Model Examination: On Construction Contract & Law

Mekelle University

Ethiopian Institute of Technology-Mekelle

Department of Civil Engineering

Postgraduate Program: Construction Technology & Management

Construction & Business Laws Course (CEng 6107)

Instructor: Zewdu Tefera Worke

Time Allowed: 4 Hours Date: Monday, January 27, 2014

Semester I. 2014 (2006 E.C.)

Model Examination

……………………………………………………………………………………….

I. Information & Instructions

1. This Model Examination has two parts:
 General Course Knowledge Examination two (2) Questions; and
 Case Study Examination six (7) Questions;
2. The type of examination is OPEN BOOK. You are allowed to refer to your course material,
the relevant standard conditions of contract like MDB-FIDIC (2006), the PPA (2006), the
Civil Code & other relevant laws & reference materials & books;
3. You are also allowed to use your private LAPTOP, if any;
4. Please, carefully read & comply with the instructions. Non-compliance with instructions
may reduce your evaluation point;
5. Re-writing the examination question is not necessary. Clearly referring the examination
title in case of Part II. and examination question number in case of Part III. in your
Answer Sheet will be sufficient;
6. Your hand writing should be legible. The Instructor may not take any liability for non-
legible hand writing;
7. Simple “YES” or ”NO” answer does not by itself entitle you to any evaluation point unless
your position expressed in terms of “”Yes” or “No” being fully justified or explained as
requested in the specific examinations questions;
8. You may retain this examination paper;

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 Model Examination: On Construction Contract & Law

II. General Course Knowledge Exam. Questions

1. Variation & Project Delivery System

Assuming that the Contractor has submitted a proposal & the Engineer has approved same.
Assuming also such proposal was made & approved where the status of the works under the
contract being 50% completed. Assuming also that such proposal includes design by the
contractor. The applicable conditions of contract shall be the MDB-FIDIC 2006.

1.1 Would the project delivery system be transformed in to design-build (DB) from this
stage onwards? Discuss. If yes, provide at least three reasons for. If not, provide at
least three reasons against.
1.2 What you call this proposal & approval process under such conditions of contract
(MDB-FIDIC)? Identify the concept & discuss same briefly.

Instruction: Please, discuss the examination question in not more than two pages.

2. Quality & Latent Defect

2.1 What do you understand by latent defect in relation to construction projects?
2.2 Please, identify & discuss the construction project phase at which such latent
defect might occur? You are allowed to provide illustrations for latent defect in
terms of building or road or water related project works or structures.
2.3 If latent defect occurs, is it a legal or contractual issue then? Why or why not?
Discuss depending up on your position. Please, also refer to the relevant conditions
of contract (MDB-FIDIC or PPA for Works) or the applicable law like the Civil
Code to justify your chosen position.

Instruction: Please, discuss the examination question in not less than two pages.

III. Case Study Exam. Questions

Please, read carefully the following facts of the Road Project Case & the examination questions
including the instructions, before you attempt any of the examination questions.

The case has, in principle, been designed to raise the broad issues of payment after termination of a
construction contract related to the default of the contractor under the MDB-FIDIC (2006)
conditions of construction contract and other issues, as well.

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 Model Examination: On Construction Contract & Law

1. Facts of the Road Project Case

A construction contract has been signed between a certain employer & contractor. The works
under the contract include the construction of 100 km asphalt concrete road & two bridges. The
contract price agreed was ETB 1 Billion. An advance payment of 10% has also been effected to the
contractor against a bank guarantee. The original completion time of the project was 730 days. The
project has been commenced duly & progressed well & half of the road & 1 bridge have been
executed & completed. However, latter on the project experienced delay for factors fully
attributable to the contractor. The employer, following claims procedure under the applicable
conditions of contract, has deducted up to the maximum liquidated damages i.e. up to 10% of the
Contract Price. Following deduction of liquidated damages, the employer gave a notice of
termination to the contractor. The contractor fails to comply with the terms of the notice of
termination. After such notice, the employer has duly terminated the contract by writing a
termination letter to that effect.

The employer immediately has taken the following legal & contractual measures. He calls the
advance payment guarantee from the bank & recovered the non-repaid part which was ETB 50
Million. He also calls the performance bond i.e. 10% of the contract price. It is, however, under
process with the insurance company yet.

Following termination, valuation at the date of termination has been undertaken in the presence of
both the representatives of the employer & the contractor. This joint document records the
following:

 the status of the executed works being 50% i.e. 50 km road & 1 bridge;
 the financial status of the project being ETB 300 Million under all the monthly payment
certificates effected to the contractor;
 the value of construction material on site being ETB 10 Million;
 the value of all construction machinery, equipment & plant being ETB 100 Million; (the
document also records the type, number, status of the said assets of the contractor);
 the value of temporary works including project site office…estimated to be ETB 3 Million;

The contractor has been expelled from the site. The employer then employs a new contractor for
the completion of the remainder of the said works. The new contractor has executed & completed
the works with additional cost of ETB 500 Million & also with a delay of 12 months excluding the

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 Model Examination: On Construction Contract & Law

time taken for tendering procedure. In effect, the project has been completed with 2 years’ time
overrun and with ETB 0.5 Billion cost overrun.

Before the final takeover of the works by the employer, one of the bridges constructed by the new
contractor has collapsed, however. The cause for such collapse has not yet been determined.

Following the completion of the whole of the works, the original contractor has requested payment
due to him under Clause 15.4 (c) of the MDB-FIDIC. The employer fully rejected the claims of the
said contractor but instead has brought a claim against the original contractor to recover such
extra costs i.e. ETB 0.5 Billion & another & additional liquidated damages up to 10% of the
contract price including any other possible losses, damages, extra costs to be identified &
quantified latter, from the original contractor, under Clause 15.4 of the MDB-FIDIC. The
equipments & machineries are still in the hands of the employer.

2. Objective

The objective of this part of the examination is to check your understanding with respect to the
application of the clause of the relevant conditions of contract to a given case as provided below.
The relevant conditions of contract selected, in principle, shall be the MDB-FIDIC 2006. The
application of the PPA (2006) conditions of contract for Works (ICB or NCB) may be requested as
an alternative.

3. Instructions
3.1 You have to attempt all the examination questions below.
3.2 Your positions under any of the examination questions should be supported by
legitimate reasons or justifications & discussion;
3.3 Your discussion should be supported by the clause of the appropriate conditions of
contract and/or the article of the applicable law as the case may be;
3.4 Do not assume any extra facts other than discussing or attempting the examination
question as given;
3.5 Discuss each of the examination question in not less than one full page.
4. Examination Questions
4.1 Would there be any payment due to the original contractor under Clause 15.4 (c) of the
MDB-FIDIC? If yes, what could be the possible financial claims of the said contractor
against the employer & your reasons to justify? If not, provide your reasons for the
rejection? Discuss.

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 Model Examination: On Construction Contract & Law

4.2 Is the employer contractually legitimate in claiming such extra costs of the project
including liquidated damages twice under Clause 15.4 of the MDB-FIDIC? If yes, what
are your reasons to justify? If not, what are your reasons to reject such claims? Discuss.
4.3 Would the original contractor be responsible for the collapse of the second bridge
constructed by the new contractor as per Clause 15.4 of the MDB-FIDIC? If yes, what
are your reasons to justify? If not, what are your reasons to reject? Discuss.
4.4 Would the original contractor be liable for the payment of the second liquidated
damages as per Clause 60 (1) of the (ICB) PPA conditions of contract for Works? If yes,
what are your reasons to justify? If not, what are your reasons to reject? Discuss.
4.5 Would there be any possibility for the new contractor to become liable for the employer
under the facts given based on any of the clauses of the MDB-FIDIC conditions of
contract? If yes, what are the possible claims of the employer against such new
contractor? If not, why not? Provide your reasons. Discuss.
4.6 What would be the possible difficulties you might be encountered, as construction
management professional, if there was no valuation at the date of termination in terms of
determining the rights, obligations and/or remedial rights of the employer & the
original contractor, after completion of the project by a new contractor? Discuss. You
are expected to identify & discuss at least three (3) major problems.
4.7 You are a renowned Construction Claims Expert. Assuming that the parties have
agreed to none of the applicable conditions of construction contract. Both the employer
& the contractor came to your office to secure your professional advice how best settle
their disputes. Which disputes resolution method would you recommend to them for the
resolution of their disputes? Adjudication or arbitration or litigation and why?
Please, select only one dispute resolution method & give your sound reasons for.

Good Luck!

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