When the Contractor considers that the Works are
substantially complete, he may give notice to the Engineer, under the provisions
of the Contract, together with an undertaking to complete any outstanding
Works “with due expedition”. This may be done for sections of the Works

• The Defects Liability Period – Sometimes referred to as the maintenance period.

The Engineer’s Representative should inspect the Works during the Defects
Liability Period and report to the Engineer on:
- Progress the Contractor is making on completing those Works outstanding at
the time of issue of the Taking-Over Certificate

- Any further defects the Engineer’s Representative may notice during inspections

• Defects Liability Certificate - The Contract is not considered to be completed

until a Defects Liability Certificate has been signed by the Engineer in
accordance with the Contract

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 Contract Administration System
Concluding a Contract
The following requirements are necessary towards the end of the Contract:

• The Final Statement - Following the issuing of the Defects Liability Certificate
and in the stipulated time, the Contractor shall submit to the Engineer for
consideration a draft final statement with supporting documents showing in
detail:
- Progress the Contractor is making on completing those Works outstanding at
the time of issue of the Taking-Over Certificate

- Any further defects the Engineer’s Representative may notice during inspections

• Discharge - Upon submission of the Final Statement, the Contractor shall give to
the Employer, with a copy to the Engineer, a written discharge confirming that
the total of the Final Statement represents full and final settlement of all monies
due to the Contractor arising out of or in respect of the Contract

• The Final Payment Certificate - Within the stipulated time after receipt of the
Final Statement, and the written discharge, the Engineer shall issue to the
Employer (with a copy to the Contractor) a Final Payment Certificate stating:

- the amount which, in the opinion of the Engineer, is finally due under the Contract or otherwise, and

- after giving credit to the Employer for all amounts previously paid by the Employer and for all sums
to which the Employer is entitled other than under Clause 47, the balance, if any, due from the
Employer to the Contractor or from the Contractor to the Employer as the case may be.”
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 Contract Programme

Programme for the Execution of the Works

The Contractor is required to submit a programme for the execution of the Works to the Engineer for
his consent:

• The time for submission is stated in the Part II of the Condition of Contract
• The Engineer will prescribe the form and detail required
• The Engineer thoroughly checks the submitted programme before giving
consent for its use
• The Contractor is required to submit information on methods of working as
requested by the Engineer
• The Contractor can be required to submit a revised programme if they are
behind schedule or are not following the original programme
• The Engineer usually gives consent (but is not obliged to) for the revised
programme
• The Contractor is required to submit a cash flow estimate with the Programme
• The submission or consent of the submitted programmes and cash flows does
not relieve the Contractor of any of his contractual responsibilities

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