Addis Ababa University, Construction Technology & Management Postgraduate

Program Model Exam. On Construction Law & Contract

Addis Ababa University

Faculty of Technology

Department of Civil Engineering

Postgraduate Program in

Construction Technology & Management

Ceng 6107 Contracts and Business Law

(“Construction Law & Contract”) Date: January 29, 2010
I Semester 2009/2010 (2002 E.C.)

Instructor: Zewdu Tefera Worke

Model Examination

Information & Instruction

1. This Home Take Examination has three major parts.

I. General Course Knowledge Exam. Questions;

II. Comparative Analysis Questions; and
III. Case Study Exam. Questions;

2. Please, attempt all questions.

3. You are allowed to consult your course material, the relevant standard
conditions of contract, the Civil Code & other directly relevant reference
materials.
4. Please, also consider & comply other instructions under each part of the
examination.
5. Do not repeat the question given except the letter or number to refer it.
6. The answer may be submitted on February 16, 2010.

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
 Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

I. General Course Knowledge Exam. Questions

The purpose of this part of the examination is to check your knowledge about the
general concepts that have been discussed or covered during the semester.

Please, choose & attempt only three questions from the following five exam.
Questions.

1. Role of the Engineer

Imagine the absence of an Engineer in a given construction project, where the

Project Delivery System is design-bid-build (DBB).

What possible adverse contractual effects you might observe due to the absence of
the Engineer in project supervision & contract administration?

Objective
The objective of this part of the exam. Question is to check the student understands
about the importance of the role of the Engineer in the construction phase of a
construction project.

Instructions

You are expected to distinguish & discuss, at least, five negative effects.
You may discuss your exam. Question by giving project context like road or water
project under the MDB FIDIC Version-2006 & PPA Conditions of Contract.
Please, discuss the exam. Question in not less than two pages.

2. Construction Claims & Disputes

What do you understand by requirements of claims in order to properly submit &

succeed in any of your construction claims be it extension of time and/or additional
payment (1.25%).

What would be your next measure or decision, if your valid claims have been
rejected both by the Engineer & the Employer?

Objective
The objective of this part of the exam. Question is to check the understanding of the
student with respect to the requirements of construction claims for the successful

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
 Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

submission & succeeding in same & the possible & applicable dispute resolution
mechanisms.

Instruction
You may give context to your discussion based on the MDB FIDIC Version-2006 &
PPA Conditions of Contract, 2006.

II. Comparative Analysis Examination Questions

The objective of this part of the examination is to compare & contrast the substance
of the relevant clauses of the conditions of contract & the relevant provisions
(articles) of the applicable law.

Instruction

Please, attempt the following two comparative questions.

1. Decennial Liability & the Civil Code

Please, discuss, first, the concept of decennial liability from the available literature
and then compare & contrast i.e. discuss their similarity & differences, if any, of the
following two articles from the Civil Code of Ethiopia.

Article. 3282.- Warranty in respect of defects of construction

(1) Unless otherwise provided, the contractor shall be liable to the

administrative authorities for the defects of construction of the works during
ten years from the day on which they have entered into possession of the
works.
(2) The warranty shall not be due, however, in respect of the defects which were
apparent at the time of the final acceptance of the works.
(3) The warranty shall apply to such defects only as prevent the works from
being used for the purpose mentioned in the contract or as render such use
more onerous or les profitable.

Article. 3039.-Warranty due by contractor

a) The contractor shall guarantee during ten years from its delivery the proper
execution & the solidity of the work done by him.
b) He shall be liable during this period for such loss or deterioration of the work
as is due to a defect in its execution or to the nature of the soil on which the
work has been done.
c) Any provision shortening the period laid down in sub-article (1) or excluding
the warranty due by the contractor shall be of no effect.

Further Instructions

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
 Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

a) Please, distinguish, for which type of construction project, in terms of

ownership of the project, the respective articles to be applicable?
b) You may show your comparison by way of table presentation, if
convenient.
c) You are expected to discuss about the concept of decennial liability in not
less than 2 pages.

2. Delay Claims & the Conditions of Contract

Clause 49. Liquidated Damages –PPA Conditions of Contract (Works) 2006:

49.1. The Contractor shall pay liquidated damages to the Employer at the rate per day
stated in the Special Conditions of Contract for each day that the Completion Date is later
than the Intended Completion Date. The total amount of liquidated damages shall not
exceed the amount defined in the Special Conditions of Contract. The Employer may
deduct liquidated damages from payments due to the Contractor. Payment of liquidated
damages shall not affect the Contractor’s liabilities.
49.2 If the Intended Completion Date is extended after liquidated damages have
been paid, the Engineer shall correct any overpayment of liquidated damages by the
Contractor by adjusting the next payment certificate. The Contractor shall be paid
interest on the overpayment, calculated from the date of payment to the date of
repayment, at the rates specified in Sub-Clause 43.1.

Clause 8.7: Delay Damages-MDB FIDIC (2006) Conditions of Contract

If the Contractor fails to comply with Sub-Clause 8.2 (Time for Completion), the
Contractor shall subject to notice under Sub-Clause 2.5 (Employer’s Claims) pay
delay damages to the employer for this default. These delay damages shall be the
sum stated in the Contract Data, which shall be paid for every day which shall
elapse between the relevant Time for Completion and the date stated in the Taking-
Over Certificate. However, the total amount due under this Sub-Clause shall not
exceed the maximum amount of delay damages (if any) stated in the Contract Data.

These delay damages shall be the only damages due from the Contractor for such
default, other than in the event of termination under Sub-Clause 15.2 (Termination
by the Employer ) prior to completion of the Works. These damages shall not release
the Contractor from his obligations to complete the Works, or from any other
duties, obligations or responsibilities which he may have under the Contract.

Instructions:

a) Please, define & discuss, first, the concept of delay/liquidated damages from
the available literature;

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
 Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

b) Please, distinguish all the possible similarity & differences between the two
clauses under the said conditions of contract;
c) You may present the comparison in table format;
d) Is the concept of liquidated damages included in the Civil Code of Ethiopia?
If yes, under which article. Please, discuss

III. Case Study Examination Questions

Please, carefully read the following facts of the Project Case, before you proceed to
attempt the examination question under the specific scenario.

Objective

The objective of this part of the examination being to check the understanding of the
students whether or not you are able to apply the theoretical knowledge acquired
from the course in terms of the applicable conditions of contract & the applicable
law, if any, to the actual construction case.

1. Facts of the Multi-purpose & Mega Dam Project Case

 A construction contract has been signed for the construction of multi-

purpose dam & related hydraulic structures & works between a
certain public employer & international construction companies.
 The purpose of the dam was to serve for hydropower generation, for
water supply & irrigation scheme;
 The dam & other related hydraulic structures & works have been
designed by international consulting firms organized in a joint
venture;
 The specialty of the consulting firms is related to hydropower, water
supply & irrigation.
 The lead firm was that of the consulting firm specialized in
hydropower projects;
 In their joint venture agreement, the issue of joint & several liability
towards the employer has been included.
 The consultants have submitted, in the name of the joint venture, to
the Client a Professional Indemnity Insurance, amounting to USD 1
Million.
 Five international contractors have been invited to bid after a process
called pre-qualification. Joint venture was allowed in the pre-
qualification document.
 The construction contract has been awarded to the construction
companies, which have been organized in joint venture.
 The lead construction firm is the one which specialized in the
construction of hydropower projects.
 In their joint venture agreement, the issue of joint & several liability
towards the employer has been included.

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

 The requirement of the employer as specified in the Technical

Specifications & in the Employer’s Requirement Schedule was as
follows:
a) To produce………………. ……..1000MW hydropower;
b) To treat & supply ………………900, 000m3/d water;
c) To irrigate ………………………500, 000 hectares of land;
 The Contract Price agreed was USD 12 Billion. It is divided in to the
following project parts.
a) For Hydropower ……………….. USD 6 Billion;
b) For Water Supply………………. USD 3 Billion;
c) For Irrigation Scheme…………. USD 3 Billion;
 The completion time agreed were 3650 calendar days or 10 years
excluding mobilization.
 The JV Contractors have submitted, in the name of the joint venture,
a Performance Bond, amounting to USD 1. 2 Billion.
 The type of construction contract is exactly similar to MDB FIDIC
Version 2006.
 There was no sectional completion dates in the Contract.

2. Instruction

 Please, attempt both scenarios. The following two scenarios have been
based on the same Facts plus additional facts, as provided herein
below, of the above Project Case. i.e. either:
 The Capacity Scenario under No. 3; or
 The Collapse Scenario under No.4;
 You are expected to discuss in detail every question & to give reasons
for your analysis or arguments or decision or award, as the case may
be, either from the applicable contract clause and/or the articles of the
applicable law;
 Do not assume or add extra facts except to attempt the examination
question on given facts.
 Which group to attempt which scenario shall be determined in
advance by the Instructor.
 Do not repeat the question except referring the letter to identify it.

3. The Capacity Scenario Exam. Questions

 The said Multi-purpose Dam Project has been completed.

 Repetitive tests have been undertaken.
 During test period & on attempted taking over of the works, the
following have been noted in the Protocol.
 This Protocol has been signed between the representatives of the
Employer & of the Contractors.
 According to the Protocol:

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
 Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

a) The generation capacity of the Hydropower Plant has been

reduced to 900 MW, instead of 1000MW as agreed;
b) The capacity of the Water Treatment Plant has been reduced
to 750, 000m3/d, instead of 900, 000m3/d, as agreed;
c) The capacity of the Irrigation Scheme has been reduced to
irrigating only 400, 000 hectares of land, instead of irrigating
500, 000 hectares of land, as agreed.
 The Employer has then refused to take over the works.
 The Employer has immediately notified to the international Insurance
Company & claimed the whole of the benefit under the Insurance
Policy i.e. USD 1.2 Billion i.e. 10% of the Contract Price.
 The Protocol has been attached & sent to the Insurance Company to
evidence partial performance of the Project & therewith breach of the
Contract by the JV Contractors.
 The Employer has refused to release the 50% of the Retention Money.
The reason being its refusal to take over the works.
 A construction dispute has been arisen between the Employer & the
international Contractor due to the reduction of the agreed capacity
& therewith the economic target of the Project in all its parts.
 You own & manage a Construction Management Consultancy firm.
You are well known in providing professional advice to clients of like
nature.
 Both the Employer & the Contractor came to you to secure your
professional advice how best to resolve their complex disputes, before
they initiate any formal & rigorous dispute resolution process.
 They have agreed to pay you, all in advance USD 2 Million, each USD
1 Million, for your valuable & professional advice.
 You have thoroughly studied the project & the performance of the
project & assessed the respective claims & arguments of both parties.

 Employer’s Claims & Arguments

The Employer’s arguments are the following. The Employer argued:

a) Rejecting the Project as a whole & recovering the whole

Contract Price i.e. USD 12 Billion including requesting
damages USD 5 Billion; or
b) Accepting the Project but requesting damages for economic
loss suffered due to partial achievement of the economic
target of the Project i.e. USD 5 Billion;
c) Recovery of USD 1 Million of the Professional Fee paid to the
Construction Management Consulting firm;

 Contractor’s Arguments

The Contractor’s arguments are the following. He argued:

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

a) Rejecting the Project & re-payment of the whole Contract

Price to the Employer is unthinkable & does not give any
commercial sense;
b) Partial achievement of the Project Target is evident.
However, it is beneficial to consider the possibility of the
reduction of the Contract Price;
c) The Contractor does not accept any liability for the alleged
damages or any purported economic loss claimed by the
Employer.

 Exam. Questions

a) What is your professional advice to the disputing parties to

settle or to resolve their disputes? Give your professional
reasons why you advise them so?

b) Assuming that the disputing parties have agreed to settle

their claims on the basis of the principle of reduction of the
Contract Price (see also Clause 9 of the MDB FIDIC). How
do you assist them in the process of determination of the
extent of the Contract Price to be reduced? Why? What
would be the probable extent of the Contract Price to be
reduced in your approach adopted for this purpose?

c) Which type of dispute resolution mechanism is appropriate

for the resolution of such economic loss claims or the
assessment of damages? Why?

d) May the Employer request the whole of its claims only from
the lead construction company or should the Employer,
necessarily, negotiate with all members of the joint venture?
Why?

e) Why not the Engineer is empowered to assess general

damages under the said contract?

 Notes: You may support your advice and/or argument on the relevant
Clauses of the MDB FIDIC Version 2006 & any other relevant &
valuable reference material.

4. The Collapse Scenario Exam. Questions

 Assuming that under the same Multi-purpose Dam construction

Project, the following alternative scenario has occurred.

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

 On the eve of the Inauguration Day of the Project, the main dam for
the generation of the hydropower has, totally, been collapsed.
 Due to this, the other parts of the Project, namely, the Water Supply
& the Irrigation Scheme have become totally worthless due to lack of
the critical input i.e. water.
 The Employer immediately has taken the following measures.

a) Regarding the JV Contractors:

 Notified the Insurance Company to call the

Performance Bond i.e. USD 1.2Billion;
 Notified the Contractor the non-payment of the balance
of the Contract Price under the Contract i.e. USD 22
Million to the Contractor;
 Transferred the whole of the Retention Money i.e. USD
600, 000. 00 to the accounts of the Employer;
 Initiated a court proceeding to secure a court order for
the attachment of the properties of the Contractors
imported for the purpose of the execution of the Project
amounting to USD 1 Billion;

b) Regarding the Consulting firms:

 Notified the Insurance Company to call the

Professional Indemnity Insurance;
 Withheld the remaining Fees to be paid to the
Consulting firms i.e. USD 1 Million;
 Initiated a court proceeding to secure a court order for
the attachment of the properties of the Contractors
imported for the purpose of the execution of the Project
amounting to USD 1 Million;

 Claims of the Employer

 The Employer has brought the following claims against the

international Contractor & the Consulting firms.
 The repayment of the whole Contract Price paid to the
Contractor;
 The repayment of the whole of the Fees paid to the
Consulting firms;
 Recovery of the economic loss amounting to USD 20
Billion due to the total non-achievement of the Project
Targets of the Project;

 Arguments of the JV Contractors

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

 The collapse of the Dam was due to the faulty design of

the consultants and not due to construction i.e. neither
due to deficiency in construction material nor due to
defective workmanship;
 Not liable for the repayment of the Contract Price but
to retain it;
 Not to be subjected to the call of the Performance Bond;
 Not to be forfeited but entitled to the Retention Money;
 Not liable for the alleged economic loss or damages;

 Arguments of the Consulting Firms

 The collapse of the Dam was due to defective

construction both in terms of using defective
construction materials and/or deficient workmanship;
 Not liable for the repayment of the Fees to the
Employer;
 Not liable for the alleged economic loss or damages;
 Alternatively, they argued: In case, the collapse of the
Dam were attributable to our design, the extent of our
liability should not exceed beyond our Fees under the
Consultancy Agreement i.e. USD 10 Million;
 Attempted separate negotiations between the Employer & the
Contractor, and between the Client & the Consulting firms has been
failed.
 All the disputing parties have agreed to conduct a multi-party
arbitration to resolve the disputes that have arisen between the
Employer & the Contractor, and between the Client & the
Consultants.
 All of them have appointed you as a sole Arbitrator to resolve the
disputes.
 They have submitted all their respective arguments to the claims of
the Employer against them, as presented hereinabove.

 Exam. Questions

a) Assuming that the Dam has collapsed due to construction i.e.

either due to defective construction material or deficient
workmanship, what would be your decision with respect to
the claims of the Employer (i.e. repayment of the whole
Contract Price: USD 12 Billion & the damages USD 20
Billion) against the Contractor? Why?

b) Would your decision be different with respect to the

arguments of the Contractor, if the Project Delivery System
was that of Design & Build? Why?

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer
Addis Ababa University, Construction Technology & Management Postgraduate
Program Model Exam. On Construction Law & Contract

c) Assuming that the Dam has collapsed due to faulty design,

what would be your decision with respect to the claims of the
Employer against the Consulting firms & the Consulting
firm’s argument to the limitation of their liability to the Fee
under the Agreement? Why?

d) Assuming that the disputing parties have not mandated the

Arbitral Tribunal to consider & render award on general
damages which type of dispute resolution mechanism is more
appropriate for the assessment of the economic loss or
damage than Arbitration? Why?

e) Assuming that the Water Supply & Irrigation specialists of

the Project (both Contractors & Consulting firms) have
argued as follows: “since the cause for the damage, in terms
of design or construction is that of the Hydropower Dam
specialist firm or construction company, we are not liable to
the Employer”. Is their argument acceptable to you? If yes,
why? If not, why not? Please, also consider the effect &
application of Article 1896 ff of the Civil Code of Ethiopia.

 Notes: You should support your decision or award and/or

argument/opinion by the relevant Clauses of the MDB FIDIC Version
2006 & any other relevant & valuable reference materials.

 Your discussion for each of the respective question, under both

scenarios, shall not be less than one page.

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Instructor: Zewdu Tefera Worke, Engineering Contracts Lawyer