16

ADDIS ABABA UNIVERSITY

FACULTY OF TECHNOLOGY
CIVIL ENGINEERING DEPARTMENT

POST GRADUATE PROGRAM

ON
CONSTRUCTION TECHNOLOGY AND MANAGEMENT

Paper Title: CLAIMS IN INTERNATIONAL CONSTRUCTION CONTRACT:

A CASE STUDY OF ETHIOPIA

Faculty: TECHNOLOGY

Department: CIVIL ENGINEERING

Major: CONSTRUCTION TECHNOLOGY & MANAGEMENT

Advisor: Prof. Abebe Dinku

Student ID Number: GSR/0912/00

Nationality: Chinese

E-Mail: [email protected]

Submitted Date: July 8, 2009

PREPARED BY: LIU YI

 ADDIS ABABA UNIVERSITY
SCHOOL OF GRADUATE STUDIES

CLAIMS IN INTERNATIONAL CONSTRUCTION CONTRACT:

A CASE STUDY OF ETHIOPIA

LIU YI

APPROVED BY THE BOARD OF EXAMINERS:

Prof. ABEBE DINKU

ADVISOR SIGNATURE

EXAMINER SIGNATURE

EXAMINER SIGNATURE

CHAIRMAN OF THE BOARD SIGNATU

 Acknowledgements

I would like to thank all those people who have assisted me throughout the
preparation and completion of this thesis. In particular, I wish to extend my
gratitude and appreciation to my advisor Prof. Abebe Dinku, who had guided
and advised me from the beginning to the completion of this thesis. I also
extend my grateful acknowledgment to all my best friends and colleagues for
providing me information and data related to this dissertation. Particularly, I
would like to take this opportunity to give my sincere thank to Dr.Gashaw
Yayehyirad (Addis Ababa University) and Mr. Yilak Akloweg (a post graduate
student of Tsinghua University) for their precious time in helping organize the
final document with their inestimable advise.
I would like to express my thanks to all relevant enterprises for their invaluable
assistance and cooperation in conducting the data collection work and
questionnaire during my research.
Last but not least, I thanked my parents for their continuous moral supports,
although they were not physically with me in Ethiopia during the study period.

I
 Contents
Acknowledgements ........................................................................................... I
Contents………………………………………………………………………………II
Lists of tables and figures .............................................................................. IV
Abbreviations and Note................................................................................... V
Abstract .......................................................................................................... VI
Chapter 1 Introduction ..................................................................................... 1
1.1 General ..............................................................................................................1
1.2 Problem statement.............................................................................................3
1.3 Research questions ...........................................................................................4
1.4 Objective of the study ........................................................................................4
1.5 Methodology ......................................................................................................5
1.6 Limitations ..........................................................................................................7
1.7 Significance of the study....................................................................................7
Chapter 2 Contract claim ................................................................................. 8
2.1 General literature review ........................................................................................8
2.2 Definition and classification of contractual claims ..................................................9
2.2.1 Definition of contractual claim .............................................................................9
2.2.2 Major Causes for Claims .....................................................................................9
2.2.3 Classification of contract claims ...................................................................... 13
2.3 Proper procedure of claims ..................................................................................17
2.3.1 Claim process under FIDIC contract situation ........................................... 17
2.3.2 Claim process under Mo WUD and PPA .............................................. 18
2.4 Principle of claims assessment and judgment .....................................................20
2.5 Claim evaluation and assessment method ..........................................................20
2.6 Claim following up and evaluation ...................................................................... 23
2.7 International contract claims in Ethiopia...............................................................24
Chapter 3 Contract management effect on claims ......................................... 26
3.1 Major elements of construction contract claim management...............................26
3.1.1 Site management............................................................................................... 26
3.1.2 Document administration .................................................................................. 27
3.2 Construction Contract and its relation to claims...................................................28
3.2.1 Construction Contract ....................................................................................... 28
3.2.2 Methods of tendering and its effect on claims ............................................... 30
3.2.3 Classification of contract and its causes to claims ....................................... 31
3.3 Responsibilities of Contractual parties in contract claim management ...............36
II
 3.4 Conclusion ............................................................................................................39
Chapter 4 Claims in Ethiopian international contract ..................................... 40
4.1 General .................................................................................................................40
4.2 Special contract claims characteristics in Ethiopia ..............................................40
4.3 Interpretation of Mo WUD, PPA and FIDIC in Ethiopia ........................................41
4.4 Current contract claim management situation in Ethiopia ...................................42
4.5 Claim problems statement and resolution in Ethiopia..........................................44
4.6 Conclusion and recommendations .......................................................................48
Chapter 5 Case study .................................................................................... 49
5.1 Case study on contract form adopted from MoWUD ...........................................49
5.2 Case study on contract form adopted from PPA ..................................................56
5.3 Case study on contract form adopted from FIDIC ...............................................58
5.4 Summary of contract claims problems in Ethiopia ...............................................67
Chapter 6 Analysis and findings ..................................................................... 69
Chapter 7 Conclusion and recommendations ................................................ 72
7.1 Conclusion ............................................................................................................72
7.2 Recommendations................................................................................................73
References..................................................................................................... 76
Appendixes .................................................................................................... 78
Declaration ..................................................................................................... 87

III
 Lists of tables and figures

Table5.3.1 Prolongation and acceleration cost compensation

Table 5.3.2 Other financial compensation
Table 6 Claim problems summary and computation
Fig 1Research strategy method
Fig 2 General process of research formulation
Fig 3 Potential source of contract claim
Fig 4 Common resource of contract claims
Fig 5 An example of PERT
Fig 6 Case data analysis
Fig 7 Percentage of claims causes

IV
 Abbreviations and Note

Mo WUD= Ministry of works and Urban Development (Ethiopia)

PPA= Public Procurement Agency (Ethiopia)
FIDIC=Fédération International des ingénieurs conseils
ERA= Ethiopian Road Authority
AACRA= Addis Ababa City Road Authority
CRBC= China Road and Bridge Corporation
BOQ=Bill of Quantity
SOR=Schedule of Rate
BOT= Build, Operate and Transfer
BOOT=Build, Own, Operate and Transfer
WB=World Bank
OPEC=Organization of Petroleum Exporting Countries
SIETCO=China Sichuan International cooperation co, ltd
DRE=Dispute Review Expert
ROW=Right of Way
CPM=Critical Path Method
PERT=Program Evaluation and Review Techniques

V
 Abstract

Claims in international civil engineering projects sometimes will have impact on

implementing the contract successfully., in order to observe and evaluate the
contract claim situation in Ethiopia, and give guideline to all the contractual roles
to settle the claims comfortably, this paper devote the research and literate
review to find the key problems in contract claim management and give
recommendation accordingly.

With this focused objective, this paper presents a research analysis based on
randomly selected data from international construction organization that work in
Ethiopia. The contract claim case studies analyzed by sampling survey scientific
research method that follows a research strategy of specific to general. In the
beginning, the paper analyzes the elements of contract claim administration, and
then provides the general overview of the contract claim. Finally, it numerates
the claim causes usage through cases studies selected in Ethiopia under
different contract condition of Mo WUD, PPA and FIDIC. In addition to these
discussions, analysis of other secondary data and recommendations forwarded
to explain how claims should handle properly.

During the thesis research period, there were 15 simple random selected
projects have been studied as a case studies. From studied projects, the time
extension in average, exceed 117.7% of its original contract completion time and
the cost compensation increase 34.8% comparing to its initial contract value.
Thus, the main causes of the majority contract claim problem lies on the failure
in contract claim management and on unforeseen circumstance like variation,
adverse climate, right of way problems, etc.

Finally this thesis contributes to the improvement of contract claim management

in Ethiopian construction industry and open ways for further researches related
to claim management.
Key words: claims, international construction contract, contract claim
management
VI
 Chapter 1 Introduction

1.1 General

During the execution of international civil engineering contract, sometimes it is

very difficult for the contractor to finish the project under the contractual
conditions because of some kinds of actual limiting factors like financial shortage,
availability of special material in the market and skill manpower problems. That
is why contractual claim which includes time and cost compensations for the
contractor becomes more and more important in the international contract
execution procedures and the proper handling of claims will certainly influence
project implementation.

International civil engineering contracts sometimes suffer a delay or the project

fails to complete within contractual time because of the complexity and diversity
of the claim procedure. But for the contractor, the different is if a project is
delayed because of its failure implementing and the actually work program is
herewith far away to satisfy the goal of the preplanning, the engineer have the
authority to order the contractor to expedite the work progress according the
provision of the contract. In this case, the contractor losses his right to ask for
time extension and compensation caused by work delay from the client. If the
contractor finally failed to achieve the contractual completion time, he has to pay
the liquidated damages to the client according to the condition of the contract
document. The same situation applies to the cost claim1, if the contractor fails to
ask for the losses caused by various reasons contractually and timely, he will
lose his entitlement for financial compensation which eventually affects the
project implementation due to shortage of working capital.

While, the employer may frequently receives various compensation requests

from his contractor during the execution of the contract. It is certainly important

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Claim in contract management, a demand by one party for additional payment to which he is entitled under the
contract, or for damages for breach of contract due to faulty workmanship, failure to supply goods on time etc. A
contractual claim is a claim that can be settled within the terms of the contract without recourse to legal
proceedings ( Nujikas Davies & Erkki Jokiniemi, 2008, Dictionary of Architecture and Building construction)
1
for him to defense the claim base on the instruction of the engineer to escape
extra financial loss, and protect his share holder’s investment benefit.

Due to the different role represented of the contract implementation, the

engineer which is delegated by the employer has to ensure the project
completion with a small fund as possible. He must be competently and
professionally provide his comments in any kind of arose claims to make the
project goes smoothly.

Therefore, it is very important for the contractor to ensure the claim following the
effective method and procedure. The engineer has to provide his adjustment
accurately and timely to the employer so that the project will be carried out under
harmonious contract environment.
With the rapid development of construction industry in Ethiopia, more and
more international contractors are involved into this prosperous construction
market. However, due to the construction technology and contract
management problems, sometimes projects faces many kinds of claims
arousal from all contractual parties and the loss to the involved parties who
lacks a contract claim cognitive becomes more and more impressing.
Therefore, Claims has become more and more important and imminent in the
international construction contract environment.
It is important for the contractual roles to properly understand the meaning of
construction contract claim. As it is known that the central meaning shared by
the word of claim is “a legitimate or asserted right to demand something as
one's rightful due” (American conventional dictionary, 2007), Since the surface
meaning of claim is sometimes sensitive for both employer and engineer to
accept claim request for the reason that the dry meaning of claim resides with
an express of serious demand.
This thesis analyzes the summarized contractual claims under different
conditions in Ethiopia and provides some cases which are adopted by various
contract administration management methods. Finally it will help the
contractual parties to understand the cause-effect relationship of claim and to
accept and resolve it comfortably during the execution of the construction
contract.

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1.2 Problem statement

Contract claim require a proper claim administration in construction industry.

Therefore, all the involved contractual parties should possess the knowledge
and necessary experience to deal with claims arising during the contract
implementation.
In addition, the external environment, government policies, institutional
capacity and the integrity of the contractor should be considered.
In Ethiopia, after nearly one year intensive interviews and wide scope
investigation of claim problems in different enterprise relevant for my study.
After assessing nearly twenty projects, the author found out that; contract
claim sometimes is not properly administered because of the following
reasons:
1) Contractor’s capacity to timely submit their intent and documentation is
very weak, usually after facts and defensive had happened i.e. when
failure occurred.
2) Power and duties of the Engineer and even the Employer to approve
claims especially when financial is limited and has to pass a long
bureaucratic chain.
3) Engineer’s comments are not usually against Employer’s good will
4) No good culture and practice of dispute resolution procedure for
amicable settlement, arbitration and litigation.
5) Claims requests submitted by the contractor might not solved in a long
time period due to the improperly supervision and consulting of the
engineer.
6) Claims to the projects which are invested by private organization are
very difficult to get resolution due to the employer’s misunderstanding of
the contract conditions.
7) Project management shortcoming such as delay, unclear or inadequate
instructions, delays in delivery of material, tools and equipment,
provision of poor tools and equipment, unbalanced work force and non
flexible assignment, using of wrong methods of work, bad advance
planning and allocation of resource, failure to delegate authority from
senior to lower level supervisions affects the contract performance.

3
As it is discussed above, we know the major reasons of contract claim is
contract management problems or inadequate concerns to claims which are
arise from different resource. Therefore claims can be avoided as the contract
administration capacity increased.

1.3 Research questions

The research mainly focuses on explaining how the contract claims

management situation in Ethiopia affects international construction companies?
Besides, it explores to answer additional supportive questions like; what
causes the contract claims and what are the contract claim conditions applied
and what are their interpretation and related resolution.
Through some random case selection and analysis, general problem and
findings can be summarized. After answering the questions; conclusion and
recommendations will be drawn accordingly.

1.4 Objective of the study

The main objective of this thesis is to discuss the methods of claim under
different conditions and to give recommendations through analyzing some
case studies. With this ultimate goal, the study will have the following specific
objectives.
 Discuss the contract management effect on claims
 Provide the general overview of contract claims
 Evaluating and discussing the current contract administration
situation in Ethiopia, and comment on different claim conditions as
sited in Mo WUD, PPA and FIDIC
 Analyzing some international claim cases.
 Through these case studies, it will make the reader to have the
general knowledge of contract claim and feel comfortable to deal with
various claims cases under different contract conditions.

4
1.5 Methodology

This study starts with determining the elements of contract claim conditions
and observing contract management effect on claims by literature review
scientific research method, and then as shown in Fig 1, from specific to
general, the paper provided the general overview in contract claim, and
focused on the contract claim in Ethiopia under different contract environment.
In parallel, data collection from different international construction companies
has been conducted to have a deep understanding on the claim issues and
support in analyzing the secondary data used in the research.
In addition, some cases are randomly selected and studied to understand the
causal-effect relationship of claims in international construction companies. In
these analyses to the selected cases, hypothesis research method had been
applied to indentify the most important influence variable related to the time
extension and cost compensation claims.
After obtaining the necessary results from the case study, analysis of the
results followed accordingly.
Finally, based on the findings of the research analysis, conclusion &
recommendation had been drawn and forwarded.

A= General Contract Management

B= Contract Claim
A
C= Contract Claim in Ethiopia
B
C

Fig 1Research strategy method

Before conduction of this research, based on the general plan of thesis, the
author had drawn a general process of research formulation which is as shown
in following Fig 2:

5
 Choice of topic

Chapter one

Problem identification

General over view of

Chapter two
claim
Research questions

Contract management
Choice of main
Deciding Methods effect on claims Chapter three
intervention

Data Collection Claim in Ethiopia related to

Chapter four
international contract

Case studies Chapter five

Data Analysis

Finding& analysis Chapter six

Chapter seven
Interpretation of data analysis conclusions&
Comments

Fig 2 General process of research formulation

The data I have used in this thesis is primarily found from previous MSc.
Thesis works, Ministry of work and urban development of Ethiopia, FIDIC,,
academic journals, etc. Besides, I have interviewed different project managers,
and collected information to use their project as my case study.

6
1.6 Limitations

During this paper preparation period, the data collection were limited in small
numbers of cases from different enterprise adopted general contract condition
of Mo WUD, PPA and FIDIC respectively. This makes the research result
analysis inadequate of persuasion. The biases and inaccuracies’ of data
cannot be checked since the data came from few cases, it doesn’t represent
the whole situation of contract claims and this is the common shortcoming of
secondary research method.

1.7 Significance of the study

Normally, a great loss of money and time happens when incompetent contract
parties failed to counter claims because of poor contract claim administration.
The main reasons for these could be the nature of the jumbled project
management or lack of contract administration knowledge in case of claims
arise
Contract claims in Ethiopian construction industry have its own characteristics
because of the specified contract document application. FIDIC; Mo WUD and
PPA are primary adopted for the general conditions in Ethiopian international
contract. This thesis analyzed claim arising in the above mentioned different
contract management environment and accordingly gave comments by using
sufficient cases studies.
In addition, the thesis also focus on the problems that caused contract claim
and provide a proper resolution to different problems encountered during the
contract execution.
Last but not least, this paper will provide base line knowledge to international
construction companies which work in Ethiopia and also give a profound data
for researchers who want to study further on the nature of contract claim in
relation to international and domestic construction organization.

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 Chapter 2 Contract claim

2.1 General literature review

In order to explore the further observation of claim situation in Ethiopia, I

conducted further research on the related contract claim studies.
After the change of government in 1991, however, a steady increase in project
was observed in the civil construction sector. Not only was there steady growth
in the number of engineering projects finance locally, but the contribution of
foreign financing agencies as well as the participation of international
contractors as well as consultants in major civil engineering projects also
increased (Girmay Kahssay;, 2003).
These days, the type of project procurement system and improper claim
administration raises more problem, for instance among 15 completed projects
studied, project delay was up to 500% of its contractual time and the cost
increases to more than 80% of its contractual sum were encountered. Abdissa
Dessa explains the main causes for these problems as improper project
management and claim administration (Abdissa Dessa, 2003). However, there
are more problems happen in international contract that he didn’t mention such
as material delivery delay from abroad, climatic changes, misunderstanding in
communication language between foreign companies and local clients,
subcontractors , and many more reasons.
The above two researches were presented by Girmay Kahssay and Abdissa
Dessa in year 2003 are related to the investigation of contract claim situation in
Ethiopia, and in both of their papers, they elaborated the problems using
primary and secondary data to describe claim problems encountered in
Ethiopian construction projects and identified the main causes of claim
sufficiently.
This research contributes more to Ethiopian contract claim research by
exploring case studies regarding to the current international construction
organizations claim problems. This closes the gap further left by the two
researchers when they conduct research more on the domestic and
international contract.
The above mentioned papers and other relevant documents related to contract
claims issues have helped me to understand the overall picture of claim
8
administration in Ethiopia. In addition, the paper analyzed contract
management and tender method effected on claims, detailed interpretation to
the claims clauses in Mo WUD, PPA and FIDIC which are not covered by the
previous research.
Claims are inevitable facts during the execution of construction contracts,
therefore, how to handle and treat the arising contract claims have become an
independent subject, due to its influence and relation to huge amount of
finance of the project.
Especially, claims in international contract environment have been given more
concerns with the global economic development, as more funds comes for the
construction activities from the global financers.
In Ethiopia, with the assistance of World Bank or other international
organization, the government has invested more and more on large-scale civil
engineering projects. Due to unforeseen incidences and contract management
problems, these projects sometimes face many kinds of claims. How to solve
these problems and minimize or avoid contract claim loss has become a
critical task.

2.2 Definition and classification of contractual claims

2.2.1 Definition of contractual claim
Contractual claim is a claim that can be settled within the terms of the contract
without recourse to legal proceedings (Nujikas Davies & Erkki Jokiniemi, 2008,
Dictionary of Architecture and Building construction)
During the execution of the contract, one party might request for compensation
or any entitlement persuading to the contract condition, regulations and related
laws from another party due to his fault or breach of agreement or the clauses
which bond in the relevant legal documents.

2.2.2 Major Causes for Claims

During the execution of the contract, sometimes claims might show up due to
the following factors.
 Ambiguities in the contract document: like inaccurate design information,
inadequate design information and incomplete tender information

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 Inadequate contract administration: Capacity & willingness of parties to
administer the contract such as slow decision making, irresponsibility of
the contract administration parties.
 Changed circumstances like inadequate site investigations, uncontrollable
external events and unclear risk allocation, etc.
 Extra work or variation orders
 Delays: may cause by slow client response (decisions), unrealistic time
targets, changed conditions, etc.
 Poor communications
 Inappropriate contract type
Generally, potential contract claim can arise within the systems of external
factors like weather, market and politics etc, contract and project management
teams, the interaction is shown as Fig 3:
Figure3 illustrates the many interacting potential sources of claims in
construction scenarios, contract claim or conflicts can arise both within
systems such as A, B and C, as well as at the interfaces of such source
systems such as D, E, F and G. Analyzing further, claim or conflict may be
discerned with and between subsystems like B1 to B4, D1 to D4. The potential
for contract claim or conflicts is further magnified when incorporating the next
layer of subsystems, such as joint ventures and subcontractors (Mohan M.
Kumaraswamy, 1997).
Common resource of contract claim can be clearly explained by Fig 4, in this
figure, we may find out the claim can be caused basically by single influence
factor like unrealistic tender price, uncontrollable external events and
inappropriate contract type or their interface and other complexity problems, it
is difficult to eliminate all these contract claim factors in one time, so the author
suggest the contract parties to give the right attitude to the facts that we must
face during the execution of contract. In case of the contract claim shows up,
find the key problem and then give an immediate resolution to minimize the
loss to all the involved parties.
Figure 4 provides such an overview, with a differentiation of the proximate
causes from the perceived underlying root causes that give rise to construction
claim in general(Mohan M. Kumaraswamy, 1997).
.
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Fig 3 Potential source of contract claim
Source: Conflicts, claims and disputes in construction
(By Mohan M. Kumaraswamy, 1997. Hongkong University.)
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Fig 4 Common resource of contract claims
Source: Conflicts, claims and disputes in construction
(By Mohan M. Kumaraswamy, 1997. Hongkong University.)
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2.2.3 Classification of contract claims
A classification of the ‘common’ categories of construction claims encountered
in a particular country can be influenced by the claim category heads that are
permissible and ‘popular’ under the prevalent conditions of contract.
‘Popularity’ of usage of particular claim category heads, while supposedly
based on justifiable causes, is also enhanced by the perceived potential of
‘success’ in obtaining compensation. This is borne out by anecdotal evidence
of some claims being shifted from one category that yield only ‘extra time’ and
‘cost’ compensation (say, for non-possession of site). (Mohan M.
Kumaraswamy, 1997)

1) Claims for delay

Delays on construction projects can be complicated and difficult to analyze (F.
Lawrence Bennett, 2003). As Simon (1989) describe delay,
….. is probably the single most devastating area of claims and
potential losses that any party to the construction process may face.
The expression that time is money is of great significance to each party,
be it the owner who is financing a project, a contractor who is building
at a fixed or guaranteed price, an architect or engineer administrating
the contract at a percentage of a fixed cost or any other related entity.
Although time plays such a significant part in the determination of the
entity’s survival, the basic proposition the encountering a delay or
suspension does not automatically entitle one to damage or equitable
adjustment of the contract prices. Not all delays are compensable.
(F. Lawrence Bennett, 2003, p, 289)
The word “delay” (according to American conventional dictionary, 2007)
refers to “be later or slower than expected or desired”.
Definitions of construction delay: a real delay may be defined as a period
during which a contractor cannot employ his men or machines or staff at their
normal intended output, having regard to the nature and amount of work which
is available under the agreed program of working or under any practicable
re-arrangement of that program.
A delay can affect a portion of the work, or the whole of the work. In case of the
delay facts happened, the contractor should record the details and inform
13
employer and the engineer for further observation.
2) Types of delays
Types of delays are many and varied but they can be grouped in to four broad
classifications, according to how they operate contractually. They are:
A) Non-excusable delay
B) Excusable delay
a) Compensable delays
b) Non compensable Delays
C) Concurrent delays
A) Non-excusable Delay
Delays which could have been foreseen or avoided by due care of the
contractor are inherently the contractor’s responsibility and no time extensions
allowed.
 Underestimates of productivity
 Inadequate scheduling or management
 Construction Mistakes
 Normal weather
 Equipment breakdowns or
 Just plain bad luck
B) Excusable Delays
A delay is caused by factors which are not foreseeable or the delay beyond the
Contractor’s reasonable control.
Force Majeure
Acts of God (e.g. flood, earthquakes)
Strikes
Unusually severe weather
Fire
Unusual delays in transportation
Excusable delay should meet the following three criteria:
Beyond the contractor’s control; and
Without contractor’s fault or negligence; and
Not foreseeable.
C) Compensable Delays

14
Compensable delays are delays, suspensions, or interruptions to all or part of
work caused failure to act resulting from the Employer’s beach of an obligation,
stated or implied in the contract.
Some examples are:
 Failure to properly and timely perform certain work which
necessarily precedes the work of a contractor.
 Interfering with a contractor’s schedule and ordering
 Supplying erroneous information
 Failure to disclose information
 Failure to provide timely inspection
 Interference with the responsibility of the contractor
 Requiring the contractor to perform one particular method
 Failure to timely process invoices, change orders or
amendments, and contractor submittals.
D) Concurrent Delays
Concurrent delay occurs when both the Employer and the contractor are
responsible for the delay.
The rights of the parties will be determined solely in accordance with the
critical path delays
To avoid delay problems and potential acceleration claims, it is best to:
 Award time extensions timely;
 Not order early (or inappropriate) completion;
 If notice of claim is given, respond timely and specifically; and
 Advise the contractor that you will extend its time if justified.
Claims are frequently presented by contractor for delay. Apart from simple
cases where, for instance, the engineer has had to order a machine to stop
working for some reason and the contractor might not use the machine on
other work place. In this case the engineer might not consider the
consequence he put on the contractor that results both economical loss and
time delay.
Claims related to delay may present many difficulties. At first, it must be stated
that there are few precise rules to apply and few clear-cut legal cases to quote.
However, some comments and suggestions might be thrown on the cause of
general problem by the following facts
15
A valid delay claim must comply with all three of the following conditions:
1) the delay must have been real
2) the cause of the delay must be outside the contractor’s liabilities and risks;
3) The delay must have caused loss or extra expenditure to the contractor
which has not been made good to him or elsewhere under the contract.
In addition, we should pay attention to the causes of the delay, if it is a single
factor influence, the time limitation will be easily accounted and the claim
settlement will be very clear to all the parties, while, if the delay cause is
consecutively and compliable, it needs the contract administration engineer to
follow the whole procedure of the case therefore to provide reasonable
justification in the end.

3) Liquidated damages related to contract delay

All the standard forms provide for payment of agreed damages by the
contractor when completion is not within the contract or extended contract time.
These payments are known as liquidated damages.
The appendix to the contract should record the amount to be paid for each day,
week, or other period for which completion is delayed. This amount must be a
genuine pre-estimate of the employer’s damages and the rate agreed should
represent the likely financial loss or cost incurred by the employer if delay
occurs. If the amount is not a genuine pre-estimate of damage it may be held
by the courts to be a penalty. In such a case the employer can only recover his
actual loss, not the amount of the penalty. The liquidated damages inserted in
the appendix to a contract for the construction of a wharf should be related to
the expected loss of profit of the wharfing for each day that he is deprived of
possession of his new wharf.
When no liquidated damages are agreed upon in the contract, the employer
can still recover damages should the contractor fail to complete on time. Also
when by reason of his actions the employer has lost all right to claim liquidated
damages laid down by the contract he would still retain the right to claim
damages if the work are not completed in a reasonable time. In both instances
these damages are limited to the amount of loss which the employer can prove
and in the latter instance should in any case not exceed the amount of
liquidated damage fixed by the contract (John A.Milne, 1980).
16
4) Claims for cost compensation
Cost claim includes the actual expenditure during the contract implementation
and the profit of the contractor. Single cost claim request may relate to many
other activities of the project execution. Therefore, the contractor must make
clear the workmanship and procedure of every minor work which described in
the contract specification and apply the exact claim clause accordingly.
It should be emphasized that the cost claim must be submitted immediately
after the claim facts occurred. If the claim requests are not settled by the
engineer timely or the contractor delayed to delivery his claim request, with the
execution of the contract, there will be more and more single claim case
accumulated up to the completion time of the project. Finally, due to great deal
of investigation works, complexity data collection and other relevant
influencing factors, the claims settlement will become very difficult and then it
will finally directly affect the claim result.

2.3 Proper procedure of claims

2.3.1 Claim process under FIDIC contract situation
According to the item 53.1 under FIDIC conditions, the contractor shall give
notice of his intention to the engineer, with a copy to the employer, within 28
days after the event giving rise to the claim has first arisen. If the claim event is
a continuing effect, the contractor should send to the engineer an account
giving detailed particulars of the claims and the accumulated amount of the
interim accounts. In case where the interim accounts are sent to the engineer,
the contractor shall send a final claim within 28 days of the end of the effect
resulting from the event and copy to the client pursuant to substantiation item
53.3. And then the engineer will give an estimate according to the requirement
of the contractor and make a decision.
Usually, the claim administration process for the contractor is summarized as
the following steps:
 Intent of the claim
Notice of an intention to be made specifically indicating the clause
particular and submit adequate details of anticipated effects.
 Submission of Claim proper

17
 Detailed submission would be necessary even if the engineer did not
accept the claim in principle, should the contractor be dissatisfied with
such a decision then the dispute can be referred to arbitration.
 Analysis and Recommendation of Award
After the engineer receive the contractor time extension request. He
should immediately launch on the investigation of the mentioned
events. And then analyzing contractor’s intention compare to the
actual account. Finally he should give his primary recommendation to
the contractor within the contractual time.
 Negotiation & final Award
 Claim Closure

2.3.2 Claim process under Mo WUD and PPA

1) Claim Submittals
Description of the work performed, delayed or impacted
Full and complete submittal of the factual
Causes
Quantified impact (Cost and schedule quantification )
Contractual basis for entitlement
Documentary evidences
Requested relief (proposed resolution from the contractor)
Mo WUD contract condition clause 70(3) prescribe that the contractor should
within a reasonable time, give written notice to the engineer of the happening
of any of the events. While,
PPA contract condition clause 32.1 describe that The Contractor shall warn the
Engineer at the earliest opportunity of specific likely future events or
circumstances that may adversely affect the quality of the work increase the
contract price or delay.
2) Requested Schedule Extensions
Claim for time extension with financial compensation
Claim for time extension without financial compensation
Directed Acceleration
Constructive Acceleration

18
 If the extension is justified, the contractor will be entitled to
compensation for acceleration
If the extension is not justified, the contractor has to maintain its
schedule at its own cost.
3) Claim Analysis
Fact Findings:-
When the contractor submits his claim request, the engineer should
collect the relevant evidence to identify and evaluate the claim
request.
Analysis: -
The engineer should take time to analyze the inquiry and subject
himself to more discussion with the contractor in order to clarify the
claim request.
Technical Validity:-
After the engineer analyze the inquiry, he might need to refer
technical references to cheek up whether it support the claim
request
Contractual Entitlement
Confidentiality (secured)
Quantification (labor, material, equipment, insurance, overhead &profit,
critical path significance, time, impact on efficiency)
Negotiation (reaching on a fair & equitable resolution)
Award or Rejection
4) Counter claim and claims resolution
PPA contract condition provisions regarding to the dispute arising:
Clause 24.1 if the contractor believes that a decision taken by the engineer
was neither outside the authority given to the engineer by the contract or that
the decision was wrongly taken, the decision shall be referred to the
adjudicator within 14 days of the notification of the engineer’s decision. Clause
25.1 prescribes that the adjudicator shall give a decision in writing within 28
days of receipt of a notification of a dispute. While,
Mo WUD contract condition provision regarding to the dispute arising:
Clause 67 if any dispute or difference of any kind whatsoever shall arise
between the employer and the contractor in connection with or arising out of
19
the contract, or the execution of the work whether during the progress of the
work or after their completion and whether before or after the termination,
abandonment or breach of the contract, it shall in the first place be referred to
and settled by the engineer who shall within a period of ninety days after being
requested by either party to do so give written notice of his decision to the
employer and the contractor, subject to appeal to MoMUD or its authorized
representative. While, if the engineer fail to give notice of his decision as
foresaid within a period of ninety days after being requested as aforesaid or if
either the employer or the contractor be dissatisfied with any such decision
then and in any such case either the employer or the contractor may within
ninety days after receiving notice of such decision or within ninety days after
the expiration of the first named period of ninety days; as the case may be
required that the matter or matters in dispute be referred to MoMUD or his
authorized representative hereinafter provided. The decision of the Ministry or
his authorized representative shall be final and binding.

2.4 Principle of claims assessment and judgment

Amicable negotiation, justice and reasonable are the basic principle of contract
claims, amicable negotiation request the contractor and the engineer settle the
arising claims cooperatively and friendly, justice request the contractor claims
with sufficient evidences, adequate related data and referring contract
supporting documents; while the engineer and the employer should resolute
the problems according to the provision of the contract based on the actual
facts; reasonable request both of the claim applicant and the compensation
disposer regard to the actual situation of the project and then find out the best
solution of the problem to ensure the contract can be completely
successful(Liu Yi, 2007).

2.5 Claim evaluation and assessment method

Claim evaluation and assessment include two aspects: the contract claim
related to time and the contract claim related to cost compensation.
2.5.1 Methods of dealing with contract delay claims:

20
 One of the main reasons why claims situations will persist is the project
designer’s accepted inability to fully provide for all eventualities. This
means that changes will be made to the contract as it proceeds, and
where these involve additional work, adjusted payments will be
necessary. Disagreement on the level of these payments will be a typical
source of claims. As well as changes to the payments made, these
variations may also result in delays to the works and where these delays
have a knock-on effect on the project as a whole, they may give rise to
extra costs. These results from the contractor’s prolonged presence on
site and generate additional overhead costs for the extended period.
There are, of course, factors other than varied work that may delay the
project and it is also generally recognized that delay may be attributed to
the employer, to the contractor or to neither party (R.A.Harris &
S.Scott ,2001).
Methods:
1) Bar chart method
Bar chart method applied for the scheduling and control of project. It is
used to illustrate duration and time sequence of the activities in a project.
Begin, end and duration of the project activities are entered into a
calendar in form of a bar. The control of actual and planned value is
realized by differentiating between actual planned bar in the
representation.
Deviation from the planned status can easily detect by means of the
calendar entries (www.informatik.uni-bremen.de).
2) Critical path method(CPM)
Critical path method is a mathematically based algorithm for scheduling
a set of project activities. It is an important tool for effective project
management.
CPM calculates the longest path of planned activities to the end of the
project, and the earliest and latest that each activity can start and finish
without making the project longer. This process determines which
activities are "critical" (i.e., on the longest path) and which have "total
float" (i.e., can be delayed without making the project longer). In project
management, a critical path is the sequence of project network activities
21
 which add up to the longest overall duration. This determines the
shortest time possible to complete the project. Any delay of an activity on
the critical path directly impacts the planned project completion date (i.e.
there is no float on the critical path). A project can have several, parallel,
near critical paths. An additional parallel path through the network with
the total durations shorter than the critical path is called a sub-critical or
non-critical path(www.informatik.uni-bremen.de)..
3) Program evaluation and review techniques(PERT)
PERT is a method to analyze the involved tasks in completing a given
project, especially the time needed to complete each task, and
identifying the minimum time needed to complete the total project.
The delay assessment can be clearly observed by using PERT method,
one example as show in Fig 5:
PERT chart for a project with five milestones 1 through 5 and six
activities A through F, the project has two critical paths: activities B and
C, or A, D and F; giving a minimum project time of 7 days with fast
tracking. Activity E is subcritical and it has a float of 2 days.

t =1d t =3d
D F

t =3d t =2d
1 3 E 5
A

t =4d t =3d
B C
2

Fig 5 An example of PERT

In this case, the time extension request in activity E will be not acceptable.
2.5.2 Methods of dealing with contract cost claims:
Cost claim may arise in various reasons like variation, payment delay, and
physical obstructions, etc.
Cost claim Method and its assessment:
1) Original contract price plus percentage profit
22
 The engineer might give order to change his design based on his previous
plan, in this case, the contractor may ask for cost compensation due to
revised design according to the original contract price.
2) Providing new price base on original contract
The design change in great extend, if the contractor still apply the original
contract price, the loss cannot be covered, therefore, the contractor needs
to provide new price.
3) Providing new price base on current market
Due to market price has changed a lot, the contractor need to give new
rate to variation to minimize his loss.
4) Extra loss plus over head and profit
In case of various reasons, if the contractor had been forced to suspend
his work, he may ask for the extra loss plus over head and profit to remedy
his contractual loss.
5) Negotiation base on actual loss
Normally, if the contractor and employer both willing to negotiate the loss
and make compensation accordingly, it will be good for executing of
contract and improving their further relationship.

2.6 Claim following up and evaluation

Once the claim report has been submitted, in spite of the contractor, the
engineer and the employer, all the involved parties must follow up the case and
immediately give their comments or make an evaluation report accordingly to
avoid the claim settlement delay that causes further loss.
Every project has its own management system. Sometimes, losing control in
one part of the management team may finally lead to a great loss in time and
money. The communication problem among different bodies in the
organization could lead to a delay in addressing the problem on time and
submission compensation request.

23
2.7 International contract claims in Ethiopia

In Ethiopia, contract claims involve both the cost compensation and time
extension request in international contract.
As the case studies, these claims related to right of way problems especially
impacting in more than 90 percent of Addis Ababa city road construction
projects, rainy season problem which it has 100 percent influence to the entire
outdoor municipal projects, contract management problem such as employer’s
fault, design errors, incompetent project administration, misunderstanding of
the condition of the contract and so on.
Some of the claims amounting range in huge number even excess the original
contract price. Therefore, it is urgent and very necessary to awake the
contractual parties and relevant organizations to focus on these critical
problems and find out the right approach to different situation which may
encountered during the contract management.

2.8 Resolution to contract claims

Resolution of contract claim is an important task for all the contractual parities.
The mechanism for contract claim resolution can be specified in the original
contract or, less desirable, decided when a dispute arises.
The most prominent method for contract dispute resolution is adjudication in a
court of law. This process tends to be expensive and time consuming since it
involves legal representation and waiting in queues of cases for available court
times. Any party to a contract can bring a suit.
In adjudication, the dispute is decided by a neutral, third party with no
necessary specialized expertise in the claim subject. After all, it is not a
prerequisite for judges to be familiar with construction procedures.
Legal procedures are highly structured with rigid, formal rules for presentations
and fact finding. On the positive side, legal adjudication strives for consistency
and predictability of results. The results of previous cases are published and
can be used as precedents for resolution of new disputes.
Negotiation among the contract parties is a second important for contract claim
resolution. These negotiations can involve the same sorts of concerns and
issues as with the original contracts. Negotiation typically does not involve third

24
parties such as judges. The negotiation process is usually informal,
unstructured and relatively inexpensive. If an agreement is not reached
between the parties, then adjudication is a possible remedy.
A third dispute resolution is the resort claims to arbitration or mediation and
conciliation. In these procedures, a third party serves a central role in the
resolution. These outside parties are usually chosen by mutual agreement of
the parties involved and will have specialized knowledge of the dispute subject.
In arbitration, the third party may make a decision which is binding on the
participants. In mediation and conciliation, the third party serves only as a
facilitator to help the participants reach a mutually acceptable resolution. Like
negotiation, these procedures can be informal and unstructured.
Finally, the high cost of adjudication has inspired a series of non-traditional
contract dispute resolution that have some of the characteristics of judicial
proceedings. These resolutions include:

 Private judging in which the participants hire a third party judge to

make a decision,
 Neutral expert fact-finding in which a third party with specialized

knowledge makes a recommendation, and

 Mini-trial in which legal summaries of the participants' positions are

presented to a jury comprised of principals of the affected parties.

Some of these procedures may be court sponsored or required for particular

types of disputes (Gashaw Yayehyirad, 2006).
In general, it is important to note that the most important resolution for reducing
costs and problems in dispute is the reasonableness of the initial contract
among the parties.

25
 Chapter 3 Contract management effect on claims

3.1 Major elements of construction contract claim management

The major elements of construction contract claims management are site

management, documental administration which will be discussed below:

3.1.1 Site management

Proper site management is very important to improve the performance of

physical works. Site management mainly involves site office construction
records, reports to the head office and payment certificate preparation.
2
Construction record : - is a regular documentation of one work
accomplishment and resource utilized at how much cost and how long a period.
Normally, the report procedure may have four steps: daily reporting, weekly
reporting, monthly reports and quarterly reports.
Daily report is a historical record which describes events of the contractor’s
day-to-day operations, the record should be sequentially numbered beginning
from the first day of the project commencement. It is the site representative’s
responsibility to prepare the daily report because the record only describes the
existing event details and it is critically important for further claim or dispute.
The report should contain the project progress, major items of materials
delivered or removed or installed, equipment and labor deployed; work
stoppages, interruption, delays and conflicts, weather condition, accidents,
injury and safety, direction or instruction from the engineer.
Finally, the recorder should give his comments, the comments may includes
analysis of the potential cause of claims, for instant, the reason for suspending
of the work, the weather effect on the contractor’s operation, conflicts and
resolutions.
Monthly report is more comprehensive which need a formal outline including
2
Project record keeping is not just the contractor’s responsibility. Each party must maintain appropriate
documentation, from minutes of discussion to variation, distribution of such records to those authorized
and needed to know is also a wise means of minimizing misunderstanding and conflicts. Site diaries
should kept by the responsible supervisors appointed by each of the parties and should be factual and
brief. (F. Lawrence Bennett, 2003, The Management of Construction: A project Life Cycle Approach)
26
cover page, project layout and data and main report. Monthly report should be
submitted to the head office.
Main report of the monthly report may contain: introduction, construction
activities that have been carried out, materials and production, financial status,
quality and supervision, project actual progress comparing to preplanning,
relevant supporting documents, planning for next months and remarked
problems encountered and action to be taken, equipment and manpower
inquiry on site.
Payment certificate preparation is another important factor for the project site
management. It is the engineer’s obligation to insure the contractor’s payment
statement, to prepare the payment certificate, the contractor need to refer the
contract documents, bill of quantities, drawing, specification and contract
condition, site instruction and price confirmation for the variation order (Fiker
Alebachew, 2007).
Normally, the interim certificate should contain the total work properly executed,
the total value of material and goods delivered, the amount of deduction and
retention, previous payment and claims assessed. If the employer failed to pay
the contractor in contractual time, the contractor has the right to suspend the
work and claim for his loss due to delay of payment, the contractor may take
action to request his entitlement until terminate the contract.

3.1.2 Document administration

Contract document is any written, drawn or computerized document that forms
part of packages on which a contract based ( Nujikas Davies & Erkki Jokiniemi,
2008). This includes agreement document, drawings, site construction record
especially material test, equipment situation, labor change, site diary, letters,
meeting minutes document, weather condition record, contractual
correspondence, client correspondence, consultant correspondence,
insurance certifications, etc. Besides, facsimiles, email, computer tapes,
calculations shop drawings specifications, material samples, renderings,
photography, slides, field reports, specification addenda,, contract
modifications, invoices, financial statements, audit records, and time records,
should be managed properly. Thus, Part of good office management is
document control and record keeping (Fredrick .S. Merritt & Jonathan T.
27
Ricketts, 2001).
Document administration is very important for contract claim because the
entire relevant document presented could be use as the evidence to the claim
request. Documental administration will also show the management level of
the company and it improves efficiency of the work.

3.2 Construction Contract and its relation to claims

Contract, contractual agreement; is a legally enforcing agreement between two

or more parties regarding provision of goods, work or services, the scope of
work included therein (Nujikas Davies & Erkki Jokiniemi, 2008),. Construction
contract and claims have close relation to understand the cause and effect of
claim arousal and resolution.

3.2.1 Construction Contract

According to building design and construction hand book (2001), contract form
is the written document signed by the client and contractor, which is the legal
instrument binding the two parties. This contract defines the relationships and
obligations that exist between the client and contractor. It also incorporates
other contract documents by reference.
The contract for the construction binds the contractor to construct the activities
described and the employer pays for the works which the contractor had done
accordingly. It describes comprehensively what the project is, how payment is
to be arranged, etc. The construction jobs are often complex, that involves the
contractor in many different operations that require him such as to buy
hundreds of different manufactured item and material, to employ a wide
variety of men and machinery, etc. Therefore, to manage the construction
process properly, the contract itself comprises a number of documents such as
(R.J.Marks, A.Grant and P.W.Helson, 1965):-
1) The contract drawings, which pictorially show the works to be done, their
dimensions, levels, the basic request for the materials, etc;
2) The specification, which describes in words the works to be built, the quality
of material and workmanship to be used, and methods of testing etc.; a
written or printed description of work to be done, forming part of the

28
 contract and describes the additional information which are not shown in
the drawings, specification is considered as the remedy instruction to the
drawings and mandatory executed.
3) The bill of quantities, which sets out the expected measure of each
operation of construction as calculated from the drawings, classified
according to the trade or location within the proposed works. Normally, the
BOQ should content the job number, description, quantity, unit, unit rate
and the summery price.
4) The general conditions of contract, which define the liabilities,
responsibilities, and rights of the employer, contractor and engineer, and
covers such matters as methods of payment, dispute resolution, insurance,
liability of parties to the contract, etc.; in Ethiopia, Mo WUD, PPA and FIDIC
are adopted as the contract general conditions by most of the international
construction contract.
5) The tender 3 , which is the signed financial offer of the contractor to
construction the work in accordance with the above mentioned documents.
6) Any letter of explanation, which are agreed between the parties to the
contract as elucidating or amplifying their intentions with regard to the
foregoing matters.
7) The bond or insurance: the bond and insurance can provide guarantee to
the contract parties.
8) The legal agreement, which is signed by both parties, confirming their
respective intention to have a contract between them as defined by all the
foregoing documents. The agreement should clearly describe the
contractual parties, the contents and implementation method, etc.
The construction contract documents must be seriously examined before
commencement of the project execution. And it should be signed based on
equality, impartiality and unbidden.
The signed parties may revise some of the clauses which are ambiguity
described in the contract documents or request compensation later for their
loss due to error of paper works.

3
Tender is a written offer to carry out work or supply goods or services in given condition at a stated price; bid
( Nujikas Davies & Erkki Jokiniemi, 2008, Dictionary of Architecture and Building construction).
29
3.2.2 Methods of tendering and its effect on claims

A contractor is selected on the basis of the construction program, technical

execution capacity, financial capability, etc. Normally, the following methods
may be used to select competent contractor from the sector:-
a) Open tendering
The client advertises the brief project details that provide key information about
the proposed works for the local or international public press, and invites
interested contractor to apply for the relevant contract documents.
This kind of tendering procurement method stipulates that the lowest submittal
win the tender, the contractor has to decrease his price in order to win the
contract competition. Sometimes the contractor ignores the profit during the
preparation period of the tender and later the contract claim will be aroused
due to price escalation or the contractor’s compensation request, etc.
b) Selective tendering
The client may invite a short list of contractor to provide their proposal
documents for the construction work.
The employer will provide the good price to the limited number of the invited
competent contractor in selective tendering method and expect the contractor
to offer a better service. However, if the contractor failed to satisfy the
employer’s expectation, his claim request could be easily rejected by the
employer, and it will be difficult to get the final resolution.
c) Serial tendering
The client may have continuous phase construction program and contractors
might be invited to participate in the tender competition on the basis of a
normal BOQ, and on the understanding that a series of contracts for similar
work will be left to the successful contractor on the conditions contained in that
BOQ.
In this case, the works might be given to successful contractor, who is good at
the similar project in case of the project suffer great change during the
execution. The variation types could be beyond the performance capacity of
the contractor, and this will bring a complexity to the contract claims aroused
by both the employer and the contractor to find a reasonable solution or to
terminate the contractual relationship.

30
d) Negotiated tendering
Negotiated contract are usually signed for particular reasons such as when the
work require a high degree of technical competence or capability to complete
the works within the required period of time.
This kind of tendering applied to the special works like nuclear station, military
works and emergency assistance projects or tender procurement due to good
relationship between the investor and the executor. The price of the contract is
usually higher comparing to the common contract because of the professional
performance request. Due to the nature of the contract, claims to this type of
tendering may not be accepted by the employer. Therefore, the contractor
must be very careful before deciding to take this kind of contract to avoid the
further loss from a failure to execute the task.

3.2.3 Classification of contract and its causes to claims

1) Fixed-price contracts:
a) Bill of Quantities(BOQ)contract:
The total sum tendered under a bill of quantities contract is the sum of the
individual items as priced in the bill, including any prime costs, lump sums and
provisional sums. The quantities placed against the items showing the amount
of work to be done are, for the purpose of tendering, quantities measured from
the contract drawing, the quantities are not approximate, they are exact, being
measured as accurately as possible from the drawings, when the work is
constructed the quantities are replaced by the measurement of the actual
quantity of work the contractor carries out ender each items. But if the
construction closely follows the design the total price paid by the employer will
not be far different from the total sum tendered (R.J.Marks, A.Grant and
P.W.Helson, 1965).
In BOQ contract, the activities quantities surveyed roughly based on the
design in tendering preparation period, in the contractor’s later implementation,
if the actual amount is far beyond the quantities which described in the original
contract documents, the contractor may claim accordingly to cover his extra
loss in executing the surplus works.
b) Schedule of Rate (SOR) contract:

31
Some civil engineering operations are not possible to put into the bill of
quantities, measurement of quantities based on the contract drawings when it
is needful to commence the work before the design and contract drawing are
ready. In this case, the contract can be based on a schedule of rates.
Therefore SOR contract’s quantities against the individual items are either not
inserted or entered in estimated amounts or in round-figure provisional
quantities. More items are scheduled for temporary work than usually appear
in a bill of quantities because the amount of temporary work the contractor has
to undertake is uncertain. The remainder of the scheduled items tends to
describe operations by the contractor rather than outputs and the number of
items is less than in a bill of quantities. There is no implied guarantee given
that all or any of the work scheduled will in fact be carried out. Therefore, each
item must carry its own overheads and bring the contractor adequate reward if
undertaken in large or small quantity, irrespective of the amount of work done
under other items.
The schedule of rate contract, when properly drawn up, is an extremely useful
contract to have where the full extent of the work to be done cannot be
foreseen. It can be made quite fair to the contractor, but it does not, of course,
give the same assurance in regard to total cost to the employer as does a BOQ
contract. It is clear that SOR contract could not provide the exact amount for
the contractor as BOQ contract is, it need the contractor submit his extension
request later according to the actual works he had done, therefore, the
contractor must clearly ensure his request following the condition of the
contract to avoid the contract claim in further.
c) Lump-sum contracts:
When the construction work is not very large, the work required can be
precisely described in all its details, there are no great risks attached to its
performance and no large or numerous alternations are called during its
execution, the lump-sum contract will be quite well provided. Naturally, the
works to be built must be entirely specified and dimensioned before the
contractor can offer a lump sum, and this type of contract is therefore far more
suited to above ground structures than below-ground structures, to avoid
subsequent problem. The specification and drawings need to be complete in
every detail before a lump sum is offered (R.J.Marks, A.Grant and P.W.Helson,
32
1965). .
The advantages offered by lump sum contracts are that they avoid a lot of
detailed accounting and measuring work. The contractor gives the employer
assurance of a fixed total price while the employer gives the contractor a clear
straight forward job to do.
The disadvantage of lump-sum contract is that of the employer or the engineer
wants an alteration of design or some additions during the execution of the
contract will make the job runs into unforeseen troubles. In this case, the
contract claim may arise accordingly and request to cover the changed
condition loss to the contractor.
.
2) Cost reimbursement contract:
a) Cost plus percentage contracts
Cost plus percentage contract is defined as the contractor is paid the actual
expenditure he incurs in the purchase of materials and employment of labor
and plant and he is paid a percentage over and above this to reimburse him his
overhead expenses and profit.
This type of contract is unpopular currently because it is difficult to make
contractor work efficiently, the engineer has to control even day to day work
and supervise everything happen on site. In order to authorize payment, the
employer needs to check every invoice, time sheet, plant record, material
delivery record etc, with a great deal of paper work to release the payment to
the contractor. Therefore, payment delay will be caused; besides, the
contractor sometimes may submit inappropriate papers like illegal invoice,
unreal construction records and time sheet to the engineer in order to get more
money. These facts may cause contract claims for the paper work tussle.
b) Cost plus fixed fee contract
Cost plus fixed fee contract require the contractor is paid his actual cost, but
the fee which is intended to cover his overheads and profit is fixed. This fixed
fee may be tendered in competition with other contractors, or it may be
negotiated between employer and contractor.
This kind of contract is easily implemented because of its simple procedure,
while, the contract claim problem may be come from the identification of the
actual amount which the contractor had executed in case of the adding or
33
reducing works by the employer.
c) Target contracts
Target contract is much like the cost plus fixed fee contract but the profit to the
contractor increases if the final cost of the work is less than the estimate, and
decrease if the final cost is more.
It is a kind of remedy to the shortcoming of cost plus fixed fee contract, but the
application of this contract is limited in execution of simple civil works.

3) Direct labor contract:

When the employer have sufficient machineries and have a professional
supervisor, he might not need to employ a civil engineering contractor to
execute the work. Rather it might be preferable to give the labor contract
independently. A large amount of modestly sized engineering work is
undertaken by direct labor contract, particularly remedial or maintenance work.
In Ethiopia, based on the data of 1987 EFY’s work program of capital Budget
projects which were undertaken by ERA and Regional Administrations. Direct
labor contract take 54% of the percent of used contract from the total type of
contract (Fiker Alebachew, 2007).
Some of the contract claim arose in payment delay issues, unclear liabilities in
contractual document or project management problems.

4) Special contract:
a) Turn-key Contract
A turn-key contract is an integrated contract in which all works pertaining to
various disciplines such as civil, electrical, mechanical etc. They are in the
hands of a single contractor, called the main contractor. The main contractor
can sublet the contract to sub-contractors who are specialists in their
respective fields.
In this contract, the main advantage to the owner is that he need not
coordinate the work of different contractors. The main contractor is responsible
for all kinds of jobs starting from planning to commissioning stage. The owner
takes over the entire work which is fully operational and of proven performance
from the main contractor (R.J.Marks, A.Grant and P.W.Helson, 1965).
b) Package Contract
34
In a package contract, two or more related jobs, each of which could form a
separate contract are combined in a single contract. In the field of civil
engineering, generally, design and development are combined with
construction and supply or maintenance.
In this type of contract, plan of work and standards are established and the
work is carried out accordingly by the contractor. The main contractor is
responsible for safeguarding the owner’s interest. For this reason, prior
approvals of design and technical aspects have to be taken from the owner
first. Responsibility for correctness of the design lies with the main contractor.
c) Negotiated Contract
In this type of contract, negotiation across the table takes place between
representatives of the owner and the main contractor for project cost and other
conditions of contract. In this type of contract, detailed project specifications
are arrived at by discussions between the owner and the main contractor.
A negotiated contract involves extended discussions for finalization as a
competitive contract. Most of the consultancy projects of World Bank are
negotiated contracts (R.J.Marks, A.Grant and P.W.Helson, 1965).
d) Continuing Contract
In this type of contract, new or additional work is awarded to the contractor on
the basis of agreed terms and conditions of an existing contract. Such
contracts do not require re-tendering and hence can save time and money.
e) Built Own and Transfer (BOT) contract
BOT contract is built, operate and transfer contract. It can be found under a
considerable variety of different acronyms like BOOT (Built Own Operate
Transfer), DBFO (Design Built Finance Operate). This type of project
procurement is characterized by non-recourse finance, which means the
finance of the project is undertaken not by the employer but by the
concessionaire of the project who will operate it once completed for a period of
15 years up to 40 years before transfer..
Precisely because the funders stand to lose their money if the project failed,
they will be very concerned to ensure that a great majority of risk placed upon
the project company is passed through to the contractor under the construction
sub contract, at the same time, the contractor in such project will find that the
opportunity for him to claim for extra time and money are extremely limited
35
(Abdissa Dessa, 2003)

3.3 Responsibilities of Contractual parties in contract claim management

Contracts for constructional work are normally made between two parties. The
party who commissions the work is usually referred to as the employer and
party who construct the work as the contractor. The employer might be a
corporate organization; such as a government department, local authority,
statutory board or limited liability company. It is essential that all contracts are
stamped with official seal especially for contracts involving large sums of
money. The employer will pay and give possession of the site to the contractor.
The standard form of contract delegates the employer’s other positive duties
and powers to his agent. This agent may be either a consulting engineer in
private practice, or the principal of a specialist department within the
employer’s organization. The consulting engineer in addition to his duties as
agent of the employer, is given by the contract further wide power by both
employer and contractor, and in some matters he has absolute discretion. As a
consequence of this special position of his agent, the employer must not
obstruct or interfere with the issue of a certificate is the formal expression of a
judgment, valuation or decision by a professional adviser, set forth in the terms
prescribed in the contract conditions, should orders be given by the employer
direct to the contractor they would not be strictly admissible as variations under
the existing contract, and could be held by the contractors to constitute either a
fresh contract or an implied promise to pay reasonable remuneration(Lei Jun
Qing,1996)
.
1) The employer’s responsibilities and duties:
In general, the employer denotes the individual or organization for which
something is to be built or furnished under contract, he is thus the purchaser,
who pays for the goods or services.
The employer has the right to accept or reject any bid, and cancel the bidding
process and reject all bids during the award of contract period. During the
construction time, the employer may reserve his right to change the design as
his own will and give the order to the contractor through the engineer. The

36
employer should hand over the site and required information once he has
reached agreement with the contractor, during the execution of the contract,
the employer may give timely instruction and compensation approval to his
contractor through the engineer, finally, the employer should take over section
of work when it substantially completed and give the final acceptance
certificate to his contractor as per provision of the contract.

2) Engineer’s responsibilities and duties:

The engineer referred to throughout the contract will be a civil engineer
appointed by the employer to design and supervise the works and act as the
employer’s agent. The efficiency of engineer and ultimately the success of the
contract will be influenced by the quality of the employer’s instructions, it is the
engineer’s responsibility and duty to do all within his power to ensure that the
instruction received describe his client’s requirements in sufficient detail to
enable the design and supervision of the works to be performed effectively,
and this cannot be achieved without the willing co-operation of the client. The
importance of this co-operation increases with the size and power of the
employer’s organization. To aid the employer, the engineer should prepare a
comprehensive list of possible requirements at the commencement of the
preliminary negotiations, so that those mutual reproaches do not caused by
the miscommunication of client and consulting engineer during the consequent
stages of the contract.
With the larger corporations, and local authorities, the engineer may find
himself acting as a conciliator and coordinator between the different
departments of the industrial concern, and between the local authorities and
various ministries. One group being concerned with cost, another with function,
and a third with appearance. These additional duties which do not come within
the scope of his terms of engagement may impose a heavy burden on the
engineer. In such a case, the client in his own interest should be persuaded to
nominate one department head to take the responsibility for all coordination.

37
3) Contractors:
The vast majority of all construction works are carried out by contractors, who
could be limited liability companies, apart from a proportion of the very small
firms engaged in building and maintenance. In the case of contracts of a great
magnitude , this company may be a consortium or a syndicate of contracting
firms who have formed a temporary alliance for the purpose of tendering for
and carrying out a single undertaking, or several of a like nature.
The contractor undertakes to construct or perform the works for a sum of
money in accordance with the engineer’s instructions and under his
supervision, usually within a stated period of time. In addition to complying with
the engineer’s instructions the contractor must carry out the works in
conformity with the laws of the country in which he contracts and any local
regulations and by laws; and must give all notices and pay all fees arising from
these laws and regulations. Failure to do so will make the contractor liable for
all penalties and additional costs of alterations arising from the breach of these
laws. The accounts for such fees will be included in the interim valuations and
when reckoning the final cost of the contract. Should the regulation necessitate
alterations to the engineer’s design and details, the contractor should apply to
the engineer for directions; for it is sometimes possible for the engineer to
negotiate with the authority administering the regulation and obtain approval of
his original design, and an agreement not to enforce a particular by law. If the
engineer takes upon himself the responsibility of serving notices, and fails to
follow the correct procedure, the contractor can claim recompense for any
penalties and the additional costs of alterations incurred, from the employer,
who could seek redress from the engineer (China construction industry press,
2006).

4) Subcontractor
Besides being responsible to the employer for the correctness of his own work,
the contractor is liable also for the work of his subcontractors, and for any
defects in the materials or goods supplied by merchants and manufacturers.
This liability is incurred equally in respect of the work of his own subcontracts
and those nominated by the engineer or the employer. The wording of the
clauses found in standard form of contract, however, relating to these
38
obligations differentiates between its own subcontractor and those nominated
subcontractors.

3.4 Conclusion

Construction management involves many people with diverse interests, talents

and backgrounds. The employer, the professional consultant and the
contractor comprise the primary triad of parties, but others, such as
subcontractor, material suppliers, bankers, insurance and bonding companies,
attorneys and public agency officials, are vital elements of the project team
whose interrelated roles must be coordinated to assure a successful project,
throughout the project life cycle, from the time the employer first contemplates
launching a construction project to the completion time, many months or years
later, when the completion project is ready for use, the tasks carried out by the
various parties vary in type and intensity(F.Lawrence Bennett,2003).
As it is above discussed, different contract party has its own responsibility and
duty during the implementation of the contract. In addition, form of contract will
also impact on the result of the contract claims. Therefore, the suitable contract
selection and well understanding of contract entitlement will help to mitigate
the further contract claims.

39
 Chapter 4 Claims in Ethiopian international contract

4.1 General

Claims are intended based on the differing of site condition such as

underground or other physical obstructions, variation 4 order for adding
additional or reducing works, or the other reasons which may cause the
difficulty of performance or project delays. The employer’s default and the
other society reason such as strike, war may also cause contract claims.
For example, according to the case study I conducted, more than 50 percent
claim In Ethiopia arose due to deficiency in contract document in ERA
international contract road construction section. The other problems such as
changed conditions, administration, and third party action take the remaining
proportion for causes of claim This survey result can provide important
information to us that in Ethiopian international construction contract
environment; claims can be mitigated in case of contract administration
conscious increasing.

4.2 Special contract claims characteristics in Ethiopia

In Ethiopia, contracts are normally adopted from MoWUD, PPA and FIDIC as
it’s quoted for general conditions. MoWUD and PPA are different types of
contract documents that closely refer to FIDIC, but they have different
interpretation of contract. Therefore, using these different standards may lead
to different contract procedure. This is a very outstanding characteristic in
Ethiopian international contract procurement.
In addition, due to Ethiopian geographical location, it has three months rainy
season period, because of the special climate condition, sometimes; contract

4
During the execution of the construction contract, one matter that requires careful documentation and
through communication is the case of changes in the work. In any but the smallest and simplest of project,
it is common that some changes will be made. Changes, also known as variation, arise for many reasons:
the owner may decide to add some new items to the project delete some portion of it or add to, reduce or
modify an already defined part of the job. Unexpected site conditions discovered during the course of
construction, including soil conditions, archaeological findings, endangered species or hazardous
materials, may require a change. Discrepancies may be discovered in the contract documents. Codes or
regulations may change after the contract is signed, requiring a change in the contract (F. Lawrence
Bennett, 2003, The Management of Construction: A project Life Cycle Approach)
40
claim will come with the pleasant rain for its bringing the interruption influence
to the project arrangement. Weather condition influence the contract
implementation may be another special outstanding characteristic in Ethiopia.
In Ethiopian construction industry, we can see many famous international
contractor such as CRBC (China), Varnero (Italian) and J&P (Spain) and the
other local tycoon enterprises such Mideroc, Sunshine and Enye, etc. All these
companies come from different world and create a multiform construction
market deriving from their different cultural background. Due to this situation,
we can easily observe that another contract problem may happen, all those
contractors want to survive in the same market, and it is certainly to lead an
equitable competition because of their companies’ different hierarchy and
capacity. Sometimes, when the lowest tender won by a contractor who doesn’t
have competent with machinery capacity, skilled manpower, etc. many claims
might arise during the execution of the contract.

It is obvious to observe in Ethiopia that the unstable market for the main
construction materials like cement, RC bar, etc, has become most important
claims arising factor in contract implementation. The material price escalation
in great extent will bring unforeseeable loss to the contractor or decrease its
profit hereby reducing the number of interested contractors to participate in the
tender. It will also easily bring further contract claims to the employer in case of
the contract signed under a low bid price.
The modern Ethiopian construction industry development is limited in the low
level of construction technology and poor project management system, the
knowledge of the site supervision engineers and skill of the workers should be
improved to satisfy the requirement of new techniques and properly contract
administration.

4.3 Interpretation of Mo WUD, PPA and FIDIC in Ethiopia

Understanding the interpretation of contract condition very well will help the
contractual parties to handle various claims easily, for instance, once the claim
is identified, the contractor needs to quote the exact clause that is described in
the contract documents and should request his entitlement properly. And the

41
employer might counter the claim request using the relevant clauses. If the
clauses are accurately quoted, then the claim may easily persuade and
accepted.
MoWUD, PPA and FIDIC are normally applied to the general condition of
international contract in Ethiopia, therefore, for the Ethiopian civil engineers, it
is very important to grasp the meaning of these documents words by words for
easily taking care of the contract claim.
Particularly, FIDIC has different version for different purpose use; the red book
is adopted as general condition of the civil engineering contract. Yellow book is
adopted as equipment and machinery supply contract and most of this kind of
contract payment model is License of Credit; white book is adopted as client
and engineer model service agreement; sliver book edited base on yellow
book and it is adopted as condition of contract for design-built and turnkey
project.
Due to FIDIC red book version is suitable for all the civil engineering projects,
therefore, when we talk about FIDIC, we imply the red book if without special
explanation. Red book is widely quoted to the general condition of the
international contract in the world (FIDIC, 2006).
To give the general use guide of these documents, the contractor and the
employer entitlement had been numerated in the appendixes.

4.4 Current contract claim management situation in Ethiopia

Contract claim management involves contract office paper work and contract
site implementation.
Contract office paper work should include but not limited to contract document
administration, work performance record documentation, contract variation
order, correspondence files, project meeting minute’s collection and other
relevant documental settlement.
Contract site implementation indicates site management such as material test
and delivery record, machinery status; project activities supervision, worker
motivation and work progress control.
In Ethiopia, contract claim management currently has the following problems:
1) According to the case studies which the author conducted, contract

42
 document administration are sometimes ignored or conducted without
proper professional management. For instance, some projects
construction time are delayed by more than two years, because of the
variation or complexity instruction to some work activities. And sometimes
project detail drawings may have more than two versions, sometimes
some of the original drawings lost before completion the project and most
of the time ( from the case studies) the private clients don’t request the final
actual completion drawings from the contractor after they accept the
project. Changes and improvements will not be kept as a record in case
they are needed for maintenance or further construction.
2) Work performance records don’t have detailed site construction problems
and actual settlement measurement, for instance, due to site instruction
from the resident engineer, some structural design might be changed or
some substandard material might be changed to be used in some essential
places. All these important information should be strictly recorded in case
of serious work defects and further investigation might require. Actually, the
contractor only executes the order without any provable records.
3) It is the engineer’s responsibility to prepare the meeting minutes for all
important agenda discussed or any decision have been reached between
the contractor and the employer. However, as observed form the case
studies, the majority of contractor didn’t receive meeting minutes from the
engineer or couldn’t receive it on time. Some contractors themselves
prepared the meeting record but failed to get the authorized approval from
the employer. These important meeting decisions could be used as
evidence for further contract claim. Without the engineer’s confirmation,
these documents will be useless for the contractor to request its right
accordingly.
4) Site construction facilities are too simple and crude; from the studied cases
90% percent of the construction sites have this kind of problem. This
makes some contract paper works which are expected to be completed on
site but because of the poor conditions of the site, it has to be brought to
head office and undergo long time bureaucratic procedure. And this may
cause unnecessary delay or loss to the project.
5) There is no clear site record for the important activities such as material
43
 delivery and test, concrete casting, and so on. From the case studies,
more than 80 % of the investigation contractors don’t have site diary.
6) There is no proper site inspection and any quality control exam from
relevant professional government authorities.
In general, some of the common contract management problems happen not
only in Ethiopia but also in the countries like China. In order to minimize the
loss due to contract management error, it is needed for all the involved parties
to work together and improve recognizing the importance of contract
management.

4.5 Claim problems statement and resolution in Ethiopia

Construction contract claims problems in Ethiopia could be enumerated in

general as we above discussed; meanwhile, we should also colligate the
special characteristic of the contract claim environment in Ethiopia and find out
the contract problems that are commonly encountered by the contractor during
the contract execution.

1) Incompetent subcontractor
As it happens in other countries, to have higher grade construction license in
Ethiopia, is very difficult mainly of lacking sufficient construction machineries
and financial capacity (including getting insurance bond). In this case some
lower grade sub-contractors borrow license from higher-grade contractors to
participate in the construction bid and execute the work.
Therefore, sometimes projects might be delayed when they are handled by
incompetent subcontractor who lacks project management capacity or when
the main contractor excessively relies on his subcontractor to execute the
contract using his name. In this case, when the subcontractor finally failed to
do the work properly, the main contractor will be subjected to take the full
responsibility for all claims issues and their remedies.
To explain more with example, I can mention my own experience when I work
as project manager for main contractor (CRBC) in Merkato Addis Ababa
shopping center. This project is located in the urban center of Addis Ababa,
Merkato, with the construction cost amounting to 42 million Birr; CRBC (the

44
main contractor) gave its labor contract to one Chinese subcontractor called
Xiamen HeXing Construction Company. During the execution of contract, the
subcontractor failed to achieve the goal of the contractual time and quality
requirement because of many problems like shortage of finance, manpower
and management capacity. Moreover, the employer was not satisfied with the
quality of the workmanship. Therefore, the main contractor (CRBC) was
subjected to fix the problems as per the initial agreement. Unfortunately, the
failure of the subcontractor finally brought a loss of 3.96 million excluding the
retention 2 million which the employer decides to forfeit for the work defect.
Besides, the project was suffered 2 years delay.

Therefore, I conclude that the contract management should focus on

inspection for selecting qualified contractor and subletting should be
supervised and approved by the employer. Total subletting should be forbidden
in large size projects especially the international contract.

2) Resource shortage
Resource shortage includes lack of physical materials, skilled manpower, and
shortage of relevant reference standard for different quality level of
workmanship requirement. For instance, construction material shortage has
become one of the main reasons for claim arousal, especially since 2002/2003,
as the government policy helps the construction industry to boosts in a very
rapid rate. If we consider cement, it has become a source of dalliance and
price escalation adjustment claim in many construction projects. Besides,
shortage of detailed construction standards and specification sometimes
subjects both contractor and employer into dispute on workmanship quality
and the procedure to process the special work needed.
Sometimes, international construction firm might be needed to bring skilled
manpower from abroad to meet the higher standard of contract. However, such
kind of move might cost the contractor a lot of money. Therefore the contractor
is subjected to use the local manpower and the quality of work might not be
good as the expectation of the employer. Thus, this cause claims from both the
employer and engineer.

45
3) Design changes
Sometimes, due to poor design professional coordination, and employer’s
unrest interests, subjects the engineer order for design changes. These kinds
of design changes bring new ideas; additional material requirement, etc might
require special workmanship skill and extra cost to the contractor.
The main problems seen in the three project 5 in Addis Ababa which one
international contractor execute currently, the engineer’s design starts with
poor information collection from the actual site during the design stage. To give
example, sometimes, in case of underground municipal obstructions like
electrical and water line was not observed and marked in the plan, might block
the construction work and cause delay for the project consequently. Moreover,
to settle the damage for adjacent property might bring extra cost to contractor
and thus, the contractor might raise claim for compensation and time delay.
Besides, sometimes design contradiction from different design professionals
might bring new idea which was not described in the original contract. The
conflict between the contract bill of quantity and the actual design bring the
adding or reducing to the contract amount. These kinds of problems may
cause variation and time extension claim.
Design change may make the contract quantity altered in great extent,
sometimes; due to resource shortage situation in Ethiopia, the contractor may
prepare the material by importing from abroad, in this case, design change will
make the imported material quantity become inadequate or redundant. The
loss is obvious and further contract claim may be inevitable.

4) Lack of specialties services:

The other problem is availability of construction specialties (like Baur-Midrock
foundation specialists, etc). Lack of special skill needed to satisfy the work
requirement might be a cause for claims raised due to poor work performance.
For instance, a high-rise building construction might require employing special
foundation contractors, but due to availability of specialties in Ethiopia, the
work might be given to general contractor, who might not have the special

5
The Merkato Gebeya Gebeya Shopping Center ( 42 million Birr), Edget Bandenet Shopping center ( 29 million),
Ambasel Head office ( 19 million)
46
knowledge about the work, and this might result poor performance and that
doesn’t satisfy the standard of work requirement. Therefore, such problems
raise claim and delay.

5) Communication problems:
Communication problems related to contract information management, with
more and more international contractor from different countries come and join
Ethiopian contraction industry, language has become one problem during the
execution of the contract, sometimes, the foreign supervisor’s instruction
cannot be implemented because of the ambiguity explanation to the workers or
the worker’s misunderstanding the order.
Another problem arose by communication may happen inside one or more
organizations due to inadequate information exchange. For instance, the site
office fails to transfer claim data to head office may cause the paper delivery
delay and invalidation.

6) Poor Facilities on site:

Site office should be furnished as per basic requirement of the office standard,
while, as my studies, most of the project offices are not equipped or lack of
stationary materials in Ethiopian construction site. The site engineer could
complete his paper work on site. In this case, sometimes, the claims facts may
lost the exact record, consequently, it will bring extra difficult to collect the
required data in future.

7) Lack of professional inspection:

The works have been done by the contractor should be supervised by more
professional experts; they might come from the engineer and employer, the
relevant government supervision authorities or other society functional
organizations.
Professional inspection can reduce the possibility of the work defects and
improve the quality level of the work performance. Proper inspection also can
minimize the further claim cost due to contract failures.
In Ethiopia, the professional inspection to construction site is normally limited
within the contractual parties and small scope of the works; this may obstruct
47
the improvement of construction technology.

4.6 Conclusion and recommendations

As it is discussed above, in Ethiopian international construction contract

environment, there are some negative factors which had already impeded the
further development of the construction industry. These problems could be
mitigated in case of the involved parties give more attentions. Therefore, the
author would like to recommend the following points accordingly:
 To improve the supervision level of the sub contractor and encourage
the special contract services like give special license to different
construction majors, establish the litigation standard for different
workmanship.
 To develop more nature resource, and integrate the current market
for the balance of the whole industry requirement. Large scale project
should ensure the finance allocation and material supply before the
project commencement.
 To provide information exchanges services, train and improve the
communication capacity of the local workers.
 To establish the standard for project office, create an comfortable
work environment on site.
Ethiopian construction contract claim management problems can be mitigated
in case of the effort of the entire contract involved parties. We can easily
observe that there is no doubt that project management skills improvement will
certainly helpful for Ethiopian construction industry to be directed into the right
and healthy way.
In addition, the contract administration capacity development needs more and
more professional engineers to join the construction sector. The government
should pay more attention to this field and provide more assistance such as
the government could give construction quality cheek up service or
inspectional supervision on main construction stages, revising and
continuously improving the contract standard to guarantee high quality work
and exploit the advance construction technology.

48
 Chapter 5 Case study

5.1 Case study on contract form adopted from MoWUD

5.1.1 Case study on Megenagna–British Embassy–Ginfele–Arat killo and

Kebena– Minelik Hospital Road Project

1) Brief information of the case:

Project: Megenagna–British Embassy–Ginfele–Arat killo and Kebena– Minelik
Hospital Road Project
Employer: Addis Ababa City Road Authority
Consultant: BEZA consultant engineering Plc
Contractor: CRBC
Financial resource: Ethiopian government and china government
Contract Period: 30 Calendar Months (912 days)
Date of Signing of Contract: May 15, 2006
Date of Commencement: May 15, 2006
Mobilization Period: 30 Calendar days after the date of commencement (included
in the contract time)
Contractual Date of Completion: November 15, 2008
Contract Amount: Birr 128,964,473(out of which Birr 55.255 million shall be covered
by the China Government)
Project location: Addis Ababa
Project status up to now: ongoing
The work comprises a total length of 8.5 km road inside the city of Addis Ababa with
a typical design width of 30 – 40 meter, having four lane and side walk on both left
and right side carriage ways. The project also comprises longitudinal side drains
along the whole stretch, two bridges at Kebena and Ginfele rivers and six other slab
culverts.

2) Claim statement:

According to the contractor’s project report, since the commencement of the

project until June 2007 the total work executed including material on site
amounted to Birr 16,878,211. This makes the percentage of works executed
49
until June, 2007 only to be around 13%. The actual accomplishment for the
permanent work based on the contractor’s planned activities is only 11.5%. On
the other hand, the percentage of time elapsed, as of June 30, 2007 is 45 %
(i.e. 410 calendar days out of the contract time of 912 calendar days) of the
contract time. In accordance with the contractor’s original master work
program the scheduled cash flow until end of June 2007 was Birr 109.6 million.
The difference between the work executed and on monetary basis and the
programmed cash flow revealed the fact that the project is behind the original
schedule.

During the period of May 15, 2006 to June 30, 2007, the contractor described
that he had encountered serious problems related to taking over of the site
(Rights-of-way problem), late approval of drawings and frequent design
changes and exceptionally adverse climatic condition.

The contractor thereby has incessantly tried to notify the Engineer and the
Employer, through a series of correspondences and discussions, that the
project was suffering a delay. Different notices of claims associated with the
above mentioned factors were submitted to the engineer.

In the contractor’s claim report claims due to delay in approval of drawings and
design change; claims due to fault of the employer failed to possession of site;
claims due to resurvey are outstanding causes of delay and financial loss. The
contractor have enumerated the facts and supporting document to evidence
his contractual entitlement request for the time extension of 545 days and
compensation claim birr amounting to 262,255,734.6 in the period of May 15,
2006 to June 30, 2007 only.

Contractor quoted Mo WUD (1994) sub-clause 6.3 disruption of progress; 6.4

delays and cost of delay of drawings; clause 7 further drawings and instruction;
sub-clause 40.1 suspension of work; clause 44 extension of time for
completion; sub-clause 51.1 variation describing delay detail facts associated
with provision of survey control data, design change and approval of working
drawings, letters, site record and other supporting documents such as meeting
minutes were attached to the report, the related issues affect on project
progress thereafter analyzed; the contractor request time extension of 215

50
days and contract financial loss amounting to 13,136,069.8 birr.

In parallel, pursuant to Mo WUD (1994) clause 41 commencement of works;

sub-clause 42.1 possession of site; clause 43 time for completion; clause 44
extension of time for completion, the contractor claims the employer failed to
give possession of site for time extension 330 days and financial loss
amounting to 13,119,664.80 birr.

3) Case analysis and conclusion:

Therefore from the above case study we can observe that with 45% of contract
time was elapsed, only 13% of the work was executed due to various delaying
reasons as mentioned in the above. On the other hand, the cost compensation
claimed was 15.6% of the original contract price. The main reasons for these
huge losses were caused by lack of proper design approval and default of the
employer to prepare possession of site.

As we discussed in the above chapters, claim report should prepare based on

the facts collected on site, finally, whether the claim requests are accepted or
not by the engineer should depend on the data description and the suitable
quoted specification. These provisions we can find out from the above claim
report, therefore, the claims statement finally had been approved by the
engineer after its submission.

5.1.2 Case study on Ring road phase III

Wingate Interchange–Gojam Road Project
1) Brief information of the case:
Employer: Addis Ababa City Road Authority
Consultant: Renardet in Association with Unicone Consultant
Contractor: CRBC Addis Engineering PLC
Contract Period: 900 Calendar Days
Date of Signing of Contract: May 8, 2006
Date of Commencement (according to the contract): June 5, 2006
Actual commencement date: Oct. 13, 2006
Contractual Date of Completion: Nov. 8, 2008
51
Contract Amount: Birr 289,712,533.25 (without VAT and Contingency)
Project status up to now: ongoing
The work comprises a total length of 4.08 km road with a typical design width of
main road 22m–44m and frontage road 13.2m, including sidewalks. The project
also comprises longitudinal side drains along the whole stretch, one viaduct
(Tinishu Akaki), two overpass and various culverts.

2) Claim statement:

Since the commencement of the project until June 30, 2007 four payment
certificates were submitted and the total work executed amounted to Birr 31.20
million. This makes the percentage of works executed 10.8 %. This is however,
on monetary basis. The actual physical accomplishment based on the planned
activities is higher than the percentage on monetary basis. The percentage of
time elapsed, as of June 30, 2007 is 28.67% comparing to the original contract
completion time. The difference in percentage between the works executed
and time elapsed shows the fact that the project is by far behind the original
schedule.

During the period covered in the contractor’s claim from June 8, 2006 up to
June 30, 2007, the contractor encountered serious problems related to
Rights-of-way problem, default of the employer and frequent design variation.
Different notices of claims associated with the above mentioned factors have
been submitted to the engineer.

The project delay has incurred huge amount of unforeseen expenses on the
part of the Contractor's overhead and direct costs.

In the contractor’s claim statement, claims due to delay of drawing approval

and design variation, claims due to right of way problem and claims due to
adverse climate are quoted according to the contract condition.

The contract claim for time extension is 392 days while compensation request
amounting to birr 21,331,726.64 during the claim period of June 8, 2006 up to
June 30, 2007.

a) Claims due to failure to give possession of site:

The contract agreement was signed on May 8, 2006 bearing in mind that the
52
relocation will be completed before the site is handed over to the contractor
and the work would be commenced as of June 4, 2006 according to the
appendix to Agreement.

Since the contractor couldn’t get the required survey control points, it was not
possible for the contractor to take over the site and commence the work as per
the contract time. Even though the site was not handed over to the contractor,
the contractor hereby in cooperation with the employer and the engineer has
made all his efforts to complete the preparatory works so that immediate
commencement of the work during the dry season would be possible. This was
showed by timely deploying the necessary project manpower, by preparing
and issuing the work program, by providing the necessary engineer’s facilities,
by carrying out the survey to identify properties within the route corridor and by
deploying independent land survey consultant to re-establish the missing
control points. Due to the above mentioned problems, the site was not
possessed by the Contractor until Oct. 13, 2006 when 188 days has passed
after the signing of the contract. The contractor has made different
correspondences regarding this and informed the Engineer this to be claim
notification pursuant to Mo WUD sub- clause 17.

Moreover, the contractor couldn’t start the work timely due to the outstanding
ROW problems created by the existing houses, fences, electric poles,
telephone poles and underground utilities after the site hand over is performed.
The demolition of existing properties such as houses, building, fences, etc. and
relocation of services like Tele and Electric lines have not been completed for
the whole stretch.

It was unexpected that demolition of houses and other properties and

relocation works on utilities existing within the R.O.W were not going on as
anticipated.

It was the employer’s responsibility to give the contractor possession of so

much of the site as may be required to enable the contractor to commence and
proceed with the execution of the works in accordance with the approved work
program. It is only upon fulfillment of this condition that the contractor would be
able to perform on full efficiency by deploying the required manpower and

53
equipment or otherwise devise some mechanism (extended working hour,
additional rental of equipment, sub-contracting, etc.) for optimum utilization of
available resources. The contractor has made his efforts to timely notify the
existing ROW problems for several times so that it would have been possible
to execute the work efficiently and as per the work program. This obvious
factor entitles the contractor to both extensions of time and extra cost incurred
pursuant to Mo WUD sub-clause 41 (1) of the standard conditions of contract.

The contractor thereafter request 300 days time extension and financial loss of
birr amounting to 16,325,301.00.

b) Claims due to delay of approval of working drawing and design change

Issuing design drawings, approval of working drawings, making of design

changes and provisions of supplementary drawings and instructions are fully
the responsibilities of the engineer. Moreover, instructions and approvals
should be given to the contractor in due time so as to avoid counter effects on
the contractor's construction operation and cause any delay in the completion
of the project.

The contractor has encountered two major problems in relation with the design
issues which are the retaining wall and design change for drainage at different
sections.

The contractor have properly prepared the shop drawing for the retaining wall
work of the stretches from km 13+250–km13+530 and requested the engineer
for the approval. But the approval was delayed and moreover the engineer
gave another instruction which was contrary to the previous instruction given
by the engineer itself. The contractor has tried to indicate the various reasons
why the previous design should be accepted and adopted. Some of the main
reasons were: the standard of design for retaining wall at both side of Ambo
viaduct should be the same to maintain the same type of retaining wall at both
sides, the batter slope used for the former Ring Road project is checked in all
aspects of structural stability and moreover its performance is proved in the
past seven years of service, the quantity of work would be reduced which
makes it more economical for the client and the engineer was giving
contradictory comments which created delay to commence the work.

54
Regardless of the efforts made by the contractor to start the retaining wall work,
the engineer’s instruction for design changes has significantly affected the
progress of the work.

In addition to the retaining wall, the design alteration for the drainage pipe at
four locations which were changed from pipe culverts to box culverts, has also
contributed to the setback of the work. As it is well known, due to the design
change of the drainage work, the volume of work and the complexity of the
work to some extent will also be changed. During preparation of the shop
drawing which suits to the change, certainly there will be suspension of the
drainage work itself and at the same time the approach road of the sections.
The contractor believes such facts are convincing enough and understandable
by the engineer. Furthermore, since the volume of the work and the nature
work is changed, additional time is required for the drainage works in particular
and for the whole project in general.

In particular, the contractor request time extension 37 days for the delay of
approval drawing and design change.

c) Claim due untimely rain

Generally speaking effect of bad weather, though it was not as critical as the
claim particulars has significant negative impact on the project progress. It is
well understood that the regular rainy season of Addis Ababa starts at June
and ends at middle September. In year 2007 the rain has started as early as
March and extended up to the time of the seasonal rain. The contractor
therefore request excusable time extension 35 days due to the exceptionally
adverse climatic condition has disrupted mainly earth works and drainage in
the months of February, March, April, May and June 2007.

3) Case analysis and conclusion:

Therefore as we have in above, the cost compensation is 58.4 % of the original

contract price and the time extension request was 44.7% of the original
contract completion time up to the contract claim report submission date, the
contract time already elapsed 70% compare to initial contract time. As we can
see, the contract signed dated on May 8, 2006 but the actual commencement
55
dated October 13th, 2006. These show the project start to delay from the
beginning due to the failure of the employer to handover possession of site.
But, if the contractor failed to inform the engineer this delay officially, it may be
difficult to get document evidence to support the claim request.

In addition, we can see from the case study that claims due to climatic change
was another influencing factor for the delay. Climate change is a kind of
continues influence factor for time extension claim, once it had brought delay
to the project, data collection and timely report are both very important. Data
collection needs the contractor get weather data from meteorology authority.
While, timely report need the contractor provide time extension request to the
engineer frequently base on the actual work suspension due to weather
influence. Finally, contractor cumulates the total time delay result and submits
to the engineer, and copy to the employer. The engineer will check the
reference data provided by contractor and give time extension evaluation
accordingly.

The main reason for financial compensation was caused by ROW problem,
delay for design approval and extra variation works.

The financial compensation arose by design related issues amounting to birr

5,006,425. It takes 23.5% of the total cost compensation request, ROW
problem cost claimed amount in birr 16,325,301. It takes 76.5% proportion of
the total cost compensation. Therefore, we draw a conclusion that main cause
of this claim is the problem of possession of site.

5.2 Case study on contract form adopted from PPA

5.2.1 Case study on 10 blocks residential housing projects around CMC
area
1) Brief information of the case:
Employer: Different Private condominium organization
Consultant: Amare architect and Consultant PLC
Contractor: Chao yang construction group (Ethiopia agency)
Contract Period: 365 Calendar Days
Date of Signing of Contract: Dec 18, 2005

56
Date of Commencement (according to the contract): Dec 20, 2005
Contractual Date of Completion: Dec 18, 2006
Contract Amount: Birr 36,548,916.28 (without VAT and Contingency)
Project status up to now: terminated
Work description:
The contact is for the execution of the ten blocks of residential buildings comprising
works shall be carried out as sub-structure and superstructure amounting to birr
36,548,916.28 and all necessary electrical installation and sanitary work
accordance with the specification of the contract documents.

2) Claim statement:
During the execution of the contract, the contractor encountered national cement
shortage, adverse weather condition and payment delay problem, delay to give
possession of site, unforeseen obstructive and design related issues; the contractor
submitted contract claim to the engineer and the employer accordingly,
unfortunately, due to the employer’s problem, those claims request couldn’t get
solution properly, the works were constantly suspended because of various reasons,
the project progress hereby is far to satisfy the contract request. Up to Dec, 2008,
the contractor only completed 80 percentage of structure part, this revealed that the
contract implementation failure. In Feb, 2009, the contractor and the employers
negotiated to terminate all the agreements.
With the contract files closure, let’s see the contract execution procedure and the
loss and gain to all the related parties.
The contractor claimed time extension 1108 days and financial loss in birr
amounting to 8,756,873.48 together from the employers due to clause 21
possession of site; clause 28 extension of the intended completion date; clause 43
payment; clause 44 compensation events pursuant to PPA (2006).
In the contractor’s claims report, due to delay approval of working drawing, the
contractor requests 150 days of time extension. Due to the cement shortage, time
extension request became 186 days, due to payment delay, time extension request
385 days; other delay issues together requested 387 days. The financial
compensation focused on cement price escalation, design change and interest of
payment delay.
While, because of the lack of knowledge of contract, the employer except to pay the
57
contractor the huge amount of compensation, in meantime, they have to retender
and find other solution to complete the remaining contract.

3) Case analysis and conclusion:

As we discussed in above chapters, the private investment organization lack of
professional contract claim knowledge had become very serious problem in
Ethiopian construction industry and the contract failure due to contract
administration problem should give more attention.
From this case, the contractor knows his contractual entitlement and request
accordingly. Since the employer doesn’t know their entitlement at all, they are
subjected to answer for claim request aroused by the contractor.
Thus, this case study helps us to understand both contractual parties should
understand their contractual rights and take action as soon as possible to escape
further loss.
It is the author opinion that the engineer decision was right due to provision of the
contract. Thus, from this case study we can learn that proper contract
administration is very important.

5.3 Case study on contract form adopted from FIDIC

5.3.1 Case study on Nejo-Mendi Road Upgrading Project
1) Brief information of the case:
Employer: ERA
Consultant: Metaferia Consulting Engineers (MCE)
Contractor: CRBC
Funding resource: OPEC
Contract Period: 24 Calendar months
Date of Signing of Contract: 20th April 2004
Date of Commencement (according to the notice): 11th May, 2004
Actual commencement date: 18th August, 2004
Contractual Date of Completion: May 10, 2006
Contract Amount: Birr 147,768,639.37
Actual completion date: July 28, 2007
Project status up to now: completed

58
Project data:
The Project Roads starts at Nejo (approximately, 186.8km from Nekempte) on the
Nekempte-Mekenajo-Nejo-Mendi-Assosa Road, goes through the town of Jiru, Gori,
Dandi Gudi, Kiltu Kirl and terminates at Mendi. The estimated total length of the
Project Road Sections is 73.5 km. The Project is located in the State of Oromia and
passes mostly through rolling and also through rolling-to-hilly terrain of the region
called, “Western Highlands”. The road passes through six towns namely Nejo, Jiru,
Gori, Dandi Gudi, Kiltu Kirl and Mendi. The project consists of construction of road
Works, including earthworks, new pavement construction, rehabilitation of existing
cross-drainage structures and bridges, new construction of cross-drainage
structures and bridges, construction of retaining walls and protection works. Typical
pavement width is 7.0 m and 1.5 m shoulders on either side of the carriageway in
urban sections and 6.0m with 0.5m wide shoulders in rural sections

2) Claim statement:
The contractor, in his first claim submission of March 23, 2005, requested for a
total of 365 days extension of time due to physical obstruction, on June 6, 2006
and March 13, 2007, the contractor submitted his claim requested 429 days
calendar days of extension and reimbursement for additional entitlement of birr
36,098,211 and compromised some facts for technical arguments
The main delay causes which are basis for extension of time assessment
covered within the contractor’s submission are:
 initial delay in provision of revised and completed design (34days)
a) Delay in surveying
b) Delay in provision of design for permanent works
 adverse climatic condition (98days)
 delays due to earthworks variation (292days)
a) Increase in quantity of cut to spoil (262days)
b) Delay due to capping design change (30days)
 delay due to shortage of material for aggregate
production(concurrent)
 shortage in cement(concurrent)
 shortage in fuel (5days)
Contractor has also enclosed herewith other financial remunerations due in the
59
contract from inception to date including those items not addressed or settled:
 survey and re-survey cost
 redesigning cost
 losses associated with engineer vehicles
 additional entitlement associated with sub base
 additional cost due to shortage in supply of cement
 additional cost for grouted stone pitching
The financial remuneration:
A) prolongation and acceleration costs as shown in table 5.3.1:
Table 5.3.1 Prolongation and acceleration cost compensation

No. Description ETB

1 Prolongation due to delay 5,047,613
Prolongation due to increase in
2 10,639,493
earthwork
3 Prolongation-delay due to access-fuel 277,341
4 overhead 4,803,519
Sub-total 20,767,966
5 Acceleration cost 3,224,580
Sub-total 23,992,546.27
6 Vat 3,598,882
Total 27,591,428

B) other financial matters as shown in table 5.3.2

Table 5.3.2 Other financial compensation
No. Description ETB
Additional entitlement for re-survey
1 463,562
works
2 Re-design works 95,950
Cost associated purchase of engineer’s
3 4,575,094
vehicle
4 Design change in sub base 1,930,710
Shortage of cement extra cost 291,165

5 Design change in grouted stone pitching 1,150,302

Total 8,506,783
The total cost claims is therefore amounting to ETB 36,098,211.
The claims request based on FIDIC clause 12 not foreseeable physical

60
obstructions or conditions; clause 40 suspensions; clause 42 commencement
and delays; sub-clause 43.1 time for completion; sub-clause 44.1 extension of
time for completion; clause 51 alterations, additions and omissions; sub-clause
52.1 valuation of variations; clause 70 change in cost and legislation; the
engineer have granted the contractor time extension request 345 days and
ETB 2,944,554 financial reimbursement accordingly.

3) Case analysis and conclusion:

Therefore from the above case study we can observe that the claim request for
cost compensation was about 24.4 % of the original contract price and the time
extension request extends to 106.7% of the original construction completion
time. The cost compensation worth’s 36,098,211 birr and according to the
provision of the contract conditions.
By using hypothesis scientific research method, we find out that in case of the
contractor fail to complete the project within the given time, he has to pay for
the liquid damage amounting to 14,776,863.9 birr. It is 41% of his cost
compensation.
Thus, we can conclude that the time extension has become extremely
important for the contractor and during the international contract execution; the
contractor should identify more important claim factors to minimize his financial
loss.

5.3.2 Case study on Awash-Hirna Road upgrading Project

1) Brief information of the case:
Employer: ERA
Consultant: Consulting Engineering Services (India) Ltd. Dana Consult PLC
Contractor: CRBC
Contract Period: 1096 days
Date of Signing of Contract: 1st June 1999
Date of Commencement (according to the notice): 8th June, 1999
Contractual Date of Completion: June 7, 2002
Contract Amount: Birr 256,542,439.10
Actual completion date: July 8, 2005
Project status up to now: completed
61
Project data:
The work on Contract comprised the upgrading of 140.7 KM of existing
roadway from Awash to Hirna. The first 70 KM of alignment passed through
the Great Rift Valley with the road varying from 900 metres above sea level at
Awash to 1300 metres ASL at Mieso. From Mieso to Arba Raketi village, a
distance of 35 KM the terrain changes to a mountainous area climbing to 2000
metres ASL. The 36 KM from Arab Raketi village to Hirna climbs from 2000
metres above sea level to 2650 ASL through mountainous terrain with very
steep slopes. The upgraded roadway consisted of a 7 meter wide two lane
carriageway road with 1.5 meter wide shoulders on each side, replacing in the
main a narrower existing road with badly damaged surfacing. Any existing
wearing course was to be reprocessed to constitute part of the new sub-grade
followed by a newly constructed sub-base of varying thickness. Primarily the
construction was to consist of a 150 mm thick layer of natural gravel lower
sub-base, a 125 mm thick layer of crushed stone upper sub-base, 75 mm of
Dense Bitumen Macadam and 40 mm of Asphalt Cement Wearing Course. As
well as cleaning of existing culverts, there were some 1990 meters of pipe
Culvert replacements and extensions and 8 no. Concrete Box Culverts for
refurbishment or replacement. Earthworks of cut to fill, cut to spoil, and
imported filling and topsoil amounted to some 900,000 M³. Further activities
included remedial work to concrete bridge slabs, decks, girders, abutments
and parapet walls, some 220,000 meters of ditch work, retaining wall and
gabion work, provision of road markings, road furniture, cable and pipe ducts
and plantation works of grassed areas and tree planting.

2) Claim statement:
The contractor claimed that various matters and events outside his control had
caused serious delay, such as delayed possession of site, re-establishment of
GPS point, re-location of quarry, large increase in quantity of sub base,
non-availability of benchmarks, shortage of cement, design change in general
and to culverts and structures in particular; disruption to the works due to the
presence of obstructions and action of farmers and local inhabitants together
with difficulties in obtaining rights of way to the site of the works and borrow
areas; exceptionally adverse climatic conditions; as the result of such matters
62
and events, the contractor requested an extension of time for 755 days and
additional cost in the sum of ETB 68,581,561.00.
Under the above circumstance, the contractor numerated the following
contract provision to evidence his claim request:
Pursuant to sub-clause 14.2: the contractor should revise work program If at
any time it should appear to the Engineer that the actual progress of the Works
does not confirm to the program to which consent has been given under
sub-Clause 14.1; the Contractor shall produce, at the request of the Engineer,
a revised program showing the modifications to such program necessary to
ensure completion of the work within the time for completion.
The above quotation is quite specific, but must however be read in conjunction
with interfacing Clauses as to time for completion and extension of time
including, but not limited to;
Clauses 41 to 46, 51 and 52
With emphasis added to the provisions and relevance of contract Clause 44 is
to give the circumstance of the project delay disruption and dealing with
extension of time.
The foregoing provisions are duly supplemented by contractual provision as to
time for completion by way of reference to Clause 43;
a)Time for Completion
the whole of the works and, if applicable, any section required to be completed
within a particular time as stated in the appendix to tender, shall be completed,
in accordance with the provisions of Clause 48 within the time stated in the
appendix to tender for the whole of the Works or the section, calculated from
the commencement date, or such extended time as may be allowed under
Clause 44.
b) Clause 44 is fully addressed later; however such Clause provides the
contractual mechanism for an extension of time to be granted. Grounds for
such an extension of time are summarized as;
 Extra work
 Other grounds referred to in these Conditions
 Exceptionally bad weather
 Employers’ delay
 Special circumstances
63
Which constituent elements are variously related to the circumstances of delay
causation and dealt with.
The Contractor’s initial delay in the commencement of his Works was caused
by delayed possession of the site of the works. Contractual references are
made to General Conditions of Contract Sub-clause 42.1Possession of site
and access thereto and Sub-clause 42.2 Failure to give possession. The
employer gave possession of mobilization areas in September, 1999 in
accordance with the requirements of the program which had delayed nearly 8
months for the work performance. Non-available of benchmark refers to the
general condition of contract sub-clause 17.1 which states the accurate setting
out of the works in relation of the original points, lines and levels of references
given by the engineer in writing, while contract documents “Benchmark List”
Volume IIA gave the location of 168 No. benchmarks. In the event 130 No.
could not be located, 21 No. were found in different locations and 14 No. were
in their correct locations. The contractor hereby was forced to employ a team
of professional land surveyors to install a whole new benchmark system which
has involved him in expending additional cost.
In addition, arising from modification to the works a great increase in sub base
quantities have proved to be necessary to complete the work compared with
the contract quantities detailed in relevant items, for instant, the sub base
contract bill quantity is 112,970 M3 has been revised to 268,266.80 M3 which
has increased 137.5% in great extend. The need to accelerate by providing
additional resources is a flawed argument in that pursuant to Sub-clause 8.1 of
the General Conditions of Contract the contractor provided everything
necessary including sufficient labor, plant and equipment to execute the works
as tendered. Pursuant to Sub-clause 12.1 the contractor covered all his
tender obligations with respect to the works required under the tender.
Pursuant to Sub-clause 46.1 the contractor is not obliged to incur extra costs to
enhance the progress of the works. Other design change and design delay,
ROW problem described in the contractor’s claims report pursuant to the
relevant contract conditions accordingly.

64
3) Case analysis and conclusion:
It is obvious to observe that the above mentioned case was delayed mainly
because of the ROW problem and design related issues. These problems are
similar to the foregoing discussed cases. While,
Particularly, this project had been delay by shortage of material like cement,
petrol etc. as we discussed in the above chapters, shortage of resource should
be looked as one of the contract condition to the contractor before he
commences the project, to avoid further contract claims, one experienced
contractor must can foreseen what the contract situation he may counter
consequently, therefore, the engineer had approve the contractor’s cement
and petrol price escalation request but rejected his time extension claim.

5.3.3 Case study on Mekenajo-Dengoro-Billa-Heha-Nejo road project

1) Brief information of the case:
Employer: ERA
Consultant: Rites Unicone JV
Contractor: SIETCO
Fund Resource: OPEC
Contract Period: 24 months
Date of Signing of Contract: April 20, 2004.
Date of Commencement (according to the notice): 11th May, 2004
Contractual Date of Completion: May 10, 2006
Contract Amount: Birr 138,601,822.00(Including VAT and Contingency)
Actual completion date: July 25, 2008
Project status up to now: completed
Project data:
Contract works comprises the construction of approximately 62km of road on
the Mekenojo-Nejo-Mendi road upgrading project.

2) Claim statement:
A number of disputes arose during the contract period, these disputes were not
settled during the construction period, finally, the contractor and employer
decided to ask the assistance from DRE. The claim items are:
 Increase in earthwork
65
  Adverse climatic conditions
 Delay and additional cost due to riot
 Delay in drawing
 Lack of possession
 Increase in quantities of selected sub grade and side drains.
 Duty on engineer’s car
 Problem with bench marks
 Late payment
 New rate for concrete
 Increase in bitumen work
 Road improvement km 168-186
Particularly, the contractor is of the opinion that insufficient bench marks were
provided and that some of the bench marks were wrong, the contractor claims
time cost due to delay for the cost of correcting bench marks and for the
provision of further bench marks, the contractor claims ETB 49,393.50 in terms
of clause 17 of the condition of contract and 28 days extension of time in terms
of clause 44.1. The contractor claims that his work was delayed due to lack of
drawings which is in terms of clause 6.4 and 44.1 of the general condition of
contract, the contractor claims extension of time of 36 days, and additional
compensation of ETB 5,548,378.80.the contractor claimed for delay and
additional cost due to riot in terms of clause 12.2 and clause 20.4 of the
general and particular conditions of contract time extension of 15 days and
additional compensation of ETB 862,151.54. The contractor claimed extension
of time, idle time, acceleration cost and a new rate for cut to spoil due to the
increase in earthwork quantities for time extension of 625 days in term of
clause 44.1 of general conditions of contract, on the grounds of extra or
additional work. The amount of idle time claimed was ETB 40,024,500.74 in
terms of clause 51 and 52 of the general conditions of contract, the
acceleration cost claimed is ETB 8,952,307.67 in term of clause 51 and 52 of
GCC, the cost that the contractor claims due to the new rate is ETB
42,649,229.19 and is claimed in terms of clause 52.2. The contractor alleges
that due to payment delay he is entitled to suspension costs in terms of clause
69.4 and interest in terms of clause 60.10 and 60.14 of the conditions of
particular application. The suspension cost claimed is ETB 1,704,425.81 and 7
66
days extension. The interest claimed by the contractor on the basis of late
payment is ETB 16,564.20 and USD 135,250.84. the contractor also claimed
that due to lack possession in km 126-130, km 182 to 186, km 184 to 185 for
time extension request of 23day, cost compensation ETB 344,525.21; time
extension 52 days and additional compensation ETB 1,326,603.58, time
extension 91 days and cost 5,275,689.34 respectively pursuant to clause 42.2
and clause 44.1. The contractor paid duty on the vehicles thereby to claim this
amount from employer of ETB 4,336,764.18 including 49% overhead costs.

3) Case analysis and conclusion:

According to decision of DRE, claims related to design change had been fully
accepted based on the facts investigation, while, the contractor claimed in
delay of payment was rejected after the assessment of the actual condition,
the employer suspended the contractor payment pursuant to General condition
of the contract clause 69.4, therefore, there was no additional cost and interest
compensation addressed to this claim. It showed that time record of
construction document is very important for both employer and contractor in
case of the further claim calculated based on the time consideration.

5.4 Summary of contract claims problems in Ethiopia

From the above cases we can easily conclude that the contract claim
commonly focus on delay of design and working drawings, ROW problems,
adverse climate conditions; variation, payment related issues; etc. In spite
of different conditions of contract applied accordingly, the contractor and the
engineer both try to find the different explanation to the relevant contract
documents hereby to defense the other in order to escape contract loss due to
claims confirmation under an unbalance situation.
Finally, in case of the negotiation failed between the contractor and the
employer mediated by the engineer, it should be like the above mentioned
case to ask assistance from DRE or have to find another solution like legal
arbitration. Meanwhile, contract claims nowadays have become more serious
due to it relating to huge amount of monetary compensation which is even
beyond the original contract price.

67
In the same time, we can also easily see that all the contract claims based on
an abundant of evidences such as contract documents, related letters, and
work performance record. Nobody can draw a conclusion without finding any
facts before; therefore, the contract administration work during the execution of
the contract should be concerned to every detailed issue for further
compensation case preparation.
Time extension request and cost compensation are two important claim issues
during the execution of the contract, in case of the contractor want to reduce
his contract loss because of the complicate reasons, he must learn how to
make these proper contract entitlement request easily accepted by the
employer and engineer.

68
 Chapter 6 Analysis and findings

The cases are selected randomly from different organizations, all the related
data are factually collected from the contractor claim reports or the
recommendation paper of the DRE in Addis Ababa.
The summarized claim items are shown in table 6. From the table computation
result, we can find out that in the random sample projects, the time extension
request vary from 44.7% up to 303.6% compare to the initial contract time, the
cumulative average level is 117.7%; while, additional cost compensation from
3.02% up to 76.1%, the cumulative average level is 34.83% compare to the
original contract price. The data analysis is shown as following Fig 6.

4.5
4
3.5
3
2.5 Time claim
2
1.5 Contract time
1 Cost claim
0.5
Cost claim Contract price
0
Time claim

Fig 6 Case data analysis

In parallel, most of the claim arising from ROW problem, design related issues
which take 18.12% and 12.9% proportion respectively in time extension claims
during the contract execution, claims due to contract administration problem
like ambiguities in contract document, slowing decision making and
inadequate communication, etc takes 51.9% of the contract claim, the others
like default of the employer, changed circumstance and unforeseen or
uncertain condition during the execution of contract takes 17.08% of the total.
Most of the cost compensation request due to design change and failure to
give possession of site by the employer. the percentage data is shown as
following Fig 7.
69
 Percentage

17.08% 18.12%

ROW problem
12.9%
Design related
Contract administration
51.9%
Others

Fig 7 Percentage of claims causes

Therefore we conclude that the key problem to the contract claim in Ethiopia is
lack of contract administration experience. Therefore, it becomes crisis to
recall the contract parties to focus on increasing professional management in
contract management during the project execution period.
In addition, in order to make contract claim to be solved in an easy way, the
data collection and project record become very important to justify the facts
which describe in the claim report.
Contract claim should be treated as the most important project management
factor thereby to avoid further loss to all the involved parties.

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 Table 6 Claim problems summary and computation

Project (Refer to above case edited number)

No. Description %
5.1.1 5.1.2 5.2.1 5.3.1 5.3.2 5.3.3

1 Initial contract time 5-15-06 5-08-06 5-08-06 4-20-04 6-01-99 4-20-04 -

Initial contract price in
2 128,964,473 36,548,916 289,712,533 147,768,639 256,542,439.1 147,768,639
birr
Time extension
3 545d 402d 1108d 794d 755d 854d 117.7%
claim(total) day
Additional financial
4 26,225,573 21,331,727 8,756,873.5 36,098,211 68,581,561 112,443,031 34.83%
claim(total) in birr
Claim due to Time 330d 330d - 365d 166d 18.12%
5
ROW Cost 13,119,665 16,325,301 - 3,931,689 11,283,582.3
Claim due to Time 215d 37d 150d 331d 689d 12.9%
6 design and
variation Cost 13,136,069 5,006,425 2,627,062 27,591,428 98,085,960
Claim due to Time - 35d - 98d
7
climate Cost - - - -
Other related Time - - 958 -
8
claims issues Cost - - 6,129,811.5 4,575,094
9 Final completion time 7-28-07 7-08-05 7-25-08
5-15-06 6-08-06
10 Claim covered period up to up to - - - -
6-30-07 6-30-07
11 Project status up to now Ongoing Ongoing Terminated Competed Completed Completed

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 Chapter 7 Conclusion and recommendations

7.1 Conclusion

Claims in Ethiopian international construction contract have special

characteristics due to its special contractual environment; but the common
claim causes according to the provision of the contract conditions have the
same settlement methods compare to the normal contract management
procedure in different situations of other countries, such as claims evidences
requirement, claims procedure, claim solution and other general rules during
the claim submittal, claim investigation, claim identification and claim
arbitration, we thereby should not only concern the special conditions for
preparation of the claim documents but also referring to other claim case
request in general when encountering contract claim problem in Ethiopia.
It is common the claim reason arising from design change, default of the
employer, unforeseeable condition and other related issues which may bring
loss to the contractor or cause delay to the contract implementation; while, the
contractor will claim for his entitlement according the contract provision and try
to decrease his loss or protect his supposed profit. For the employer whether
to pay the huge bill to the contractor or not depend on his counter claim
method and his engineer contract management level. In Ethiopia, when the
project suffers claims, DRE will be very popular to be invited and draw his
opinion accordingly due to his professional service.
The contract claim problem may show up in case of poor project management
or inadequate communication between the engineer and the contractor during
the contract execution period. The cumulative problems not solved will finally
become the fuse of the contract claim. As we know, project delay sometimes
will bring the extra financial loss to the contractor, therefore, time extension
request will normally consequent the additional cost compensation. In Ethiopia,
we may see most of the engineer prefer to give time extension to the
contractor as his request but always try to escape to give his justification or
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comments on the financial reimbursement request.
Claims resolution in Ethiopia normally adopted DRE recommendation or
alternative dispute resolution due to its non-confrontational technical
advantage.

7.2 Recommendations

It is in the best interest of the parties involved that claims could be resolved as
quickly as possible and most of claims could be avoided by using dispute
prevention methods. Some of the methods which are related to Ethiopian
construction trend are the following:-
 Accurate, complete design documents. Some projects didn’t have full
design documents including the one which are not required for
construction permission. For example designs like mechanical
ventilation, acoustical design, fire security, etc are not included in the
contract documents.
 Contract provisions that allocate risk equitably among the parties.
Contracts that make the contractor entirely responsible for such risks
as weather, unforeseen conditions, delay, by the owner, labor unrest,
material shortages, and inflation are like to be more dispute prone than
those that spread such risks among the parties
 Constructability reviews. During the design process, utilizing experts
on practical aspects of construction to advice on the plausibility of the
design from the contractor’s point of view, including the cost and
schedule impacts of various alternatives.
 Partnering and cooperation. Fostering cooperation throughout the
construction process helps to finish the project successfully, by
providing a working space for understanding each other. For example
creating opportunity for all professionals to discuss on design
amendments, and construction process.

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  Sufficiently detailed projects program that is endorsed by all parties will
help to minimize disputes.
 Continuously keeping project reports
 Minimizing the number of contract changes. Fewer changes ought to
result in fewer disputes.
Contract claim is the way to provide an opportunity for both of the contractor
and the employer to request his right according to the associated rules or
contractual provisions. Therefore we should encourage the proper contract
claim during or after the execution of the contract.
Contract claim will also help to increase the project management level of all the
involved parties and make them to clearly identify their shortcoming and
disadvantage through the discussion of the contract claims. Therefore, claim
can be considered like a mirror which will reflect the essential of the facts; it
also can be looked as one kind of medicine which may be make the contract
management suffering lots but finally can cure the pain of failure.
We may think the positive impact of the contract claim on the current contract
administration situation in Ethiopia due to it easily reflection of the problems
thereby it will guide the right direction of contract management.
More recommendation should be given to the contractor; contract claim will
directly influence the contractor’s interest and profit, therefore, we repeatedly
emphases that the contractor must pay attention to his site management and
documental collection for his further claim in case of project suffered financial
loss or fail to complete within the given time. When we study the situation in
Ethiopian contractor’s contract management, we find out that the incompetent
contract management problem even more serious than the poor performance,
as we know, we may correct the physical defect easily but it is very difficult to
fix the contract mistake in case of contract mistake may bring millions of loss
without any reimbursement. So, I would like comment the contractor to
organize more domestic training and improve the professional management
level in site office. Because there are lots of works should be completed by the
74
site professional engineer and it is also easily to be realize if the company like
to improve its individual contract management capacity.
Contract claim management depends on the standard of the reference
documents, if the contract based conditions have ambiguities or any conflicts,
the justification may become more difficult, therefore, government relevant
authorities should focus on these kinds of problem and try to revised contract
standard timely and provide a clear guide to the contractual parties.

75
References
1) A.G.Twort: Civil engineering supervision and management,1th ed, Edward
Arnold(Publishers) Ltd; London,UK, 1966.
2) R.J.Marks, A.Grant and P.W.Helson: Aspects of civil engineering contract
procedure, 1th ed, Pergamon Press Ltd, UK, 1965.
3) Fiker Alebachew: contracts and claims management, CRBC(Ethiopia)
office domestic contract training lecture, Addis Ababa, Ethiopia,
2007.(unpublished document).
4) Liu Yi: Application of FIDIC Clause in time claim, construction technology
magazine press, Beijing, China, Vol.36, 2007.
5) Standard condition of contract for construction of civil work project: Ministry
of Works and Urban Development, Addis Ababa, Ethiopia, Dec, 1994.
6) FIDIC: 3th ed, Chinese construction press, Beijing, China, 2006.
7) Girmay Kahssay: Claim in international projects in Ethiopia, MSc thesis in
civil engineering, school of graduate studies, Addis Ababa University,
Ethiopia, June, 2003.
8) Abdissa Dessa: Claims in Ethiopian construction industry, MSc thesis in
civil engineering, school of graduate studies, Addis Ababa University,
Ethiopia, Feb, 2003.
9) Dereje Kidane: Contractor’s entitlements under ‘FIDIC87’ and ‘FIDIC 99’. ,
EACE bulletin vol.5, Addis Ababa, Sep, 2003.
10) Lei Jun Qing: Civil engineering project management manual, People
communication press, Beijing, China, 1996.
11) John A.Milne: Tendering and estimating procedures, 2th ed; George
Godwin Limited, London, UK, 1980.
12) Harold J. rosen, P.E.,FCSI; Construction specification writing principle and
procedures; 2th ed; A wiley interscience Publication; New York, US, 1981.
13) Radio Fana, bidding document for the procurement of construction of
head office for radio fana; Addis Ababa, unpublicized document, Sep 18,

76
 2007.
14) Clarence W. dunham, C.E, Contract, specifications, and law for engineers,
McGraw hill book Company, Inc; New York, 1958.
15) Committee of national professional engineer registration, building project
management and practices, china construction industry press, Beijing,
china, 2006.
16) The federal democratic republic of Ethiopia public procurement agency
(PPA), standard bidding document for procurement of works, Addis Ababa,
Ethiopia, January 2006.
17) CRBC interim submission claim report to AACRA No 3, April, 2008.
18) WM Mariais, Dispute review expert recommendation between china
Sichuan international cooperation co.ltd and ERA; South African
association of arbitrators; Feb 28, 2009.
19) Fredrick S. Merritt & Jonathan T. Ricketts, Building Design and
Construction Handbook; 2001.
20) F. Lawrence Bennett, The Management of Construction: A project Life
Cycle Approach; 2003.
21) Nujikas Davies & Erkki Jokiniemi, Dictionary of Architecture and Building
construction; 2008.
22) Gashaw Yayehyirad(PhD.), Lecture for construction management, Addis
Ababa, Ethiopia, unpublicized document, 2006.
23) CRBC submission claim report to ERA, 2007.
24) Mohan M. Kumaraswamy, Conflicts, Claims, and Disputes in Construction,
Engineering, Construction and Architectural management; 1997.
25) R.A. Harris and S.Scot, UK practice in dealing with claims for delay,
Engineering, Construction and Architectural Management, 2001
26) www.informatik.uni-bremen.de

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Appendixes
Appendix 1: Claims description in Mo WUD (1994)
Mo WUD (1994)
The contractor’s entitlement and claim description:
The contractor may request additional cost and time extension
Clause 5.2 Documents mutually explanatory: due to the Ambiguities or
discrepancies among several documents forming the contract;
clause 6.4 Delays and cost of delay of drawings: Failure or inability to issue
Engineering drawing within reasonable time causing disruptions of progress;
clause 12 Sufficiency of tender: Physical conditions or artificial obstruction,
which cannot be predictable by an experienced contractor; then the engineer
shall certify and the employer shall pay the additional cost to which the
contractor shall have been put by reason of such conditions, including the
proper and reasonable cost;
Clause 40.1Suspension of works: Extra cost due to suspension to the
contractor will instructed by the engineer and paid by the employer unless such
suspension by the reason of default of the contractor;
clause 42.1 Possession of site: Failure on the part of the Employer for
possession if the contractor suffers delay or incurs cost from failure on the part
of the employer to give possession in accordance with the terms of this clause,
the engineer shall grant an extension of time for the completion of the works
and certify such sum as, in his opinion, shall be fair to cover the cost incurred,
which sum shall be paid by the employer;
Clause 70 Increase or decrease of cost: Changes in cost & legislation the
contractor shall give a written notice within a reasonable time to the engineer,
while the employer shall pay such additional or reduced cost as per provision
of this clause. While,
The contractor may ask for cost compensation only:
Clause 18 Additional boreholes or exploratory excavation;

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Clause 20.1 Care of works: Repairs due to damages, loss or injury form any of
the excepted risks;
Clause 26.2 Compliance with statutes, regulation, etc;
Clause 27 Fossils, etc: Obstructions such as archeological and geological
interest or structures.
Clause 30 Damages due to extraordinary traffic claims;
Clause 31Opportunities for other contractors: use of contractor’s belongings
for other purpose by the Employer;
Clause 36.4 Additional Tests not provided in the contract;
Clause 38.2 Uncovering and making opening to inspected works;
Clause 49.3 Cost due to remedy works other than contractor’s responsibility;
clause 50 Searching for defects, imperfections, or faults;
Clause 52.1 Valuation of variations; all extra or additional work done or work
omitted by the order of the engineer shall be valued at the rates and prices set
out in the contract, in the event of disagreement the engineer shall fix such
rates or prices as shall , in his opinion, be reasonable and proper.
Clause 65.3 Damage due to special risks; if the works or any materials on the
site or any property of the contractor used or intended to be used for the
purpose of the works, sustain destruction or damage by reason of any of the
said special risk, the contractor shall be entitled to payment in accordance with
the contract.
Clause 65.5 Increased costs due to special risks;
Clause 65.8 Payment after termination;
clause 69 Default of employer: Default by the Employer to fail to pay the
contractor the amount due under any certificate of the engineer within thirty
days, or interfering with or obstruction or refusing any required approval, or the
employer becoming bankrupt, going into liquidation or giving formal notice to
the contractor that for unforeseen reasons due to economic dislocation, it is
impossible for him to continue to meet his contractual obligation, in the event of
such situation, the employer shall be under the same obligations to the
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contractor in regard to payment of any loss or damage.
The employer’s entitlement and claim description in Mo WUD (1994) are
shown as the companied table:
Employer’s entitlement pursuit to Mo WUD
Clause 25 Contractor’s failure to insure; the employer may request cost
compensation from contractor.
Clause 39.2 Removal of improper work & material; the employer may give
order to contractor to rectify work defects, if the contractor fails to do that, the
employer will arrange to remove improper works or material but cost should be
covered by the contractor.
Clause 47.1 Delay in completion time; if contractor failed to complete contract
within the given time, he has to pay liquidated damage to the employer
according to the provision of contract.
Clause 49.4 Remedy on contractor’s failure to carry out work required; the
employer may cost compensation.
Clause 52.1 Valuation of variations; in case of variation cause the cost
reduction, the employer may ask repayment from contractor.
Clause 63.1&63.3 Costs incurred by the Employer due to default by the
contractor; the employer has right to ask cost compensation.
Clause 64 Urgent remedial work made by the Employer; the employer has
right to ask for cost compensation.
Clause 65.8 Payment after termination; the employer can ask additional cost
payment.
Clause 70.1&70.2 Changes in cost & legislation; the employer has right to
request cost compensation.

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Appendix 2: Claims description in PPA (2006)
The contractor’s entitlement and claim description:
The contractor may ask for cost compensation
clause 11 The employer’s risk, the risk include the personal injured, damage to
work, plant, material and equipments due to employer’s fault or in the
Employer’s design, or due to war or radioactive contamination directly affecting
the country where the Works are to be executed.
Clause 20 Discoveries, the contractor may ask for time extension in case of
anything of historical or other interest or of significant value unexpectedly
discovered on the site which to deal with will influence the progress of the project.
Clause 21.1 Possession of the site, if possession of a part is not given by the
date stated in the approved work program of the contractor, the employer will be
deemed to have delayed the start of the relevant activities, and this will be a
compensation event. Most of the cost compensation claim arise from the
employer fails to give possession of site, therefore, it is important for the
contractor to give a clear record to this issue during the execution of contract.
Clause 28.1 The Engineer shall extend the Intended Completion Date if a
Compensation Event occurs or a Variation is issued which makes it impossible
for Completion to be achieved by the Intended Completion Date without the
Contractor taking steps to accelerate the remaining work, which would cause the
Contractor to incur additional cost.
Clause 29 Acceleration: the contractor may ask for cost compensation if the
employer’s accept his acceleration proposal;
Clause 32.1 The Contractor shall warn the Engineer at the earliest opportunity of
specific likely future events or circumstances that may adversely affect the
quality of the work increase the Contract Price or delay the execution of the
Works.
Clause 34.1 If there is no Defect of the test which not specified in the
specification request by the engineer, the contractor can ask cost compensation.
Clause 38.1 If the final quantity of the work done differs from the quantity in the
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Bill of Quantities for the particular item by more than 25 percent, provided the
change exceeds 5 percent of the Initial Contract Price, the Engineer shall adjust
the rate to allow for the change;
Clause 38.2 The Engineer shall not adjust rates from changes in quantities if
thereby the Initial Contract Price is exceeded by more than 15 percent, except
with the prior approval of the Employer.
Clause 40 Payment for variation;
Clause 41 Payment: the contractor may ask interest loss for the employer’s
payment delay.
Clause 44 Compensation events
Clauses 44.2 Pursuant to clause 44 the contractor can ask for time extension
and his financial lost.
Clause 50 The contractor may ask bonus in case of the completion time is earlier
than the contract expected time. This issue should be clearly stated in the
contract agreement so that the contractor and employer can negotiate the final
amount or approve the bonus according to the provision of the contract.
Clause 60.2 Payment upon termination due to employer’s reason;
Clause 62.1 If the Contract is frustrated by the outbreak of war or by any other
event entirely outside the control of the Employer or the Contractor, the
Engineer shall certify that the Contract has been frustrated. The Contractor
shall make the Site safe and stop work as quickly as possible after receiving
this certificate and shall be paid for all work carried out before receiving it and
for any work carried out afterwards to which a commitment was made.
The employer’s entitlement and claim description:
The employer may ask for claim persuade to
Clause 12 The contractor’s risk which caused by the fault of the contractor,
clause 13.3 In case of the contract fail to insure;
Clause 36.1 If the Contractor has not corrected a defect within the time
specified in the Engineer’s notice, the Engineer will assess the cost of having
the defect corrected, and the Contractor will pay this amount.
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Clause 49.1 Liquidated damages; the employer may ask the liquidated
damages in case of the project delayed according to the contract completion
time;
Clause 54 Cost of repairs; the employer may ask for cost compensation in
case of the contractor to fail remedy the defect works;
Clause 60.1 Payment upon termination due to the fault of the contractor.

83
Appendix 3: Claims description in FIDIC
Contractor’s entitlement and claim description in FIDIC
Clause 5.2 Ambiguities in contract; contractor may ask time extension and cost
compensation.
Clause 6.3&6.4 Drawing delay delivered; the contractor has right to ask for
time extension and cost compensation.
Clause 12 Physical obstructions conditions; contractor has right to ask time
extension and cost compensation.
Clause 17.1 Incorrect data from engineer for survey; contractor has right to ask
cost compensation.
Clause 18.1 Borehole and exploratory; the contractor has right to ask for cost
compensation.
Clause 27.1 Fossils etc; the contractor has right to ask for time extension and
cost compensation.
Clause 31.2 Services for other subcontractors; contractor can ask cost
compensation.
Clause 36.5 Test not specified in contract; the contractor has right to ask for
time extension and cost compensation.
Clause 38.2 Uncovering and make openings; the contractor has right to ask
cost compensation.
Clause 40.2 Suspension by engineer; the contractor may ask for time
extension and cost compensation.
Clause 42.2 Failure to possession; contractor can ask for time extension and
cost compensation.
Clause 49.3 Remedy defects; in case of the defects are not fault of the
contractor, he may ask cost compensation from employer.
Clause 50.1 Work defects by employer’s fault; the contractor can ask for cost
compensation.
Clause 51.1 Variations; contractor may ask cost compensation and time
extension.
84
Clause 52.1&52.2 Valuation of variations; in case of variation caused the cost
increased, the contractor can ask cost compensation from employer.
Clause 52.3 Variation exceeding 15%; contractor can ask cost compensation.
Clause 65.3 Damage to works by special risks; contractor has right to ask cost
compensation.
Clause 65.5 Increasing cost by special risks; contractor can ask cost claim.
Clause 65.8 Termination; contractor has right to ask for cost compensation.
Clause 69 Default of employer; contractor has right to ask time extension and
cost compensation;
Clause 70.1 Increase or decrease of cost; in case of the increase contract cost,
the contractor has right to ask for cost compensation.
Clause 70.2 Subsequence of legislation; the contractor can ask for cost
compensation.
Clause 71 Currency and rates of exchange; the contractor may ask cost
compensation due to exchange rate increase.
Employer’s entitlement and claim description in FIDIC
Clause 25 Remedy on contractor failure to insure; employer has right to ask for
cost reimbursement from the contractor.
Clause 30.3 Transport of material or plants; employer has right to ask for cost
compensation.
Clause 39.2 Default of contractor in compliance; employer has right to ask for
cost compensation.
Clause 47.1 Liquidated damage for delay; if the contractor failed to complete
contract within given time, the employer has authority to ask him to pay the
liquated damage according to the provision of contract.
Clause 49.4 Contractor’s failure to carry out instruction; employer has right to
ask for cost compensation.
Clause 52.1%52 Valuation of variations; in case of the valuation of the
variation result to decrease the cost, the employer can ask repayment from
contractor.
85
Clause 59.5 Employer directly pay to subcontractor; the employer can deduct
payment he had paid to subcontractor directly.
Clause 63 Default of contractor; employer has right to ask cost compensation.
Clause 70.1 Increase of decrease of cost; the employer can ask repayment
from contractor in case of decrease of contract cost.
Clause 70.2 Subsequence of legislation; employer can ask cost compensation.

86
Declaration
I declare that this thesis is my original work and it has not been presented for a
degree in any other university before and all the paper related materials have
been dually acknowledged.

Candidate

Name LIU YI

Signature

Date

87