Presented by

Dr. Satadru Das Adhikary

Assistant Professor
Department of Civil Engineering
 Contract
➢ A contract is an agreement between two or more parties
for certain acts to be performed or refrained from which
has been arrived at in such a manner, set forth in such a
form, and is of such content that it has enforceable legal
effect

➢ In a Civil Engineering construction contract, an

agreement is signed between the owner and the
contractor which ensures the completion of the project
within the scheduled time, following drawings, designs,
specifications and workmanship as given by the
consultant and at a price as quoted by the contractor

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 Types of Contract
Types of Contract

Contract at a Contract other

Fixed Price than Fixed Price

• Cost plus percentage

• Bill of quantities contract
contract
• Schedule of Rate contract
• Cost plus fixed fee
• Lump sum contract
contract

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 Types of Contract
Contract at a Fixed Price
➢ This is the oldest and the most common method of
letting out a work under contract when bids are received
at fixed prices. These may be based quoting unit prices
for each of the items of work and the total sum depicts
the total cost of the project or sometimes a lump sum,
i.e. a single total sum may be quoted for the job.
Contract at a fixed price may be divided as:
1. Bill of quantities contract
2. Schedule of rate contract
3. Lump sum contract

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 Types of Contract
Contract other than Fixed Price

➢ Here the actual cost of the project is first derived and the

contract is made in a manner that the contractor would

receive a profit over the actual cost as a fixed fee or fixed

percentage etc.

1. Cost plus percentage contract

2. Cost plus fixed fee contract

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 Types of Contract
Bill of Quantities Contract

➢ In this contract the total cost is derived from the sum of

the individual items as priced in the bill plus lump sum,
provisional sum and prime cost for some of the items as
quoted

➢ The quantities are measured from the contract drawings.

It comes under the fixed price contract since the unit
rates quoted by the contractor for the individual items in
the bill are fixed

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 Types of Contract
Bill of Quantities Contract: Advantages
➢ Payment is made to the contractor as per the work done
➢ The price quoted for individual items are fixed. Therefore the
total cost is more or less fixed as derived from the
measurement obtained from the drawings
➢ Though alterations and deviations from the original drawings
could be accepted during construction but even then the unit
price does not change
➢ Comparison of a tender becomes easier since the basis of
tendering is same for all the tenderers and the price quoted
are very much competitive
➢ The bill submitted gives a clear picture of the cost of
construction, type of construction and details of the works to
be done
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 Types of Contract
Schedule of Rate Contract
➢ There are some jobs where it becomes difficult to visualize
the quantities in advance. For example, in case of a R.C.C.
piled foundation the designer may not decide upon the
diameter, the length and the number of piles, before the load
test is done on the test piles

➢ Sometimes it may also be necessary to start the job urgently

before all the working drawings are not prepared, so that the
measurement of quantities becomes difficult

➢ Under these circumstances the schedule of rate contract is

preferred. so that the contractor would only quote the price or
items

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 Types of Contract
Schedule of Rate Contract
➢ In this contract, there may be some items which would not be
done at all or in some other items the volume may increase or
decrease when compared to the volume expected for such jobs
as visualized by the tenderer from his experience.
➢ Here the tenderer is to quote very intelligently so that even if all
the above unforeseen things happen, he is not at a loss.
The special features of the contract are the following:
• The quantities are not generally inserted, but sometimes even if
inserted those are rounded off.
• More items than actually needed 'might have to be scheduled
since it may be difficult to foretell exactly the items required.
• No guarantee is given that all or any of the items of work will be
carried out, hence the tenderer has to fix up rates so that each of
the items carry its own overhead
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 Types of Contract
Lump Sum Contract
➢ In this contract a single lump sum is quoted for the job and is
accepted as a fixed price
➢ This will be possible only when all the details of the work is
presented in the drawings so that the contractor may work out
the exact price of the structure
➢ Sometimes a bill of quantity is also attached to help the
contractor to have a better picture of the job and sometimes a
schedule of rate is also presented which may be used in
pricing the variations in quantities
➢ This contract is better suited for over ground jobs and not so
much for structures below ground as over ground structures
are always visible and quantities could be measured at any
time
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 Types of Contract
Lump Sum Contract
Effectiveness:
➢ The job is comparatively small
➢ The job is precisely and exactly described in all details
➢ There is not much risk attached to its construction, i.e. there
may not be any hazard which could not be visualized
beforehand
➢ Alterations are kept to minimum
Advantages:
➢ It avoids a lot of detailing and accounting thereby making the
job easy
➢ It offers the owner a fixed total price and the owner is happy
with it
➢ The contractor gets a chance to do the work without much
hindrance
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 Types of Contract
Lump Sum Contract

Disadvantages:

➢ It becomes difficult to accommodate additions, alterations of

design and specifications

➢ In case of unforeseen hazards during construction, the

contractor is put to unlimited hardship

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 Types of Contract
Cost plus Percentage Contract
➢ In this contract the contractor is paid the actual expenditure
he incurs for purchasing the materials, the installation of
plants and machinery and the cost of labour
➢ In addition he is paid a certain percentage to cover his
overhead expenses and profit
➢ Under the circumstances there is every possibility that if the
contractor is less efficient he will spend more money on the
project, and his income or fees being directly proportional to
the overall cost of the project
➢ Thus inefficiency on the part of the contractor becomes more
rewarding. Such a system is neither liked by the owner, nor
does the engineer prefer it because to ensure quality the
engineer has to pay more attention for each and every item of
the work
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 Types of Contract
Cost plus Percentage Contract
➢ The contractor also has to get a sanction for even a small
amount and has to maintain books showing every detail of the
expenses made

➢ Over and above, the process encourages misunderstanding

and mistrust between the owner, the engineer and the
contractor

➢ The above contract has no other advantage except that it is

suitable for temporary use in case of an emergency until one
switches over to some better contract
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 Types of Contract

Cost plus Fixed Fee Contract

➢ In this contract also the payment is made to the contractor on
the basis of the actual expenses incurred plus a fee which is
a fixed sum of money unrelated to the amount of expenses
made to cover overheads and profits

➢ Thus the tendency to spend more in order to earn more as in

the case of cost plus percentage contract is absent in this
contractual arrangement

➢ The fixed fee may be decided on the basis of a competition

with other contractors while tenders are accepted, or this fee
may be negotiated between the owner and the contractor

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 Types of Contract

Cost plus Fixed Fee Contract

➢ In this contract, the engineer and the contractor could work
together for attaining the best quality

➢ Since they have got full freedom to adopt any method or the
best method of construction, they can change the
specifications, or the materials used in the construction to a
limited extent with the consent of the owner

➢ With efficient contractors this contract works very well

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 Contract Documents

• Contract Drawings

• Specifications

• Bill of Quantities

• General conditions of contracts

• Tender

• Letter of Explanations

• Legal Agreement
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 Contract Documents
Contract Drawings

➢ Physical, quantitative and visual description of the project

conveyed to the contractor

➢ Normally two dimensional diagram referred to as the plan or

the blueprint; some cases softcopy as AUTOCAD drawing
files

➢ Classification of drawings: (a) site drawings, (b) architectural

drawings, (c) structural drawing, (d) HVAC - heating, venting
and air conditioning and other service drawings, (e) electrical
drawings, (f) special details

➢ Fire-fighting details, public-announcement system details and

building automation details etc
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 Contract Documents
Specifications

➢ Quantity of materials

➢ Quality of workmanships

➢ Frequency of testing

➢ Approved manufacturers

➢ Relevant Indian Standards describing the material

➢ Inspection and installation method

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 Contract Documents
Specifications

Performance Design Open Closed Equal Proprietary

specification specification specification specification specification specification

Performance
of finished Any product
product is that meets Product is Only one
Only
specified. 28 Process and the specified but product is
products of
days’ design both requirement substitution specified.
a certain
concrete are is with equal Substitution
type are
strength furnished acceptable products is is not
acceptable
could be under open acceptable permissible
specified as specification
35 MPa

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 Contract Documents
Bill of Quantities

➢ Measure each of the items of work to be done as calculated

from drawings

➢ Classified according to the trade, location and materials used

for the particular item of work

➢ Classification of items: earthwork, waterproofing, brickwork,

concreting, painting, flooring, door and windows, structural

steel, aluminum works and stonework etc.

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 Contract Documents
General Conditions of Contract

➢ Responsibility and obligation of parties to the contract

➢ Power of employer, contractor and engineer

➢ Valuation and payment term, arbitration and laws. Labour

regulation, safety code etc.

➢ In India, for government jobs, CPWD contract conditions are

most widely used

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 Contract Documents
Tender

➢ signed financial offer of the contractor to construct the work

according to the drawings, specifications, bill of quantities and
general conditions of contract

Letter of Explanation

➢ explanation or elaboration of any of the items

Legal Agreement

➢ signed by both the parties in contract confirming their

respective intentions
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 Stages of Awarding Contract
➢ Preparation of contract document

➢ Advertising the tender/tender notice

➢ Submitting Tender by contractor

➢ Study of the tender by owner/consultant

➢ Clarification regarding conditions or specifications

➢ Preparing comparative list

➢ Awarding contact
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 Calling Tender
➢ Sometimes, for special types of jobs it may be mentioned in
the advertisement that specialist contractors having
considerable experience alone apply.

➢ In order to judge the credibility and capacity of the

contractor the employer may like to know the names of the
previous employer, present labor force, plant and
equipment possessed or any other details considered
necessary by the employer

➢ Sometimes the consultants have their own list of

empaneled contractors who have already worked with
those consultants. The distribution of tender papers may be
restricted among these contractors

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 Calling Tender
➢ A tender notice, usually drafted by an engineer contains a
brief but adequate description of the required work, is
publicly advertised in the newspaper and giving the name
of the employer on the top of the notice
➢ The employer has the liberty to choose any tender he
thinks best without giving any explanation to any body and
he is not bound to select the lowest tender
➢ Alternatively, sometimes jobs are awarded on the basis of
the quotations received from "selected tenderers", which
means tenders are invited from a group of known reputed
contractors who are considered suitable for the job. This
method is known as "prequalification" and saves a lot of
time on the part of the employer, consultant and the
contractor
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 Scrutinizing and Comparing Tender
➢ The consultant is expected to brief the employer about the
offers received from the various contractors and
recommend a suitable contractor for the job

➢ The consultant studies each of the offers received from

each contractor with an eye to judge whether the quotes
are approximately similar

➢ The specification and time of completion quoted in each

tender is assessed along with other parameters vis-à-vis
standard offer thereby making a fair comparison of all the
tenders
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 Scrutinizing and Comparing Tender

➢ From this comparison the lowest 3 or 4 tenders are

meticulously examined

➢ When the tenders are based on the bill of quantities, the

detailed price submitted by different contractors for the
same portion of work could be compared well

➢ It becomes easy to judge whether the price quoted are on

the higher side and therefore unworkable

➢ It is the consultant's job to be to note that the quotes do not

go to the extreme
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 Choosing a Tender
➢ After completing the comparison table, the consultant may
invite one or two of the lowest tenderers to discuss specific
points of their offer

➢ This may be a clarification of some points of the tender or

may be on the method of construction, the construction
schedule and other important points related to the
construction not covered in the tender

➢ The engineer is not expected to reveal to any contractor

the rate quoted by others. This is considered highly
unethical and is not to be done. However, enquiries about
the competence of the contractor from the referees can
always be made

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 Choosing a Tender
➢ After the tenders have been compared on the same
uniform basis , each tender is shown to be in conformity
with the requirements of the documents and all the
pertinent points are cleared.

➢ The consultant/engineer is to choose the contractor with

lowest bid or else provide an explanation on why the job
should not be awarded to the lowest tenderer.

➢ In the report forwarded to the employer recommending the

contractor the engineer has to be absolutely unbiased to
elaborate the relevant facts and figures of each tender,
provide his analysis and opinion, and finally give his
recommendation

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 Acceptance of a Tender
➢ After Consulting Engineer has made his report on the
tenders and the employer has made a decision, he is to
write to the contractor informing him that the employer is
pleased to select him to do the job and inform that the
formal legal document being drawn up is to be jointly
signed by both the parties
➢ These documents contain the tender papers,
correspondences, any other matter or documents which
needs to be included as a part of the formal contract
➢ The engineer then forwards all the tenders and reports to
the employer and after the legal documents are prepared,
the employer and the contractor jointly signs the contract
and affixes the seal thereby formalizing the contract
between the parties
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 Contractual Changes and Termination of Contract

➢ Whenever there needs some change in the contract it is

better to terminate the same and enter into a fresh one

➢ For large projects continuing for years it may be found that

the contract is difficult to work with because of the changes
or changed circumstances. Under these circumstances, the
owner or the contractor or both may come forward
suggesting the termination of the contract

➢ It will be the choice of the owner whether to employ the

same contractor or a different one for the unfinished work.
Sometimes the contractor may also like to engage a
subcontractor for the remaining portion of the work

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 Contractual Changes and Termination of Contract

➢ If the contractor becomes bankrupt or insolvent

➢ If he refuses or fails to finish on time in spite of all

commitments or if the delay is caused only because of his
inefficiency

➢ If he fails to pay the subcontractors employed

➢ If he disregards laws, ordinances or instructions of

architects or violates any portion contract

➢ If he neglects to protect the work from damages

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 Construction Claim

➢ Construction Claim can be defined as a request by either

party to the contract, usually the Contractor, for
compensation for damages caused by failure of the other
party to fulfil his part of obligations as specified in the
contract. The compensation is usually in the form of the
additional payment or an extension of time

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 Construction Claim: Types

➢ Delay claim

➢ Price acceleration claim

➢ Change of work order claim

➢ Damage claim

➢ Different site condition claim

➢ Loss of profit claim

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 Construction Claim: Types
Delay Claim

➢ Construction delay claims, or disputes related to schedule

impacts, are one of the most common types of disputes in the
construction industry

➢ Delay claims typically relate to unanticipated project events

and/or circumstances which extend the project and/or prevent
work from being performed as originally planned

➢ Delay and/or disruption is not an easy task and it is a time

consuming process especially in the mega/complex projects
with thousands of activities, lots of details and interfaces with
the involvement of many stakeholders

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 Construction Claim: Types
Payment related Claim

➢ In the construction industry most of claims arise for the not

payment or delayed payment of Running bills, Final bills,

unreasonably deduction of money from bills without any

strong reason, delay in payment of security deposit,

maintenance deposit etc.

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 Dispute Resolution Technique
➢ When the contractor discovers the problem, he should try
to eliminate or avoid it
➢ If he cannot do so, then he should write to a letter to the
owner to make a formal claim. This is the first step in claim
procedure
➢ The problem is approached during regular meetings, or a
special meeting may be arranged to settle or discuss this
dispute
➢ If all that did not succeed, then mediation could be friendly
way for settling the claim
➢ Otherwise, arbitration or litigation could be other ways to
solve the claims
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 Dispute Resolution Technique

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 Dispute Resolution Technique
Negotiation
➢ Negotiation is the most basic means of settling differences. It
is back-and-forth communication between the parties of the
conflict with the goal of trying to find a solution
➢ Negotiation is the first method of choice for problem-solving
and trying to reach a mutually acceptable agreement. A
negotiated agreement can become a contract and be
enforceable
➢ Most people negotiate every day. In some circumstances the
help of a lawyer is sought to negotiate a fair deal
➢ If no agreement is reached other options are resorted
➢ This process can be appropriately used at any stage of the
conflict - before a lawsuit is filed, while a lawsuit is in
progress, at the conclusion of a trial, even before or after an
appeal is filed
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 Dispute Resolution Technique
Negotiation
Characteristics of Negotiation:
➢ Voluntary
➢ Private and confidential
➢ Quick and inexpensive
➢ Informal and unstructured
➢ Parties control the process, make their own decisions and
reach their own agreements (no third party decision maker)
➢ Negotiated agreements can be enforceable
➢ Can result in a win-win solution

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 Dispute Resolution Technique
Mediation
➢ Mediation is a voluntary process in which an impartial person
(the mediator) helps with communication and promotes
reconciliation between the parties which will allow them to reach
a mutually acceptable agreement. Mediation often is the next
step if negotiation proves unsuccessful
➢ The mediator manages the process and helps facilitate
negotiation between the parties. A mediator does not make a
decision nor force an agreement. The parties directly participate
and are responsible for negotiating their own settlement or
agreement
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 Dispute Resolution Technique
Mediation
Characteristics of Mediation:
➢ Promotes communication and cooperation
➢ Provides a basis for resolving the disputes by either party in
voluntary, informal and flexible manner
➢ Private and confidential, avoiding public disclosure of
personal or business problems
➢ Can reduce hostility and preserve ongoing relationships
➢ Allows to avoid the uncertainty, time, cost and stress of going
to trial
➢ Allows you to make mutually acceptable agreements tailored
to meet expectation of either party
➢ Can result in a win-win solution
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 Dispute Resolution Technique
Arbitration
➢ Arbitration is the submission of a disputed matter to an impartial
person (the arbitrator) for decision

➢ Arbitration is typically an out-of-court method for resolving a

dispute. The arbitrator controls the process, will listen to both
sides and make a decision. Like a trial, only one side will prevail.
Unlike a trial, appeal rights are limited

➢ In a more formal setting, the arbitrator will conduct a hearing

where all of the parties present evidence through documents,
exhibits and testimony

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 Dispute Resolution Technique
Arbitration
➢ The parties may agree to, in some instances, establish their own
procedure; or an administrating organization may provide
procedures
➢ There can be either one arbitrator or a panel of three arbitrators.
An arbitration hearing is usually held in offices or other meeting
rooms
➢ The result can be binding if all parties have previously agreed to
be bound by the decision. In that case, the right to appeal the
arbitrator’s decision is very limited
➢ An arbitrator’s award can be reduced to judgment in a court and
thus be enforceable. In nonbinding arbitration, a decision may
become final if all parties agree to accept it or it may serve to
help you evaluate the case and be a starting point for settlement
talks
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 Dispute Resolution Technique
Arbitration
Characteristics of Arbitration:
➢ Can be used voluntarily
➢ Private (unless the limited court appeal is made)
➢ Maybe less formal and structured than going to court, depending
on applicable arbitration rules
➢ Usually quicker and less expensive than going to court, depending
on applicable arbitration rules
➢ Each party will have the opportunity to present evidence and make
arguments
➢ May have a right to choose an arbitrator with specialized expertise
➢ A decision will be made by the arbitrator which may resolve the
dispute and be final
➢ Arbitrator’s award can be enforced in a court
➢ If nonbinding, you still have the right to a trial
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 Dispute Resolution Technique
Litigation
➢ Litigation is the use of the courts and civil justice system to
resolve legal controversies. Litigation can be used to compel
opposing party to participate in the solution
➢ Litigation is begun by filing a lawsuit in a court. Specific rules of
procedure, discovery and presentation of evidence must be
followed
➢ The decision is made by applying the facts of the case to the
applicable law
➢ That verdict or decision can conclude the litigation process and
be enforceable; however, if appropriate, the loser can appeal the
decision to a higher court. In some cases, the losing party may
have to pay the costs of the lawsuit and may have to pay the
other party’s attorney fees
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 Dispute Resolution Technique
Litigation
Characteristics of Litigation:
➢ Involuntary - a defendant must participate (no choice)

➢ Formal and structured rules of evidence and procedure

➢ Each party has the opportunity to present its evidence and

argument and cross-examine the other side - there are procedural
safeguards

➢ Public - court proceedings and records are open

➢ The decision is based on the law

➢ The decision can be final and binding

➢ Right of appeal exists

➢ Losing party may pay costs

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 Arbitration and Conciliation Act 1996
➢ Arbitration is a dispute settlement process in which a impartial
third party is appointed to study the dispute and hear both the
party to arrive at a decision binding on both the parties

➢ Conciliation is a method of resolving dispute, wherein an

independent person helps the parties to arrive at negotiated
settlement

➢ The Arbitration and Conciliation Act 1996 is an Act that regulates

arbitration in India. It was amended in 2015 and further
amendment passed in Lok Sabha on 1st August 2019

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 Arbitration and Conciliation Act 1996
➢ An Act to consolidate and amend the law relating to domestic
arbitration, international commercial arbitration and
enforcement of foreign arbitral awards as also to define the
law relating to conciliation and for matters connected
therewith or incidental thereto

➢ Arbitration Agreement means an agreement by the parties to

submit to arbitration all or certain disputes which have arisen
or which may arise between them in respect of a defined legal
relationship, whether contractual or not

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 Arbitration and Conciliation Act 1996

➢ The parties are free to determine the number of arbitrators,

provided that such number shall not be an even number

➢ A person of any nationality may be an arbitrator, unless

otherwise agreed by the parties

➢ The parties shall be treated with equality and each party shall

be given a full opportunity to present his case

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