The Overview of Tanzania Legal Framework on Contract Management

The Overview of Tanzania Legal

Framework on Contract Management

OUTLINE

2. Public Procurement System;

3. Legal and Regulatory Framework; 4. Contract Formation;

5. Construction Contract Roles and Responsibilities;

6. Contract Violations; 7. Communications;

8. Scope of Works and Variations; 9. Dispute and Resolutions;

1.

INTRODUCTION

The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them

In simple words, the purpose of law of contract is to ensure the parties who enter in to contract understand the terms of the contract

OBJECT OF LAW OF CONTRACT

The law of contract is intended to ensure that, ‘what a man has been led to expect shall come to pass, and that what has been promised to him shall be performed’

2. PUBLIC PROCUREMENT SYSTEM

• Government of the United Republic of Tanzania:

-Ministry of Finance

• Fully decentralized to Procuring Entities: -MDAs, LGAs, PC, etc.

• Many Stakeholders:

- General public, private sector - taxpayers, industry, development partners, CSO’s, etc.

• Many interests:

-Services, development, business, protection against foreign firms, social aspects, environmental aspects

Expenditure in Public Procurement How Efficient?

Public

Procurement

Act, CAP 410

of 2004

The Public Procurement (Goods, Works, Non-Consultant Services and Disposal of Public Assets by Tender) Regulations GN. No 97 of 2005

The Public Procurement (Selection and Employment of Consultants) Regulations GN. No 98 of 2005 S ta n d a rd B id di n g D oc ume nt s T e n d e r E v a lu a tio n G u id e lin e s G u id e lin e s f o r P re p a ra tio n o f Re s p o n s iv e b id s O th e r Cir c u la rs p e rio d ic a lly is s u e d b y P P R A

3. LEGAL AND REGULATORY FRAMEWORK

L o c a l G o v ’t A u th o rit ie s ’ T e n d e r Bo a rd s (E s ta b lis h m e n t a n d P ro c e e d in g s ) Re g u la tio n s , G N. No . 1 7 7 o f 2 0 0 7

4. FORMATION OF A CONTRACT

CONTRACTING

Contract:

Agreement entered into by two parties under the terms of which one party agrees to perform a specific job for which the other party agrees to pay: OFFER + ACCEPTANCE = CONTRACT)

Construction contract:

Formal agreement for construction, alteration, or repair of buildings or structures (facilities, dams, bridges, roads, tanks, etc.)

Is distinct from a contract to assemble, fabricate or manufacture

Key elements in forming a Contract: Offer (1)

An offer must be made willingly; its terms must be clear and certain; it must be a final expression of the offeror

A contractor makes an offer when he fills the Form of Tender as he offers to execute, complete and maintain the contract for his tender sum and within a specific period

Terms and conditions of the contract to be formed are in the bidding documents

Key elements in forming a Contract:

Offer (2)

Termination of an Offer

revocation of the offer by the offeror;

Acceptance;

Counter offer by offeree;

rejection of offer by offeree;

lapse of time;

death or disability of either party;

or failure of precondition or performance of the contract becomes illegal after the offer is made.

Key elements in forming a Contract: Acceptance (1)



Is a signification of

assent to

the offer



Requirements of an Acceptance [S7/LCAT,

Cap 345]



Must be absolute and unqualified-accept

the proposal

offer as made without any

change



If any change is made to the offer it

Key elements in forming a Contract: Acceptance (2)

 Requirements of an Acceptance [S7/LCT, Cap 345]: must be in response to the offer; must have knowledge of the offer before accepting (No knowledge of offer - no acceptance); in exchange for the offer/ proposal

 Acceptance must be communicated; must be complete; and can be made to an agent instead of the offeror;

 Desired mode of communication must conform to the wishes of the offeror; When by post, acceptance will be complete once the offeror knows of the acceptance.

Key elements in forming a Contract: Letter of Acceptance

An acceptance is a final expression of assent

to the terms of an offer



The acceptance of an offer must be

absolute and unconditional

and must be

communicated to the offeror if it is to result

in a concluded contract.



A conditional acceptance which fails to

comply with the requirements of the offer is

not a valid acceptance.

Key elements in forming a Contract: Consideration



Refers to what is actually

given or accepted

in return for a promise as part of an

agreement in the form of a

“right, interest,

profit or benefit accruing to one party”.



For

a

promise

to

be

enforceable

the

promisee must show that he paid a price for

it [the promise]



Failure to perform promise

leads to

damages



Failure to fulfill condition

terminates

Key elements in forming a Contract: Capacity (1)



Parties

to

the

contract

must

be

competent.



S11/LCAT, Cap 345, every person is

competent to contract if the person:



is of the age of majority;



is of sound mind; and



is not disqualified from contracting

by any law to which he is subject

Key elements in forming a

Contract: Capacity (2)

Qualification

of

Bidders:

R14(1)(b)/GN 97/2005:



To

qualify

to

participate

in

procurement

or

disposal

proceedings -

bidders

must

have legal capacity to enter into the

procurement or disposal contract;

Key elements in forming a Contract: Free consent

 Consent – agreeing on same thing in same sense

 Free consent – freely agreeing on same thing in same sense

 Consent is said to be free if is not obtained by  Coercion or duress  Misrepresentation  Fraud  Undue influence  Mistake

Key elements in forming a Contract: Legality

 Illegality can often invalidate a contract;

 Certainly some agreements which are

wholly illegal, such as agreements to commit a murder, will not be recognized as valid contracts

 The contract must be formed within the boundaries of the law

 Otherwise, it may be declared “NULL AND VOID”

Discharge of Contract

 General term used to denote the bringing to an end of a contract and the release of all contractual obligations

 Ways which discharge can be effected



Performance



Frustration



Acceptance of breach [Termination]

5. CONSTRUCTION CONTRACT ROLES AND RESPONSIBILITIES

Employer

_Contractor

Project Manager

RIGHTS OBLIGATIONS

OBLIGATIONS RIGHTS

Client Responsibilities

1.

• Indemnify the contractor as appropriate;

• Responsible for special risks and any work done by his workmen and omissions of the Project Manager;

2.

3.

• To approve variations;

• To pay the contractor for goods supplied; services rendered or executed works;

Contractor Responsibilities

1.

• To carry out and complete the contract satisfactorily;

• To provide, labour, materials, plant, equipment and all other things for the satisfactory completion of works or contract;

2.

• To give prompt notice to the Project Manager of any error, omission, or other defect which can be discovered during execution of the project;

3.

• Responsible for the design of Temporary works;

• Take full responsibility for the execution of the contract.

Responsibilities of PM/CM -1

1. Responsible for the correspondence on contractual issues exchanged between Employer and the Contractor;

2. Responsible for keeping an updated file with all of the documents exchanged with the Contractor and related with the execution of the contract;

3. Oversees the execution of the contract;

4. Manages the resolution of problems and up to a point of any disputes/ disagreements with the Contractor that appear during the execution of the contract;

Responsibilities of PM/CM -2

5.

Monitors

the

Contractor‘s

performance;

6. Responsible to establish a good spirit

of cooperation with the Contractor which

will lead to the achievement of

the

desired results;

7. Responsible for the closure of the

contract.

6. CONTRACT VIOLATIONS

•

One problem with contract management is

specifically how the contract is enforced.

•

When bidder doesn't provide the goods or

services promised in the contract, the

procuring entity must determine his next

actions.

•

PE can levy fines (liquidated damage) on

the other contract holder or take legal

action against him.

Disagreements

•

Two partners may use a third party to

settle difficult contract disagreements.

•

This third party may be the court

system, but the court system can

sometimes be too expensive.

•

Many parties under contract rely on

third-party arbitration

, where a neutral

third party reviews the contract and

makes a decision based on its terms.

Time

•

When

a

contract

dispute

begins,

evidence

is

required

to

make

arguments regarding the contract.

•

If the parties wait to arbitrate a

contract, it's more likely evidence will

be lost. Contract disputes should be

resolved as soon as possible

Confusion

•

Poor understanding of the contract can be

one of the biggest problems for parties.

•

If you outline a needed service unclearly

in a contract, the service provider may

make a mistake as a result.

•

A third-party arbitrator will likely rule in

the service provider's favour.

•

Contracts should clearly identify

deadlines and links between performance

and payment

Legal Troubles

•

Numerous legal issues can appear in a

contract.

•

Violations in laws or regulations can

lead to void contracts, and can lead to

legal trouble for one or both parties.

•

All contracts should be reviewed by a

lawyer -somebody who can interpret

well the terms and conditions

• The transfer of information should be done properly to avoid wrong interpretation misunderstanding and communication break down.

The system whereby information or knowledge possessed is transferred to and received in its entirety by another party.

• In contract execution has proven that problems of lack of trust or concern related with the performance of the Contractor are frequently due to the ineffective communication of those managing the contract from both sides as well as the failure to communicate .

A good communication is a structural element in the relationship between the Client and the Contractor.

Rules – Avoid Communication

Problems

1. Whenever there is a deadline for the receipt of a written communication, the sender shall take all of the necessary measures to ensure the prompt receipt of the communication;

2. Any notice, consent, approval, certificate or decision by any person required by the contract shall be made in writing, unless otherwise defined in the contract; and

3. Any verbal instructions or orders shall be put into effect at the time of their communication and then confirmed in writing.

Types of Communication

A: Informal

Communication

Is the verbal communication.

 People involved in contract execution practice verbal communication through discussion, giving and receiving

instructions.

B: Formal

Communication

Is the written communication.

 Can be in way of a letter, notice,

memorandum, or written instructions which may require an equal formal written reply.

 Should be brief, clear, simple and containing all the essential details.

Written Communication

Instructions Are orders, information or directions issued by the

PM/CM to the Provider under the powers conferred upon him by the terms and conditions of contract.

Meetings The main objectives of the meetings are to make decisions, exchange information, generate new ideas and discuss problems pertaining to the execution of the contracts.

Records and Reports

Very important especially in the event of claims relating to delays and payments.

Notices Contract documents detail type of notices to be given by whom and to whom and procedures to be followed. The normal specified method is by registered post or recorded delivery to addresses contained in the contract

Instructions

Procedure for issuing Instructions are

:-

All instructions may be issued to the

Contractor or his agent on site



All instructions must be in writing



Oral

instructions

are

not

effective

unless

the

Contractor

or

Project

Manager

confirms

them

in

writing

within a stated period



An instruction is effective from the

date of its issue or on the expiration of

the period for its confirmation

Meetings

Site meetings give the parties to the

contract an opportunity to

:



Identify

problems

and

challenges

facing the projects;



Clarify issues relating to drawings,

specifications,

schedule

and

instructions issued;



Request additional information; and



Report progress.

Records and Reports (1)

Some of the records and reports to be kept

are:



Records of any memoranda relating to

conversations, inspections, directions and

observations.



Records

of

correspondence

between

parties to the contract



Minutes

of

site

meetings

and

other

meetings



Monthly Claims Statements and all data

submitted to support such requests



Cost

and

productivity

reports

where

Records and Reports (2)

Other records and reports to be kept are:



Delivery reports of materials, plant and

equipment



Diaries, job schedules, transmittals



Drawings and specifications



Variation

orders

and

associated

documentation



Inspection reports



Accidents and site safety reports



Weather and temperature reports.

8. SCOPE OF WORKS AND

VARIATIONS

Scope of Work



Defined

as

the

extent

of

the

contractor’s responsibility to perform

certain contract work



Poorly written scope of work is a main

source of dispute and contract claims,

as well as fraud and corruption



Scope is determined from:

o Plans (drawings), o BoQ ,

Types of Variations

•

Directed Variations

•

Constructive Variations

•

Defective Specifications

Directed Variations

• Ordered by the Employer (Project Manager)

• Apply clauses in the GCC/SCC: comments on

compensation, time extensions, work proposals, scope of work, and other variation-related issues

• Parties are often in agreement as to the scope of

the variation, compensation, and time extension but claims do arise where the parties disagree with the specific terms

• Most contracts contain a provision obligating the

contractor to proceed with the disputed variation work pending a determination of the claim, so that the project does not suffer

Constructive Variations

• Occurs where the employer acts in a manner

which has the same effect as if the employer executed a directed variation order;

• The employer, through some act or omission,

caused the contractor to perform variations without issuing a formal directed variation order;

• Such variations claims depend upon an

interpretation of the contract, the parties' actions with respect to the variations performed and whether the law provides

support for the underlying basis of the constructive variation claim.

Defective Specifications

• Such claim arises where there are errors and

omissions within the project drawings or

specifications which result in changes in the work;

• Work to correct a defective design, which the

employer does not recognise as a variation, can be pursued as a constructive variation;

• Defective specifications claims depend upon an

interpretation of the contract and whether the law provides support for the claim.

• Another determining factor is whether a party should

have known that the project drawings and

specifications were defective and if they had a duty to review them.

Variations



An addition to, omission from, or change

of

scope,

specifications,

terms

and

conditions under the contract.



Executed by means of a “Variation

Order/Change

Order”

issued

to

the

Contractor

by

the

Employer

or

his

authorized agent (PM).



Under PPA 2004, all variation orders

must get approval of the respective

Tender

Board

prior

to

their

being

executed .

Variations (cont.)



Reasons for Variation:

• Inadequate designs;

• Inadequate specifications; • Insufficient detailing;

• Improvement in design and/or specifications; • Inadequate materials testing during design

phase;

• Inadequate site investigations; • Insufficient budget;

Variations (cont.)

Standard forms of contracts used in

building and civil engineering works

provide

for

variations

which

are

necessary or desirable; They cover:



Procedure for issuing variations



Valuation for variations

Variations (cont,)

Important rules to follow

:



Variations should

not vary the basic

terms, conditions and objects of the

contract.



Variations should be given in writing

(normally as variation orders);



Variations should be issued by a person

authorized by the contract to do so;



Orally

issued

variations

must

be

confirmed in writing

9. DISPUTES AND THEIR

RESOLUTIONS

Disputes



A dispute occurs when a claim by one

party is rejected by the other; partly or in

total;



If the disputes sustain for a long time, then

there is a significant increase in the cost

for

both

contracting

parties,

the

achievement of best value for money is

affected;

 Great effort must be put to create a good working

relationship which will ensure a frequent and effective communication as well as preventing the development of any sort of dispute between the Employer and the Contractor

Disputes (cont.)

Escalation Range of Dispute Resolution

Methods in terms of:



Degree of Involvement:

o The dispute may be resolved exclusively

between the two parties without any third party involved or through a third party intervention of or by court decision



Degree of Formality:

o The dispute resolution procedure may be

Payment



In normal business transactions, one pays for

services once they have been rendered or pays

for a finished product e.g. cars, furniture etc.



The payment of the Contractors for the

construction of public works and services

constitutes an obligation of the Employer, which

arises from the terms and conditions of the

contract.

Payment (cont.)

Payment Procedures

 Depending on the type and particularities of the contract different payment methods and procedures are applied;

 They depend on the Form of Contract and wording of the respective contract.

 Conditions and procedures for payments are described in the General and Special Conditions of the Contract.

 Excluding the advance payment, all of the other payments are associated with respective deliveries/ acceptance (total or partial) of the supplies, services or works.

Types of Certificates

 A: Category I – Interim Payment Certificate [Progress Certificates].

 B: Category II

 Certificate of Practical Completion [Taking Over Certificates]

 Certificate of Partial Completion;

 Certificate of Sectional Completion;

 Defects Liability Certificate [Certificate of Making Good Defects];

Types of Payments

 I: Advance Payment

 II: Interim/Progress Payment

 III: Retention Money

Guidelines for Issuing Certificates -1

PM must determine the form of the Monthly Statements (Interim & Final) that the Contractor is required to submit in order to facilitate the auditing and drafting of the respective payment certificates;

PM must check that the unit prices written in the Monthly Statements do not differ from those defined based on the contract;

PM must check whether the quantities written are consistent with the ones finally measured;

The contracts with fixed price, without quantities, PM must check that the amount that the Contractor states in the Monthly Statements as the value of Permanent Works that were executed corresponds to the percentage of completion of every component of the project defined in the Analysis of Contract Value;

Guidelines for Issuing Certificates -2

 the amount of deduction provisioned in the contract [Retention Monies until the amount deducted reaches the Limit of Retention which is mentioned in the contract];

 the amount for the repayment of the advance payment as per repayment schedule stipulated in the contract; and

 the amount of the Liquidated damages [if any].

PM may, through any IPC, correct or modify any previous certificate issued by him;

Guidelines for Issuing Certificates

-3

In a case where PM , during the review of the IPC disagrees or cannot verify any part thereof, he/she must instruct the Contractor to provide additional information or to make changes in the IPC in order to achieve accord;

PM must within the time specified in the contract issue the Final Payment Certificate; and

The amount due the Contractor based on any IPC issued by PM must be paid by the PE within the time prescribed in the contract.

Works Measurements

• It is the duty of the Contractor to measure and

of the Engineer to check all the work executed under contracts. However, it advisable that measurement to be done jointly to minimize time for checking and certifying;

• BoQs are the estimated quantities for the

works, and they are not actual and correct quantities of the works to be executed by the contractor;

• The fact that word “interim” is used should not

give both parties the chance just to present any claims. PM has an obligation to ensure that what is being claimed in the statement merits payments.

Aids for the Preparation of

Certificates

• Contract Document, Bills of quantities,

Drawings, Specifications and Conditions of Contract.

• Site Instruction (s)

• Engineers’ instructions (must be recorded and a

proper up to date file be maintained);

• Variation orders, Site sketches, minutes of

meetings, survey levels data, materials delivery records and invoices.

Each of the monthly [or otherwi se interim payment Clause 45.1 Contractor submit statement to PM Delay = Interest Clause 46.1 PE makes to the Contractor Clause 46.1 PE makes the payment to the Contractor < 56d < 28d PM check the statement PM check the statement < 28d Clause 45.2 PM issue IPC to Employer

SBD Smaller Works– Certificate Preparation, Certification and Payment

Contents of IPC

 The total amount of work properly executed;

 The total value of materials and goods delivered to or adjacent to the works [depend on the Form of Contract];

 Retention;

 Fluctuations [fluctuating contracts];  Preliminaries;

 Liquidated damage;  Day works [if any];

 Advance Payment [amount to be recovered];  Others: claims assessed, compensation events,

Key compliance issues

11. CONTRACT MANAGEMENT AS PER

PPRA AUDITS

Appropriate management of

general

contracts administration issues

•

Appropriate management of performance

securities, insurances, advance payment

guarantees (which ever is appropriate);

•

_{Timely issuance of instructions ;}

•

_{Management meetings are held (records}

Appropriate management of time

control issues

•

Appropriate extension of contract

duration/delivery period;

•

Appropriate application of remedies for

delays;

•

_{Timeliness of site possession;}

•

Quality of the project/service programme;

•

Adherence to project/service programme;

Appropriate management of

quality

control

issues

 Availability and quality of specifications/TOR;

 Appointment of Project Managers/ supervisor;

 Appropriate qualification of Project Managers;

 Availability and quality of implementation reports (service delivery reports);

 Adherence to quality assurance plan;

 Appropriate qualification of inspection committees;

 Availability and quality of inspection reports;

 Availability of quality assurance plan;

Appropriate management of scope

and cost control issues

•

Are there justifications for variations

•

_{Payment certificates are attached with}

inspection reports/measurement sheets

•

Payments made on time

•

Appropriate procedures followed in issuing

variation orders/contract amendments

Thank you for your

attention