Code Note Latest

COTM 542 Construction laws, codes and standards
CHAPTER ONE: BACKGROUND TO THE CONSTRUCTION INDUSTRY
Introduction
The construction industry is an enormously important part of any economy. Economic

growth depends on the physical infrastructure that is delivered by the construction
industry and its key participants. Construction, responsible for creating, defining and
maintaining the built environment within which most other social and economic activities
take place, is by far the most important way in which societies create new value. It
provides a society with delivery mechanisms for many aspects of its needs such as
economic, social, political, environmental, public sector reform. The industry’s products
are essential to mankind’s physical and social day-to-day existence.
1.1 The history of construction project management
Associated with the construction of the Great Pyramids of Egypt and the Wall of China,
the history of project management is often dated back to time immemorial. However,
despite archaeologists’ suggestion that the construction of the Pyramids were one of the
largest ‘fill-in jobs’ ever undertaken by mankind, and with no documented evidence,
discussion of the management techniques used can only be conjecture.
Modern day project management traces its root to Henry Gantt’s development of the bar
chart, otherwise known as the Gantt chart, in the early 1900s. However, project
management as a management ‘discipline’ or recognisable body of knowledge only
emerged during the 1960s when companies in the construction, defence and aerospace
industries started to use tools and techniques- such as the critical path method (CPM)-
requiring new sets of skills, knowledge and expertise to be developed in their application.
Even at this stage of development of PM, it was the use of specific tools and techniques
such as CPM that was the focus of attention rather than the use of a holistic strategic
approach of management of projects.
More recently, beginning in the late 1980s and early 1990’s and largely associated with
the recession in America, companies from different sectors (which were originally not
known for a project-based production) such as manufacturing, the IT, the leisure, nuclear,
health and pharmaceutical, mining, oil and gas, have started to embrace management by
projects way of conducting business as a potential source of competitive advantage.
There are a variety of reasons put forward as to why this shift occurred including:
 Rapidly changing environments, fierce competitive markets, powerful
environmental lobbies etc. all encouraged companies to look for a more agile and
adaptable models of management.
 The tasks that organizations were facing had become more complex and cross-
disciplinary demanding more sophisticated and flexible organizational
approaches.
AAU, COTM Dep’t 1

 The size and scope of projects (in different industries) had required the
development of more effective management systems for planning and controlling
project performance, schedules, and cost/budget, etc
Thus, along with the development of general project management, which could be
applied to manage projects in any industry, construction project management is now
becoming one of the most attractive disciplines for training. As a result, it has established
it self as one of the core disciplines in academia whereby an increasing number of project
management institutions and associations offer education and training in contemporary
PM principles and conduct research to capture and formalize accepted practices into the
global body of knowledge and curricula of certification programmes.
1.2 Characteristics of the Construction Industry
Generally the construction industry is labeled as a ‘conservative industry’ which adopts

new technologies and practices at a slower rate as compared to other industries such as
the IT, manufacturing and the automotive and invests very little in capital, research &
development and training (Egan 1998).
As it is, construction lacks a full utilization of the construction team, bringing the skills of
all the participants to bear on deliverable value to the client through integrated project
process. The efficiency of the conventional project delivery system currently practiced is
constrained by the largely separate and sequential processes through which projects are
planned, designed and constructed which intern indicates the fragmented nature of the
industry.
The strategy of the conventional processes of sequential project delivery system is meant
to minimize risks and changes through thorough descriptions of specifications and
contracts. This sequential separate system of project delivery, however, is believed to be
an effective barrier to using the skills and knowledge of contractors and suppliers in
design and planning of the projects (Latham 1994).
The conventional procurement system, which assumes that clients benefit from choosing
a new set of project team selected competitively for every project they engage on, is also
believed to be a major obstacle for the advancement of the industry. This aggressive
separate procurement system inhibits learning, innovation and development of skill. It
prevents parties from developing a synergy on past relationships and also leads to the
adversary and confrontational supply chain relation that the industry is known for as the
fierce competition on price forces parties to lower their quoting to win the project with a
believe that they will compromise through change requests-hence destabilizing the
industry (Egan 1998).
Other industries, such as manufacturing and service industry have curbed these problems
quite effectively. They have changed the culture and the way they conduct business to a
total quality management (TQM) way of conducting business by adopting and fully
AAU, COTM Dep’t 2

implementing integrated process approach and partnering form of supply chain

management (mutual beneficial supply chain relationship) in parallel with focusing on
their customers, improving their leadership style, etc and continuously assessing and
improving their approach.
1.2.1 ‘Unique’ characteristics of construction and their effects in the industry
The construction industry is espoused to have a number of characteristics that sets it as

‘unique’ from most other industries. These characteristics embrace a number of political,
social and economic aspects and are believed to have a telling effect in the way the
industry is functioning; including the problems mentioned above.
1.2.1.1 Nature of production
In most cases, except for the minor cases of pre-fabricated constructions, the place of
production of construction has to be necessarily the place where the product is going to
be used. Thus the working place is changing regularly with workers constantly moving
from one site to another, cooperating with different partners and in different chains.
Besides because the site of production is the site of product which has to be built yet,
work in construction industry is mostly exposed to inclement weather, and therefore, to
seasonal cycles and disruption.
Because the character of work is of temporary duration, labor contracts are very often of
a fixed term nature. Hence, insecurity of employment and earnings is significantly higher
than in other industries. Due to instability of the production process, its exposition to
weather, and variable working environment, the incidence of accidents is significantly
higher than in most other industry (perhaps only less than mining).
For these reasons of peculiarity regarding the sector’s production process including work
organization (and others) there are some peculiarities in the construction industry’s labor
relations, with very often lower wages, particular vocational training systems, social
funds to compensate disadvantages caused by health and safety risks, disruption of
earnings, and fluctuation with negative effects on earnings, vacation, and pensions.
1.2.1.2 Nature of the product
The outputs of construction are generally large, heavy, durable, expensive,

heterogeneous, and immobile in addition to being required over a wide geographical area.
Due to the identity of location of production and location of products, with products
immobile, the construction market is mostly restricted to be local. Thus the construction
market is dominated by small enterprises that perfectly meet the low-size scale of most
sites or the specialization of trade respectively and the geographic market.
AAU, COTM Dep’t 3

1.2.1.3 Demand for the industry’s products
Unlike most consumer products that are readily produced in bulk, the demand for the
product of the construction industry is generally only produced upon the initiation of, and
to the requirements of the clients. With the exception of the sometimes-speculative
building, clients must first define their requirements in terms of what product that they
want and only then can the construction industry build it.
Moreover, the level and type of demand cannot be controlled, manipulated or easily
created by the industry itself. Hence unlike most industries where a considerable
proportion of effective demand for their products is created and managed by the
producers themselves through extensive marketing and application of new technologies,
demand for construction products is mainly secondary or derive. Hence the demand is
determined by the demand and output of other goods and services such as investment
goods for which the ultimate use is either as a means to further production an addition to
or improvement of the infrastructure of the economy a social investment or an investment
good for direct enjoyment, which it creates or helps create.
The implication of this is that it is much more difficult for the construction industry to
create or manipulate demand for its products since such factors are not under the control
of the industry. However, the inability of the industry to manipulate demand could also
be partly attributed to the overall structure of the industry, as will be discussed below.
1.2.1.4 The structure of the industry
The product and production characteristics stated above largely determine the structure of
the industry including the proliferation of many small firms, each forming temporary
alliances upon project basis for the duration of the project. Further, the construction
industry is highly fragmented with the planning, design and procurement of a building
being separated from its construction process.
The industry is characterized by high levels of uncertainty. The demand is so variable

and the environment so competitive for work that creates low levels of profitability.
Researchers (for example, Flanagan et al. 1998) argue that profits in construction will
remain low for as long as construction is seen as a low-technology industry and while
many firms are prepared to win work with low-profit margins.
The construction industry is large, its activities are fragmented and include a wide range
of types and sizes of construction works to enable it meet a variety of client needs.
Generally, the vast majority of works are small and although in value terms, each is
insignificant, combined, they represent a large part of the construction industry’s total
output. Time lags in the construction process tend to be long and variable and there are
large fluctuations in the demand for construction over time. Because of this, it is only
logical that the industry has to respond to the character and pattern of demand as it arises.
AAU, COTM Dep’t 4

Because of all the above reasons and ‘peculiarities’, it is claimed that it is difficult for
construction industry to adopt manufacturing industry-style supply chain management
and delivery of projects Cartlidge (2002). On the other hand, the construction industry
which is typically associated with late delivery, over budget, low profitability, poor
returns and slow up take of new technology and management philosophies is challenged
to discontinue disguising its inefficiency behind the idea of the industry being so different
from others (Flanagan et al. 1998; Egan 1998). It is suggested that as the construction
industry evolves, it can and will start to learn and benchmark ideas from outside
industries, such as manufacturing and the IT (Egan 1998).
1.2.1.5 The Workforce
Although some inputs can be manufactured off-site, construction activities take place on
site. This also means that inclement weather could or does affect the progress of the work
on site. The industry is, by its very nature, an overwhelmingly domestic and labour-
intensive industry despite the advancement in modern technologies. This situation is
perpetuated by the fact that because most firms are small, there is no single organization
or ‘champion’ to spearhead change in the industry particularly as it relates to technology.
Typically, 90% of construction workers in both developed and developing countries are
employed in micro firms with fewer than ten people and small and medium sized firms
constitute 97% of all construction firms globally (CSIR, 2003). It therefore follows that
the skills and commitment and effective organization of the work force are crucial in
determining whether or not the industry can produce a high quality of output at a fair
price. It has also become apparent that there is need to change working patterns and
challenge existing attitudes, which calls for a need for effective communication,
education, training, participation and involvement (Flanagan et al 1998).
The common working practices, namely self-employment and labor-only sub-contracting,

differentiates the construction industry from most other industries. These practices also
contribute heavily to the many disadvantages for which the construction industry has
been criticized including, the temporary nature of the work, poor site safety record, lower
wages and lower social status of its labour force, inadequacy of training and consequent
skills shortage.
1.1 Relationship between the Construction Industry and the Economy
The Construction industry has a significant multiplier effect on a given economy. There
is a relationship between output, employment, income and demand.
The industry provides significant amounts of fixed investment, contributes considerably

to the national output and is a major source of employment; directly and indirectly by its
multiplier effect. Studies show that in most countries construction constitutes more than
half of capital investment, contributes up to 10% of GDP and employs more than one
hundred million people globally which accounts for almost 28% of all industrial
AAU, COTM Dep’t 5

employment (CSIR 2003; Winch 2002). For developing nations like our, these figures are
believed to be even higher.
Table 1: 1 Contribution of construction towards overall economy in selected countries (1980 market value)
Countries Value added to GDP Share of Gross Fixed

Capital Formation
France 5 56
UK 6 48
USA 4 55
Kenya 5 48
Ethiopia ? ?
Perhaps related to its inefficiencies as manifested by late delivery, over budget, low
profitability, poor returns and slow up take of new technology and management
philosophies, construction’s contribution towards a given economy is diminishing. It is
often being replaced by the service industry, which is quite known for its continuous
improvement and customer focus, especially in developed nations which, more or less,
have already implemented a will functioning infrastructural network. However, in fast
developing economies like the ‘Asian Tigers’, construction takes the lion’s share of the
economy.
Certain actions, particularly government ones, such as an increase in the interest rate or
decrease in supply of credit affects not only the demand on construction industry but also
firms in the industry. Any change in the level of construction output will also affect
employment and hence incomes, demand and ultimately outputs of other sectors of the
economy.
Consequently, the construction industry is often used as a regulator of the general

economy. It has proved a good instrument for transmitting short-term deflation through
the economy without creating widespread political upheaval, economic disruption or
closure of productivity capacity.
Under conventional “Keynesian” economic theory, when the economy is in a recess, as

output and employment falls, the government would increase spending to stimulate
economic activity, and when there is a boom, government would reduce its spending. In
the same way, low income, low investment and low levels of productive employment
feed into one another. Thus, targets for construction output and employment should be
integrated within macro-economic planning.
Government’s influence coupled with the investment nature of the construction industry’s
product means that demand tends to fluctuate particularly according to the state of the
economy and the social, economic policies of the government, with consequent effects on
the industry. Change in the construction industry is constant and is influenced by many
factors including interest rates, business uncertainty, and government policy, world
events, training and changing expectations of clients. Typically, variations in construction
output have little physical short-term effects particularly because of the durability of most
AAU, COTM Dep’t 6

construction products. Time lags in the construction process tend to be long and variable
and there are large fluctuations in the demand for construction over time. This implies
that the amount spent on construction can as a result vary quite sharply from year to year
without significantly affecting the state of the built environment.
1.2 Why is it necessary to regulate and standardize construction works?
The fundamental importance of regulations and standardizations are helping create,

transparency, facilitations, uniformity/order, etc in various areas of social and economic
development.
Specific to construction, the characteristics of the construction processes and products, as

discussed above, demand meticulous regulations and standardizations to enable the
industry function properly and efficiently.
As discussed above, the industry is fundamental in shaping society’s way of life and
economic benefits. It is, therefore, for both economic and administrative reasons that
the reductions and increases in government spending are often concentrated on
construction projects. And it is due to this monumental importance that government gives
a considerable emphasis in shaping the practice of construction. As part of shaping and
defining efficient, transparent, standard and safe practice of construction, government
sets up laws, regulations and standards along with the responsible bodies to see after
these practices.
AAU, COTM Dep’t 7

CHPATER TWO: CONSTRUCTION LAWS, REGULATIONS, CODES AND

STANDARDS
2.1 Overviews of standardizations and regulations
Construction works are regulated and normalized by a variety of codes, standards,

bylaws, regulations, and acts that can vary from country to country or even from province
to province and from municipality to municipality. Suiting to their specific demands,
way of life, culture, economic development, historical background etc, varies
countries/provinces/municipalities set out fitting legal frameworks and standards for
construction works.
In most countries, the main themes found in most construction related legal systems
includes; but not limited to:
 Planning regulations,
 Environmental protection regulations,
 Waste and waste management and contamination regulations
 Health and safety regulations,
 The bidding and tendering laws
 Regulations on registered professionals and construction enterprises and
administration of construction project quality
 Regulations on the procedures for administrative disputes in construction
 Property ownership right laws
 Codes of practices
 Norms and standards
While laws, acts, regulations, etc are meant to regulate the construction industry and its
practices, the codes and standards are generally meant to facilitate and standardize these
practices. In this regard, the codes and standards are generally concerned with matters
affecting public safety and health, structural sufficiency, uniformity and efficiency of
procedures and practices, facilitating practices, etc.
Why is it necessary to set construction laws, codes and standards?
The major reasons that governments set out rules and regulations and continuously follow
up the applicability of these rules and regulations is to reduce the vulnerability of the
built environment to risk, while the needs for standards, codes, and norms is principally
to facilitate practices and protect stakeholders’ interests
By setting appropriate regulations, codes and standards, statutory agencies try to:
 Improve the living standards and safety of the citizens using

infrastructures delivered by construction.
AAU, COTM Dep’t 8

Eg. Urban planning codes, building safety codes, waste handling regulations; fire
safety requirements etc could fall under this category.
 Increase the efficiency and quality (both in terms of processes and

products) of the built environment
Regulations pertaining to professional licensing, occupational health and safety

regulations, material and equipment standardization, norms pertaining to ‘best’
practices, etc
 Ensure fair trade within the sector, fair treatment of all parties, and
guarantee protection for investment
Laws and regulations related to tendering & contract administrations, proclamations

pertaining to the procedures and practices as well as authorities and responsibilities of
each agencies administering sectors of construction, labor laws, laws dealing with
property ownership rights, etc.
 Ensure uniformity and continuity of operation
Regulations related to building permissions and requirements to submit as built

drawings: help to apply a professional and documented maintenance scheme.
Regulations pertaining to imports and exports of construction products and services:
seen as part of the standardization and technology update scheme.
 Ensure safety of the environment
Environmental safeties requirements that projects are expected to comply with are
part of this scheme.
Who promulgates laws, codes and standards?
In different countries different statutory bodies, professional associations, safety and

health (and environmental) watchdogs etc participate in setting up the rules and
regulations that govern construction. In almost all of these countries, the laws are
promulgated by the ‘law makers’ while the regulations, codes and standards could be
set by the bodies such as ministry of construction/infrastructure and municipalities or
even professional associations such as the ACI, ASTM, BS, etc.
In Ethiopian context, various authorities and agencies have had authorities and
responsibilities handed to them to promulgate and effect regulations, codes and standards.
Accordingly, varies of them have contributed and participated in shaping practices in the
industry. To mention a few the Building and Transport Construction and Design Agency
(BaTCoDA) has developed such documents like the standard conditions of contract
AAU, COTM Dep’t 9

which has been basis for such works during subsequent times. The EBCA developed a
‘norm’ for team composition and productivity of the various works to be executed in
building jobs which can be used as a basis of scheduling and cost estimations, which later
is modified by the Ministry of Works and Urban Development (MoWUD). The MoWUD
also has developed, among other, the now famous MoWUD standard conditions of
contact and the Ethiopian Building Code Standards of practices as well as standard
specification codes. The Ethiopian Road Authority, in its part, has developed various
standard practices and norms that facilitate road construction works. The major of these
includes the Construction Management System (CMS), The Equipment Maintenance
System, The Standard Specifications and Procurement System released in 2002.
Under the current system, while the parliament has the ultimate legal say in
proclamations and legal aspects, the following are the major governing bodies of
construction:
 The Ministry of Works and Urban Development, the party

mandated to regulate and promulgate laws, codes, standards, etc
meant to promote efficiency, transparency, accountability as well as
growth in the industry; Etc.
 Municipalities: Bodies who are given the mandate to look after urban
housing construction and its associated legalities;
 The Ethiopian Road Authority: Besides being a major client of the
road sector by itself, the ERA is the party mandated to look after the
road sector construction works;
 The Ministry of Water Resources; is the party mandated to overlook
water sector development programs;
 In addition to the above (mainly national bodies), the regional
regulating bodies also have a huge stake in shaping how the industry
should perform in each state (or will have when they develop their
capacity).
The major proclamations, codes and standards currently in use in the industry
Procurement and Contract related
 Proclamation 430/2005: Establishes Procedures in Public procurement and

Establishes Public Procurement Agency (PPA) to foster efficiency and
transparency in the system.
 The PPA SBDs provide the full details of practices that need to be followed in
public procurement, both for national and international bidding of goods, works
and services (both consultancy and non consultancy).
 The MWoUD’s standard condition of contracts for construction works was the
predecessor to PPA’s and follows much of the FIDIC’s approach
 The ERA’s NCB’s and ICB’s are prepared to be used in road construction
procurement and administration processes by the ERA and its associates..
AAU, COTM Dep’t 10

In addition to the local procurement standards documents and procedures,

international documents such as the FIDIC procurement and contracting
documents for various big and/or international contracting, the bank harmonized
version of FIDIC (normally used on projects financed by the multilateral banks)
and its associated procurement guidelines, the EDF APC conditions of contracts
for projects financed by the European Development Fund, are also major
procurement and contracting documents in use in the industry.
Standard codes and specification related
 The Ethiopian Building Code Standards provides codes of practices meant

for harmonization of designs, constructions and material selection practices
with appropriate level of safety, and economic provisions.
 Standard technical specifications for building construction works
prepared by various parties such as MWoUD, BaTCoDA, etc provide various
technical specifications and standards that are meant to guide construction
works and provide public safety.
 Technical Specifications for Road Works: Published by the Ethiopian Road
Authority with other documents such as the design guidelines and
procurement procedures, the specs are meant to guide the road sector designs
and construction works.
Besides these national standards and specs, guidelines and specifications from the
British Standard (BS), American Standard for Testing Materials (ASTM),
American Concrete Institute (ACI), American Association of State Highways &
Transport Officials (AASHTO), TRL standards, etc are major standards and
specifications that are in common use in the industry.
Norms in construction works
Though not codes or standards that are meant to be strictly followed, norms do play a
great deal in facilitating construction works. In Ethiopian construction, the following are
common norms in use to determine productivity.
 The EBCA standard productivity, the BaTCoDA productivity standard and

the MWoUD’s Ethiopian Construction Productivity Norms are documents
predominately prepared by updating them serially (as put in this respective order).
They provide guidelines of team composition and their productivity with respect
to the various major job items in building works.
 Construction Management System; Though quite old, the ERA’s CMS do still
play a significant role in road construction resource allocations and scheduling.
 Equipment Management System; produced recently by the ERA, is a good

guidelines in fleet maintenance.

Regulations Concerning Construction Services Practices and Ownerships
 The Ethiopian Building Proclamations: A draft document which is meant to

guide building works and establish the respective duties and responsibilities of
the parties involved in its implementation.
 The Property Ownership law: In the current setup, there is no separate

property ownership law for individual houses. The majority of property
related issues are addressed in the Civil Code. In addition, in recent years,
there have been proclamations dealing with apartments.
 Building Permit Regulation (Addis Ababa) is a document formulated with

the objectives of making the city a convenient living place for its residents,
improve transparency and accountability in the services provided by the
public sector and thereby reduce inefficiencies, provide professional and
ethical service and incur uniformity in to the building works, make the
construction works safe, efficiently coordinate the infrastructure in the city,
the regulations gives requirements, accountabilities and procedures that needs
to be followed in undertaking a building work in the city
 Procedures and requirements pertaining to building permits
 Provides building design standards
 Precautions and procedures to be followed in refurbishing and
demolition
 Requirements and procedures in supervision of the building work
 Consultant licensing requirements and their duties
 Procedures in service payments for professionals and the municipality
services
Others
Besides the above major codes and standards, standards and legal guidelines concerning
labor laws, health and safety regulations, environmental protection acts, etc are common
areas of interest under the construction circle of influence.


CHAPTER THREE: THE PRACTICE OF CONTRACTING
3.1 Background
In any economy, a contract is an indispensable instrument for exchange of goods,

services and money between persons- both in the physical term or corporate form. Non-
recognition and/or non-enforcement of contracts can only lead to anarchy and failure of
transactions. Thus given its importance for a smooth running of economy and social
order, countries around the world incorporate provisions in contract laws in their legal
system. This importance is also noted in the Ethiopian codifiers of laws. They have
allocated nearly half of both the Civil Code and Commercial Code to contracts and its
provisions.
3.2 Introduction to the major legal practices and systems
3.2.1 Code Vs non-code legal system
In a code legal system, like ours, the duties and rights of citizens are legislated and
codified in the legal system. In such codified legal systems, where ‘rights’ and ‘wrongs’
are stipulated in the system, doing something is deemed unlawful only if it is codified to
be so ‘before’ the ‘unlawful’ act is committed. Similarly, doing something wrong can
only be punished to the limit that the law specifies at the time of execution of the act. In
the countries that follow non-code system –common law countries, however, the legal
system is an open ended where cases can be settled by the jury. In such systems, cases are
usually compared with previous similar cases for the purpose of jurisdiction and the law
is what the country’s highest court decides to be a law. Here, the overriding principle is
to apply ‘common sense’ in dealing with issues.
3.2.2 Substantive Vs Procedural laws
Substantive laws are laws that stipulate the rights and not rights of a citizen. Procedural
laws, on the other hand, are laws that deal with the mechanism that is used to enforce the
substantive laws. They clearly stipulate what needs to be satisfied and how not
compliance with the substantive laws is to be punished. Civil codes and criminal codes
belong to the substantive laws while civil procedural codes and criminal procedural codes
are subsidiaries of the procedural laws.
3.2.3 Civil Vs criminal law
The civil law deals with the rights of people. It concentrates in establishing rights of
people be it is that of statue or proprietary nature. If a wrong is done, the civil law ends
at compensating the injured party. The criminal law on the other hand protects citizens
from crime being committed on them. It states that ‘don’t do’s ‘and penalizes those who
violates the rule.

3.3 Ethiopian legal system and hierarchy
Before we discuses the provisions of the Code that deals with contracts, it is useful to
look into some of the practices of legal systems.
3.3.1 The legal system
The legal system in

Ethiopia
The lawmakers The law interpreters The law enforcers
The House of
The parliament The government
Federation
Bodies designated by
The Courts The police
the parliament
Citizens
 The lawmakers: Are the parties entrusted to critically analyze and promulgate
laws and proclamations that are meant to protect the interest of citizens and the
country. Under the current Ethiopian legal practice, the ultimate lawmakers are
the people’s representatives; the parliament. However, for efficiency and
practicality purposes, the parliament generally entrusts various statutory bodies
to look into, initiate and some times promulgate legal procedures. For example,
the Ministry of Works and Urban Development is entrusted to initiate legal
proclamations concerning construction while promulgating various rules and
regulations that are meant to foster the industry’s work.
 The law interpreters: are parties entrusted to interpret the laws, regulations, acts
that are enforceable by law. In the current set up, the courts are the principal law
interrelates while the house of federation interprets the constitution.
 Law enforcers: are parties entrusted to enforce laws. In principle, citizens are
meant to be the predominate law enforcers both by abiding by the laws and
bringing to authorities those who breach it. The other major parties are the
various government agencies, that are expected to enforce the legal issues and its
practicalities within their ‘jurisdiction’, and the police who are meant to enforce
the laws and protect public order.

3.3.2 The legal Hierarchy
3.3.2.1 The constitution
The constitution is the supreme law of the country on which all other laws depend. In
Ethiopia, the constitution establishes that the parliament would act on other laws
(proclamations) but not on the constitution itself. Accordingly, the parliament is given the
authority to promulgate proclamations and delegate power to certain bodies to enforce the
law. Unlike other laws, the constitution is not interpreted by the judiciary organ; it is
rather interpreted by the House of Federation.
3.3.2.1 The Civil Code
Made effective on September 11, 1960 and amended subsequently to suite economic,
social and regime changes, the Ethiopian Civil Code has been the governor of civil order
since then. The original code was drafted by a careful adoption of provisions in the
systems of various countries that follow a codified judiciary system, although some
provisions were also adopted from common law practices. More specifically, the then
drafters of the Code consulted civil codes of Egypt and many Continental Europe
countries’ (France, Greece, Italy and Switzerland), with the Swiss and French codes
taken as prime sources.
The Code has five major sections, termed by the drafters as ‘books’: Book I deals with
‘persons’ whereby it deals with capacity and rights of personalities; Book II deals with
‘family succession’ issues where it stipulates relationships and related issues; Book III is
about ‘goods’ and stipulates issues related with ownership. Book IV deals with
‘obligations’ where it articulates practices and general provisions of contracts and Book
V deals with ‘special contracts’ where it provides terms for contracts that are deemed to
require special attention. In the Code, the books that deal with contracts, Book IV and
some parts of Book V, form nearly half of its volume. Here in this chapter as well, it is
these books which are of our main interest.
3.3.2.2 General guidelines in overriding
Generally in a legal system, in a move meant to provide parties draft special terms of
condition that suites their specific case, special conditions of contracts rule over general
contracts. Accordingly, in Ethiopia as well, except for the case of constitution, which is
the all-overriding law of the nation, special conditions usually take precedence over
general provisions.

3.4 A contract
A contract as defined by art. 1675 of the Civil Code is ‘an agreement between two or
more persons as between themselves to create, vary or extinguish obligations of a
proprietary nature’
This comprehensive definition makes it explicit that two parties (be real persons or quasi-
persons as in corporate, public institutions, etc) can only commit themselves into a
contractual obligation and not a third party. It also makes it explicit that to be adjudged a
contract under this article, the obligation should be of proprietary (patrimonial) nature
and not, for example, contracts of ‘status’ as in marriage or adoption.
However, though parties can only enter into a contractual agreement by themselves, in
normal circumstances, they are allowed to delegate the obligation to a third (and
qualified body) unless self-performance of the job is essential to the creditor.
3.4.1 Types of contracts
Depending on ones interest in hot to classify, there are various classifications of contracts
including:
 Bilateral contract and unilateral contract
Bilateral contracts are contracts that contain obligations on both parties. For
example in a construction contract between employer and contractor, the
contractor is obliged to execute the works while the employer is obliged to pay for
the works.
Unilateral contracts are contracts that contain a promise (offer) made by one
party in return for the performance of an act by the other party. For example, a
public announcement to reward somebody who finds a lost object would be come
a binding contract the moment the finder delivers the item lost. The finder is not
obliged to find the lost object, but if he finds the promiser is obliged to pay.
Or as a construction example, a contractor calls block producers to supply 5000

blocks of a certain standard. The supplier is not obliged, but if he supplies the
blocks according to the specifications provided the contractor has to pay.
 Executory or executed contract.
Excutory contract is a contract that has not been fully performed while executed
contract is a contract in which the parties to the contract have already performed
their obligations under the contract.

3.4.2 Terms of Contract
Contract terms can be either conditions or warranties:
 Conditions are terms fundamental to the contract. Failure to adhere to a condition

may result in a breach and/or damages.
 Warranties are terms subsidiary to the main contract. A breach of a warranty

will only result in the injured party suing for damages.
Terms can also be either expressed or implied
 Expressed terms are terms clearly stated in the contract.
 Implied terms are not specifically written into the contract but are considered by
the courts to be part of the contract.
1. Terms implied by statute law,

2. Terms where both parties had obviously intended the term,
3. Terms implied by custom
Implied terms that are particularly important to construction contracts are:

 the contractor will carry out the work in a workmanlike manner
 the goods and materials will be of good quality
 the materials and work will be reasonably fit for their purpose
 Exclusion clauses: These are clauses (terms) that seek to deny liability or limit
liability.
For example, construction contracts usually exclude;
 Liability for design faults by the contractor

 Certain liabilities are excluded by the employer. The contractor is required
to indemnify the employer and to ensure against claims arising due to such
matters (Standard Conditions of Contract, MOWUD, 1994 and FIDIC
Clause 21, 22, 23 and 24).
3.5 Elements of a contract/Formation of a contract
Every contract is an agreement, but not every agreement is a contract. For a contract to
be enforceable in front of law, the following requirements must be satisfied. Sections 1-4
must be present in any contract while the requirement of formalities depends on the
nature of the contract.
1. Offer and acceptance (Agreement)

2. Competent parties (Legal capacity)

3. Consideration
4. Legality of the object
5. Formalities (some contracts must be in writing or in a form acceptable by
law
3.5.1 There has to be offer and acceptance
i. Offer
An offer is an expression that one party is willing to be bound by specific terms which
are setout in the contract. (For example a bid by a contractor promising to construct a
project constitutes an offer). We say a contract is complete when an offer by one party is
accepted without condition by the other party and hence the two parties are willing to be
bound by their agreement.
According to the Civil Code, an offer or acceptance can be made:

 In writing or orally
 By signs normally in use
 By conduct of the parties
However, there is no contractual offer in the case that a party declares to be obliged but
without communicating this intention to the beneficiary of the declaration. Following this
legislation, whomsoever offers a thing for sale by auction shall be deemed to make
declaration of intention and not an offer. In such cases, the contract is deemed complete
when the thing is knocked down upon the last bid being made.
In the usual construction procurement practice, an offer is said to be made when a

contractors fills in its bid documents and submits it to the client for evaluation.
ii. Validity period of offer
An offer remains open unless it is terminated. Termination can occur in the following
ways:
 A refusal (rejection) or counter offers but not just a request for further
information.
This happens when a person to whom the offer is addressed does not accept all the terms
or introduces new terms. The effect of counter offer in law is to kill off the original offer.
An offer terminates when the offeree rejects the offer made by the offeror.
 Death of offeror or offeree.
 None acceptance within the offer time or after reasonable length of time
 Failure of a condition subject to which the offer was made

Examples: - if the offer becomes illegal before it is accepted

- if the offer becomes impossible to carry out
 Revocation of the offer (withdrawal of offer)

Offers may be revoked or withdrawn by the offerer.
The offerer has a prerogative to revoke his offer but that must be communicated to the
offeree prior to or on the moment of acceptance of the offeree.
iii. Acceptance
A contract does not exist until the offer is accepted by the other party (for example when
the owner notifies the winning contractor that his offer has been accepted a contract is
formed). For an acceptance to be deemed valid, it must be:
 Absolute - i.e. accepting all the terms of the offer
According to art. 1694 of the Code, an offer shall be deemed to be rejected and a new
offer shall be deemed to be made where the acceptance is made with reservation or does
not exactly conform to the offeror.
 There must be an indication of consent - i.e. silence does not indicate acceptance
 The acceptance must be communicated to the offeror
According to the Code, on acceptance doesn’t have to reach the offerer for the contract to
be complete. The moment the offeree pledges himself and agrees with the terms of the
offer, the contract is said to be complete. Moreover, there are cases where no
communication of acceptance is required such as:
 Where the party is bound by law or a concession granted by authorities to
enter into a contract on the terms stipulated in advance;
 An offer to continue or vary an existing contract or enter into a subsidiary
one, which can be accepted by silence;
 In the case where the offer clearly stipulated that an acceptance is deemed to
have been made unless the offer is rejected within a certain period of time.
 It must be the offeree or his agent which communicates the acceptance
3.5.2 The agreeing parties should be capable of contracting and give their consents
sustainable at law
i. Capability of parties
According to this provision, no agreement is deemed an enforceable contract if any of

the parties is incapable of contracting. Capability of persons is defined in ‘title ii’ of
the Code. Just as an example, an agreement with a minor (under the age of 18.) is not

deemed as an enforceable contract. As is agreements with those considered mentally

in competent, mentally ill, under the influence of alcohol and other drugs
iv. Consents sustainable at law.
If the parties don’t give their consents sustainable at law, a contract wouldn’t be
upheld. Here the emphasis is to make sure that the parties making the agreement are
doing it so with their full consent. It is to iterate that the parties are willing to be
bound
3.5.3 Consideration
Consideration is 'the price for the promise'. I.e it is what one party can get from the other
party in return for performing contract obligations.
Consideration involves a benefit moving from the offeree to the offeror in exchange for
the promise. Usually it is money or a promise to pay money but it can also be some other
benefit.
Consideration must be:
 Of some value, but not necessarily adequate

 Additional to the duty in the law
 Additional to previous contract agreements
 For a future act
If one party makes a promise and the other party offers nothing in return for that promise,
the promise is unenforceable due to lack of consideration. This can best be exemplified
by a charity organization withdrawing its promise to do something without expecting
anything in exchange. The decision to keep the promise is at the discretion of the charity
organization.
In case of a construction contract, if a contractor promises to build house for another

party without being compensated and later he changes his mind he cannot be forced to
build because there was no consideration.
3.5.4 The objects of the contract is sufficiently defined and is possible and lawful
The object of the contract is the obligation to perform something. The lack of an object or
an effective (defined, possible, lawful, and freely determined by the parties) object
prevents the formation of contract, makes it non-existent, of no effect, null and void.
Impossible object can be objects that couldn’t be fulfilled by an average person of the
contracting party’s capability (for example to sale a house which you don’t have) while
illegal objects are those which are not permitted or are immoral to perform. Such
activities may be like agreements to commit crimes or civil wrongs, agreements which
may injure the state, drug lording/trafficking, promotion of corruption, agreements which
limit a person's ability to carry out trade, etc.

3.5.5 The contract is presented in the form provided by law, if any
If there is no special form provided by law, the parties can agree the contract to be in
the form that suites them. However, the law usually stipulates special form for some
trades. For example, a contract involving an immovable object should be in a written
form and needs to be registered by the authorities. Similarly, any contract involving
public organizations should be in writing. As do contracts of long time such as of
guarantee, insurance contracts.
According to the Civil Code of Ethiopia 1960, Art.1727
1) Any Contact required in writing shall be supported by a special document

signed by all the parties bound by the contract.
2) It shall be of no effect unless it is attested by two witnesses
3.6 Invalidation of contracts
3.6.1 Void and voidable contracts
There are terms that circulate in the legal system concerning invalidation. Contract which
lack the above requirements (will of agreement-offer and acceptance, consent, object,
form etc) are said to be non-existent, void (null) contract whereby they are assumed to be
not a binding contract in the first place. However, if contracts have those items that are
needed to be satisfied but with some defect, as in defects in consent, are said to be
voidable, (annullable or unenforceable) contracts
That said, an invalidation of a contract may be forced due either of the following reasons
3.6.2 Mistake
If one or both parties in a contract make a mistake that is so fundamental to the contract
that the other party wouldn’t have entered to the contract had he known it, the contract
will be annulled. At this point, it has to be kept in mind that for a contract to be annulled
on the grounds of mistake, the mistake has needs to be decisive/ fundamental to the
nature of the contract.
The most common mistakes that could lead to invalidation of a contract are mistake to
the:
 Identity of the object,
 Existence of the subject matter- e.g a contract will be void where the subject
matter of the contract has ceased/unknown to the parties before the time of
contract.
 Mistake by one party to the promise of the other party being aware of the others
mistake

 Identity of the other party – contract will be void on the ground of mistake where
such mistake relates to the identity or qualification of other party where such
identity or qualification is fundamental element of the contract.
According to the Civil Code of Ethiopia 1960, Art.1701, non-fundamental mistakes are:
 A mistake only relates to the motives that led to the making of the contract.
 Arithmetical mistakes
3.6.3 Fraud
Fraud can be a ground for invalidation of a contract based on mistake provoked by deceit,
by cheating. Frauds are of two kinds seen from contractual point of view. Principal or
decisive fraud is such a fraud whereby, with the fraud, the plaintiff wouldn’t have thought
of entering the contract. Incidental fraud, on the other hand is a fraud where by the
plaintiff, even knowing the fraud, would have thought of contracting, but at less onerous
terms.
For a contract to be invalidated on the grounds of a fraud, the fraud has to be principal.
An incidental fraud can only be help to claim compensation on terms of tort.
Moreover, according to the Code (art 1704), deceit by a third party is no ground to
invalidate a contract unless the contracting party knew the fraud and took advantage of it.
3.6.4 False statement
The Code (art. 2059) states that whoever intentionally or negligently, supplies false
information to another where he knows that the latter acts upon the information and
thereby suffer damage commits a fault. Such false statements, which according to art
1705 sub art (2) can be caused by silence, can be grounds to nullify a contract given that
the false statement has given rise to special confidence by the contracting parties.
3.6.5 Duress
In contact law, ‘duress’ is the compelling of a party to consent to a contract by threats of

grave imminent harm to such party or his ascendants, descendents or spouse. The
impending danger may relate to life, person, honor or property and can invalidate a
contract even if the duress was exercised by a third party, in which case the party
claiming to invalidate the contract may compensate the other party for his damages if the
latter didn’t know of such an act by the third party.
Generally, duress can have threefold aspect:

 A contract aspect leading to invalidation,
 A tort aspect leading to compensation for damages,
 A penal aspect leading to punishment under the Penal Code

3.6.6 Unconscionable contracts
A contract may be not invalidated on the sole ground that its terms are substantially
favorable to the other party. But if that consent of the injured party is obtained by taking
advantage of his want, simplicity of mind, senility or manifest business inexperience, the
contract can be invalidated on the ground of unconscionable.
3.7 Discharge of Contracts
There are four ways in which a contract may be discharged. These are:
Performance, agreement, breach, frustration.
3.7.1 Performance
In order to be fully discharged from a contract on the ground of performance, the

parties must have substantially completed the obligations set in the terms of the
contract.
A construction contract will be discharged by performance on the part of the

contractor when all the works has been substantially completed including
maintenance during the detect liability period, and when the engineer has issued
all the required certificates and on the part of the employer when he has paid all
the payments due.
The contractor is liable to the employer if latent defects are discovered during the
period limited by law. This period of limitation in the Ethiopian Civil Code 1960
is 10 years and clause 71 of the standard conditions contract (MOWUD 1994)
also specifies 10 years limitation period.
Generally, unless it is very important to the offerer or it is expressly agreed upon,

performance is not required to ‘perfectly fit’ to what is stated in the agreement
document. Art. 48 of the MOWUD general conditions of contract supplements
this by providing provisions for certification of completion of works at substantial
completion.
Related to this, perhaps unique to construction is the stipulation of alteration,

additions and omissions clauses in construction contract documents. Unlike
many other contracts, construction contracts stipulate such change clauses to cater
for the usually inevitable drift from the original agreed work. Thus, to take care of
this inevitable drift, construction contracts stipulate a ‘change’ clause. For
example, the MoWUD general condition of contracts provides provisions and
ways of handling for changes in articles 51 and 52.

3.7.2 Agreement
Contracts can also be discharged by the following variations of agreements:
 By mutual Agreement: the parties may mutually agree to release each other from
their contractual obligation and cancel the contract.
 By novation: the parties may substitute the existing contract with new contract.
 By accord and satisfaction: the parties may accept performance that is different
from what was agreed on in the original contract.
3.7.3 Frustration
Frustration occurs when the contract was executable at time of agreement but subsequent
events, over which the contracting parties have no control, makes it impossible to fulfill
the contract obligations.
Examples include:
 Personal incapacity of a party where the contract involves personal services;

 A change in law which affects the core objective of the contract;
 Non-occurrence of an event that forms the basis of the contract;
 Destruction of the specific item essential to the performance of the contract;
 e.g. a building in which the contractor is to carry out maintenance works for a
client is destroyed by fire
 Action by government which prohibits performance of a contract for a long period;
 War;
 Natural catastrophe such as an earthquake, lightning or floods.
3.7.3.1 Consequences of frustration
When a contract is frustrated, the parties are released from further performance. Clause
66 of the standard conditions of contract for construction of Civil works projects
(MoWUD, 1994) deals with frustration and its remedies. It states:
"If a war or other circumstances outside the control of both parties, arises after the
contract is made so that either party is prevented from fulfilling his contractual
obligations, or under the law governing the contract, the parties are released from further
performance…….. . "
The civil code deals with frustration under force majuere. Article 1791 & 1792.
Force Majeure is defined in Article 1792.

(1) Force majeure results from an occurrence of which the debtor could
normally not foresee and which prevents him absolutely from performing
his obligations.
(2) Force majeure shall not exist where the occurrence could normally have
been foreseen by the debtor or where it renders more onerous the
performance by the debtor of his obligations.
However, it must be noted that frustration does not include:
 Self induced frustration

 Events which make the contract harder or more expensive to
execute
3.7.4 Breach
Breach of a contract occurs when a party fails to carryout its fundamental contractual
obligations under the contract. Breach of contract by one party may have two
consequences:
 Breach always gives entitlement to damages

 If the breach is sufficiently serious it gives right to termination.
According to the MoWUD standard condition of contract (1994) default by the contractor
which entitles the employer to expel the contractor are as follows.
 The contractor becomes bankrupt or go into liquidation;

 The contractor assigns the contract without the consent of the employer;
 The engineer certifies in writing to the employer that the contractor.
a. Has abandoned the contract,

b. Without a sound reason, has failed to commence the works or suspended
the progress of the works for 28 days after receiving from the engineer
written notice to proceed,
c. Has failed to remove materials from the site or to pull down and replace
work for 28 days after receiving from the engineer written notice that the
said materials or work had been rejected by the engineer,
d. Despite previous warning by the engineer in writing, the contractor has not
executed the works in accordance with the contract,
e. Has to the detriment of good workmanship or defiance of the Engineer's
instruction to the contrary, sublet any part of the contract,
On the other hand, default by the Employer that entitles the contractor to terminate his
employment under the contract: (MOUDW, 1994)
 Failing to pay to the Contractor the amount due under any certificate of the
Engineer within thirty days after the same shall have become due under the

terms of the contract, subject to any deduction that the Employer is entitled to
make under the contract, or
 Interfering/obstructing or refusing any required approval to the issue of any
such certificate, or
 Becoming bankrupt or being a company, going into liquidation, other than for
the purpose of a scheme of reconstruction or amalgamation, or
 Giving formal notice to the Contractor that for unforeseen reasons due to
economic dislocation, it is impossible for him to continue to meet his
contractual obligation, the contractor shall be entitled to terminate his
employment under the contract after giving thirty days prior written not to the
Employer with a copy to the Engineer.
3.7.4.1 Remedies for beach of contract
Breach of contracts is usually associated with compensation of damages aimed to put the
injured party back to a position [s]he was in at the beginning of the contract. To claim for
such damages, the damages shouldn’t be too remote in time and compensation should
only be sought for losses arising from the breach or within the reasonable contemplation
of the parties.
Accordingly, courts, in assessing damages, will provide two possible outcomes:
1) Defaulting party will be liable to cover losses that result as a direct result of the
breach and that are assumed to be in his contemplation.
2) Defaulting party will be liable for losses outside the contract where they were aware
of the potential loss at the time the contract was made.
e.g. If the original seller was aware of the profit derived from the onward sale he may be
able to claim for his loss of profit.
3.7.4.2 Liquidated damages
Liquidated damage is an agreed amount determined by the parties to be awarded to the

injured party incase of breach in advance and stated in the contract. In construction
contracts usually provision is made for liquidated damages. For example, art. 47 of the
MoWUD general provisions of contract deals with liquidated damage in case of non-
performance by the contractor. At this point, it has to be noted that liquidated damage is
not meant to penalize the non-performing party. Rather it is a means of compensation for
the injured party. Indeed, any penalty clause is not effected under Ethiopian civil law.
3.7.4.3 Limitation period
Claim must be brought within the period of limitation specified by the law.
The Civil Code of Ethiopia, 1960, Art.1845 stipulates 10 years as limitations for claiming
for compensations.

CHAPTER FOUR: THE PRACTICE OF CONTRATING IN CONSTRCUTION

CHAPTER FIVE: DISPUTES AND DISPUTE RESOLUTION TECHNIQUES
Introduction:
The construction industry is known for its awfully litigious nature. Many associate the
industry’s inefficiency and litigiousness to the adversarial relationship often manifested
in the supply chain relationships within the industry. For example, the Latham (1994)
report, which along Egan’s (1998) report had a revolutionary effect in the UK’s
construction industry, highlighted the adversarial nature of construction. Latham, in his
report, criticized the industry and urged for swift change in the way construction does its
business. As a highlight of the industry’s concentration on finding pitfalls rather than
trying to curb differences and get on doing the job, Latham drew attention to ‘claim
consultants’ whose duty is basically to advise some participants of the project
organization how they should seek to make money out of alleged mistakes or
shortcomings of the other party. Since this monumental criticism of the industry by
Latham, various researches have been conducted to seek for a better supply chain
relationship in construction.
Change clauses in construction contracts:
One of the most challenging and defining characteristics of construction projects is the
changes and extra works that are bound to be involved in the execution of the project. In
all its practicality, it is almost impossible to stipulate a construction contract document
that can be strictly followed for the proper and functional execution of construction
projects.
Thus, unlike many contractual relations in other industries, construction contracts are
often susceptible to change in scope due to the very nature of construction projects.
Construction projects are often started with no adequate information about the conditions
affecting the nature of the project: Sub surface conditions may not be as expected; as
most of the industry’s works are exposed to inclement climate, weather changes may
affect the work; unlike many products, the industry’s product are expected to last decades
hence clients demand stricter quality control and may even want to change their demands
after the project is incepted, etc. These and many other peculiar characteristics of the
industry and its product make change in construction contractual arrangements almost
inevitable. In deed, cognizant of this fact, most construction contracting documents give
provisions for a change clause as long as the change is within the scope of the work, i.e.,
non-cardinal change.
Construction changes: are changes that could be initiated either by the contractor, the
engineer or the client. They usually refer to the changes associated in the processes and
requirements of the processes agreed upon for the execution of the project such as delays
caused by engineer/client, improper rejection by engineer etc. The most common causes
of changes in construction projects can be traced to one of the following
 Errors or omissions: Errors and omissions are almost the norm in construction
projects. Errors or omissions could be traced to the design work or even to the

actual work executed by the contractor. In most cases, especially if the

error/omission is from the design, they cause change to the contractual items
agreed upon.
 Differing conditions: As one of the defining characteristics of construction,
projects, most often, are executed in open conditions, without the privilege of a
controlled factory work, with changing environmental [physical (surface or sub
surface), social, economical, etc] condition. These conditions, if not anticipated in
the original contractual agreement between the parties, may lead to changes.
 Post bid decisions on the part of the owner to change the characteristics of the job.
Most construction projects commence without full knowledge of the factors
dictating the construction process or viability of its product. This, coupled with
the fact that most construction projects take long and the product very expensive
and supposed to last long forces clients to change their mind during the course of
execution of the project.
 Non performance of duties: changes can also be caused by non performance of
duties by the parties in the project organization. For example, an Engineers failure
to supply appropriate drawings or approve/check execution according to
agreement may lead to change.
Changes and claims
As practically as unavoidable as they are, changes shouldn’t be perceived as negative in

construction projects. In fact, if handled properly, most changes are meant for the
successful delivery of the project or success of its product. However, the problem
emanates when changes are allowed to escalate to claims and then to disputes.
In its simplicity, a construction claim is nothing but unresolved change order. Thus,
generally claims are handled practically in the same way as change orders. Problems
arise, as claims start to come fast and thick, parties will become less willing to cooperate
or even start to develop an antagonistic relationship to each other. Thus, the general
advise is, if possible at all, parties should try to look things at unresolved business issues
and try their at most to curb the differences from escalating to personal level. However,
once they escalate to disputes and conflicts, claims have a ‘spiral effect’ that could
hamper subsequent relationships to work together.
Claims usually emanate when two parties disagree whether a condition differs from what
is agreed on the original contract, or when after agreeing that a condition differs from
what is agreed but fail to agree on the impacts and costs of the change. Thus, it can be
said that all claims relate back to one or more of the following: Is it a change? What is
the impact? What are the costs? Thus, as much as possible, the parties concerned need to
settle these issues as early as possible and as amicably as possible before they escalate to
claims and thereby to disputes.

Major causes of disputes in construction
Effective management of disputes between parties to construction projects is of great

importance to any construction industry. However, effective management action can
only be taken if the causes of the disputes are identified and traced properly.
It is argued that disputes emanating in construction are dependant on many factors

including the general culture of the society in which the industry is functioning. For
example, it is claimed that in the Eastern construction industries where mutual
beneficiary relationship is given more wait in the general public than the quite
individualistic Western culture, disputes are reported be much less than in their Western
counterpart. Thus, when discussing disputes, it is necessary to view is as a social
phenomenon and try to analyze it as a holistic issue which can’t be separated from
society’s way of life. This implies one has to look into the major causes of disputes in a
given construction industry in light with the way of life of its society, the legal
frameworks governing the disputes, economic and educational capabilities of the playing
parties, trade and business experience of the specific country’s economy, etc.
Unfortunately, there aren’t many studies that explored the major causes of disputes in
Ethiopia. However, save the importance of tailoring causes of disputes to our specific
construction industry, there are some common causes, which are often manifested, in
different industries. Studies in the UK, Canada, Australia, Honk Kong, the USA and the
Middle East show that, as discussed above, the major causes of disputes are claims
associated with variations.
Some of the major causes identified by the researchers are:
 Poor management,
 Poor communication,
 Inadequate design [design errors],
 Unrealistic [incomplete] tendering,
 Adversarial culture,
 General economic environment,
 Claimed failure by subcontractor resulting in attempted determination,
 Claims arising from variation,
 Unrealistic expectation by parties,
 Ambiguous contract document,
 Lack of team spirit among participants,
 Failure of participants to deal promptly with changes and unexpected conditions,
 Delayed design information,
 Delayed possession of site,
 Client changes,
 Site condition change,
 Error in BOQ,
 Exaggerated claims (by contractors),

 Inadequate site investigation,

 Estimation error,
 Inadequate contract administration
 Misunderstanding of contractual obligation by the party dealing with the contracts
 Legislative changes (often experienced in developing countries)
 Undue involvement from top management (sometimes for political reasons)
 Culture (language), clash, especially in international contracts
Dispute resolution methods
Critics of the construction industry state that, construction projects ‘start with an
agreement, followed by construction and culminate in disagreement!’ For good reason or
not, the industry, nearly in every corner of the world, has developed this bad reputation of
being dispute laden. Disputes are costing the construction industry dearly. For example,
studies showed that in the 1980s, disputes costed as high as about 20% of building costs
in America. Thus, having efficient and less costly dispute management mechanism has
been one of the most important issues in construction.
The Dispute Management Continuum
In dispute management theories, there are two major alternatives available. The first one,
indeed the recommended one is the preventive approach that anticipates reducing the
occurrence and impact of disputes. This approach calls for cultivating an industry culture
based on trust and mutually beneficial problem solving. The other alternative in dispute
management is to try to get an efficient and amicable dispute resolving mechanism after
they occur. It is generally classified as non-judgmental and judgmental.
Prevention
Following Latham’s damning criticisms of the UK construction industry, policy makers

have been looking into ways of averting the adversarial relationship between major
parties in the supply chain relationship. As it seems, the most advocated means of
dealing with it is a complete change of culture in the industry. Currently, most
researchers in the UK construction industry dealing with construction delivery
mechanisms advocate a partnerships form of relationships whereby they are trying to
persuade the government to scrap the open competitive tendering requirements which
was meant to minimize the cost on the client by pitting together potential suppliers but
clearly didn’t serve its purpose. The proponents of ‘partnering’ argue that, it is to the
advantage of both the industry in general and to the contracting parties, in particular, if
they are encouraged to form some sort of partnering.
Project partnering is a synergetic, cooperative and collaborative management effort

among contracting and related parties to complete a project in the most efficient, cost-
effective method possible, by setting common goals, keeping lines of communication
open, building mutual trust, and solving problems together as they arise.

In the short run, partnering enables the parties involved in the partnership, to deliver the
project at a lower price, with better quality and in less time by enabling them share their
resources, develop better understanding of the needs and expectations of the other party
and their common customers, develop a communicative, collaborative open working
environment as opposed to the usually adversarial working relationship in competitively
selected contracting bodies, etc. In the long run, it helps them to develop a sustainable
business partnership and expand their customer base and enhance their allied
competitiveness by developing a common culture and working ethics and procedures that
is founded on win/win relationship that fosters risk taking and responsibility acceptance
and commitment to it. Hence working together to exploit leverages and combat obstacles,
sharing their knowledge pool and expertise and further invent new knowledge and
procedure by sharing the risk associated in trying new way of doing things, developing a
stable and continuously improving work relationship there by focusing in addressing the
needs and expectations of their ultimate (and common) customers.
For partnering to work though, the researchers argue that, the currently Western ideology
of doing business should give way to the values and principles of life in the East.
Several items form the nature and process of partnering. These criteria include
commitment, equity, trust, preparation, development of mutual goals/objectives, use of
appropriate partnering tools and procedures, inclusion of appropriate parties, continuous
joint evaluation, timely responsiveness to problems, concentrating on problem and
interests; not on blaming people/parties, empowerment of stakeholders, willingness to
accept mistakes, improvement of communication, etc.
However, it has to be noted at this point that ‘partnering’ also attracts strenuous criticism
for being a ‘Mr. nice guy’s’ approach and not easy to implement in public projects.
Another suggestion as a preventive measure is to use a Dispute Resolution Advisor

(ADA). The ADAs are normally experts in the field and may provide the contracting
parties with contractual issues that may lead to disputes and suggest ways of averting
them.
Resolving disputes
Even the proponents of ‘partnering’ agree that , with the increasing development of
complex and fast track construction projects, disputes are virtually inevitable. Disputes in
the construction industry often involve the resolution of complex technical and factual
issues. Thus, resoling them in an efficient manner in of paramount importance for the
success of the project.

Non-judgmental
The non-judgmental methods bring the disputants to a round table and mutually resolve
their dispute
Negotiation: According to Fisher (1991), negotiation is a common dispute resolution

process in which parties themselves, or their representatives, try to resolve the dispute
without involving any neutral third party. It is a voluntary and an unstructured process
agreed by both parties, privately and confidentially. The features that contribute to the
success of negotiation include avoiding taking entrenched positions in the dispute, but
rather seeking solutions which meet the needs and interests of both parties. However, the
success of negotiation depends on interpersonal communication skills of the parties
during the entire process. Negotiation would be the first port of call when a dispute
occurs and should resolve a dispute at this stage. If a negotiation collapses, the next stage
would be mediation.
Mediation, on the other hand, is a mechanism in which a neutral third party meets with
the disputants and facilitates negotiation to help the parties come to their own solution. It
is voluntary but structured with ground rules agreed upon by the parties. The mediator
assists the disputants to generate options; helping both parties understand better their
respective positions and manage emotions.
Although the mediator controls the process, he or she does not impose any resolution or
opinion on the merits of the case, promoting a win/win situation, leaving the disputants
themselves to control the outcome. Hence the process is flexible, private and confidential
with legal rights of the parties protected when there is no agreement reached. Mediation
is a rapidly growing form of ADR and has been effectively adapted for multiple party
dispute resolution with tremendous success. For example, the South African Commission
for Conciliation, Mediation and Arbitration CCMA (2003) report indicates that the
average success rate of mediation in SA ranges from 80% to 85%.
Conciliation is a process similar to mediation except that the conciliator can express an
opinion on the merits of the case and is required to recommend a solution if the parties
fail to agree. The power of the conciliators is can be conferred by statutes and its
characteristics are similar to mediation.
Mini-trial: Another process involving a neutral third party in the dispute is the mini-trial
which brings together senior decision makers from each disputant to hear presentations
by junior representatives or their respective legal representatives and help them negotiate
a resolution in private. This is mainly used in big projects where the senior decision
makers may not be aware of the real situation and the subordinates may not be aware of
the needs and priorities of the parties.
Jobsite resolution is mostly considered before the start of a project and involves the
selection of a single neutral expert or a panel of experts sometimes refereed to us the
Dispute Review Board (DRB), who would be involved throughout construction process.

The parties select jobsite neutrals, with costs shared equally. Jobsite neutrals visit the
project at regular intervals to review construction progress, confer with parties and deal
with disputes. Given their knowledge of the project and familiarity with the relevant
players, they are often in a position to resolve disputes in a timely and cost effective
manner. In addition, their mere presence on the jobsite over extended periods of time may
actually discourage disputes. When a dispute does arise, however, the neutral would
generally hold informal hearings with the parties and offer solutions. While decisions by
the neutral are generally not binding, the process has historically enjoyed a great deal of
success.
Judgmental
When all efforts by the parties to resolve differences amicably have failed, by which time
the parties have developed entrenched adversarial positions in the dispute, then, a third
party has to listen to both sides and make a judgment.
Adjudication or Expert Appraisal or determination: This is a process whereby the

disputants present their cases to an independent expert who then evaluates the evidence
according to the relevant law, rules, contract and practice which is applied appropriately
in the dispute and gives a confidential opinion on the likely outcome of the case if it were
to go to court or arbitration. The disputants agree before hand that they will be bound by
the opinion of the expert and that this decision is binding on the parties in the interim,
until a further decision by a court of law or arbitration is reached.
Arbitration, on the other hand, is a dispute resolution process in which one or more
neutral third parties hear the evidence and arguments of each disputant and make a
decision for them. The outcome is one of a win/lose situation and is not based on any
precedent(s). The decision of the arbitrator is legally binding and, often, there is no
provision for appeal to a court of law. There are exceptions, such as misconduct of the
arbitrator. Rules of evidence used in arbitration depend on the prior agreement between
the parties. It may take a long time, same as for a litigation process, and may even be
more costly. What makes it attractive is the mutual agreement by the parties, appointment
of arbitrator, privacy and confidentiality
Litigation (used when all other avenues have failed) is a dispute resolution method that is
inquisitorial and adversarial, whereby the disputant initiates legal action against the other
party by going to court. It has a win/lose outcome and rarely satisfies both parties. Mostly
litigation is costly and results into much delay for the disputants and may not do justice to
the parties. However, the benefit of litigation is that the court has authority to find out the
“truth” from the parties and the enforcement of the order or judgment is supported by
other law enforcement agencies. It is also used when parties have low resources and need
an umpire or when they cannot agree to other forms of dispute resolution.

Litigation Vs ADR
As the cliché goes ‘when a case goes to court, there is only one winner- the lawyers’,
litigations are often classified as a lose/lose dispute resolution methods for disputants.
Litigations, nearly all over the world are known to be highly costly and notoriously time
consuming, let alone damaging the relationship and reputation of the parties involved.
Various reasons are sited why litigations are not so inadvisable as a way of resolving
disputes: Nowadays, courts are filled with very sensitive criminal cases which demand
immediate decisions than civil cases; there is an explosion of cases going to court; due to
the notoriously lengthy and complicated nature of construction disputes, most judges
prefer postponing construction cases, etc.
Cognizant of the inefficiency of the court system and the fact that it rarely satisfies the
parties involved, courts suggest an alternative dispute resolution method to litigation.
Accordingly, many legal systems have adopted a mandatory nonbinding pre-requisite
before a case goes to trial. The ADRs are espoused to have the following advantages over
litigation
Reduce time to disposition

Less costly discovery of facts
More efficient case management
Increase confidentiality
Facilitation of early, direct communication and understanding among the parties of the
essential issues on each side of the dispute
Preservation of ongoing party relations
Saving in trial expenses
Providing qualified, neutral experts to hear complex matters.
Generally, any form of conflict resolution method is expected to satisfy

Fairness
 Institute better rules, procedures and precedence
Satisfaction
 Provide acceptable solutions
 Maintain desired level of privacy
Effectiveness
 Improve relationship
 Teach parties to manage disputes
 Prevent repetition
 Create more clarity
 Alter approach to relationships
Efficiency
 Settle conflict in a timely manner
 Reduce cost and resource

Code Note Latest

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Code Note Latest

Hochgeladen von

Copyright:

Verfügbare Formate

COTM 542 Construction laws, codes and standards

CHAPTER ONE: BACKGROUND TO THE CONSTRUCTION INDUSTRY

The construction industry is an enormously important part of any economy. Economic

1.1 The history of construction project management

AAU, COTM Dep’t 1

1.2 Characteristics of the Construction Industry

Generally the construction industry is labeled as a ‘conservative industry’ which adopts

AAU, COTM Dep’t 2

implementing integrated process approach and partnering form of supply chain

1.2.1 ‘Unique’ characteristics of construction and their effects in the industry

The construction industry is espoused to have a number of characteristics that sets it as

1.2.1.1 Nature of production

1.2.1.2 Nature of the product

The outputs of construction are generally large, heavy, durable, expensive,

AAU, COTM Dep’t 3

1.2.1.3 Demand for the industry’s products

1.2.1.4 The structure of the industry

The industry is characterized by high levels of uncertainty. The demand is so variable

AAU, COTM Dep’t 4

1.2.1.5 The Workforce

The common working practices, namely self-employment and labor-only sub-contracting,

1.1 Relationship between the Construction Industry and the Economy

The industry provides significant amounts of fixed investment, contributes considerably

AAU, COTM Dep’t 5

Countries Value added to GDP Share of Gross Fixed

Consequently, the construction industry is often used as a regulator of the general

Under conventional “Keynesian” economic theory, when the economy is in a recess, as

AAU, COTM Dep’t 6

1.2 Why is it necessary to regulate and standardize construction works?

The fundamental importance of regulations and standardizations are helping create,

Specific to construction, the characteristics of the construction processes and products, as

AAU, COTM Dep’t 7

CHPATER TWO: CONSTRUCTION LAWS, REGULATIONS, CODES AND

2.1 Overviews of standardizations and regulations

Construction works are regulated and normalized by a variety of codes, standards,

Why is it necessary to set construction laws, codes and standards?

 Improve the living standards and safety of the citizens using

AAU, COTM Dep’t 8

 Increase the efficiency and quality (both in terms of processes and

Regulations pertaining to professional licensing, occupational health and safety

Laws and regulations related to tendering & contract administrations, proclamations

 Ensure uniformity and continuity of operation

Regulations related to building permissions and requirements to submit as built

 Ensure safety of the environment

Who promulgates laws, codes and standards?

In different countries different statutory bodies, professional associations, safety and

AAU, COTM Dep’t 9

 The Ministry of Works and Urban Development, the party

Procurement and Contract related

 Proclamation 430/2005: Establishes Procedures in Public procurement and

AAU, COTM Dep’t 10

In addition to the local procurement standards documents and procedures,

Standard codes and specification related

 The Ethiopian Building Code Standards provides codes of practices meant

Norms in construction works

 The EBCA standard productivity, the BaTCoDA productivity standard and

 Equipment Management System; produced recently by the ERA, is a good

AAU, COTM Dep’t 11

Regulations Concerning Construction Services Practices and Ownerships

 The Ethiopian Building Proclamations: A draft document which is meant to

 The Property Ownership law: In the current setup, there is no separate

 Building Permit Regulation (Addis Ababa) is a document formulated with

AAU, COTM Dep’t 12