UNIT II

CONTRACT & ARBITRATION

Contents of Contract document
Articles Of Agreement,
Terms And Conditions Of Contract,
Important Clauses Appendix
Arbitration
Definition
Advantages Of Arbitration,
Sole And Joint Arbitrators,
Role Of Umpires,
Award
Conduct Of Arbitration Proceedings
Arbitration clause in contract agreement
Role Of Architect
Excepted Matters Case Studies
CONTRACT
A contract is an agreement reached between two or more parties which is legally enforceable when
executed in accordance with specific requirements.
Contracts should be project specific and reflect the agreement between the parties.
Contracts are obviously a key part of every business and it is therefore fundamental that all parties to
a contract understand the terms included in a contract and the rights and responsibilities of the
parties under that contract.
Every contract should have:
Offer;
Acceptance;
Consideration (although note the position in relation to Scotland below); and
Intention to create legal relations.
Thus a contract document shall consist of the following papers:
Copy of public notice or copy of letter of invitation
Copy of work order Appendix
Letter of offer by contractor Specification of work and material
Articles of agreement Bill of quantities
General conditions of contract Contact drawings
CONTENTS OF CONTRACT DOCUMENT
Articles Of Agreement,
Terms And Conditions Of Contract,
Important Clauses Appendix

ARTICLES OF AGREEMENT

A written memorandum of the terms of an agreement. It is a common practice

for persons to enter into articles of agreement.
Preparatory to the execution of a formal deed, whereby it is stipulated that
one of the parties shall convey to the other certain lands, or release his right to
them, or execute some other disposition of them.
An article is a memorandum(register) or minute of an agreement, reduced to
writing to make some future disposition or modification of property; and
such an instrument will create a trust or equitable state
TERMS AND CONDITIONS OF CONTRACT

This instrument should contain

1. The name and character of the parties.

2. The subject-matter of the contracts.
3. The covenants which each of the parties bind themselves to perform
4. The date
5. The signatures of the parties.
CONTRACT TYPES based on bid types
1. Lumpsum contract
2. Item rate / unit rate contract

LUMP SUM CONTRACT

A lump sum contract, sometimes called stipulated sum, is the most basic form of agreement between a
contractor and a customer.
A lump sum contract or a stipulated sum contract will require that the contractor agree to provide
specified services for a stipulated or fixed price.
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 markup in order to take care of unforeseen contingencies.
A contractor under a lump sum agreement will be responsible for the proper job execution and will
provide its own means and methods to complete the work.
This type of contract usually is developed by estimating labor costs, material costs, and adding a specific
amount that will cover contractors overhead and profit margin.
If the actual costs of labor and materials are higher than the estimate, the profit will be reduced. If the
actual costs are lower, the contractor gets more profit. Either way, the cost to the owner is the same.
A lump sum contract is a suitable if the scope and schedule of the project are sufficiently defined to
allow the contractor to fully estimate project costs.
Lump-Sum Construction Contract

Suitability
A lumpsum contract is more suitable for works for which contractors have prior construction
experience.
This experience enables the contractors to submit a more realistic bid.
This type of contract is not suitable for difficult foundations, excavations of uncertain character, and
projects susceptible to unpredictable hazards and variations.
Merits
i. The owner can decide whether to start or shelve the project knowing the total lumpsum price quoted
by different contractors.
ii. The contractor can earn more profit by in-depth planning and effective management site.
Demerits
i. Before the contract is awarded, the project has to be studied thoroughly and the complete contract
documents has to be prepared in advance.
ii. In this type of contract, unforeseen details of work are not specified in the contract document. Many
additional items 4 may have to be undertaken as the work progresses, giving opportunity to the
contractor for claiming higher rates of the extra items not included in the contract agreement.
ITEM RATE / UNIT RATE CONTRACT

Also called a schedule contract,

In a unit price contract, the work to be performed is broken into various parts, usually by
construction trade.
This contract type is based on anticipated quantities of items which are counted in the
project in addition to their unit prices.
The final price of the project depends upon the quantities required to carry out the work.
For example, painting is typically done on a square foot basis.
Unit price contracts are seldom used for an entire major construction project, but they are
frequently used for agreements with subcontractors which involve accurate identification of
different types of items, but not their numbers, in the contract documents.
They are also often used for maintenance and repair work.
ITEM RATE / UNIT RATE CONTRACT

Suitability
The item rate contract is most commonly used for all types of engineering works financed by public or
government bodies. This type of contract is suitable for works which can be split into various items and
quantities under each item can be estimated with accuracy.
Merits
i. In this type of contract, there is no need for detailed drawings at the time of allotting contract as in
the case of lumpsum contract. The detailed drawings can be prepared after the contract is awarded.
ii. Changes in drawings and quantities of individual items can be made as per requirement within agreed
limits.
iii. The payment to the contractor is made on the actual work done by his at the agreed rates.
Demerits
i. The total cost of work can only be known upon completion. As such, the owner may incur financial
difficulty if the final cost increases substantially.
ii. Additional staff is required to take detailed measurements of work done for releasing payments to
the contractor.
iii. iii. The Scope for additional saving with the use of interior quality materials may prompt the
contractor to use such materials in the work.
 ARBITRATION
Arbitration is a popular form of alternative dispute
resolution that is used by many individuals and businesses to
resolve disagreements in place of pursuing a lawsuit.
Arbitration is a method of adjudication of dispute(s) / difference(s)
between the parties by non-judicial process wherein
arbitrator(s)/umpire(s) is appointed by the parties themselves
under a contract whereby the parties agree for adjudication of
such dispute(s)/difference(s) by way of arbitration proceedings

ARBITRATION UTILIZES A NEUTRAL THIRD PARTY TO HEAR A DISPUTE BETWEEN PARTIES.

The hearing is informal and the parties mutually select the arbitrator.
The arbitrator is retained to decide how to settle the dispute and the decision is final and binding
on the parties.
Arbitration is more cost efficient and quicker than litigation but it is the arbitrator, not the parties,
who renders the terms and conditions of the dispute resolution
 NECESSITY AND ADVANTAGES OF ARBITRATION ACT

Shrinking boundaries, free trade & international commerce have become global necessities.
Competition often leads to conflicts between entrepreneurs resulting in commercial disputes.
Growing strength and role of india in the global economy
Increasing FDI and other forms of collaboration and increasing disputes between indian and
foreign parties
Quick redressal to commercial disputes through private arbitration.
Settlement of dispute in an expeditious, convenient, inexpensive and private manner so that
they do not become the subject of future litigation between the parties.
 Advantages Of Arbitration,
The parties are often encouraged to participate in the resolution process.
Negotiating within the framework of a cooperative process may well lead to a mutually beneficial
solution to a disagreement.
Some other perceived benefits of arbitration are as follows:
Arbitration is typically cheaper than traditional litigation.
An arbitration case can also be resolved more quickly than a lawsuit.
Arbitration hearings can be scheduled to meet the needs of busy participants, including
evenings and weekends.
Litigation in a public court of law is subject to the limitations of a rigid court calendar.
Unlike traditional litigation, complex legal procedures and rules of evidence are not
available in an arbitration case.
Procedures such as discovery and depositions are often used to delay legal proceedings in a
court of law.
An arbitration case provides more privacy than litigation.
Arbitration participants can agree to keep the final resolution and sensitive information
completely private.
Disadvantages Of Arbitration
The final decision of an arbitrator is difficult to overturn.
It may not even be possible to seek redress in a court of law.
The extensive budget and legal staff of a major corporation may prove to be a significant disadvantage for the
average consumer.
Many consumers are only made aware of a mandatory arbitration provision toward the end of the buying
process.
Lengthy contracts are complex and difficult to comprehend.
Arbitration services actively market their services to major vendors of consumer products and services.
For this reason, the selection and allegiance of an arbitrator may lack objectivity.
Though the arbitration process offers more privacy than litigation, arbitration may also impose a corresponding
lack of transparency.
Since arbitration proceedings are private and seldom reviewed in court, the possibility of bias is enhanced.
The cost of arbitration has risen dramatically in recent years.
In particular, the cost of initiating a lawsuit is much less than pursuing an arbitration claim.
Arbitration fees, especially if a panel of arbitrators is involved, can be quite extensive.
Consumers should carefully weigh the pros and cons of arbitration before signing any contract that mandates
arbitration in the event of a dispute.
Informed consumers may prefer to shop around rather than agree to a binding arbitration requirement. Watch
out for unexpected changes to existing consumer contracts.
The addition of mandatory arbitration is usually hidden in the fine print.
 Types of ARBITRATORS
I. SOLE ARBITRATOR ,
ARBITRATOR TYPES
II. JOINT ARBITRATORS
/ARBITRAL TRIBUNAL
PARTY - A
III. PRESIDING ARBITRATOR
1. SOLE ARBITRATOR
PARTY - B

UMPIRE / CHAIRMAN
PARTY - A
ARBITRATOR 1 JOINT ARBITRATORS /
2.
ARBITRATOR 2 ARBITRAL TRIBUNAL
PARTY - B
.
.
.

PARTY - A ARBITRATOR - A
3. PRESIDING ARBITRATOR
PARTY - B ARBITRATOR - B
The appointment of Sole Arbitrator Or Three Arbitrators shall be made in the following manner:

(a) In case a Sole Arbitrator has to be appointed,

The Registrar shall, by a notice in writing, call upon the parties to the dispute to forward the name
of an agreed arbitrator from among the Panel of Arbitrators.
The said notice shall specify the period within which the nomination shall be made which shall not
be more than thirty days from the date of the said notice to the respective parties.
If the parties fail to agree on the person to be appointed as sole arbitrator within the time granted
by the Registrar, the Registrar in consultation with the Chairman of the Committee and in his
absence in consultation with the member of the Governing Body designated by the Chairman, shall
appoint the sole arbitrator from among the Panel of Arbitrators.
If one of the parties is a national or resident of a country other than India, the sole arbitrator shall,
as far as possible, be chosen or appointed by the Registrar from among the nationals of a country
other than that of either of the parties.
The sole arbitrator so nominated shall constitute the arbitral tribunal to hear the dispute and shall
be appointed as such in writing by the Registrar.
The Registrar shall give notice to the Parties of the constitution of the arbitral tribunal.
(b) Where the reference is to three arbitrators,
The Registrar shall in the first instance call upon the parties to nominate one arbitrator each from among the
Panel of Arbitrators by a notice in writing, sent to them.
The said notice shall specify the period within which the nomination shall be made which shall not be more than
thirty days from the date of the said notice to the respective Parties.
If a Party to the dispute refuses or neglects to appoint an arbitrator on his behalf within the period specified or if
he requests the Registrar to nominate an arbitrator on behalf of that party, the Registrar in consultation with the
Chairman of the Arbitration Committee and in his absence in consultation with the members of the Governing
Body designated by the Chairman shall appoint the arbitrator from the Panel of arbitrators on behalf of that party.
On receipt of the nominations from the respective parties or on the appointment as aforesaid by the Registrar, the
Registrar shall appoint another person as the Presiding Arbitrator of the arbitral tribunal in consultation with
Chairman of the Committee and in his absence in consultation with members of the Governing Body designated
by the Chairman, from among the panel of arbitrators to be additional arbitrator to act as Presiding Arbitrator of
the arbitral tribunal.
(c) If one of the parties is a national or resident of a country other than India,
The Additional Arbitrator shall, as far as possible, be chosen or appointed from among the nationals of a country
other than that of either of the parties. The arbitrators so nominated or appointed shall constitute the arbitral
tribunal and shall be appointed as such in writing by the Registrar.
The additional arbitrator appointed by the Registrar shall act as Presiding Arbitrator of the arbitral tribunal. The
Registrar shall give notice to the parties of the constitution of the arbitral tribunal.
 Role Of Umpires
The role of an umpire is usually dictated by the arbitration rules and the need for one is often
precluded by simply providing for an uneven number of arbitrators.
For a time, but rarely in modern times, arbitration would be set up as two arbitrators and an
umpire, the umpire taking no action except where the arbitrators are disagreed.
There are many forms of authority of an umpire but they are generally given the authority to
step in and independently rule on an issue upon which the arbitrators are deadlocked.
The parties are free to agree what are to be and, in particular
(a) whether the umpire is to attend the functions of an umpire the arbitral proceedings; and
(b) when, and the extent to which, the umpire is to replace the arbitrators as the arbitral
tribunal with the power to make orders, directions and awards.
If or to the extent that there is no such agreement of the parties, the arbitrators are free to agree
on the functions of the umpire.
Subsections (4) to (11) apply subject to any agreement of the parties or the arbitrators.
After an umpire is appointed, the umpire must attend the arbitral proceedings.
The umpire must be supplied with the same documents and other materials as are supplied to the
arbitrators.
Orders, directions and awards are to be made by the arbitrators unless, subject to subsection (9), the arbitrators
cannot agree on a matter relating to the dispute submitted to arbitration.
If the arbitrators cannot agree on a matter relating to the dispute submitted to arbitration, they must forthwith give
notice of that fact in writing to the parties and the umpire, in which case the umpire is to replace the arbitrators as the
arbitral tribunal with the power to make orders, directions and awards, in respect of that matter only, subject to
subsection (9)(b), as if the umpire were the sole arbitrator.
If the arbitrators cannot agree on a matter relating to the dispute submitted to arbitration but
(a) they fail to give notice of that fact; or
(b) any of them fails to join in the giving of notice,
any party may apply to the Court which may decide that the umpire is to replace the arbitrators as the arbitral
tribunal with the power to make orders, directions and awards, in respect of that matter only, as if the umpire
were the sole arbitrator.
Despite the replacement by the umpire as the arbitral tribunal in respect of a matter, on which the arbitrators cannot
agree, relating to the dispute submitted to arbitration, the arbitrators may
(a) still make orders, directions and awards in respect of the other matters relating to the dispute if they consider
that it would save costs by doing so; or
(b) refer the entirety of the dispute to the umpire for arbitration.
For the purposes of this section, the arbitrators cannot agree on a matter relating to the dispute submitted to
arbitration if any one of the arbitrators, in that arbitrators view, disagrees with the other arbitrator or any of the other
arbitrators over that matter.
A decision of the Court under subsection (8) is not subject to appeal
AN ARBITRATOR reviews testimony and evidence presented by the disputed parties at a hearing and
resolves the dispute by issuing a decision that may include an award of money.

APPOINTMENT OF ARBITRATOR
Any person can be appointed as an arbitrator.
Generally impartial and independent persons .
Parties are free to determine the number of arbitrators
Number shall not be an even number.
C As, engineers, retired judges, advocates and other professionals are preferred
The arbitrator shall disclose in writing to the parties anything that may give rise to justifiable
doubts about his independence or impartiality.

ROLE AND RESPONSIBILITIES

To act fairly and impartially between the parties, and to allow each party a reasonable opportunity
to put their case and to deal with the case of their opponent (sometimes shortened to complying
with the rules of "natural justice)
To adopt procedures suitable to the circumstances of the particular case, so as to provide a fair
means for resolution of the dispute
Elaborate Arbitrators roles and duties:
AN ARBITRATOR'S ROLE
An arbitrator serves as the decision-maker and 'referee' in an arbitration proceeding, much like a judge during
court litigation. The arbitrator is bound by the rules outlined in the parties' arbitration agreement. If an arbitrator
is a member of a special arbitration organization, such as the Indian council for Arbitration the arbitrator will be
bound by the rules of that organization as well, including a set of ethical rules.
AN ARBITRATOR'S DUTIES:
1. Interprets and applies the rules and laws applicable to the arbitration.
The rules applicable should be outlined in the arbitration agreement. The parties may also designate a particular
state's law to govern the dispute in the arbitration agreement.
2. Manages the scope of discovery that can be undertaken by both parties.
Discovery is a formal process of investigation to determine facts relevant to the dispute. The investigation can
include taking witness statements and reviewing documents required to be disclosed by the other disputing party.
3. Conducts the arbitration hearing in which both sides of the dispute may submit testimony, other evidence such as
documents, and arguments.
Each side's position may be summarized in a written document often called a statement of the caseand be
submitted to the arbitrator for review as part of the hearing process.
4. Makes a decision resolving the dispute based on the testimony, evidence and arguments submitted by both sides of
the dispute.
A decision may include granting an award of money.
THE QUALIFICATIONS OF AN ARBITRATOR

The Indian law does not lay down any specific qualifications for arbitrators.
Every person who is of age and of sound mind can be appointed as an arbitrator
To be an arbitrator, no formal qualification has been prescribed in the act. Even nationality is also
no bar.
Parties have been given full authority to determine the qualification of the arbitrator.
Section 11 (1) of the act says that a person of any nationality may be an arbitrator, unless
otherwise agreed by the parties. It is the parties who have to determine the qualification of the
arbitrator keeping in mind the nature of the dispute(s)/difference(s) that has arisen or may arise
between them.
Parties may agree upon the qualification at very initial stage when they enter into an arbitration
contract/clause or after dispute(s)/difference(s) arose if earlier has not been agreed.
It will be beneficial for the parties themselves to determine the qualification otherwise decision
of the arbitrator i.e. arbitral award may be set aside where the adjudication of such dispute(s) /
difference(s) requires a person having a technical knowledge.
TERMINATION OF ARBITRATOR

Circumstances exist that give rise to justifiable doubts as to his independence or impartiality

He does not possess the qualifications agreed to by the parties.

ARBITRATION AWARD

An arbitration award (or arbitral award) is analogous to a judgment in a court of law

The decision of arbitral tribunal will be by majority

The arbitral award shall be in writing and signed by the members of the tribunal.
States the reasons for the award unless the parties have agreed that no reason for the
award is to be given.
The award should be dated and place where it is made should be mentioned.
Copy of award given to each party.
Tribunal can make interim award also.
CONDUCT OF ARBITRAL PROCEEDINGS
The arbitral tribunal is not bound by code of civil procedure, 1908 or Indian evidence act, 1872.
The parties to arbitration are free to agree on the procedure to be followed by the arbitral tribunal.
Law of limitation (1963) applicable
Flexibility in respect of procedure, place & language.
Submission of statement of claim & defense maybe amended/ supplemented at any time
Hearings & written proceedings at the discretion of the tribunal can be oral at the request of either
party
Settlements during arbitration

COST OF ARBITRATION
Fees and expenses of arbitrators and witnesses, legal fees and expenses, administration fees of
the institution supervising the arbitration and other expenses.
Tribunal can decide the cost and share of each party.
If parties refuse to pay the costs, the arbitral tribunal may refuse to deliver its award; thus any
party can approach court.
The court will ask for deposit from the parties and on such deposit, the award will be delivered
by the tribunal. Then court will decide the costs of arbitration and shall pay the same to
arbitrators. Balance, if any, will be refunded to the party.
ARBITRATION CLAUSE IN CONTRACT AGREEMENT

Example
Any dispute or difference arising out of or in connection with this contract shall be determined
by the appointment of a single arbitrator to be agreed between the parties, or failing
agreement within fourteen days, after either party has given to the other a written request to
concur in the appointment of an arbitrator, by an arbitrator to be appointed by the president or
a vice president of the chartered institute of arbitrators
ROLE OF ARCHITECT in case with Referral to the Architect
In making the decision, the architect must be fair and should obtain the complete views of both
sides before making the decision.
The decision must be based on the actual provisions of the contract documents, not what the
architect wishes were in the documents.
Sometimes the claim will be based on an alleged error or omission of the architect. This will be
the litmus test of the fairness capacity of the architect.
All of the architects decision-making procedures should be in writing.
In the event that either or both of the parties are dissatisfied with the decision, or the
procedure, higher authorities (arbitrators) will undoubtedly review, and possibly overturn, the
architects decision.
In the event the decision is considered fair and is acceptable to the parties, this resolves the
claim and forestalls continuation of the procedure leading to mediation and arbitration.
The parties acceptance of the architects decision is usually the most economical way to end
the controversy.
Continuation through mediation and arbitration will undoubtedly entail considerable additional
time and significant legal expense.
The result, weeks or months later, might be the same as the architects initial decision.
ROLE OF ARCHITECT in case with Referral to the Architect (conti)
Architect's Decision-Making Procedure
Architects Immediate Actions
1. (Ask the claimant to submit additional supporting data or ask the other party to submit a
response with supporting data.
2. Reject the claim in whole or in part.
3. Suggest a compromise.
4. Advise the parties that the architect is unable to resolve the claim. This would be the
case if the architect feels there is insufficient information to evaluate the merits of the
claim, or if the architect concludes that it would be inappropriate to decide the claim.
5. This latter determination would be in the architects sole discretion
Architects Investigation
The architect should seek whatever relevant information is available from the parties, and
should consult with experts if necessary.
It may be necessary for the architect to seek the owners authorization for the expense of
retaining such experts.
ROLE OF ARCHITECT in case with Referral to the Architect (conti)

Parties Response and Supporting Data.

The parties should respond and submit additional supporting data within ten days after the architects request.
After receipt of responses and supporting data, if any, from both sides, the architect should reject or approve the claim
in whole or in part.
The decision should be issued within 30 days after all information from both sides is received by the architect.
Architects Written Decision.
The decision should be in writing and should state the reasons for the decision.
The decision should inform the parties of any change in the contract sum or time, or both.
The decision is final and binding on the parties but is subject to mediation and arbitration.
Finality of Decision.
The written decision should include language similar to the following:
(1) This decision is final but subject to mediation and arbitration.
(2) A demand for arbitration of this claim must be made within 30 days after the date on which the party making the
demand receives the final written decision. The failure to demand arbitration within said 30 days period shall result in
this decision becoming final and binding upon the owner and contractor.
Late Decision.
If the architect renders the decision after an arbitration has been initiated, the decision has no effect, but may be
entered in the arbitration as evidence. However, if the parties wish to accept the architects late decision, then the
arbitration can be dropped and the decision accepted
Example:
Let's say you hired a general contractor to renovate your kitchen. You signed a contract, which
includes the expected cost of the renovation and the time for completion. The project is
completed three weeks late, was over-budget by about 11% and you believe the work was shoddy.
Upon review of the contract, you see you agreed to mandatory binding arbitration using an
arbitrator from the Better Business Bureau. You both agree on an arbitrator from a list provided by
the Better Business Bureau. At the hearing, you meet with an arbitrator in a conference room at
the arbitrator's offices. You present the arbitrator a statement of your case, which includes the
facts you believe are relevant and your argument. The arbitrator conducts a hearing where he
permits you to make an opening statement about your side of the dispute. The general contractor
presents his opening statement. You and the general contractor present evidence, such as the
contract, pictures of the finished kitchen and testimony from subcontractors. You make a final
argument and the hearing concludes. Sometime later, the arbitrator issues a written statement
that describes the relevant facts, the law applied, and the decision.
EXCEPTED MATTERS CASE STUDIES