31 January 2012 Written by  Wondwossen Wakene

Formation of the Contract

Administrative contracts highly involve the public interest. Quality of the service that we have to provide to the public really matters. The inverse relation often times, between quality and price makes attaining quality a difficult task. The basic consideration of our law is quality. That is why under Art. 3246 competition will be waged among skilled persons or among specialized undertakings. Skill and specialization are therefore the ground rules to pick-up possible contractors.

Still, Art 3246 is cognizant enough of the role of competition. In normally operating economy, competition leads to efficiency. It is even possible to reverse the relationship between quality and price. This is so because Art 3246 authorized administrative authorities to “put up for competition the working out of a project of a work…”

The relevance of projects is many folds. On the part of administrative authorities, it helps them to assess the cost that a specific project will consume and the quality of the work resulting from the project.

The possible competitors will be screened out and the authorities will “freely choose the persons whom they admit to take part in the competition.” (3247/3/).

These are only procedures, because simple admission of persons to participate in competition in no way is indicative of the conclusion of the contract. It is one step ahead in the contract. After the preparation of the list, the authorities will announce the winner and allot the contract to such a winner. Reasons of selection need not be explicit. The authorities should allot the contract to the competitor they think fit.

The” fitness” standard we have is a default standard: applicable only in the absence of express undertaking to choose the competitor who is ranged first. Selecting the person who is ranged first corresponds to the fitness standard because this competitor stood first based on some standards of fitness. The proviso “to whom they think fit” must by itself have a standard. The administrative authorities must have an express standard to adjudge a competitor as fit and unfit. By doing so, the authorities will comply with one of the constitutional principle called transparency. This is a logical continuation of Art 3248 under which administrative authorities are obliged to be strictly bound to respect the rules of the competition made by them.

Try to justify how Art 3249, second sentence, is a logical continuation of Art 3248?

The contract will be concluded only after application of Art. 3249.

Contract Procurement Alternatives

The process of selecting the contractor and entering into an arrangement with the same is tantamount to procurement of work thereby necessitating as the case may be procurement by open bidding, restricted tendering or direct procurement.

4.2 Performance of the Contract

The normal performance of contract of public works involves three elements on the part of both parties. Generally, direction of work, payment of price and acceptance of work are the elements. Some correspond to administrative authorities and others to the contractor. Let us begin with the first.

4.3.1 Rights of Administrative Authorities

In aggregate the basic rights take two shapes. One is the right to direct the work. The other is the right to supervise the contractor. Art. 3250 (1) establishes this right of supervision as “The administrative authorities may supervise the performance of the works”.

As to the direction right, Art 3250 (2) says” they may also prescribe to the contractor the manner of performance of his work”. Right to Supervise

This right involves two things on the part of the contractor and also the administrative authorities. Administrative authorities may directly supervise the works of the contractor. To this end, they may enter the yards at any time and require the contractor the information necessary for their control. (3251 (1)) Authorities may also make regulations that ensure good order and security in the yards.

The consequent obligations on the contractor are observing the regulations made and furnishing the necessary information to administrative authorities. (3251/2/).

These arrangements are mandatory to the extent that no one party to the contract may agree to the contrary.

The supervisory role of administrative authorities is not limited to supervise only works and yards but also the personnel of the undertaking. In addition to this, materials may also be supervised. With relation to personnel, the authorities may require that employees be changed or dismissed. The quality of materials shall also be controlled by administrative authorities. Right to Direct

This right to direct involves regulating the development of the works and prescribing to the contractor the manner of performance of such works. This involves the how of the work.

To this end, administrative authorities may give plans and models. Not only this, administrative authorities have the right to arrange the rhythm of works. This is to mean that the authorities may fix the period of time for the performance of the work. A general period may be fixed to this end. Or special periods for each work might still be fixed.

Fixing a general period by administrative authorities entails another responsibility of “specifying the time at which the works shall begin.”

But arranging the rhythm of the work is not only about fixing general and special periods. It is also about “regulating the order, sequence and the rhythm of the works within the general period laid down in the contract”.

On default of fixed periods indicating the starting point, the law provides us with one:

A/ periods shall run from the date of notification of the contract.

(See Art. 3254(1) cum 3249).

B/ periods shall run from the materialization of a condition. Right to Demolish (3256)

Administrative authorities have this right of ordering the demolition and the reconstruction of any defective work at the expense of the contractor. This is usually the case in contracts of measurement or re-measurement where the contractor agrees only to build while the administrative authorities undertake to provide the design and model of the work. Otherwise, the situation is rare. We can raise questions concerning the validity of a demolition order. Can the authorities order the demolition of a work without any condition? Who should decide whether a work is defective or not? What type of defect justifies demolition? Does the magnitude have any contribution to the decision the authorities make?

4.3.2 Rights & Duties of the Contractor

It will not be a hard remark to say contractors have very limited right with relation to administrative authorities. Even the way in which the article is devised to confer rights on contractors is negative. It magnifies than ever the administrative prerogatives of administrative authorities.

As such, contractors are prohibited from demanding compensation from administrative authorities save for the fault that the latter might commit. (3259(2)).

What rights do contractors have? Art 3259 gives them the right to demand compensation, but only after observing certain legal considerations.

Under normal course of things compensation cannot be demanded as of right (see Art.3259 (1)) Compensation however is due when:

A/ damage is caused due to the fault of administrative authorities by either making abusive requirements or by postponing the performance of the contract (3259(2)). Abusive requirements show the malicious intent of administrative authorities. Postponing the performance of the contract makes things more burdensome on the contractor.

Contractors in need of compensation must establish many things.

I. The existence of damage: to get compensation, proving injury to a legitimate interest is a requirement.

II. The existence of fault: the contractor must prove the existence of fault on the part of the authorities. The usual types of faults are those related with abuse of power.

III. Violation of the contract: the terms of the contract must be violated to get compensation from the authorities.

B/ damage is caused, regardless of fault, by the aggravation of the normal conditions of performance of the contract. (3259(3)) The first rule is partly based on the principle that no one should benefit from his/her fault. This one is based on the idea that persons should make good what they have made bad. When the administrative authorities make the performance of the contract more burdensome, they are those which should make the ways of performing the contract suitable to the contractor.

. When parties enter in to a contract, they foresee expenses and costs. Parties make a risk assessment plan and agree or disagree to enter in to a venture. When a party is forced to bear what he/she has not foreseen before, this will completely ruin the plan of such a party. It will also make parties skeptical of the system there by to withdraw from engaging in similar activities in the future. It is because of this and other reasons the law protects from unreasonable shift in the balance of the contract as sponsored the authorities.

4.3.3 Payment: Modalities and Time

Payment is performance or only part of it. While generally it is indicative of the conclusive performance of the contract sometimes, at times like this, payment is only the performance. When we started discussing about contract of public works, we defined the same under Art.3244 making reference to “price”. Contract of public works is a contract in “consideration of a price.” Specifically the contractor binds himself in favor of administrative authorities so that the latter will pay him a price.

Thus, under our current discussion, we will try to see how this issue is regulated.

Different types of payment are recognized. We have contract with a fixed price under which contractors will get their payment in a lump sum. (3261) On the other hand, we have contract with series of prices. Here without determining the extent of the work, price is fixed based on the different types of work that the contract envisages. We have different prices for different works. (3262).

It is also possible to determine the extent of the final work and determine the services of prices applicable to each kind of work. The type of contracts determines the form of payment that a system follows. In the case of measurement contract for example, lump sum payment is unthinkable. The construction cost of the project is disbursed on the basis of each work accomplished. The basis of payment is unit rate as determined by the contract. The price will be multiplied by the quantity of the work. The total amount of the work during the allocation of the contract may increase or decrease during the actual accomplishment of the work. The price of the work is payable periodically usually on a monthly basis. Payment is made after the measurement made by the architect or the concerned expert. The payment is registered on a document called certificate of payment. Arithmetic errors, if any, may be corrected in the next payment. That is why measurement contract is also called re-measurement contract. The total cost of the project can be known only after the completion of the work.  What we have to know however is the truism that Ethiopian law acknowledges both forms of payment. Between the extremes, parties have the freedom to adhere to anyone form. It is however advisable parties agree to one of the forms of payment depending on the exigencies of the project and other rational considerations which relate to the advantages and disadvantages of each form of payment.

Do you see the difference between Art 3262 and Art 3263? Can you appreciate the relevance of each? Which one is more important? On what basis?

Parties are given the mandate to fix by their contracts the manner in which payment of price is to be undertaken. That is what we can gather from the provisions that we previously considered and others which generally relate to the manner of effecting payment.

The freedom of parties on the modality of effecting payment is not without any control. Art 3267 comes up with a standard. No contract will arrange a clause of deferred payment. Even so, it can be only by bills of exchange or by annual installments. Time of Payment

The time fixed by parties and conditions fixed by them as well are crucial to determine time of payment. Art.3268 (1) says “where the ascertainment of the services performed constitutes a preliminary condition for the determination of the price, such ascertainment shall be made within the periods specified in the contract”.

One thing we have to know here is we cannot fix the time of payment without first fixing what is going to be paid. What if the contract does not regulate such issues? Art 3268(2) raises more questions than it answers. Let us see this.

We can imagine two defaults:

1/ when the contract generally defaults to regulate the issue under Art.3268 (1).

2/ when one of the parties defaults to undertake the requirements envisaged under Art.3268 (1) even when the contract is not defaulting.

4.3.4 Acceptance of Work

As the contractor has a right to payment, the administrative authorities have the right of taking possession of the work done. What is Acceptance?

Acceptance is not merely taking possession of the work. Rather it is the delivery of the work. Acceptance is “a joint ascertainment of the works made immediately after the completion of the works”. As such it is an examination of the works by the contractor and the administrative authorities.

Generally we have two types of acceptance- Provisional acceptance and final acceptance. Even though both involve in the ascertainment of the works, there are areas of departure between the two ways of acceptance.

  1. Provisional Acceptance

This involves the ascertainment of the works both by the contractor and the authorities. What makes provisional acceptance special, among other things, is that it is made under reservation. Though it involves the effective taking of possession, the acceptance is made under reservation.

A/ Effects

On the other hand, the effects of provisional acceptance are different from that of final acceptance. The effects of provisional acceptance are two fold. In the first place provisional acceptance does not imply the exoneration of the contractor from any defect (Art 3275(1)).In the second place, it shall amount to a tacit acceptance of the modifications  there under.(3275)2(2).

More informally, provisional acceptance marks the beginning of the period of warrant whose expiry marks the final acceptance of the work. (3275(3)).

B/ Risks

Provisional acceptance is a critical decision which will help us determine transfer of risk.

What is the rule?

Art. 1758 (1) reads: “The debtor bound to deliver a thing shall bear the risk of loss of or damage to such thing (until delivery) is made in accordance with the contract”.

Art 3276 (1) is not different from Art 1758 (1) in stating the rule. But one thing you should question is “is it only when the loss or damage results from force majeure that the contractor will bear the costs? Why? Why not?”

Sticking to Art 3276 (1) leads us to an affirmative determination. But one can question the soundness of Art 3276 (1) taken lightly. If the contractor bears the damage or loss caused  by force majeure before the making of provisional acceptance, even for a stronger reason he can bear the damage caused regardless of the cause( i.e. for damages caused while he was able to avoid or defer them).

  1. Final Acceptance

This is the definite appropriation of the works after ascertaining that the contractor has performed his obligations in their entirety (Art. 3279(1)).

The definiteness of the appropriation strengthens this assertion. In addition, the effect of final acceptance is evidence to the validity of the assertion we made.

Final acceptance involves both parties in the ascertaining procedure. Art.3279 is strict in this sense. It requires the joint presence of the parties and the making of record as well. Therefore, the issue is clear with regard to the absence of the administrative authorities during the

Just like any other rule of payment on the event of contestation or doubt as to the creditor (see Art.1744), Art 3280(1) authorizes the contractor to require the court to ascertain that the works are in a condition to be accepted.

Unlike the situation under Art.1744, ascertainment by the court will not automatically result in a conclusive acceptance of the work. If a period of warranty is fixed, the expiration of such period marks the final acceptance of the work. Otherwise, final acceptance will be deemed to have taken place when the day fixed by the court arrives. Effect of Acceptance (Art.3281)

Final acceptance relieves the contractor from his obligation of maintaining the works. Before the final acceptance of the work, the contractor has the obligation of maintaining the work. What is this obligation? This obligation refers to the fact of preserving the work in a purposive manner. Before delivering the work, the contractor must ascertain that the work is fit for the purpose it is made. He/she can meet this end if the same can maintain the work in every manner.  The acceptance will irrevocably place the works in the hands of administrative authorities. The same will put such an obligation in the hands of the authorities. It will also entitle the contractor to payments that are due to him but still not made waiting the arrival of this date.

Last modified on Wednesday, 02 May 2012 13:05