HASITHA GUNASEKARA

M.Sc in PM, B.Sc (Hons.) QS, Dip. Arbitration,

AIQS (SL), ACIArb (UK), MCIOB (UK)

1
CONSRUCTION CONTRACT
All construction is done within a contract
except that done by a person for himself.
A contract determines the actions of the
parties in their dealings with each other.
The construction contract documents
define the agreement between the Client
and the Contractor. It is a two-party
agreement that does not include the
designer
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CONTRACTS
REQUIREMENTS
Mutual Agreement
Offer and Acceptance (Form of Bid and Letter of
Acceptance)
Capacity to Contract
Consideration in a Contract
Lawful Object of a Contract
Contract Time
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WRITTEN CONTRACTS
Contracts usually need not be in writing to be
valid, but they may need to be in writing to be
enforceable.
Usually a contract must be in writing. Therefore,
most major construction projects require a
written contract
An oral contract is unsubstantial and difficult to
prove, and because it cannot be demonstrated
by tangible.
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WRITTEN CONTRACTS (Contd)
The written instrument of most ordinary
contracts is a printed standard form. The
majority of building construction jobs have a
lot in common and the use of standard
forms of construction contracts is both
economical and practical.

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INDUSTRY STANDARD CONTRACT
DOCUMENTS (LOCAL)
ICTAD/SBD/01 Standard Bidding Document -
Procurement of Works
ICTAD/SBD/02 Standard Bidding Document - Major
Contracts
ICTAD/SBD/03 Standard Bidding Document - Minor
Contracts
ICTAD/SBD/04 Standard Bidding Document - Design &
Build Contracts
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INDUSTRY STANDARD CONTRACT
DOCUMENTS (FUNDED)
World Bank
Asian Development Bank
UNOPS
JAICA etc
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INDUSTRY STANDARD CONTRACT
DOCUMENTS (INTERNATIONAL)
International construction documents are
also often based on industry-prepared
standard forms.
A number of organizations prepare
recommended standard general conditions
and associated forms. Such as:
FIDIC (International Federation of Consulting
Engineers)
ICE (Institute of Civil Engineers, United
Kingdom)
JCT (Joint Contracts Tribunal)
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CONSTRUCTION CONTRACT
DOCUMENTATION
Construction contract documents generally
include:
The agreement
General conditions
Supplementary conditions
Drawings
Specifications
BOQ
Addenda issued before submittal
Bonds
9
TERMS AND CONDITIONS OF
CONTRACTS
In some construction contracts, the order of
superiority of the several parts of a written contract
is as follows:
Agreement
General conditions
Supplementary conditions
Specifications
Drawings
All the several parts go together as one
(complementary);
In a discrepancies the contract may say that a
stipulated order of superiority determines which
part governs.

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TERMS AND CONDITIONS OF
CONTRACTS (cont.)
The agreement should contain:
The names of contracting parties
A brief description of the work
A list of contract documents, including agreement,
general conditions, drawings, and specifications.
The contract sum, or amount
The procedures for payment
The contract time, or dates for start and completion
The signatures of contracting parties and witnesses
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12
Award of Competitive-Bid
Contract
Award contract to the lowest
responsive bidder
Tender/ Bidding Procedure
Bids can be either:

Negotiated Bid
Limited competition /selective Bid
Open competition Bid
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Negotiated Construction Bid
The Engineer on behalf of the owner, invites a contractor to submit a bid.
The initial invitation includes information regarding the proposed contract
procedure, a brief description of the work etc.
Prepare the priced bill of quantities.
The priced bills are then handed over to the other party for consideration.
Rates in dispute are compared with current rates for similar work and
negotiate for finalization
When the Engineer and the Contractor reach agreement, the agreed
schedule of prices is sent to the Owner for his approval and assent.

Limited Competition
Construction Bids
Calls for bids from a few contractors who are
known to have specialized in the special type
of work and from whom he has, in the past,
experienced excellent results.
This procedure is usually adopted for private
works, where the owner has the right to
negotiate directly and to enter into
agreement with whomsoever he chooses.
Open Competition Construction
Bids
The method is usually adopted for public works,
as the rules generally require that government
and other public contracts be advertised
publicly, to obtain the most advantageous terms.

Any contractor who is willing to undertake a
work and who has the requisite finance and
construction equipments to complete it
satisfactorily is allowed to submit a bid.
Advantages of Open Tender

1. Give high level of competition and
contractors tend to give best prices as
compare to other tendering method
2. There is no list of restrictive tenderer, which
does not allow favoritism
3. It is very transparent process which
ensures that only the contractor with the
best price and meeting all the technical
requirements will win the tender.
Disadvantages of Open Tender

1. The low price usually detriment of quality and
often result in the client obtaining poor quality
job and late completion of work.

2. There are no restrictions on the number of
contractor who can bid and become bulky and
lengthy job for tender analyses which often
result in delays and high cost.

Method of Pricing
Fixed-price
1. Lump sum
Traditional, single fixed price
Predetermined price that includes profit,
overhead, and all other costs
Greatest risk to contractor resulting in a
higher markup (the greater the risk, the
higher required rate of return )
Most common contract form




TYPES OF CONTRACTS
Measure & Pay
Lump sum
Cost reimbursable contracts
20
21
Reimbursable Costs
Definitions of what types of costs can be
reimbursed
Payments to Subcontractor per subcontract
Contractors field labor, material and equipment
costs
Definitions of what types of cost that will NOT be
reimbursed
Contractors main office overhead and staff
Salaries of contractors officers
Cost Reimbursable Contracts
1. CostPlus-Fee as a Percentage-of-Cost
Fee may be on a sliding
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Cost Reimbursable Contracts
(cont.)
2. Cost-Plus-Fixed-Fee Contracts
3. Incentive contracts
Share of the cost savings up to a maximum
Bonus for each day finished early, or penalty for
each day finished late
4. Guaranteed Maximum Cost

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Fixed-price
2. Measure and pay
Prices of specified units of work are fixed or
predetermined
Actual cost to the owner will vary with actual
quantities placed
Best used when details and general character
of the work are known, but quantities are
subject to variation
Risk of unbalanced bids




Cost-plus
Contractor agrees to perform the work for a fixed
or variable fee covering profit and home office
costs (general overhead)
Field costs are reimbursable at actual cost
Used when:
nature of the work or physical conditions are
unpredictable
scope is unknown or difficult to define




Cost-plus
All cost-plus contracts depend on cooperation
among A/E, owner, and contractor
Record keeping and timely evaluation are
extremely critical
Detail record of labor hours and salaries,
material and equipment must be maintained




Types of Cost-plus Contracts
Cost plus fixed %
Fixed % based on portion or all of reimbursable
costs
Used in construction involving new technology
or extremely pressing needs
Owner assumes risk
Contractor cooperation very high
Little or no incentive for cost savings


Types of Cost-plus Contracts

Cost plus fixed fee
More incentive for cost savings
Incentive for timely completion
Risk shared by owner and contractor

Cost plus variable %
Also called sliding scale %
Keeps fee in line with type & volume of work
Fee becomes progressively smaller on work that is
repetitive, requires little or no re-engineering, re-
planning, or additional layout



Types of Cost-plus Contracts

Target estimate

May be based on cost, man-hours, schedule, or

combination

Cost savings or overrun shared by owner and

contractor at predetermined split

Cost under run increases contractor profit, overrun

decreases profit




Selection Criteria
In this following section look at the ways to choose
between different bidders, reviewing the specific
Criteria for bid evaluation:

Technical evaluation
Financial Evaluation
Relationship between Technical and Financial

Finally review possible Bidding processes:
Prequalification, 2 Envelope
2 Stage Bid Process

Content of Bidding
Documents
Invitation to Bid
Volume 1:
Section 1 Instructions to Bidders
Section 2 Standard Forms [Contract]
Section 3 Conditions of Contract
Volume 2:
Section 4 Form of Bid and Qualification Information
Section 5 Bidding Data and Contract Data
Section 6 Specifications
Section 7 Bills of Quantities
Section 8 Drawings
Section 9 Standard Form [ Bid]
Invitation for Bids (IFB)

[name of Procuring Entity]

1. The Chairman [insert MPC/DPC/PPC/RPC as appropriate] on behalf of the [insert name of Procuring Entity] now invites
sealed bids from eligible and qualified bidders for construction/renovation/rehabilitation/refurbishment/repair
*
of [insert the
title of the Works to be procured] as described below and estimated to cost [insert relevant cost of construction in the latest
TCE (Total Cost Estimate)]
[Insert a brief description of the Works including major quantities, location of project, and other information necessary to
enable potential bidders to decide whether or not to respond to the Invitation. The construction period is [insert no. of
Days].
2. Bidding will be conducted through National Competitive Bidding Procedure.
3. To be eligible for contract award, the successful bidder shall not have been blacklisted and shall meet the following
requirements [list the required ICTAD registration]
4. Qualifications requirements to qualify for contract award include: [insert key technical, financial, legal and other
requirements].
5. Interested bidders may obtain further information from [insert name of Procuring Entity; insert name, address and e-mail of
officer in charge] and inspect the bidding documents at the address given below [state address at end of this IFB] from
[insert office hours].


6. A complete set of Bidding Documents in English language may be purchased by interested bidders on the submission of a
written application to the [state addressee] from [state date of commencement of issuing document] until [state date] from
0900 hrs to 1500 hrs. upon payment of a non refundable fee of [insert amount in Rupees]. The method of payment will be
[insert method of payment].


7. Bids shall be delivered to the address below [state address] at or before [insert time and date]. Late bids will be rejected.
Bids will be opened soon after closing in the presence of the bidders representatives who choose to attend.

8. All bids shall be accompanied by a [insert as appropriate, either Bid Securing Declaration/ Bid-Security, of (insert amount
in Rupees)]
The address(es) referred to above is(are):

Name
Designation,
Address, fax number etc of the Procuring Entity

INSTRUCTIONS TO BIDDERS
A. General, 9
1. Scope of Bid, 9
2. Source of Funds, 9
3. Ethics, Fraud and Corruption, 9
4. Eligibility and Qualification of the Bidder, 9
5. One Bid per Bidder, 9
6. Cost of Bidding, 10
7. Site Visit, 10
--------------------------------------------------------
A. Bidding Documents, 10
1. Content of Bidding Documents, 10
2. Clarification of Bidding Documents, 10
3. Amendment of Bidding Documents, 11
--------------------------------------------------------
A. Preparation of Bids, 11
1. Language of Bid, 11
2. Documents Comprising the Bid, 11
3. Bid Prices, 11
4. Currencies of Bid, 12
5. Bid Validity, 12
6. Bid Security and Bid-Securing Declaration, 12
7. Pre-BID Meeting, 13
8. Format and Signing of Bid, 13

A. Submission of Bids, 13
1. Sealing and Making of Bids, 13
2. Deadline for submission of Bids, 14
3. Late Bids, 14
4. Modification and Withdrawal of Bids, 14
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A. Bid Opening and Evaluation, 15
1. Bid Opening, 15
2. Process to be Confidential, 15
3. Clarification of Bids, 15
4. Examination of Bids and Determination of Responsiveness, 15
5. Correction of Errors, 16
6. Currency for Bid Evaluation, 16
7. Evaluation and Comparison of Bids, 16
8. Preference for Domestic Bidders, 17
-----------------------------------------------------------------------------
A. Award of Contract, 17

1. Award of Contract, 17
2. Employers Right to Accept any Bid and to Reject any or all Bids,
18
3. Notification of Award and Signing of Agreement, 18
4. Performance Security, 18
5. Advance Payment and Security, 19
6. Adjudicator, 19

Form of Bid

Note: Prior to issue of the bidding documents, the Employer should insert relevant data for all items marked with an asterisk (*).
Name of Contract:*

To:* [insert name of Employer
6
]

Gentleman,
1. Having examined the Standard Bidding Document - Procurement of Works [ICTAD/SBD/01 - Second Edition, January 2007],
Specifications, Drawings and Bills of Quantities and Addenda for the execution of the above-named Works, we the undersigned, offer to
execute and complete such Works and remedy any defect therein in conformity with the aforesaid Conditions of Contract, Specifications,
Drawings, Bills of Quantities and addenda for the sum of Sri Lankan Rupees ....................................... (LKR ...................) or such other
sums as may be ascertained in accordance with the said Conditions.
2. We acknowledge that the Contract Data forms part of our Bid.
3. We undertake, if our Bid is accepted, to commence the Works as stipulated in the Contract Data, and to complete the whole of the
Works comprised in the Contract within the time stated in the Contract Data.
4. We agree to abide by this Bid for the period of* ........................... ................ (insert number of Days in accordance with Sub-Clause 15.1
of Instructions to Bidders) Days from the date fixed for receiving or any extended period and it shall remain binding upon us and may be
accepted at any time before the expiration of that period.
5. Unless and until a formal agreement is prepared and executed this Bid, together with your written acceptance thereof, shall constitute a
binding contract between us.
6. We accept / we do not accept the Adjudicator.
7. We understand that you are not bound to accept the lowest or any Bid you may receive.

Dated this ............. day of ............ 20... in the capacity of .............. duly authorized to sign tenders for and on behalf of
............................................................................
(IN BLOCK CAPITALS)

Signature : ....................................................

Address : ...............................................................................................................

Witness : ...................................................
DATA FOR BIDDING DOCUMENT
EV = Estimated Value( Initial Contract Price) = 100 M Rs. 73,000,000.00
Duratiion in months 4
Clause
No
Footer
Note
Description Equation Value
(4.2)b 20
Average annual volume of construction work performed in any of
the last five years
1.5 x (EV x 12) /(Duration
in Months)
328,500,000.00

Experience in the construction of at least one contract of a nature
and complexity equivalent to the Works over the last 10 years
(to comply with this requirement, works sited should be at least
70 percent complete)
EV+EVx70%+ect. 73,000,000.00
(4.2)f 22
The minimum amount of liquid assets and/or credit facilities net of
other contractual commitments and exclusive of any
advance payments which may be made under the contract
shall be not less than
EV/ (Duration in Month) x 3 45,625,000.00
17.1 27 The amount of bid security EV x 2% 1,460,000.00
13.1 41 Minimum cover for Insurance of Works & of Plant & Materials EV x 110% 80,300,000.00

42 Minimum deductible for insurance of Works & of Plant & Materials EV x 5%

3,650,000.00
14.5 46 Minimum amount of Interim Payment Certificates
50% of the average
monthly value of the
contract

9,125,000.00
27.4 48 The Amount to be withheld for late submission of a Programme is EV x 2%

1,460,000.00
39.2 49
Engineer may order variation up to a total cumulative value of not
exceeding
EV x 10%

7,300,000.00
48.1 53 The retention of from each payment shall be 10%
54 The limit of retention shall be 5%
49.1 55 The liquided damages for the whole of the Works shall be per day EV x 0.002%

36,500.00
50.1 56
The maximum amount of liquidate damagges for the whole of the work shall
be
EV x 10%

7,300,000.00
52.1 57 The perfomance Security shall be EV x 5%

3,650,000.00
60.1 58
The percentage to apply to the value of the work not completed,
representing the Employer's additional cost for completing the works, is
EV x 25%

18,250,000.00
Lowest responsive bidder
Lowest bidder whose offer best
responds in quality, fitness and capacity
to fulfill the particular requirements of
the proposed work and with the
necessary qualifications to complete the
job in accordance with the terms of the
contract.
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Retention
A percentage of the payment to the
contractor that is withheld each month
Usually is 10%
Owner may reduce below 10% after
SUBSTANTIAL COMPLETION
Paid by owner to contractor after FINAL
COMPLETION of the project
Serves as an incentive for contractor to
complete ALL work per contract

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Other Contractual Terms
Substantial Completion
Beneficial Occupancy of the project
Warranty Period
Contact time
Calendar days vs. working days
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Other Contractual Terms
Liquidated Damages
Used as a PENALTY for late completion
Must be a REASONABLE penalty based on a
forecast of actual damages the owner would
suffer if the contractor is in breach of contract by
finishing late
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THANK YOU
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