GOVERNMENT PROCUREMENTS FOR CONSTRUCTION

WORKS IN ETHIOPIA: Analysis of the Legal Gaps

Tegbaru Terefe*

Abstract

Construction industry development is seen as a parameter of civilization in any nation. So, those
developing countries like Ethiopia are striving to attain their at most achievable goal.
Consequently, they allocate considerable sum of their annual budget for construction sector.
Allocation of huge amount of money does not warrant success unless appropriate use is assured.
Hence, the procurement system devised thereby plays a prominent role. Thus, the study
emphasizes on the public works procurement system and its implication on the value for public
money, quality of construction works and timely completion. The study utilized qualitative
method focusing on the laws and practices. Review of studies available, analysis of laws, use of
data from official reports, interviews, and field observations have been conducted.

Thus, the country lacks procurement framework suitable for the peculiarities of the construction
sector. Public works procurement is not like purchase from the shelf since it has many
complexities. The client (employer) aspires for cost minimization, quality work and timely
completion of the work. On the other, hand the contractor desires for lucrative profits as much as
attainable. Owing to these antagonistic interests tendering process is devised as remedy. In
Ethiopia also, open tendering is set as a default procurement mechanism for public procurement
though, the competitiveness of the market is hammered by undue government involvement (as
client, contractor, and regulator). Moreover, scattered laws end up in confusing actors in the
sector and practical inconsistency. The illusion also paves the way for corruption and misuse of
public fund. Accordingly, the country is advised to devise comprehensive laws considering
peculiarities of construction sector. The laws should also target in providing platform for
competitive market by avoiding undue government involvement. Nevertheless working hard on
systematically alleviating ethical problems is vital to develop the sector.
Key words: Construction works, public procurement, tendering process, corruption

1
*LL.B, LL.M, Dean, School of Law (Mizan-Tepi University), former public prosecutor, justice
department head and high court judge in SNNPRS for brief times.

1. General Remarks:
1.1. Meaning of Procurement Law
In general terms procurement is a mechanism of exchanging something valuable with another
proportional thing. Particularly in construction sector;
Think back to Rome - it wasn't built in a day, and it certainly wasn't built without
effective suppliers. It was the same with the Pyramids - some form of procurement
strategy would have been needed as part of the major construction projects supply chain.
Although it's likely that these procurement practices were much simpler, more corrupt
and involved slavery, the work they completed still stands today, indicating that
thousands of years before modern technology, strong supply chains could still be a
reality.1
In the beginning barter was the way of exchange, but mankind through time evolved to exchange
of goods or services only by clicking a button and bit coins are being used as currency in the
developed nations. In the primitive society, there was no cash; the exchange was things for
things. In this post-modern time also we have returned to cashless transaction. E-commerce has
been introduced and the current development in information technology seems endless.
Therefore, the legal framework regulating procurement needs to be dynamic to changes and keep
pace of the contemporary developments.
In private procurement, an individual will take due care for his bargains to transact as it will
directly affect his purse. But, in public procurement the public acts through its employees who
have fiduciary duty to act loyally. Latter on this situation is believed to pave the way for in
efficiency and corruption of government procurement system. The concept of tendering as an
innovation of the modern era comes up as a solution for the problem. Tendering has evolved
through different situations.

1
www.achilles.com/en/about-achilles/industry/insights/3477-how-has-procurement-evolved-over-years

2
 For instance, in England the in18th century government carried out works by directly employing
labor.2 In the 1900s, the government used to employ contractors to carry out capital construction
works and it used to employ directly laborers for ongoing maintenance works.3But, this situation
did not keep right as the First World War made labor more expensive for the government and it
was followed by great depression which created unemployment.4 The Second World War
followed in the 1940s and labor became expensive again.5The 1950s in Europe was the time of
re-construction of the economy which fails due to successive war and depression. This situation
needed much labor. But in 1960s stable society who knew what to work independently was
created. The freedom of employee extended too much, which caused need of higher wage and
strike here and there, was common.6 This condition necessitated the introduction of compulsory
competitive tendering in England in 1980s. In this time
The local authority was not allowed to employ staff to carry out certain activities (for
example, highway maintenance, grounds maintenance, refuse collection) unless the
authority had sought tenders for the work.7

By doing so, the local authority demonstrate that they considered the best value for money by
employing the cheapest labor as much as possible. This gives relief for the government as private
contractors take the responsibility which is driven by profit.8

The trend in other jurisdictions is not such different and to date compulsory tendering for the
public works is common in most countries. Tendering process is devised for fair access of public
funds, is believed to provide best value for money and brings efficiency. In same way it reduces
work load of the state machinery as the private contractors take the responsibility for lump sum
of money.

2
Philip Sayers, competitive tendering, management and reality, (1997, institute of leisure and amenity management)
5
3
Ibid, 8
4
Ibid
5
Ibid, 10
6
Ibid, 12
7
Ibid
8
Ibid
3
 1.2. Development of Procurement System in Ethiopia

The historical development of public procurement system in Ethiopia is not unique to the above
general overview. The exchange system is believed to commence by bartering, and developed to
different kinds of sale. Regarding the government procurement system, it is difficult to pin point
the historical development of procurement system as there is no systematized documentation to
be accessed. Practically, after designation of Addis Abeba in 1886 as a capital of Ethiopia,
Emperor Minillik II started to develop infrastructures like rail ways, roads, hotels and different
government offices as part of transforming the country to modernization. During Hailesilasie
Regime Imperial High Way Authority was established which was entrusted with road
construction works.9 The authority used act as operational and regulatory body. Obviously,
foreign contractors were also part of most road constructions in Ethiopia. But, the legal
framework was yet not introduced. On the later days of Emperor Hailesilasie, the Civil Code of
the Empire of Ethiopia was enacted which includes public procurement among other things. As
provided under article 3147 of the Code, there is possibility of concluding administrative
contracts by tendering process. In the Civil Code regime tendering is provided as only one
option. In 1996 Federal Financial Administration Proclamation no.57/1996 was enacted which
contained public procurement and contracts with public bodies. The federal financial
administration regulation no.17/1997 by the council of ministers and directive of June 1997 of
the Ministry of Finance followed the proclamation. Institutionally, procurement unit under
Ministry of Finance and Economic Development later on upgraded to department which run
activities like; procurement supervision, purchase of government assets and follow up bidders
complaints.10
The year 2005 is a benchmark for the procurement rules, as proclamation no.430/2005 has
provided detailed provisions for the federal government procurement system. Accordingly, open
bidding was provided as default federal government procurement system. 11Other forms can only
be employed when the law expressly provides so with exceptional circumstances. Restricted
tendering, direct procurement, request for proposal, request for quotation and two-stage tendering

9
Rony Emmengger, Roads of decentralization the history of rural roads construction in Ethiopia, working paper, (
2012, NCCR North-South Dialogue, no.39) 9
10
Ethiopian country procurement assessment report, (2003, African region operational quality and knowledge
service, The World Bank) 3
11
FDRE federal government procurement proclamation no.430/2005 art.25(1)

4
are provided as an alternatives and the procedures for each kind of government procurement is
provided in the proclamation.12
With only four years’ service the above proclamation was repealed and replaced by the new
Ethiopian federal government procurement and property administration proclamation no.
649/2009 which defines procurement as “obtaining goods, works, consultancy or other services
through purchasing, hiring, or obtaining by any other contractual means.”13The proclamation
included property administration which is not in the previous one. It is so detailed and has
delegated FDRE Council of Ministers and the ministry of Finance and Economy Development to
enact regulations and directives to apply the proclamation respectively. Therefore, currently the
federal government procurement system is regulated by the proclamation no.649/2009 and the
regulation and directive which emanate from it. Moreover, as neither proclamation no.430/2005
nor the new proclamation directly repealed the relevant civil code provisions regarding
administrative contracts (art.3131 - 3306) and contract of work and labor relating to immovable
(art.3019 - 3040) this laws will be also applicable as far as it is in conformity with the above
provisions of the proclamation. In the new proclamation too, open bidding is provided as default
procurement method and unless otherwise provided other methods should not be employed.13The
proclamation is applicable for all federal procurements as provided under its art.3. But, the same
article sub art.2 provides for exclusion of procurements regarding national security or national
defense from its scope. The main reason here is related with its sensitive nature. The aim of the
law maker in this regard is not to leave such procurements unregulated, rather it is intending to
have special directive to be enacted by the minister that will consider its sensitive nature and
national interest at large. But, in fact the directive is not yet enacted and the issue is left
unregulated. Moreover, the law excludes procurement between public bodies.14As will be
illustrated latter on, this exclusion has confusing effect in practice, as most procuring authorities
interpret the meaning of public bodies as if it includes public enterprises. In fact, the meaning of
public bodies in the proclamation is clear and it only includes government agencies which run
their activities by federal government annual budget.15

12
Ibid art.25(3)
13
FDRE federal government procurement and property administration proclamation no.649/2009 art.2(5) (here in
after called the proclamation) 13 Proclamation no.649/2009 art.33(2)
14
Ibid., art.3(2) (b)
15
Ibid art.2(6)

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The proclamation has adopted the following as its principles of procurement. Ensuring value for
money in the use of public fund for procurement, non-discrimination among candidates on
grounds of nationality or any other criteria not having to do with their qualification except in
cases of preference specifically provided for in this Proclamation, transparency and fairness of
the criteria on the basis of which decisions are given in public procurement as well as of
decisions in each procurement, accountability for decisions made and measures taken with regard
to public procurement and property administration, careful handling and proper use of public
property are provided as a basic principle of public procurement and public property
administration.16But, the law misses the main objective of public procurement; fair access to the
public fund. The principles are subjective and the way how it should be attained is not clearly
provided. The directive repeats the wordings of the proclamation without devising how those
principles can be attained.17The main goal of any directive is to put the provisions of the
proclamation in detail and workable manner, but in this regard the directive fails to do so. Simply
art.5 of the proclamation is repeated under art.4 of the directive which does not make sense. The
proclamation is applicable for all kinds of procurement; goods, services, works and consultancy.
The relevant provision reads as; “This Proclamation shall apply to all Federal Government
procurement and property administration”.18And public procurement includes; obtaining goods,
works, consultancy or other services through purchasing, hiring or obtaining by any other
contractual means.19Hence, it follows „one-size-fits-all‟ principle. For instance, construction
works and consultancy services thereby have their own specific and technical conditions of
procurement which is not duly treated in the proclamation and the directive. Moreover, the
proclamation has established an agency which will regulate the procurement system of the
federal government.20And regulation no.184/2010 has established the federal public procurement
and property disposal service which is the operational body. Thus, there is a single body at
federal level for all kinds of procurements. The main reason proposed by the government is its
simplicity to control mal-practices and corruption in public procurement. But, critics argue
otherwise. They argue that the procurement system is entrusted to non-professionals in each kind

16
Ibid., art.5
17
The Procurement directive of MoFED 2010, art.4
18
Proclamation no.649/2009 art.3(1)
19
Ibid art.2(5)
20
Ibid art.12

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of procurements and it is prone to misuse of public fund as officials in the agency lack technical
knowledge. Accordingly, practical failure was reported successively. But currently the problem
is managed by attaining participation of respective sectors for technical support.21 For
construction contracts the agency first hires a consultant and the consultant provides technical
support by preparing the bid document for contractors which entails double cost.22

1.3. Tendering Process

a. Meaning of Tender

The terms tender, bid, quotations, and proposals though not one and the same are used
interchangeably in literatures.23

Tender is an offer by a contractor, usually in competition, which is accepted without any

material qualification by the employer, will form a binding contract. The architect
usually invites a number of contractors to tender on a form specially provided for the
purpose. The contractors have a stated time in which to prepare their tenders and a date
and time by which these must be deposited with the architect. Tenders must be returned in
unmarked envelopes. Sometimes a priced bill of quantities must also be provided in a
separate envelope so that it can be returned unopened if the tender is unsuccessful.24

The dictionary of property and construction law defines tender as; “…An offer made by a
contractor and requested by an architect to carry out the building works in accordance with the
design information for a certain sum of money.”25This definition is not comprehensive as it starts
from the reply of the contractor for the invitation for tender from employer and it restricts to

21
Interview with Yosef Arfaso, Legal service work process, at federal public procurement and property disposal
service, MoFED, Addis Abeba, April, 21/2015
22
Ibid
23
Needless to explain their slight difference I prefer to use tender as it is in common usage.
24
Building contract dictionary, (n 84) in ch2
25
Dictionary of property and construction law, (2002, Spon press)

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tenders for construction contracts.26 Therefore, tender is an offer which has ability to grow in to
contracts where it is accepted by the employer. Thus, tendering is not a single act; rather is a
process of selecting the best contractor in terms of cost (best value for money), quality, time and
other relevant conditions. The same dictionary defines tendering process as; “The process of
inviting bids by tender, receiving, considering and usually accepting one.”27 The elements in this
definition have much significance to understand the concept of tendering process. The first
element is invitation which entails preparation of identical tender documents stating details about
the subject matter of the bid and sending or publication through advertisements of the tender
documents to the selected competitor or to anyone who meets the criterion.28 The second step is
receiving replies from the bidders. The reply for the bid is an offer to be bound by the terms of
the tender if welcomed by the employer. And it should only be submitted in due time for the late
entry will not be considered.29The next step will be consideration of the tender. This is the duty
of the employer and it needs due care while filtering among the number of competitors. The last
step is accepting one among the competitors and awarding the contract.

Tendering process is the preliminary action in the formation of most public construction
contracts. In construction contracts the owner or employer of the work needs as much as possible
the highest quality, list cost in price of works and due time completion of the work and these
three elements are related in one or other way.30 Unfortunately, this is not always possible and a
compromise has to be sought, based on the client's priorities.31Lowest price is normally used as
the sole criterion only in awarding low-value and relatively low-risk contracts. For other
contracts, authorities generally prefer the concept of the most economically advantageous
bid.32This can be defined as the tender that offers the best value for money taking account of
technical merit and quality as well as price and cost-effectiveness.

26
The term here is defined narrowly but, it is preferred as it much with my specific study and in the broader sense
the term may have wide meaning as the process of buying goods and services of any kind by sending invitation for
tender and accepting offer.
27
Dictionary of construction and property law, (n 25 )
28
Ibid
29
Sayers, (n 3 ) 28
30
Aqua group, (n 1)
31
Ibid
32
Harold Lewis, Bids, tenders, and proposals, (2003, kogan page limited) 12

8
On the other hand, the contractor is eager to gain lucrative profits as much as he can attain.
Therefore, this conflicting interests need way out to be reconciled and the best way invented is
tendering process. Quality, cost and time of completion of the work are terms to be agreed in the
way of construction contract formation. The contract of public work will be awarded for the
contractor who provides for the list cost, best quality and shortest possible time to complete the
work or a tender who provides most economically advantageous terms. Best value for money is
the corner stone in the process of tendering and it is attained by creating competitive
environment for contractors.
Tendering process should be compatible with ground principles of public procurement.
Transparency, accountability, objectivity, fairness and non-discrimination are internationally
accepted principles of public procurement. These principles, if properly adhered to, provide best
value for public money and induce efficiency in the public procurement system.

b. Offer and Acceptance in Tendering Process

Contract comes into existence when a valid offer has been unconditionally accepted. However,
literally offer is confused with invitation to treat. Invitation to treat does not amount to offer as it
lacks certainty and the intention to be bound. It is simply an indication that the inviter is willing
to enter in to negotiation but is not ready to be bound immediately by the terms. 33On the other
hand offer is a clear, certain and extensive term and is intended to be bound by the terms as soon
as it is accepted by the counterpart.
With this in mind, let’s come to tendering process. Tendering process commences by an
advertisement which contains a brief description of the location, the type of work being
proposed, the scale and scope of the work proposed and other relevant facts.34Hence, such
advertisement is not an offer; rather it is considered as an invitation to treat, or as the civil code
of Ethiopia provides under art.1687 (1) it is only declaration of intention. According to the above
provision, declaration of intention should not be made known to the beneficiary of the
declaration. Then, acontraro reading will give us; if the declaration of intention is made known
to the beneficiary it will amount to offer. One example of declaration of intention provided under
33
Cavendish law series, Essential contract law, (Cavendish publishing ltd, 2004) 13

34
Ibid

9
the civil code is sale by auction.35The phrase „made known to the beneficiary‟ may bring
controversies in this regard. In open tendering process the beneficiaries are made to know the
declaration through advertisement and at least it can be argued that, the list bidder should oblige
the tenderer to sign the contract as he has known the intention of the tenderer through
advertisement.
On the other hand, it can also be argued that the above phrase should mean to
„Identified beneficiary‟ and advertisements do not identify beneficiaries as they are open to the
public like price lists or catalogs as stated in art.1687(b) of the Civil Code. In sum, the plausible
argument is that advertisement is only invitation to treat or declaration of intention as it is not
directed to identified person and all terms are not included in most cases. But this may not be
always true, as for instance in England it is held that if request is made to specific parties and if
stated that the contract will be awarded to the lowest bidder then this will be binding as unilateral
offer.36 There is also dead provision in the civil code art.3249 which states; “After the
competition, they shall be free to allot the contract to whom they think fit, unless they have
expressly undertaken to choose the competitor who is ranked first.”
Acontraro reading of this provision clearly shows that if the public body states in the bid that it
will award the contract for the first bidder, then it will be binding as a unilateral offer. This
provision is not operational as the public bodies tend to enjoy their prerogativeto be on the safe
side until the contract is signed. Even they often insert express clause in the advertisementsaying
that they have the right to reject wholly or part of the bid.
Coming to the common trend in tendering process, the offer is the tender. A contractor expects to
receive an acceptance in clear terms from the client or his advisor. Therefore, unless the above
exception is met the inviter is not bound by his advertisements or invitations. Moreover, a client
seeking tenders is not bound to accept the lowest or any bid. The reply for the invitation,
therefore, cannot lead to automatic conclusion of contract like any other ordinary contracts,
rather it is an offer.37

Consequently, an acceptance in tendering process will be the letter of the employer of the work
which states the winner of the bid.

35
Civil code art.1689
36
John Adriaanse, Construction contracts, (3rd, Palgrave Macimilan,2010) 9
37
Cavendish law series, ( n 33) 5

10
 A letter of intent is often used to let a contractor know that he should prepare to start
work. This statement should state clearly that all work carried out by the contractor and
specialists, even if the contract does not follow, will be paid for in full.38
From this we can infer that letter of acceptance will not automatically create a contract. In
ordinary contracts once an offer is accepted validly there will be automatically a contract. But in
the case of tendering process the existence of valid offer and acceptance is still preliminary for
the formation of contracts. Once an offer is accepted the parties need to reduce their agreement
into formal contract, often in a written form. The relationship of client and contractor in between
the conclusion of the contract and the letter of acceptance will be regulated by other relevant
laws like law of restitution (unlawful enrichment).

Once tendering is opted as a relevant form of procurement, then the next step is to select one
form of tendering. Commonly employed types of tendering include; open tendering, single-stage
selective tendering and two-stage selective tendering. All types of tendering have their respective
advantages and downsides.
Open Tender; as its name indicates it is open for every interested party. Any service provider
may submit a tender in response to the contract notice. This procedure can have disadvantages
for authorities in terms of the time and resources needed to process what might turn out to be an
inordinate number of bids, and may lead service providers to question the likely quality and
thoroughness of the tender evaluation. On the other hand, it can provide an opportunity for
authorities to learn about sources of expertise and solutions that they might not have considered.
It is indiscriminate and costly as it needs broad advertisement. Besides, selection is hard as there
will be many bidders.39This approach can be unprofitable because there is no reliable method of
ensuring high quality building. Research has shown that, in England with open tendering, only
about one in twenty contractors‟ bids are successful.40
Single-stage Selective Tender; in this kind of tendering the service provider has first to submit
an expression of interest or a request to be selected as a candidate for tendering. The contracting

38
Martin Brook, Estimating and tendering for construction work, (3 rd edn, Elsevier Ltd, 2004)

39
Adriaanse, ( n 36) 7
40
John Murdoch, Will Huges, Construction contracts law and management (3rd edn, Spon Press, 2000) 121

11
authority then invites tenders from the pre-qualified candidates. In an urgent and exceptional
situation, this process may be accelerated and the reasons justifying acceleration must be
explained in the contract notice.41This type of tendering restricts the number of bidders in
different ways.42General skill, experience, financial standing, integrity, proven competence to
statutory health and safety requirements and quality assurance systems may be the basis for
selection.43 Therefore, single-stage selective tendering has the advantage of avoiding
confrontation with inexperienced bidders and the completion of the work will not be at risk as the
financial standing will be previewed. But to the contrary the environment for competition will
not be efficient as the ground is not plain for all interested bidders.
Two-stage Selective Tender; in this case the contractor will involve in the work early before the
full scheme is designed.44 The employer will get the chance of utilizing the contractor’s expertise
in designing the work. The first step will be conducted based on competitive pricing but the full
information will not be rendered.45This kind of tendering is relevant for large and complex
buildings where the design and the work will sometimes overlap.

c. The Case of Ethiopia

As aforementioned, in principle a public body is required to conduct its procurement in open

tendering process. Accordingly, short summary of the process is presented as follows based on
its merit. According to Article 35(1) of the Proclamation No.649/2009 advertisement of the
invitation to bid is the first step in open tendering procedure. The advertisement must be in the
national newspaper of general circulation with the language which the document for bid is
prepared at least once. Newspaper is opted simply for its relative low cost of advertisement. But,
it has disadvantage of reaching possible candidates as the country lacks reading habit and the
access of newspapers is restricted to the main cities only. Rather the national television and radio
are more accessible to the public than the news papers. Hence, the cost of advertisement and
creation of good competitive environment need to be balanced as much as possible. However, the

41
Harold Lewis, Bids, tenders and proposals (Kogan page ltd, 2003) 11
42
Brook, (n 38)
43
Ibid
44
Ibid
45
Ibid

12
public body may advertise in the national radio and television if it is deemed necessary.46In sum,
the way of advertisement matters for the creation of competitive environment and the overall
outcome of the tender. Moreover, as provided under Art.36 of the Proclamation the invitation to
bid should be prepared in accordance with the standard bidding document and should contain the
name and address of the public body, a brief description of the goods, works or services to be
procured, the means and conditions for obtaining the bidding documents and the place, from
which they may be obtained, the place and deadline for the submission of bids, and the place and
time for opening of bids. Along with an announcement those bidders or their representatives are
allowed to attend at the opening of bids. Similarly,Art.37 of the Ptroclamation states that the
bidding document should contain sufficient information to enable the competition complete,
neutral and stated with objective terms.
Art.40 provides for bid security. In public procurement irresponsible bidders are discouraged by
sufficient security termed as bid bond. Consequently, Art.41 illustrates about the submission and
receipt of bids. Then, the bid will be opened pursuant to art.42 of the proclamation. The time
stipulated in the bidding document for opening of bids will be immediately after the deadline for
submission of bids and the public body shall open all bids received before the deadline. The
name of the bidder and the total amount of each bid, discounts offered and any such information
as the public body deems necessary to let the bidders know their relative rank shall be read out
aloud and recorded and a copy of the record shall be made available to any bidder on request.
Similarly, the envelope containing the price offered by the bidder shall be read after the
evaluation of the technical proposal where technical and financial proposals are submitted in two
separate envelops.
Then, examination and evaluation will follow. Since tendering process is one of the vulnerable
areas for corruption, the representatives of the public body are expected to act transparently and
impartially. Transparency begins from the way of advertisement of the tender and all the way
then after should be clear to bidders and other relevant bodies. The procuring authorities are duty
bound to reason out their decisions at any stage of the process. And impartiality entails in
avoiding discrimination among bidders based on unrelated factors to the public work at hand. All
the decisions must be based on economic factors and public interest. Confidentiality is used as an
instrument to avoid all the vices in the process.

46
Proclamation no.649/2009 art.35(2)

13
The examination and evaluation is vital phase of the process and should be done with due care.
After all the successful bidder will be the bid that is found to be responsive to the technical
requirements and with the lowest evaluated price if the public body has so stipulated in the
bidding documents. Or the bid offering better economic advantage ascertained on the basis of
factors affecting the economic value of the bid which have been specified in the bidding
documents which factors shall to the extent practicable be objective and quantifiable, and shall
be given a relative weight in the evaluation procedure or be expressed in monetary terms
wherever practicable. This will be the end of tendering process and the next step will be
conclusion of the contract to be discussed latter on before that let’s evaluate some legal and
practical loopholes in open tendering process.
2. Practical and Legal Downsides in Open Tendering Process of Construction works in
Ethiopia
Government construction in Ethiopia can be broadly classified as; road, water supply and
irrigation, power, and other public works47 among which the road sector alone consumes 1.2
billion dollars per annum which is almost 20% of the annual budget.48Thus much of the public
money is spent for public works every fiscal year and the law needs to ensure the effective and
efficient use of the tax payers’ purse. In this regard, both proclamation no.649/2009 and the
directive followed it have provided for internationally accepted principles such as transparency,
accountability, fairness, objectivity and non-discrimination in public procurement process.49
Confidentiality of the process is one tool to attain these principles. The principle of transparency
helps to attract a greater number of participation, thereby encouraging competitiveness. It also
makes the whole procurement process open and fair, thus avoiding the possibility of favoritism
and discrimination. Transparency also makes it easy for procuring entities and officials to be
accountable. Most importantly, it is an effective tool to curb corruption.
The above being what the proclamation provides, critical insight of the provisions shows the
contrary. For instance, art.3 of the proclamation which provides for scope of the law states that
the proclamation is applicable for federal government procurement. And the subsequent sub-
articles exclude procurements affecting national security or national defense and procurement

47
This includes; public health care centers, educational institutions, and other office services for administrative
purposes.
48
Hamish Goldie-scot, Construction sector corruption in Ethiopia (international bank, re-construction and
development/world bank, 2012) 251 49 Proclamation no.649/2009 art.5
14
between two public bodies from the ambit of the Proclamation. Regarding national security the
relevant public authority is authorized to issue directives for regulation of such procurement. The
first exclusion is logical because of its sensitivity to security of the nation. But the second
exclusion (art.3 (2) (b)) seems unnecessary. Moreover as art.2 (6) defines public body as partly
or wholly financed by the federal government budget, there is possibility of including joint
venture of government with private sector, which will unduly benefit individuals in the joint
venture with government.
Agencies wholly or partly financed by regional government budget are overlooked by the
definition as the proclamation is concerned with federal government procurement. But, the issue
will be complex when the regional government agencies involve in federal government
procurement by buying goods or services. Either, the regional government agencies financed by
regional government budget will be analogized with the federal government agencies financed by
federal government budget where the case will be out of the ambit of the proclamation and the
transaction will remain in vacuum, or the regional government agencies will be excluded as the
provision clearly claims „federal government agencies‟ in which the former will be considered
as private enterprises when they involve in federal government procurement system. The latter
argument seems plausible as the exclusion for the federal government agencies itself is not
tenable.

The second exclusion is great threat for competitive market which has tremendous role for
efficiency of procurement and there is no genuine economic vice if the public body competes
with private enterprises in public procurement. Either, the proclamation should have devised
special regulatory frame work if the procurement is as between the public bodies.

Worst of all, there is common tendency of considering public enterprises as public bodies. Now,
the issue to be expounded is whether a public enterprise is public body in the sense of the above
provision or not. In Ethiopia, public enterprises are established by proclamation or regulation and
have their own capital. To list some of public enterprises which take part in construction
industry; Ethiopian Road Construction Corporation, Road Construction and Design Share
Company, Ethiopian water works enterprise at the federal level are mentionable at the federal
level for the situation is the same in the regions. For example in the SNNPR South Water Works

15
Enterprise, SNNPR Housing Development Enterprise as a contractor and South Design and
Construction Supervision Enterprise as a consultant take the lion share of the construction
industry in the region. In both federal and regional enterprises the government is acting in its
private capacity and there is no direct budget allocation for the enterprises. Of course, the
government may subsidize the enterprises when they fail to be a going concern in some
situations as the enterprises are established mainly to bridge the gaps of the private sector.49 But
this does not mean that, the public enterprises are wholly or partly financed by the government
budget.

These being the logical inference, practically public enterprises are not competing with private
contractors and are not regulated by the proclamation.50 Public enterprises are the first choice and
capture public works on unfair terms often on a single-source base.51At federal level either the
public enterprises are unduly favored in tendering process or mostly the contract is awarded
without making competition with the private enterprises.52And the contract is regulated by
exchange of letters among the procuring authority and public enterprises.54 Regionally, For
example in SNNPRS the South Housing Development Enterprise and the South Design and
Construction Supervision Enterprise involve in most of public construction works in the region
without competition with private contractors and consultants and the contract is administered by
administrative actions.53Extensive interviews with the official in the SNNPRS design and
construction authority which is regional regulatory body in the construction sector reveals that
public enterprises are considered as public bodies wholly or partly financed by the government
and excluded from the ambit of the proclamation above.54The SNNPRS road authority works
otherwise. In the Southern Road Authority in the construction of roads all private contractors are
invited to bid through open bidding for works which are above the capacity of the operational

49
In this regard FDRE public enterprises minister; Damitu Hambisa claims that; the role of public
enterprises is encouraging the private sector by playing appropriate role in the economy. See the details
on; www.theworldfolio.com/interviews/soes-plug-private-sector-gaps/3895 accessed on Jan 18/2017, 6:00pm
50
Roger Calow et.al, Rural water sector corruption in Ethiopia, World Bank (2012) 137
51
Ibid
52
Interview with anonymous person in federal public procurement and property disposition service, Addis Ababa,
April, 23/201554 Ibid
53
Interview with Ato Wendimagegn Solomon, quantity surveyor, design and contract administration work process,
SNNPRS Design and Construction Authority, Hawassa, Feb,19/2015
54
Ibid

16
wing of the authority as there is no public enterprise in the road sector in the region. 55 For
consultancy service the South Design and Construction Supervision enterprise competes with
other private consultancy firms and the contract awarding is regulated by the regional
procurement proclamation.56

The practice of the SNNPRS Road Authority seems plausible and should be a lesson for others
regions. This is because as discussed above the main principle of the proclamation is best value
for money, then nothing is wrong if the public enterprise compete with private contractors.
Moreover, researches indicate that state owned enterprises are less efficient and higher in
economic cost.57 Competition provides efficiency of procurement and thereby provides best
value for money. As provided in the definition public body may also include private element.
The amount of public share is not limited to consider the corporation as public. The only
indication is part or whole fund of the federal government. Therefore, part may be 1% or 99% in
reality. The situation will unduly benefit individuals who are jointly investing with public
enterprises. By the same token public enterprises may also sub-contract or assign the work for
private companies in unregulated manner.

Therefore, the best approach is to make the public enterprises out of the meaning of public bodies
as they are financed by their own capital and the subsidies from government should not be
understood as part finance by the government as it is only used to support the enterprise work
competitive. Though officials58maintain that the role of public enterprises is to play as a role
model and encourage the private sector, the reality is paradox since publicly owned enterprises
are neither acting as role models (reported to be inefficient and costly) nor encouraging the
private sector.

The other problem in the government procurement system regarding the construction industry is
related with the code of conduct of the public officials. There is no separate instrument providing
55
Interview with W/ro Tigist Guracha, Office Engineer, regulatory work process, SNNPRS, RRA, Hawassa,
feb,23/2015( according to her information, there is plan to change the current operational core work process to
enterprise in the future which is already accomplished by other regions like Oromia, Tigray, and Amhara regional
states)
56
Ibid
57
Roger (n51) 137
58
See not 50 above

17
for code of conduct for government procurement in general and tendering process in particular.
The powers and functions of the procuring officials are only retrievable from the proclamation
and the directive discussed above. There is lack of awareness about the procurement system in
the construction industry from both the government sector and private stakeholders. For instance,
there is no legal expert within the construction contract regulation work process in the SNNPRS
Design and Construction Supervision Authority (DCSA). The government procurement laws are
unknown to the contracting officials and they stick to long developed practices in the industry.
The main reason here is multiplicity of enabling acts which may be changed overnight and the
civil servant in Ethiopia is not accustomed to updating with contemporary changes or those
documents are not accessible to them in most cases.59In the same way the private sector
involving in the public works bid are not aware of the laws and directives in the area. The habit
of consulting lawyers is not yet developed. Nevertheless, rumor of corruption is common in
every bidding process. The private sector lacks awareness about rights and obligations thereby
and is exposed to corruption.

The other pitfall is lack of fairness. Both contracting parties are not in equal footing in formation
of public construction contracts. As discussed above the advertisement to tender does not amount
to offer and the public body is at liberty to withdraw at any time. On the other hand, the bidder
for the construction contract is expected to buy the bid document and furnish security to
conclude a contract if he wins the tender. Art.16.6.2 of the directive provide for the bid bond
which is not less than 0.5% and not more than 2% of the suggested value of the total work to be
done. The maximum limit for the bid bond is 500,000 birr any ways. Thus, the public body is
secured for the transaction by the bid bond. Any irresponsible bidder will lose the bid bond.

On the other hand, the bidder will incur valuable cost in the process of bidding. The expectation
of the bidder is to win and profit from the contract. As invitation to bid does not amount to offer
the public body is not bound to select one of the bidders in accordance with the evaluation of the
bid. Mostly the public body unnecessarily puts a clause stating that „the public body has the right

59
In most administrative bodies I went for data collection, I did not get those enabling acts and laws regulating the
public procurement system. Some officials have no awareness even about the existences of such enabling acts and
some are in short of accessing them. They mostly trust on circular letters sent from the higher government body and
long developed practice. This shows the absence of professional civil servants who can perform official duties
independently based on only the legal frameworks available in the subject matter.
18
to reject the bid partly or wholly‟. So, what is the remedy for the costs and time wasted by the
bidders? The civil code art.3146 (1) provides as;
Where the administrative authorities do not conclude a contract, they shall
indemnify the person who has incurred expenses in view of the conclusion of such
contract, where such expenses have been incurred through the fault of the administrative
authority, by reason of the attitude taken by the latter in the course of the pre-contractual
negotiations.
In this provision there are two elements which entrust compensation of the contracting party
from the public body. The first one is expense of the contracting party in view of concluding a
contract and the second one is fault of the public body. Then the question to be answered once
again is the type of expenses to be compensated and the way of calculating the amount of
compensation. For instance, in England law if the tender is not considered or the contract is not
concluded by the fault of the public body the other party will be compensated for the cost of
tendering plus the profit the contractor could have made.60But the above civil code provision is
clear and it covers only expenses incurred in the process of negotiation and profits would have
been gained had the contract been concluded is not considered. This will amount to unfairness
because the contractor incurs costs in lieu of gaining profit. The other question to be answered is
what kind of fault is considered in the civil code? In this regard Art.8 of the new procurement
proclamation may be helpful. The provision puts the duties of the manager of the public body
which includes ensuring the personnel competence and adherence to principles enshrined in the
proclamation. Moreover, the manager has to be led by pre-plan of procurement. Therefore, if this
all duties are not performed the public body will be at fault as the fault of the manager will be
counted on the public body.
This being the law practically, there is no remedy for a contractor when the public body fails to
conclude the contract.61 There is no budget allocated for such compensation or any other
penalty.64This practice is developed based on the procurement proclamation which is silent on
the issue. The above civil code provision is not referred by officials in procurement service for
unknown reason. In the same way, claims in such cases are not common as the private sector
lacks awareness of the law and others put under question mark the impartiality of courts while

60
Adriaanse, ( n 36),77
61
Interview with Yosef (n 21), interview with Wendimagegn, ( n 55) 64
ibid
19
entertaining cases involved by administrative authorities as a party. Therefore, in this regard
though old the civil code is better than the new proclamation and the procurers are advised to
refer it to maintain fairness in public procurement.
Furthermore, in the proclamation only precautionary measure is provided under art.38 which
says; the bid document shall be available at a price not exceeding the cost of reproduction and
delivery of such document and if deemed appropriate free of charge. This provision is intended
to avoid the impediments of competition and to minimize the cost of candidates. But this is not
sufficient as the candidate has to employ experts to set the price in the bill of quantity and has to
waste time to run the bidding process. Unless the public body has valid reason to cancel the bid
the candidates need to be compensated for they have lost their time and money. Such kinds of
provisions are common in foreign jurisdictions. As discussed above for instance in England law
if the tender is directed to specific candidates and the tender stipulates that the public body will
award contract to the lowest bid, then this will amount to unilateral offer, thereby curving
arbitrary action of the employer.62 Coming to the case of Ethiopia though such provision appears
in the civil code it is not put to practice for always the public body inserts a clause stating; it has
the right to reject the bid partially or wholly. A candidate, who is not considered or in case where
the public body arbitrarily cancels the bid has to be compensated, in order to make the personnel
in the public body curious and responsible, for their acts.
Therefore, to be fair, if the public body needs a bid bond to cover its costs of running the tender,
the candidate also should be awarded compensation for arbitrary act of the public body which
shall include expenses of the tender and the profits would have been gained had the contract been
concluded. Otherwise unfairly treated private actor will tend to corrupt practice to offset the
envisaged losses.
The vital stage in the bidding process is examination and evaluation of the bid provided under
art.43 of the proclamation. In this regard, the first criterion to win the bid is clear, the lowest
price. This kind of evaluation will be employed if the bid document says so. Practically, the
current situation shows that the list cost bid is awarded the contract whatever the price is but
formerly if the price is unreasonably low to complete the work the lowest bidder may not
win.63In the public sector, contracts are usually awarded to the lowest bidder. This rule has been

62
Cited in Adriaanse, (n 36)
63
Ibid

20
established to provide accountability in the use of public funds and to avoid accusations of
favoritism. But, considering that the lowest bid is not always the most economical particularly
where the quality of work is important, such selection process of many contracts involving public
works is unlikely to provide best return on public funds.64Awarding the contract for the lowest
cost though advantageous for the public money, compromises the quality of work which is vital
in construction industry and the contractor may not complete the work as their will be financial
difficulty.65
At the federal level, there are two stage of examining the tender. The first which accounts for
80% is technical capacity of the contractor while the second-the financial capacity- weighs only
out of 20%.66 The technical capacity includes the professional quality of workmanship,
machinery, work experience and the likes and a bidder who did not fulfill the technical capacity
will not be considered for examination.67 In SNNPRSDCSA, the technical capacity is not duly
considered and they stick to financial capacity, thereby awarding the lowest bidder.68
Consequently, the contractor is not capable of completing the work as reported successively in
the SNNPRS DCSA’s annual reports.69
Otherwise the second option will be employed; the bid offering better economic advantage. The
law tries to make this option objective as much as possible. But, it is difficult to attain objectivity
as economic advantage may not be possible to quantify or expressed interims of money and this
will be contrary to the principle of objectivity. The lowest bid may be less economically
advantageous.
The main problem observed from the stakeholders reveals that the aim of bidders is just to win
the game. Cost benefit analysis is not done before deciding to bid because they are eager to get
job.70 Consequently, they bid with low price that will not be attainable practically. After winning
the bid they tend to negotiate on the price or they fail to perform the contract. The public bodies
in such case just cancel the contract and award it to another contractor. This will create

64
Thomas E Uher, Philip Davenport, Fundamentals of Building Contracts Management, (2002, university of new
south Wales press LTD) 188
65
Interview with Wendimagegn, (n 55)
66
ERA technical specification 2002, interview with Yosef, ( n 21)
67
Interview with Yosef (n 21) & interview with Tigist (n 57)
68
Interview with Wendimagegn, (n 55)
69
SNNPRS Design and Construction Authority consecutive annual reports, 2004,p.13 2005,p.10 2006,p.7
70
Interview with Tarekeng Kochito Foreman in Kerjab Construction PLC, Hawassa,
Feb,29/201574 Interview with Wendimagegn, (n 55)
21
prolonged process and is not economically advantageous.74 Therefore, technical and financial
capacity evaluation must be concerned before the contract is awarded to the lowest bidder.

To sum up, the discussion at hand, the public procurement system need to be transparent,
accountable, fair, and non- discriminatory based on irrelevant factors to the work. The principles
should be adhered just to pay value for the tax payer’s purse which is spent in the award of
contract of public construction works. The procedure of open tendering must be in accordance
with the laws of the country and the law needs improvement in a way promoting best values in
the procurement system. In this regard competitive environment must be created and the existing
scope of the law should be broadened to include the public and private sectors to increase
efficiency and fairness. The ethical standards should be concerned and the code of conduct in the
tendering process should deserve separate and clear instrument. The candidate in tendering
process need protection from the arbitrary act of public body and should be awarded
compensation in case of non-consideration or non- conclusion of the contract after the winner is
expressed.

3. Corruption and Collusion in Tendering Process

The public works and construction sector is consistently considered to be one of the three
most corrupt of all sectors, alongside with defense and the extractive industries. Globally,
it has been estimated that corruption accounts for at least 10 percent of turnover in the
construction sector, or well over US$1 billion per day.71

71
Hamish Goldie-scot, (n 48) 241

22
Infrastructure development and public procurement are among the most vulnerable sectors as few
persons are authorized to make decision and huge amount of money is involved.72 The main
causes for corruption in the construction sector are excellently described by Hamish Goldie-scot
as;
Lack of capacity makes corruption possible, lack of accountability makes corruption
happen, and lack of trust allows corruption to take root”.77Corruption in construction
sector is aggravated by; preparing very complicated design, requesting exaggerated
construction materials, time and human resources and preparation of non -transparent
bidding documents.73 “Open tendering is an efficient mechanism of procurement.
This is why it has been used for centuries and is being used ever more frequently. But
it is not immune to manipulations through collusion and corruption.74
Competition is not welcomed by bidding firms because it is a tool to lower the price, therefore
they like to co-ordinate their actions in order to soften price competition and raise joint profit.
Collusion is anticompetitive behavior where the bidders co-ordinate their actions in order to
increase the price. In oligopolistic markets it typically takes a rather simple form. 80 Firms set a
high price and keep it stable over time only if no one undercuts its rivals at any point in time.
Thus, “Corruption means that the person, who runs the tender, twists the tender process rules in
favor of some bidder(s) in exchange for bribes.”75 Corruption and collusion are sometimes
interlinked. The term corruption means all kinds of behavior where a person who is in a position
of trust misuses his position to his own advantage. In its procurement guidelines, the World Bank
defines a „corrupt practice‟ as;
…the offering, giving, receiving, or soliciting, directly or indirectly, of anything of value
to influence the action of a public official in the procurement process or in contract
execution.76
In the specific circumstances of tender, the person of trust is the tenderer, who acts on behalf of
the procurer, and the bidders who have pledged to play by the rules.

72
Kilimanjaro international corporation limited Ethiopian second corruption perception survey, (2012 v. 1) 13 77
Hamish (n 48)
73
Kilimanjaro (n 76)
74
Nicola Dimitri, Gustavo Piga, Giancarlo Spagando, Hand book of procurement, (2006, Cambridge university
press) 412 80 Hamish (n 48)
75
Ibid
76
Cited in Dimitri, (n 74)

23
Corruption is a widespread problem in procurement all over the world. The World Bank
estimated the volume of bribes exchanging hands for public sector procurement alone at roughly
$200 billion per year.77 Therefore, procurers must be alerted to the different forms of corruption,
and the government must design mechanisms that eliminate corruption or at least make it more
difficult. Different forms of corruption have been observed in procurement: bid rigging, bid
orchestration, and distortion of quality ranking.78 In each of these kinds of corruption, the
tenderer may or may not have an existing relation with one favored bidder or the auctioneer
establishes a corrupt relationship only with that bidder who offers the highest bribe.79

3.1. The Case of Ethiopia

In Ethiopia public procurement is one of the vulnerable areas for corruption and mal-practice.
Many construction companies in Ethiopia have complained of unlawful contract termination and
non-transparent tender award process and claim favoritism towards venders who provide
concessional financing.80 The common malpractice in the sector includes; expectation of
facilitation payments, favoritism towards politically affiliated companies and bribery.81
Moreover, general lack of transparency in procurement process, short listing of already known
poor performers (lacking requisite experience or capability), lack of fairness and transparency in
short listing procedure, deliberate exclusion of capable companies, collusion of contractors, and
inconsistency of actions are menaces of the sector.82 Because of this significant amount of tax
payers‟ resource is exploited by government personals and undue profit by candidates for
tender.83

77
Ibid
78
Ibid
79
Thus the competition will be of twofold; one the price, quality and time of accomplishment for the work and the
other for bribery.
80
www.business-anti-corruption.com/country-profile/ethiopia, accessed on; Jan 17/2017 6:00 pm
81
Ibid
82
Hamish (n 48) 251
83
According to the World Bank report; among the surveyed 26 boreholes in SNNPRS and Oromia region 1 – 3
million dollars is consumed for corruption. For more see, Roger C. et.al, Rural water sector corruption in Ethiopia,
p170. It is difficult to quantify corruption costs in public works as information access is very difficult even when the
researcher go to the construction sectors they saw my activities in suspicion and are not willing to give interview or
any other information.
24
Thus, it is not more of legislative problem, rather defective enforcement mechanisms overweigh.
The construction sector is out of the court sight. “There are various legislatives and other
enactments (otherwise known as „enabling clauses‟) entitling the administrative bodies to settle
their disputes out of court.”84Everything ends by negotiation and administrative remedies.85The
engineer given broad power in dispute settlement and variation of the contract abuses the
discretion as no genuine controlling mechanism is devised. Even non-performance of
construction contracts are not litigated in most cases. With the existence of disputes here and
there only insignificant numbers of cases come to day light of court room. The public body
simply unilaterally terminates the contract and awards to other contractor in many instances.86
There is no consistency of actions taken by public bodies. They tend to strictly apply the law on
some contractors and they compromise on others. This paves the way for corruption and
malpractice in the sector.
Coming to the law, proclamation no.649/2009 contains provisions which prohibit corruption and
collusion of bidders. Art.32 provides for ethics of the personals that run the process of tendering.
According to this provision personnel engaged in public procurement or property administration
shall have to observe the following rules of ethics in the discharge of their duties: the obligations
to notify any actual or possible conflict of interest and isolate oneself from any processes
involving such conflict, to give candidates and suppliers equal opportunity of competition and
performance, keep in secret any confidential information concerning the public body, candidate
or supplier which he/she came to know on account of his/her duty, to reject any gift or offer of an
employment opportunity or anything of monetary value or service, to report to the law
enforcement agencies any intended or completed action of corruption and contribute to the effort
to fight corruption and mal-practice, demonstrate concern to public resource and property. In the
same way a candidate in open tendering is prohibited from concerted agreements with other
candidates in an act of false competition in order to get unfair advantage (art.32 (2(c))).
Moreover, as the law under art.77 of the proclamation provides any person who infringes the
above prohibitions is penalized by fines not less than 25,000 and not more than 35,000, and

84
Tecle Hagos Bahta, Adjudication and arbitrablity of government construction disputes, (2009, Mizan law review
vol.3, no.1) 30
85
Interview with Wendimagegn, (n 55)
86
Termination of the contract and awarding to other constructor takes prolonged time, in many cases years and
delay of completion is common. For this reason you can observe many government projects stagnated 93 Though
tried to be objective the nature of the area does not warrant absolute objectivity.

25
rigorous imprisonments ranging from 10 years to 15 years. In this regard the law is so good to
curve the problem of corruption and cartel in open tendering. In addition to this the law of
competition and consumer protection on collusive tendering may also be utilized.
After all, the problem resides on practicability and enforcement of the law. Natural problem
resides on lack of objectivity93 on the legislations and discretions are abused by officials at the
procurement stage and by the engineer at the operation stage. Therefore, the way out is just
developing the enforcement framework. Awareness creation will facilitate the enforcement
mechanism and stakeholders need to take part. Fortunately, Ethiopia has become a pilot member
of CoST (Construction Sector Transparency). CoST is an international multi-stakeholder
initiative to increase transparency and facilitate accountability in the construction sector through
the public disclosure of information about the purpose, nature, timing, and cost of construction
projects.87 Currently, CoST Ethiopia is actively operating in collaboration with ERA, Ministry of
Water and Energy, Ministry of Health and Ministry of Education.88
As one can observe in the SNNPRS Design and Construction Supervision Authority, recently
there is ethics and anticorruption officer whose function is to create awareness about ethics and
anti-corruption and to inform corrupt practice to justice body. The authority has planned to hire
legal experts and open legal service department which will attend legal issues in the sector.89
Therefore, hopefully the above discussed problems will be reduced if not eliminated, sooner or
later.
Concluding remarks

Construction is a complex business, which needs involvement of many disciplines, parties and
huge amount of money. Recently, the country is undergoing transformation in all sectors and the
construction sector is related to all others in one or other way. Without systematic regulation of
the construction industry procurement system the country cannot attain its stated goals.
Therefore, based on the findings of the paper the following are recommended;

87
Initiated by the U.K’s Department for International Development and supported by the World Bank, the pilot
phase started in 2008 in seven countries: Ethiopia, Malawi, the Philippines, Tanzania, the United Kingdom,
Vietnam, and Zambia. More information is available at, www.constructiontransparency.org.
88
Hagos Abdie Ahmed, assessment of procuring entity capacity to disclose project information in Ethiopia, (2013,
CoST national program) 5
89
Interview with Wendimagegn, (n 55)

26
The construction sector development policy is currently designed but, it is unlikely to make
the policy operational without binding laws which implement it. Therefore, the country is
advised to adopt comprehensive laws and regulations which will include; construction
procurement system and code of conducts among other things in accordance with the
construction industry policy already designed, in a separate instrument concerned with
peculiarities of construction works. This is of course, planned by the policy but as practices
show the parliament is negligent to adopt such important laws for unclear reasons and we
have currently many drafts which did not attained legal status for long time. In this regard I
strongly urge the law maker to timely act in this sector as the industry is in booming stage
and unless comprehensive law is devised, the industry will be at risk. The parliament can
respond at least by adopting the construction industry professional‟s registration final draft
proclamation prepared in 2013. The laws to be legislated should be based on internationally
accepted principles and should fairly distribute risks for all participants in the sector in order
to encourage all stakeholders and gain valid authority thereby.

The terms in the public procurement proclamation lacks fairness as the employer is favored
in many instances (unfair terms always result in corrupt practice) for example, it provides for
performance security without safeguarding the interest of the contractor in case of
nonpayment. The employer is even allowed to take the performance security without waiting
court decision to prove the fault of the contractor in which the employer is made „judge on
his case‟. The practice is not either as the federal Supreme Court Cassation Bench has
already decided that the employer can take the performance security by himself proving the
fault of the contractor. In the same way the public body is at liberty whether to conclude the
contract after the successful bidder is announced or not with no risk of compensating the
contractor in good faith for expenses of the bid. But the contractor once won the bid cannot
be let free as he has furnished bid bond. As it stands now, even the public body is not devised
to make sure the availability of fund for performance of the contract. The contractor who has
wasted his time and money desiring profit from the contract is unfairly treated in this
situation. In the same way the civil code provisions for administrative contracts is out dated
and cannot cop up with current developments in the sector. The general standard condition
which is detailed in construction contract administration is simply a guideline and can be
deleted, altered or added by the special contract condition. The existing laws guiding
27
construction contract are scattered in to different instruments which makes difficult to
understand and utilize them. In the same token the multiplicity of instruments naturally
entails contradictions and it will make application of the instruments unbearable.

Therefore, the existing legal gaps need to be bridged by constructive interpretation of the
scattered laws. In the same way the practical gaps need to be bridged by acting consistently.
At formation stage some sectors strictly utilize technical and financial specifications; but
others stick only on financial capacity and award the contract to a lower bidder even by far
below the engineering estimation in which the contractor fail to complete the work. These all
inconsistencies are signals of mal-practice in the industry and the Ministry of Construction
need to devise consistent practice in the industry by creating awareness to other sectors at
federal and state levels.
The other practical problem is that the government acts as regulator, client (employer),
contractor and consultant. The sector is unduly dominated by government actors and this will
create unfairness between stakeholders. The government policy behind the public enterprises
in construction industry is stated as filling the gap of the private sector. But, in practice the
public enterprises actively participate where the private wing is abundantly available and
even in most cases treated favorably in government procurement system. As practically seen
the driving force behind the public enterprises is not filling the gap, rather the lucrative profit
gained from the construction industry. In some cases for instance, in SNNPRS the public
enterprises are considered as a public body in the sense of art.2 (6) of the procurement
proclamation and are awarded the contract without competition with the private contractors.
Therefore, it is recommended that the government participation should be reduced
progressively to regulation of the industry and the private wing need to be encouraged to hold
construction and consultancy service. This will provide relief to government from its current
work load and enable it efficiently act in regulating the industry.

Ethical problems both at the procurement stage and contract administration are also
bottlenecks of the construction industry. Where the contractor incurs some amount of money
at procurement stage for bribery he is already planning to offset it by producing sub-standard
works. In the same way where there is collusion of contractors and the consultant,
compromise of the standard of the work is obvious for profit sharing. In this regard the

28
officials in the approving authorities may also participate in corruption and the issue will be
intricate. Therefore, the country is advised to conduct specific research to eliminate if not
avoid ethical problems in the sector. One of the reasons stated by stakeholders is unbalance
of remuneration in public office and private firms and public officials offset it through
bribery. The country in this regard needs to consider the issue and make possible changes.
One can argue otherwise as the economists claim „need of money‟ have no marginal utility
and wealth of the public officials will not deter them from ethical problems. However, still
wealth may deter corruptions for necessity. The institutional frameworks for cross-checking
quality and standard of public works have not eliminated corruption. It may have only made
it difficult. Therefore, the effective controlling mechanism to combat corruption in
construction sector is having ethical professionals and the government must invest on it. The
government is recommended to employ diverse mechanisms in doing so, starting from
engineering schools. At the same time the engineers must think that they are building for the
generations. The scope of this paper does not warrant further recommendations as it is only
raised as side issue and it is not specifically researched considering the complexities of
getting information in this regard and further systematic research is advisable.

29