Contracts Management Introduction

1. MODULE : 1
INTRODUCTION TO CONTRACTS

3. DEFINITIONS
● Contract : A written or spoken agreement, especially one concerning
employment, sales, or tenancy, that is intended to be enforceable by law.Offer
(i.e. Proposal): When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of that other
person either to such act or abstinence, he is said to make a proposal.
● Contract Management and Administration : It is the process of managing
contracts, deliverables, deadlines and customer satisfaction.
● Offer (i.e. Proposal): When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtaining the assent of that
other person either to such act or abstinence, he is said to make a proposal.

4. ● Acceptance: When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.
● Promise: A Proposal when accepted becomes a promise. In simple words,
when an offer is accepted it becomes promise.
● Promisor and promisee : When the proposal is accepted, the person
making the proposal is called as promisor and the person accepting the
proposal is called as promisee.
● Consideration : When at the desire of the promisor, the promisee or any
other person has done or abstained from doing something or does or
abstains from doing something or promises to do or abstain from doing
something, such act or abstinence or promise is called a consideration for
the promise.

5. ● Agreement: Every promise and set of promises forming the consideration
for each other. In short, agreement = offer + acceptance.
● Contract: An agreement enforceable by Law is a contract.
● Void agreement: An agreement not enforceable by law is void.
● Voidable contract: An agreement is a voidable contract if it is enforceable
by Law at the option of one or more of the parties there to (i.e. the
aggrieved party), and it is not enforceable by Law at the option of the
other or others.
● Void contract: A contract which ceases to be enforceable by Law becomes
void when it ceases to be enforceable.

6. Subcontractor

7. SALIENT FEATURES OF A CONTRACT
1. True reflection of the Agreement : Prior to any contract there has to be an
agreement in between the two parties, which outlines the Modus Operandi,
going in the natty gratis of exact deliverable, time period, mode and
milestone of payments etc. The Contract should incorporate exactly what has
been agreed upon.
2. Legality : The Contracts are legally binding documents, as such should ensure
the compliance of all the applicable statutory and legal requirement, No such
clause of the contract should contradict with any legal provision to make it
ultra Virus.

8. 3. Clear SOW : Scope of Work is the soul of any contract, which consists of a
highly tailored series of carefully worded statements, that elaborates on:
● Duties and responsibilities of both the parties.
● Time frame for the execution of the project.
● Tasks, the activities and milestones that need to be completed to accomplish
the contract objectives
● Exact Deliverable from both the parties.
4. Broad Spectrum : The Top Management of both sides should devote and Invest
their time and resources in drafting a comprehensive contract as they often only
get one chance to get what they need in a contract.

9. 5. Easy Language : The Contract should be made in Easy Language that can be
easily understood by someone unfamiliar with the project, such as Banker,
Auditors, Arbitrators etc.
6. Consistency & Completeness : All of the provisions, clauses, definitions and
terms should be consistent throughout the document, its exhibits and annexure.
The document should read correctly as a whole, leaving no gaps or incomplete
references.
7. Fair Deal : A contract that is lopsided in favor of one party inevitably leads to
confrontation, disputes and inflated prices. Unfair contracts also tend to break
down what may be a cooperative spirit between the parties.
8. Banking, Payments and Insurance : Banking norms of many countries are
very stringent and their compliance is amply difficult, but a work around is
always possible for the contract execution.

10. 9. Recourse for Settlement of Disputes : The drafting stage of any contract is
the time to contemplate the maximum probable dispute scenario and
determine a comprehensive dispute resolution clause.
10. Elaborate & Explicit : The ultimate value of a good Project contract lies in
how well it is understood and followed by the project teams.

11. DISCHARGE OF CONTRACT
Discharge of a contract implies termination of contractual obligations. This is
because when the parties originally entered into the contract, the rights and duties
in terms of contractual obligations were set up.
Consequently when those rights and duties are put out then the contract is said to
have been discharged. Once a contract stands discharged, parties to it are no more
liable even though the obligations under the contract remain incomplete.

13. 1. Discharge by performance : Where both the parties have either carried out
or tendered (attempted) to carry out their obligations under the contract,
is referred to as discharge of the contract by performance.
2. Discharge of Contract by Substituted Agreement: A contract emanates
from an agreement between the parties.It occurs in various situations,such
as:
● Novation:The term novation implies the substitution of a new
contract for the original one.
● Rescission:This refers to cancellation of all or some of the material
terms of the contract. If the contracting parties mutually decide to do
so, the respective contractual obligations of the parties stand
terminated.
● Alteration:This refers to a change in one or more of the terms of a
contract with the consent of all the contracting parties. Alteration
results in a new contract but parties to it remain the same.

14. ● Remission: This means the acceptance (by the promisee) of a lesser sum
than what was contracted for, or a lesser fulfillment of the promise made.
● Waiver:The term waiver implies abandonment or relinquishment of a
right. Where a party deliberately abandons its rights under the contract,
the other party is released of its obligations, otherwise binding upon it.
3. Discharge by lapse of time: A contract stands discharged if not enforced
within a specified period called the ‘period of limitation’. The Limitation Act,
1963 prescribes the period of limitation for various contracts. Contractual rights
become time barred after the expiry of this limitation period. Accordingly, if a
debt is not recovered within three years of its payment becoming due, the debt
ceases to be payable and is discharged by lapse of time.

15. 4. Discharge by Impossibility of Performance : Sometimes after a contract has
been established, something might occur, though not at the fault of either party,
which can render the contract impossible to perform, or illegal, or radically
different from that originally undertaken.
The performance of a contractual obligation may become subsequently
impossible on a number of grounds. They include the following:
● Objective impossibility of performance
● Commercial impracticability
● Frustration of purpose
● Temporary impossibility

16. 5. Discharge of operation of law : A contract stands discharged by operation of
law in the following circumstances:
● Unauthorized material alteration of a written document: A party can treat a
contract discharged (i.e., from his side) if the other party alters a term (such
as quantity or price) of the contract without seeking the consent of the
former.
● Statutes of Limitations : A contract stands discharged if not enforced within
a specified period called the ‘period of limitation’. Contractual rights become
time barred after the expiry of this limitation period.

17. ● Insolvency : A discharge in bankruptcy will ordinarily bar enforcement of
most of a debtor’s contracts.
● Merger : A contract also stands discharged through a merger that occurs
when an inferior right accruing to party in a contract amalgamates into the
superior right ensuing to the same party.
6. Discharge by Accord and Satisfaction : To discharge a contract by accord and
satisfaction; the parties must agree to accept performance that is different from
the performance originally promised. It may be studied under the following sub-
heads.

18. ● Accord :An accord is an executory contract to perform an act that will
satisfy an existing duty. An accord suspends, but does not discharge, the
original contract.
● Satisfaction : Satisfaction is the performance of the accord, which discharges
the original contractual obligation.
If the obligor refuses to perform, The obligee can sue on the original obligation
or seek a decree for specific performance on the accord.

19. 7. Discharge of contract by breach : Breach occurs where one party to a contract
fails to perform its contractual obligations, or the performance is defective. The
breach may give to the aggrieved party the right to terminate the contract but it
is for the non-breaching side to decide whether or not to exercise that option. A
Breach may be anticipatory or actual.
● Anticipatory Breach : Also known as ‘breach by repudiation’, anticipatory
breach occurs when one party states, before the arrival of the date fixed for
performance, without justification that it cannot or will not carry out the
material part of the contractual obligations on the agreed date or that it
intends to perform in a way that is inconsistent with the terms of the
contract.
● Actual Breach : Actual breach refers to the failure to perform contractual
obligations when performance is due.

20. DOCUMENTS FOR AN ENGINEERING CONTRACT

21. 1. Form of agreement : The form of agreement constitutes the formal
agreement between the promoter and the contractor for the execution of
the works in accordance with the other contract documents.This is now
generally covered by the form of agreement incorporated in the general
conditions of contract.
2. General conditions of contract : The general conditions of contract defines
generally the terms under which the work is to be undertaken, the
relationship between the promoter or employer, the engineer and the
contractor, the powers of the engineer and the terms of payment.
3. Specifications : The specification amplifies the information given in the
contract drawings and the bill of quantities. It describes in details the work
to be executed under the contract and the nature and quality of the
materials, components and workmanship. It gives detail of any special
responsibilities to be borne by the contractor, apart from those covered by
the general conditions of contract.

22. 4. Bill of Quantities : The bill of quantities consists of a schedule of the items
of works to be carried out under the contract with quantities entered against
each item, the quantities being prepared in accordance with the “Civil
Engineering Standard Method of Measurement”. Owing to the small scale of
many of the drawings, the large extent of the works and the uncertainties
resulting from difficult site conditions, the quantities inserted in a bill are
often approximate.
5. Contract Drawings : The contract drawings depict the details and scope of
the works to be executed under the contract. They must be prepared in
sufficient details to enable the contractor satisfactorily price the bill of
quantities. The contract drawings will be subsequently used when executing
the works and may well be supplemented by further drawings as the work
proceeds.

23. 6. Form of Tender : The form of tender constitutes a formal offer to construct,
complete and maintain the contract works in accordance with the various
contract documents for the tender sum. It usually incorporates the contract
period within which the contractor is to complete the work.
The form of tender now largely used for civil engineering contracts is the form
incorporated in the general conditions of contract for use in connection with
works of civil engineering construction. This form of tender published by ICE
provides for a ‘bond’ often amounting to 10% of the tender sum. The contractor
may be required to enter into a bond, whereby he provides a bank or insurance
company who are prepared to pay up to say 10% of the contract sum if the
contract is not carried out satisfactorily.

45. FEATURES OF A CONTRACT
● OFFER : An expression on willingness to be bound on terms. Terms
established by the offeror here – and only those included at this stage form
part of the contract.
● ACCEPTANCE : The party(s) to whom the offer has been made
communicates a full and unconditional acceptance of the terms of the offer
(exceptions exist in unilateral offers and the postal rule).

46. ● CONSIDERATION : The bargain element of the contract, also known as
‘the price of a promise’. A simple contract may be a bad bargain, but it must
be a bargain to be enforceable.
● INTENTION : The parties must intend that the agreement is to establish a
legally binding contract rather than simply a social/domestic arrangement.
● CERTAINTY : The terms of the contract must be sufficiently clear and
precise to be enforceable.