CONTRACTS & VALUATION

Integrity
Transparency
Accountability
 Tenders & BIDS
Preparation Work
Advertisement of the Tender
Evaluation of Modalities
Reception of BIDS
Opening of BIDS
Technical Evaluation
Financial Assessment
Assessment of Best Combined Offer
 Awarding the Contract
Contract Supervision
Payments
Advance
Routine progress
Variation
Final
Final Inspection and Measurements
 CONTRACT
While construction contracts serve as a means
of pricing construction, they also structure the
allocation of risk to the various parties
involved. The owner has the sole power to
decide what type of contract should be used
for a specific facility to be constructed and to
set forth the terms in a contractual
agreement. It is important to understand the
risks of the contractors associated with
different types of construction contracts
 Types of Contracts
Lump Sum Contract
Unit Price Contract
Cost Plus Fixed Percentage Contract
Cost Plus Fixed Fee Contract
Cost Plus Variable Percentage Contract
Target Estimate Contract
Guaranteed Maximum Cost Contract
 Tender means the Contractors priced offer to
the Employer for the execution and
completion of the Works and the remedying
of any defects therein in accordance with the
provisions of the Contract, as accepted by the
Letter of Acceptance.
 Depending upon the context, Tender may
designate:- either one of the tender
documents, the executed and signed Form of
Tender, which becomes one of the Contract
Documents, called The Tender, or- the
Contractors detailed offer in a complete set of
tender documents as defined in the Tender
 Contract Document
Contract Agreement
Letter of Acceptance
Tender and Appendix to Tender
Particular Conditions of Contract
General Conditions of Contract,
Specifications (part of Tender Documents)
Drawings (-do-)
Priced Bill of Quantities (-do-) - Lead
Other Documents, in Appendix of Tender
 New Terms
Earnest Money (1 to 2 %)
Security Deposit (2.5 10 %)
 Valuation
Cost: It is the expenditure to produce a commodity having a
value. In our construction Industry cost means the original
cost of the construction including the cost of materials and
labour. Hence the cost is a FACT.
Price: It is the cost of a Commodity plus additional reward to
the producer for his labour and Capital. In our construction
industry the original cost of construction with certain
percentage of profit. The profit or additional reward may be
varied from Builder to Builder, and Business to Business
because the Price is a POLICY.
Value: Valuation is an opinion or an estimate which will be
determined by many factors like the purpose, supply,
demand, depreciation, obsolescence etc. Valuation is a
function of place, date and purpose.
 Properties Affecting Value
Supply and Demand
Cost of reproduction
Occupational value
Town Planning Act
Rent Control Act
Urban Land Ceiling Act
Any abnormal conditions like War, Riots, etc.
 Sinking Fund
amount of annual installment of the Sinking
fund may be found out by the formula.
I = Si/((1+i)n-1),
where I = annual installment required
S = total amount of Sinking fund to be
accumulated, n- number of
years required to accumulate the Sinking fund,
i = rate of interest in decimal
 Depreciation
Wear and tear
Fall in market value
Accidents like fall of a tree
Obsolescence
Decay
Changes in demands
Changes in Arts and fashion
Calamity like flood, lightning etc.
Actions of elements of Nature like heat, cold, wind
etc.,
Structural deterioration.
Method of calculating depreciation
Straight line Method
Constant percentage method
Sinking fund method and
Quantity survey method.
 Straight line Method

A fixed amount of the original cost is deducted

every year, so that at the end of utility peroid
only scrap value is left.
Assumption: same amount of loses every year
Annual depreciation D = (C-S)/n
Where, C Original cost or Replacement Value
S Scrap value or Salvage value
n - life of the property in years
 Constant percentage method

Declining Balance method

Assumption: The property loose its value by a
constant percentage of its value at the
beginning of every year
D = 1 (S/C)1/n
where, D = annual Depreciation
C Original cost or Replacement Value
S Scrap value or Salvage value
n - life of the property in years
 Constant percentage method

Value of the property of the depreciated cost

at the end of the first year = C-DC = C1
Value of the property of the depreciated cost
at the end of the m years = C (S/C)(m/n)
 Sinking fund method
Year D TD Book value
1 A A C-A
2 A+b 2A+b C-(2A+b)
 Valuation of Land
In the Land Valuation generally Lands are
broadly classified into
(1) open lands (2) Land with
Structures.
Further the open land classified as
Urban Land, (2) Agricultural (or) form land
 VALUATION OF BUILDINGS
Valuation is the technique of estimating
or determining the fair price or value of a
property such as a building, other
engineering structures of various types,
land etc.
Purpose of valuation

1.Buying or selling property

2. Taxation
3.Rent fixation (6-10%)
4.Security of loans or mortgage
5.Compulsory acquisition also for
Insurance, Betterment charges etc.
VALUATION OF BUILDINGS
Valuation of buildings depends on the following
factors
Type of building
Its structure and durability
Size,shape ,frontage ,width of roadways
4.The quality of materials used in construction
5.Location of building
6.Height of building,height of plinth, thickness
of wall,
7.Nature of flooor, doors, windows etc.
 Valuation contd..

The Valuation of building is determined on working

out its cost of construction at present day rate and
allowing a suitable depreciation
 Methods of estimating present
day cost of a building
1.Cost from record - from the record of billof
quantities and reduce/increase to present day
rates.
2.Cost by detailed measurement- by preparing
the bill of quantities n detailed measurements.
3.Cost by plinth area basis- based on plinth area
rate of the similar adjacent building in the
locality.
 Determination of depreciation
After deciding the present day cost of the building
,we have to allow depreciation with life of
building.

Peroid Depreciation per year Total deprecin

0-5 Yrs ----- Nil
5-10 1/2% 2.5 percent
10-20 3/4% 7.5 %
20-40 1% 20%
40-80 1.5 % 60%
 Methods of valuation
1.Rental method of valuation
2.Direct comparison with the capital value
3.Valuation based on profit
4.Valuation based on cost
5. Development method of Valuation
6.Depreciation method of valution
 Methods contd..
Rental Method: Net income by wayof rent is
calculated by deducting all outgoings from the gross
rent.
Years Purchase is calculated by assuming suitable
rate of interest.
Valuation of the property= Y.P* Net Income.
Out goings: Taxes, Repairs, Management and
collection charges, Sinking fund, Loss of rent,
Miscellaneous.
 Methods contd..
2.Direct comparison with capital value: If evidences
available regarding sale price of property as a whole.
Capitalised property of the property is fixed based on
direct comparison with capitalised value of similar
property in the locality.
3. Based on Profit: Suitable for buildings like
hotels,cinemas,theatres,etc. for which the capitalised
value depends on the profit.
 Methods contd..
4.Valuation based on cost: The actual cost incurred in
constructing the building or in possessing is taken as
basis to determine the value of property.
5.Development method of valuation: suitable for
properties which are in the undeveloped stage or
partly developed stage.
6.Depreciation method of valuation:
valuation of he building is divided into 4 parts, like
For walls, Roofs, Floor, Doors and windows
The cost f each part is calculated based on present
rates. A suatable depreciation is applied for each part.
 Assumption: P = Depreciated value of
the Building
A = Replacement value of the Building
r = rate of depreciation per year
n = Age of the Building in Years
P = A ( 1 (r/100) )n
Gross Income
Net Income
Outgoings
Scrap value
Salvage Value
Capitalised value
Sinking fund
Years purchase
Depreciation, Method of calculating depreiation