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%)

Please, discuss the difference between Interim Payment Certificate & Final Payment
Certificate. (5%)

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.

Objective

The objective of the exam. Question is to check the understanding of the student
about the difference between interim & final payment certificates, and the legal
effects of the final payment certificate.

Instruction

You may give certain project context to your discussion.

You may discuss the exam. Question within the context of the MDB FIDIC Version-
2006.

Your reply may not exceed more than two pages for both exam. Questions.

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?

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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.

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%)

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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

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.

II. Case Study Exam. Questions (30%)

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 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;
 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.

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  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

 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:

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  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;

 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

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 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%)

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%)