CONTRACTS

Submitted toAr. Pappal suneja

Submitted byPooja GAUr

(12603)
Anchal Thapa
(12610)
Nishant Sharma (12634)
Ravtej Singh
(12641)

Contract Management
Introduction
Most of the civil construction in government and public sector is done
through contractors. In private sector contractors are engaged to execute
most of the major works. Architect as a consultant plays a vital role in
execution of work in sector in particular.
The fundamental objective of management is "getting results through
people".
A construction contract is a contract in which one party promises to
provide materials, labour, machinery and services for execution of work to
another party, who in turn promises to pay for the work executed.

Objective of Contract Management : The primary objective of

Contract management is completion of work entrusted to a contractor

Definition
Contract :
There are many accepted definitions of the term Contract.
The Indian Contract Act 1872, defines contract as an agreement enforceable
by law.

Halsbury in his "English law on contracts" has defined a contract to be " An

agreement between two or more parties which is intended to be
enforceable at law and is constituted by acceptance by an offer made
other party to do or abstain from doing an act"
The term contract as used in construction industry can be defined as An
agreement entered into by two competent parties under the terms of
which one party agrees to perform a given job for which the other party
agrees to pay.

Terminology
Terminology relating to Contract Management is given below:
Arbitration: A simple method by which two or more parties agree to refer a
dispute existing between them to a third person of their choice for a binding
decision
Bank Guarantee : A contract to perform the promise or to discharge the
liability of a third person in case of his default.
Clerk of Works : A person approved by the architect and appointed aid paid by
the owner to act under the orders of the architect to inspect the works in the
absence of architect. Ho has no authority to order variations. He has power to
issue notice to contractor for ion approval of any Work or materials.
Cartel : It is a combination of contractors to keep up prices and to kill
competition in tendering process.
Contingencies : Allowance made to cover unforeseen errors and omissions
Damages : Monetary compensation for the injury (loss) suffered.
Day work: work which under the terms of the contract is to be paid for time
and materials and not by measurements.

Terminology
Deviation : Excess or shortfall With. respect to plan or estimate.
Defendant : The person defending or Denying Respondent / Accused. The
person against Whom recovery is sought.
Escalation : Compensation for price rise. Allocation for risk of price rise.
Extra Item: Any item of work which is outside the offer made by the contactor
and therefore outside the contract as well.
Frustration of contract: Duty to perform promise in a contract is discharged.
Force Majeure: An unexpected event. An irresistible and superior force
Lien: It is the legal right to control the real or personal property of another
person until such time as that person satisfies a debt or duty owed to the lien
holder. The property becomes in effect form of Security for the debt or duty
owed.
Negotiation: A process for amicable settlement of an issue in the spirit of
Given and take"
Plaintiff: A person who complains and brings an action.
Quantum Meruit : As much as one deserves. It is awarded for work done or
services rendered when price thereof is not fixed by the contract.

Terminology
Surety : One who promises to answer for the debt. default or miscarriage of
another.
Variations : Alteration or modifications Of the designs. quality or quantity of
the work as shown upon the contract drawing and desired by architect or
referred to in the contract bills and includes the addition, omissions or
substitution of any work.
Work order : It is a written order issued by the Owner or his authorized
architect or engineer to the
contractor, intimating him that his offer has been accepted by the competent
authority and that he
is ordered to commence the work.
Prime Cost : A prime cost sum is an approximate sum included in the contract
to cover the cost of some particular item of work or of some particular goods or
materials to be supplied by the contractor or by some nominated person, the
cost of which IS hoi kn6wn at the time of signing the contract. These sums are
inherently, subject to adjustment when the true cost emerges in due course. If
the specifications for any item or material, fixture or fitting are not finalized by
the Architect, contractors are asked to quote prime cost to be adjusted later
when the material or fixture or fitting is selected and approved. Prime cost
relates to materials to be supplied by vendors.

Terminology
Provisional Sum : The main contractor quotes a provisional sum for
specialized works such as pile foundations, water proofing treatment, lifts and
air conditioning works after obtaining a quotation from specialist firms. These
sums are called provisional sums and are subject to adjustment later after
execution of work, Provisional sum relates to execution of work by specialist
firm.

The Indian Contract Act 1872 :

There are several types of contracts. They involve issues relating to
(i) Technology
(ii) Finance
(iii) Administration and Management.
Contracts involve high monetary stakes. Contracts should be properly
administered, governed and controlled as per provisions of Indian Contract
Act 1872.
All contracts if they are to be valid and enforceable at law must have
certain ingredients as:
oMutual agreement between the contracting parties as to the terms and
conditions of the contract.
oGenuine intention of the parties to accept and fulfil their respective rights
and duties under the contract.
oLegal capacity of the parties to make a valid contract.

 Interpretation clauses :
Proposal : When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtain the assent of the other to
such act or abstinence' it is called ' 'proposal. The person making the proposal
is called promisor". (Contractor)
When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted, and it becomes a promise. The person
accepting the proposal is called the Promisee. (Owner)
Consideration is the price in terms of money, goods or services paid for the
thing that promisor wishes to have
An agreement enforceable by law is a contract
An agreement which is enforceable by law at the option of one or more parties
thereto, but not at the option of other or others is a voidable contract

Types Of Contracts :
One of the following five types of contracts is adopted for execution of works by
government departments or by private owner(depending on the nature of work)
Measurement Contracts (Item rate and % rate)
Lump sum Contracts
Cost plus fee Contracts
Turnkey Contracts
Build - Own - Operate and Transfer (BOOT) Contracts.

(i) Measurement contracts :

(a) Percentage contracts : For small works and works of repetitive nature percentage rate
contracts are adopted. Owner indicates quantities and estimated rates for all items of work.
The estimated Cost is reflected in the tender schedule. The tenderer quotes % above or %
below the estimated cost put to tender. Payment is made on the basis of actual quantities
executed and measured.
(b) Item rate contracts : For major works, item rate contracts are adopted. Owner indicates
quantities and units only for all items of work and the tenderer quotes rates for each
individual item. Payment is made for the actual work done based on measurements. This type
of contract is useful for works where all items are not finalized at the beginning. Item can be
modified within certain limits on the basis of detailed planning-and design.
(ii) Lump sum Contracts : Scope of work, construction drawings and detailed specifications
are given to tenderer along with terms and conditions of contract. Schedule of quantities may
or may not form a part of tender documents. Even if they are supplied they are not
contractually operative and informative only. The tenderer quotes a fixed price the whole work
tendered. If this type of contract is adopted, the owner will be knowing cost of work on the
eve of award of contract. However, this is subject to the condition that there is no variation in
scope of work subsequently. It is a normal practice to agree on a method to regulate
payments for additions and alterations. Provision can be made for escalation in this type of
contract also. Detailed measurement of work done may not be necessary when contract
specifies stage payment to effect interim payments. This type of contract can be considered
when scope of work is frozen, drawings are completed before inviting tenders.

(iii) Cost plus fee contract : This method of contract is adopted for (i) Emergency
works (ii) for Miscellaneous works and (iii) for works for which scope cannot be
defined properly at tender stage. Contractor is paid his actual cost of materials
labour, hire charges of machinery and a fee towards his profit and overheads. This
fee may be a cost with or without a ceiling or a lump sum amount. Here contractor's
risk is minimum and owner's liability is not known on the eve of commencement of
works. Under some circumstances, this type of contract is adopted in government or
private sector works.
(iv) Turnkey Contracts : In a turnkey contract, the contractor takes full
responsibility for design, construction and commissioning of the facility of defined
scope for a fixed lump sum price. This is an area of high risk for the contractor. The
contractor has to bear the normal risk of unforeseen site conditions, poor weather
and foundation problems. For turnkey contractors, time is truly equal to money and
schedule slippage may adversely affect his profitability particularly in cases where
there is no provision for escalation. A bonus or penalty clause may be included as an
incentive or disincentive to the contractor to complete the work on time. This type of
contract is suitable for projects where all the functional parameters are finalized and
changes and extras are not made later. Such type of contracts are seen more in
commercial, defence and interior projects of multi disciplinary character and when
timely completion is important.

(v) BOOT Contract : With the liberalisation and opening up of the economy,
private sector is encouraged to execute public works, own them, operate for a
specific period and transfer the same to public authority. The entrepreneur will
recover his investment during the period he owns and before the transfer of
asset. This type of contract is adopted for highway projects, airports, convention
centres, IT parks, power plants and bridges. Government avoids funding and
allows a private person or a group to invest, build and transfer the facility after
recovering their investment. The government acts as a facilitator in terms of legal
issues, acquisition of land and enforcement of issues. This type is desirable where
the government itself is unable to raise huge resources to take up such big
projects. Further the government can also join with private companies or
consortia in the form of separate holding company specifically constituted for the
purpose

Selection Of Contractors:
Selection of contractor (s) It is recognized that the most important part of contract
management is the selection of contractor(s). Critical factors such as quality, speed,
economy and harmony are all dependent on selection of a suitable contractor.
Selection should also satisfy the principle of equity and fair play. Contractor is selected
by the owner through any one of the following processes after conducting negotiations
if required.
Public tenders
Pre-qualification
Post qualification
Limited tenders
Nomination

Public tenders are invited from registered contractors of appropriate class. A

stipulation is made in the tender notice regarding work experience, financial solvency,
and annual turnover in addition to registration. His general reputation is also taken into
consideration before the award of contract.
Pre qualification Of Contractors : For major works, specialized works, and for works
of multi disciplinary involvement, contractors are pre-qualified to ensure that
competition is only among bidders who are capable of executing the work. The basic
requirement of pre-qualification is not the selection of the best contractor but to
eliminate incompetent and insincere contractors. Pre-qualification notice is published in
news papers with relevant detail such as name of work, estimated cost, period allowed
for completion, eligibility criteria of contractors, etc. Contractors are prequalified on the
basis of financial solvency, work experience, quality of works executed, organization
and plant & machinery possessed. It is a normal practice to constitute a committee, to
evaluate their suitability. The works are inspected for quality and their present workload
is also taken into account. Suitable weightages are assigned for each of the criteria and
the assessment is made accordingly. Suitable number of contractors are prequalified.
Thereafter the tender notices are sent to each prequalified contractors only. There will
not be a press notice thereafter. Only prequalified contractors are allowed to tender for
the work.

Post Qualification : In this method two cover system is followed. Technical bid and
financial bid are submitted in separate covers. The technical bid containing all
particulars required to evaluate contractor's suitability except price is opened first
and contractors are post qualified. Price bids of only such post-qualified contractors
are opened and evaluated. Price bids of other contractors may be returned or
retained with the owner without opening. e
Limited tenders : In this method, tender notice is sent to some selected contractors
of repute and no press notice is issued. The lowest tenderer may be called for
negotiations. The number of contractors in the select list is generally, not too small to
avoid formation of a cartel. This method is adopted in private sector in some cases as
an alternative to other methods. For government works this method is restricted to
emergency works only and the decision is at the higher level of hierarchy.
Nomination : Selection of a contractor by nomination is adopted for works of small
magnitude or for emergency works. The contract is awarded based on prevailing
market rates. In private sector this method is sometimes adopted to select a reputed
contractor. The rates are negotiated keeping in view the trend of market rates. Such
works may also relate to special skills or construction which are not normally
available.

Thank You