Chapter 1: Construction Contracts

1.1 What is contract?

Contract is a written agreement between or among two or more parties whereby each party promises to do
or not to do something and agrees to terms (conditions and Warranties) set out in the contract.
Conditions of Contract are terms in which parties in the contract are governed / administered with.
That is, it is an administrative law which is the legally binding part of the contract. These promises and
terms shall be enforceable by law and incorporates the rights, obligations and Remedial rights of each
contracting parties.
Legal Definition of Contract:
According to the Civil Code of Ethiopia, Art.1675:
A contract is an agreement whereby two or more persons as between themselves create, vary or extinguish
obligations of a proprietary nature.
In other words, a Contract is an Agreement between two or more parties to do or not to do something for
a certain consideration that fulfill the following seven requirements:
 Parties are capable of contracting: Lawful and Capable
 Consent of contracting parties is necessary: Intent
 Object of the contract is sufficiently defined, possible and lawful: Legal and Distinct
 Use of Contract form prescribed by law, if any: Standard
 Payment for the Promise: Consideration
 Constitute two parts: Offer and Acceptance
 Parties enter into Agreement: Agreement
Lawful and capable is to mean they are legally allowed to enter into contract and provides statements of
facts (statement of opinion + Knowledge) for their ability to perform their obligations. Misrepresentations
of facts both from Fraudulent or Innocence actions are liable for damages and / or rescission.
Intent is willingness or consent by the contracting parties to create a legal contract.
Legal and distinct is a description of both the promises and considerations (including rights and
obligations) clearly and distinctly stated and they should be practicable and legally binding.
Standards can be conditions, forms, formats, schedules, instructions, etc which are created for use as part
of contracts.
Consideration can simply be interpreted as ‘price for the promise’ which involves a benefit accrued from
the offeree in exchange for the promise the offeror is bound by the contract.
An Offer is an indication that one party is willing to be bound by specific terms set out in the contract. An
offer can remain open unless conditioned for termination using the following ways:
 Refusal or Counter Offer
 Closure of the Offering organization

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  Non – Acceptance with in the offer time
 Failure of the offer condition
An Acceptance is the key for the formation of a contract which must be absolute, indication of consent,
and communicated to the offering entity by the offeree.
An Agreement though proves the existence of a contract; there are situations where it can be considered
as there isn’t. For instance, if contracts violate statutorily prohibited conditions such as promoting
gambling; and / or also violates unlawful conditions by the common law such as agreements to commit
civil wrongs, discrimination, against the benefit of the state, to promote corruption, that devalue the value
of one party, etc.
Following these characteristics; while the contract is understood as the sub - framework of the law which
can be understood as the private law, the law provides a framework within which the services and works
of the construction industry is governed with. Therefore, the significance of any contract is that the promise
is obliged for their performances against a certain return and if failed to compensate for non - performance
and at the same time legally enforceable.
On the other hand, A contract is a not a mental state but an act which is a matter of inference from conduct.
That is, the parties are judged not by what is in their minds, but by what they have said or written or done.
Essential Terms, Certainty, Agreements to Agree, Subsequent words or conducts, Agreements after
commencement, Agreement by conduct, Formalities are some issues to be clearly understood when dealing
with contractual matters.
The purposes of a contract are therefore:
 To describe scope of work
 To establish time frame
 To establish cost & payment provisions
 To Set forth obligations & relationships
 To Manage multiple risks
 To Establish control mechanisms
 To Minimize disputes
 To Improve economic return on investment
1.2 Contract Documents
The main contract documents are Invitation to tender, Instruction to tender, Form of tender, The
Agreement, Condition of contract (General and Particular), Specification (General and Particular), Bill of
Quantities, Drawings, Addenda and Appendix to Tender.
1.2.1 Invitation to Tender: -
An initiation letter to the contractor to participate in the tender with an acknowledgment attached.

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1.2.2 Instruction to Tenders: -
The contractor is given directive of what is required of tenders. It includes:
 Tendering procedures, bid bond, data, space, time
 Commercial requirements
 Information in what shall be submitted with the tender (alternative proposals etc)
 Scope of work
 Tender basis
 Tender bond (possible)
1.2.3 Form of Tender
This is a document where the contractor:
 Confirms, that he has examined all the tender documents
 Confirms that he will perform the work
 Promises that the validity of the tender is open for a certain period
 Shows his understanding that the lowest bid or any after may be rejected
 States that part of the work may only be accepted
 Confirms that he will enter into an agreement if awarded
1.2.4 Agreement
The agreement is the document that represents and reflects the legal contract between the owner and the
contractor. Obviously there is also a contract between the owner and the designer, and between the
contractor and the sub-contractors, or between the contractors and the suppliers for those contracts. It is
simply a letter that constitutes legal evidence that a contract exists, and forms the basis for its enforcement.
1.2.5 Conditions of Contract
The condition of contract is a document that states the obligations and rights of the parties and detail the
conditions under which the contract is to be carried out. It states to what extent should be the relation
between the engineer, contractor and client. It includes General and Supplementary or Special/Particular
conditions of contract.
1.2.5.1 General Conditions
A document called the General Conditions is an essential part of the contract. It defines the responsibilities
of the parties involved in the contract- the owner and the contractor. It describes the guidelines that will be
used in the administration of the contract
 It is often referred to as boilerplate, implying that the same documents are standard to all contracts.
Contractors must know exactly what is contained in the boilerplate.
 Various standard forms of General Conditions have been development by different organizations.
These forms are familiar to all parties concerned, and the wording is not only clearly understood,
but has also been tested in the courts.

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1.2.5.2 Supplementary Conditions
The Supplementary Conditions are sometimes known as Special Provisions or Special/Particular
Conditions. The purpose of the Supplementary Conditions is to provide an extension of the General
Provisions of the contract to fit the specific project at hand. They serve as amendments or augmentation to
the General Conditions. Items included in the Supplementary Conditions are entirely subject to the
discretion of the owner, and may include topics such as:
 The number of copies of contract documents to be received by the contractor
 Survey information to be provided by the owner
 Materials provided by the owner
 Changes in insurance requirements
 Phasing requirements
 Site visit
 Start date of the construction
 Requirements for security and temporary facilities
 Procedures for submittal and processing of shop drawings.
 Cost and schedule reporting requirements
 Traffic control and street cleaning requirements
 Responsibilities for testing of materials
 Actions to be taken in the event of discovery of artifacts or items of historical value
1.2.6 Specifications
Specification may also be known as Technical provisions. They are written instruments to be used in
conjunction with the drawings, so together the drawings and the specifications fully describe and define
the requirements of the contract, to include the quality that is to be achieved.
They supplement the drawings and provide information that cannot be shown in graphic form, or
information that is too lengthy to be placed within the drawings. They guide bidders in the preparation of
cost proposals as well as field execution of the work. They also guide the contractor through the processes
of ordering materials and construction and installation of the facility.
1.2.7 Bill of Quantities
Describe the expected amount of work (measured) in works; it sets out the units of measurement, the units
of work, the unit price and the total cost of the works.
1.2.8 Drawings
Drawings are the means by which the designer conveys the physical, quantitative, and visual description
of the project to the contractor. The drawings are a two-dimensional representation of the physical structure
that meets the objectives of the owner. They are also known as plans or blueprints.

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1.2.9 Addenda
Any change to the bid documents after they are released for bidding but before bids are actually received
requires the issuance of an addendum.
 This formal document changes the original bid documents and becomes a part of the bid package.
 At the time of bid opening, bidders must in their bid documents, acknowledge all addenda.
 Technically addenda may be issued to change the bid opening date, to modify the original design,
to delete or add items, or to correct errors.
 Addenda may not be issued within about five days of bid opening unless the bid date is also
extended accordingly.
1.2.10 Appendix to Tender
A typical Appendix to the Construction Agreement is as shown in Table 2.1.

1.3 Types of Construction Contract

Contracts for the execution of civil engineering works are of following type:
1. Lump sum contract
2. Unit rate contract
3. Cost plus fixed fee contract
4. Cost plus percentage of cost contract
5. Item Rate or Schedule of Rates Contract,
6. Labor Contract,
7. Hybrid Contract, and
8. Special Contract
Lump Sum Contract: When the Project or Tender price is determined and quoted as a total sum of money
without individual ratings to execute the whole of the works and / or services according to the drawings
and specifications, it is called a Lump Sum Contract. In such contracts:

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  It is difficult to administer changes and amendments but experiences of similar projects are
used as a basis to this effect,
 Works or services are checked based on the specifications, the conditions of contract or terms
of reference and drawings if any for acceptance and closing of accounts, and
 Payments are agreed at different stages of works or services.
A Lump Sum Contract is more suitable for works of smaller in size and where the contracting parties have
prior experience of similar projects. But it is not advisable for projects with considerable uncertainties such
as; difficult sub surface situation, unusual projects, maintenance projects, etc. A Lump Sum Contract
mainly includes Contract Agreement, Conditions of Contract, Drawings and Technical Specifications.
Bill of Quantities Contract: When the Project or Tender price is determined and quoted from unit rates
assigned to detailed bill of quantities, it is called a Bill of Quantity Contract. The Bill of Quantity includes
short description of specifications, unit of measurement, quantities and columns for pricing the unit rate
and its total amounts. In such contracts:
 It is relatively easy to administer changes and amendments because actual and assigned
quantities can be compared,
 Works or services are checked based on the specifications, the conditions of contract or terms
of reference, drawings if any and the priced bill of quantities for acceptance and closing of
accounts, and
 Payments are made based on measurements of executed works and material on site provided
on site.
Cost Plus Fixed Fee Contract: When projects are fast – track and required to be completed expeditiously
and where it is difficult to estimate the project cost before, the project expenses called costs will be recorded
and a fixed amount which is agreed upon by the contracting parties will be added as payment to the
contractor. A contract that stipulates to reimburse cost together with an additional fixed fee, it is called a
cost plus fixed fee contract. Such a contract is desirable when the scope and nature of the work can at least
be broadly defined and for important structures such as monumental buildings which are Time and Quality
driven than Cost driven. In such contracts:
 The work is executed in the best interest of the owner with regard to the project quality and time,
 There is no way that the contractor can loose,
 Changes and Amendments can be accommodated amicably,
 The amount of the fixed fee is determined as a lump sum from a consideration of the scope of the
work, its approximate cost, nature of work, estimated time of construction, manpower and
equipment requirements, and
 The owner could not easily anticipate the final project price and can cause budgetary problems.

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Cost Plus Percentage of Cost Contract: This type of contract is similar to the Cost plus fixed fee contract
but its fixed fee is made variable using a percentage of the cost which is meant to cover the overhead and
profit costs of the contractor. Contract Administration becomes intense in such type of contract in order to
protect the interest of the owner. This is because the payment is made by determining the actual cost of the
work plus a certain percentage. The disadvantage of such kind of contract is the tendency to increase the
cost of the work to earn more profit by way of percentage of enhanced actual cost.
Item Rate or Schedules of Rates Contract: A different form of fixed contract but priced based on the
unit rate approach for individual or groups of activities, not the whole project. When accurate specifications
and quantities of work or services could not be determined before executions, provisional quantities
together with acceptable specifications can be included to determine Provisional sums using unit rates.
This type of contract is Item Rate or Schedules of Rates Contract.
Labor Contract: When the Project owner is responsible for the provision of major resources such as
materials and Equipment’s other than labor, small tools and equipment’s and their management, it is called
a labor contract.
Hybrid Contract: A contract that combines two or more contract types is called Hybrid Contract. This
type of contract is designed to meet the special requirement of certain classes of works to suit their
particular needs.
Special Contract: As the name implies, in certain circumstances such as use of specializations, urgency,
supplementary nature and continuity of services or works; remoteness and smallness of projects, etc
requires special arrangements. These include:
 Packaged Contract
 Continuing / Supplementary Contract
 Running Contract, and
 Sub Contract

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Packaged Contract: In remote areas where there is a need to develop physical infrastructures and their
smallness and cost are too low that contractors are discouraged to participate, projects are grouped to
combine two or more individual contracts so as to arose interests by increasing their costs. A single contract
formed from a combination of two or more separate contract to suit special need of a project owner or
financier or regulator is called a packaged contract. This type of contract becomes feasible in order to
promote privatization and discourage Force Account forms of delivery system.
Continuing / Supplementary Contract: When a project incurs additional works or services which is within
10 – 15 % of the total contract price but should not be > 25 % can be allowed to supplement to the existing
contractor in the form of Continuing or Supplementary Contract. Such contract is advisable when the
project owner is able to save cost and time due to tendering and mobilization.
Running Contract: This type of contract is becoming popular after projects started to use Alliance and
Outsourcing Delivery System. Such contracts provide goods, services and works at specified intervals or
as and when required by the Project Owner for a certain period of time. The Contract price is often per unit
rate of goods, services or works where the payment is based on actual goods delivered and / or services
rendered and / or works executed. Contract Prices can in some instances be fixed specifically for services.
Sub Contract: This type of contract is made when specialized works are involved in the project package
or if the Project Owner envisaged other tangible as well as intangible benefits by using such a contract
type. Competitive and Comparative advantages can be sought using such a contract type and they are forms
of outsourcing and alliances delivery systems.
1.4 Claims Management System
1.4.1 Definition and Types
Claim is mostly concerned with entitlements and liabilities arising under, or as a result of, a legally valid
contract. A construction claim is therefore can be a demand for payment of additional compensation,
adjustment of the parties' respective contractual obligations, Extension of Time or compensating delay
damages, or any other change with regard to the contractual conditions or terms.

Claims can be associated with three major categories that can be understood as the different types of claims.
These are:
 Time Related Claims: Claims associated with delay or in time completion of projects where either
of the following six Entitlements or Penalties are subjected to:
 Time Extension only  Bonus
 Liquidated Damages only  Reliving of Obligation
 Time Extension and Cost
Compensation
 Concurrent Compensations

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  Cost Related Claims: Claims associated with monetary compensation where either of the
following entitlements or penalties are entertained:
 Additions requiring rate adjustments
 Price Changes
 Provisional sum adjustments
 Default by Contracting Parties: Claims associated with non-performances of contractual
obligations such as:
 Delay in Payment Certificates
 Suspensions and Terminations
 Nonperformance of the work
1.4.2 Claim Administration Processes
Claim administration process is understood as the process for the compensation of any damage, and/or
changes resulted during the implementation of Construction projects which are called entitlements with
quantum. This is because claims require to establish both the liabilities as well as the damages incurred in
any construction contract. Construction contracts allow that all contracting parties will be entitled to make
claims.
The claim administration process is then understood as the process starting from a willful act of the claimant
through claim notification by either of the contracting parties up to and including claims approval and
acceptance by both the Contracting parties for agreed or enforced compensations or otherwise called claim
enforcement.
Either the Contractor or the Employer can initiate the claim administration process. And, in some instances,
the Engineer can also advice on a reasonable incorporation of claims, on behalf of both the contracting
parties, if the engineer believed that without the treatment of such claims, the successful performance of
the project will considerably be affected. This is an obligation in the case of the Employer, but in no case,
used to accrue advantages only to the contractor.
Following the above interpretations for the word claim, accepted national and international procedures, and
findings from a research conducted recently, claim administration process can generally fall into three major
functions (Figure …). These included Claim Submittal, Claim Processing and Claim Enforcement.

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  Claim Notification
 Claim Preparation  Claim Enforcement
 Claim Submittal  Claim Closure

Claim Submittal Claim Processing Claim Enforcement

 Claim Handling
 Dispute Resolution
 Claim Approval

Figure ….: Claim Administration Process

Claim Submittal: This is a process by which the claimant is obliged to claim within a reasonable period of
time (28 – 30 days in most contracts) followed by her/his preparation for all substantial documents and
legal aspects supporting hers/his entitlements for an official submittal. This constituted that a claim has
been filed for its consideration if all these three sub processes called Claim Notification, Claim Preparation
and Claim Submittal are fully undertaken by the claimant.
Claim Processing: This process initiates checking of the claim whether, it is legally or contractually
supported or not; documents provided are valid and reliable to substantiate the claim for consideration or
not; and overall procedural requirements have been followed or not. After verifying the validity of the claim
proper computations and evaluations will be carried out to present the proposed compensation for the
contractual parties the claim is applicable to. Generally the sub process that undertakes these requirements
is termed as Claim Handling.
The contractual parties will pass through different dispute resolution system depending on their acceptance
over the proposed compensation varying from the simplest mediation by the consulting engineer to the final
court ruling in the form of litigation. Basically, three types of dispute resolution systems are well
recognized. These included:
1. Preventive Dispute Resolution System including Partnering, Use of dispute resolution advisors
and Use of Facilitators for early neutral evaluation and advise to prevent the happening of claims
or their consequential disputes
2. Amicable Dispute Resolution System including Negotiation, Mediation, Conciliation and use of
Mini-Trials to administer 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.

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 3. Judgmental Dispute Resolution System including Adjucation or use of Dispute review board,
Arbitration and Litigation where the formal adjucatory or common law system is applicable to
bring the closure of claim processing.
This sub process where dispute was handled in any form of its resolution systems is termed as Dispute
Resolutions. Such dispute resolution systems require conducive Macro and Messo environments such us
legislations, policies, regulations, etc. above all other things. Once the contractual parties agree on the final
outcome of the claim process then they have reached into a stage where the claim is approved.

Claim Enforcement: This is a stage where the approved claim is enforced and finally becomes a closure
therefore two sub processes are included. The claim enforcement process will entertain the inclusion of the
approved claim into payment certificates where their enforcement is due.

Once this compensation or entitlement is due in accordance to the approved claim and its enforcement
requirements, then it is concluded for its closure. In order to account for such an administration process
contracts provide claim clauses with in their provisions in their conditions of contract.

1.5 Procurement Management

Introduction and Purposes

Procurement is a process used to select the lowest competitive and qualified bidder for procuring services
or works or goods from potential competitors based on reasonable relevant criteria. It can also be expressed
as a method used to employ or buy services or works or goods for the value (in the form of money) which
includes reasonable profit. Essentially, a bid or tender is a binding offer or proposal to furnish certain
specified promises for the amount stated in the tender.

Physical infrastructures are cost extensive and appropriate savings obtained through competition are the
main factor behind the procurement process. An effective and efficient procurement method ensures the
following rights called the "Five Rights". These are The Right Quality, The Right Quantity, The Right
Cost / Price /, The Right Counterpart and The Right Time.

The Right Quality: It is indeed wasteful and not necessary to spend time, money and all the efforts for
procuring unqualified services or goods or works. Therefore, it is essential to ensure whether such
procurements are of the right quality. Right Quality is always based on two major factors. These are the
technical expectation and the economic consideration, i.e.; Price & Availability.

While the technical quality can be insured by the provisions of specifications and checking their
conformance reliability of the intended job; the economic consideration can be taken into account by the
competition initiated using procurement processes. This implies that a tender document should, as much as
possible, clearly specify the quality requirements and allow participation of qualified and experienced firms
for tendering.

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The Right Quantity: The quantity should be computed carefully and included in the BOQ correctly. This
is because it has an effect on the project cost and site organisation which is the bases for offering the right
price. If the quantity is found mistakenly small, it will have consequential effects such as:

 Project Budgeting will be affected due to excess quantities

 Construction planning will be affected and cause under stocking

 Tenderers can manipulate their offer due to it

 Contractor cash flow will be affected.

On the other hand if the quantity is mistakenly more, it will cause high stocking, more storing places and
risk of spoilage; unhealthy practices due to over budget provisions; and manipulation in tendering.
Therefore, provisions of the right quantity resolve the occurrences of the above stated effects. Two major
factors that can play important role in providing the right quality are Take-off-Sheet Measurements and
Resources Allocations.

The Right Cost / Price /: In strict terms the right cost usually relates itself very much to the quality expected
to accomplish the task. It is clear to say that it is difficult to get the right cost, however to approach it, is a
possibility. That is one of the causes for procurement to be processed. Tendering together with negotiation
and market intelligence techniques is the only way that ensures the right cost and accomplishing the task
successfully.

The Right Counter Parts: This is to guarantee that the parties agreeing to accomplish the task shall be fit
to the job. That is, the Project Owner should know what his needs are as accurately as possible, be competent
to act as an Employer and should possess the finance. The Consultant shall exercise reasonable skill, care
and diligence in the performance of his obligations. If authorised to certify, decide or exercise discretion,
the Engineer do so fairly between the client and the third party not as an arbitrator but as an independent
professional acts by his skill and judgement. The contractor shall be able to execute and maintain the task
successfully with due care, diligence and provide all labours including supervision thereof, materials,
equipment, etc. Therefore, with the help of tendering, it is possible to select the right counterparts.

The Right Time: The right time for the provision of resources and accomplishment of obligations of each
party shall be set and agreed. This usually relieves the extra cost incurred on the parties which will make
them to suffer. Besides if the project is not completed at the right time, its effects are devastating. To insure
prevention of such happenings scheduling with regard to right timing is essential.

Purposes: The purposes of a Procurement Management System can be summarized into two major points:

1. To satisfy the need for economy and efficiency, and

2. To provide equal opportunity to competitive bidders.

The successful achievement of these purposes requires the following seven characteristics (Figure 3):

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Notice of advertisement: The advertisement shall be made on an official newspaper, mass media, and
notice boards etc. which can enable the advertisement to reach wide range of competitors.

Notice of
Advertiseme
nt

Avoidance
Proof of
of
Competition
Subjectivity

Characteristi
cs of
tendering
Accessibility Impartiality

Formality Neutrality

Figure 3: Seven Characteristics of Tendering

Proof of Competition: Tendering shall be as much as possible proof of competition. Unless otherwise
conditions such as complexity, specialisation of projects require restriction to open competition, tenders
should be unlimited competition.

Neutrality: When the specifications are prepared care shall be taken to avoid preference to limited
alternatives, provided quality is not compromised. Therefore when specifications, whether standard or
particular, are prepared; neutrality shall be adhered as much as possible. Besides, the bidding documents
(contract conditions) which the parties agree with shall be balanced so as not to cause disruption of the task
to be accomplished.

Accessibility: The place where bid documents are purchased shall be clearly indicated. The bid documents
shall be complete and clear. The purchasing cost of bidding documents shall be nominal to cover
reproduction and mailing costs. The place, dates and time for submission shall be notified. Sufficient
bidding period shall be given. Besides the amount of bid security should be reasonable enough not to
discourage bidders to participate, usually 1 - 5% of the bid amount is practiced.

Impartiality: During tendering if clarification is requested, do so accordingly but to all participating

bidders so as not to lead to partiality or preference. Often Pre-Bid Submission Meeting is used for this
purpose. Negotiation is not allowed during tender period.

Formality: Strict adherence to the submission & opening of bids, i.e., place, date and time, and rejection
of late and non-responsive bids shall be a formality to all tenders.

Avoidance of subjectivity: Criteria for evaluation shall be strictly set out in the instruction to bidders’ part
of the bidding document and all evaluations shall be carried out accordingly. Hence, award will also be
done accordingly for the lowest evaluated and qualified bidder.

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Procurement Methods

Procurement types can be classified based on the things to be procured and the way how they are procured.
There are six bases for classifying procurement methods. These are:

Things Bidders’ Geographical Procurement

Procured Coverage Coverage
Bases Steps

Types Goods Competitive International Single

Services Negotiated Regional Two Staged

Works National Pre – Qualification

Local Post -
Qualification

 Things to be Procured: Goods Vs Services Vs Works

Based on things to be procured, procurement types can be classified into three major categories; namely,
Procurement of Goods, Services and Works. Depending on the delivery system chosen during the contract
planning phase, mixed types of procurement types can be adopted.

Procurement of Goods: Physical resources used as components for undertaking consultancy services and/or
construction works such as Materials and Equipment’s are made available using Procurement of Goods.

Procurement of Services: In the construction Industry procurement of services are often termed as
consultancy services procurement. These include services like pre-feasibility and feasibility studies, design
and contract administration of projects, Construction management consultancy services, research or study
based consultancy services, etc.

Procurement of Works: In the Construction Industry procurement of works mean the procurement of
contractors to carry out the actual physical infrastructures.

 Bidders’ Coverage: Competitive Vs Negotiated Tendering

Generally, procurement types can be classified into Competitive and Negotiated Tendering when bidders’
coverage is taken as a basis for classification.

Competitive Tendering: The objective of competitive bidding is to acquire the goods, or works, or services
at the most economic cost to the project owner. This type of tendering is commonly used for the selection
of better and capable winning bidder among the various eligible firms. Competitive bidding can either be
Open or Limited Competitive Bidding in the form of their invitations.

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As their name implies, while Open competitive bidding allows all eligible bidders to participate; Limited
competitive bidding allows a number of selected firms decided by the Project Owners in consultation with
concerned parties for qualification. The major difference between open and limited competitive bidding is
the addition of qualifying criteria beyond eligibility imposed on the procurement type for limited
competitive bidding.

Negotiated Tendering: Under certain circumstances, which shall be rare in practice, direct appointment of
an eligible firm can be exercised by Project Owners. The nomination of this direct invitation is usually
based on good performance, acquaintance with the Project Owner, for supplementary agreements, etc. This
kind of tendering is exceptionally exercised when the project under consideration is very urgent or needs
special skill whereby the required skill is rarely available. The main disadvantage of this type of tendering
is that the price offered can usually be higher than the competitive bidding.

 Geographical Coverage: International Vs Regional Vs National Vs Local Tendering

Procurement can be made using either of the four methods based on geographical coverage: these are
International, Regional, National and Local Tendering. Such types of procurements are generally caused
by three major factors. These are Local Capacity, Financial Sources and Globalization.

When projects could not be carried out by local capacity, project owners are forced to make tendering out
of their localities. Policies of the financial sources dictate the type of tendering geographically. For instance,
donor financed projects are often practicing International or Regional Tendering. The World trend for
Globalization and the principles of Free Trade and Trade Liberalization also encourages international
tendering. In practice, Preference Margins in the range of 7% are applied to local, national or regional
tenderers, which imply tender offers higher than 7 % will be given preference to encourage local
participation.

 Procurement Steps: This includes Single Vs Two Staged; and Pre - Vs Post - Qualification
Tendering.

Single or Two Staged Tendering: Procurement can be made using a single or two staged tendering process.
They are related with whether tender packaging for submission separately and their evaluations are staged
for a single or two steps when invitations are made. Often two staged biddings are made for the submission
of technical and financial proposals separately and their evaluations one after the other. According to
Ethiopian Procurement Regulations, the following shall be enforced to use Single or Two Staged Tendering:

Pre or Post Qualification Tendering: Procurement can also be based on Pre - or Post - Qualification
processes.

Prequalification is an internationally accepted practice in procurement management. It would normally be

required for civil works contract of which its nature and cost is large and complex. So far in our country,
there is no regulation on such applications but practiced based on Project Owners, Regulators and
Financiers initiatives. It is a procedure in which eligible bidders are invited to provide evidence of their
ability to perform the services required by the employer. Prequalification is desirable because it enables the
Employer to establish the competence of companies subsequently evaluated. It is also in the interest of
contractors since, if pre-qualified, they will know that they are competing against a limited number of other
firms, all of whom possess the required competence and capability.

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Pre - qualification can be of two types. The First is when companies are already considered qualified during
their licensing requirements which entitled them for a single stage tendering process. For such types of
tendering, the most important tender evaluation criteria become the low priced bid. The Second is when
two staged tendering is used to pre-qualify tenderers’ for their technical competency. Once bidders qualify
for the tender, either the lowest priced bidder or the lowest evaluated bidder based on the weighted average
of the technical and financial scores will be recommended for award.

Post - qualification is a tendering type where Financial Evaluation is carried out first and rank bidders on
the basis of their offer for tender price. That is, Technical Evaluation will be done after the Financial
Evaluation. However, Technical Evaluation is performed step by step starting from the lowest financially
evaluated bidder until technically or cumulatively qualified bidder is determined. The advantage of this
approach is not to loose the lowest financially evaluated bidder and to save time during technical
evaluations. However, Post qualification approaches often cause to fix evaluators on financial results and
be locked and biased for successive technical evaluations.

Discussion Points:

Merit and Demerits of the different Procurement Methods

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 Procedure Employer / Consultant Contractors

Procurement and  Delivery System

Contract Strategy  Procurement Method Awareness on Future
 Contract Type Business and Follow Up
 Action Plan

Contract Planning  Letter of Invitation

Phase  Information about prequalification Collect information about
procedure the project and its location
 Project Information
 Prequalification Application

 Advertisement
 Project Scope, Location, Source of  Check Eligibility
Pre-qualification finance  Check Competitive
 Issue, Submission and Opening Advantage
Documents dates of Tenders  Collect Information
 Instructions to pre-qualify and  Decide to participate
evaluation criteria

Tender Document  Organization, Structure & Experience  Request and Obtain Pre
 Resources (Financial, Managerial, – Qualification docs.
Preparation Technical, Labor, Plant, Stock, etc)  Request & Obtain
 Current Commitments Clarifications
 Acknowledge Receipt  Complete and Submit
Docs and Relevant Info.

 Open Tender in the presence of

relevant attendee Attend Tender Opening
Invitation To  Evaluate for Eligibility, Technical, Ceremony
Organizational , Financial Capability
Pre-qualify

 Pre-qualified tenderers are selected Acknowledge & Confirm

Tendering  Winners are Notified Intention to participate in
succeeding tender
Phase

Figure 4.: Procedural Flowchart for Pre-qualifying Bidders

Issuance &
Submission of Pre-
qualification docs.

Tendering

Phase

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Opening & Analysis

 Chapter 2

Specifications
Specification is defined as the designation or statement by which written instructions are given
distinguishing and/or limiting and describing the particular trade of work to be executed. In short
specification is a statement of particular instructions of how to execute some task. Specification is one of
the contract documents.

Specifications are written based on the prepared design, drawings, general and scientific trends of
workmanship, quality expected, equipment involved and materials to be used for the particular trade of
work. The specifications should clearly specify: -

 Design and drawing

 Labor employment
 Materials to be used
 Construction method
 Equipment’s used
Specifications should be clear, concise, and brief descriptions of what is required to execute the proposed
trade of work. The information that is needed for building construction is usually conveyed by two basic
communication lines. They are: -

 The drawings (pictorial)

 The specifications (written)
In so doing the methods of communication should complement each other and neither should overlap or
duplicate the other. Specifications are devices for organizing the information depicted on the drawings
and they are written descriptions of the legal and technical requirements forming the contract
documents. Their difference is that the drawings should generally show the following:

1. Dimensions, extents, size, shape, and location of component parts

2. Location of materials, machineries, and fixtures
3. Interaction of furniture, equipments and space
4. Schedules of finishes, windows and doors

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Specifications generally describe the following: -

1. Type and quality of materials, equipment’s, labor or workmanship

2. Methods of fabrication, installation and erection
3. Standards, codes and tests
4. Allowance, submittals and substitutions
5. Cost included, insurance and bonds
6. Project records and site facilities.
1.2 Purposes of specifications
1. Guide the bidder at the time of tendering to arrive at a reasonable cost for the work
2. Provide guidance for execution and supervision of works.
3. Guide the contractor for the purchase of materials
4. Serve as a part of contract document to limit and describe the rights and obligations of each
contracting parties.
5. Guide the bidder to identify his capacity to execute the work.
6. Serve as fabrication and installation guide for temporary and permanent works.
7. Guide the contractor for the purchase and/or hiring of equipment’s.
8. Serve for the owner to know what he/she is entitled to receive
9. Serve for the manufacturers of construction materials, equipments, tools etc to grade, classify, and
improve qualities of their produces.
10. Indirectly, the specifications are very much related to the legal considerations, insurance
considerations, bidding requirements, alternates and options, rights, obligations and remedial
measures for the contracting parties.
11. In the events of conflicts between specification and drawings, the specification governs.
1.3 Types of Specifications
In general, specifications can be broadly classified into four categories as follows
1. Manufacturer’s specification: Manufacturers prepare specification of their product for
the guidance of their users, which may include property description and installation guide
lines.
2. Guide Specification : Specifications prepared by an individual or group of individuals
based on manufacturer’s specifications, established trends of workmanship, service and

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 laboratory tests and research findings to be used as guide lines for preparation of contract
specifications.
3. Standard Specification: Specifications which are intended to be used as a reference
standard in the construction of a project. The guide specification which has been
standardized by a recognized authority is considered as standard specification.
4. Contract (Project) Specification: the specification prepared for a particular project to
accompany the drawings and other contract documents.
The specifications described above can be prepared following the format which has general and
specific parts (general specification and specific specification)
In the general part of the standard specifications the following items are included:-
 Administrative and Procedural Requirements
 Scope, definitions
 Reference organizations and Standards
 Project description, site facilities
 Submittals and quality assurance
 Delivery, storage and handling
 Project records
 Insurances
 Other general requirements
In the specific part of the standard specifications, detailed description of the quality of items to be
used is given. In addition to this, preparatory actions and methods of incorporating the items into
the project are indicated.
Specifications could be written in several ways, with the prime emphasis given to either the
producer company’s brand or the performance capacity of the material and so on. Accordingly,
there are the following types of technical specifications.
1. Proprietary Specifications: This specifications call for desired materials, producers,
systems, and equipments by their trade names and model numbers. For detailed
descriptions reference should be made to manufacturer’s specifications. They are of two
types; closed (sole) source and open or equal source.
2. Performance Specifications: specifications which define products based on desired end
results which are performance oriented; most appropriate when new or unusual products

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 or systems are required or when innovation is necessary. Describing the problems or
conditions under which the products or systems must operate, and the parameters for the
acceptable solutions is difficult and challenging. Testing methods and evaluation
procedures for defining the required performances must be explicitly specified.
3. Reference Specifications: Specifications which refer to levels of quality established by
recognized testing authority or standards set by quality control authorities. These
specifications are also used in conjunction with other types of specifications.
4. Descriptive Specifications : Specifications which describe all components of products,
their arrangements and methods of assembly, physical and chemical properties,
arrangement and relationship of parts and numerous other details. The specifier shall take
total responsibility for the function and performance of the product.
5. Cash Allowance Specifications: Specifications meant to direct bidders to set aside a
specified amount of money to be applied to the construction work at the direction of the
specifier.
1.4 Specification writing
Basically specifications are not to be created; they are prepared based on existing standards, codes,
guidelines, and laws.

Specification writing embodies certain methods of presenting information and instructions. When
specifications are to be written, the following shall be taken into consideration:-

a) Specification writing require

1. Visualization (having clear picture of the system)
2. Research (to know the legal impact correctly)
3. Clear thinking (understanding things directly without misleading)
4. Organizing (organizing what we know to write the specification)
b) Specification writing require professional ability to read drawings
c) Specification writing require wide knowledge of the construction materials, various levels of
workmanship, different construction equipments and method of construction to be employed
d) Specifications use simple and clear language such that it can readily be understood.
e) Specifications shall be brief and short as much as possible (avoid long sentences without
punctuations)
f) Specifications shall include all items affecting the cost of the work

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 g) Specifications shall be fair and do not attempt to throw all risks and responsibilities on one of
the parties signing the contract, the employer or the contractor.
h) Specifications shall avoid repetition of information shown on drawings to avoid mistakes and
duplications within the specifications and drawings
i) Specifications shall not include inapplicable text and do not specify the impossible or anything
not intended to be enforced.
What are the useful references in specification writing?
The following are useful references in Specification Writing: -

1. Codes and ordinances of governments, cities, or municipalities. For example, EBCSs

2. Standards prepared by distinct societies and government agents. For example, ACI standards,
ASTM standards, BS, ES.
3. Standards or model specifications prepared by manufacturers, professional societies, and
government bodies.
4. Master specifications and previously written specifications.
5. Information or experience acquired by personal observation and contact with trained or
experienced people in the construction industry.
Specification language
The specification writer should present his instructions regarding the particular work under
consideration in such a manner that: -
1. The drawings are more clearly interpreted, not duplicated.
2. Rights, obligations, and remedial measures shall be designated without ambiguity or
prejudice.
3. Clearly express the extent of works under consideration; therefore, the phraseology used
in this regard shall be: -
i) Judged by its quality not its length
ii) Should be concise and short and written with commonly used words
iii) Punctuations are important but their usage shall be limited to few
iv) Capitalizing the first letters is mandatory for the following expressions: -
a) Parties to the contract; eg Employer/Client /Contractor/ Engineer /Architect
b) Space within the building; eg Bed Room, Toilet, Living Room
c) Contract documents; eg Bill of Quantity, Working Drawing, Specification

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 v) Minimize pronouns, better to repeat nouns
vi Minimize the use of symbols
vii Do not use foot notes, do not underline within a sentence for emphasis
vi) Words shall be used as follows:-
a) shall in place of must; use “shall” for the duties of the contractor or the consultant to represent
the word “must”
b) “will” is used for the duties of the employer to represent the word “must”
c) “must” –avoid the use of the word “must” and substitute by the word shall to prevent the
inference of different degrees of obligation
d) Avoid the use of words which have indefinite meanings or limitless and ambiguous in their
meanings. For example, any, either, same, similar, etc.

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