Addis Ababa University
Institute of Technology
Department of Civil Engineering
Postgraduate Program in Construction Management
CENG 6107 Contracts and Business Law
(“Construction Law & Contract”) Date: Tuesday, March 1, 2011
I Semester 2010/2011 (2003 E.C.)
Instructor: Zewdu Tefera Worke
Final Examination (60%)
Information & Instruction
1. This Model Examination has two parts.
I. General Course Knowledge Exam. Questions; and
II. Case Study Exam. Questions;
2. Under each Part of the examination, you are instructed to choose & attempt
certain exam. Questions.
3. The type of examination is open book. You are allowed, however, only 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. The time allowed is 3.00 hours.
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I. General Course Knowledge Exam. Questions (30%)
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 four exam. Questions.
1. Payment Certificates (10%)
1.1 Please, discuss the importance of payment provisions in the construction contract from
the perspective of the Contractor; (1.50%)
1.2 Please, discuss the difference between Interim Payment Certificate & Final Payment
Certificate. (5%)
1.3 Please, also discuss the legal & contractual effects of the Final Payment & Account.
(5%). It is expected to mention & discuss, at least, three major legal and/or contractual
effects of the Final Payment.
Answer payment
1.1. The following are importance of Provision of Payment for contractor
It secures the right of the contractor to have payment for the work he has
made and completed as per the contract.
It control the cash flow of the contractor
Help the contractor to perform his day to day task without problem
Purchase necessary resource for the construction of the project pay wages or salaries of
his worker without problem
1.2 Differences
Difference
No Interim/progress payment Final payment
It is a payment made to the It is a payment made at the completion of a
contractor after completing some project.
amount of work as per the Once the final payment is made the engineer
agreement on weekly or monthly has no power to amend any mistakes.
interval. Mistakes/disputes are solved through
If mistakes or correction are made arbitration process if the following are
it can be corrected in the next happened to the final payment.
interim payment. Fraud
The contractor can request interim Claim raised before the issue of the final
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payment as per SCC of the payment (this is possible until defect
contract document with no time liability period only).
limit. The contractor should submit his final
payment certificate after 56 days of receiving
the performance certificate.
1.3. Some of the legal and contractual effects of final payment are:
Once final payment is done the engineer has no power to incorporate any mistakes or
correction of contractor’s claim even if their claim is accepted.
Only the arbitration or the court can amend the final payment when
Frauds exit in the final payment.
Unjust ices enrichment
the contractor raised claim before the approval of the final payment
It shows the completion of the project
It is the event where obligation of parties end
2. Role of an Engineer or Architect (10%)
Imagine the absence of an Engineer in the Construction Contract, where the Project
Delivery System is design-bid-build (DBB).
What possible adverse contractual effects might result due to the absence of the Engineer
in the construction contract administration & supervision?
Objective
The objective of this part of the exam. Question is to check the student’s understanding
about the importance of the role of the Engineer or the Architect in the construction phase
of a construction project.
Instructions
You are expected to distinguish & discuss, at least, five negative effects on the project.
You may discuss your exam. Question by giving project context like road or water or
building project under the MDB FIDIC Version-2006.
Please, discuss the exam. Question in not less than two pages.
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Answer Role of the Engineer
3. Program & Method Statement (10%)
What do you understand by Program & Method Statement? Please, define & discuss in
detail. (4%)
Do the Contractor’s Program and/or Method Statement (Methodology) form part of the
construction contract? If yes, why? If not, why not? Please, discuss in detail. (6%)
Objective
The objective of this exam. Question is to check the student’s understanding about the
concept of Program & Method Statement within the context of the construction project &
contract and whether or not the said Program and/or Method Statement do form part of
the construction contract.
Instructions
You may discuss your exam. Question by giving project context like road or water or
building project under the MDB FIDIC Version-2006.
Please, discuss the exam. Question in not more less two pages.
4. Sub-contracting (10%)
Sub-contracts are signed between the Main Contractor & the Sub-contractor, more often,
after the Main Contract has been signed between the Main Contractor & the Employer.
As you certainly know, except the information relative to prices of the Main Contract, all
other & relevant information of the Main Contract should, expressly, be incorporated in to
the subsequent Sub-contract.
Assuming that you are acting as the Project Manager for the Sub-contracting Company.
Now, you are negotiating with the representatives of the Main Contractor on behalf of the
Sub-contracting Company.
Exam. Questions
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a) What would, in your opinion, be the contractual & legal effects, if the relevant part
of the Main Contract has not expressly been incorporated in your Sub-contract?
(4%)
b) What are the other possible critical issues to be raised & negotiated with the
representatives of the Main Contractor for your Sub-contract? It is expected to
raise, at least, four critical issues & the reasons behind each critical issue. (6%)
Objective
The objective of this part of the exam. Question is to check the understanding of the
student with respect to the difference & relationship between the Main Contract & the
intended Sub-contract & other critical issues in respect thereof.
Instructions
You may give project context (road or water or building project…) to your discussion.
Please, provide your answer for each exam. Question in not less than two pages.
Answer sub-contracting
II. Case Study Exam. Questions (30%)
Please, read the following facts of the Project.
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 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;
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In their joint venture agreement, the issue of joint & several liabilities
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 liabilities
towards the client has been included.
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.
The Project has a sectional completion dates, i.e. for the hydropower, for
water supply & for irrigation scheme, separately.
2. Instruction
Please, consider the following additional facts & assumption, and attempt the
exam. Questions based on the Collapse of the Dam scenario.
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;
You may support your decision, opinion, award and/or argument on the
relevant Clauses of the MDB FIDIC Version 2006 & any other relevant &
valuable reference materials.
3. Additional Facts based on the Collapse Scenario
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Assuming that under the Multi-purpose Dam construction Project, the
following scenario has occurred.
On the eve of the Inauguration Day of the Project, the main dam built 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 international Insurance Company to call the
Performance Bond i.e. USD 1.2Billion;
Notified the Contractors, in writing, the non-payment of the
balance of the Contract Price under the Contract i.e. USD 200
Million to the Contractors;
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 Consulting firms 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 already paid to the
Contractor;
The repayment of the whole of the Fees already 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;
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Arguments of the JV Contractors
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 already received Contract
Price but to retain it;
Not to be subjected to the call of the Performance Bond;
Not to be forfeited but to be 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 already received 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 have been failed.
Exam. Questions
a) Is the Employer contractually legitimate in declaring the forfeiture
of the remaining payment to the Contractor & transferring the
Retention Money to its account, in light of the applicable provisions
of the MDB FIDIC Version regarding Employer’s Claims (Sub-
Clause 2.5)? Why? Please, discuss in detail. (6%)
b) Assuming that you are a sole Arbitrator for the case, based on all
the parties (multi-party arbitration) agreement i.e. the Employer,
the Contractor & the Consultants, what do you do, in the first place,
before you consider the issue of liability of the JV Contractors
and/or the JV Consulting firms i.e. whether or not the collapse of
the Dam was attributable to faulty design or defective construction?
(6%)
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c) Assuming that there was an arbitration agreement between the
Employer & the Contractor, and between the Client & the
Consulting firms, and further assume that the Arbitration Tribunal
has been constituted, is the Employer legally and/or contractually
correct, instead of submitting its requests to the already constituted
Arbitral Tribunal, to initiate a court proceeding for the attachment
of the properties of the Contractors & the Consulting firms? Why?
Please, give your detail reasons. (6%)
d) Would your opinion under exam. Question c above be different, if
the Arbitral Tribunal has not yet been constituted? If yes, why? If
not, why not? Please, discuss in detail. (6%)
e) What would be your opinion with regards to the collapse of the said
Dam, in terms of the liability of the Contractors, if the Project
Delivery System were that of Design & Build? Please, discuss in
detail. (6%)
