CHAPTER-4
CONTRACTS, TENDERS AND
ARBITRATION
Contract:
A valid agreement between two parties
including terms and conditions, rights and
obligations enforced by law.
Legalities of Contract
• The contract must be clear, mutual and communicated
in a way that both parties intend to bound to the
contract.
• A contractor who refuses to carry out the work before
completion can be subjected for breach of contract.
• If a breach occurs, injured party may seek legal
remedies.
• When an employer makes it impossible for a
contractor to complete the work in accordance with
the contract, the contractor can sue for the rate of the
completed work.
Legalities of Contract
• The penalties described in the penalty clause will not
be applicable if the execution of the contract is
delayed through the fault of the employer.
• When a contractor has finished part of a work and
refuses to complete the entire work , the employer
has to pay for the work which was done by the
contractor
• When a contract is formed and it becomes
impossible to perform the work immediately or at a
later date, it may be possible to adjust the rights and
liabilities of the parties.
Contract Document
• It is the written record of the terms and conditions agreed upon by the parties.
Contents in typical contract document
letter inviting tender
Instructions to tenderers – Guarantee, bond
General conditions of contract – liabilities, responsibilities, method of
payment, insurance, power of employer and contractor
Special conditions of contract
A complete set of drawings showing the general dimensions of the proposed
work and other details of the various parts.
Specification – quality of materials, workmanship, methods of construction,
plant and machinery and equipment used
Tender notice giving brief description of work, estimated cost, date and time of
tender, amount of earnest money, security deposit, time of completion
Tender form giving contractor’s rate, cost of total work, time of completion,
progress of work, penalty clauses etc.,
Legal agreement signed by both parties
Types of Contracts
• Lump sum contract
• Piece work contract
• Item rate contract
• Percentage contract
• Negotiated contract
• Departmental Execution of work
LUMP SUM CONTRACT:
• In this type of contract, the contractor undertakes the
construction work and completes it in all respects for a
fixed amount of money.
• Individual rates and quantities are not quoted
• 10% security deposit and othet conditions are
included.
• Payment to the contractor will be released after
detailed measurement of work and checked with the
drawings and specifications
• This type of contract is usually adopted when the
number of items are limited.
Merits:
• This contract is benefit to owner since the total project cost is
fixed
• The contractor’s profit directly depends on the time of
completion
• The contractor tries to complete the work as early as possible.
Demerits:
• The contractor may charge extra for any modifications in
project
• The contractor might use low quality materials to save cost
• Incomplete project definitions can lead to dispute
• If the contractor fails to deliver on time,they could lose profit
margins
PIECE WORK CONTRACT:
• It is the agreement for doing the work at the agreed rates,
without reference to the total quantity of work or time.
• Small works or piece-works are got done through the
contracts by piece-work agreement.
• This is not a contract in true sense, because there is no
security money, no penalty clause and department may
terminate the work at any time by giving a notice.
• These agreements contain only the description of various
items of work to be done and the rate to be paid for.
• This contract system is generally used for urgent and small
works
Merits:
• Speed in execution of work
• Small contractors can easily undertake the work
• Where the works are small, it works out to be cheaper and
quicker
Demerits:
• No time limit hence the rate of profit will be low
• There are chances for unskilled labour so department has to
supervise the work
ITEM RATE CONTRACT OR K-2 FORM OF AGREEMENT
• In this type of contract, the contractor undertakes
the work on the item rate basis.
• The quantities of various items are worked out by
detailed measurements.
• Every contractor quotes his rates against each item
and arrives at the final total amount of the work.
• The payment is done on the basis of quantities of
items done and their respective rates.
• It is suitable for works which can be split into various
items and each item can be estimated with accuracy
Merits:
• The additions and alterations in the plan and specifications can be
easily made at any stage.
• As the contractor gets the payment against the actual quantities of
items done by him, the method is economical.
• As the rates are item-wise the contractor is not worried regarding
the uncertainties in the plan and specifications
Demerits:
• The total cost of work can only be computed after completion of
entire project.
• In view of the above the contractor may face financial difficulty if
final cost increases abnormally.
• Before preparing bills, all measurements have to be carefully taken
and entered in M-Book.
PERCENTAGE CONTRACT
• Also known as Cost Plus Fixed Fee contract
• Contractor accepts for a fixed percentage over the
actual cost of construction
• When no contractor is agreeing to do work on other
types, this type is adopted
• The percentage is determined based on the
estimated total cost of the project
Merits:
• No chance of dispute between the contractor & agency
• Works can be completed at a rapid rate
• Change in the design and construction can be made
Demerits:
• Inspection of work at every stage is essential
• Difficult to arrive actual cost incurred by the contractor
• Generally not suitable for government departments
NEGOTIATED CONTRACT
• In case where no tender is coming forward or the
rates quoted are also abnormally high.
• It becomes difficult to arrange for completing the
work
• department can negotiate with the party offering the
lowest tender to reduce his rates on a reasonable
level.
• Department can also negotiate with the selected
contractors after studying their experience, financial
status, reputation etc..,
DEPARTMENTAL EXECUTION OF WORKS
• Adopted when works are to be completed immediately
• Direct employment of labour
• Materials are arranged by the Department
• Department officers have to execute the work
• No wastage of material occurs
• Output of work is more superior since the use of better quality
materials
• The overall construction cost is less as there is no question of profit.
• Details of work done and their measurements are entered in M-
Book.
• Payments are made as per the measurements made in the M-Book.
GENERAL CONDITIONS OF CONTRACT FOR CIVIL ENGG
WORKS
• The employer is responsible for making construction site
available for contractor
• The contractor has to deposit 10% of the tendered amount as
security deposit
• Contractor can seek extension of time in case of delay in
completion
• The contractor can claim extension of time without penalty in
case of natural disasters.
• The completion certificate is issued to contractor after
completion of work including site clearance
GENERAL CONDITIONS OF CONTRACT FOR CIVIL ENGG
WORKS
• The final payment is issued to the contractor after he issue of
completion certificate
• Details of financial and legal consequences of both parties
• The contractor shall be entitled to get 75% advance payment
against estimated value of materials.
• If the contractor fails to complete the work as per
specification, he is liable to pay compensation
• The contractor can provide labour camps at work site
• The contractor is required to take necessary safety
precautions at site to protect the workers
