Construction Law (COTEM

Dire Dawa University 6041)

Assignment-1
1. What do you understand by person, legally? Is there any difference
between the natural person and the legal person? If yes, how?
2. The legal person may have more capacity and rights than the natural
person. Is this statement true? Why or Why not?
3. Describe the fundamental differences between civil law and common
law legal systems.

Assignment-2
1. Shall we say that construction contract is a contract of consultation
or a contract of adhesion? Why? Discuss.
2. By whom the contract document is prepared has its own effect in
terms of interpretation of contracts. Is this statement true? Support
your answer by referring articles from Ethiopian Civil Code.

Assignment-3
Discuss briefly project delivery methods/systems under the category of
outsourcing (including their merits and demerits).

Assignment-4
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 Construction Law (COTEM
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Briefly discuss the following three types of Dispute board (DB):

• Dispute Review Board (DRB);
• Dispute Adjudication Board (DAB);
• Combined Dispute Board(CDB);

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Assignment 3

Discuss briefly project delivery methods/systems under the category of outsourcing

(including their merits and demerits).

Answer:-
The most common construction project delivery methods/systems under the category of
outsourcing are the followings;
1. Design - Bid - Build (DBB)
2. Design - Build (DB)
3. Construction Management (CM At Free & At Risk)
4. Design - Build - Operate (DBO)
5. Design - Build - Operate - Maintain (DBOM)
6. Design - Build - Finance - Operate (DBFO)
7. Full Delivery or Program Management
8. Build - Operate - Transfer (BOT)
9. Build - Own - Operate - Transfer (BOOT)
10. Public - Private - Partnerships (PPP)

The listed above project delivery methods can be categorized into 3 methods by their criteria of;
Segmentation, Integration & Financing.
I. Integrated Process Delivery Methods
 Design-Build-Operate (DBO)
 Design-Build-Operate-Maintain (DBOM)
 Design-Build-Finance-Operate (DBFO)

II. Segmented Delivery Methods

 Design-Bid-Build (DBB)
 Design-Build (DB)
 Construction Management (CM)
 Pure Operations & Maintenance (O & M)

III. External Financing Methods

 Design-Build-Finance-Operate (DBFO)
 Build-Operate-Transfer (BOT)
 Build-Own-Operate-Transfer (BOOT)
 Public - Private - Partnerships (PPP)

1. Design-Bid-Build (DBB)

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 Design-bid-build (DBB) is a widely construction project delivery method that involves

the completion of three distinct phases in sequence. Construction does not begin until
the design process is complete (and a bid accepted), so there is no overlap between
design and construction.

 Owners initiate a project then proceed to prepare the basic planning phase that
identifies construction project programs (Term of Reference), and invite interested &
eligible Consultants to participate for bid to Design and/or Construction Supervision.

 The Selected Consultant will execute the Design, prepare the Bill of Quantities and
Specifications including the Tender Documents for the construction works which will
be the basis for tendering to select Contractors.

Merits of DBB Demerits of DBB

- Owner get more responsibility & flexibility - Owner retains more risks and challenges

- Easy to tender - Possibility of longer timeline

- Transparent and fair competition - Disputes between parties
- Clear distinction between teams roles - Usually cost overruns
- Encourage professional to perform more - Innovation not optimized

2. Design-Build (DB)

 Design Build or Turnkey, in principle, reduces numbers of procurement processes engaged

in the fragmented process and employ only one procurement process and a single
contractor to provide the entire Construction Implementation Process (Design &
Construction Implementations).

 In this arrangement both the design & construction liability rests with the Contractor.
 These are;-

 Employer’s Requirements & Contractor’s Proposals;

o The employer approaches a contractor with a set of requirements defining

what the employer wants.
o The contractor responds with proposals, which will include production as well
as design work.
o The scale of design work included depends on the extent to which the
employer has already commissioned such (design) work from others.

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o The contractor’s design input varies from one contract to another, ranging
from the mere detailing of a fairly comprehensive design to a full design
process including proposals, sketch schemes & production information.
o The Design-Build contractor, in any way be responsible for both the design &
construction.

 The Pricing Mechanism;

o The other feature is that Design-Build delivery method deals is a guaranteed

maximum price (GMP).
o This helps clients to feel reassured that they are not signing a blank cheque.
o As an incentive to the contractor, any savings made by completing the
project for a price below the GMP may sometimes be shared between the
client & the contractor.

 Roles & Responsibilities of the contracting parties in the design-build process;

o There is lack of an independent certification role in the contract.

o There is no architect or contract administrator to settle differences.
o There is no independent quantity surveyor responsible for preparing the
basis up on which contractors tender.

 Advantages may include:

 Single source responsibility both for design & construction;

 Integrating design & construction;
 Reduction in administration;
 Innovation;
 Cost savings;
 Constructability optimized;
 Most risks transferred to the design-builder;
 Usually GMP;
 Design reflects;

 Disadvantages may include:

 Limiting competition;
 High tendering costs;
 New method & unfamiliarity;
 Client needs quicker decision making;
 Clients bringing design requirements(30%)(reduces design innovation);

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 Construction Management

 Under Construction Management the Owner contracts separately, but somewhat

simultaneously, with a design consultant and with a firm whose primary expertise is
construction (the Construction Manager).
 The owner procures the management services of the Construction Manager (in most
cases a general contracting construction firm) early in the design phase.
 Construction Management should not be confused with Project Management.
Project Management implies a much broader set of responsibilities than
Construction Management. Project Management is the overall management by, or
on behalf of, the Owner of all aspects of a project from its inception through design,
construction & use.
 CM is of two types: CM At Free/as Agent & CM At Risk/as Constructor. This
distinction determines the contractual approach to CM.

 Construction Manager (CM) as Agent

 This is a form of CM under which the Construction Manager acts as an agent

of and advisor to, the Owner.
 The Owner enters in to multiple trade contracts with the trade contractors &
suppliers.
 The Construction Manager is retained on a fee for services basis & acts on
the Owner’s behalf in managing & coordinating the trade contracts in the
best interests of the Owner.
 The Owner retains all of the contracting risks inherent in each of the trade
contracts.
 It essentially involves the Owner acting as its own general contractor, with
the assistance of a Construction Manager.
 This form of CM is sometimes also referred to as the “CM as Advisor” or
“owner contacted form of CM”.

 Construction Manger (CM) At Risk (as Constructor)

 This is a form of CM under which the Construction Manager enters in to

multiple trade contracts with the trade contractors & suppliers.
 The Construction Manager assumes responsibility for the performance of
the trade contracts (subcontracts) much as a general contractor under the
traditional method, and is paid for the trade contract work on a cost
reimbursable basis.
 The Construction Manager may, or may not, also provide a guaranteed
maximum price & schedule to the Owner under a cost plus type of

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arrangement, or enter into a stipulated price contract, when the design is

sufficiently complete.

 Advantages may include:

CM At Free
o Provides a managing & administering for all phases of a project;
o Treats planning, design, construction as an integrated tasks;
o Some costs & schedule control;
 CM At Risk
o Good for clients with insufficient staff;
o Owner flexibility;
o Responsible for time & cost overrun;
o Holds & manages the trade contractors;
o Constructability design review;
o Same legal position as a General Contractor;
o Provides a GMP;
o Works closely as a teaming effort & encouraging partnering & trust;
 Disadvantages may include;

 CM At Free
o No contractual relationship with trade contractors;
o No contractual responsibility for outcomes of a project;
o Client retains the risks;
 CM At Risk
o Duplication of administration & additional paperwork;
o More paper work for the client;
o Some duplication of administration;
o Fast tracking difficult to control with designer & CM;
o Sometimes difficult to manage all phased packages with costs, changes &
schedules;
 Design-Build-Operate

 According to FIDIC, the D-B-O approach to contracting combines design, construction,

and long term (ex. 20 years) operation (and maintenance) of a facility in to one single
contract awarded to a single contractor (who will usually be a joint venture or
consortium representing all the skills for in a D-B-O arrangement).
 Advantages of D-B-O
 The advantages are categorized in terms of: time, finance & quality.
 Time
 With possibilities to overlap some design & build activities it will be possible
to minimize delays & optimize the smooth flow of construction activities.
 Finance

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
With cost restraints & commitments & other risks being carried by the
contractor, there is less risk of price over-run.
 Quality
 With the contractor responsible for 20 years operation, he has an interest to
design & build quality plant with low operation & maintenance costs.
 Not only will then plant be “fit for purpose” but it will be built to last.
 The FIDIC has now prepared conditions of contract which facilitate the D-B-O
process.

 Full Delivery or Program Management

 Under full delivery method the selected contractor shall under take the whole range
of activities from thought to finish & operation inclusive of maintenance.
 The possible activities include:
 Planning & acquisition;
 Finance;
 Design;
 Construction;
 Operation;
 Maintenance;
 Upkeep & Improvements;
 Advantages may include;
 Shorter time to project competition;
 Fully integrated process from project inception;
 Maximization of planning & reduction of problems during execution;
 Knowledgeable alternative funding sources;
 Good for large & complex projects;
 Single source expertise;

 Disadvantage may include:

 Difficult to tender & not knowing the costs;

 Compatibility issues wit client;
 Quality based selection process(Negotiated);
 Client needs to make decisions quicker;

 Build-Operate-Transfer

 BOT is a form of procurement and contract delivery system that promotes Public
Private Partnership ( PPP) in which a private company is contracted to finance,
design, construct, operate for a certain period ( usually 10 years) and transfer the
facility to the Project Owner.

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 The typical BOT project contract is the process whereby a government grants a
concession to a project development company to develop & operate what would
normally be a public sector project, for a given period of time known as the
concession period.
 BOT project involves a potentially complex contractual structure.

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Public-Private-Projects - get to reap the benefits of both public and private

projects. As their name suggests, the project is the result of a partnership
between a private and a public entity.

Projects like affordable housing and infrastructure are often the result of these
types of agreements. Like private projects, they are controlled by a private
company which helps create efficiency and add expertise. Like public projects,
there’s a steady project owner, decreased payment risks, and a project that will
greatly benefit the general public.

Depending on who plays what role in the project, there are two facets of these
partnerships that contractors and suppliers need to be aware of – whether it’s
subject to prevailing wage provisions and how to protect their payment rights.
Publicly funded projects are subject to federal or state prevailing wage
regulations. Privately funded projects are usually not.

When it comes to payment protection, mechanics liens can be used on

projects where the property is owned by a private entity, but bond claims are
needed to collect on publicly owned projects.

Advantages

 The public benefits from government funding as well as private-sector

expertise in construction

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 Projects are typically protected by bonds, which ensure that everyone

working on the project will be paid
Disadvantages

 Projects can be delayed or impacted by changes in the priorities of the

governmental funding source
 Bond claims can be difficult to manage for contractors who aren’t paid for
their work

6. Integrated Project Delivery (IPD)

Integrated project delivery (IPD) is the most recent addition to the project
delivery palette. In these projects, all the project team members are
contractually connected with only one contract. All team members are
selected before design begins, and they each play a role in the whole process,
from design to construction.

IPD is gaining popularity because everyone shares the risk on the project
equally. Also, this method creates the most innovative and collaborative
approaches to projects. When combined with other construction methods,
such as lean construction, they can greatly improve the efficiency of
construction methods and shorten project timelines significantly.

Advantages

 Risk is shared equally among all stakeholders on the project

 Collaboration may be improved by gathering all parties from the project’s
outset

Pros

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Why is IPD a Model for Consideration?

 Financial alignment of design and construction.
 Financial performance based on overall project outcome not individual firm
performance.
 Profit is at risk if project goals are not met around schedule and budget.
 Team has "skin in the game" for activities during preconstruction.
 Traditional silos removed to allow collaboration.
 Complex projects can be collaboratively developed in new ways.

Disadvantages

 Can be difficult to make adjustments as the project goes on

 Requires a high degree of planning in the very early stages of a project
What are some of the Challenges with IPD?
 Upfront investment required early in the project (cashflow cannot be delayed).
 There is a diminishing return on preconstruction spend if design/permits take
longer than planned.
 Without adequate time and complexity on a project, it may not be possible to
find savings to cover the upfront investment.

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 Owner's does not have a firm fixed cap on cost at the start of the project (it is
debatable whether they ever really do in any delivery model).

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