Construction Law and Contract Home Take

Examinations, 2010

I. General Course Knowledge Exam. Questions

1. Role of the Engineer

What possible adverse contractual effects you might observe due to the
absence of the Engineer in the project supervision & contract administration if
the project delivery system is design-bid-build (DBB)?

First let’s define the term Engineer, according to MDB FIDIF version-2006;
Engineer means the person appointed by the employer to act as the Engineer
for the purpose of the contract & named in contract data, or other person
appointed from time to time by the employer & notified to the contractor.

Effects in the Project Supervision

a. There is no one control the work executed by the contractor in terms of
Plant, Materials and Workmanship
Road project is one of the projects which require continuous control and
supervisions throughout the project life time. These supervisions are
carried out by the intelligent day to day activities of Engineer. The
Engineer must supervise the project may carried out with necessary plant,
materials and workmanship which specified under the contract or not.
Unless otherwise, the Engineer, these supervisions not properly execute
and the contractor activities may cause unexpected damage to the road.

Therefore, the quality control of the contractor will not assured without
the presence of the Engineer, this is stated under Clause 4.9, (Quality
Assurance) MDB FIDIC Version-2006, and Clause 33 (Identifying Defects)
PPA Conditions of Contract 2006.

b. Testes on Progress & Test for Completion may not Properly Achieved
Without the presence of the Engineer, the tests need for the pavement
works like ACV, ACI and other special tests will not properly achieved,
stated under Clause 7.4 (Time for Completion) Clause 7.4 (Testing) MDB
FIDIC Version-2006, and Clause 34 (Tests) PPA Conditions of Contract
2006.

In the absence the Engineer, the construction may suffer challenges like to
agree the time and place for the specified testing of any plant, materials
and other parts of the works and the contractor couldn’t get Certificate of
Testing unless the Engineer approved.

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Effects in Contract Administration

c. Variations and Adjustments

It is obvious that the needs or requirements of the employer are differing
from time to time in the progress of the project. These unlimited needs
leads to variations to the given road project. And the variations are
transferred to the contractor by the instructions of the Engineer with a
detailed study of the acceptance of the variations needed by the
Employer.

For these variations there may be adjustment in time and cost i.e. Clause
13 (Variations and Adjustments) MDB FIDIC Version-2006, and Clause 23
(Instructions) and Clause (Variations) PPA Conditions of Contract 2006. All
these things are unthoughtful without the presence the Engineer.

d. The Problem of Claims and Disputes Resolutions

Any construction project and claims are two faces of a coin. These claims
may arise either from the employer or the contractor or the sometimes
from both for the benefit of rights. These rights are time and/or financial.
To come up with these claims (if possible) the required solution is taken by
the Engineer, because he is the only factual witness or export for that
project and the determinations/decisions will taken by the Engineer, it is
given under Clause 3.5 (Determinations) MDB FIDIC Version-2006, and
Clause 4 (Engineer’s Decision) PPA Conditions of Contract 2006. If it is not
possible to solve by the Engineer, it will goes to another dispute resolution
mechanisms which stated under Clause 20 (Claims, Disputes and
Arbitration).

e. The Problem Getting Payment Certificate

The contractor has the right to get payment for the works that he
executed properly according the specifications under the contract. On the
other hand the employer has the duty to pay. If there is no an Engineer
and no Payment Certificate is given by the Engineer to the employer, the
contractor might not earn his payment, these is put under topic Contract
Price & Payment from Clause 14.1 to 14.15 of the MDB FIDIC Version-

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2006 and Clause 42 (Payment Certificate) and Clause 60 (Payment on

Terminations) of PPA Conditions of Contract 2006.Therefore the Engineer
have its own effect on payment.

2. Construction Claims and Disputes

Requirements of Claims
In construction industry, usually claims may arise for the extension of time
and/or additional payment. In order to be beneficiary from these claims, we
should have to know the relevant requirements of claims to properly submit
and succeed in the construction claims.

The requirements of claims means what things are make the raised claims to
be acceptable. In order to make our claims acceptable, we have to fulfill the
necessary requirements of claim.

Basically, there are three requirements of claims to properly submit and

succeed whether it may reject or accept. These are;
i. Substantive Requirement
ii. Procedural Requirement
iii. Proof Requirement
i. Substantive Requirements
It means supporting or giving justification for the claim by specifically
citing or invoking the provision of;
- The construction contract document; and/or
- The applicable law.
If the claims are arisen from the contractor, he to be entitled to any
extension of time for completion and/or any additional payment, he
should give notice to the engineer that claims with the contract
document and any applicable law with in 28 days the contractor’s
became aware, otherwise the employer shall be discharged from his
liability, as stated under Clause 20.1 *Contractor’s Claims+ of MDB FIDIC
Version-2006.

ii. Procedural Requirements

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It means the serving of the required prior written notice to the

designated party under the contract. This is called intention to claim.
This prior written notice shall be given within from the contractual
designated time scale. This time scale might be specific or reasonable.
Under Clause 20.1 *Contractor’s Claims+ MDB FIDIC Version-2006, it says
that the employer shall be discharged from his all liability if the
contractor failure to notice to the engineer his claim within 28 days from
became aware.

iii. Proof Requirements

It means that the submission of the relevant documentation, which
support or corroborates the claims under consideration.

The relevant documentation may relate to:-

-time (delay and disruption) claims,
-cost (additional payment) and profit claims,
-variations claims; and
-other claims.
In case of dispute, the proof requirement in addition to the relevant
documentation may also contain:-
-factual witness;
-expert opinion;
-site visit or inspection; and
-other mode of proof, if any.

The Next Decision or Measure if Claims have been Rejected both by the
Engineer or Employer
My first measure or action will be argue with the employer without any
interference of third party by means of negotiation, with this, if we will
not reach on agreement, I will try to use mediation and conciliation to
make it smooth and to prevent our relationships from lose and to
become cost effective, because we may enter a contract for another
project.

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If all these methods will not come us an agreement, I will go judgmental

mechanisms step-by-step from adjudication by using or appointing a
neutral and impartial party (Dispute Board DB), under Clause 20.2
[Appointment of the Dispute Board] MDB FIDIC Version-2006, if there is
failure to agree amicably Clause 20.5 [Amicable Settlement] of MDB
FIDIC Version- 2006, and inspect of the DB’s decision has not become
final, I will use the other methods of dispute resolution to settle the
dispute which is called arbitration stated under Clause 20.6 [Arbitration]
MDB FIDIC Version-2006 and lastly use litigation.

II. Analysis Examinations Questions

1. Decennial Liability & the Civil Code of Ethiopia

Decennial Liability

Decennial liability is insurance that is taken out by contractors that covers costs associated
with the potential collapse of the building after completion. The name derives from the
fact that it covers the 10 year period after completion of the project.

It is an insurance coverage required of contractors by owners in some foreign countries

(such as France) that covers the costs to rectify a total or partial collapse of the
construction. It draws its name from the fact that it covers this risk for 10 years following
completion of the project.

It is a form of strict liability arising from the French Civil Code which does not require any
proof of fault. The cost of the insurance can significantly increase construction costs.
Professional must compensate the owner of a building for any total or partial collapse for
a period of 10 years after delivery of the work. It is not exactly strict liability, but it comes
close. Decennial liability also includes any defect that threatens the stability or safety of
the building. And liability extends beyond the building to include the land on which it is
built.

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Decennial liability is one of the most disconcerting issues when it comes to overseas risk
simply put, decennial liability is a kin to strict liability that is applied to construction
projects in certain foreign countries. As the name implies, this liability typically lasts for at
least ten years (in some cases up to 13 years) after project completion and approval by or
delivery to the owner decennial liability applies to any party considered a “builder of the
work,” which includes contractors, architects, engineers and other professional’s who
contract with the building owner to work on the project.

Essentially, any builder of the work is strictly liable to the project owner for defects that
can threaten the stability of a structure and safety of its inhabitants, leading to partial or
complete collapse. This defect can be in the design or which the building sits. The financial
liability extends to the amount necessary to compensate the building owner to correct the
defect and/or repair the collapse. The differences between professional liability and
decennial liability are dramatic. First, with professional liability, a design firm is liable only
for its own negligence, errors and omissions, or the negligence, errors or omissions of a
sub consultant hired by the design firm. However, because decennial liability is a strict
liability, no negligence, error or omission need be shown. A design professional can be
held liable even if the building design proves to be flawless. Also, with professional
liability, a design firm is typically liable proportionately for damages caused by its
negligent actions. With decennial liability, each builder of the work jointly shares its
liability with all others. In other words, you can be held liable for a structural flaw even if it
can be proved that the problem was caused solely by the contractor.

Decennial liability represents a very uncertain exposure for design firms for a number of
reasons, including; the lack of precedent in the interpretation of the law; the joint nature
of the potential liability with the contractor; the sandy soil providing the foundation for
structures; the international design and construction teams collaborating on these
projects; and the fast-track and unique nature of many of these buildings.

What Are the Ground Rules?

Certainly, it would be impossible to cover all of the details of decennial liability in this
short article. Plus, each country that uses this code of law can have its own unique rules
and applications. Regardless, here are a few factors to be aware of:
 You can’t eliminate decennial liability through contracts with either the owner or
your sub consultants. Nor does an owner’s verbal or written approval of the
project eliminate liability. Regardless of what your agreement with the owner
says, you are still strictly liable for structural and soil defects that could threaten
stability and safety of a building.
 You are not liable if a building collapse is caused by a natural disaster such as a
major earthquake. While this force majeure (also known as “act of god”) liability
exclusion provides some relief, it is open to interpretation. Plus, in some
countries, the burden of proof is placed on the builder of the work to establish
that the building collapse was caused by a force majeure.

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 The building owner has up to three years after the discovery of the defect to file a
claim. Thus, if the discovery is made at the end of the 10-year liability period, a
design firm can be sued up to 13 years after project completion.
 If an architect’s scope of services is limited to drafting plans only and does not
include construction observation or administration services then liability may be
limited to errors and omissions in the plans themselves. This is another area
where the extent of liability can be a gray area depending upon the
interpretation of an architect’s consulting versus supervisory role.
 If a structure has a life cycle of fewer than 10 years, then the decennial liability
applies to the duration of the life cycle.
 In many countries, there is little precedent regarding decennial liability claims.
Fortunately, claims have been relatively rare. But that means there is little
certainty as to how any case might be resolved.

Decennial liability is not based on negligence and therefore all or portions of a claim may
not be covered.
(Note: Just recently, some professional liability insurers began offering endorsements that
may provide additional but not total coverage for decennial liability claims.)

Recommendations
There is only one foolproof way to avoid decennial liability: don’t perform work in
countries that impose it. However, that doesn’t mean that design firms can’t take on
projects in these countries. It simply means that architects and engineers must be
extremely diligent and fully aware of the risks and rewards such work entails. Here are a
few suggestions:
Learn about the foreign country. Educate yourself on the country in question and
the rules and regulations under which you must operate. In particular, examine
the country’s specific decennial liability laws to determine your exposures.
Remember, regardless of what your contract says, you probably can’t limit the
extent of your liability in the event of a structural failure.
Choose your client and project carefully. Check the client’s history regarding
litigation, troubled projects and relationships with foreign designers. Choose
project types with which you have ample expertise and a long history of claims-
free experience. Avoid fast-track projects or other unfamiliar project delivery
methods. Get references from the contractor and schedule a lengthy meeting to
judge trust and compatibility. Make certain the land underneath and surrounding
the project site has been thoroughly examined and shows no signs or history of
instability.
Draft a solid contract. If your attorney is not familiar with the laws, rules and
regulations in the foreign country, you will likely need outside help from in-
country attorneys and accountants. Make sure that your contract with your client
provides you with appropriate protection and will be enforceable overseas. You
will also need to make sure you have all the appropriate permits and licenses to
legally conduct business.

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Team up with a foreign partner. It is often recommended, and in some countries

mandatory, to form a joint venture with a consulting firm in the foreign country.
Many design firms entering into their first foreign project find it prudent to
provide schematic design work only and team with an in-country consulting firm
who provides the working drawings and construction phase services. The in-
country consultant should also sign and seal all documents. This can limit your
decennial liability until you are confident and experienced enough to offer a fuller
scope of design services.

The Similarity and Differences of Article 3282 & Article 3039

i. Similarity
 In both articles, the guarantee/liability period is for ten years.
 The warranty/guarantee will provided by the contractor.
ii. Differences
 In Art.3282, the shall not to be applicable if it will not provided in the
contract, but in case of Art.3039 the contract will not affect the
contractor’s liability.
 In Art.3282, the warranty shall apply to the defects of construction of
the works only as prevent the works from being used for the purpose
mentioned in the contract or as render such use more onerous or less
profitable, but in Art.3039, the contractor shall be liable for such loss
or deterioration of works as is due to a defect in its execution or even
to the nature of the soil on which the work has been done.

Comparison between Article 3282 and Article 3039

No. Article 3282 Article 3039

1 Guarantee/Liability Period 10 years 10 years
2 The guarantee/liability Contractor Contractor
period is provided by

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3 Application  If it is provided under  At any condition shal

the contract be applicable
 For defects of the  For defects or
construction of the deterioration or loss of
works the construction of the
 Only as prevent the works
works from being used  Whatever purpose of
for purpose mentioned due to a defect in its
in the contract or as execution or defects or
render such use more loss to the nature of
onerous or less the soil on which the
profitable has been done
 Applicable for building  Applicable for any type
type of construction construction project
project

2. Delay Claims & the Conditions of Contract

The meaning and purpose of liquidated damages

Liquidated damages means a fixed and agreed sum as opposed to unliquidated damages
which is a sum which is neither fixed nor agreed, but must be proved in court, arbitration
or adjudication. A more comprehensive definition of liquidated damages is given below.

Litigation is generally recognized as being expensive and lengthy. In order to recover

damages in matters involving breaches of contract it is necessary to prove that the
defendant had a contractual obligation to the claimant, that there was a failure to fulfill
the obligation wholly or partly and that the claimant suffered loss or damage thereby.
Very often it is clear that there is damage, but it is difficult and expensive to prove it. To
avoid that situation, the parties may decide when they enter into a contract that in the
event of a breach of a particular kind the party in default will pay a stipulated sum to the
other. This sum is termed liquidated damages.

In the building industry and elsewhere the terms ‘liquidated damages’ and ‘penalty’ are
commonly used as though they were interchangeable. In fact, they are totally different in
concept. Whereas liquidated damages are compensatory in nature and should be a
genuine attempt to predict the damages likely to flow as a result of a particular breach, a
penalty is a sum which is not related to probable damages, but rather stipulated – in other
words, as a threat or even, in some instances, intended as a punishment. The courts will
enforce the former but not the latter, though the parties may be no less agreed upon the
matter in the first instance as in the second. It is, therefore, of prime importance to
establish into which category a particular sum will fall.

Building contracts usually include a date on which the contractor may take possession of
the site and a further date by which he must have completed the building. Alternatively,
the contract may provide for a contract period which is triggered by a notice to
commence; or in some other way the building contract will provide a means of fixing the

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date on which building operations must be finished. It is established that the employer
must give the contractor possession of the site on the due date and if he is in breach of
that obligation, he is liable in damages.

Provided the contractor is able to enter upon the site on the date stipulated for
possession and thus to commence building work, he must finish by the completion date. If
he fails to complete, the employer may recover such damages under the principles set out
in Hadley v. Baxendale96 as he can prove were a direct result of the breach.

In practice, it may be difficult to allocate damages; which damages directly and naturally
flow from the breach and which damages do not so flow but depend upon special
knowledge which the contractor had at the time the contract was made? The amount of
the damage is seldom easy to ascertain and prove.

For more than 100 years it has been the practice in the building industry to include a
provision for liquidated damages in building contracts to avoid these difficulties. The way
the provision is generally expressed is that the contractor must pay a certain sum to the
employer for every week by which the original completion date is delayed. That sum must
represent a genuine pre-estimate of the loss which the employer is likely to suffer.

Breaches of contract and Liquidated Damages

Every breach of contract carries with it the potential for dispute. There may be those who
thrive on dispute but they rarely include the parties to the contract. Not surprisingly it has
long been accepted as good commercial practice for the parties to include in their
contracts provisions for dealing with the most likely breaches. This is how standard forms
of contract and the use of liquidated damages began to develop.

In the construction industry, breaches of contract are commonplace to the point of being
routine. Did any employer ever wholly avoid impeding the contractor in the performance
of his obligations and did any contractor ever wholly fulfill his obligations without fault?
Not often. This is reflected in the standard forms and most contain clauses detailing the
procedures to be applied and the recovery permitted in the event of those specified
breaches identified and described with the benefit of centuries of experience.

When the employer is in breach by way of interference or prevention arising from late
supply of information, failure to give full possession of the site and the like, the result for
the contractor is delay, disruption and involvement in loss and expense or extra cost. The
contractual remedy gives the contractor recovery of his provable loss and expense or
extra cost and, in appropriate circumstances, an extension of time for completion. In some
contracts certain breaches by the employer, such as failure to make payment on an
interim certificate, entitle the contractor to determine his employment under the contract
but such remedies are few and as a general rule the contractor’s remedy for employer’s
breach is the recovery of general or unliquidated damages. That is to say, damages which
are assessed after the breach.

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The contractor’s breaches of contract are most commonly failure to proceed with due
diligence, failure to meet specified standards and failure to complete on time. Only in
respect of the last does the employer have a solely financial contractual remedy. For other
breaches he may have the right to terminate the contractor’s employment or order
reconstruction but he will rarely have an entitlement to deduct moneys from sums due to
the contractor.

The employer may, of course, sue for latent or patent damage but this is a common law
remedy rather than a contractual one. The employer’s position is, therefore, significantly
different from the contractor’s. Whereas the contractor has a financial remedy for
numerous and various breaches, the employer has his for only one breach of common
occurrence – failure by the contractor to complete on time. And whereas the financial
effects of the employer’s breach on the contractor can rarely be estimated in advance of
the breach, not least because of the involvement of sub-contractors, the financial effects
of the contractor’s late completion can usually be estimated with some certainty.

Consequently most standard forms of construction contract are drafted to permit the
parties to fix in advance the damages payable for late completion. When these damages
are a genuine pre-estimate of the loss likely to be suffered or a lesser sum they can rightly
be termed liquidated damages.

In short, liquidated damages are fixed in advance of the breach. Liquidated damages are
fixed in advance of the breach and can be recovered without proof of loss.

Liquidated damages and penalties

The association between liquidated damages and penalties lies in the nature of the
remedy – an agreed price to be paid for breach or non-performance. The parties may
agree any price they wish; they are not bound by any rules and if the price they agree is
clearly intended to penalize the defaulting party rather than to compensate and restore
the position of the innocent party, which is a matter for the parties.

In fact many legal systems do allow the recovery of penalties and it is something of a
peculiarity of law that the courts will look at the price irrespective of whether it is called
liquidated damages or a penalty, and, if it is found to be a penalty, will limit damages to
the amount flowing from the breach. The origin of this lies in the branch of justice named
equity, which traditionally relieved against penalties but for the last two centuries the
doctrine has been taken up and applied by the common law. The logic of the position
seems to be that since a penalty is designed to secure performance, the promise is
sufficiently compensated by recovery of his actual loss and he is not entitled to demand a
sum which although fixed by agreement is disproportionate to the actual loss suffered.

The following short extract from Lord Dunedin’s judgment is given here to sum up the
point:

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‘The essence of a penalty is a payment of money stipulated as “in terrorem” of the

offending party: the essence of liquidated damages is a genuine covenanted pre-estimate
of damage.’

Contentions that liquidated damages are, in law, penalties rank highly amongst the
defences put up to avoid payment of liquidated damages. This is not so much that the
stipulated sums are patently extravagant and evidently intended as threats but more
because of the ingenuity of lawyers in making arguable cases from discrepancies and
oddities in contract documents.

The subject is undoubtedly complex and it offers an excuse perhaps for the common
misconception that damage must be suffered before liquidated damages become payable.
Usually this line of thought applies to public sector projects or non-commercial buildings
such as churches. However, those who harbor such thoughts, mostly contractors it must
be said, eventually learn to their dismay that the test for enforcement of liquidated
damages is: were they a genuine pre-estimate of loss at the time the contract was made?
If it is not, can loss be proved after the breach?

Pre-estimates of loss
It is clearly not easy to estimate in advance the financial consequences of the various
breaches of a construction contract which the contractor might allege, such as the
damages arising from late instructions, prevention, and the like.

Consequently most claims from contractors come to be settled by way of general

damages. Some contracts have been put out where the contractor is required to state a
sum per week for reimbursable delay but the practice is not widespread.

For the employer, however, the most common breach suffered is late completion by the
contractor and here it is possible to make genuine pre-estimate of the loss and to
incorporate the same into the contract as liquidated damages.

There are clear advantages to the employer in this because he does not have to prove his
loss and there will probably be a mechanism in the contract for deduction of the damages
from sums due to the contractor. There are also corresponding benefits to the contractor
in that he knows in advance what damages he is liable for in the event of late completion.
At tendering stage this is often an important factor in the contractor’s bid. If he feels that
he cannot risk the level of damages stated for late completion, he can withdraw or bid
high. If he thinks that he cannot complete in the time allowed he knows how much to add
to his bid for anticipated late completion and then, during construction, when there may
be a balance to be struck between spending more money to complete on time or facing
damages for late completion, the contractor knows what these damages will be and can
calculate accordingly.

Reasons for use

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There are sound commercial reasons for using liquidated damages whenever possible.
Firstly because of the certainty they bring to the consequences of breach; and secondly
because they avoid the expense and dispute involved in proving loss.

The Similarity and Differences of Clause 49. Liquidated Damages PPA Conditions of
Contract (Works) 2006 and Clause 8.7: Delay Damages –MDB FIDIC (2006) Conditions of
Contract

i. Similarity
 Both clauses related to the contractor’s obligations of time for
completion and intended completion time for MDB FIDIC (2006)
and PPA conditions of contract respectively.
 The payment shall be carried out by the contractor.
 In both cases the liquidated or delay damages is calculated from
for each day later than the time for completion or intended
completion time which specified under the contract.
 In both cases the total amount of liquidated damages shall not
exceed the maximum amount in the special conditions of contract
or contract data.
ii. Differences
 In PPA conditions of contract ,this payment of liquidated damages
shall not affect the contractor’s liabilities, whereas, in MDB FIDIC
conditions of contract (2006), it shall not release or make free the
contractor from his obligations to complete the works, or from
any other duties, obligations or responsibilities which he may
have under the contract.
 In MDB FIDIC (2006) conditions of contract clause, liquidated
damages shall be the only damages caused by the contractor’s
delay default, other than caused by termination by employer, in
PPA conditions of contract (2006), it is not stated whether it
includes termination by employer or not.

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 In PPA conditions of contract (2006), the contractor shall be paid

interest of overpayment calculated from the date of payment to
the date of repayment if he pay overpayment of liquidated
damages by adjustment of the Engineer, whereas, it is not
mentioned in MDB FIDIC (2006) conditions of contract .
 In MDB FIDIC (2006) conditions of conditions, the failure of the
contractor for time for completion notice by employer’s claims
for his default, but in PPA conditions of contract shall not stated.

 There is no the concept of liquidated damages in the Civil Code of

Ethiopia.

Comparison of MDB FIDIC (2006) Conditions of Contract and PPA Conditions of Contract
(Works) 2006

No. Conditions PPA Conditions of MDB FIDIC Conditions

Contract,2006 of Contract (2006)
1. The liquidated damages Contractor’s obligations Contractor’s obligations
clauses states about
2. The liquidated damages The contractor The contractor
payment shall be carried
out by
3. The liquidated damages The date later than the The elapse between the
payment shall be intended completion time relevant time for
calculated from (for each day) completion & the date
stated in the taking-over
(for each day)
4. Amount of liquidated Shall not exceed the amount Shall not exceed the
damages defined in the special maxi mum amount of
conditions of contract delay damages in the
contract data
5. Shall the liquidated NO! YES!
damages payment make
the contractor free from
his liability, duties,
responsibilities or

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obligations?
6. Shall liquidated damages Is not mentioned YES!
be the only damages
caused by the
contractor’s delay
default, other than
caused by termination by
employer ?
7. Interest of overpayment Shall be paid Not stated
for the contractor
8. The contractor subject to Employer’s claims Not mentioned.
notice his
delay/liquidated
damages for the
employer by

III. Case Study Examination Questions

1. The Collapse Scenario Questions
a) Since the causes for the collapse of the dam was defective construction
i.e., defective construction materials and deficient workmanship, the
contractor should have the obligations/liability to such defects, Art. 3282
[Warranty in respect defects of construction] of the Civil Code of Ethiopia
and he will not have any excuse for quality defect, Clause 4.1
*Contractor’s General Obligations+ and Clause 7.1 [Manner of Execution]
of MDB FIDIC Version-2006 conditions of contract.

Therefore, my decision with respect to the claims of the employer (i.e.

repayment of the contract price: USD 12 Billion and the damages USD 20
Billion) against the contractor would be instead of repayment of contract

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price i.e. USD 12 Billion, reconstructing the collapsed dam with

appropriate quality control mechanisms of construction materials and
workmanship with expense of the contractor, Clause 11.1 [Completion of
Outstanding Work and Remedying Defects] and Clause 11.2 [Cost of
Remedying Defects] of MDB FIDIC Version-2006 and Art.1771 (2) [Effects
of Non-Performance] and Art.1791 (1) [Damages when to be Good] of the
Civil Code of Ethiopia and make the contractor to pay liquidated/delay
damages, Clause 49 [liquidated Damages] PPA conditions of contract
(Works) 2006, Clause 8.7 [Delay Damages] of MDB FIDIC (2006) conditions
of contract and Art. 1791 [Damages when to be made Good] Civil Code of
Ethiopia, by considering the completion date of the previous (the
collapsed dam) as the starting day for delay.

b) Yes, my decision would be completely differ from the first one.

Since, the project delivery system is Design & Build (DB), all liability i.e.
both the design and construction liability rests with the contractor,
because the contractor engaged to provide the entire Construction
Implementation process (Design and Construction Implementation).

Therefore, my decisions would be against the contractor to pay the claims

of the employer (i.e. repayment of the whole the contract price: USD 12
Billion and the damages USD 20 Billion) against the contractor, because
every thing was done by the contractor even the design part, so shall be
responsible for the project price and damages. And reject that contractor
and call another new contractor by tendering to design and construct the
dam.

c) If the collapse the dam due to faulty design of the consultants they are
liable for their profession. Professional liability where a professional is
negligent, that is where the consultant breaches a duty of care to another
person (client). The duty is to perform the required task, design the
process to the standard of skill, care diligence of a reasonable person
performing similar work.

MDB FIDIC WHITE BOOK Version (2006) Clause 3.3.1 [Duty of Care and
Exercise of Authority]:- Not withstanding any thing else in this agreement or
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any legal requirement of the country or any other jurisdiction (including, for the
avoidance of debt, the jurisdictions of the place of establishment of the
consultant), the consultant shall have no other responsibility than to exercise
reasonable skill, care and diligence in the performance of his obligations under
the agreement.
A consultant who suffers a loss because of a negligent act ca make a civil
claim for compensation for that loss, paying compensation to the client
and the amount or limitation of compensation is stated as follows;
MDB FIDIC WHITE Clause 6.1.3 [Liability and Compensation between
Parties]:- the consultant shall only be liable to pay compensation to the client
arising out of or in connection with the agreement if a breach of clause 3.3.1.
If it is considered that either party is liable to the other; compensation shall be
payable only on the following terms:
(a) Such compensation shall be limited to the amount of reasonable foreseeable
loss and damage suffered as a result of such breach but not otherwise;
(b) In any event, the amount of such compensation shall be limited to the
amount specified in clause 6.3.1.
The maximum amount of compensation payable by either party to the other
in respect of liability under clause 6.1 is limited to the amount stated in the
particular conditions. This limit is without prejudice to any agreed
compensation specified under clause 5.2.2 or otherwise imposed by the
agreement.
d) Litigation type dispute resolution mechanism is more appropriate for the
assessment of the economic loss or damage than arbitration, because:-
- It takes place at the court of the law having
jurisdiction over the case.
- The courts play their dispute resolution role which
is missing in arbitration.
- The courts are following the standard procedure
established under the civil procedure code which
applies for all types of disputes brought to them
(courts).
- The court itself enforces it own orders and
judgments.
- Empowering an agreement to arbitrate.
- Recognizing and enforcing foreign arbitral award.
-
e) The argument of the Water Supply and Irrigation specialists of the project
(both Contractors and Consulting Firms) is not acceptable, because they
were joint-ventured to Hydropower specialists of the project (both the
Contractor and Consulting Firm) and in their joint-venture and several

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liabilities towards the employer had induced. So they are liable the
employer about the Hydropower Dam specialists (Contractors and
Consulting Firms). This is also stated under Clause 1.14 (a) [Joint and
Several Liability] MDB FIDIC Version-2006, Art.1896 [Cases of Joint and
Several Liability] and Art.1897 [Principle of Joint and Several Liability] of
Civil Code of Ethiopia.

Behailu Zerihun H/mariam Adama University

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