PARAGON CONSTRUCTORS

PVT LIMITED
CONSTRUCTION CONTRACT ELEMENTS
ESSENTIAL ELEMENTS OF A VALID CONTRACT
 Proper Offer and Proper Acceptance
 Intention to Create Legal Relationship
 Lawful Consideration
 Competence of Parties
 Free Consent
 Lawful Object
 Possibility of Performance
 Not Declared to be Void or Illegal
 Legal Formalities
WHAT IS A CONTRACT?
An agreement that affects or creates legal relationships between two or more persons
enforceable under law.
An agreement has to be enforceable by law and must posses the essential elements of a valid
contract as contained in Law.
An agreement that can be enforced in a court of law between two or more competent parties,
for a lawful consideration and with a lawful object and are not expressly declared to be void or
to do or refrain from doing some particular thing that is neither illegal nor impossible.
A construction contract provides a legal binding agreement, for both the owner and the
builder, that the executed job will receive the specific amount of compensation or how the
compensation will be distributed.
TYPE OF CONTRACT?
TYPE OF CONTRACT?
Lump Sum or Fixed Price Contract Type

This type of contract involves a total fixed priced for all construction-related activities.

Lump sum contracts may include incentives or benefits for early termination, or can also have
penalties, called liquidated damages, for a late termination.

Lump Sum contracts are preferred when a clear scope and a defined schedule has been
reviewed and agreed upon.

This type of contract are used when the risk needs to be transferred to the Builder and the
owner wants to avoid change orders for unspecified work.

However, a contractor must also include some percentage cost associated with carrying that
risk. These costs will be hidden in the fixed price.
TYPE OF CONTRACT?
Cost Plus Contracts
This type of contract involves payment of the actual costs, purchases or other expenses
generated directly from the construction activity.

Cost Plus contracts must contain specific information about a certain pre-negotiated amount
(some percentage of the material and labor cost) covering contractor’s overhead and profit.

Costs must be detailed and should be classified as direct or indirect costs.

Cost plus contracts are used when the scope has not been clearly defined and it is the owner
responsibility to establish some limits on how much the contractor will be billing. When some
of the aforementioned options are used, those incentives will serve to protect the owner's
interest and avoid being charged for unnecessary changes. Cost-plus contracts are difficult or
harder to track and more supervision will be needed, normally do not put a lot of risk in the
contractor.
TYPE OF CONTRACT?
Time and Material Contracts When Scope is Not Clear
Time and material contracts are usually preferred if the project scope is not clear, or has not been defined.
The owner and the contractor must establish an agreed hourly or daily rate, including additional expenses
that could arise in the construction process.

The costs must be classified as direct, indirect, markup, overhead and should be included in the contract.

These contracts are useful for small scopes or when you can make a realistic guess on how long it will take
to complete the scope.

Unit Pricing Contracts

Unit pricing contracts is another type of contract commonly used by builders and Government agencies.

Under this type of Contract, the owner can easily verify what is being charged with un-inflated prices for
goods or services being acquired.

Unit price can easily be adjusted up and/or down during scope changes, making it easier for the owner and
the builder to reach into agreements during change orders.
ORDER OF PRECEDENCE/PRIORITY
In most FIDIC forms, default hierarchy for the documents forming the contract. Order of Priority
is as stated below and in the event of inconsistency the first on the list takes precedence:
General FIDIC Specify this type of Order of Precedent:

- The Contract Agreement

- The Letter of Acceptance (this is the formal acceptance of the contractor's tender and marks
the formation of the contract)
- The Letter of Tender
- Part II – the conditions of particular application
- Part I – general conditions of contract
- The Specification and Drawings (Red Book), The Employer’s Requirements (Yellow Book),
the Schedules (Red and Yellow Books)
- Further documents (if any), listed in the Contract Agreement or in the Letter of
acceptance
The parties are allowed to rearrange the priority of documents or stipulate that no priority or
order of hierarchy will apply to the contract. This can be done in Part II of the contract.
ORDER OF PRECEDENCE

Other Contracts may have this type of “Order of Precedence of Documents”, which is listed as
shown below:

 Contract between Owner and GC

 Special Provisions
 General Provisions
 Specifications
 Details on Drawings
 Plan Drawings

This means that if the contractor has a CONFLICT between the Plan Drawings and Details on
Drawings, then the Details on Drawings prevail. If there is a conflict between the Drawings and
Details on Drawings and the Specifications, then the Specifications will prevail. The higher “Order
of Precedence of Documents” governs or prevails.
PROVISION DOCUMENTS, SPECIFICATIONS,
DRAWINGS
Provisions Documents
There usually are two legal documents dealing with provisions in a construction project. One document establishes the
general provisions, and one details special provisions.

In the case of a conflict between the special provisions document and the contract, the special provisions document
typically has precedence.

The general provisions document takes precedence over both the special provisions document and the contract when
the terms of the three documents have different conditions or language that causes confusion.

Specifications
Purpose of specification is to highlight the necessary information which cannot be obtained from drawing.

To define the quality required, material workmanship, its properties, types and strength of construction material is known
as specifications. It is such kind of information, which cannot be described from construction drawing.

For Example: Length and width of doors, windows are visible on drawing or concrete ingredients, their ratio and specialties
can only be shown through specifications.
PROVISION DOCUMENTS, SPECIFICATIONS,
DRAWINGS
Drawings
Official contract drawings generally have authority over all other lower-level construction documents.
The only other documents holding more weight than these drawings are the official plan drawings. These plans must be
filed for the project to become official.

Construction drawings are generally categorized according to their intended purpose. Types commonly used in
construction may be divided into Six main categories based on function.

1. Preliminary drawings (preliminary sketches, essential schematic design/concept-development drawings at the initial
stages of a project.)
2. Presentation drawings (presentation drawings is to present the proposed building or facility in an attractive setting )
3. Working drawings (constructions/working drawings include all the drawings required by the various trades)
4. Shop/assembly drawing (Shop and assembly drawings are technical drawings prepared by various contractors)
5. Specialized/Miscellaneous drawings (Freehand sketches are drawings made without aid of any drawing instruments
6. Coordinated Drawings Construction - Unforeseen construction re-work can seriously impact construction schedules
and project budgets; MEP (mechanical, electrical and plumbing) service installations can benefit most from
coordination drawings to display each system in conjunction with the structural components of the project.

Important of Coordinated Drawings

1.physical conflicts in equipment floor space layouts
2.proper code clearances, especial concerning high voltage equipment
3.correct vertical elevations for routing of duct work and piping
PROVISION DOCUMENTS, SPECIFICATIONS,
DRAWINGS
Important of Coordinated Drawings

1.physical conflicts in equipment floor space layouts

2.proper code clearances, especial concerning high voltage equipment
3.correct vertical elevations for routing of duct work and piping
4.coordination of equipment supported by structural steel
5.correct wall penetration dimensions for duct work and cable trays
6.sufficient wall space for electrical panels, etc.
7.coordination of ceiling and lighting system support
EMAAR – PLOT-7 CONTRACT
Contract is on LUMPSUM basis;

Contractor is required to complete works as per Tender Drawings.

Priority of Contract Documents

- The Agreement
- The letter of Acceptance
- The Particular Conditions
- The Conditions of Contract
- The Drawings
- The Specifications;
- The Bill of Quantities;
- The Form of Tender

The Contract Documents shall be taken as mutually explanatory. Any ambiguity or discrepancy shall be
resolved by the Engineer who shall then notify the Contractor thereon, with a copy to the Employer;
EMAAR – PLOT-7 CONTRACT
Definition of Drawings (General Conditions)

"Contractor's Drawings" means all drawings, calculations, computer programmes and other
software, samples, patterns, models, manuals and other documents and information of a
technical nature (if any) to be submitted by the Contractor under the Contract

Definition of Drawings in Particular Conditions

”Drawings’ means the drawings listed in Contract Documents and forming a part of the Contract
and (subject to the provisos in Clause 2.1 (Engineer’s Powers and Duties)), such other drawings
and information as may from time to time be furnished by the Engineer under the Contract,
Contractor’s Drawings approved by the Engineer in writing, and any modifications or
replacements of any Drawings which may from time to time be so furnished or approved.”

"Specifications" means the document entitled specification forming a part of the Contract
together with any modifications thereof or additions thereto or deletions therefrom as may from
time to time be made in accordance with the Contract.