CONTRACT

MANAGEMENT
B Y : P R O F. V I R A J PA R E K H
CONTENT
• What is Contract
• Types of Contract
• Essentials of Contract
• Factors affecting choice of Contract
• Termination of Contract
• Special Condition of Contract
• Liquidated Damages and Retention Money
• Contract Disputes and Settlement
WHAT IS CONTRACT
•Is it an agreement?
• When a person (promisor) offers something
to someone else (promisee), and the
concerned person accepts the proposal with
equivalent consideration, this commitment is
known as the agreement. When two or more
than two persons agree upon the same thing
in the same sense (i.e. Consensus ad idem),
this identity of minds is agreement.
 AGREEMENT V/S CONTRACT
Basis for Comparison Agreement Contract
Meaning When a proposal is
accepted by the person When an agreement is
to whom it is made, with enforceable by law, it
requisite consideration, it becomes a contract
is an agreement
Elements Offer and Acceptance Agreement and
Enforceability
In writing Not Necessarily Normally written and
registered
Legal Obligation Does not creates legal Creates Legal Obligation
obligation
DEFINITION OF CONTRACT
• The Indian Contract Act, 1872, defines contract as ‘an agreement
enforceable by law’
• An agreement entered into by two competent parties, under the
terms of which one party agrees to perform given job for which
the other party agrees to pay. In order to make this agreement
valid, there must be a definite offer and there must also be an
equally definite and unconditional acceptance of this offer.
• A Contract is basically a commitment between two consenting
parties, which, if breached, remedial protection can be sought under
the law by the affected party, since the law recognises its
performance as the rightful duty.
ESSENTIALS OF CONTRACT
• Section 10, 11 & 68
–Minimum Two Parties
–Offer and Acceptance
–Competent Parties
–Free Consent
–Intention to create Legal Obligation
–Lawful Object
–Not expressly declared Void
1. There must be a Proper Proposal
and its acceptance/object must be
lawful
OFFER
• An Offer must be something which invites, and is intended by the
offeror to invite, “Acceptance”
• An offer may be defined as the signification by one person of
willingness to contract with another on certain terms
• Offer is Conditional Promise. Offer is communication of one
person (offeror) to another person (offeree) of an intent to enter
into a mutual agreement based on definite and certain terms
• Offer may be revoked before acceptance by offeree
• Contract offer should be free from ambiguity
ACCEPTANCE

• When the person to whom the proposal is made

signifies his assent thereto, the proposal is said to be
accepted
• A proposal , when accepted , become a promise
THE PROCESS

In order to constitute an
agreement
There must be a proposal

Acceptance of a proposal
For such agreement to be
legally binding
Results in a valid contract
• 2. Parties to the contract is competent
 Essentials of a Valid Contract
2.Parties to the contract is competent

• At least two parties to an agreement each of

whom must be legally capable of playing his
intended part
• The contract done between unlawful or
unauthorized person is legally invalid
• Law can not enforce the agreement on someone
who does not have the legal capacity to enter into
an agreement
• Infancy (Indian Majority Act, 1875)
• Lunacy (Mental illness)
• Drunkenness
• Contracts of a corporation
3. Parties to the agreement must give
their free consent
• Two or more persons are said to “consent” when they agree
upon the same thing in the same sense. (All terms and
conditions of the contract should be clearly understood by
both the parties, if not understood well, may lead to
litigation)
• Consent is said to be free when it is not caused by force or
undue influence or fraud or misrepresentation or mistake
or threatening
• The defrauded party can avoid the contract and can also
claim for damages
• One of the party is not dominating the other party
4. There must be a lawful
consideration/ valid Consideration
• According to law the contract work can be done
totally free of charge
• Valid consideration in the legal sense that can be
defined as the act or a promise to do something by a
party in return of money or promise or giving interests
by the other party
• In civil engineering contracts, the consideration for the
contractor’s promise to carry out the work is usually
the owner’s promise to pay the price
• Consideration may not be adequate or a full
return of promise, but it must be competent,
real and should not be illegal, ambiguous,
impossible or uncertain.
• Impossible promises or act are not entertained
by court because there in no valid
consideration
• As per Indian Contract Act, the agreement
without any consideration may be valid in the
following circumstances which are based on
the principles of equity

– Agreement should be in writing

– It should be registered in registrar’s office
– Party should be in near relation with each other
– It should be done due to natural love and affection
between party
4. CONTRACT CONDITION ACCORDING TO LAW
All contract condition should be according to
law, because the court can force only those
conditions which are according to the
established public policy
– Contract for construction of building without approval of local
authority/violation of municipal regulation
– Contract for Construction of infrastructure without acquisition of
land
– Contract done by fraud, crime, by pressure, undue influence or for
pure gambling
 5. CONTRACT IN WRITING,
SIGNED BY BOTH THE PARTIES
• Signed by authorised person from both the parties
• Exact name/legal titles of both the parties must be
indicated in signature/seal required
• Sign followed by office addresses
6. The agreement must comply with the
provision of law requiring it to be in writing
or attested or registered
7. The agreement must not be expressly
declared to be void
FACTORS AFFECTING CHOICE OF
CONTRACTS
• appropriateness for providing an adequate
incentive for efficient performance by the
contractor
• ability to introduce changes
• allocation of risk
• start and completion date of the project
TYPES OF CONSTRUCTION
CONTRACTS
• Two broad categories

– Price given in advance contracts (price based contract)

– Cost reimbursement contracts (cost-based contract)
TYPES OF CONTRACTS
• Price Based Contracts
– Lump-sum Contract
– Unit price Contract/Item Rate
• Reimbursement contracts
– Cost plus fixed fee Contract
– Cost plus fixed Percentage Contract
– Cost plus fixed sum with profit sharing
– Cost plus variable Percentage Contract
– Cost plus an incentive /penalty Fee Contract
• Piece work Contract
• Labour Contract
• Turn-Key Contract /Package deal
• Rate Contracts
ITEM RATE CONTRACT/UNIT PRICE CONTRACT
• Contractors prepare Rates for individual items of work on the basis of
schedule of quantities given

1) More scientific as it involves 1) Engineer must ascertain the

detailed analysis most likely quantities of each
2) The element of guess is item. Larger quantities are
absent generally tendered at lesser
rate than smaller quantities of
3) Eliminates the possibility of work and vice-versa
allotting work to one of the
contractors without 2) More than one contractor
competition may be involved
4) Smooth progress and timely 3) Intelligent scrutiny is
completion required
PERCENTAGE RATE CONTRACT

• Item Rate Tender is prepared. The contractors are required

to quote their rates which may be at par with the rates
shown in item rate tender or percentage above or below
them.
• The percentage above or below or at par tendered by the
contractor apply to the overall quantities
1) Comparative positions 1) Contractors mostly
amongst contractors are depend on guess for
immediately known their rates. It is likely that
2) No possibility of unworkable rated tender
unbalanced tender may be the lowest.
3) No chance of over 2) Uncertainty about
writing and erasing quality, smooth progress
and timely completion
LUMP-SUM CONTRACT

1) Cost known 1) Drawing and

beforehand helps in Specification must be
better planning and accurate and precise
execution 2) Not suitable where
2) Except in respect of variations are likely to
additions and alterations happen
detailed measurements of
the work done is not
required to be recorded
MATERIAL SUPPLY CONTRACT

• The contractors offer their rates for supply of the required

quantity of materials inclusive of all local taxes, carriage and delivery
charges to the specified stores within time fixed in the tender.
• This type of contract is used for the purchase of materials like
bricks, stone, furniture, pipes etc.
• All the materials received are examined and conduct or measured
when delivery of materials is taken
1) Not worried for the 1) Constant watch for
loss of materials, quality has to be there
breakage, damage for materials received in
charges during transit batches
2) As payment in this
type of contract is made
promptly, the contractors
try to take the supply
order even at less profit.
 Lump-Sum Contract

• What is Lump sum contract?

• How is work undertaken?
• How payment is made?
• How payment is made for addition and alteration?
• How final payment is made?
• When will you prefer?
• Advantages and Disadvantages
Contractor undertakes the construction work as per drawing,
specification, design supplied to them by owner for some fixed
amount of money
Single tender price is given for completion of a specified work to
the satisfaction of client by a certain date
Payment is on the basis of progress of work
Payment of items of work involved for any additions and
alterations not covered by the original work, is done according to
the departmental SOR
Final Payment is done without detailed measurement of work,
quality of work will be checked with original plan, design and
specification
• When can be adopted for construction work?
When can be adopted for construction work
– number of items are limited
– accurately and completely described at the time of bidding such
as residential building
– limited variation is needed
– level of risk is very low and quantifiable
– client does not wish to be involved in the management of his
project
– Small work
– septic tank, compound wall, watchman room, man hole, soak pits, overhead
tank, similar quarters of identical tenements of housing society, fabrication of
equipment, electric piping, insulation system, demolition of existing
structures, etc.
• Quantities of items are not provided.
• Contractor is responsible to prepare BOQ by referring
specification, drawing

• Contractor is responsible for the accuracy

of estimated quantities
• All risk on head of contractor
• It is good for owners point of view, he knows the total cost
of project in advance
Advantages of Lump-sum
Contract
• Because of competition, contractor is ready to
complete work at low profit margin
• Early completion of work to reduce overhead
• Total cost of project is known, better planning
and execution of work
• owner can manage required finance
• No need to keep the record of items except
addition and alteration
Disadvantages
• Contractor has more incentive to reduce his cost to
increase the profit
• Contractor tries to get maximum profit/ quality of work
may suffer
• Difficult to adjust addition and alteration
• If plans and specification are not ready in advance/clear in
beginning, contractor may quotes higher price, increase the
project cost
• More possibilities of conflicts between contractor and
owner in case of alteration and addition, uncertainties, act
of GOD
• High risk on contractor side, competent contractor may
not be ready to bid
UNIT-PRICE/ITEM RATE CONTRACT
• Contractor under takes work on item rate basis
• Approximate quantity of all items are shown in
BOQ (checked by engineer, Architect)
• Contractor quotes his price against each item and
arrives at the final total amount of work
• Contractor may quotes (%) above or below the
price given in SOR
• Payment is done on the basis of quantities of items
actually done and their respective rates (BOQ)
• quantities of items are worked out by detailed
measurement on site
• It is useful on the project where the nature of work is well
defined but quantities of items are not exactly known for
in advance
• Suitable for highway, dams, airports etc.
• Quality of work is better
• Most common types of contract system
• Re-determination of unit prices when substantial quantity
deviations occur is stipulated in contract condition
ADVANTAGES
• Addition and alteration can be accommodate easily at any stage
of work
• Contractor gets payment on the basis of actual quantity of item
done, hence economical no excess payment required
• Rates are according to item wise, no need to worry about
uncertainties in the plan and specification (low risk on contractor
part)
• Work can be started immediately after accepting contract
without drawing and specification
• Saving the heavy cost of preparing many bills of quantities by
contractor
DISADVANTAGES

• Difficult to find out final cost of Project

• Owner has to bear the risk
• Contractor may charge higher for the items, which are not
mentioned in BOQ
• Sometime difficult to classify work (soil ordinary/rocky), contractor
would like to change his price
COST REIMBURSEMENT CONTRACTS

• Contractor will be reimbursed for all actual costs

plus an agreed fee to cover his services (Overhead
+ Profit)
• Contractor must keep his all records and accounts
available for inspection by the client or by third
neutral party
 SUITABILITY OF CONTRACT
• When requirement of client is vague
• When it is desirable for design to proceed
concurrently with construction
• For emergency project, repairs, maintenance
work and alterations
• For project with unknown technologies or major
changes
• Where contractor possesses a special ability
• When client wishes to be involved in contract
management
THINGS TO BE NEGOTIATED BEFORE ENTERING TO
CONTRACT

• Subcontract-letting
• Determination and payment of fees
• Accounting methods
• Overhead ( office + site)
REIMBURSABLE COST
• Requirement for Success
– Competent & trustworthy contractor
• Must be able to select contractor and not simply
take low bidder
– Close quality supervision by owner
– Careful cost control by owner
– Detailed definition of work items to be
performed
– Detailed payment terms covered by both
lump sum and “all inclusive” rates
REIMBURSABLE CONTRACT
• Advantages
Flexibility in designing with changes

Important when dealing with ill-

defined work scope
Useful if anticipate delays and disruptions
Owner can exercise control of all aspects of project
Construction work can start without waiting for
whole set of drawings and specification
More flexibility for owner to make changes as work
progresses
REIMBURSABLE CONTRACT
• Disadvantages
 Difficult to evaluate proposals
 No intensive for contractor to finish early on time
 No intensive for contractor to control the cost
 Contractor can assign second best people, use a lot
of subs or use job for training purpose
 Owner carries most of risk of project
 Difficult to predict cost and distribution of it, which
may cause financial problem to owner
Types of Reimbursable Contracts

 Cost plus fixed Percentage Contract

 Cost plus fixed fee Contract

 Cost plus fixed sum with profit sharing

 Cost plus variable Percentage Contract

 Cost plus an incentive /penalty Fee

Contract
COST PLUS FIXED PERCENTAGE
• Contractor is reimbursed for all cost with a
fixed % age of cost to cover his services
• Projects/site overheads may be covered by
the % age or computed as one of the costs
• If contractor is efficient in utilization of
resources, client will be benefited – cost will
be less
• No incentive for contractor to be efficient
• Minimum efficiency maximizes the profit
• Owner exercises tight cost control
 COST PLUS FIXED FEE
• Cost of construction + fixed fee
• Fee not fluctuate with actual cost of project
• work must be fairly well defined by owner, owner’s
risk
• No incentive for contractor to inflate cost
• Incentive for contractor to complete work quickly
• Major variation creates problem, fee must
renegotiate
• Fairly detailed description of work must be made in
advance
• Useful for very big projects like power plant, refinery
COST PLUS FIXED SUM WITH PROFIT
SHARING
• Contractor paid cost plus fixed fee
• Further agreement made to share profit if the
economy obtained in the estimated cost of the
work
• It results in the profit of owner as well as to
contractor
• Estimated cost of project = Rs. 75,00,000
• Service fee of contractor = 5,00,000
• Contractor complete work for = Rs.
60,00,000
• Profit to owner = Rs.15,00,000
• Incentive to contractor = 30% on profit
gained
• Fees to be paid to contractor = actual
cost of construction + 5,00,000 + 30% of
15,00,000 60,00,000 + 5,00,000 + 4,50,000
(30% of profit)
• Owner saved = Rs. 10,50,000/-
 COST PLUS VARIABLE PERCENTAGE
CONTRACT
• Variation of profit sharing approach
• Which provides bonus for under run project and
penalty for over run project to contractor
• Amount of fee increases as the contractor falls
below the target
• Amount of fee decreases as the contractor over
runs the target value
• Fees to be paid to the contractor varies inversely
with the actual cost to the contractor
FEE = R (2T-A)

• R = base percentage = 20%

• T = targeted value of project = 75,00,000/-
• A= Actual cost of construction = 60,00,000/-
• Contractor fee = 18,00,000/- ( cost of project is less)
• If A= 80,00,000/- ( cost overrun project)
• Contractor fee = 14,00,000/- ( cost of project is more than
targeted)
COST PLUS AN INCENTIVE/PENALTY FEE
CONTRACT
• If work completed within scheduled time
• Contractor paid actual cost of construction +
fixed sum + Bonus/(- Penalty) per day
 PIECE WORK AGREEMENT
• For urgent Small work not costing much, without inviting
tender
• Executed on “work order basis”
• Not a contract in a true sense
• Security deposit, penalty clause not applicable
• Can be terminated by either party at any time
• contract operated by sub divisional officer in their
jurisdiction for unimportant work
• Inferior quality work because of inferior material
 LABOUR CONTRACT
• Tenderer undertakes the contracts for labour portion for each item
of work
• Construction material arranged/supplied by owner at site
• Labour contractor engages labours and gets work according to
specification
• Payment to contractor on the basis of actual quantity of work
measured at site
• Contractor uses own tools for working.
 Labour Contract

• Plants, machineries, scaffolding, centering &

shuttering provided by owner as per condition
of contracts
• Condition of contracts/BOQ/Rates ready before
agreement
• Contractor use material haphazardly, control
from owner is necessary
• Good quality work
• Not adopted for government department, but
adopted in private building
 TURN-KEY CONTRACT /PACKAGE DEAL
• Owner envisaging construction want to deal with only one party
for all the services both engineering and construction
• Owner gives broad out line requirement to contractors
• contractors prepares own design alternatives, submit the owner
with estimated cost on a lump sum basis
• Owner decides the design and work given to contractor
• It is suitable when project demands special consideration
• Planning, designing, execution is done by contractor
• Not suitable for civil engineering work, not popular
MATERIAL SUPPLY CONTRACT

• Supply of material to the department

• Includes all material construction, sanitary, water supply,
electrical, mechanical
• Some times tools and plants
• Supplier expect immediate payment
• Supplier quotes their lowest rates inclusive of all taxies,
duties, carriage and freight
 RATE CONTRACTS
• In order to supply some manufactured articles
• Pipe, A.C.sheet, C.I. special’s, different types of office
furniture etc.
• Head of department invites tender and fix rates of such
material and makes rate contract with manufacturer or
supplier to supply articles or material for certain period
of times
• It is popularly known as D.G.S. and D rate contract
(D.G.S. – Director General of Supply and Disposal of
Central Government)
• In department some officers authorised to purchase/place
an orders directly against this contracts through prescribed
form
• They will endorse copies of such orders to the controller of
accounts, department of supply and director of inspection
• 98% payment done by controller of accounts department
of supply on proof of inspection and dispatch.
• 2% after receipt of the goods in good condition made by
the department or by controller of account after receiving
the endorsement from the department concern
NEGOTIATED CONTRACT
• Contract awarded on the basis of negotiation
• No open competition
• Negotiation done with competitive contractor only
• Can not be used for public work
• In case of emergency and under special circumstances,
when time of completion is a major consideration
• Negotiated contractor can be given on special law
TERMINATION OF CONTRACTS

• By agreement
• By breach
• By impossibility to complete
• By Bankruptcy
• By performance (Completion of work)
• Termination by the provisions of the law
BY AGREEMENT
• By mutual consent of both the party
• At any stage of work
• Contractor is paid for the work done by him up to
termination time
• Sometime it is done to accommodate the changes in the
old contract
• New contract is drawn with same party/or with other
party with new condition
TERMINATION BY BREACH
• When one party breaks the provision of the
contract is called breach of contract
• In this case other party has right to terminate
the contract
• Injured party has right to claim the damages
or losses suffered due to breach of terms and
conditions of the contract
• Injured party must be in position to justify the
amount claimed for damages in court
 TERMINATION BY PERFORMANCE
• Work being carried out by terms and condition, work
completed in all aspect, Performance of the contract is
known as “specific performance”.
• Ideal condition of termination of contract
• ‘Specific performance’ - rare to obtain in construction
• “Substantial performance” is performance with some
degree of change due to circumstances beyond the control
of either party
• Such changes are recognized as a sufficient cause of
termination
• No damages are paid to any of party
 TERMINATION BY IMPOSSIBILITY TO COMPLETE

• Unexpected condition due to which operation difficult as

per provision of contract
• Unusual weather condition/flooded land
• Contract made to construct building on land, which does
not belong to owner
• Owner will pay damages to contractor
• If progress is low, non completion of work in time, work not
according to specification and drawing, non compliance of
engineer’s instruction, owner can terminate contract
TERMINATION BY PROVISION OF LAW
• Contract can be terminated by the operation of
various prevailing law
• Inheritance, bankruptcy or limitation of time
• Contract of professional services is treated as
terminated by the death of person
• However, generally the contracts are not terminated
due to death of one of the parties
• This is because of obligation of such party are
automatically transferred to the legal successors
WHAT IS LIQUIDATED DAMAGES ?
 Having no relationship
With
real damage to properties
 LIQUIDATED DAMAGES
• Though best practice followed for construction methods
and use Network Analysis (CPM/PERT)
• Most of the construction projects overrun original contract
period.
• An employer will not be able to use project intended for
• An employer has to incur additional costs or suffer a delay
in receiving income from the project.
• For the contractor, delay to the completion of the project
may result in a liability for delay damages to the employer.
• As a result of this danger, most building contracts fix the
damages that will be payable to the employer for late
completion in advance (not more than 10% of total cost)
• These are referred to as ‘Liquidated Damages' (LDs).
• Without a fixed completion date, LDs will not be
chargeable.
• For this reason, construction contracts will include a fixed
completion date
• Payment/deduction of such damages shall not relieve the
contractor from his obligations and liabilities under
contracts
EXTENSION OF TIME FROM A CONTRACTOR'S PERSPECTIVE:

Time limit may be extended through

extension of time provisions.

• they cover delays that are neither the fault nor the
responsibility of the contractor
• a contractor will not normally be liable to pay damages for
delay if completion time is validly extended.
EXTENSION OF TIME FROM AN EMPLOYER'S PERSPECTIVE

• provide certainty as to how the

completion date is to be fixed, and under
what circumstances it may be adjusted;
• To protect a right to claim LDs for delay
in relevant circumstances.
 TYPES OF LD PROVISION
• LD provisions are usually expressed as a certain sum
payable for each day, or week or part of week by which
practical completion is delayed.
– A straight lump sum
– A fixed percentage of the contract sum
• A maximum rate, which reduces as part or parts of the
project become available for occupation and use.
 GENUINE PRE-ESTIMATE OF LOSS
• Client should able to show LD estimated in contract is a realistic
estimate of likely loss to Client, if contractor is late in achieving
practical completion.
• The Client’s chances of defeating an argument from the
Contractor that the LDs clause constitutes a penalty are
considerably improved if the Client show how he arrived at the
figure in question, with calculations, projections etc, taking into
account such factors as loss of income and increased financing
costs.
• Estimate needs to reflect the position at the time of contract, not
at the time when the claim arises.
 RETENTION MONEY
• RM is Money of contractor retained by department
• If any claim arises out of or under contract against the
contractor
• Authority entitled to withhold some/whole security
deposit till finalization/adjustment of such claim
• If security deposit amount is not enough to recover
claim, department is entitled to with hold the amount
from any some found payable to the contractor from
the department
CONTRACT DOCUMENTS
• Title Page : Name of work, contract agreement
number, estimated amount
• Index : content and page numbers
• Notice Inviting Tender
• Instructions to Tenderer
• Tender Form
• Letter Acceptance
• Any letter given by contractor with tender in
clarification of rate or terms
• BOQ
• SOR
• General Specification
• Detailed Specification
• Drawings
• Conditions of contract
• Special Conditions of Contract
• Labour Safety Rules/compensation/minimum
wage
• Protection of health and sanitary agreement
for workers
• Contractor’s labour regulations/ appendices
Forms for
• Performance Bank Guarantee
• Mobilization advance
• Extension of time Part I, II, III
• Guarantee Bond for Specific work (anti-termite
treatment, water proofing etc.)
CONDITIONS OF CONTRACT
• Condition/Clauses pertaining to the work as
a whole are written in a separate document
• Condition of contract are also known as
General Provision
• Mainly to avoid disputes between parties
• prepared in the legal phraseology
• It is based on nature of work
• Government has own standard condition of
contract in printed form
TYPES OF COC
• General Condition ( Applicable to all construction work) -
GCC
• Special Condition (nature of work, regulating taxes,
royalties, labour amenities, compensation to labour
etc)
 CLAUSE 1. EMD AND SECURITY
DEPOSIT
• Earnest Money ( 1 to 2 %) of estimated cost of project
• Security Deposit (10%)
• Earnest Money deposited shall be adjusted against security
deposit
• Any claim by owner may be deducted from security
deposit
• Claim beyond SD, then contractor pay cash/or in bond
endorsed in favour of department
CLAUSE 2.
Compensation for Delay in
starting Project
• Time allowed to carry out work usually started
15 days after contract given
• Delay in completion of work
• If any delay in work/not commenced,
contractor shall pay compensation decided by
Superintending engineer
• May vary from 1 to 10 %
 CLAUSE 3.
• Action when whole security deposit is forfeited
–Engineer-in-charge has power to
adopt any of the following courses
1. To withdraw the contract with a written “rescission notice” of
the engineer-in-charge provided the security deposit of the
contractor shall stand forfeited
2. To get the unfinished work done on behalf of the contractor by
the dept. by employing labour and purchasing material, Cost of
labour and prices of material, engineer-in-charge shall be final
and conclusive against the contractor
3. To measure work done by
contractor/uncommenced work -
allot it to another contractor for
execution at previous
contractor’s risk
Extra expenditure will be borne by
contractor and shall be deducted
from security deposit, Extra
expenditure more than security
deposit will also borne by contractor
Clause 4.
* CONTRACTOR REMAINS LIABLE TO
PAY COMPENSATION

* NO RELAXATION GIVEN IN ANY OF

CONDITION OF CONTRACT

* OWNER HAS POWER TO TAKE

POSSESSION OR DISPOSAL OF
CONTRACTOR’S PLANT
CLAUSE 5. WORK TO BE OPEN TO
INSPECTION
• At any time work will be opened for inspection ( in-
charge engineer/subordinate)
• Contractor’s representative should be present all the time
to receive instructions
 CLAUSE 6. COMPLETION CERTIFICATE

• Work will not be considered as completed till get

completion certificate
• Liability period starts only after getting completion
certificate
• Contractor complete all work as per design, addition,
alteration suggest
• All temporary structures and all debris will be removed
• Engineer-in-charge will give completion certificate
• Date of completion is mentioned in measurement book
CLAUSE 7. MONTHLY PAYMENT ON BILL
• Contractor will be paid at least one bill in a month – some time
more than one also, depend up on progress of work
• Based on actual work done/recorded in measurement book/ bills
will be in prescribed format only
• Measurement will be done by engineer in presence of contractor’s
representative
• If contractor’s representative not present during measurement,
copy send to contractor and no objection is received from
contractor
• Engineer-in-charge has power to withhold interim payment if
progress is not satisfactory
 CLAUSE 8. NOTICE TO BE
GIVEN BEFORE THE
WORK IS COVERED UP
• No additional would be covered up by contractor
without giving notice to engineer ( 7 day notice)

• No payment/ allowance will be given to

contractor for this work
CLAUSE 9. BILLS ON PRINTED FORM

Bills in standard Performa

CLAUSE 10. MATERIALS AND STORES
SUPPLIED BY THE DEPARTMENT
• Material supplied by dept. as per tender rate
• For Excess/shortage in material – department
will compensate
• Contractor can return excess material in good
condition to department after completion of
work
• Credit will be given to contractor for same.
CLAUSE 11. EXTENSION OF TIME

• Engineer-in-charge extend time limit on reasonable

ground
• written notice given by contractor in seven days
before date of completion
• Extension will not violate other terms and
condition
CLAUSE 12. SITE CLEARANCE

• Site clearance after completion work

• Handover the site with satisfaction of
engineer-in-charge
CLAUSE 13. POSSESSION OF
PROPERTY PRIOR TO COMPLETION

• Owner has right to take possession of or use any

completed or partially completed part

• Possession shall not be an acceptance of any work,

which is not completed

• Possession of work must not put any hindrance in any

way in performance of work
 CLAUSE 14. NO COMPENSATION
FOR CURTAILMENT OR
ALTERATION OF WORK
• No compensation for curtailment or alteration of work
specified in tender due to any reason

• Alteration of design, drawing, , specification, instruction

may cause any curtailment of original work
CLAUSE 15. PAYMENT OF EXTRA
WORK
• On written order
• Engineer fix rates for extra work not mentioned in
tender
• Execution of extra work shall not violate the terms
and condition
• No extension of time limit for execution of extra
work
CLAUSE 16. ARBITRATION
• Dispute related to estimates, specification,
design, drawings, quality of workmanship/
material

• No person as arbitrator other than prescribed

by chief engineer

• Award given by arbitrator is final for both the

parties unless it is set by court
CLAUSE 17. LABOUR LAWS

• Age, wage, claim compensation, welfare, amenities,

sanitation, water supply etc.
• No labour below 15 years
• Bound to provide amenities to labours
CLAUSE 18. SECURED ADVANCE
• 75% as secured advance against estimated quantity of
any material (NON PERISHABLE) to be given to
contractor by client, which are in the opinion of
engineer-in-charge securely stored and protected from
damage
• Contractor will fill the indent form for advance and
amount will be deducted from next payment
• After getting bank guarantee of equivalent amount
19.Alteration in design and specification

• Right reserved to change/modification in original

design, specification, drawing, which are essential
• Given to contractor in writing, bound to him to
complete work, it would be part of original tender
• Extension of time/rates of items would be decided
19.Change in Drawing
20.Revision of rates/fixed rate of material
21.Final Payment after maintenance period
22.Penalty –nonfulfillment of work as per
spe.
23.Maintenance period
24.Compliance of laws
25.Termination of contracts
26.Storage of tools, plants and material
27.Sub-letting
29.Debitable agency – based on notice
30.Fencing, watching, lighting
31.Patent right and Royalty
32.Work on Sunday
33.Workmen’s compensation
34.Idle labour
35.Sub standard work
36.Escalation in price
37.Method of measurement
38.Liquidated damages
NEED AND PRINCIPLE OF FIDIC
• Government conventional contract system in India is one-sided
• Globalization of economy and many multinational companies
contracting for various infrastructure and development project
• Conventional system is not suitable for global contract
• FIDIC is well balanced and equitable form and clearly define the
role and responsibilities
 FIDIC form of contract agreement

FIDIC was founded in the year 1913 in Europe, now 70 countries are
member
Secretariat in Switzerland
The contract conditions are equally suitable for use on domestic
contracts.
Prior to 1999, FIDIC had three forms of building and engineering
contracts:
The Red Book for civil engineering construction,
The Yellow Book for electrical and mechanical works, &
The Orange Book for design and build contracts.
 FIDIC form of contract agreement
(Contd…)
In September 1999, FIDIC published four new editions of the
forms of contract:

1. Conditions of contract for Construction

- Set of conditions recommended for building or engineering
projects
- where employer provides most of the design
- However work may include some contractor –designed civil,
mechanical or electrical construction work (RED LOGO)
2. Conditions of contract for plant and design-build –

– Set of conditions recommended for provision of electrical/mechanical plant

– suitable for the design and construction of building and engineering works (yellow
logo)
– Under the usual arrangement for this contract, , contractor designs and provides in
accordance with employer’s requirement, the plant and other works:
– These contract conditions require the employer to appoint “THE ENGINEER TO
ADMINISTER THE CONTRACT”
CONDITIONS OF CONTRACT FOR ENGINEERING -
PROCUREMENT - CONSTRUCTION (EPC)

– suitable for use in projects on turnkey basis

– projects for power plant, process factory, infrastructure project, or
development work
– Higher degree of certainty of price and time
– Contractor undertakes total responsibilities for design and
execution of project including guarantees for the performance
(GREY LOGO)
– Short form of contract – suitable for small works (small capital
value) of short duration
– Contractor has full freedom,
– contractor enters into such contract with the expectation that it
would be more profitable
 Salient Features of FIDIC Form of Contract
Obligations of contractor, consultant & engineer

Employer Contractor Engineer

• To give possession of site • To complete works (including • The engineer may be the
• To make payment defects liability period) employee of the employer
• To nominate a supervising • To ensure suitability or department, but he is not a
officer (engineer/architect) effectiveness of works using signatory or party to the
• To supply instructions to carry specified materials contract between the employer
out the works • Design responsibility (where and the contractor.
• To supply necessary plans, not specified) especially in • He has to perform as an
drawings and data relation to materials and interpreter of contract and as a
• Not to interfere with the workmanship (e.g. concrete mix judge of its fulfillment by both
progress of the works and reinforcement) the parties.
• To nominate specialist • To warn the employer in • Decision/opinion taken by the
subcontractors and suppliers relation to an impracticable engineer may be opened up,
• To supply materials for use in design reviewed, or revised by the
the works (where applicable) arbitrator, if challenged within
• To permit the contractor to carry the stipulated time.
out the whole of the works
 5.7 Subcontracting
Works are subcontracted:
To avail the expertise of other agencies
To do the job economically
For speedy mobilization
To complete the job within specified time-frame & maintain
quality standards within optimum cost with utmost safety
To increase the productivity of staff in staff-man months
• As per Indian Contract Act 1872, the consideration, given in
exchange for a promise, by the other party may be one of the
following
– Exchange of promises : This is often used in bilateral
contracts; it is valid. Exchange of promises is the most
common form of consideration
– A promise for an act : This is often used for an unilateral
contracts. A promise in exchange for an act is consideration
itself.
– Forbearance means refraining from an action. The promise
to act or the forbearance from acting must be given in
exchange for the promise or consent of something to
which the forbearer has legal right
– Detriment: Simply put means “ surrendering a legal right or
the assumption of legal burden “