DELAY IN HANDING OVER THE SITE

RJM wrote:

It looks interesting!

RSM, before I try to analysis this case, I would like to know whether the notification of award was given to contractor and how was it worded in terms formation of contract between the parties?

I guess that kind of contract was not in accordance with the Public Procurement Act 2004. Otherwise, the law provides for all procedures to be followed before a contractor can start works at site, this include the signing of the wriiten contract, though now days under internationally recognised use of Letter of Intent (LOI), lack of a formal signed contract can not work to favour the Employer denying the Contractor's right for the works done without any written contract.

Letters of intent (also known as heads of terms or memoranda of understanding) are commonly used in commercial transactions. They are a means by which parties to commercial negotiations document the progress of those negotiations pending completion of the final contract. letters of intent can be legally binding. Whether
any particular letter of intent is legally binding will depend on all the circumstances of the transaction, including the conduct of the parties themselves. This was illustrated in the case of RTS Flexible Systems v Molkerei Alois Muller GmbH [2008]. In this case, the Court held that a letter of intent entered into by RTS and Muller, which contained no express indication of whether its terms were intended to be binding, did amount to a legally binding contract between the parties. The court found that the comprehensive terms included and the language used meant that the letter of intent was sufficiently certain and complete to be given contractual force.


Be it otherwise, under the Law of Contract, there will be an implied contract between the parties even if the formal written contracts had not been signed. Under the Law of Contract Act of Tanzania (Cap. 346 of the Laws of Tanzania R.E 2002), contracts can be in both oral or written forms. According to Section 10 of the Act, and agreement is considered as contract (therefore enforceable) if is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not so to consitute a void contract under the laws of Tanzania.

Under section 70, the Law of Contract recognises the principle of equity by giving a right to a person who lawfully performed certain obligation to another party in an agreement with a view to be compesnated by such other party. It is provuded that " 70. Where a person lawfully does anything for another person, or
delivers anything to him, not intending to do so gratuitously, and such other
person enjoys the benefit thereof, the latter is bound to make compensation to
the former in respect of, or to restore, the thing so done or delivered:
Provided that no compensation shall be made in any case in which the person
sought to be charged had no opportunity of accepting or rejecting the benefit.". For that case, if the execution of work in the agreement between the two is contended to have been done without a writtten contract, the Court may strictly interprete the law to allow the beneficiary of the work i.e the employer to pay the contractor under the principle of 'Quantum meritus' (for 'fair price' or as much as earned) to avoid for unjust enrichment by the other party.

However, if the contract was under the Public procurement, some of restrictive provisions to make PE comply with the procedures is section 31(1) (b) and (2) of the Public Procurement Act 2004 which restricts the PE and any person or firm from entering into contract whose award has not been approved by the appropriate tender board.

Futher, Section 55 of the PPA, 2004 provides that

" (2) The procuring entity on whose behalf the tenders, offers or proposals were invited shall be notified by the tender board of the tender board’s acceptance of the tender, offer or proposal and the notice of acceptance of the tender shall be given by the procuring entity promptly to the supplier, contractor or consultant who submitted the tender, offer or proposal.

(3) The notifications referred to in subsection (2) of this section shall be in writing and signed by authorised officers.

(4) Where a tender, offer or proposal has been accepted by the tender board, the procuring entity on whose behalf the invitation for tender, offer or proposal was issued and the person whose tender, offer or proposal has been accepted shall enter into a formal contract for the supply of goods, services of the undertaking of works, as the case may be.

(5) A formal contract shall be in such form and shall contain such terms, conditions and provisions as contained in the solicitation documents, request for proposals or tender dossiers.

(7) the procurement contract shall enter into force when a written acceptance of a tender has been communicated to the successful supplier, contractor or consultant..

Under such condition, it is obvious that a notification of award to the contractor consitute a formal contract pursuant to Section 55(7) of the Act read together with Regulation . This condition is in line with section 4(2) (b) of the Law of Contract Act which provides that the communication of an acceptance is complete as against the acceptor, when it comes to the knowledge of the proposer.

In this case, a letter of acceptance of the contractor's bidder by the PE which was transmitted to the contractor without qualifying its terms, may be taken as an acceptance of the contractor's proposal (bid) based on the bidding conditions in the invitation or solicitation documents.
Though, Regulation 97 (1) & (3), (5) and (7) of the Procurement Regulations GN No. 97/2005 may give an ambiguos interpretation as to when contract is said to be in force under the PPA of Tanzania. The provision reads as follows:

"

-(1) The tender that has been ascertained to be the successful tender shall be accepted and the notice of acceptance of the tender shall be given promptly to the supplier, service provider, contractor, or asset buyer submitting the tender after all necessary in-country and outside the country approvals, required, have been obtained.

(2) Notwithstanding the provisions of sub-regulation (4), the solicitation documents may require the supplier, service provider, contractor, or asset buyer whose tender has been accepted to sign a written procurement or disposal contract conforming to the tender and in such cases, the procuring entity (the requesting public authority) and the supplier, service provider, contractor or asset buyer shall sign the procurement or disposal contract within 28 calendar days after the notice referred to in sub- regulation (1) has been dispatched to the supplier, service provider, contractor or asset buyer;

(3) Subject to sub-regulation (4), where a written procurement contract is required to be signed pursuant to subregulation (1) of this Regulation, the procurement or disposal contract enters into force when the contract is signed by the supplier, service provider, contractor or asset buyer and by the procuring entity.

(5) Where the solicitation documents stipulate that the procurement or disposal contract is subject to approval by a higher authority or a financing agency, the procurement or disposal contract shall not enter into force before the approval is given and the solicitation documents shall specify the estimated period of time following dispatch of the notice of acceptance of the tender that will be required to obtain the approval.

(7) Except as provided in sub-regulations (3), (4) and (5), a procurement or disposal contract made in accordance with ‘the terms and conditions’ of the accepted tender shall enter into force when the notice referred to in sub- regulation (1) has been dispatched to the supplier, service provider, contractor or asset buyer that submitted the tender, provided that the same is dispatched while the tender is in force.

The interpreation of Regulation 97 as cited above appears to pose a contradiction if careful referred with section 55 of the Act and Clauses 39 and 40 of the Bidding documents (instruction to tenderers/ socilitaion documents by PPA).

Clause 39 of Bidding Documents reads as follows:

" 1. The Bidder whose bid has been accepted will be notified of the award by the Procuring Entity prior to expiration of the bid validity period by cable, telex, or facsimile confirmed by registered letter. This letter (hereinafter and in the Conditions of Contract called the "Letter of Acceptance") will state the sum that the Procuring Entity will pay the Service provider in consideration of the provision and maintenance of the Service(s) as prescribed by the Contract (hereinafter and in the Contract called the "Contract Price).

"2. The notification of award will constitute the formation of the Contract, subject to the Bidder furnishing evidence of registration with relevant statutory bodies within the country and furnishing the Performance Security in accordance with ITB Clause 41 and signing the Contract in accordance with sub-Clause 402[/b].

3. Upon the successful Bidder’s furnishing of the performance security pursuant to ITB Clause 41, the Procuring Entity will promptly notify unsuccessful Bidders, the name of the winning Bidder and the Contract amount and will discharge the bid security or bid securing declaration of the unsuccessful Bidders pursuant to ITB sub Clause 18.7.

Clause 40:

1. Promptly after notification, Procuring Entity shall send the successful Bidder the Agreement and Special Conditions of Contract, incorporating all agreements between the parties obtained as a result of Contract negotiations.

2. Within twenty eight (28) days of receipt of the Contract Agreement Form, the successful Bidder shall sign and date the Contract and return it to the Procuring Entity.(These words do not mean that the signed Contract Agreement has to be returned to the PE with 28days upon being signed by the Successful Bidder)

3. Upon the receipt of the signed Agreement from the Bidder, the Procuring Entity will, within one week, notify the other Bidders that their bids have been unsuccessful.

4. Within twenty eight (28) days after receipt of the Letter of Acceptance, the successful Bidder shall deliver to the Procuring Entity a Performance Security in the amount and in the form stipulated in the Bid Data Sheet and the Special Conditions of Contract, denominated in the type and proportions of currencies in the Letter of Acceptance and in accordance with the Conditions of Contract.

RJM + Geve,

This starts to be interesting.

Related to handing over of site to a contractor. There was one practical case which came to my attention in which the Client refused to pay a contractor because they did not have a signed contract agreement. This was at a time when the contractor had already completed the work - it was a small work. The contractor was claiming that the fact that the site was handed over to them- as evidenced by the Site Handover Certificate- impliedly meant that there was a contract with or without signed contract agreement. What is your take ion this?

Whether or not the contractor has any right on this case it will always depend upon the wording of a particular contract between the parties. However, the general rule is that the delay by the Employer/ Client to hand the site to the contractor by the date provided in the contract can amount to the breach of contract for which the contract can claim for damages as a remedy to place him at the same position as if all terms of contract was complied with by the employer.

For that regard, delay in site possession has an impact in the delay in the whole of the project. Therefore, the Employer can not insist on the contractor’s compliance with the completion or intended completion date while knowingly that the works have been delayed by his fault for not giving site possession by the start date.
Time in construction project.

It should be noted that time is very important for those engaged in contraction projects. Time determines when the work has to start and finish on site, the longer works takes, and the more expensive it is to carryout. Therefore time is important to be considered by both parties in the contract. Normally contractors is required to completed works either at specified or by the specified time. If the contract does not provide for a specific completion date, then there will be an implied obligation in the contract under the common law that contractor has to carryout the works regularly and diligently and complete the same within the reasonable time. What is reasonable will depend upon a particular contract between the parties.

The contractor’ obligation to carry out and complete the project by a specified date is often accompanied by an obligation to produce a programme and to keep it up to date. Although there is no any express or impliedly obligation under the construction contract for the Employer to perform his duties under the contract so as to enable the contractor to complete the works within the time specified in his programme, the Employer has an obligation to ensure that the contractor is not interfered in whatever way from progressing with works in a regularly and diligently manner.

(NOTE: In one case of of Glenlion Construction Ltd - v- The Guinness Trust (1987) 39 BLR 89 the whether the Employer has an obligation to facilitate the conttaror to achieve the target of completing the work as planned in the contractor's program. The court was of the views that under the construction contract, the contractor is merely free from any contractual restraint and may complete earlier. the Employer or agent at site have a duty to co-operate so as to enable the contractor to do works in accordance with the contract including issuance of necessary information and giving the site possession by the agreed start date . However, the fact that the employer must not prevent the contractor from doing works does not mean that the employer is bound to facilitate in a positive way the implementation of the contractor's privilege or liberty including his plan to complete the work earlier before the Contrat Completion date).

Compliance with Start Date

The legal requirements as to completion will require the contractor to start works by the Start Date provided in the contract. For example under Clause 2 of General conditions of the Contract (GCC) in the standard contract by PPRA (Small work) defined start works to mean:

The Start Date is given in the Special Conditions of Contract. It is the latest date when the Contractor shall commence execution of the Works. It does not necessarily coincide with any of the Site Possession Dates.
Clause 18.1 of the GCC states that the Contractor may commence execution of the Works on the Start Date and shall carry out the Works in accordance with the Programme submitted by the Contractor, as updated with the approval of the Project Manager, and complete them by the Intended Completion Date.
Clause 47.1of the GCC described delay in the Site by the Site Possession as amongst compensation events.
In this aspect, then if the contractor was not handled over the site by the Start Date, he a legal right to claim for “extension of time” and loss and or expenses (if at all there are any incured).

In some Standard form contracts, it may be provided that the “The Employer has to give possession of the Site to the contractor as defined in the Contractor’s approved work program. If possession of a part is not given by the date stated in the approved work program, the Employer will be deemed to have delayed the start of the relevant activities, and this will be a Compensation Event “ Under the situation, the contractor will be required to give notice to the Engineer/Architect on the cause, circumstance and effects of such delay so a to enable the Engineer/ Architect to evaluate the situation and decide whether or not to allow for EOT and for the payment of any compensation for loss and or expenses due to the delay caused by the Employer.

However, it should be noted that extension of time claim (EOT) does not automatically lead to entitlement to compensation for loss and expenses and vice versa. For the former, the Contractor has only a burden to prove that the completion was delayed by the factors which are beyond his control (employers risk events or neutral events such as weather) while in the later case, the contractor has to prove the following (i) existence of one or more events for which the employer is responsible (ii) the existence of loss and expense suffered by the contractor; and, (iii) a causal link between the event or events and the loss and expense.
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