3. Basic concepts in “Law of Contracts”:
(i) Proposal or Offer: As per section 2 (a) of Indian Contract Act 1872, When
a person signifies to another person his willingness to do certain work, with
a view to obtain his consent, he is said to make a 'proposal' or 'offer'.
• 'offer’ becomes 'contract' after legal relationship.
(ii) Acceptance: when the person to whom the proposal or offer is made
gives his consent, the 'proposal"' or 'offer is said to be 'accepted'.
• The acceptance is valid, when it is 'absolute' and 'unqualified' and is
expressed in 'usual and acceptable manner’.
• Acceptance is communicated either by 'words' or by 'conduct’.
4. (iii) Promise: When a 'proposal' or 'offer is accepted without any condition
and or reservation, it becomes a 'promise’. The person who makes the
proposal is called 'promissor’ and one who accepts is called as ‘promisee'.
• Acceptance of proposal is in ‘words’, is termed as 'express'.
• If acceptance of proposal made in any form other than in words, it is
termed as 'implied’.
(iv) Consideration: Person usually makes a promise to another in order to
derive certain benefit out of it, and is known as 'consideration' of the
promise.
5. (v) Agreement: Any promise or set of promises, forming the consideration
for each other (promissor and promisee), is known as an 'agreement".
• The agreement is classified as:
a) ‘Valid agreements' are enforceable by law.
b) ‘Void agreements' are not enforceable by law.
c) ‘Illegal agreements' are against the law and hence are void.
(vi) Contract: As per Section 2(h) of Indian Contract Act, contract is an
agreement enforceable by law.
• e.g. If B agrees to build a house for A, in consideration for Rs. 1 lakh, the
agreement is said to be a contract.
• All contracts are (necessarily) agreements but all agreements are not
(necessarily) Contracts, as they are not enforceable by law.
6. Void Contracts:
• A contract which cannot be enforced by law is said to be void
contract.
• It is due to presence of technical flaw into it
• E.g. agreement forced by coercion, fraud etc.
• Also when either of two party fails to complete contract within
stipulated time, it becomes void.
7. Voidable contract
• It is a type of agreement that can be made void only by one of the
parties that made the contract, and this contract is enforceable by
law only by that one party.
• In a voidable contract, one party is legally empowered to decide
whether or not to perform his part. Furthermore, this contract is only
valid until the dissatisfied party cancels it. A dissatisfied party may
cancel the contract for various reasons, such as all facts not disclosed,
misrepresentation or fraud, contractual error, breach of contract, etc.
• The main difference between void and voidable contracts is that a
void contract is invalid from the time it is created. A voidable
contract, on the other hand, remains valid until the dissatisfied party
cancels the contract if certain conditions are not met.
8. Speciality and Simple Contracts:
• Speciality Contract: It is a contract in ‘writing' and is signed, sealed
and delivered by the concerned parties, without any 'consideration'.
• It is also known as deed.
• Simple Contract: The contracts which are not under seal but with
‘considerations’ are called simple contracts.
9. ESSENTALS OF A VALID CONTRACT:
• 'contract' is an agreement which is enforceable by law.
• An 'agreement' may be 'void’
• But Contract cannot be ‘void'. Contracts are either ‘valid’ (i.e. can be
enforced by either party) or ‘voidable’ (i.e. enforceable by any one of the
parties, at its option).
• As per Section 10 of Indian Contract Act, agreements becomes contracts if
they are made:
1. by the free consent of the parties.
2. made by competent person
3. lawful consideration with a lawful object and
4. are not expressly declared as void.
10. 1. Free Consent:
• Two or more persons are said to have consent, when they agree upon
the same thing in the same sense.
• Consent must be free from coercion, undue influence,
misrepresentation, fraud, mistake etc.
• When the concerned parties agree upon the same thing in the same
sense, they are said to be 'ad idem’ (their minds are met).
• However, without free consent, the contract may become ‘void’.
• Example: building contracts are made with free consent.
11. • Coercion: Coercion as per Section 15 of Indian Contract Act is any
action forbidden by the Indian Penal Code (I.P.C). Any contract that
takes place under coercion is said to be ‘void’.
• Undue Influence: Section 16 of Indian Contract Act states consent
taken under 'undue influence' is invalid because one party is
dominating the other party.
• Misrepresentation and Fraud: misrepresentation is due to innocence
and if it is willful it is considered as fraud. This will lead to cancellation
of contract
• Mistake of Law or of Fact: As per Section 21 of Indian Contract Act,
the contract is not voidable, if it is caused by a mistake in
understanding the law of the fact. But ignorance of law can make the
agreement (or contract) void.
12. 2. Person must be Competent to Contract:
• All agreements are contracts, if the agreements are made by a
competent party, i.e.
• He is not a minor
• has sound mind and
• And is not disqualified from contracting by any law.
• Minor: The person below age of 18 .
• Sound Mind: person will have sound mind, if at the time of entering
contract he is capable of understanding it and can form a rational
judgement as to its effect upon his interests.
13. 3. Lawful Consideration with a Lawful Object:
• All building contracts have ‘lawful valid considerations’ in terms of
certain amount of profit.
• Consideration is lawful unless it is not forbidden by law or is
fraudulent or court regards it as immoral or opposite to public policy.
• Reciprocal promises made between the two parties is ‘consideration’,
for one party, and it is the ‘object’ for the other party.
• Agreement having unlawful consideration or object is said to be void.
• Unusual promises or acts without any valid consideration are not
entertained by the Court of law.
14. 4. Not Expressly Declared as Void:
• A contract which cannot be enforced by law is termed as ‘void
contract' and it is due to the presence of technical flaw into it.
15. Guidelines while Entering into Contracts:
• Terms and conditions in the contract should be precise and definite
and without any ambiguity. Under no circumstances alternatives
should be provided in any form.
• Prescribed standard form should be used for preparing the 'Contracts’
• Take expert legal and financial advice from the competent authorities
at the time of preparing contract documents.
• Terms and conditions of contract once entered should not be
materially changed.
• The contract should not involve any uncertain or unusual condition
detrimental to the department.
16. • The work should be allotted to the contractor only after written
agreement is obtained.
• All government machinery, property etc. given to the contractor must
be well safe guarded.
• Provision for cancellation of contract, after giving due notice to the
contractor should be made in the contract.
• In case the work is to be started in between the period of the
'acceptance of tender' and ‘execution of contract', temporary
agreement in Form A2 should be completed. Later this becomes the
part of main agreement in the regular form of contract.
17. Classification of Contractors
upon the technical capability and financial status, the contractors are
classified, by the competent Maharashtra Government authorities with
effect from 6" September 1982, as follows (for general work category)
Earlier Category of
Contractors before 6.9.1982
Limit for
Tendering
New Category of Contractors
from 6.9.1982
Limit for
Tendering
A1 No limits I No limits
II 3 crores
A 1 crore III 1 crore
B+ 60 lakhs
B 30 lakhs IV 50 lakhs
B1 15 lakhs V 15 lakhs
C 5 lakhs VI 5 lakhs
D 2 lakhs
E 50,000 VII 2 lakhs
18. • Before registration of a contractor into the appropriate category, a full
inquiry regarding his financial stability, professional capacity and
reliability must be made. The contractor has to furnish full
information in the following proforma.
Sr. No. Name of
Work
Amount of
Work put
to Tender
Date &
Year of
Commence
ment of
Work
Amount
Spend
during
each of last
5 Years
Amount of
work that
remains to
be
executed
Remarks
19. Registration of Contractors
• The contractor submits application form, to the authority competent
to sanction it. The applicant submits certificate of solvency obtained
from District collector or S.D.O. of district or Bankers' certificate and
certificate regarding his professional capacity and reliability from the
officers known to the contractor.
• List of additional documents:
• Latest income-tax clearance certificate.
• List of Technical staff with the qualification and experience
• List of machinery including its location, condition etc.
• In case of partnership firms, an attested copy of the partnership deed.
• Copy of power of attorney, duly attested.
• registration fees (non-refundable) for the class in which he intends to register
himself.
20. Prescribed Application Form for Registration as Contractor:
1. Name of applicant with full address:
2. Details of firm i.e. Joint Stock Company, Hindu Undivided Family, Individual etc.:
3. Name of person holding power of attorney:
4. Name of sole proprietors/partners with particulars:
5. Name of bankers with full address:
6. Place of business:
7. Class in which registration is sought:
8. Whether contractor desires to deposit: Lump-sum money for securing exemption
from earnest deposit or will pay earnest money with each tender
9. List of works executed during last three years preceding the date of application
(i)Name of work
(ii) Amount of work put to tender
(iii) Date and year of commencement
(iv) Amount spent during each of last three years
(v) Amount of work still to be completed
21. 10. List of tools and plants possessed by the contractor
11. Technical qualifications and experience of the partner/proprietor and details of
technical employees in the firm.
12. Tools and plants, machineries etc. owned by the contractor
13. Whether enlisted in any other Department/ Organisation or other State
14. Has the applicant or his partner black listed by the Govt, in the past and
whether the applicant had applied for registration elsewhere and whether the
application was rejected.
15. Up-to-date income-tax clearance certificate enclosed or not
16. Amount of solvency certificate which the applicant has held or produced:
17. I/we certify that I/we have been not and will not get myself/ourselves
registered as contractor in the department under more than one name:
Signature and Address.
22. Upgradation of Contractors
• For upgradation, submit fresh application with new solvency
certificate, other documents and registration fees through executive
engineer.
• Executive Engineer recommends application to the concerned
competent authorities.
• Work in progress and annual turnover of contractor are also
considered while upgradation of contractor
23. Renewal of Registration
• For renewal, submit fresh application with new solvency certificate,
other documents and registration fees through executive engineer, 3
months before expiry date
• Executive Engineer recommends application to the concerned
competent authorities.
24. Labour Co-Operative Societies
• Works upto Rs. 1,00,000 are given to ‘labour co-operative societies', without
calling tenders. There is no earnest money nor security deposit is collected.
• Estimated rates taken as per Divisional Schedule of Rates (D.S.R.).
• Preference given to local landless backward class persons
• Labour co-operative societies are always preferred over piece-workers.
• No need of producing solvency certificates. Certificate from District Deputy
Registrar regarding their financial status and capacity to execute the work is
taken.
• Maximum three works are allotted to any society at one time.
• Classification of labour co-operative societies reviewed every three years
depending upon their financial status and managerial capacity.
25. Methods of Carrying Out Works
1. Piece work
2. Rate list
3. Contract work
1. Piece Work: Piece worker agrees to work at fixed rate. Total
quantity of work and time of completion is not known.
2. Rate List: Small, petty works carried by number of piece-workers as
per “schedule of costs”. total quantity of work and time of
completion is not known
26. 3. Contract Work: For supply of material and all other works. The
written agreement consists of total quantity of work, time of
completion and other conditions such as penalty and liabilities etc.
Contract is agreement which is enforceable by law and done with free
consent.
Contractor arranges all required materials, labour, tools and plants.
Contracts are arranged by inviting tenders.
27. TYPES OF CONTRACTS:
1. Lump-sum contracts
2. Schedule or unit price or Item rate contracts
3. Lump-sum and schedule contracts
4. Cost plus or percentage contracts
28. 1 Lump-Sum Contracts
• Contractor agrees to execute the entire work for a fixed sum.
• For additions and alterations not covered by the contract, rates of such items
are considered as per Divisional schedule of rates.
• No need for taking measurements of the work executed except in for additions
and alterations.
• Quantities of items do not form part of contract. Form C is to be used.
• This method is suitable when it is possible to find exact quantity of work to be
done. E.g. construction of a compound wall or structural designs for housing
scheme etc.
• Method also used when other methods are not suitable. E.g. ornamental
plaster work, providing an opening in the existing main wall etc.
29. Merits of Lump-Sum Contracts:
• Economical: Contractor quote amount with certain margin of profit.
• Due of fair competition amongst the contractor, the margin of profit is
likely to come down, resulting in saving of cost and hence economical.
• Fixed Amount: owner knows the total cost of the work before hand.
• Speedy Execution of the Work: Contractor's profit is fixed. He will try
to complete the work as early as possible. Moreover, he can utilise
the machinery, tools and plants on this work after its completion to
some other work.
• No Measurement of Items of Work: thus reducing the burden of
measurements.
30. Demerits of Lump-Sum Contract:
• Unbalanced Contract: The contract may result in excessive profit or
loss to the contractor and is thus of speculative in nature.
• More Dispute: as contractor's and owner's interest will be clashing.
• Extra Items and Extra Cost: As all the plans, specifications and details
of the work prepared at start of work, very difficult for additions and
alterations,, thus resulting in extra items of works and extra cost.
• Delay in Commencement of the Work: work will start only after
availability of all plans, specifications and other formalities are
completed.
• Quality of Material: contractor may use substandard material and
complete the work as early as possible to get higher margin of profit.
• Loss of Material: For any loss of material from site, contractor will be
held responsible.
31. 2. Schedule or Unit Price or Item Rate Contracts:
• Contractor agrees to do work at the fixed rate per item. But amount to be paid
to him depends on the quantity of work executed or the material supplied.
• Quantities of items is important part of the contract.
• The rates quoted by contractor are inclusive of material, labour, tools and
plants, overhead charges and contractor's profit. The actual quantities of items
of work may vary but the rate of the item remains fixed.
• In B2 tender form, contractor has to quote his rates for all items and arrive at
total cost of work.
• Item-wise work executed is measured and priced as per the rates quoted in
the bill of quantities.
• The method used for public works executed by the Government.
32. • 2 types contracts:
• In ‘item rate contract’, contractor quotes rates separately against for
each item..
• In ‘percentage item rate contract’, the estimated rates are mentioned
against each item and contractor quotes rates against such items in
percentage by which estimated rates are decreased or increased.
33. Merits of Schedule Contracts:
• Balanced Contract: contractor is paid as per agreed rates, there are no chances of
excessive profit or loss to contractor and hence it is balanced contact.
• Flexibility: quantities of the items can be changed during progress of the work.
• Early Commencement of the Work: Work starts immediately after acceptance of
tender, other formalities i.e. final plan and specifications can be completed
afterwards.
• Economical: contractor is paid on the basis of actual quantity of work completed.
• Possibility of Variations: Variations possible as the items of works executed are
actually measured and paid for at the agreed rates.
• No Element of Uncertainty: Any uncertainties in the plans etc. will not affect
contractor’s profit, as he will be paid for the completed item at agreed price.
• Extra Work: contractor is paid at agreed rates of various items, hence extra works
are minimised.
• Early Completion of the Work: contractor tries to complete work as early as
possible so that he can utilise the tools and plants etc. on some other work.
34. Demerits of Schedule Contracts:
• Total Cost of the Work Unknown: quantities of items of work may
vary, also exact cost of the work to be executed is not known at the
start
• More Measurements: payments are made for actually measured
quantity of work, load of engineer is considerably increased.
• Clashing of Interests: between contractor and owner for quantity of
work completed.
• Variations in the Plan: work starts before the final plan and detailed
specifications are prepared, changes of demolition of certain works is
possible leading to extra cost of the work.
• Loss of Material: The contractor will have to suffer for any loss of
material.
35. Comparison between Lump-Sum Contract and Item Rate Contract
Description Lump-sum Contract Item Rate Contract
Nature of
agreement
(i) contractor agrees to execute the
entire work with all its contingencies in
accordance with the drawing and
specifications.
(i) contractor agrees to undertake the execution of
work at the fixed rate, the amount to be paid to him
being dependent on the quantities and kind of work
executed or material supplied.
(ii) exact quantities of all items of work
are known
(ii) All items of work are executed as per the
description given in the bill of quantities.
Contract
documents
(i) Rates of items are as per the schedule
of rates
(i) The rates quoted by the contractor are, inclusive
of materials, labour, tools and plants, overhead
charges and Contractor profit.
(ii) Detailed measurement of completed
work not required except for addition
and alterations.
(ii) In B2 tender form quantities of all items of work
are measured and noted down
Advantages (i) saving in cost and hence economical.
(ii) very speed execution of work.
(iii) Total amount to be paid is fixed
(iv) No measurement of item of work.
(i) balanced type of contract.
(ii) contract is flexible
(iii) Early commencement of work.
(iv) Early completion of the work.
36. 3 Lump-Sum and Schedule Contracts
• Similar to lump-sum contract.
• Contractor is paid fixed sum for work completed within stipulated
time and for addition, alteration during the work, payment is made as
per schedule of rates as agreed initially in contract.
• Only measurement of extra items of work is required and payment
made as per schedule of rates.
• This method is not common, but followed in selective organizations.
• Merits and demerits same as lump-sum contract; only change that
schedule of rate is also included in the contract for payment of
additions or alterations in items made during execution of work.
37. 4 Cost Plus or Percentage Contracts
• Contractor agrees to execute work for a certain percentage over actual cost
of construction as fees for his expert services.
• Both quantity and quality of work is unknown at start. There may be
frequent fluctuations in rates of labour and material and no contractor is
willing to execute the work either on lump-sum or item-rate basis.
• Not suitable for public works. Can be used for private works
• Owner maintains complete record of expenditure incurred on construction
work and contractor is paid at certain percentage over this amount as his
fees.
38. Classification of Cost Plus Contracts:
According to fees paid to contractor, it is further classified as follows:
1. Cost plus fixed percentage
2. Cost plus fixed sum
3. Cost plus fixed sum with profit sharing
4. Cost plus fixed sum with bonus
5. Cost plus fixed sum with penalty
6. Cost plus varying percentage.
39. 1. Cost Plus Fixed Percentage: contractor gets fixed percentage (10 to
15%) of the total cost of work, as his fees for supervision work.
2. Cost Plus Fixed Sum: fixed sum is paid to contractor for his services.
3. Cost Plus Fixed Sum with Profit Sharing: If contractor completes
work and brings down the cost (lower than the estimated one), he gets
fixed fee plus share in amount saved (max. 50%). This helps to bring
down cost of work.
40. 4. Cost Plus Fixed Sum with Bonus: If contractor completes work before
target date, he gets bonus for early completion along with fixed fees as
agreed earlier. It helps finish the urgent work before time
5. Cost Plus Fixed Sum with Penalty: If contractor fails to complete before
target date, then he is penalised a certain fixed amount per day of delay in
completion. This compels contractor to complete the work by target date.
6. Cost Plus Varying Percentage: In this method, payment to the contract is
made on varying percentage basis. The contractor's percentage is linked with
the cost of the construction. It increases or decreases with the decrease or
increase in cost of construction from the estimated amount. Thus he gets
more profit if he can bring down the cost, and gets less profit if the actual
cost of construction exceeds the estimated amount.
41. Merits of Cost Plus Contracts:
• Interest Not Clashing: Interest of both owner and contractor will not
be clashing with each other. Contractor gets fixed fees plus additional
incentives.
• Early Commencement of the Work: work can be started immediately
after award of tender.
• No Necessity of Preparing all Details: not necessary to prepare all
detailed drawings before starting work.
• Good Quality of Material and Workmanship achieved
• Elimination of Extra Work: no botheration of extra work and
determination of its rate.
• Speedy Completion of Work: contractor gets bonus for early
completion leading to fast work.
42. Demerits of Cost Plus Contracts:
• Unbalanced Contract: contractor's profit depends upon total cost, he
will try to increase the cost of construction.
• Cost of Construction Unknown: causing financial difficulties for
owner.
• Unsuitable for Public Works
• No Economy: contractor's may produce fictitious bills to increase
total cost and thus his profit
• Carelessness of the Contractor: it will increase the total cost.
• Loss of Material: Owner has to suffer for any loss of material
43. CONTRACT DOCUMENTS
Executive Engineer or owner prepares 'contract documents‘. It includes
following documents:
1. Title page - indicating name of work.
2. Index page - contents of agreement with page numbers.
3. Brief tender notice giving description of the work estimated cost, earnest
money and security amount to be deposited, time of completion of the
work etc.
4. Tender form showing rates quoted by the contractor, total cost of the work,
time of completion, progress of work, security money, penalty etc. This is
also called as schedule 'B’
5. Schedule or bill of quantities showing description of each item, rates and
price of each item, total cost of the work.
44. 6. General specifications of the work mentioning the class and type of work.
7. Detailed specifications of all items of works and of materials to be used
8. Schedule of materials to be supplied by the department or owner to the
contractor, with their rates and the place of issue etc.
9. complete set of drawings indicating the general dimensions of the
proposed work with necessary details of the various parts.
10. Complete statement of machinery available with the department
indicating terms and conditions and hire charges etc.
45. CONDITONS OF CONTRACT
• Objective is to avoid any dispute arising between owner & contractor
• Take advice of legal advisers in advance
General Terms and Conditions of Contract:
• All rates must be inclusive of materials, tools, plants, etc
• Security deposit
• Progress of work to be maintained.
• Time of completion of the entire work.
• Penalty for slow, bad quality and delay in completion of work.
• Mode of payment: running bills/ final payment and refund of security
deposit.
46. • Rules for employment
• Extension of time limit
• Termination of contract, sub-letting
• labour wages as per Minimum Wages Act and compensation to labour.
• Additions and alterations, extra items of works
• Defect liability period of works after its completion.
• Breach of contract.
• Special conditions.
47. Duties, Responsibilities and Liabilities of Contractor:
• Classified as:
a) Administrative and organizational responsibilities, and
b) Responsibilities regarding execution of the work
48. A. Administrative and Organizational Responsibilities
• Inspection of Site by Contractor: before submitting tender and find the facilities
available at work site.
• Security Deposits: 5 to 10 % of total estimated cost in the form of Government
bonds. It is returned after defect liability period of work is over. It is a security
from the contractor towards non performance of the work or loss from the
defects noticed within six months after the completion of the work. Large
security deposit is collected in installments from his interim payments .
• Organisational Set up at Work Site: Contractor brings all equipment, machinery
etc. also set up a site office.
• Legal Obligations, Licenses etc.: Contractor must pay all taxes, royalties,
fees etc. to the appropriate authorities and obtain relevant licenses,
permits etc. for transporting materials to the work site.
49. • Anticipated Progress of the Work: prepare ‘progress chart reports’ of the
work and submit it to the department/ owner/ architect.
• Water Supply and Power Connections: make all arrangement at own cost to
get water supply and electricity.
• Miscellaneous Items:
• arrangement for site security
• Keep work site clean and clear from all obstructions
• Not to employ any child labour below age of 14 years,
• hand over the completed site in good condition to the owner.
50. B. Responsibilities Regarding Execution of the Work:
1 Drawings and Specifications:
• Architect/ engineer decision is final regarding the drawings and specifications
2 Quality of Materials and Workmanship:
• Must be as per specifications. Defective material replaced at contractor’s cost
• For special type of material take approval from architect or engineer.
• All materials must be inspected and tested by the engineer or architect.
3. Tolerances:
• work should be in line, level and plumb and as per the dimensions. Errors
rectified at contractors cost.
4. Setting Out of the Work:
• Entire work is to be set out by the contractor as per the plan dimensions.
51. 5. Detailed Drawings of the Work:
• lifts, steel windows etc. drawings must be approved from owner’s engineer/
architect.
6. Contractor's Engineer-In-Charge of the Work:
• Appoint full time engineer for proper planning and efficient execution of
work.
7. Standing Earnest Money (S.E.M.):
• Accepted in the form cash or pay orders, deposit receipts, demand drafts or
guarantee bonds issued by Nationalized or Schedule bank.
8. Security Deposit:
• Successful contractor pays as token for fulfillment of contract. It is refunded
after the defect liability period is over.
• As Cash deposit, national Saving Certificate, Unit Trust of India certificates,
Demand drafts, pay orders, deposit receipts, etc.
52. 9. Date of Completion:
• If contract fails to finish within stipulated time then contract becomes void.
• Owner gets compensation from contractor for losses due to delay.
10. Progress of the Work:
• contracts have four stages to review the progress of the work
• n1, n2, n3 are decided by the competent authorities accepting the tender.
• In case of delay, penalty is imposed for each day after completion date. The maximum limit
is 10% of the total amount of contract.
Sr. No. Percentage of Work to be Executed Percentage of Time
1 25% of the work n1 % of time stipulated
2 50% of the work n2 % of time stipulated
3 75% of the work n3 % of time stipulated
4 100% i.e. Entre work Stipulated time mentioned in the contract
53. 11. Extension of Time for Delay in Completion:
• Such extension of time after delay is granted on the following grounds:
• Act of God.
• Exceptionally bad weather conditions
• Serious loss or damage due to fire, storm etc.
• Due to lockout or strikes resulting in non-availability of construction material.
• Acute shortage of skilled labour.
• Land not made available in time.
• Non-availability of plans and instructions.
• Non-availability of stores, tools and plants to be supplied by the department.
• Executive Engineer is competent authority granting extension of time to contractor.
12. Extension of Time due to Additions and Alterations:
• It will increase original cost of work.
54. 13. Rates of the Works not included in the Estimate:
• Such rates are taken from schedule of rates of the division .
• In case of dispute, the decision of Superintending Engineer is final.
14. Extra Items
• Executive Engineer can sanction extra items of work beyond tender
document, but not more than Rs. 10,000/-
15. Ex-Gratia Payment to Contractor:
• The contractor has to submit documentary evidence, of the actual
loss, duly certified by Chief Auditor of Local Fund Accounts.
• The contractor is eligible provided he has utilised his capacity to the
fullest extent, avoiding wastage.
55. 16. Debitable Agency:
• The new contractor who is employed to complete the remaining work at
the cost of original contractor who failed to execute the work or was
unable to show satisfactory progress of the work is known as "Debitable
Agency". Appointed only by Executive engineer.
17. Terminal of Contract:
• By Mutual Agreement: between the owner and contractor. Contractor
paid for work done upto time of termination and owner is free to appoint
another contractor to continue further work.
• After Completion of the Work: It is automatically terminated. Performance
of the contractor is known as 'specific performance'.
• Due to Impossibility of Performance: Contractor is unable to complete the
work due to unavoidable reasons. E.g. due to excessive floods.
• By the Provision of the Law: If any one party becomes bankrupt or due to
the death of one party (i.e. contractor or owner).
56. 18. Breach of Contract
• If contractor fails to perform the promise (work), then owner need not to
follow the contract and is eligible compensation for damages caused due to
breach of the contract
• Breach of contract leads to termination of contract
• Compensation of Breach of Contract:
• In contract, provision of ‘liquidated damages’ is made as payment for
compensation of damages. Also called 'Penalty’, i.e. fine for not complying with
the terms and conditions of contract agreement.
• The 'Damages' due to Breach of Contract are Classified as Follows
1. Liquidated damages,
2. Unliquidated damages, and
3. Penalty
57. Liquidated Damages Unliquidated Damage Penalty
It is a genuine covenanted
pre- estimate of damage.
ordinary damages with
fixed relation with the
actual damage
fine as in terrorem of
offending party.
no relationship with actual
damage done
Amount increases or
decreases with damage.
Exhorbitant as compared to
real damages. Certain
amount is recovered.
Fixed amount recovered
irrespective of extent of
damage. It may be varying
from Rs. 50 to Rs. 100 per
day of the delay.
Such damages are for not
maintaining sufficient
progress of the work and
delay
maximum penalty is 10% of
the total estimated cost
58. 19. Sub-contractor:
• Specialised agencies for lifts, air conditioning etc. They work under
the main contractor who co-ordinates all such activities.
• Receive payment through the main contractor.
• For delay pay liquidated damages to main contractor.
20. Bonus Clause:
• Incentive clause in contract to encourage contractor to complete
work well before stipulated time, and within the estimated cost in the
tender.
21. Execution of Work According to Drawings and Specifications
• Executive Engineer has full powers to make any alterations or
additions in the original specifications, designs and drawings.
59. 22. Payment on Intermediate or Interim Certificates
• Intermediate payments for completed work forms the part of total cost
of work.
• Final Certificate is issued by Executive Engineer after work completion.
23. Sub-Letting of Contract
• Not allowed to assign or sublets the work without the written approval
of the Executive Engineer. Otherwise contract becomes void
60. 24. Escalation or Price Variation Clause:
• The contract does not allow the contractors to claim any extra amount for variations of
prices during the progress of the work. ‘Escalation or Price variation clause’ is added in
the contract so that important construction materials such as steel, cement, sand, teak
wood etc. make have fluctuation in their prices.
• Guidelines for Escalation Clause:
Clause is not be applicable if price variation is upto 5 percent.
Applicable only if time of completion is more than one year and contract price is
above Rs. 10 lakhs.
It based on the average price index of the last 3 months.
61. 25. Delay in Supply of Material by the Department:
• In case of delay is supplying material by the department, contractor will not
get any compensation for the losses. Sometimes extension is time may be
granted by executive engineer
26. Works Open for Inspection:
• open for inspection to Engineer-in-charge and his subordinates.
27. Defect Liability Period Clause:
• Contractor must remove defective work executed due to bad workmanship or
use of substandard material.
• Period of six months to one year after completion.
• If the contractor refuses to rectify the defects during 'defect-liability period’,
then owner will deduct from security deposit payable to contractor
• contractor is not responsible for defect due to natural calamities
• The security deposit is refunded only after the defect liability period is over.
62. 28. Secured Advance:
• 'advance payment’ on the security of the construction material
brought by him on the work site.
• Divisional Officer, can sanction an advance upto a maximum of 75% of
the present value of such material brought on site.
• Advances are recovered from contractor's bill for the work done.
• Given for materials like asphalt, bitumen, sand etc.
• Not given for centering material, water line pipes etc.
• Secured advance is permissible in case of piece workers.
63. Standard Contract Conditions Published by Ministry of Statistics
and Programme Implementation (MOS And PI)
Twelve Standard Contract Clauses:
• These 12 basic clauses used to develop the structure for a contract between two
parties for carrying out specific activities in a desired manner.
64. Clause 1-Eligibility and Pre-Qualification (PQ):
A. Eligibility Criteria
(a) Experience on similar works in last five years;
(b) Registration with departments, class of registration;
B. Pre-Qualification Information:
• Constitution and legal status of company
• Solvency and income tax certificates
• List of available plants and machineries
• Technical staff, their qualifications and experience.
• Black listing, litigation if any
65. Clause 2-Earnest Money (EM):
Earnest money is 1% of estimated cost of work
Earnest money is submitted in different format
D. Earnest money of unsuccessful bidders is refunded immediately
Clause 3-Security Deposit (SD):
•Total 10 % of estimated cost.
•Two parts; (a) ‘Performance Guarantee’ submitted at award of work, and (b)
‘Retention money’ recovered from Running Bills.
•‘Performance Guarantee’ is 5% of Contract amount and submitted as Bank
Guarantee, Government Securities, within 28 days of receipt of letter of
acceptance. And refunded within 14 days of the issue of the defect liability
Certificate
•‘Retention Money’ deducted as 5% from Running Bills. And refunded after
issue of No-Defects Certificate.
66. Clause 4- Variations, Extra / Substituted Items:
•Variation permitted is ±25% in quantity of each individual item, and 10% of the
total contract price. Must be intimated within 14 days to other party.
•Rates are considered as given in contract or in the Schedule of Rates
Clause 5 Payment of Running Bills:
• 75% of bill amount should be paid within 14 days of submission of the bill. Balance
amount of the verified bill should be paid within 28 days of the submission of the bill.
• For delay in payment beyond these periods, interest at a pre-specified rate should be
paid.
Clause 6 - Payment of Final Bills:
• submit final bill within 60 days of issue of defects liability certificate.
• Interest (say 12%) should be paid if the bill is not paid within the time limit specified
above.
67. Clause 7-Advance Payment:
• ‘Mobilisation Advance’ (10% of Contract price) given against Bank Guarantee.
Payable in two equal installments. The first installment paid after mobilisation
has started and next installments paid after utilisation of first part.
• ‘Construction Equipment Advance’ (5% of Contract price) given against
hypothecation of Construction Equipment to the Owner. Payable in two
installments. First installment paid after Equipment arrived at site and next
installments paid after satisfactory utilisation of first part.
• Recovery should start after 15% of work is executed and recovery should be
complete by the time 80% of the original contract price is executed.
Clause 8-Secured Advance:
• 75% of cost of materials brought to site for incorporation into works only
should be paid as Secured Advance. Materials which are of perishable nature
should be adequately insured. In case, advance is not payable against any
particular items, they should be listed in the Contract Document.
68. Clause 9- Liquidated Damages and Incentives:
Liquidated Damages: For delay in completion of work, liquidated damages
(LD) are imposed at rate of 0.5% of the contract price per week of delay
(max. 10% of contract price). Owner may allow further extension of time
with or without imposing LD.
Incentives or Bonus: For early completion of work before date of
completion, then bonus as 0.5% of the contract price per week of early
completion will be paid to the contractor. (Max. 5% of the contract price)
Clause 10- Escalation:
• short duration contracts (upto 24 months) not subject to escalation.
• Escalation should be calculated based on,
• Notified fair wages
• Market rate of materials like cement and steel
• Whole sale price index for other materials
• Published Government Documents
69. Clause 11 Disputed Items and Arbitration
Conciliation:
• Disputes between employer and contractor are first submitted to
Conciliation. At first element of settlement is tried between two parties. If
settlement is not possible, the Conciliator will terminate the Conciliation
Proceedings.
• Next, the party, which initiated the Conciliation, cam refer the disputes for
Arbitration within 28 days of the termination of Conciliation Proceedings.
• For contracts over Rs. 10 Crores, a Committee of Arbitrators is appointed,
composed of one Arbitrator nominated by Contractor, second one
nominated by Owner and third Arbitrator, who will is Chairman is chosen
jointly by the two nominees. Decision of majority of Arbitrators is final and
binding on both parties.
70. Clause 11A Dispute Resolution Board:
• Dispute between Employer and Contractor is referred to Dispute Review Board.
• For that Agreement is signed at the time of Contract Agreement.
• For contracts upto Rs 3 crores, Single experienced board member is appointed by the
President of Institution of Engineers.
• In all other cases, there are three experienced Members in board. One Member
selected by Employer and other by Contractor and both are approved by each other.
Third Member is selected by the two members and approved by the parties. The third
Member shall serve as Chairman of the Board.
• Either Employer or Contractor may refer a dispute to the Board and the Board's
recommendations shall be binding to Employer and Contractor.
• Any dispute on which the Board has not issued a Recommendation within 42 days of its
final hearing on the dispute, shall be further referred to arbitration.
71. Clause 12 Owner's Risk and Compensation Events
A. Owners Risks: It includes:
(a) War, invasion, rebellion, revolution, insurrection of military, civil war.
(b) Riot, disorder arising from the conduct of the works.
(c) Contamination by radioactivity from nuclear waste, radioactive toxic explosive.
(d) Issues with design of the Work other than the Contractor's design
(e) Flood, tornadoes, earthquakes and landslides.
(f) Nature forces which have damaged contractor’s work.
72. B. Compensation Events:
• compensation provision must be included contract document.
• For damage or loss due to owner’s risk, contractor is entitled to get
extra amount above contract price.
• Whenever any compensation event occurs, contractor will notify the
owner, within 14 days and provide a cost of the compensation event.
Then Owner needs to pay it immediately.
73. ARBTRATION
• Main object of including arbitration clause is to avoid lengthy and tedious
procedure of litigation and to avoid inordinate delays and expenses when
the dispute between the contractor and the owner is referred to the court
of law.
• 'Arbitration' is a procedure in which dispute between the contractor and
the owner is referred to a third impartial party known as an 'Arbitrator’.
• The arbitrator(s), after hearing both the parties in a judicial manner gives
their decision, known as 'Award’, which is executed on the stamp paper in
accordance with the 'Stamp Duty Act’. The decision of the arbitrators is
binding on both the parties.
74. Meaning of Arbitration
• Arbitration is an alternative to regular 'Civil suits’. All disputed matters
except of criminal nature can be referred to arbitration.
• An arbitrator is a judge appointed by the disputing parties to resolve their
dispute. He must be fair, frank and honest throughout the arbitration
proceedings and must have complete idea about the contractual
obligations and should have sufficient knowledge of the law and legal
proceedings. If both parties agree to appoint only one person as an
arbitrator, he is known as a 'Sole Arbitrator'.
• If each party appoints their own arbitrator then they are known as ‘joint
arbitrators’. In case of even number of joint arbitrators, the appointed
arbitrators refer the matter to another person known as "Umpire” whose
decision i.e. award will be final.
75. • The arbitration proceedings are similar to the regular law court's
proceedings.
• The arbitrator after finalising the award informs both the parties
accordingly and asks them to pay necessary fees and expenses. Usual time
prescribed for declaring award is four calendar months from the date of
appointing arbitrator.
• Thus, arbitration is effective, expedious and economical as compared to
regular court proceedings.
• The award of the arbitrators can be challenged in the higher court of laws
• Sanction of the court of law is necessary to convert the decision of the
arbitrator into a valid award.
76. Types of arbitral disputes
• Property
• Insurance
• Contract (including employment contracts)
• Business / partnership disputes
• Family disputes (except divorce matters)
• Construction
• Commercial recoveries
77. 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 .
78. Need of Arbitration Procedure:
Following are advantages of arbitration method:
• Arbitration procedure is simple as compared to Court of law proceedings.
• Takes less time to declare the award.
• Cheap as compared to filing civil suits.
• Dispute between contracting parties is not made public and decided
privately.
• Time and place for arbitration is fixed to suit the convenience of both
parties.
79. Disadvantages of Arbitration:
• Limited recourse
• Uneven playing field
• Lack of transparency
• Cost: parties have to pay for arbitrator and agency
• Limited rights of appeal, fewer means to challenge award
• Lack of formal discovery
80. Causes of Disputes:
• Variation or escalation of rates.
• Delays on part of owner to supply necessary drawings or decisions to
contractor.
• Delays in payment to be made to contractor.
• Extra-claims made by contractor.
• Termination of contract.
• Hire charges to be paid for tools and plant supplied by department.
• Extension of time.
81. Qualities of an Arbitrator:
• Fair, impartial, honest and disinterested person.
• Knowledgeable and expert in the field of dispute and having good
reputation.
• Sufficient knowledge of the law.
• Conversant with the arbitration proceedings
• Capable of handling the entire procedure of arbitration.
• He can be an eminent engineer/ architect acceptable to both the parties
(building contractor and owner)
• Not a person of suspicious character.
82. Powers of an Arbitrator
As per Arbitration Act, 1940, an arbitrator is having following powers:
• He can administer oath to both disputed contracting parties and also
witnesses appearing before him for collecting the evidence.
• He has liberty to refer it to court of law for its opinion in the matter.
• He has full powers to ask any questions related to disputed matter to both
the parties and witnesses.
• He is empowered to declare his judgement, called as ‘award' in the
disputed matter, which will be binding on both the parties.
83. Duties of an Arbitrator
• Throughout arbitration proceeding he must be impartial and fair to both
the disputed parties.
• He should not yield to undue influence or pressurization from either party.
• During process of arbitration, he has to assume a role of third party and
disinterested judge.
85. 1. Voluntary Arbitration:
The two parties, unable to compose their differences by themselves agree to
submit the dispute to an impartial authority, whose decision they are ready
to accept.
Essentials of voluntary arbitration:
• Voluntary submission of dispute to an arbitrator
• Subsequent attendance of witnesses and investigations
• Enforcement of an award may not be necessary and binding
• Voluntary arbitration is needed for disputes arising under agreements/
contracts
86. 2. Compulsory arbitration:
• Parties are required to accept arbitration without any willingness on their
part.
• When one of the parties feels aggrieved by an act of the other, it may
apply to the appropriate government to refer the dispute to an
adjudication machinery.
Essentials of compulsory arbitration:
• Country is passing through grave economic crisis
• Industries of strategic importance are involved
• Parties are ill balanced
• It leaves no scope for strikes and lockouts
• It deprives both parties of their very important and fundamental rights.
87. Other types of Arbitration:
• Ad-hoc Arbitration
• Institutional Arbitration
• Statutory Arbitration
• Domestic or International Arbitration
• Foreign Arbitration
88. (1) Ad-hoc Arbitration:-
Dispute 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 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.
(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.
89. (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’.
(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’.
