The Sub-contracting System

is a contract to do work for another company as

part of a larger project.
Types of Sub-contracts
Sub-contracts, in relation to construction
contract, may be classified on the basis of the
following criterion: These are:
•Based on Appointment; and
•Based on the Type of Contract Price
Based on Appointment:

•Domestic Sub-contractor is a subcontractor

appointed by the main contractor at his judgment.

•Nominated Sub-contractor is a subcontractor

nominated by the employer which the contractor is
obliged to appoint as a subcontractor.

•Selected Sub-contractor is a subcontractor selected

by the contractor in consultation with the employer
in terms of the requirements of the contract.
Based on Contract Price
Just as the Main Contract, the Sub-contract could be
classified in to:-
•Lump Sum Sub-contract. It is competitive.
•Unit Price Sub-contract. It is competitive.
Negotiated Sub-contract. It may be used in special
circumstances. It is not necessarily competitive.
 General Needs for Subcontracting
The following may serve as the ground or reasons
for subcontracting.
These are:-
•The need to acquire specialist capabilities (of the
subcontractor) to perform certain aspects of the
works. This is true in case of nominated
subcontract.
•The need to subcontract portions of the works to
increase the contracting capacity of the Main
Contractor. This is true in case of domestic
subcontract. It has the effect of reducing the work
load of the Main Contractor.
•The need to satisfy the Employers requirements or
expectations relating to the engagement of small &
micro enterprises or local enterprises in a contract.
This issue is related to the issue of the broader concept
of local capacity building.
Contractual Procedure for Domestic Sub-contracting
under the Main Contract

•The Main Contractor is not allowed to sub-contract the

whole of the works (see Sub-clause 4.2 of FIDIC Red
Book).
•The partial subcontracting of the works by the
Main Contractor shall be based on the prior
consent or approval of the Engineer.
• The procedure for appointment of the domestic
sub-contractor is notifying the Engineer by the
Main Contractor & of same by the Engineer.
• the Main Contractor fail to observe this
procedure for the appointment of the domestic
sub-contractor or contravenes the provisions of
the said Sub-clause (Sub-clause 4.1&4.4 of FIDIC),
in whole or in part,
 the Main Contract shall be terminated by the
Employer by giving 14 days of notice to the
Main Contractor (cl.15.2 termination by
employer)
 Exemption from Notification Requirement

The Main Contractor may not be required to notify to

the Engineer & to secure the approval or consent of
same for the sub-contracting of the following, as per
Sub-clause 4.4 of FIDIC.

Namely, for:-
• The provision of labor;
• The purchase of materials which are in
accordance with the standards specified in the
Contract; or
• The subcontracting of any part of the Works for
which the Subcontractor is named in the
Contract;
 Introduction to
Architectural & Consulting Engineering (Consultancy)
Services Contract
Definition of the Services

•Engineering & architectural services are important technical &

professional services in construction projects.

Defn:- According to the World Bank, consulting services means

services of an intellectual & advisory nature provided by
consultants using their professional skills to study, design, and
organize specific projects, advise clients, conduct training and
transfer knowledge.
 Nature of the Services
The following features characterize the nature of
the consulting services.
These are;
•Intellectual/professional nature;
•Independent nature;
•Personal nature;
•Incorporeal nature; and
•Technical nature;
Intellectual Nature
The intellectual nature of the services has been provided under
the law. Article 2636(1) of the Civil Code provides that hiring of
intellectual work is a contract relating to the performance of
services of an intellectual character.

Independence Nature
The independence nature of the consulting services is also
provided under the law. The Civil Code it has been provided that
the contractor (in our case the Engineer or the Architect) shall
carry out his task as he wishes and shall comply with the rules of
his profession.
Personal Nature
The personal nature of the obligation of the
consultant is also provided by law. As per Article
2633(1) of the Civil Code, it has been provided:
Whosoever hires out his intellectual works shall
carry out his obligations personally.

It means that the professional qualification or

competence of the consultant is the basis for its
selection.
Incorporeal Nature

The services of the consultant are not tangible or

have materiality in its nature.
This nature of the service distinguishes the
consultancy service from construction of works or
from the supply of goods.

Technical Nature
The technical nature of the consultancy services
distinguishes the services of the consultant from
other non-technical consultancy services.
 Types of Consulting Services

The World Bank generally classifies types of consulting

services in to the following.
These are;-
•Preparation Services;
•Implementation Services;
•Advisory Services;
Preparation Services
Under preparation services, the following services are
identified,
•Sector studies;
•Master Plans;
•Feasibility studies;
•Design studies;
Advisory Services
Under advisory services, the following sub-
services are identified
Policy and strategy;
Reorganization/Privatization;
Institution building;
Training/knowledge transfer;
Management services;
Technical/operating advice;
Implementation Services
Under implementation services, the following sub-
services are identified
•Tender document (preparation);
•Procurement assistance;
•Construction supervision;
•Project management;
•Quality management;
•Commissioning;
 The Selection Process
The International Context
A. The World Bank Approach

The selection process may depend on the chosen method of selection.

The World Bank generally recommends the following selection process to
select consultants.
The process is presented, in summary, as follows.
•Preparation of the TOR of the assignment;
•Preparation of the cost estimate to determine the budget of the
assignment;
•Advertising to invite expression of interest from consultants;
•Shortlisting to identify consultants qualified for the assignment;
•Preparation & issuance of Request for Proposal(RFP);
•Preparation & submission of proposals by the consultants;
•Evaluation of technical proposals-quality evaluation;
•Evaluation of financial proposal-cost evaluation;
•Final combined quality & cost evaluation to select the wining
proposal(QCBS);
•Negotiations & signing of the contract between the Borrower & the
consultants;
B. The FIDIC Approach
The FIDIC recommends the following selection
procedure-process.
The process is presented, in summary, as follows.
•Preparation of terms of reference;
•Pre-qualifying consultants;
•Shortlisting consultants;
•Requesting for proposals;
•Assessment of proposals;
•Making an agreement;
 The Ethiopian Context
According to the Guide prepared by the PPA, the
following selection process is adopted for the
selection of consultants.
The process is presented, in summary, as follows.
•Selection of Bidders;
•Preparation & Issue of RFP Documents;
•Bidding Period & Receipt of Proposals;
•Proposal Evaluation;
•Proposal Acceptance, Contract Award & Placement;
 Construction Claims
Construction projects may not go smoothly as planed
due to uncertainties about events in the future.
Delay which are the major causes of claims may occur
due to
unforeseen site conditions
Increase in scope of work and others
As a result, disagreement can arise regarding
contractual matters.
 Potential claims
Claim is mostly concerned with
entitlements and
liabilities arising under, or as a result of, a
legally valid contract.
 Construction Claims
• A construction claim is therefore can be a demanded
for
 payment of additional compensation,
adjustment of the parties' respective contractual
obligations,
Extension of Time or compensating delay
damages,
any other change with regard to the contractual
conditions or terms.
The bases of such interpretations of the word claim
indicate that any claim is:
-A willful act by the claimant when s/he believes
that there is no other way than claiming to
compensate for the loss suffered during
relationships,
All of such willful act of the claimant should base on
her/his right, entitlement and privilege that can legally
be supported,
-All of such willful act by the claimant need to be
proved and the claim should be properly presented and
can be justified,
 Contractual notice provisions
Claims from the contractor
Much of the trouble with mismanaged claims
from the contractor has been the lack of:
Accurate record
For late claims, for possibility of further
arrangements
sub-clause 20.1 requires
Contractor shall give notice as soon as
practicable
 Contractual notice provisions
• sub-clause 20.1 requires
 Contractor shall give notice as soon as practicable
 And not later than 28 days
 Describing the event or circumstances
 The notice need not state time or amount claimed or
contractual basis of claim
 Notice shall comply with cl.1.3 i.e in writing and
properly delivered
 Progress reports-cl.4.21-must list notice given
 No response required from Engineer (Employer)
• Note: if contractor fails to give notice within 28 days,
he/she loses entitlement to his claim
 Contractual notice provisions

In the past the engineer/ employer withheld the

amount they considered and extend defects liability
period for one or another reason.
To prevent these unfair practice, FIDIC 1999
introduces Employers claim sub-clause 2.5
Thus, sub-clause 2.5 requires notice and particulars
Employer shall give notice as soon as practicable
Notice relating to extension of DNP
Particulars to specify clause
Notice shall comply with cl.1.3 i.e in writing and
properly delivered
 Contractual notice provisions
 Thus, sub-clause 2.5 requires notice and particulars
No response required from contractor
Particulars may be given at any time
Any amount so determined is deducted from
payment certificate
Any extension so determined is added to DNP
 3.Common sources of contractor’s
claims
• Sections of the contract documents dealing with the
following items should be considered to ensure the
contract is complete with respect to terms and
conditions to have dispute mechanisms.
Changes/extras,
disputes,
authority/roles/definitions,
soil/site conditions,
delay payments and
notice provisions
 3.Common sources of contractor’s
claims
• The causes of claims on construction projects are
many. Some of the major ones are:
Extra works,
design change,
differing soil/site conditions ,
untimely payment,
limited access to the site,
defects in plans and specifications ,
failure on the part of the owner to approve
drawing
• They are also causes of valid claims.
 4.Types of claims
• Claims can be classified as follows based on legal
basis
a. Contractual claims
b. Ex-contractual claims
c. Ex-gratia claims
 Contractual claims
• These are claims made under the expressed
provisions of a contract (claims under contract )
A claim for which both the event and the
remedy are specified in the contract
• But this does not mean that the claim should be
necessarily on the provisions of the contract, it may
also be claims for breach of contract
For which the remedy is specified in the
contract
 Ex-contractual claims
• Legitimate claims that occur but that do not have
their basis in the conditions of contract are called ex-
contractual and need to be dealt with by
mediation
arbitration or
litigation in the normal way
Claims in tort :
the law of tort is concerned with civil duties and
relationships
It regulates wide variety of unlawful, behavior,
those related to construction includes nuisance,
trespass, negligence etc..
 Ex-contractual claims
Quasi-contractual claims: this type of claim is for
the value of work completed or services performed
and may arise:
under a contract where no price is fixed or
where the agreement is to pay reasonable
sum
Where there is no valid and enforceable
contract between the parties ,
But the law inputs an obligation to pay a reasonable
sum for work done or service rendered.
 Ex-gratia claims
• The ex-gratia claims are claims made
With no ground in the contract or
At law but, only on the sense of fairness

• e.g. an ex-gratia claims might be made to recover

cost incurred by the contractor the expenditure of
which give benefit to the employer, but for there are
no grounds for recovery under the contract
 Claim Preparation/Procedure
The first notice starts the claims procedure
Any other notice and supporting details may also be
required by specific clauses
Contemporary records to be kept
Record may be inspected by Engineer
Fully detailed claims to be submitted within 42 days
or other agreed time
Within 42 days of receiving the claim with details the
engineer shall respond with approval/disapproval
 Quantifying a claim/Claim analysis

• Proper analysis of claims reduce the degree of

impacts and the development of other claims. Three
phases for analysis
Phase 1---Presentation of claims
Phase 2---Assessment of claims
Phase 3---Response of claims
 Valid Claims
• All parties involved in the contract should be
aware of the causes of valid claims.
In case of contractor, valid claims are those
claims that the contractor is entitled to.
• Claims rejected by one of the following reasons
Timely notice was not given
Late claims
Contract procedures were not followed
Proper record were not kept
Inadequate information is provided to verify
claims
The claim does not establish any valid
entitlements under the contract
Both the employer and the contractor’s can rise claim.
The employer may claim for
Liquidate damage
Extension of defects notification period
the contractor may claim for
Time extension,
Additional cost or
both time extension and additional
payment.

One of the most important problems in the

construction industry is delay.
 Delay responsibility
Owner (agent) responsible: contractor will be
granted time extension and additional cost

•Contractor (subcontractor) responsible: contractor

will not be granted time or costs and may have to
pay damages/penalties.

•Neither party (e.g. act of God) responsible:

contractor will receive additional time to complete
the project but no costs will be granted and no
damages / penalties assessed.
Both parties responsible: contractor will receive
additional time to complete the project but no costs
will be granted and no damages/penalties assessed.
Classification of delay
Based on effect in the completion of projects
• The critical path delay- which causes overall
project delay
• Non-critical delay. which doesn’t cause delay to
overall completion
• Extension of time are concerned with the first
type of delay.
 Based on how they operate contractually
Non-excusable:- non-excusable delays are delays,
which the contractor either causes or assumes the risk
for. These delays are within the control of the contractor
or are foreseeable. Non –justified delays will cause
remedial right for the project owner like liquidated
damages.

Excusable delays:- when a delay is cause by factors

that are not foreseeable, beyond the contractor’s
reasonable control, Force majeure (act of God) will also
be one of the caused for justifiable delay. Justifiable
(excusable) delays can be either compensable or non
compensable
Non compensable excusable delays:- in such type
of excusable delay the contractor will not receive
compensation for the cost of delay, but he/she will
be entitled for an additional time to complete his
work and is relived from any contractually imposed
liquidated damages for the period of delay.

Compensable excusable delays:- these are delays

for which the contractor is entitled not only to an
extension of time but also to adjustment for any
increase in cost caused by the delay.
 Dispute Resolution
• Unresolved claims are the basis for the existence
of construction disputes.
• The basis of remedy for the claims or disputes
may be the contract and/or the applicable law.
• Construction Disputes Construction dispute may
take different forms: dispute in relation to time or
cost, time & cost.
• The contractual parties will pass through different
dispute resolution system depending on their
acceptance over the proposed compensation
varying from
the simplest mediation by the consulting
engineer to
the final court ruling in the form of litigation.
 Basically, three types of dispute resolution systems are
well recognized. These included:
• Preventive Dispute Resolution System including
Partnering, Use of dispute resolution advisors and Use
of Facilitators for early neutral evaluation and advise to
prevent the happening of claims or their consequential
disputes.
• The following aspects may contribute to the
prevention of construction disputes
• To have a well planned project;
• To have a well studied project;
• To have a well designed project;
• To have a clear, accurate & complete tender document; &
contract document
• To have a good project governance;
Amicable Dispute Resolution System including
 Negotiation (B/n the contracting parties, win-
win),
 Mediation (mediator is facilitative, just give a
brainwash, no suggestion),
 Conciliation (evaluative type, third party give
recommendation suggestion) and
 use of Mini-Trials to administer the claim in a
less formal, simple procedure, more flexible,
less adversarial and strictly confidential mode
so as to avoid the time and cost implication of
claim processing.
• Judgmental Dispute Resolution System including
Adjucation or Arbitration (you can control the
process like selecting your adjudicator but not the
out come) and Litigation ( you can’t control the
process and outcome).
• Administrative contracts are not subject to
arbitrate.( civil code 315)

• This sub process where dispute was handled

in any form of its resolution systems is
termed as Dispute Resolutions.
• In relation to this there is also the concept of
ADR: Alternative Dispute Resolution.
Alternative to what?
• The concept of ADR is related to alternative to
litigation.
• Both preventive & amicable dispute resolution
systems may be categorized under Alternative
Dispute Resolution (ADR). There is no any
binding or imposed decision by a third party in
them.