CE 462 CONSTRUCTION

MANAGEMENT

D. A. OBENG
Department of Civil Engineering
KNUST

Lecture 2

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 CIVIL ENGINEERING PROJECT

By the end of this session students should be able to

understand the following:

• Elements of Contract Law and Arbitration

• Types of Civil Engineering Contracts

• Tendering Process (types of tenders, tendering procedure)

• Bid Evaluation and Award of Contract

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 ELEMENTS OF CONTRACT LAW
AND ARBITRATION
Construction contract is a legally and
enforceable agreement, containing the
condition under which the construction of
a facility will take place.

A Client decides on the form of

contractual organization that will best
suit the construction works.

There should be an offer and

acceptance of contract. Offer of
contract is the form of a tender to
execute the contract and acceptance of
the contract offer is the agreement by
the Client.

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 ELEMENTS OF CONTRACT LAW
AND ARBITRATION
When full and complete agreement
about conditions and the consideration
(usually payments) has been reached,
the acceptance can be formalized.

Essentials of Valid Contract

The principal requirements of a

contract are that the parties to the
contract have the legal capacity to do
so, that their objectives are legal, and
that the parties genuinely agree to be
parties to the contract (create a legally
binding association between them). 

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 ELEMENTS OF CONTRACT LAW
AND ARBITRATION
Validity of Contracts

For a contract to be valid there must be:

Offer and acceptance of that offer. The Client issue offer letter to the
Contractor indicating the contract sum and the Contractor writes
acceptance letter to the Client.

For a contract to be valid there must be:

"form" which consists of a "deed" which is written, signed, sealed
and delivered,
or "consideration" – this support the contract if it is not by deed. It is
defined as some return, made by the promisee in respect of the
promise made to Contractor,

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 ELEMENTS OF CONTRACT LAW
AND ARBITRATION
Validity of Contracts cont’d

The parties must be legally

capable of undertaking the
obligations imposed by the
contract,
Genuine identity of consent of a
party to a contract or of the subject
matter,
Legal backing of the subject
matter of the contract, and
Intention to create a legal
relationship.
 

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REMEDIES FOR BREACH OF CONTRACT
Damages
It consists of a sum of money, which will, as
far as it is practicable, place the aggrieved
party in the same position as if the contract
had been performed.

The sum is called "liquidated damages"

and represents a genuine estimate of the
loss that is likely to result from the breach of
contract. "Penalty" is the agreed sum in the
nature of punishment for the breach of
contract. It is not normally recoverable in
full, but liquidated damages are recoverable
in full.

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REMEDIES FOR BREACH OF CONTRACT
Order for payment of a debt
It is "action of debt“. A debt, which is a
liquidated or ascertained sum of money
due from debtor to the creditor, is to be
recovered by an "action of debt“

Specific performance
It refers to an order of the court directing
a party to a contract to perform his part of
the agreement. It is now only applied by
the courts on rare occasions when
damages would be an inadequate
remedy. It constitutes a fair and
reasonable remedy and is capable of
effective supervision by the court.

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REMEDIES FOR BREACH OF CONTRACT
Injunction
It is an order of court directing a person
not to perform a specified act. If A had
agreed not to do something for the benefit
of B and is found doing it, B can apply to
court for an injunction restraining A from
carrying out his operation. Damages in
these circumstances would not be an
adequate remedy.

Rescission
It consists of an order of court cancelling
or setting aside a contract and results in
setting the parties back in the position that
they were in before the contract was
made.

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 TYPES OF CIVIL ENGINEERING
CONTRACT

Types of construction contract are based predominantly on the

ways in which a Contractor is paid for the works carried out.
1.Price in Advance Contracts: lump sum contracts, bill of
quantities/ admeasurements contracts and schedule of rate, and
2.Cost reimbursement Contracts.
 

Price in Advance
a) Lump Sum
The contract sum is fixed and agreed before construction work
commences and can be used in:
•Traditional design-and- construction contracts
•Design and construct contracts
•Management contracting contracts 

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 TYPES OF CIVIL ENGINEERING
CONTRACT
Lump Sum Contracts
 

The project must be fully designed and detailed, complete with

specifications for quality of workmanship and materials and full
detailed drawings.
Another form of lump sum is all-in-contract based on performance-
oriented specification. Eg construction of a 5km asphalt road in a
year.

Advantages to Client
1.the overall price for the work is known at the outset
2.the client is not too involved in the construction process itself
3.it is readily possible to arrange for competitive tenders at the pre-
contract stage
4.A considerable amount of the risk and responsibility for the outcome
of the project can be transferred to the contractor
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 TYPES OF CIVIL ENGINEERING
CONTRACT
Lump Sum Contracts
 

Disadvantages to Client
•Overall project programme is usually longer than by employing
some of the other methods available because of the need to
provide precise details of the works;
•Also if changes are made to the scope of the work or unforeseen
difficulties arise, then disputes over payment will occur and the
lump sum price will be driven up.
 to solve this, re-evaluation based on quoted rates
from tender documents are used. 

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 TYPES OF CIVIL ENGINEERING CONTRACT
 

b) Bill of Quantities Contract

oList of items of work briefly described against quantities to be
carried out are entered.
oStandard item description and measurements are used
oIt is used for work that has been only partly designed and
detailed, and for which all detailed drawing are not yet available
oQuantities in the bill are approximate
 
c) Schedule of Rates Contract
oList of categories of work believed to be required in the works
(but with not quantities given) against which the tenderer is
expected to write in the rate required for carrying out one unit of
measurement of the item. 
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 TYPES OF CIVIL ENGINEERING CONTRACT
 

b) Bill of Quantities Contract and c) Schedule of Rates

Contract
 
Advantage of b) and c)
The client can often gain an advantage in the project programme,
since the work can be put out to tender before the fine detail of the
design and drawings are finalized.
 

Disadvantage of b) and c)
There is the increased risk that arises from the uncertainty of not
knowing the exact contract sum before work is commenced.
 

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 TYPES OF CIVIL ENGINEERING CONTRACT
 

Cost Reimbursement Contracts

•It involves recording the total actual cost of materials, plants and
labour known as allowable or prime cost, incurred in order to carry
out works, and then adding to then a previously agreed fee to
cover profits and head office overheads.
•it is used for work where it is not possible to prepare accurate
definitions of the extent and nature of the works involved prior to
commencing construction of work.
•it means the tenderer cannot prepare a realistic price, in either
lump sum or admeasurements terms.

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 TYPES OF CIVIL ENGINEERING
CONTRACT
 

Cost Reimbursement Contracts

Advantages
It has a great deal of flexibility built into it: so that the extent of
works to be carried out can be varied easily as can the overall
programme and the total duration involved be changed.

Disadvantages
it is sometimes difficult to impose a ceiling on the amount of
money to be spent and that an unscrupulous contractor may
abuse the system unless closely supervised [there is incentive
towards wastefulness]
 

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 TYPES OF CIVIL ENGINEERING
CONTRACT
Cost Reimbursement Contracts
Disadvantages
the method also demands considerable administrative input in
supervising and recording expenditure, in giving approvals for work
to be undertaken and in generally controlling costs i.e. The Client
involvement is greatly needed.
 
Types of Cost Reimbursement are
•Prime cost plus percentage fee
•Cost plus fluctuating fee
•Cost plus fixed fee
•Target cost plus fee

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 TENDERING PROCESS
TENDER DOCUMENTS AND TENDERING PROCESS
 
The prime function of the tender documents is to provide would-be Contractors who
are tendering with sufficient information about the works to enable them prepare
competitive and well-informed tenders.

Contractors tendering need to know:

•everything that will influence their costs estimation of the work to be constructed
•the form in which the tender should be prepared
•how the tender should be submitted
•the conditions governing the way in which the work must be carried out
•the mode of payment and factors that will affect it
•their contractual responsibilities and those of the other parties concerned with the
ownership, engineering, design, and construction.
 

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 TENDERING PROCESS

Tender Documents
•Instruction to bidders
•Form of agreement/form of tender
•General and specific condition of contracts
•Specification
•Drawing
•Bill of quantities
 
The tender documents will depend on the contractual arrangements,
and in the most common situation, i.e. a lump sum contract based upon
bills of quantities as in building, will consist of the following:
 Bills of quantities – including particulars of the conditions of
contract
 Location drawings – from tender drawings
 Two copies of the form of tender

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 TENDERING PROCESS
For cost re-imbursable contracts where
bill of quantities are dispensed with or
not necessary or for work of minor
nature, the tender document will consist
of the following:

The specification, including particulars

of the conditions of contract

Drawing identical to contract drawings

to define the extent of the work

Two copies of the form of tender

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 TENDERING PROCESS
Tendering Procedures

Client and his Consultants decide on:

1.The contractual organization to be used
2.The type of contract to be used
3.The tendering procedure
 
Tendering process involves 4 steps:
•Invitation to tender by client (letter of invitation)
•Preparation and submission of tenders by contractors
•Tender evaluation and selection of a contractor
•Contract award and taking over of site,

 There are 3 ways of how tenders are invited:

• Open tendering
•Selective tendering
•Negotiated tendering
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 TENDERING PROCESS
1. Open Tendering
- through advertisement, given brief description and invitation of
contractors to tender
- a cash deposit is required when contract document is requested;
to discourage some contractors
Advantage
It attracts maximum number of contractors or tenders and hence be the
most competitive
Disadvantages
- Ill-equipped contractors to carry out the work either financially or
technically are received through this method
- They may also lack sufficient experience of the most appropriate
kind
- An unnecessary burden is placed on the industry by way of
unrewarded expense for time and effort that is put into unsuccessful bids 
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 TENDERING
23
PROCESS
 2. Selective Tendering

•Disadvantages of open tendering can be

overcome by selective tendering
•It involves short list of contractors that are
known to have appropriate qualifications to
carry out the work satisfactorily

Prequalifying process: contractors are asked

for further details concerning 
•technical competence
•financial standing
•resources that they have at their disposal
•their relevant experience
 
 TENDERING PROCESS

3. Negotiated Tendering

It is used where the magnitude of work is not fully established at the outset,
where an early start is of great importance and for work which is extremely
difficult to undertake. Many contracts negotiated with single contractors are
of the prime cost type and it involves two-stage tendering - initial
competitive tendering, followed by negotiation.
 
Extension of contract: It is used in extending the scope of the work
beyond a first-stage contract. Negotiation is based on the tender submitted
for the original contract.

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 TENDERING PROCESS

Serial tendering is
another form of
extension of contract,
but the intention to
have extension is
normally expressed
at the time of the
initial invitation to
tender. The intention
to have subsequent
contracts based upon
the tender for the first
is incorporated. 

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 TENDERING PROCESS

TENDER EVALUATION AND SELECTION OF A CONTRACTOR

 
•Contractors submit competitive tenders
•Contractor’s proposed construction method and any qualification added in a
covering letter from the tenderer is reported to Client
•Check BQ's, rates, prices for inaccuracies and make correction before the
tenderers are compared
•Tenders are compared,
•Check for under- or over pricing of the rates. The difference may be due to
errors in the computations.
•After necessary checks and adjustments are made, a successful tenderer
is selected or a letter of intent is sent to the Contractor when it is urgent to
get the successful tenderer preparing to start work before formal acceptance
is made.

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 TENDERING PROCESS

TENDER EVALUATION AND SELECTION OF A CONTRACTOR

 

A form of agreement can be used beforehand is required of the

contractor, unless a performance bond (is a document by which the
contractor provides a formal assurance to the client that the
company will complete its entire obligation under the contract).

The guarantor or surety is usually a bank bond on payment of the

fee or premium by the contractor.

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