A detailed study of Construction contract, with photos and varies important information

1. CONTRACT AND TYPES OF
CONTRACT
SUBJECT: ESTIMATION AND COSTING

2. HISTORY OF LAW
Indian Contract Act came into force on 1st Sept,
1872.
 The act is applicable to whole India except the
state of Jammu & Kashmir.
 It contains 266 sections.

3. WHAT IS CONTRACT?
• A contract is a legally binding or valid agreement between two
parties. The law will consider a contract to be valid if the
agreement contains all of the following elements:
• offer and acceptance;
• an intention between the parties to create binding relations;
• consideration to be paid for the promise made;
• legal capacity of the parties to act;
• genuine consent of the parties; and
• legality of the agreement.
• An agreement that lacks one or more of the elements listed
above is not a valid contract.

4. WHY DO WE USE CONTRACT IN
CONSTRUCTION?
• Describe scope of work
• Establish time frame
• Establish cost and payment provision
• Set fourth obligations and relationship
• Minimize disputes
• Improve economic return of investment

5. CONSTRUCTION CONTRACT
A construction contract is a mutual or legally
binding agreement between two parties based on policies and
conditions recorded in document form. The two parties
involved are one or more owners, and one or more contractors.
The owner has full authority to decide what type of contract
should be used for a specific development to be constructed
and to set forth the legally-binding terms and conditions in
a contractual agreement.

6. ACTIVITIES IN CONSTRUCTION PROJECT
Engineering
•Issues related to process
finalization, structural analysis
& design, technical issues
related to equipment design &
selection
1
Procurement
•Procurement of materials , also
includes identification of
suitable vendors
2
Construction
•This covers construction,
installation & test run of a
constructed facility before
handed to owner
3

7. MAJOR CONTRACT TYPES (TRADITIONAL)

8. CLASSIFICATION
• Separated contracts
• Management contracts
• Integrated contracts
• Discretionary contracts

9. SEPARATED
CONTRACTS
• Lump sum contract
• Measurement
contract
• Item rate
• Percentage rate
• Cost plus percentage

10. MANAGEMENT CONTRACT
• Management contract
• Construction management contract
• Design, management & construction contract.
• INTEGRATED CONTRACT
• Design build contract
• Turn key contract
• Build, operate & transfer contract.

11. DISCRETIONARY
CONTRACT
• Partnering contract
• Joint venture contract

12. SEPARATED
• Traditional system & sequential process
• Division b/w design & construction responsibility
• Design - project briefing, outlining proposal, detail design, etc.
• Delay - preparation & approval of drawings, mistakes in design
documentation
• Lengthy tendering period & suitable for small to medium sized
projects where time is not critical

13. MAJOR DRAWBACKS
• Time consuming aspects of development process
• Effect of cost uncertainty
• Effect of buildability
• Fragmentation of organizational interfaces

14. Lump sum and scheduled contract:
This is a lump sum contract that requires a cost breakdown.
Cost plus fixed fee contract:
In cost plus fixed fee, the owner pays the contractor an agreed amount over and above the
documented cost of work.
Cost plus percentage of cost contract:
In cost plus percentage, the owner pays greater than 100 percent of the documented cost, usually
requiring detailed expense accounting.
Special contracts:
Special contracts are further classified into five types:
•Turn key contract
•Negotiated contract
•Package contract
•Continuing contract
•Running contract

15. • LUMP SUM CONTRACT
In a lump sum contract an owner agrees to pay a contractor a specified lump sum
after the completion of work without a cost breakdown. After work no detailed
measurements is required.
• The lump sum agreement will reduce owner risk, and the contractor has greater
control over profit expectations.
• The time to award this type of contract is also longer; however, it will
minimize change orders during construction.
Lump Sum Contract Advantages
 'Fixed' construction cost.
 Minimize change orders.
 Owner supervision is reduced when compared to Time and Material Contract.
 Bidding analysis and selection process is relatively easily.
Lump Sum Contract Disadvantages
 It presents the highest risk to the contractor.
 The Owner might reject change order requests.
 The project needs to be designed completely before the commencement of
activities.
 The contractor will select its own means and methods.

16. Time and Material Contracts or Unit Price Contracts:
• Unit price contracts are what we call an hourly rate. This type of contract is
typical in freelance work. The main advantage of this type of contract is that the
seller will make money for every hour he spends on the project.
• As Project Manager, it is his responsibility to enter into the right kind of
contract with a service provider to reduce risk and have the job delivered on
time

17. Lump sum and scheduled contract:
• In a lump sum contract an owner agrees to pay a contractor a
specified lump sum after the completion of work without a cost
breakdown with a specified time.
Lump Sum And Scheduled Contract Advantages:
 'Fixed' construction cost and time.
 Can be handovered on time.
 Owner supervision is reduced when compared to Time and
Material Contract.
Lump Sum And Scheduled Contract Disadvantages:
 It presents the highest risk to the contractor
 The Owner might reject change order requests.

18. COST PLUS FIXED FEE CONTRACT:
• A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for
payment to the contractor of a negotiated fee that is fixed at the inception of the
contract.
• The fixed fee does not vary with actual cost, but may be adjusted as a result of
changes in the work to be performed under the contract.
Advantages:
• A cost-plus contract is often used when long-term quality is a much higher
concern than cost.
• Final cost may be less than a fixed price contract because contractors do not
have to inflate the price to cover their risk.[
Disadvantages:
• There is limited certainty as to what the final cost will be.
• Requires additional oversight and administration to ensure that only permissible
costs are paid and that the contractor is exercising adequate overall cost
controls.
• Properly designing award or incentive fees also requires additional oversight and
administration.

19. COST PLUS PERCENTAGE OF COST CONTRACT:
• In construction, a method of payment to a contractor in which an additional
amount of money, expressed as a percentage, is paid by the client that is
designated to cover the contractor's overhead costs. When paid as a
predetermined profit, the client will usually require a strict accounting of
expenses.
• Suitable for small jobs.

20. NEGOTIATED CONTRACT:
• Contract awarded on the basis of a direct agreement with a contractor, without
going through the competitive bidding process. Also
called negotiated agreement.

21. PACKAGE CONTRACT:
• Packaging is normally associated with
general contractors who split a large project into a
series of work packages suitable for
obtaining tenders and placing orders with
the subcontracting and goods supply chain thereby
transferring risk for delivering some elements of the
works to others.
• However the design team, generally advised by the cost
consultant, may elect to pre-empt a
general contractor by selecting specialist systems
required for early inclusion into the evolving design.
This creates a built in package requirement.

22. CONTINUING CONTRACT:
• Continuing contract is
a contract calling for periodic
performances. Under such a
contract, performance is in several
units over a period of time. It is an
executory, as distinguished from an
executed contract. The following is
an example of a state law (Florida)
defining the term: According to Fla.

23. MEASURABLE CONTRACT
• Payment made according to actual work varied out, which is determined by physical
measurements

24. ITEM RATE CONTRACT
• The contractor agrees to carry out a unit quantity of particular work
(cm3,m2) for particular sum of money
• In this tender document consists of detailed BOQ , where estimated
quantity of work for each item involved in particular work are listed
along with detailed description
• Total contract value - multiply total quantity with quoted item rate
and add cost of all items

25. S.no Item Measuremen
t unit
Quantity Rate Amount
1 Cement Kgs 50 280 14000
2 Steel Ton 2 42000 84000
• Some items are not covered in BOQ but essential for completing job, in such
cases rates are given on basis of labour, material, equipment etc.

26. PERCENTAGE RATE CONTRACT
• Tender document contains scheduled rates for each work in addition to detailed
estimate for execution of work
• Contractor works out his rates for items I usual manner& arrives at total price
which is converted to total percentage by which amount differs
• Adopted by government departments & large organizations

27. S.no Item Measuremen
t unit
Quantity Rate Amount
1 Cement Kgs 50 280 14000
2 Steel Ton 2 42000 84000
W 14000+84000
Contractor amount -- Z
Z > W , the % rate = (z-w)/w *100 above W
Z < W , the % rate =(w-z)/w*100 below W

28. MANAGEMENT CONTRACT
• Managing contractor is appointed and he deals with number of small contractors
• Client deals with only contractor and designer
• Contractor provides planning, management & coordination services to client

29. RESPONSIBILITIES
• Preparing overall construction schedule
• Work package schedule
• Coordinating with designer
• Assistance in subcontractors selection
• Coordinating among different subcontractors

30. DESIGN, MANAGEMENT & CONSTRUCTION
CONTRACT
• Client appoints single contractor to
take care of design & construction
• Basic design concepts may be provided
by client himself or through an
independent agency
• After basic concepts client calls for
tender and selects appropriate agency
for designing , management &
construction services

31. INTEGRATED
CONTRACT
• Design- build
• In this contractor takes the
responsibilities of both design &
construction based on basic plans
drawn up by the client
• This avoids conflict b/w designer &
contractor
• Often adopted when client has no in-
house design with him
• This method Reduces the cost ,
develops the technical power in
contractor & reduces disputes

32. THE TURN-KEY
CONTRACT
• Responsibilities of all activities are
taken up by contracting agency
• The owner simply wants to “turn the
key” at completion to take over the
facility
• All activities related to surveying ,
drawing specifications , design ,
project planning , construction & test
operation are given to one large
organization

33. • They are useful in projects involving
combination of civil, electrical,
mechanical, chemical & mining
engineering
• Mostly seen in petrochemical plants
& nuclear power stations
• STEPS
• In a project client first prepares
documents regarding requirements
of facilities to be constructed
• Later he selects the best proposal
submitted by multiple bidders

34. TEAM MEMBERS
• ESHWAR .G
• RAKSHITH REDDY .R
• DARSHAN .R
• KETAN NAIDU .K
• N.S.S.AKHIL
• DEEPA .S