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CONTRACTS

Presented by,
Neenu.S.K
SECM ,FISAT
2014-2016

INTRODUCTION
CONTRACTS
Agreement which is enforceable by law.
Contractis a mutual or legally bindingagreementbetween two parties
based on certain policies & conditions generally recorded in
documentation form.
The two parties involved a
Owner
Contractor.
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INTRODUCTION(CONTD..)
Owner
Decides what type of contract
Set forth terms & conditions in contractual agreement

Contractor
Person/firm/company
Whose tender accepted by owner
Include
Legal representatives
Administrators
executors
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TERMS USED IN CONTRACT


1. Owner
2. Contractor
3. Sub contractor
4. Engineer
5. Site
6. Drawings & Specifications
7. Letter of intend
8. Warranty period
9. Liquidity damage
10.Earnest money
11.Security deposit
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ESSENTIALS OF CONTRACT
All Contracts are agreements but all agreements are not
contracts.
An agreement- enforceable by law-posses the essential elements of a
valid contract
As per section 10 of the Indian Contract Act,
"All agreements are contract if they are made by the free
consent of the parties, competent to contract, for a lawful
consideration and with a lawful object and are not expressly
declared to be void."
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ESSENTIALS OF CONTRACT
1.OFFER AND ACCEPTANCE
A valid contract Lawful offer' by one party
Lawful acceptance' of the same by the other party.

2. INTENTION TO CREATE LEGAL RELATIONSHIP


No intention on the part of parties --- no contract.
Agreements of social or domestic nature do not contemplate legal
relation
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ESSENTIALS OF CONTRACT
3.LAWFUL CONSIDERATION.
Consideration or object is unlawful if
Forbidden by law
Fraudulent
Something if permitted
Would defeat provisions of law
Injury to person or property-opposed to public policy/immoral to
court
4. CERTAINTY OF MEANING.
According to Section 29,
"Agreement the meaning of which is not Certain or capable of
being made certain are void."
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ESSENTIALS OF CONTRACT
5. PARTIES COMPETENT TO CONTRACT
No capacity to contract--- invalid contract
According the following persons are incompetent to contract.
(a) Miners, (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject
6. FREE CONSENT
According to Section 14,
Consent is said to be free when it is not caused by(1) Coercion/(2) Undue influence/(3) Fraud/(4) Misrepresentation/(5) Mistake.
An agreement made by the free consent of the parties.
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ESSENTIALS OF CONTRACT
7. POSSIBILITY OF PERFORMANCE
If the act is impossible in itself, physically or legally, if cannot be
enforced at law.
8. LAWFUL OBJECT.
The object of an agreement must be valid.
Nothing to do with consideration.
The Object is said to be unlawful if--Forbidden by law
Fraudulent;
Would defeat provisions of law
Injury to person or property-opposed to public policy
Immoral to court
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ELEMENTS OF CONTRACT(Contd..)
9. NOT DECLARED TO BE VOID OR ILLEGAL.
Must not be declared void by any law in force in the country.
5 categories of agreement regarded void,
Under Indian Contract Act,
1. Agreement in restraint to marriage
2. Agreement in restrain to trade
3. Agreement in restrain to proceedings
4. Agreements have uncertain meaning
5. Wagering agreement
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ESSENTIALS OF CONTRACT(Contd..)
10. LEGAL FORMALITIES.
An oral Contract -perfectly valid contract
India writing -- sale, mortgage, lease and gift of immovable
property, negotiable instruments; memorandum & articles of
association of a company, etc.
Registration - documents coming within -scope of section 17 of
the Registration Act.

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LAWS OF CONTRACT

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LAW OF CONTRACT
Deals agreement enforced by law
Objective -- introduce definiteness in commercial and other transactions.
Most important part of commercial
Commercial transaction starts from an agreement between two or
more persons
Contains no: of limiting principle--Parties create rights & duties-the law will
uphold those rights &duties

The parties to a contract, in a sense make the law for themselves


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as long as they dont transgress some legal prohibition

LAW OF CONTRACTS
It is,

Intended to ensure that what a man has been led to expect shall
come to pass; and that what has been promised to him shall be
performed.

Not the whole law of agreements nor is it the whole law of obligations.
The law of those agreements which create obligations, and those
obligations which have, their source in agreements
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CONDITIONS OF CONTRACT
The clauses which relate to the work as a whole written in a
separate contract document are known as general provisions or
conditions of contract.
Objective: Avoid disputes b/w parties
Hence Keep out of the court of law.
Framed in the legal phraseology
Lawyers are entrusted for complicated contracts
Breach result to serious legal formalities.
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CONDITIONS OF CONTRACT(Contd..)
Conditions are,
1. Conditions relating to the general obligations of contractor

These pertain to access to works; acts, byelaws and regulations; fencing, watching
and
Lighting ; instructions of engineer; insurance; setting out; site etc

2. Conditions relating to labour and personnel

These pertain to accidents to workmen; contractors representative; engineers


representative; first aid; rates of wages; removal of employees of the contractor; etc

3. Conditions relating to the execution of the work

These pertain to alterations, additions and omissions during progress of work;


amount for extra times; damages; defective work; defects; materials; protection of
trees and shrubs; public travel; safety by shoring and during16blasting; water for

4.Conditions relating to documents

These pertain to bill of quantities and schedule of prices; drawings; Indian


standard specifications; notices; provisional and prime cost sums; etc

5. Conditions relating to measurements and payments

These pertain to method of measurement of completed works; method of


payment; payment to sub-contractors; etc

6. Conditions relating to default and non completion of work

These pertain to abandonment of work by the contractor; bankruptancy of


contractor; engineer during construction; failure to complete the work in
time; right to suspend the work by the owner; time of completion etc
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7.Conditions relating to assignments and sub-letting


8.Conditions relating to settlement of disputes
9.Special conditions

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CLAUSES OF CONTRACT

Clause 1 Security deposit and earnest money deposit


Clause 2 Compensation for delay
Clause 3 Action when whole of security deposit is forfeited
Clause 4
Clause 5 Extension of time
Clause 6 Site clearance
Clause 7 Completion certificate
Clause 8 Possession prior to completion
Clause 9 Running bill payments
Clause 10 Works to be open to inspection
Clause 11 covering up the work
Clause 12 No compensation for curtailment or alteration of
work
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Clause 13 Payment of extra work

CLAUSES OF CONTRACT(Contd..)

Clause
Clause
Clause
Clause
Clause
Clause
Clause
Clause
Clause
Clause

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15
16
17
18
19
20
21
22
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Rates of contract to remain unaltered


Method of measurement of completed work
Arbitration
Labour laws
Materials and stores supplied by government
Secured advanced
Alteration in specifications and design
Drawings and specifications
Revision of the rates
final payment
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CLAUSES OF CONTRACT(Contd..)

Clause 24 Penalty
Clause 25 Maintenance period
Clause 26 Compliance of laws etc
Clause 27 Liquidate damage
Clause 28 Unliquidated damages
Clause 29 Termination of contract
Clause 30 Debitable agency
Clause 31 Storage of tools and materials
Clause 32 Sub-letting
Clause 33 Fencing, watching and lighting
Clause 34 patent right and royalties
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TYPES OF CONTRACT
1.
2.
3.
4.
5.
6.
7.
8.
9.

Item rate contract or unit price contract.


Percentage rate contract.
Lump-sum contract.
Material supply contract.
Piece work contract or agreement.
Labour contract.
Cost-plus percentage rate contract.
Cost-plus fixed fee contract.
Cost-plus fluctuating fee contract.

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TYPES OF CONTRACT
10.Target contract.
11.Schedule contract or measured contract.
12.Rate contract.
13.Negotiated contract.
14.Package deal or Turn-key contract.
15.Basic price contract.
16.Oral contract.
17.Global contract.
18.All in contract.
19.Illegal contract.
20.Voidable contract.
22.Contracts by minor.

TYPES OF CONTRACT
1. ITEM RATE CONTRACT OR UNIT PRICE CONTRACT.

Quote rate for individual items of works based on scheduled quantities given by the
department
Schedule indicate full nomenclature of items as per sanctioned estimate &
estimated quantities
Adv:
More scientific
Guessing is absent
Avoid unworkable contract
Disadv:
Ascertain most likely quantities of each item
More than one contractors involved

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TYPES OF CONTRACT(Contd..)
2. PERCENTAGE RATE CONTRACT.

The department draws schedule of items according to the items sanctioned in


the estimate with quantities, rates, unit & amount shown
ie prepares the item rates of the tender known as item rate tender.
Adv:
Absence of unbalanced tender
Comparison done at start-best bidder chosen
No chance for over-writing & erasing leading to rejection
Disadv:
Chances for unworkable tender
Uncertainty in quality, smooth progress and completion of project
Drainage of government money

TYPES OF CONTRACT(Contd..)
3.LUMP-SUM CONTRACT

Tenders are required to quote a fixed sum for execution of the complete
work according to the drawings, designs, and specifications supplied to them
with the tender within the specified time.
Payment of items of work involved for any additions and alterations not covered
by the original work is done according to the departmental schedule of rates.
Adv:
Project cost known early,
Detailed estimation not required at start
Lead to better planning & management
Disadv:
Lack of Accuracy at start lead to disputes
Not suitable in terms of additions and variations
Difficulty in immediate payment

TYPES OF CONTRACT(Contd..)
4.MATERIAL SUPPLY CONTRACT.

Contracts supply rates required quantity of materials o store within time


Include taxes, carriage & delivery charges
Materials examined & counted during delivery
Adv:
No worries for receiver no loss of materials, breakage &
demurrage charges during transit
Low cost of materials
Disadv:
Constant quality watch
Contractors may form for higher rate order

TYPES OF CONTRACT(Contd..)
5.PIECE WORK CONTRACT OR AGREEMENT.
Rate agreed with reference to the total quantity of work to be done within a given
period.
Petty works valued up to Rs.10000/- including cost of materials done through
contractors by Piece-work agreement.
Detailed specifications & the total cost of whole work to be done are mentioned.
Terminable from either side at any time
Work may be done under simple work order.
No security money and penalty clause.
Adv:
Urgent small works employed fast
Disadv:
lack of interest
Work to petty contractor having little experience & knowledge

TYPES OF CONTRACT(Contd..)
6. LABOUR CONTRACT

Undertakes contract for labour portion


Work materials supplied by owner
Labour contractor engages labour & works done as per specifications
Contracts based on item rate for labour only
Labour paid for quantities of work done as per rates agreed in contract
Adv:
Materials in gov: store utilized
Increase in cost checked
Difficulty in obtaining certain materials in open market avoided
Disadv;
Day to day check for availability of supply of materials
Additional staffs required for accounting guard required as large storage
Theft, shortage, accounting

7.COST PLUS
PERCENTAGE RATE
CONTRACT

Contractor paid with actual cost + agreed


% (profit)
No bill of quantities or schedule required
Contractor record all resource details

8.COST PLUS FIXED


FEE CONTRACT

Fixed lump-sum payment over& above


actual project cost

9.COST PLUS
FLUCTUATING FEE
CONTRACT

Contractor paid by actual cost + amount


inversely variable to increase or decrease
of estimated cost
Higher the actual cost lower the fee
Best cost plus type contract
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TYPES OF CONTRACT ( Contd)


10.TARGET CONTRACT.

Contractor paid on a cost plus % for work performed


Adv:
Contractor encouraged to use his skill and experience
Profitable to both contractor and owner
Diadv:
Contractor gain high profit by showing higher rate of construction

11.SCHEDULE CONTRACT OR MEASURED CONTRACT

Bill prepared based on scheduled and detail material measurement


Bill obtained by (measured quantities x respective rates)

TYPES OF CONTRACT(Contd..)
12.RATE CONTRACT

Mutual agreements between the buyer & the seller to operate a set of
chosen items, during a given period of time, for a fixed price or price
variation.
The rates are fixed & at times even the quantity of the selected items.

The buyer issues a Purchase order directly on the basis of the rate chart available
on the supplier who in turn supplies the items

Store purchase department---to facilitate purchase of some common articles by


the govt. departments through rate contract.

TYPES OF CONTRACT(Contd..)

Fix rate contract of any controlled material or article---The director general of


supplies and disposal (DGS&D) of central govt. invites tenders from the
manufacturers of these articles or materials.

DGS&D fixes rates of such articles and makes rate contract with the
manufacturers or suppliers to supply the articles or materials for a certain
period which is known as rate contract.

In state govt. this work is done by superintendent of store purchase department


and rates fixed by this department are known as ISSPD rate contract or CSPO rate
contract.

The rate contract with all the particulars rate, description specifications etc. are
notified in gazette for information for all the department.

TYPES OF CONTRACT(Contd..)
13.NEGOTIATED CONTRACT

Contract awarded simply by negotiation

No open competition & owner carries out negotiations with selected contractors
after studying their previous experience, financial status, general reputation, etc.

Less chances of dispute in a negotiated contract because the competition is


restricted to a small number of equal ranking contractors

TYPES OF CONTRACT(Contd..)
14.PACKAGE DEAL OR TURN-KEY CONTRACT
Contract involves all planning, design, plans specification, preparation of
estimates
and construction services under one contract on competitive basis.
Owner deal with only one party for all the services both engineering and
construction.
The owner gives his requirements in broad outline to the contractors together
with the
side data.
Contractors prepare the estimated cost of the project as per their design on a
lump-sum basis.

TYPES OF CONTRACT(Contd..)
15.BASIC PRICE CONTRACT

Contractor mentions basic prices of some essential materials such as cement,


steel etc
Employed when market unstable & prices fluctuating
No contactor come forward
A modification to item rate contract

16.ORAL CONTRACT

Contract by spoken words-no writing /partial writing


Valid as written agreement
Main problem- proving existence of terms

TYPES OF CONTRACT(Contd..)
17.GLOBAL CONTRACT

Multilateral agreement b/w significant actors


Stands above national & supernatural agreements
Deal with issues of global relevance within the context of a sustainable political
order.
Criteria include
significant issues,
global relevance,
binding character according to international law
effective sanctioning mechanisms,
legitimization of actors,
global reach,
funding for implementation,
establishment of suitable supporting institutions and flexible decision
processes, and

TYPES OF CONTRACT(Contd..)

In addition, a global contract also stands for the normative criteria:


Promotion of sustainability,
Compliance with the principle of justice,
Maintenance of peace,
Safeguarding human rights, and
Promotion of global welfare

TYPES OF CONTRACT(Contd..)
18.ALL IN CONTRACT

The owner specifies his requirements and also the broad and general outline of
the proposed work and the contractor has to submit full particular of detailed
investigations, designs and construction cost including the maintenance of work
done for a limited period.

19.ILLEGAL CONTRACT

Prohibited due to its very nature.


Since the performance, formation, or object of the agreement is against the
law.
An illegal contract is exceptionally difficult to define.
Void contract is not necessarily illegal, an illegal contract is often void.

TYPES OF CONTRACT(Contd..)
20.VOIDABLE CONTRACT

Contract affirmed or rejected at the option of one of the parties

Voidable contract is one that is void as to the wrongdoer but not void as to the party
wronged, unless that party elects to treat it as void

A voidable contract is a contract which is valid and capable of producing


the results of a valid contract, but which may be avoided.

TYPES OF CONTRACT(Contd..)
22.CONTRACTS BY MINOR
A contract made by a minor isvoidable.
According to Section 3 of theIndian Majority Act, 1875, a person domiciled in
India who is under the age ofeighteenyears, is a minor.
Minor Agreements: A Minor is an incompetent person to enter into a contract
subject to certain exceptions.
No Restitution: No order can be made for compensation against a minor for a
benefit obtained under void agreement.
Minor Beneficiary: A contract becomes valid if it gives some benefit and not to
required minor to bear any obligation.

TYPES OF CONTRACT(Contd..)
Services by a Minor under contract: The Contract of Apprenticeship
is valid and binding upon the minor.
No Ratification

MISTAKES OF CONTRACT
Bilateral mistake (i) Both the parties must be under a mistake.
(ii) Mistake must relate to some fact.
(iii) The fact must be essential to an agreement
Agreement is void
MISTAKES OF FACT

Unilateral mistake
Single party under mistake
Leads to ,
valid contract
Voidable contract
Void agreement

MISTAKES OF CONTRACT

MISTAKES OF LAW

Lack of knowledge of law is a mistake


not void

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