1 Text Book Construction Contract Management

Contract Management
with particular reference to
Construction Contracts
- For Contracting Companys Professionals
Prepared by
Ajay Kumar Singhal

Mobile # 98101 53530
All rights reserved. No part of this document may be reproduced or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of
Writer.
______________________________________________________________________
AKS/TRG-NR/CCM/Rev-3
Dated 22-Aug-2011
By : Ajay Kumar Singhal
Construction Contract Management
Page 1 of 25
Contract Management
Contract management is a process which enables all the parties to a contract to
meet their obligations in order to deliver the objectives required from the contract.
The purpose of contract management is to obtain the services as agreed upon in
the contract and achieve value for money.
Thus, the aim and objective of Contract Management is a Zero Dispute
stage of project completion within the time and budget frame work.
Contract
As per the Contract Act, an agreement enforceable by law is a contract.
A Promise is an accepted Proposal;
An Agreement is a Promise and
An Agreement enforceable by law is a contract.
A person makes a proposal (offer). When it is accepted by other, it
becomes a promise.
Promises, express or implied
Insofar as the proposal or acceptance of any promise is made in words,
the promise is said to be express.
Insofar as such proposal or acceptance is made otherwise than in words,
the prom-ise is said to be implied.
- - For example, if a person enters a bus, there is implied promise that he
will pay the bus fair.
An agreement becomes a contract when :

There is some consideration.
Promise cannot be one sided. Only a mutual promise forming
consideration for each other is agreement.
- - For example,
A agrees to pay Rs 100 to B and B agrees to give him a book which is
priced at Rs 100. This is set of promises which form consideration for
each other.
However, if A agrees to pay Rs 100 to B, but B does not promise
anything, it is not set of promises forming consideration for each other
and hence not an agreement.
Also if A invites B to dinner and B agrees to come, it is not an agreement
as defined in Contract Act.
______________________________________________________________________
Dated 22-Aug-2011
Page 2 of 25
The parties are competent to contract.

Who are competent to contract - Every person is competent to contract
who is of the age of majority according to the law to which he is subject,
and who is of sound mind, and is not disqualified from contracting by any
law to which he is subject.
There is free consent of both parties.

Free consent Consent of both parties must be free.
Consent obtained through coercion (force / cruelty), undue influence,
fraud, misrepresentation or mistake is not a free consent. - - Two or
more persons are said to consent when they agree upon the same thing
in the same sense.
Their object is lawful.

The term contract does not mean only the short agreement to which the
signatures of the parties are affixed, but, includes all other documents and
correspondence which are mentioned to form integral part of the agreement.
That is why it is customary to refer to them as contract documents.
______________________________________________________________________
Dated 22-Aug-2011
Page 3 of 25
Documents generally forming part of the Contract

i.
Contract Agreement;
ii.
Letter of Acceptance (LOA) & Notice to proceed (NTP);
iii.
Contractors bid/ Tender Doc.
iv.
Contract data;
v.
Conditions of contract
a.
Conditions of Particular Applications.
b.
General Conditions of Contract.
c.
Any other set of conditions namely: Project Specific Conditions,

Special Conditions of Contract, subsequent amendments
incorporated etc.
vi.
Specifications;
vii.
Drawings;
viii.
Bill of Quantities.
______________________________________________________________________
Dated 22-Aug-2011
Page 4 of 25
Formation of Contract
Our first act in formation of a contract is to invite tenders through a Tender
Notice, which is an invitation for offer. The tender submitted by contractor is the
offer. Offer that is finally accepted is a contract.
STEPS INVOLVED IN FORMATION OF CONTRACT:
Proposal and its communication;
Acceptance of proposal and its communication;
Agreement by mutual promises;
Contract;**
** PN: A Contract can never be conditional acceptance. Sc.7 of ICA says
Acceptance must be absolute.
Essentials of a Contract
Essential elements of a (valid) contract are
An agreement;
Offer and acceptance;
Lawful consideration;
Capacity to enter into contract, i.e. competence of the parties;
Free consent of both parties;
Lawful object and
Intention to create a legal relationship.
It must be noted, writing is not essential for the clarity of a contract, except where
a specific statue requires writing.
E.g.
Contract for sale of immovable property must be in writing, stamped and
registered.
Contracts which need registration should be in writing.
Trust should be created in writing.
Contract made without consideration on account of natural love and
affection should be in writing.
Promise to pay a time barred loan should be in writing, as per the
Limitation Act.
An Arbitration agreement/ clause must be in writing.
______________________________________________________________________
Dated 22-Aug-2011
Page 5 of 25
Types of Contracts
Unit Rate/ Unit Price Contract :
This is also called item rate contract / value contract / measurement contract
or schedule rate contract. In this type, the contractors are required to quote
rates for individual items of work on the basis of schedule of quantities
furnished by the Owner. This schedule indicates full description of the items,
estimated quantities and their units. The Contractors are required to express
rates and work out the cost against each item and thereby draw up the total
amount tendered for the work.
Percentage Rate Contract :

In this form of contract, the Owner prepares schedule of items with quantities,
rates, unit and amount shown therein. The Contractors are required to offer
percentage above, below or at par with the rates given in the schedule. The
percentage quoted by Contractor is applicable on the overall schedule.
Cost plus Percentage Contract :

Cost plus percentage contract are generally adopted when conditions are
such that the rates of labour, material etc. are liable to fluctuate and there is
an element of uncertainty in the scope of the work. In this type of contracts
there is an arrangement between the Owner and the Contractor by which the
parties agree that the work ordered would be completed and paid for on the
basis of actual cost incurred plus a fixed percentage as profit.
Lump Sum Contract :

In a lump sum contract, the Owner has essentially assigned all the risk to the
contractor, who in turn can be expected to ask for a higher mark-up in order to
take care of unforeseen contingencies. Beside the fixed lump sum price, other
commitments are often made by the Contractor in the form of submittals such
as a specific schedule, the management reporting system or a quality control
program. If the actual cost of the project is underestimated, the
underestimated cost will reduce the Contractors profit by that amount. An
overestimate has an opposite effect, but may reduce the chance of being a
low bidder for the project.
Turnkey / EPC Contract :

This type of contract arrangement (also known as package deal, cle-enmain, or EPC) places the duty to design, engineering, procurement,
construction of the facility and thereafter preparation of start-up procedures, to
create operational manuals and training people to operate the facility etc. on
the Contractor.
The term turnkey tends to mean the most extreme form of placing design
and construction responsibility on the Contractor, such that after completion
______________________________________________________________________
Dated 22-Aug-2011
Page 6 of 25
the Employer only needs to turn the key to commence operation of the
constructed facility.
BOT Contract :
The concept of Build, Operate and Transfer (BOT) project is the most viable
way of building up the National network. NHAI brought this concept into
practice in the year 2000. Under the BOT scheme, the projects are offered on
concession for a specific time period and this concession period involves both
implementation and operation & maintenance of the project.
Basic differences from other conventional projects/ contracts:
The returns are spread over a longer period.
Sound financial & engineering skills are warranted.
No protection against any price variation during implementation period.
Cost and time overrun upsets the returns.
EOT granted by authority does not provide much remedy.
FIDIC Form of Contract :

Federation Internationale Des Ingenieurs Conseil (i.e. The International
Federation of Consulting Engineers) published standard forms of construction
contract for international use which are fairly balanced and equitable so far as
the rights and obligations of both the parties are concerned.
FIDIC Contract - Introduction
FIDIC stands for Federation Internationale Des Ingenieurs-Counseils which is

the organization who publish and maintain the documents. It is French short form
for the International Federation of Consulting Engineers.
FIDIC was originally derived from the British Institution of Civil Engineers (ICE)
standard form of contract.
FIDIC was founded in Belgium in 1913 by three European countries. The original
founding countries were France, Belgium and Switzerland. At present
membership is drawn from 74 countries.
______________________________________________________________________
Dated 22-Aug-2011
Page 7 of 25
Traditional FIDIC Forms of Contract :

The three books are
1) Red Book : For Works of Civil Engineering Construction.
4th Edition, 1987; Reprinted in 1988 & 1992 with amendments.
This is recommended for building or engineering works
designed by the Employer or by his representative i.e.
Engineer.
The Contractor constructs the works in accordance with a design provided
by the Employer.
However, the works may include some elements of Contractor-designed
civil, mechanical, electrical and/or construction works.
2) Yellow Book : For Electrical and Mechanical works.

3rd Edition; 1987 reprinted.
This is recommended for the provision of electrical and/or
mechanical plant, and for the design and execution of building
or engineering works.
The Contractor designs and provides, in accordance with the Employers
requirements, plant and/or other works; which may include any
combination of civil, mechanical, electrical and/or construction works.
3) Orange Book : For Design Build and Turnkey.

1st Edition; 1995.
This is recommended where Contractor takes total
responsibility for the design and execution of an engineering
project.
The Contractor carries out all the Engineering, Procurement and
Construction (EPC) : providing a fully-equipped facility, ready for operation
(at the turn of the key).
______________________________________________________________________
Dated 22-Aug-2011
Page 8 of 25
During updating its traditional books, FIDIC has noted that certain projects have
fallen outside the scope of the existing Books. Accordingly FIDIC has not only
updated the Standard forms but has expanded the range, and has in September
1999 published a suite of four new Standard Forms of Contract which are
suitable for the great majority of construction and plant installation projects
around the world.
The existing Books will still be available as long as there is a demand, but it is
expected that the new suite will supercede and expand the range of the existing
Books.
However, the previous edition of the Red Book (the fourth edition) continues to
be widely used and it seems likely that the 1999 edition will not replace it in the
medium term, at least in certain parts of the world.
1999 Suit of FIDIC Forms of Contract :

The four books are 1) Red Book : Conditions of Contract for Construction.
For Building & Engineering works, Designed by the Employer. (an update of old
Red Book) 1st Edition; 1999
The new Red Book is the traditional form for civil engineering construction in
which the Contractor constructs to the Employer's design. There is however
provision for the Contractor to carry out design where specified. The form
maintains the role of the Engineer and the payment mechanism is based on
measure and value. The new Red Book revises the previous Red Book version
and incorporates current thinking on the management of contracts.
______________________________________________________________________
Dated 22-Aug-2011
Page 9 of 25
2) Yellow Book : Conditions of Contract for Plant and Design-Build

Projects.
For Electrical & Mechanical Plant, and for Building & Engineering works,
Designed by the Contractor. (replaces both old Yellow & Orange Book) 1st
Edition; 1999
The new Yellow Book replaces the existing Yellow and Orange Books. It is
intended to be used for Design and Build contracts and for Plant Contracts. The
Engineer administers the contract and payment is on periods or installments of
the Lump Sum.
3) Silver Book : Conditions of Contract for EPC Turnkey Projects.
1st Edition; 1999
The Silver Book is an entirely new FIDIC form for BOT and similar projects. It is
intended to be used on fixed-price turn key projects. There is no Engineer,
instead the Employer deals directly with the Contractor. Risk is placed largely
with the Contractor. Payment is on periods or installments of the Lump Sum.
4) Green Book : Short Form of Contract.
1st Edition; 1999
The Green Book is an entirely new FIDIC form and adopts the overall risk
philosophy of the Red and Yellow Books. It is intended for contracts of relatively
small value, short construction time or involving simple or repetitive work. There
is no Engineer and the payment mechanism is required to be specified in the
Appendix to the Form of Agreement, but payment is at monthly intervals. It does
not matter who provided the design. Also it does not matter whether the project
involves construction, electrical, mechanical, or other engineering work.
______________________________________________________________________
Dated 22-Aug-2011
Page 10 of 25
In detail about
Red Book : Conditions for Works of Civil

Engineering Construction
Fourth edition, 1987; Reprinted in 1988 with editorial amendments;

Reprinted in 1992 with further amendments.
About FIDIC Part I & II

While framing FIDIC Conditions, it was recognized that while there are numerous
Clauses which will be generally applicable but there are some Clauses which
must necessarily vary to take into account of the circumstances and locality of
the Works. The Clauses of general application have been grouped together and
are referred as Part I General Conditions. The guidelines are given in FIDIC
book to prepare a Part II document (i.e. Conditions of Particular Application
(COPA)) which needs to be specially drafted to suit each individual contract.
The General Conditions are linked with COPA, by the corresponding numbering
of the Clauses, so that Parts I and II together comprise the Conditions governing
the rights and obligations of the parties.
______________________________________________________________________
Dated 22-Aug-2011
Page 11 of 25
Essential Features and Concepts of FIDIC

Based on domestic contract.
General Conditions not applicable can be disregarded.
Legal concepts are based on the common law system.
Conditions are fairly balanced and equitable to both the parties, so far as
the rights and obligations are concerned.
Concept of responsibility and liability based on sharing of risks. Risk
sharing is balanced. Risk is allocated to the party that is best able to bear
and control that risk.
Supervision of works and administration of the contract by Engineer, who
is appointed by the Employer.
Dual functions of Engineer an agent of the Employer and also an
independent and impartial person.
Engineer is not a party to the Contract and the FIDIC Conditions impose
obligations on the Employer that the Engineer duly performs.
Employer should not restrict the powers of the Engineer other than the
situations where specific approval of the Employer is provided in the
contract. He should not influence or interfere with the functioning of the
Engineer.
Compensation and time extension allowed when uncalculated hindrances
occur.
All claims, from either Party, have to follow a procedure.
Work must continue, regardless of differences: amicable settlement
encouraged.
If a dispute arises, reference to DRB (Dispute Review Board).
Dispute resolution procedure is: DRB >>> amicable settlement >>>
Arbitration.
______________________________________________________________________
Dated 22-Aug-2011
Page 12 of 25
Various Important Sub-Clauses

Instructions in Writing (Sub-Clause 2.5)
Where the Engineer does not give written confirmation of an verbal instruction to
the Contractor then the Contractor, within 7 days, may himself confirm to the
Engineer that he has received such an instruction. If the Engineer fails, in
writing, to contradict such a notice within 7 days the instruction is deemed to
have been given by the Engineer to the Contractor.
Priority of Contract Documents (Sub-Clause 5.2)
The several documents, forming the Contract are to be taken as mutually
explanatory of one another, but in case of ambiguities or discrepancies, the
priority of the documents forming the Contract shall be as follows :
1)
2)
3)
4)
5)
6)
7)
8)
Contract Agreement;
Letter of Acceptance (LOA) and Notice to Proceed (NTP);
Tender Document;
Conditions of Particular Application (COPA) - Part II;
General Conditions of Contract i.e. FIDIC - Part I;
Specification;
Drawings;
Priced Bill of Quantities.
Programme to be Submitted (Sub-Clause 14.1)

Once the Contract has been awarded a detailed Construction Programme need
to be submitted within the specified time period as indicated in Part II (COPA).
Generally, within 28 days from the date of receipt of Letter of Acceptance (LOA).
Cash Flow Estimate to be Submitted (Sub-Clause 14.3)
Once the Contract has been awarded a detailed Cash Flow Estimate need to be
submitted within the specified time period as indicated in Part II (COPA).
Generally, within 28 days from the date of receipt of Letter of Acceptance (LOA).
The Employer will require a cash-flow estimate to enable him to ensure that
funding is available when required.
______________________________________________________________________
Dated 22-Aug-2011
Page 13 of 25
Performance Security (Sub-Clause 10.1)

Contractor to obtain security for his proper performance of the contract and
provide to the Employer such security within 28 days after the receipt of the
Letter of acceptance. The performance security shall be valid up to Defects
Liability Period.
Insurance (Sub-Clause 25.1)
The Contractor shall supply the insurance policies to the Employer within 84 days
of the Commencement Date. The Engineer should be kept informed. The
Contractor's policies must be with insurers and in terms approved by the
Employer.
If the Contractor fails to provide or maintain the policies, the Employer may do so
and deduct the premiums from sums due to the Contractor.
Notice of Claims (Sub-Clause 53.1 / 53.2 / 53.3 / 53.4 / 53.5)
A Contractor intending to make a claim for additional payment must give notice
that he will do so within 28 days of the event. Thereafter he must keep records
including any records required by the Engineer, who will be entitled to inspect
such records. Within 28 or an agreed number of days of the Contractor's notice,
he should send a detailed claim to the Engineer. If the claim has a continuing
effect, he should send regular interim claims followed by a final claim once the
effects cease. If the Contractor fails to give notice, keep records or provide
details, his entitlement will be limited by what can be proved from the records that
do exist.
______________________________________________________________________
Dated 22-Aug-2011
Page 14 of 25
Events Entitling Contractor, Extension of Time and Cost

Notices / Information's Required To Be Given by Contractor FIDIC Clause
Requirement for giving Notice / Informations
Disruption of Progress / Delays and Cost of Delay of Drawings : If
6.3 / 6.4
the planning or execution of the Contractor's works is likely to be
hampered because of late issue of drawings or instructions by the
Engineer, it is important that the notice is given to Engineer informing
that late issue will have certain cost and time effects.
12.2
Not Foreseeable Physical Obstructions or Conditions : In spite of

the pre-tender investigations of the Site by the parties, the Contractor
may encounter unforeseen physical obstructions or physical conditions,
other than climatic conditions. The Contractor is required to give the
earliest possible notice to the Engineer.
20.4
The Employer's Risks are :

(a) war, hostilities (whether war be declared or not), invasion (attack),
act of foreign enemies,
(b) rebellion, revolution, insurrection, or military or usurped power, or
civil war,
(c) ionizing radiations, or contamination by radio-activity from any
nuclear fuel, or from any nuclear waste from the combustion of nuclear
fuel, radio-active toxic explosive, or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof,
(d) pressure waves caused by aircraft or other aerial devices traveling at
sonic or supersonic speeds,
(e) riot, commotion or disorder, unless solely restricted to employees of
the Contractor or of his Subcontractors and arising from the conduct of
the Works,
(f) loss or damage due to the use or occupation by the Employer of any
Section or part of the Permanent Works, except as may be provided for
in the Contract,
(g) loss or damage to the extent that it is due to the design of the Works,
other than any part of the design provided by the Contractor or for which
the Contractor is responsible,
(h) any operation of the forces of nature against which an experienced
contractor could not reasonably have been expected to take
precautions.
______________________________________________________________________
Dated 22-Aug-2011
Page 15 of 25

Notices / Information's Required To Be Given by Contractor
FIDIC Clause
Clause 20.4 should be read in conjunction with clause 65 (Special
20.4 / 65
Risks). Clause 65 makes it clear that the Contractor is not liable for the
consequences of Special Risks upon the works or other property nor for
injury or loss of life.
Clause 65.3 also, entitles the Contractor to payment for rectifying the
damage "so far as may be required by the Engineer or as may be
necessary for the completion of the Works.
27.1
Fossils : For the purpose of the Contract all articles of geological or

archeological interest discovered on the Site are considered the
property of the Employer. Sometimes contractor suffers, delays and cost
due to Engineer instruction relating to discovery of fossils/antiquities etc.
29.1
Interference with Traffic and Adjoining Properties : The Contractor

should comply with all local legislation and regulations and the rules of
all public bodies and companies affected by the works. The Contractor
will indemnify the Employer against any breaches, but the Employer will
be responsible for and will indemnify the Contractor in respect of matters
such as planning permission.
36.5
Engineers Determination where Tests not Provided for : Where

provision of Tests are not provided in Contract but tests conducted and
it is found that materials, plant or workmanship are in accordance with
the provisions of the Contract.
40.1
Engineers Determination following Suspension / Suspension

lasting more than 84 days : If the progress of the Works or any part
thereof is suspended on the instructions of the Engineer and if
permission to resume work is not given within a period of 84 days then,
unless the Contractor is responsible for the suspension, the Contractor
may, by notice to the Engineer, require permission, within 28 days, to
proceed. If such permission is not granted, the Contractor may elect to
treat the suspended work as omitted or, where all work has been
suspended, treat the Contract as repudiated (rejected).
42.1 / 42.2
Possession of Site and access Thereto/Failure to Give Possession

: If the Employer fails to provide the Possession of Site (or portions
thereof where appropriate) and Access Thereto in accordance with the
requirements of the contract / programme.
______________________________________________________________________
Dated 22-Aug-2011
Page 16 of 25

Contractors Entitlement to Suspend Work : Contractors entitlement
69.4
to suspend work or reduce the rate of work where the Employer fails to
pay to the Contractor his due amount. (Here due payment means Employer fails to pay, the Contractor the amount due under any
certificate of the Engineer within 28 days after the expiry of the time
stated in Sub-Clause 60.10 within which payment is to be made).
51 / 52
Variations : Where the Contractor intends to claim extra payment in

respect of the varied work, i.e.
(a) increase or decrease of the quantity of any work included in the
Contract,
(b) omission of any work (but not if the omitted work is to be carried out
by the Employer or by another contractor),
(c ) change the character or quality or kind of any work,
(d) change the levels, lines, position and dimensions on any part of the
works,
(e) execute additional works of any kind necessary for the completion of
the works, or
(f) change any specified sequence or timing of construction of any part
of the works.
44.1
Extension of Time for Completion : In the event of delay on account

of causes given in various clauses the Contractor is entitled for
extension of time.
- Contractor is required to notify to Engineer with a copy to Employer,
within 28 days after such event has first arisen.
- Further, within 28 days after such notification, Contractor to submit
detailed particulars of any extension of time to which he considers
himself entitled.
- However, where an event has a continuing effect, Contractor has to
submit interim particulars at intervals of not more than 28 days and
final particulars within 28 days of the end of the effects resulting from
event.
______________________________________________________________________
Dated 22-Aug-2011
Page 17 of 25
Events Entitling Contractor, Cost Alone

Setting-Out : Incorrect setting out data given to Contractor by Engineer
17.1
(i.e. position, levels, dimensions or alignment of any part of the works).
20.3
Loss or Damage Due to Employers Risks : Any loss or damage

happening from any of the risks defined in Sub-Clause 20.4, Employers
Risks.
38.2
Uncovering and Making Openings : The Engineer may require, as a

consequence of later discovery, that work already covered up be
uncovered and inspected and tested. Contractor incurs costs for testing
or uncovering works and such tests or uncovering shows that the
Contractors works were not defective.
50.1
Contractor to Search : This clause permits the Engineer to instruct the

Contractor to search for the cause of a defect, shrinkage or other fault in
the Works emerging prior to the end of the Defects Liability Period.
Depending on whose responsibility the fault turns out to be, the
Contractor either bears the cost himself or receives additional payment.
58
Provisional Sums : "Provisional sum" is defined. The Contractor will be

entitled to the sum determined by the Engineer in respect of work
covered by the provisional sums. The Engineer may issue instructions in
relation to provisional sums for work or the supply of materials etc either
by the Contractor who is to be paid pursuant to clause 52 (Valuation of
variations) or by a nominated Subcontractor who is to be paid pursuant
to clause 59.4 (Payments to nominated Subcontractors).
65.3 / 65.5
Damage to Works by Special Risks : Replacement or rectification of

materials or Contractors equipments and/or rectification of damage
caused to works or any materials or plant on or near or in transit to the
site, or any of the contractors equipment by Employers Risks as
defined in Sub-Clause 20.4 of FIDIC.
70.2
Subsequent Legislation : Any affect upon the cost of the works

resulting from changes in the any National or State Statute, Ordinance,
Decree or other Law or any regulation or bye-law of any local or other
duly constituted authority, or the introduction of any such State Statute,
Ordinance, Decree, Law, regulation or bye-law, occurring after the date
28 days prior to the Tender date, are to be established and added to or
deducted from the contract price.
______________________________________________________________________
Dated 22-Aug-2011
Page 18 of 25
Other Important Sub-Clauses of FIDIC

FIDIC Clause
Subcontracting : The Contractor shall not subcontract the whole of the
4.1
works. Also except otherwise provided by the Contract, the Contractor
shall not subcontract any part of the works without the prior consent of
the Engineer. The Contractor shall not be required to obtain such
consent for
a) the provision of labour.
b) the purchase of materials which are in accordance with the standards
specified in the Contract, or
c) the subcontracting of any part of the Works for which the
Subcontractor is named in the Contract.
46.1
Rate of Progress : If for any reason, which does not entitle the
Contractor to an extension of time, the rate of progress of the Works or
any Section is at any time, in the opinion of the Engineer, too slow to
comply with the Time for Completion, the Engineer shall so notify the
Contractor who shall thereupon take such steps as are necessary,
subject to the consent of the Engineer, to expedite progress so as to
comply with the Time for Completion. The Contractor shall not be
entitled to any additional payment for taking such steps.
47.1 / 47.2
Liquidated Damages for Delay : If the Contractor fails to complete the

whole or any specified Section of the Works by the due date, the
Employer may deduct or recover from the Contractor the daily amount
specified in the contract up to a given maximum amount. If the works
are handed over on a piecemeal basis, the amount of liquidated
damages is reduced proportionately.
48.1 / 48.2 / Taking-Over Certificate : When the whole of the Works have been
48.3
substantially completed and have satisfactorily passed any Tests on
Completion prescribed by the Contract, the Contractor may give a notice
to that effect to the Engineer, with a copy to the Employer, accompanied
by a written undertaking to finish with due expedition any outstanding
work during the Defects Liability Period. Such notice and undertaking
shall be deemed to be a request by the Contractor for the Engineer to
issue a Taking-Over Certificate in respect of the Works.
Taking-Over Certificates may be issued in respect of specified Sections
or parts of the Works, which are either complete or are incomplete but
have been taken over by the Employer.
______________________________________________________________________
Dated 22-Aug-2011
Page 19 of 25

FIDIC Clause
49.1 / 49.2 / Defects Liability : This clause defines the Defects Liability Period as an
49.3 / 49.4
agreed period, usually six or twelve months running from the date or
dates of the Taking-Over Certificate. The Contractor is obliged to
complete any outstanding work and remedy any defects during or
shortly after this period. Unless any remedial work undertaken by the
Contractor was due to a cause which was not the Contractor's
responsibility, he receives no extra payment for works executed during
this period. If the Contractor remedies defects not of his making, he is
paid as if the work was a variation. If the Contractor fails to carry out the
remedial works within a reasonable time, the Employer can take on
alternative contractors to execute the works and charge the Contractor
the cost of remedying the Contractor's defects.
Nominated Subcontractors : The Contractor need not employ any
nominated Subcontractor against whom he has reasonable objection or
who refuses to enter into a sub-contract which is back to back with the
main contract and which indemnifies the Contractor in respect of the
nominated Subcontractor's breaches and against the negligence of his
workmen and misuse of any Temporary Works.
59
The Engineer is entitled to proof that certified sums have been paid to
nominated Subcontractors before issuing any further certificate. Unless
the Contractor shows he has reasonable grounds for refusing to make
such a payment and proves that he has so notified the nominated
Subcontractor, the Employer may make direct payments and deduct the
equivalent sum from the Contractor. The Engineer is to show the
deduction on the next certificate which should not be delayed.
70.1
Increase or Decrease of Cost : The rise and fall in the cost of labour,
materials etc is to be taken into account in accordance with a
fluctuations clause as set out in Part II (COPA). That is called Price
Adjustment or Escalation and the formula for calculating the amount is
usually defined in Part II (COPA)
______________________________________________________________________
Dated 22-Aug-2011
Page 20 of 25

Clause 67 : Settlement of Disputes : This clause is the disputes clause and
introduces a 3-stage process. Any dispute should be referred in writing to the Engineer
who is given 84 days in which to give his decision. Unless the contract has come to an
end, the Contractor continues to execute the Works and both parties must give effect to
the Engineer's decision. If either party is dissatisfied with the decision or the Engineer
fails to make a decision, they have 70 days in which to give notice of their intention to
commence arbitration. If they fail to give such notice, the Engineer's decision will
become final and binding upon the parties.
For 56 days after the notice of arbitration is given, the parties try to settle the dispute
amicably.
If neither the Engineer's decision nor the attempts at amicable settlement have
succeeded in resolving the dispute, the matter is referred to arbitration under the rules
of the ICC. The arbitrator will have power to look into any decision of the Engineer and
replace any certificates etc. that the Engineer has made. The parties may use fresh
evidence and arguments and may call the Engineer as a witness. The arbitration may
be commenced before or after the completion of the Works.
______________________________________________________________________
Dated 22-Aug-2011
Page 21 of 25
However, generally Sub-Clause 67.1 is substituted in COPA with Disputes Review

Board. In this If any dispute arises between the Employer and the Contractor in
connection with, or arising out of, the Contract or the execution of the Works, whether
during the execution of the Works or after their completion and whether before or after
the repudiation or other termination of Contract, including any disagreement by either
party with any action, inaction, opinion, instruction, determination, certificate or valuation
of the Engineer, the matter in dispute shall, in the first place be referred to the DRB.
Dispute Review Boards :

Dispute Review Boards are very useful in construction contracts. The traditional
methods of resolution of dispute come after the fact, (when the project is complete and
the parties have already become adversaries). On the other hand, a Dispute Review
Board visits the job site regularly during construction and is kept advised of contract as
it progresses.
Normally, the Dispute Review Board consists of three members. One member is
appointed by each party. The third member (who becomes the Chairman) is selected by
the two members and approved by the parties. The members are expected to have :
a) experience with the type of construction,
b) familiarity with interpreting contract documents, and
c) adequate background in the construction industry. They must not have any
affiliation with the parties.
The Board, after recording the parties' submissions, suggests a settlement. If it is not
acceptable to both the parties, they can make a request to the Board to make further
efforts, or pursue litigation or arbitration, as the case may be.
______________________________________________________________________
Dated 22-Aug-2011
Page 22 of 25
Claim - Introduction
A claim is a demand or assertion by one of the parties seeking, as a matter of
right, adjustment or interpretation of contract terms, payment of money,
extension of time or other relief w.r.t. the terms of the Contract.
Claims can be classified as

Contractual Claims : Such claims have a basis in the contract itself. Gives rise
to entitlement where a particular provision can be quoted.
Extra - Contractual Claims : These are claims for breach of contract which are
not covered under the express provision of contract but are tenable under the law
applicable to Contract Act / Common Law and/or implied covenant of good faith
and reasonable expectation, fair dealings, implied duty of cooperation, and full
disclosure and warranty of suitable specification / design.
Quantum Merit Claims : Provide remedy for a Contractor who has carried out
work under the instruction of the Owner but no price has been agreed.
Ex Gratia Claims : Ex-gratia claim is one where no legal remedy is available to

the contractor but arise out of hardship. On the ground of equity or favour the
authority concerned may in certain circumstances consider that hardship calls for
mercy or moral liability.
Counter Claims : The claims raised by the opposite party to counter the claims
of the claimant is called as counter claims.
______________________________________________________________________
Dated 22-Aug-2011
Page 23 of 25
Extra Item
The works which are not expressly or by implication included in the Contract but
necessarily required for the completion of the work.
How to Identify Extra Items ?

Go through the Contract documents carefully (especially BOQ, Technical
Specifications, Tender Drawings and Tender Data).
Any work executed at site but not included in the Contract price and not required
in its performance will be extra item.
Claims and Its Origin

Claims originate from various sources and the basis of claims can be :
Alterations, Additions and Omissions (Variation).
Conflicting conditions of Contract.
Delay in handing over of site / commencement.
Non-apparent or unforeseen conditions on the site.
Change in work sequences.
Delay in supply of drawings.
Incorrect drawings.
Drawing / Specifications discrepancies.
Late information / approval.
Inclement weather (severe or stormy).
Suspension of work.
Damages to works.
Delay in payment.
______________________________________________________________________
Dated 22-Aug-2011
Page 24 of 25
Tips
1)
Be fully conversant with all the Clauses in the Contract, Technical

Specifications, Scope of works etc.
2)
Monitor the job on a day to day basis.
3)
Whenever deviation arises in the form of Clients requirements through

Drawings, Site Orders, Letters etc. make note of the same and inform to
Clients immediately.
4)
If it involves cost implications, same can be indicated and approval sought.
5)
In case of occurrence of delays due to various factors intimate the same to

Clients about it. The exact duration may be notified later including cost
implications at an appropriate time.
6)
Correspondence to Clients to be progressively built-up. Never fail to reply any

of Clients letters.
7)
Do not fail to apply for Extension of Time well before the expiry of the
contract period with appropriate reasons.
8)
Follow-up with Commercial Department for renewal of Insurances, Bank

Guarantees well in time.
9)
Be on the look out to get information on certain relevant details viz. increase in
taxes, escalation, force-majeure conditions etc. which have impact on the job.
10)
Read the contract between the lines and not the lines alone for better
interpretation of the same to our advantage.
To contact, e-mail at : ajaysinghal68@yahoo.com
______________________________________________________________________
Dated 22-Aug-2011
Page 25 of 25

1 Text Book Construction Contract Management

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

1 Text Book Construction Contract Management

Загружено:

Авторское право:

Доступные форматы

Contract Management

with particular reference to

Ajay Kumar Singhal

By : Ajay Kumar Singhal

Construction Contract Management

An agreement becomes a contract when :

By : Ajay Kumar Singhal

Construction Contract Management

The parties are competent to contract.

There is free consent of both parties.

Their object is lawful.

By : Ajay Kumar Singhal

Construction Contract Management

Documents generally forming part of the Contract

Letter of Acceptance (LOA) & Notice to proceed (NTP);

Contractors bid/ Tender Doc.

Conditions of Particular Applications.

General Conditions of Contract.

Any other set of conditions namely: Project Specific Conditions,

By : Ajay Kumar Singhal

Construction Contract Management

By : Ajay Kumar Singhal

Construction Contract Management

Percentage Rate Contract :

Cost plus Percentage Contract :

Lump Sum Contract :

Turnkey / EPC Contract :

By : Ajay Kumar Singhal

Construction Contract Management

FIDIC Form of Contract :

FIDIC Contract - Introduction

FIDIC stands for Federation Internationale Des Ingenieurs-Counseils which is

By : Ajay Kumar Singhal

Construction Contract Management

Traditional FIDIC Forms of Contract :

2) Yellow Book : For Electrical and Mechanical works.

3) Orange Book : For Design Build and Turnkey.

By : Ajay Kumar Singhal

Construction Contract Management

1999 Suit of FIDIC Forms of Contract :

By : Ajay Kumar Singhal

Construction Contract Management

2) Yellow Book : Conditions of Contract for Plant and Design-Build

By : Ajay Kumar Singhal

Construction Contract Management

Red Book : Conditions for Works of Civil

Fourth edition, 1987; Reprinted in 1988 with editorial amendments;

About FIDIC Part I & II

By : Ajay Kumar Singhal

Construction Contract Management

Essential Features and Concepts of FIDIC

By : Ajay Kumar Singhal

Construction Contract Management

Various Important Sub-Clauses

Programme to be Submitted (Sub-Clause 14.1)

By : Ajay Kumar Singhal

Construction Contract Management

Performance Security (Sub-Clause 10.1)

By : Ajay Kumar Singhal

Construction Contract Management

Events Entitling Contractor, Extension of Time and Cost

Not Foreseeable Physical Obstructions or Conditions : In spite of

The Employer's Risks are :