Ethics and Contractual

Requirements in
Construction Contracts

Construction Project Execution System

1) Three Actors System
(e.g. FIDIC contract)

2) Two Actors System

(e.g. NCB, Japanese system)

Three Actors System (FIDIC Contract)

Employer
(Construction
Contract)

(Consultancy
Agreement)
(Report, Notice,
Application)

Contractor

Engineer

(Supervision, Notice, Instruction,

Determination, Approval)
3

Two Actors System (Practices in Japan)

(Consultancy
Agreement)

Employer

Consultant

Administrator

(Construction
Contract)

(Report)

(Supervision, Instruction,
Determination, Approval)

Contractor

Project Manager
Appointed by the Employer responsible
for supervising the execution of the Works
and administering the Contract
Is not a contracting party to the
construction

Project Managers
Responsibilities

Exercise the stated authority in the Contract

Represent the Employer
Decide fairly and impartially
Approve (disapprove) Contractors personnel
Clarify queries on the Contract Data
Approve (if comply with the specifications and
drawings) the specifications and drawings of
temporary works submitted by the Contractor
Give instruction for dealing discoveries in site
Approve the construction program and updated
schedule

Project Managers
Responsibilities

Extend intended completion date if compensation

event occurs or a Variation
Give decision within 21 days of the Contractor
asking the PM for a decision on extension of time
Instruct the Contractor
Record the business management meeting and
provide copies of the record to the attending
members and to the Employer
Check the Contractors work and notify the
Contractor of any defects
7

Project Managers
Responsibilities

Instruct the Contractor to carry out a test

Give notice to the Contractor of any defect before
the end of Defect liability Period
Assess the cost required for correcting the defects if
the Contractor failed to correct them
Get prior approval of the Employer to vary a contract
by more than
Assess the quotation submitted by the Contractor for
carrying out the Variation
Check the Contractors monthly statements and
certify the amount to be paid to the Contractor
8

Project Managers
Responsibilities

Decide the additional cost and time required if

Compensation events occurred
Adjust the Contract Price if taxes, duties, and
other levies are changed between the date
28days before the submission of bids and the
date of the last Certificate of Completion
Issue Certificate of Completion, Defect liability
Certificate
Certify the final payment that is due to the
Contractor within 56 days of receiving the
Contractors final account
9

Project Managers
Responsibilities

Withhold the amount stated in the Contract if

the Contractor does not supply the drawings
and/or manuals by the dates stated in the
Contract
No authority to relieve the Contractor of
duties or obligations, etc.

10

Contractors
Duties/Responsibilities
Construct and install the works accordance with
the Specifications and drawings
Take approval from PM before subcontracting
any part
Not assign the Contract without approval of the
Employer in writing
Cooperate and share the site with other
contractors (employed by the same Employer or
Other??), Public authorities, utilities and the
Employer in the dates as referred to in the
11
Contract Data

Contractors
Duties/Responsibilities
Employ either the key Personnel named in the
manning Schedule (qualification) or other
personnel approved by the PM
Remove any person (member of Contractors
staff) within 7 days if asked by the Project
manager stating with reasons
Not employ child labor allowed
Follow all labor laws/rules
Provide, in the joint name, insurance cover
12

Contractors
Duties/Responsibilities
Verify the availability and suitability of
construction materials in preparing the bid
Commence execution of the work on the Start
date and Carry out the works according to the
schedule submitted, updated; complete them by
Intended completion date
Submit specification and drawings for the
temporary works for the PMs approval
Take responsibility for the design of temporary
works
13

Contractors
Duties/Responsibilities
Obtain third parties approval if required
Make arrangement for the safety of all activities
on the site
Notify the PM of any discoveries
Allow the PM and any other person authorized by
the PM access to the site
Carry out all instructions of the PM which comply
with the laws of Nepal
Permit the Donor Agency to inspect the
Contractors accounts and records
14

Contractors
Duties/Responsibilities
Cooperate in appointment and replacement
of the Adjudicator
Pay half of the cost of the Adjudicator
Submit work program to the PM for his
approval
Submit the PM for his approval the updated
work program and updated Cash Flow
forecast at interval specified in the Contract
data
15

Contractors
Duties/Responsibilities
Warn the PM at the earliest opportunity of
likely future events/circumstances that may
adversely affect :
quality

of works
increase the Contract Price
delay the execution of work

Provide estimate of the expected effect of

such events/circumstances
Cooperate with the PM to avoid/mitigate
the unwanted events/circumstance
16

Contractors
Duties/Responsibilities
Search defect, and uncover and test any
work if requested by the PM
Carry out test (even not specified in the
contract) at own cost to ensure the defect
free work
Correct the notified defect within time
specified by the PM
Provide the PM with a detailed cost
breakdown of any new rate if requested by
the PM
17

Contractors
Duties/Responsibilities
Provide the PM with a quotation for carrying out
Variation if requested by the PM
Submit monthly progress (statement of the works
executed less the cumulative amount certified
previously
Pay liquidated damages
Demonstrate the proper utilization of the Advance
Payment received
Provide Performance Securities as specified in
the Letter of Acceptance
18

Contractors
Duties/Responsibilities

Submit a detailed final account before the end of

Defect Liability Period
Duty to maintain the quarry sites, excavated
deposits, etc.
Arranging safety, security and maintaining the
environment of the site
Pay VAT
Pay income taxes
Comply with Regulations for explosives
Obtain permission as required for blasting
Provide records of Explosives
19

Contractors
Duties/Responsibilities

Provide necessary safety and arrangement

for traffic diversion

20

FIDIC Red Book 1999

Roles of the Engineer
) Employers Agent
)Certifier
) Decision Maker in Claim/Dispute
settlement process

21

Red Book 1999

Changing role of the Engineer

1987 Edition Clause 2.6 Engineer to Act Impartially has been

deleted BUT Duties and Powers of Engineer basically not
changed

1999 Edition - Engineer functions Employers agent

representative therefore not really impartial?

Clause 3.1 in 1999 Edition stipulates as follows;

Except as otherwise stated in these Conditions:
(a) whenever carrying out duties or exercising authority, specified in or
implied by the Contract, the Engineer shall be deemed to act for the
Employer;

Engineer must consult and there must be a duty on the Employer

to appoint a professionally competent person.
22

Red Book 1999

New duty of Engineer

1999 Edition has Clause 3.5 feature called

Determination and Engineer shall make a fair
determination where the Contract requires

Engineers Determination is now to be: unbiased and professional,

after due consultation with Employer and
Contractor, and
with proper interpretation of the Contract so that it
will remain valid if challenged

23

Red Book 1999

Limits to Engineers Authority
1987 Edition clause 2.1 requires the Contract to state when
the Engineer needs position to exercise his authority
1999 Edition and Harmonised Edition have similar provisions
Harmonised Edition [but not 1999 Edition] clause 3.1 also
sets out optional matters when it might be reasonable for the
Employer to require consultation before the Engineer
exercise his authority (extensions of time, variations,
approving Contractor variations, specifying amounts in
various currencies for payment)
1999 Edition prohibits further restraints but Harmonised
Edition just requires the Contractor to be informed
1999 Edition and Harmonised Edition both confirm any actual
exercise of authority even if consultation has not been made
24

Challenge to Unfair Decision of the

Engineer

DAB/DB

Employer
(Construction
Contract)

(Consultancy
Agreement)
(Report, Notice,
Application)

Contractor

Engineer

(Supervision, Notice, Instruction,

Determination, Approval)
25