1.

Difference between Government Construction contracts and

Private construction contracts
Government and private construction contracts are the two types of contracts which
exist in the construction industry. Basically, the scope and objectives of the projects
and parties involved are the main areas of distinction between them. These
construction contracts in building, infrastructure, and other project constructions
stipulate the terms, responsibilities, and obligations of the parties involved. In our
country, the general framework for both government and private construction
contracts is provided by the Civil Code. However, their application and execution are
far different because of the different natures of the parties involved, the public versus
private interests at play, and the specific regulations that govern them. Essentially,
while all such contracts have a common foundation in law, they basically differ in
structure, administration, and dispute resolution, mainly depending on whether or not
the contract, respectively, involves the government and a contractor1, or private
parties to that contract. Below, comparison of government and private construction
contracts in Ethiopia is done in a number of key areas.
1. Formation of the Contracts
Private Construction Contracts: These are created by mutual agreement and
conduct of the parties to the contract, usually the project owner (private individual or
company) and the contractor.This construction contract can be formed by [Arts- 3020
and 2612] of the civil code. It may be formed through a simple negotiation between
the two parties and,The law doesn't require any special formality2.
- Writing is not necessary.
- Flexibility in the formation per general principles of contract
- Work can proceed based on sufficient or general description
Government Construction Contracts: Government construction contracts in
Ethiopia are, therefore, formed according to public procurement laws; mainly
Proclamation No.1333/2024 - Public Procurement and Property Administration
Proclamation lays down procedures of public procurement. The formation of
government construction contract is often preceded by an open and competitive
bidding as an inherent public interest to ensure transparency,.
- The contracts have to be in strict adherence to procurement procedures that include
open tendering , selective tender,limited tendering, direct procurement are listed3 .-
Subject to strict procurement procedures:
* Open bidding(article 31) by way of advertisement in widely circulated
newspapers
*selective tendering (article 32)bidders are selected through more than one stage of
competition
* limited tendering(article 33)the winning bidder is selected through a competition
involving limited number of candidates
* Direct procurement(article 34) for urgent needs or single supplier situations
- The procedures should offer transparency, fairness, competitiveness in the market,
and nondiscriminatory measures.
- Contractors shall be licensed and registered with grade requirements.

1
Article 3131 of Ethiopian civil code
2
Article 3020 of Ethiopian civil code
3
Article 30 of Proclamation No.1333/2024 - Public Procurement and Property Administration Proclamation
2. Type of Construction Contract Adopted
Similar structures can be used by both types of contracts, but the context and the
regulatory environment will vary substantially.
Private Construction Contracts
Private contracts give more flexibility in terms of the contract type. Owners and
contractors can choose from lump-sum, cost-plus, time-and-materials,construction
management,turn key,multiple prime or design-build contracts (where the contractor
handles both the design and the construction)or other types4 of construction in the
delivery method5 or price method. The type of contract depends on how complex the
project is and what the parties agree on. It’s a more customizable process.
1. Lump Sum Contracts:
- The price is fixed over a total of the whole job6.
- Much applicable to private projects with clearly predefined scope.
2. Re-measurement Contracts:
- Payments depend upon actual quantities of the executed work7.
- Suitable for private projects in which the scope is likely to change.
3. Cost-Reimbursable Contracts:
- The contractor is reimbursed for actual cost plus a fee.
- Often adopted in private projects where the exact cost cannot be estimated.
4. Design bid-Build Contracts: - Integrates design and construction services in one
contract.
- Common in the private sector for the efficient delivery of projects.8
5. multiple prime :- Collaboration of two or more parties for a project.
- Uses in private projects where specialization is required.
- Used also in private projects where large amounts of specialization are utilized.
6. Framework Agreements:- Long-term agreements for ongoing work.
- Common in the private sector where works are of a repetitive nature.
7,Turnkey Contracts: private real estate companies- Contractor is responsible for all
aspects of the project from design to completion
- Client gets a fully operational facility once the job is completed
- The client's involvement in the construction process is minimized
8,Construction Management Contracts-Owner hires a construction manager to
oversee the project.
- Construction manager- He acts as an advisor and may also manage subcontractors.
- Provides flexibility, allows for early contractor involvement

Public (Government) Construction Contracts

In government projects, the most common contract types are lump-sum contracts, unit
price contracts , and cost-plus contracts. The government tends to choose the contract
type based on how well the project’s details are defined. If the project’s scope is
uncertain, they might go with a cost-plus or unit price contract to manage those
uncertainties.

4
Article 2/3/ of the amended procurement proclamation no 640/2009
5
Article2/7/Proclamation No.1333/2024 - Public Procurement and Property Administration Proclamation
6
Article 3023/1/of the Ethiopian civil code
7
Article 3023/3/of the Ethiopian civil code
8
Article 3022/1/of the Ethiopian civil code
1. Lump Sum Contracts: - Also used in public projects, especially where the scope is
well defined.9
2. Re-measurement Contracts: - Used in public projects where the scope is likely to
change.
3. Cost-Reimbursable Contracts:- Employed in public projects with complex
requirements and uncertain costs.
4. Design-Build Contracts - Now being widely used in public projects due to
efficiency.
5. Framework Agreements-Applied to the public sector for projects and services that
are continuous.
7,Turnkey Contracts: can be highly mentioned on government housing projects.

Generally-Government contracts mainly focus on adhering to public procurement

laws and on transparency, while private contracts are less strict and flexible for certain
project requirements. In our understanding similar structures for both, however,
remain in place under different regulatory environments and participants even if most
of the types seems to it with private type of construction contract.

3. Privilege of the Parties

Government Construction Contracts:

One of the biggest differences is that the government has more power and sovereign
immunity—meaning it’s harder to hold the government accountable for things like
delays or problems with the contract. This immunity protects the government from
lawsuits in certain situations. The government also has a lot of oversight power,
which means it can impose strict rules on contractors and even enforce penalties if
things aren’t going as planned. Essentially, the government has a lot of control over
how the project runs.

Private Construction Contracts:

On the other hand, in private contracts, the balance of power is more equal between
the contractor and the project owner. Both parties are held to the same legal standards,
and neither enjoys the special protections that the government does. So, if something
goes wrong—like missed deadlines or poor-quality work—both sides are responsible.
In private projects, the owner often has more influence, especially if they are a
seasoned developer or have more resources to push for certain terms.

Here is a brief comparison of the privileges of the parties in government versus

private construction contracts:

Government Construction Contracts:

1. Administrative Authority: - Government has unilateral power to modify contract
terms and require additional work in the Procurement Proclamation. It dictates the
process of public procurement in such a way that empowers government agencies to
change contracts and demand additional works for the sake of the public interest.10

9
Article 3261 of Ethiopian civil code
10
Article 3179 of the Ethiopian civil code
2. Immunity from Specific Performance: - Contractors cannot seek specific
performance against the government; only compensatory damages are available.11
3. Public Interest Consideration:- Government actions consider public interest rather
than individual contractual agreement.
4. Regulatory Compliance: - Governed by stringent laws of procurement for
transparency and accountability. 12

Private Construction Contracts:

1. Equal Rights: - Parties are at equal rights, and no party can alter any clause of the
contract without mutual consent.13
2. Specific Performance Rights:- On breach, contractors can seek specific
performance and hence have the contract terms enforced.14
3. Freedom to Negotiate: - More flexibility in negotiating the terms and conditions,
since such contracts are less regulated.15
4. Less Regulatory Burdens: - Less restricted by regulations, hence one can enter
into agreements tailored to the needs of the parties.
In general, government contracts confer broad privileges on administrative
authorities, emphasizing public interest and regulatory compliance, whereas private
contracts emphasize equal rights and negotiation flexibility between parties.

4,Mechanisms of Risk Allocation

Government Construction Contracts:

Risk allocation in government contracts tends to lean heavily toward the contractor.
The contractor is expected to take on most of the risks—things like delays, cost
overruns, or subpar performance. In return, the contractor might be asked to provide
performance bonds or bank guarantees to make sure they fulfill their obligations.
However, the government does shoulder certain risks too, like unexpected changes in
laws or site conditions. Common clauses also include force majeure (for things like
natural disasters) and price adjustments to deal with inflation or material cost changes.

Private Construction Contracts:

In private contracts, the risk-sharing is more negotiable. The parties can decide
together who will bear the risks—whether it’s for delays, cost increases, or unforeseen
issues that come up during construction. Private parties may still require performance
bonds or insurance, but it’s not always mandatory unless it’s specified in the contract.
The flexibility here allows for a more tailored approach to risk.

A comparison of the risk allocation mechanism in private versus public construction

contracts, along with relevant legal provisions, is discussed below:

Risk Allocation in Government Construction Contracts:

1. Risk Shared with Government - The government may share more risks, specifically
in circumstances involving changes to policy matters or unexpected occurrences

11
Article 3194 of the Ethiopian civil code
12
Article 3177 of the Ethiopian civil code
13
Article 1712 of the Ethiopian civil code
14
Article 1889 of the Ethiopian civil code
15
Article 2610of the Ethiopian civil code
impacting the project's scope.The Procurement Proclamation places strong emphasis
on transparency and accountability; issues which may affect risk allocation.

2. Performance Bond and Guarantee: - In general, the usual provisions are that the
contractors will provide performance bonds, bid security16, and advance payment
guarantees covering the risks of their failure to perform.

3. Regulatory Compliance Risks - Contractors are put to high levels of regulatory

compliance; failure to comply attracts penalties or termination of the contract.Article
3177 provides that non-performance by administrative authorities does not exempt the
contractor unless performance becomes impossible.

Government Construction has unique theories that don't apply to private

contracts:
1. Theory of l’imprévision- This theory addresses unforeseen circumstances that
make the performance of contractual obligations burdensome. It allows for
adjustments to the contract while maintaining its validity.
- Article 1764 It provides that a case of force majeure may change the circumstances
of performance, allowing the modification of the obligations while performance
remains capable of being effected.
2. Theory of fait du prince (Act of Government)-This theory applies when
government action renders the economic basis of the contract impossible to perform.
Contractors shall be entitled to compensation, provided government actions impede
performance.
- Article 1764 Implicitly corroborates this theory, since it acknowledges that changes
ordered by the government may impact contract performance and could be
compensate.
3. Non-applicability of exceptio non adempleti contractus -This doctrine permits
contractors to continue with the execution even in cases of non-performance by the
government. The contractor can only suspend performance when the failure of the
government makes performance impossible.
- Article 3177: Indicates that in case of non-performance by the administrative
authorities, it is not a justifying reason for the contractor to suspend works, unless
performance becomes impossible.
4. Doctrine of Specific Performance; It is a legal doctrine through which terms of
the contract may be enforced through court order.
- Article 3194: Demonstrates that specific performance cannot be granted by the
courts against public bodies, leaving contractors with compensatory damages for non-
performance.
5. Theory of Immixion: This is a theory of intolerable interference by the employer
(government) in the work of the contractor. If such interference disrupts the normal
operations of the contractor's, this may give rise to claims for damages.
- Article 3284 Permits claims for changed conditions in the work; shows probable
influence of government intrusion into the operations of the contractor.
*These theories create a basis on which issues arising in public construction
contracts can be addressed for fairness and accountability in the execution of public
works. The relevant provisions from the Civil Code and the Procurement

16
Article 52 proc no 1333/2024
Proclamation illustrate how these theories are supported within the legal framework
governing public construction contracts.

Risk Allocation in Private Construction Contracts:

1,Contractual Risk Allocation- The risks are, in fact, apportioned by the agreement of
the parties to the contract, providing some scope for flexibility in terms of liability.
the Civil Code allows parties to specify their responsibilities or risks in the contract
for work and labor.17

2,,Limited Regulatory Controls - Private agreements have less regulatory weight

applied to them, and parties may therefore agree on a risk-sharing arrangement more
appropriate to their needs. The Civil Code govern partnerships and joint ventures,
which allow the parties more latitude in apportioning risks.18

3.Specific Performance and Liability - In cases of breach, the contractors are entitled
to specific performance-a way of enforcing the terms of the contract and mitigating
risks. claiming of specific performance is allowed 19and thus provides a legal avenue
for contractors in cases of non-compliance.

In general, the risk in public construction contracts is shared with the government,
with a regulatory compliance emphasis and performance guarantees. In private
construction contracts, however, the risks can be more flexibly apportioned according
to the negotiations of the parties, with limited regulatory oversight and availability of
specific performance for breaches. The applicable provisions under the Procurement
Proclamation and the Civil Code will illustrate the differences in the mechanisms of
risk allocation.

5,Dispute Settlement-

Government Construction Contracts:If a dispute comes up in a government contract,

it’s usually handled by the Public Procurement and Property Administration Agency
(PPPAA). If they can’t resolve the issue, it might go to a specialized tribunal or court
for public procurement matters. The law encourages mediation and conciliation as ways
to solve disputes first, with litigation being the last resort. The idea is to settle
conflicts in a way that doesn’t disrupt the entire project or cause delays.

Private Construction Contracts:-For private projects, the parties have more flexibility
in how they handle disputes. Often, the contract will specify whether the parties will
resolve issues through negotiation, mediation, arbitration (which is quicker than court
cases), or eventually litigation. If the project is large, arbitration is often the go-to
method for resolving conflicts. If none of these methods work, then it goes to the
regular courts.

17
Article 2610 of the CC
18
Articles 1962-1985
19
Civil Code Article 1889
summery
Simple summery on the difference between the private and public construction contract can
be seen as

Government Construction Private Construction

Aspect
Contracts Contracts
Public bidding process governed Direct negotiation between
Formation
by public procurement laws private parties
Type of Lump-sum, cost-plus, time and
Lump-sum, unit price, cost-plus
Contract materials, design-build
Privileges of Government enjoys sovereign Equal bargaining power, no
the Parties immunity, more regulatory power sovereign immunity
Heavily regulated, contractors bear More flexible, risk allocation
Risk
most risks, performance bonds through negotiation, insurance
Allocation
required common
Dispute Mediation, administrative boards, Negotiation, mediation,
Settlement litigation in courts arbitration, or litigation