Contracts - Estimation, Costing and Valuation Engineering

SNS COLLEGE OF ENGINEERING & TECHNOLOGY
An Autonomous Institutions
Accredited by NBA – AICTE and Accredited by NAAC – UGC with ‘A’ & ‘A+’Grade
Approved by AICTE, New Delhi & Affiliated to Anna University, Chennai
DEPARTMENT OF CIVIL ENGINEERING
COURSE NAME:
CE8701 - ESTIMATION, COSTING AND VALUATION ENGINEERING
IV YEAR / VII SEMESTER
Unit IV: CONTRACT
Topic : CONTRACT

12/4/2020 SNSCE/ Civil Engg /VII sem / Shanmugasundaram N/ Ap/Civil
Contract
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Contract
SNSCE/ Civil Engg /VII sem / Shanmugasundaram N/ Ap/Civil
 A contract is a legally binding document between that defines and
governs the rights and duties of the parties to an agreement.
 A contract is legally enforceable because it meets the requirements
and approval of the law.
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 For a CONTRACT to be valid, there must be an offer from the owner in
the form of tender notice to get some specified work to be executed
and there must be an acceptance from the contractor to execute the
work, both the offer and the acceptance must be definite and legal.
Contract Documents
 When the tender of a contractor is accepted, an agreement between
the contractor and the owner takes place and the documents defining
the rights and obligations of he owner and the contractor are attached
to the agreement bond and this is called a contract document.
 Each page of the contract document bears the signature of the
contractor and the accepting authority and any correction in it is
initialled.
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The contract document must contain
1. Title page – name of work, name of owner, name of contractor,
contract agreement no., contents, etc.
2. Index page – contents of the agreement with reference pages
3. Tender notice – brief description of work, estimated cost of work,
date and time of receiving tender, amount of EMD and security
deposit, time of completion, etc.
4. Tender form – the bill of quantities, contractor’s rate, total cost of
work, time of completion, amount of security deposit, etc.
5. Schedule of issue of materials – list of materials to be issued by
the owner/department to the contractor with the rates and place of
issue.
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The contract document must contain
6. Drawings - Complete set of drawings including plan, elevation,
sections, detailed drawings, etc. all fully dimensioned.
7. Specifications
(a) General Specifications - Which specify the class and type of
work, quality of materials, etc.
(b)Detailed specifications - Detailed description of each item of
work including material and method to be used along with the
quality of workmanship required.
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Conditions of contract
1. Rates of each item of work inclusive of materials, labour, transport,
plant/equipment and other arrangements required for completion of
work
2. Amount and form of earnest money and security deposit
3. Mode of payment to contractor including running payment, final
payment and refund of security money, etc.
4. Time of completion of work
5. Extension of time for completion of work Engagement of sub contractor
and other agencies at contractor’s cost and risk.
6. Penalty for poor quality and unsatisfactory work progress.
7. Termination of contract.
8. Arbitration for settlement of disputes.
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Conditions of contract
9. Special conditions – depending upon the nature of work taxes and
royalties included in the rates, labour camp, labour amenities,
compensation to labour in case of accidents, etc.
10. Deed of pledge.
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Classification of Contracts
1. Lump-sum contract
2. Cost plus a fixed percentage contract
3. Cost plus a fixed fee contract
4. Percentage rate contract
5. Item rate contract
6. Turn-key contract
7. Cost plus sliding scale of fees
8. Negotiated contracts
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1. Lump-sum contract
In this system, the contractor undertakes the execution of a specific work
for a definite lump-sum amount within a specified time period.
On completion of the work, it is checked as per drawings and specifications
and if approved the amount is paid to the contractor.
The quantities of various items is not measured.
For decorative works this system is adopted.
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Advantages of lump-sum contract
Low risk on the owner, Higher risk to the contractor
Cost known at the beginning
Contractor selection is easy.
Disadvantages
In this it is essential that the work be accurately and completely shown
on the drawings in the specifications and the full information about the
site condition should be available other wise it will leads to disputes.
Contractor is free to use the lowest cost of material equipment & and
methods.
Difficulty arises in making any intermediate payment.
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The contractor is reimbursed for all his costs with a fixed % age of costs to
cover his services.
Project/site overheads may be covered by the % or computed as one of the
costs.
Fee = percentage of the total project cost
(Cost =$500.000,Fee = 2%)
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Advantages
Construction can start before design is completed.
If the contractor is efficient in the utilization of resources then the cost to
the client should represent a fair price for the work undertaken.
Disadvantages
The project total cost is completely unknown before the project start.
No incentive for the contractor to be efficient in his use of labors,
materials or equipments.
Minimum efficiency maximizes the profit.
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3. Cost plus a fixed fee contract
In this system a fixed fee is given as contractor’s profit irrespective of the
total cost of work.
This is to control the tendency of the contractor to increase the cost of the
project unnecessarily.
Smaller the completion time more is the profit and hence the contractors
hurry to complete the work and the quality of workmanship is not
maintained.
This system is not generally used.
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4. Percentage rate contract
 In this system the contractors are required to quote single percentage
either higher or lower at which he wants to execute the job.
 Here scrutiny of the tenders become easier and as cement and steel is
usually supplied by the department chances of manipulation is less.
 Most of the state is adopted this type of contract.
Advantages
 profitable for the contractor.
Disadvantages
 No incentive to finish job quickly
 Owner does not know total price
 Larger the cost of the job, the higher the fee the owner pays.
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5.Item rate of contract
Here the contractor gets the payment depending on the rate at which he has
quoted every item of the work.
It was rather difficult to scrutinize the tenders submitted by various bidders
and the system was hence modified and now the department quotes the
items of work along with their quantities and the bidders are required to quote
the percentages at which he can execute the various items.
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Advantages
Early start is possible.
Saves the heavy cost of preparing many bills of quantities by the
contractors.
Fair basis for competition.
In comparing with lump-sum contract, changes in contract documents
can be made easily by the owner.
Lower risk for contractor.
Disadvantages
Final cost not known from the beginning (BOQ only is estimated)
Staff needed to measure the finished quantities and report on the units.
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6. Turn-key contract
In this system all the works related to a project including designing,
planning, execution etc. are to be done by the contractor.
Once the project is completed it is handed over to the owner.
The owner has to complete the transaction works and
occupy the structure by simply turning the key.
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7. Cost plus sliding scale of fees
In this type of contract the contractor is paid by the owner the actual
cost of construction plus an amount of fee inversely variable according
to the increase or decrease of the estimated cost agreed first by both
parties.
Thus the higher the actual cost, lower will be the value of fee and vice
versa.
Advantages
In this case the contractor shall not try to increase the actual cost.
The actual cost is lower and lower so both the owner and the contractor
will be benefited.
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Disadvantages
Estimated cost should be accurate.Other wise the contractor get profit if the
actual cost is much higher than the estimated cost.
8.Negotiated contract
When the work is awarded on contract by mutual negotiation between the
parties with out call of tenders, it is said to be negotiated contract.
A negotiated contract will eliminate the costs associated with the bidding
process.
This could make it possible to avoid unforeseen problems and building
issues during construction.
Reference - https://callsierra.com/how-businesses-benefit-from-
negotiated-contracts/
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Arbitration (மத்தியஸ்தம்)
Arbitration is a process in which a dispute is submitted to an impartial
outsider who makes a decision which is usually binding on both the
parties.
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Arbitration (மத்தியஸ்தம்)
The arbitrator enforces his own point of view on the contending parties and
the opinions of the participants are not given any predominance.
Arbitration is a judicial process.
The award of the arbitrator is binding and rests on equity and justice, i.e.,
there is no scope for compromise
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Arbitral Disputes
Property
Insurance
Contract (including employment contracts)
Business / partnership disputes
Family disputes (except divorce matters)
Construction
Commercial recoveries
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Non Arbitral Disputes
 Matters of criminal nature.
 Disputes relating to matrimonial relations.
 Testamentary matters relating to the validity of a will.
 Relating to trusts for public purposes of charitable or religious nature.
 Insolvency matters.
 Matters relating to the guardianship of a minor or lunatic.
 Any execution proceedings .
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Duties Arbitral
To administer oath to the parties and witness appearing
To act judicially and impartially.
To put necessary interrogatories (விசாரணையாளர்கள் ) to any party to the
dispute.
To determine by and to whom the costs of reference and the award shall
be paid.
To award interest.
To fix amount, mode and time of payment.
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Duties Arbitral
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Arbitration Advantages
Choice of decision maker with expertise
Speed
Lower-cost
Flexible
Confidentiality
Less formal than court
Preservation of business relationships
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Arbitration disadvantages
Limited recourse
Uneven playing field
Lack of transparency
Cost: parties pay for arbitrator and agency
Limited rights of appeal, fewer means to challenge award
Lack of formal discovery
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Types of Arbitral
1. Voluntary arbitration
2. Compulsory arbitration
Voluntary arbitration
Implies that the two contending parties, unable to compose their
differences by themselves agree to submit the conflict/dispute to an
impartial authority, whose decision they are ready to accept.
Essentials of voluntary arbitration
The voluntary submission of dispute to an arbitrator.
The subsequent attendance of witnesses and investigations.
The enforcement of an award may not be necessary and binding.
Voluntary arbitration may be specially needed for disputes arising
under agreements/contracts.
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Compulsory arbitration
It is one where the parties are required to accept arbitration without
any willingness on their part.
When one of the parties to an industrial dispute feels aggrieved by an
act of the other, it may apply to the appropriate government to refer
the dispute to an adjudication machinery
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Essentials of Compulsory Arbitration
The country is passing through grave economic crisis.
Industries of strategic importance are involved.
Parties are ill balanced.
Compulsory arbitration leaves no scope for strikes and lockouts; it deprives
both the parties of their very important and fundamental rights.
Other Types of Arbitration
1. Ad-hoc Arbitration
2. Institutional Arbitration
3. Statutory Arbitration
4. Domestic or International Arbitration
5. Foreign Arbitration
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(1) Ad-hoc Arbitration
 When a dispute or difference arises between the parties in course of
commercial transactions.
 This arbitration is agreed to get justice for the balance of the un-settled
part of the dispute only.
(2) Institutional Arbitration
 There is prior agreement between the parties that in case of future
differences or disputes arising between the parties during their
commercial transactions, such differences or disputes will be settled by
arbitration as per clause provide in the agreement.
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(3) Statutory Arbitration
It is mandatory arbitration which is imposed on the parties by operation
of law.
In such a case the parties have no option as such but to abide by the law of
land.
(4) Domestic or International Arbitration
 Arbitration which occurs in India and have all the parties within India is
termed as Domestic Arbitration.
 An Arbitration in which any party belongs to other than India and the
dispute is to be settled in India is termed as International Arbitration.
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(5) Foreign Arbitration
 When arbitration proceedings are conducted in a place outside India
and the Award is required to be enforced in India, it is termed as
Foreign Arbitration.
Arbitration in India
Indian council of arbitration (1965).
Abide Arbitration and Conciliation Act, 1996.
Comprehensive legal framework.
95% arbitration is of type ad-hoc.
India No. 2 in arbitration cases reaching Singapore centre.
Mumbai to have India's first International Arbitration Centre soon.
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Requirements for the Arbitration agreement
It must arise out of mutual consent.
The parties must have legal capacity.
The agreement must be made in writing.
It must arise out of a defined legal
relationship.
The subject matter must be arbitral.
Section. 8 of arbitration conciliation act 1996
Power to refer parties to arbitration where there is an arbitration
agreement
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Section. 9 of arbitration Conciliation act 1996
Interim Measures by Court
Termination of arbitration agreement
 Termination of arbitration agreement by mutual consent
 Other grounds for termination of the arbitration agreement
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IBRD
International Bank of Reconstruction and Development (IBRD) is
a development bank administered by the World Bank.
The IBRD offers financial products and policy advice to countries
aiming to reduce poverty and promote sustainable development.
The International Bank of Reconstruction and Development is a
cooperative owned by 189 member countries.
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IBRD
.
https://www.investopedia.com/terms/i/international-bank-of-
reconstruction-and-
development.asp#:~:text=The%20International%20Bank%20of%20Re
construction%20and%20Development%20(IBRD)%20is%20a,poverty
%20and%20promote%20sustainable%20development.
 https://www.worldbank.org/en/projects-operations/products-and-
services/brief/procurement-policies-and-guidance
IBDS ProcurementGoodsENApr2015.docx
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MORTH
Ministry of Road Transport and Highways
 https://en.wikipedia.org/wiki/Ministry_of_Road_Transport_and_Highwa
ys
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.
It is a ministry of the Government of India, that is the apex body for
formulation and administration of the rules, regulations and laws relating
to road transport, transport research and in also to increase the mobility
and efficiency of the road transport system in India.
Through its officers of Central Engineering Services (Roads) cadre it is
responsible for the development of National Highways of the country.
Road transport is a critical infrastructure for economic development of the
country.
It influences the pace, structure and pattern of development.
MORTH - Ministry of Road Transport & Highway.pdf
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In India, roads are used to transport over 60 percent of the total goods and
85 percent of the passenger traffic.
 Hence, development of this sector is of paramount importance for India
and accounts for a significant part in the budget.
As many of the regional transport offices are not regularly functioning due
to covid-19 situation, the Govt has given some relaxation to the people
whose driving license has expired during this period.
Now the old driving license can be used till September 2020.
So the people can drive their vehicles up to September 2020 without
renewing the old license
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