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A	
  Contract	
  is	
  a	
  legal	
  agreement	
  between	
  two	
  or	
  more	
  people	
  for	
  an	
  exchange	
  of	
  goods	
  
or	
  services.	
  Contracts	
  are	
  enforceable	
  by	
  Contract	
  law.	
  There	
  are	
  many	
  different	
  types	
  
of	
  Contracts	
  and	
  they	
  vary	
  between	
  industry	
  and	
  according	
  to	
  the	
  type	
  of	
  services	
  
performed.	
  
WHAT	
  IS	
  A	
  CONSTRUCTION	
  /	
  BUILDING	
  CONTRACT?	
  
	
  A	
  Contract	
  between	
  an	
  Owner	
  of	
  a	
  site	
  and	
  a	
  Building	
  Contractor,	
  se@ng	
  forth	
  the	
  
terms	
  under	
  which	
  construcAon	
  is	
  to	
  be	
  carried	
  out,	
  the	
  basis	
  of	
  remuneraAon,	
  the	
  
Ame	
  scale,	
  and	
  the	
  penalAes,	
  if	
  any,	
  (for	
  failure	
  to	
  comply	
  with	
  terms	
  of	
  the	
  Contract)	
  is	
  
termed	
  as	
  a	
  Building/ConstrucAon	
  Contract.	
  
	
  
Architects	
  in	
  India	
  generally	
  adopt	
  IIA	
  form	
  of	
  1979	
  
WHAT	
  ARE	
  THE	
  COMMON	
  CONTRACT	
  DOCUMENTS?	
  
	
  
The	
  Contract	
  Documents	
  are	
  all	
  documents	
  which,	
  when	
  combined,	
  forms	
  the	
  basis	
  of	
  
the	
  Contract.	
  It	
  is	
  recommended	
  that	
  both	
  parAes	
  to	
  the	
  Contract	
  execute	
  or	
  endorse	
  
complete	
  sets	
  of	
  all	
  Contract	
  documents	
  and	
  these	
  should	
  be	
  preserved	
  intact.	
  A	
  
possible	
  list	
  of	
  documents	
  that	
  makeup	
  the	
  Contract	
  Documents	
  include:	
  
The	
  Contract	
  or	
  Agreement	
  to	
  be	
  used	
  by	
  the	
  parAes.	
  
CondiAons	
  of	
  the	
  Contract	
  –	
  these	
  define	
  the	
  legal	
  rights	
  and	
  obligaAons	
  of	
  the	
  parAes;	
  
another	
  way	
  of	
  describing	
  the	
  general	
  condiAons	
  is	
  as	
  the	
  rules	
  by	
  which	
  each	
  party	
  will	
  
operate	
  in	
  performing	
  their	
  obligaAons	
  as	
  set	
  down	
  under	
  the	
  Contract.	
  
Special	
  condiCons	
  of	
  Contract	
  –	
  these	
  are	
  an	
  extension	
  to	
  the	
  general	
  condiAons	
  and	
  
apply	
  specifically	
  and	
  individually	
  to	
  each	
  project/Contract.	
  
Bill	
  of	
  quanCCes	
  –	
  it	
  lists	
  quanAAes	
  of	
  the	
  various	
  items	
  and	
  the	
  material	
  to	
  be	
  included	
  
in	
  the	
  Contract.	
  It	
  can	
  also	
  be	
  used	
  as	
  the	
  basis	
  for	
  valuaAon	
  of	
  variaAons	
  and	
  assists	
  
the	
  preparaAon	
  of	
  progress	
  claims.	
  The	
  extent	
  to	
  which	
  the	
  Owner	
  warrants	
  the	
  
completeness	
  of	
  a	
  bill	
  of	
  quanAAes	
  or	
  a	
  schedule	
  of	
  rates	
  depends	
  upon	
  the	
  terms	
  of	
  
the	
  Contract.	
  
All	
  drawings	
  required	
  in	
  building	
  the	
  structure	
  (contract	
  plans	
  including	
  Architectural	
  
and	
  Structural).	
  These	
  include	
  drawings	
  from	
  relevant	
  Consultants.	
  
All	
  SpecificaCons	
  –	
  sets	
  out	
  the	
  technical	
  requirements	
  of	
  the	
  work	
  It	
  describes	
  the	
  
project	
  and	
  adds	
  clarity	
  to	
  its	
  drawings;	
  describes	
  the	
  requirements	
  for	
  materials	
  and	
  
workmanship.	
  
All	
  other	
  documents	
  considered	
  necessary,	
  for	
  example,	
  Schedule	
  or	
  Annexure	
  to	
  the	
  
Contract	
  completed,	
  all	
  technical	
  schedules,	
  all	
  pricing	
  schedules.	
  
CONTRACT	
  
APPLICATION	
  TO	
  BUILDING	
  CONTRACT	
  
The	
  contractor	
  as	
  a	
  promisor	
  makes	
  a	
  proposal	
  to	
  carry	
  out	
  a	
  construcAon	
  job	
  for	
  a	
  
specified	
  consideraAon.	
  This	
  offer	
  is	
  called	
  the	
  tender.	
  The	
  owner	
  to	
  whom	
  this	
  offer	
  is	
  
made	
  gives	
  his	
  assent,	
  which	
  means	
  that	
  he	
  has	
  accepted	
  the	
  proposal	
  and	
  is	
  ready	
  to	
  
pay	
  for	
  the	
  cost	
  of	
  the	
  work.	
  This	
  results	
  in	
  a	
  valid	
  contract.	
  The	
  assent	
  is	
  given	
  by	
  the	
  
employer	
  or	
  his	
  architect	
  in	
  the	
  form	
  of	
  work	
  order.	
  	
  	
  
	
  
MODE	
  OF	
  ACCEPTANCE	
  
The	
  acceptance	
  of	
  tender	
  can	
  be	
  in	
  wriAng	
  or	
  it	
  can	
  be	
  oral	
  acceptance	
  when	
  the	
  
employer	
  hands	
  over	
  the	
  possession	
  of	
  the	
  site	
  and	
  permits	
  the	
  contractor	
  to	
  
commence	
  the	
  works	
  (unless	
  the	
  tender	
  provides	
  foe	
  a	
  wriRen	
  acceptance	
  only).	
  
However	
  the	
  acceptance	
  has	
  to	
  be	
  :	
  
1.  In	
  absolute	
  that	
  is	
  without	
  counter	
  offer	
  and	
  
2.  Must	
  be	
  within	
  reasonable	
  Ame	
  if	
  the	
  tender	
  does	
  not	
  provide	
  period	
  during	
  which	
  
tender	
  is	
  to	
  remain	
  in	
  force.	
  
EXECUTION	
  OF	
  CONTRACT	
  
The	
  contract	
  is	
  executed	
  on	
  stamp	
  paper	
  of	
  the	
  value	
  as	
  prescribed	
  under	
  Indian	
  Stamp	
  
Act	
  1899	
  and	
  must	
  be	
  signed,	
  sealed	
  (in	
  case	
  of	
  public	
  bodies)	
  and	
  delivered.	
  
Unstamped	
  documents	
  cannot	
  be	
  admiRed	
  in	
  evidence	
  before	
  an	
  arbitrator	
  or	
  court.	
  In	
  
such	
  cases	
  parAes	
  will	
  be	
  asked	
  to	
  get	
  the	
  document	
  duly	
  stamped	
  by	
  paying	
  Stamp	
  
duty	
  as	
  well	
  as	
  penalty.	
  Proper	
  stamping	
  before	
  the	
  execuAon	
  of	
  contract	
  results	
  in	
  the	
  
saving	
  of	
  Ame	
  labour	
  and	
  money.	
  
	
  
CONTRACT	
  BY	
  PRIVATE	
  PARTY	
  AND	
  PUBLIC	
  BODY	
  	
  
The	
  contract	
  by	
  a	
  private	
  party	
  is	
  executed	
  by	
  signing	
  the	
  necessary	
  contract	
  document	
  
whereas	
  in	
  case	
  of	
  Public	
  bodies,	
  Government	
  and	
  Local	
  AuthoriAes,	
  the	
  same	
  should	
  
be	
  made	
  under	
  their	
  respecAve	
  	
  seals.	
  
	
  
RETROSPECTIVE	
  APPLICATION	
  OF	
  CONTRACT	
  
It	
  is	
  common	
  pracAce	
  to	
  sign	
  building	
  contracts	
  a[er	
  the	
  work	
  has	
  already	
  started.	
  In	
  
spite	
  of	
  this	
  it	
  is	
  understood	
  that	
  contract	
  will	
  apply	
  retrospecAvely	
  to	
  works	
  already	
  
executed.	
  
	
  
DISCHARGE	
  OF	
  CONTRACT	
  
A	
  contract	
  can	
  be	
  discharged	
  in	
  four	
  ways:	
  
1.  By	
  agreement	
  
2.  By	
  performance	
  
3.  By	
  being	
  excused	
  by	
  law	
  from	
  performing	
  it	
  
4.  By	
  breach	
  
The	
  contract	
  becomes	
  void	
  due	
  to	
  	
  
1.  MisrepresentaAon	
  
2.  Fraud	
  
3.  Mistake	
  
	
  
	
  
WHAT	
  HAPPENS	
  IF	
  THERE	
  ARE	
  INCONSISTENCIES	
  BETWEEN	
  PRINTED	
  MATTERS	
  IN	
  THE	
  
CONTRACT	
  AND	
  WRITTEN	
  CLAUSES	
  
	
  
When	
  there	
  are	
  printed	
  and	
  typewriRen	
  clauses	
  in	
  a	
  contract,	
  they	
  have	
  to	
  be	
  given	
  
equal	
  effect	
  unless	
  there	
  is	
  an	
  inconsistency	
  between	
  the	
  two	
  in	
  which	
  case	
  greater	
  
force	
  is	
  given	
  to	
  the	
  laRer.	
  This	
  is	
  due	
  to	
  the	
  fact	
  that	
  wriRen	
  words	
  are	
  the	
  immediate	
  
language	
  and	
  express	
  their	
  meaning.	
  However	
  printed	
  porAon	
  cannot	
  be	
  discarded	
  in	
  
toto.	
  
	
  
UNAUTHORIZED	
  WORKS	
  
Now-­‐a	
  days	
  in	
  Mumbai	
  and	
  out	
  of	
  Mumbai	
  there	
  has	
  been	
  a	
  sprawl	
  of	
  unauthorized	
  
works.	
  The	
  contractor	
  in	
  such	
  cases	
  would	
  be	
  at	
  loss	
  	
  
1.  When	
  he	
  has	
  entered	
  into	
  a	
  contract	
  to	
  commit	
  an	
  illegal	
  act	
  whereby	
  the	
  contract	
  
becomes	
  void	
  and	
  
2.  When	
  he	
  has	
  entered	
  into	
  a	
  contract	
  unaware	
  of	
  it	
  being	
  illegal.	
  This	
  happens	
  when	
  
the	
  owner	
  produces	
  necessary	
  plans	
  and	
  structural	
  drawings	
  duly	
  signed	
  by	
  the	
  
professionals,	
  but	
  not	
  approved	
  by	
  the	
  authority.	
  Here	
  he	
  stands	
  at	
  the	
  losing	
  end	
  
because	
  the	
  act	
  is	
  illegal	
  and	
  the	
  contract	
  becomes	
  unenforceable.	
  
	
  
	
  
Contracts	
  are	
  usually	
  categorized	
  according	
  to	
  the	
  type	
  of	
  payment	
  but	
  can	
  be	
  
tailored	
  to	
  incorporate	
  common	
  elements	
  from	
  several	
  different	
  Contract	
  types.	
  
Some	
  of	
  the	
  common	
  forms	
  of	
  Contract	
  are	
  examined	
  below.	
  
•  UNIT	
  PRICE	
  (ITEM	
  WISE)	
  CONTRACT	
  
•  LUMP	
  SUM	
  (	
  FIRM	
  FIXED	
  PRICE)	
  CONTRACT	
  
•  LABOUR	
  CONTRACT	
  
•  COST	
  +	
  CONTRACT	
  
•  PROJECT	
  MANAGAMENT	
  CONTRACT	
  
WHAT	
  IS	
  UNIT	
  PRICE	
  (ITEM	
  WISE)	
  CONTRACT?	
  
	
  
This	
  kind	
  of	
  Contract	
  is	
  based	
  on	
  esAmated	
  quanAAes	
  of	
  items	
  included	
  in	
  the	
  project	
  
and	
  unit	
  prices	
  which	
  have	
  been	
  agreed	
  to.	
  The	
  final	
  price	
  of	
  the	
  project	
  is	
  dependent	
  
on	
  the	
  quanAAes	
  of	
  the	
  items	
  needed	
  to	
  carry	
  out	
  the	
  work.	
  The	
  terms	
  of	
  this	
  type	
  of	
  
Contract	
  o[en	
  accommodates	
  flexibility	
  for	
  price	
  adjustment.	
  The	
  agreed	
  to	
  value	
  
may	
  be	
  subject	
  to	
  amendment	
  if	
  the	
  volume	
  is	
  reduced	
  or	
  exceeds	
  the	
  original	
  
negoAated	
  terms	
  and	
  price.	
  
WHAT	
  ARE	
  THE	
  ADVANTAGES	
  OF	
  UNIT	
  PRICE	
  CONTRACT?	
  
	
  
•  The	
  Architect	
  is	
  involved	
  in	
  this	
  type	
  of	
  Contract	
  because	
  it	
  is	
  he	
  who	
  provides	
  
the	
  quanAAes	
  of	
  each	
  item	
  (in	
  the	
  Bill	
  of	
  quanAAes),	
  and	
  negoAates	
  the	
  unit	
  
prices	
  with	
  the	
  Contractor.	
  Moreover,	
  in	
  this	
  type	
  of	
  Contract,	
  the	
  Owner	
  makes	
  
payments	
  to	
  the	
  Contractor	
  only	
  a[er	
  the	
  Architect	
  has	
  verified	
  the	
  
measurements	
  at	
  Site	
  and	
  cerAfied	
  the	
  Contractor’s	
  bills	
  for	
  payment.	
  This	
  way	
  
the	
  Owner	
  is	
  safe	
  as	
  he	
  is	
  paying	
  only	
  for	
  the	
  volume	
  of	
  work	
  done	
  at	
  site	
  and	
  
not	
  paying	
  anything	
  extra.	
  Also,	
  he	
  is	
  assured	
  (because	
  the	
  Architect	
  is	
  involved),	
  
that	
  the	
  quality	
  of	
  the	
  work	
  will	
  be	
  up	
  to	
  the	
  mark.	
  
•  In	
  this	
  type	
  of	
  Contract,	
  the	
  Contractor	
  has	
  to	
  iniAally	
  invest	
  his	
  own	
  money	
  for	
  
starAng	
  the	
  work,	
  and	
  so	
  the	
  Owner	
  need	
  not	
  worry	
  about	
  giving	
  the	
  Contractor	
  
a	
  big	
  advance.	
  
•  In	
  general	
  this	
  Contract	
  is	
  considered	
  the	
  most	
  scienAfic	
  and	
  most	
  suitable	
  for	
  
construcAon	
  projects	
  where	
  the	
  different	
  types	
  of	
  items,	
  but	
  not	
  their	
  numbers,	
  
can	
  be	
  accurately	
  idenAfied	
  in	
  the	
  Contract	
  documents.	
  
•  The	
  Contractor	
  is	
  also	
  safeguarded	
  against	
  any	
  conAngencies,	
  or	
  variaAons	
  in	
  
labour	
  or	
  material	
  rates.	
  
WHAT	
  ARE	
  THE	
  DISADVANTAGES	
  OF	
  THE	
  UNIT	
  PRICE	
  CONTRACT?	
  
	
  
The	
  Contractor	
  has	
  to	
  invest	
  his	
  own	
  money	
  iniAally.Though	
  this	
  is	
  one	
  of	
  the	
  most	
  
preferred	
  Contracts	
  in	
  ConstucAon/Buildings,	
  it	
  is	
  not	
  unusual	
  to	
  combine	
  a	
  Unit	
  Price	
  
Contract	
  for	
  parts	
  of	
  the	
  project	
  with	
  a	
  Lump	
  Sum	
  Contract	
  or	
  other	
  types	
  of	
  
Contracts.	
  
TYPES	
  OF	
  CONTRACT	
  
PROBLEM	
  
CondiAon	
  No.	
  4	
  of	
  I.I.A.	
  form	
  of	
  contract	
  lays	
  down	
  that	
  the	
  owner	
  reserves	
  the	
  right	
  
to:	
  
1.  Increase	
  any	
  of	
  the	
  quanAAes	
  
2.  Decrease	
  any	
  of	
  the	
  quanAAes	
  
3.  Totally	
  omit	
  any	
  item	
  of	
  work	
  
And	
  the	
  contractor	
  shall	
  not	
  claim	
  any	
  extras	
  or	
  damages	
  on	
  these	
  grounds.	
  CondiAon	
  
4	
  further	
  provides	
  that	
  any	
  error	
  in	
  descripAon	
  or	
  in	
  quanAty	
  or	
  omission	
  of	
  item	
  
from	
  the	
  contract	
  bill	
  shall	
  not	
  viAate	
  this	
  contract	
  but	
  shall	
  be	
  treated	
  as	
  a	
  variaAon.	
  
	
  
However	
  in	
  pracAce	
  to	
  avoid	
  unpleasant	
  situaAon	
  of	
  depriving	
  the	
  contractor	
  of	
  
reasonable	
  profit,	
  the	
  construcAon	
  industry	
  and	
  the	
  government	
  departments	
  agree	
  
that	
  increase	
  or	
  decrease	
  in	
  quanAAes	
  cannot	
  be	
  beyond	
  a	
  specified	
  percentage	
  and/
or	
  amount.	
  For	
  example,	
  The	
  Mumbai	
  Housing	
  and	
  Area	
  Development	
  Board	
  provides	
  
for	
  such	
  a	
  conAngency	
  subject	
  to	
  certain	
  terms	
  and	
  condiAons	
  as	
  below:	
  
1.  QuanAAes	
  of	
  item	
  below	
  plinth	
  may	
  vary	
  to	
  any	
  extent	
  due	
  to	
  local	
  condiAons	
  for	
  
which	
  the	
  contractor	
  will	
  not	
  be	
  enAtled	
  to	
  the	
  revised	
  rates.	
  
2.  For	
  super	
  structure	
  items	
  the	
  contractor	
  is	
  bound	
  to	
  execute	
  works	
  in	
  excess	
  up	
  
to	
  25%	
  of	
  the	
  tendered	
  quanAAes	
  without	
  claiming	
  revised	
  rates	
  for	
  such	
  excess.	
  
3.  Even	
  if	
  the	
  executed	
  quanAAes	
  are	
  more	
  than	
  25%	
  of	
  the	
  tendered	
  quanAAes	
  the	
  
contractor	
  will	
  not	
  be	
  enAtled	
  to	
  the	
  revised	
  rates	
  for	
  such	
  excess	
  quanAAes	
  if	
  the	
  
value	
  of	
  such	
  excess	
  excess	
  quanAes	
  at	
  the	
  tendered	
  rate	
  does	
  not	
  exceed	
  
Rs5000/-­‐.	
  
ILLUSTRATION	
  
	
  
Tender	
  
QuanAty	
  
Rate	
   Amount	
  
50mm	
  G.I.	
  pipes	
  
QuanAty	
  executed	
  
It	
  exceeds	
  
permissible	
  limit	
  of	
  
25%	
  value	
  of	
  excess	
  
quanAty	
  at	
  tender	
  
rate	
  
	
  
100	
  R.M.	
  
150	
  R.M.	
  
	
  
	
  
50	
  R.M.	
  
Rs.	
  95/-­‐per	
  R.M.	
   Rs.9500/-­‐	
  
	
  
	
  
	
  
50xRs.95/-­‐	
  
=	
  Rs.	
  4750/-­‐	
  
This	
  amount	
  is	
  less	
  than	
  Rs.5000/-­‐and	
  hence	
  the	
  contractor	
  is	
  not	
  enAtled	
  to	
  the	
  
revised	
  rates.	
  
WHAT	
  IS	
  A	
  LUMP	
  SUM	
  (FIRM	
  FIXED	
  PRICE)	
  CONTRACT?	
  
	
  
With	
  this	
  kind	
  of	
  Contract	
  the	
  Contractor	
  agrees	
  to	
  do	
  the	
  construcAon	
  and	
  
compleAon	
  of	
  the	
  building	
  at	
  a	
  designated	
  Ame	
  for	
  a	
  fixed	
  price	
  or	
  Lump	
  Sum.	
  Also	
  
named	
  “Fixed	
  Fee	
  Contract”,	
  this	
  type	
  of	
  Contract	
  is	
  o[en	
  used	
  in	
  Building	
  
Contracts.	
  Fixed	
  Fee	
  or	
  Lump	
  Sum	
  Contract	
  is	
  suitable	
  if	
  the	
  scope	
  and	
  schedule	
  of	
  
the	
  project	
  are	
  sufficiently	
  defined	
  to	
  allow	
  the	
  esAmaAon	
  of	
  the	
  project	
  costs.	
  The	
  
scope	
  of	
  the	
  Contract	
  defines	
  the	
  expectaAons	
  of	
  both	
  parAes.	
  This	
  type	
  of	
  Contract	
  
provides	
  a	
  degree	
  of	
  certainty	
  for	
  both	
  parAes	
  because	
  the	
  Contract	
  clearly	
  spells	
  
out	
  what	
  is	
  involved.	
  
WHAT	
  ARE	
  THE	
  ADVANTAGES	
  OF	
  LUMP	
  SUM	
  CONTRACT?	
  
	
  
•  A	
  lump	
  sum	
  Contract	
  provides	
  for	
  a	
  price	
  that	
  is	
  not	
  subject	
  to	
  any	
  adjustment	
  on	
  
the	
  basis	
  of	
  the	
  Contractor’s	
  cost	
  experience	
  in	
  performing	
  the	
  Contract.	
  This	
  
Contract	
  type	
  places	
  upon	
  the	
  Contractor	
  maximum	
  risk	
  and	
  full	
  responsibility	
  for	
  
all	
  costs	
  and	
  resulAng	
  profit	
  or	
  loss.	
  
•  Since	
  the	
  price	
  is	
  fixed,	
  any	
  unforeseen	
  conAngencies	
  or	
  variaAons	
  in	
  material	
  or	
  
labour	
  prices	
  do	
  not	
  affect	
  the	
  Owner.	
  
•  It	
  provides	
  maximum	
  incenAve	
  for	
  the	
  Contractor	
  to	
  control	
  costs	
  and	
  perform	
  
effecAvely	
  and	
  imposes	
  a	
  minimum	
  administraAve	
  burden	
  upon	
  the	
  ContracAng	
  
parAes.	
  
Lump-­‐sum	
  Contract	
  can	
  be	
  
1.  A	
  fixed	
  sum	
  contract	
  or	
  lump-­‐sum	
  contract	
  
2.  Area	
  based	
  Contract	
  
	
  
Turn	
  key	
  Contracts:	
  
It	
  is	
  a	
  broad	
  classificaAon	
  of	
  Lump-­‐sum	
  contract.	
  In	
  this	
  case	
  the	
  builder/developer	
  
contractor	
  purchases	
  the	
  land,	
  employs	
  his	
  own	
  architect/engineer	
  and	
  agrees	
  to	
  
hand	
  over	
  completed	
  tenements	
  to	
  the	
  employer	
  (usually	
  a	
  society)	
  against	
  
specified	
  rate	
  per	
  S.M.	
  of	
  area;	
  subject	
  to	
  payments	
  by	
  installaAons	
  as	
  the	
  work	
  
progresses.	
  
•  A	
  lump	
  sum	
  Contract	
  can	
  be	
  used	
  in	
  conjuncAon	
  with	
  an	
  award-­‐fee	
  incenAve	
  
and	
  performance	
  incenAves,	
  when	
  the	
  award	
  fee	
  or	
  incenAve	
  is	
  based	
  solely	
  on	
  
factors	
  other	
  than	
  cost.	
  The	
  Contract	
  type	
  remains	
  Lump	
  Sum	
  when	
  used	
  with	
  
these	
  incenAves.	
  A	
  lump	
  sum	
  Contract,	
  shall	
  be	
  used	
  when	
  the	
  risk	
  involved	
  is	
  
minimal	
  or	
  can	
  be	
  predicted	
  with	
  an	
  acceptable	
  degree	
  of	
  certainty.	
  However,	
  
when	
  a	
  reasonable	
  basis	
  for	
  firm	
  pricing	
  does	
  not	
  exist,	
  other	
  Contract	
  types	
  
should	
  be	
  considered,	
  and	
  negoAaAons	
  should	
  be	
  directed	
  toward	
  selecAng	
  a	
  
Contract	
  type	
  (or	
  combinaAon	
  of	
  types)	
  that	
  will	
  appropriately	
  Ae	
  profit	
  to	
  
Contractor	
  performance.	
  
WHAT	
  IS	
  A	
  LUMP	
  SUM	
  CONTRACT	
  WITH	
  PRICE	
  ADJUSTMENT?	
  
	
  
It	
  provides	
  for	
  upward	
  and	
  downward	
  revision	
  of	
  the	
  stated	
  Contract	
  price	
  upon	
  
the	
  occurrence	
  of	
  specified	
  conAngencies.	
  A	
  lump	
  sum	
  Contract	
  with	
  economic	
  
price	
  adjustment	
  may	
  be	
  used	
  when	
  there	
  is	
  serious	
  doubt	
  concerning	
  the	
  stability	
  
of	
  market	
  or	
  labor	
  condiAons	
  that	
  will	
  exist	
  during	
  an	
  extended	
  period	
  of	
  Contract	
  
performance,	
  and	
  conAngencies	
  that	
  would	
  otherwise	
  be	
  included	
  in	
  the	
  Contract	
  
price	
  can	
  be	
  idenAfied	
  and	
  covered	
  separately	
  in	
  the	
  Contract.	
  Economic	
  price	
  
adjustments	
  are	
  adjustments:	
  
	
  
•  based	
  on	
  established	
  prices	
  of	
  specific	
  items	
  or	
  the	
  Contract	
  end	
  items,	
  
•  based	
  on	
  actual	
  costs	
  of	
  labor	
  or	
  material	
  that	
  the	
  Contractor	
  actually	
  
experiences	
  during	
  Contract	
  performance	
  and	
  
•  based	
  on	
  cost	
  indexes	
  of	
  labor	
  or	
  material	
  that	
  are	
  specifically	
  idenAfied	
  in	
  the	
  
Contract.	
  
In	
  establishing	
  the	
  base	
  level	
  from	
  which	
  adjustment	
  will	
  be	
  made,	
  one	
  shall	
  
ensure	
  that	
  conAngency	
  allowances	
  are	
  not	
  duplicated	
  by	
  inclusion	
  in	
  both	
  the	
  
base	
  price	
  and	
  the	
  adjustment	
  requested	
  by	
  the	
  Contractor	
  under	
  economic	
  price	
  
adjustment	
  clause.	
  
WHAT	
  ARE	
  THE	
  DISADVANTAGES	
  OF	
  THE	
  LUMP	
  SUM	
  CONTRACT?	
  
	
  
•  An	
  Architect	
  is	
  not	
  involved	
  as	
  this	
  Contract	
  is	
  an	
  agreement	
  between	
  the	
  Owner	
  
and	
  the	
  Contractor	
  for	
  a	
  final	
  fixed	
  price.	
  So	
  the	
  Architect	
  does	
  not	
  have	
  a	
  role	
  to	
  
play	
  ,	
  and	
  so	
  quality	
  of	
  work	
  cannot	
  be	
  checked	
  and	
  controlled	
  by	
  an	
  expert.	
  
•  Since	
  specificaAons	
  are	
  not	
  clear,	
  the	
  Contractor	
  can	
  use	
  alternaAve/inferior	
  
brands	
  of	
  materials.	
  
•  Also	
  there	
  is	
  a	
  lot	
  of	
  ambiguity	
  in	
  the	
  specificaAons,	
  measurements,	
  mode	
  of	
  
payment,	
  etc.	
  
•  Though	
  the	
  Contract	
  is	
  made	
  on	
  a	
  fixed	
  price,	
  the	
  Contractor	
  may	
  claim	
  extras	
  by	
  
giving	
  different	
  reasons,	
  since	
  the	
  specificaAons,	
  measurements	
  are	
  not	
  clear.	
  
•  The	
  Contractor	
  takes	
  money	
  in	
  advance	
  from	
  the	
  Owner,	
  and	
  then	
  he	
  proceeds	
  
with	
  the	
  work	
  at	
  his	
  own	
  pace.	
  Also	
  someAmes,	
  the	
  Contractors	
  deliberately	
  hold	
  
up	
  work	
  towards	
  the	
  end,	
  so	
  as	
  to	
  extract	
  maximum	
  money	
  from	
  the	
  Owner.	
  So	
  
the	
  Owner	
  feels	
  helpless	
  as	
  his	
  money	
  is	
  with	
  the	
  Contractor.	
  
WHAT	
  IS	
  A	
  LABOUR	
  CONTRACT?	
  
	
  
In	
  this	
  type	
  of	
  Contract,	
  the	
  Owner	
  buys	
  and	
  supplies	
  all	
  the	
  material	
  required	
  for	
  
the	
  construcAon	
  to	
  the	
  Labour	
  Contractor	
  and	
  only	
  uses	
  his	
  labour.	
  The	
  system	
  of	
  
employing	
  Contract	
  labour	
  is	
  prevalent	
  in	
  most	
  industries	
  including	
  ConstrucAon,	
  
involving	
  skilled	
  and	
  semi	
  skilled	
  jobs.	
  A	
  workman	
  is	
  deemed	
  to	
  be	
  employed	
  as	
  
Contract	
  Labour	
  when	
  he	
  is	
  hired	
  in	
  connecAon	
  with	
  the	
  work	
  by	
  or	
  through	
  a	
  
Contractor.	
  Contract	
  workmen	
  are	
  indirect	
  employees;	
  persons	
  who	
  are	
  hired,	
  
supervised	
  and	
  remunerated	
  by	
  a	
  Contractor	
  who,	
  in	
  turn,	
  is	
  compensated	
  by	
  the	
  
Owner	
  of	
  the	
  site.	
  Contract	
  labour	
  has	
  to	
  be	
  employed	
  for	
  work	
  which	
  is	
  specific	
  
and	
  for	
  definite	
  duraAon.	
  
WHAT	
  ARE	
  THE	
  ADVANTAGES	
  OF	
  A	
  LABOUR	
  CONTRACT?	
  
•  This	
  kind	
  of	
  Contract	
  is	
  someAmes	
  preferred	
  by	
  the	
  Owner,	
  because	
  he	
  buys	
  all	
  
the	
  material	
  by	
  himself	
  and	
  thus	
  saves	
  a	
  lot	
  on	
  the	
  Contractor’s	
  profit.	
  
•  Moreover,	
  the	
  Owner	
  can	
  buy	
  the	
  materials	
  of	
  his	
  choice	
  and	
  can	
  be	
  sure	
  of	
  the	
  
brand	
  that	
  will	
  be	
  used	
  in	
  the	
  construcAon.	
  
WHAT	
  ARE	
  THE	
  DISADVANTAGES	
  OF	
  A	
  LABOUR	
  CONTRACT?	
  
	
  
However,	
  I	
  personally	
  would	
  discourage	
  a	
  Client	
  from	
  entering	
  into	
  this	
  type	
  of	
  
Contract	
  for	
  the	
  following	
  reasons:	
  
•  In	
  this	
  Contract	
  also,	
  the	
  Architect	
  does	
  not	
  have	
  a	
  role	
  to	
  play,	
  and	
  so	
  quality	
  of	
  
work	
  cannot	
  be	
  checked	
  and	
  controlled	
  by	
  an	
  expert.	
  
•  There	
  is	
  a	
  lot	
  of	
  headache	
  and	
  tension	
  involved	
  in	
  running	
  around	
  and	
  arranging	
  
for	
  the	
  supply	
  of	
  materials	
  at	
  site,	
  on	
  Ame	
  as	
  the	
  work	
  progresses.	
  
•  It	
  is	
  easy	
  to	
  get	
  fooled	
  on	
  the	
  quality	
  of	
  sand,	
  bricks	
  etc.	
  because	
  the	
  Owner	
  is	
  
not	
  very	
  experienced	
  in	
  assessing	
  the	
  quality.	
  
•  It	
  is	
  difficult	
  to	
  strike	
  a	
  good	
  bargain	
  when	
  negoAaAng	
  with	
  suppliers	
  and	
  
vendors,	
  because	
  the	
  Owner	
  is	
  a	
  one	
  Ame	
  Client,	
  whereas	
  the	
  Contractor	
  
normally	
  has	
  an	
  advantage	
  as	
  he	
  is	
  a	
  regular	
  Client	
  and	
  a	
  relaAonship	
  is	
  built	
  
between	
  him	
  and	
  the	
  suppliers.	
  
•  There	
  is	
  every	
  possibility	
  of	
  pilferage	
  of	
  the	
  material	
  stored	
  at	
  site.	
  
•  Very	
  o[en	
  labourers,	
  masons	
  etc	
  do	
  not	
  turn	
  up	
  to	
  site	
  as	
  they	
  may	
  be	
  lured	
  for	
  
a	
  day	
  to	
  some	
  other	
  site	
  and	
  hence	
  the	
  work	
  gets	
  delayed.	
  
•  Since	
  the	
  workers	
  are	
  generally	
  paid	
  for	
  the	
  work	
  on	
  a	
  daily	
  basis,	
  the	
  labour	
  
Contractor	
  may	
  purposely	
  go	
  slow	
  so	
  that	
  he	
  he	
  takes	
  longer	
  to	
  complete	
  the	
  
job	
  and	
  so	
  get	
  paid	
  more.	
  
•  Inferior	
  labour	
  status,	
  casual	
  nature	
  of	
  employment,	
  lack	
  of	
  job	
  security	
  and	
  
poor	
  economic	
  condiAons	
  are	
  the	
  major	
  characterisAcs	
  of	
  Contract	
  labour.	
  
While	
  economic	
  factors	
  like	
  cost	
  effecAveness	
  may	
  jusAfy	
  system	
  of	
  Contract	
  
labour,	
  consideraAons	
  of	
  social	
  jusAce	
  call	
  for	
  its	
  aboliAon	
  or	
  regulaAon.	
  
•  In	
  fact,	
  in	
  my	
  experience,	
  I	
  have	
  seen	
  that	
  in	
  most	
  cases,	
  the	
  Owner	
  ends	
  up	
  
spending	
  almost	
  as	
  much,	
  at	
  the	
  end	
  of	
  the	
  project	
  as	
  he	
  would	
  have	
  if	
  he	
  had	
  
chosen	
  any	
  other	
  type	
  of	
  Contract.	
  
WHAT	
  IS	
  A	
  COST	
  +	
  CONTRACT?	
  
This	
  type	
  of	
  Contract	
  is	
  not	
  popular	
  in	
  India.	
  This	
  is	
  a	
  Contract	
  agreement	
  wherein	
  
the	
  Owner	
  agrees	
  to	
  pay	
  the	
  cost	
  of	
  all	
  labor	
  and	
  materials	
  plus	
  an	
  amount	
  for	
  
Contractor	
  overhead	
  and	
  profit	
  (usually	
  as	
  a	
  percentage	
  of	
  the	
  labor	
  and	
  material	
  
cost).	
  It	
  is	
  like	
  a	
  Labour	
  Contract,	
  but	
  here	
  the	
  Contractor	
  buys	
  the	
  materials	
  and	
  
provides	
  the	
  labour	
  and	
  is	
  reimbursed	
  accordingly.	
  This	
  type	
  of	
  Contract	
  is	
  favored	
  
where	
  the	
  scope	
  of	
  the	
  work	
  is	
  indeterminate	
  or	
  highly	
  uncertain	
  and	
  the	
  kinds	
  of	
  
labor,	
  material	
  and	
  equipment	
  needed	
  are	
  also	
  uncertain.	
  Under	
  this	
  arrangement	
  
complete	
  records	
  of	
  all	
  Ame	
  and	
  materials	
  spent	
  by	
  the	
  Contractor	
  on	
  the	
  work	
  must	
  
be	
  maintained.	
  
This	
  type	
  of	
  Contract	
  can	
  be	
  altered	
  according	
  to	
  the	
  basis	
  on	
  which	
  the	
  addiAonal	
  
amount	
  paid	
  to	
  the	
  Contractor	
  is	
  fixed.	
  
COST	
  +	
  FIXED	
  %	
  CONTRACT–	
  It	
  is	
  based	
  on	
  a	
  percentage	
  of	
  the	
  cost	
  
COST	
  +	
  FIXED	
  FEE	
  CONTRACT	
  –	
  It	
  is	
  based	
  on	
  a	
  fixed	
  sum	
  independent	
  of	
  the	
  final	
  
project	
  cost.	
  
COST	
  +	
  FIXED	
  FEE	
  BONUS	
  CONTRACT	
  –It	
  is	
  based	
  on	
  a	
  fixed	
  sum	
  of	
  money	
  and	
  a	
  
bonus	
  is	
  given	
  if	
  the	
  project	
  finishes	
  below	
  budget,	
  ahead	
  of	
  schedule	
  etc.	
  
COST	
  +	
  FIXED	
  FEE	
  WITH	
  SHARING	
  ANY	
  COST	
  SAVINGS	
  CONTRACT–	
  It	
  is	
  based	
  on	
  a	
  
fixed	
  sum	
  of	
  money	
  and	
  any	
  cost	
  savings	
  are	
  shared	
  with	
  the	
  Owner	
  and	
  the	
  
Contractor.	
  
INCENTIVE	
  CONTRACTS	
  –	
  It	
  is	
  based	
  on	
  the	
  Contractor’s	
  performance	
  on	
  the	
  agreed	
  
target	
  –	
  budget,	
  schedule	
  and/or	
  quality.	
  
WHAT	
  ARE	
  THE	
  ADVANTAGES	
  OF	
  THE	
  COST	
  +	
  CONTRACT?	
  
	
  
It	
  has	
  the	
  advantages	
  of	
  the	
  Labour	
  Contracts.	
  
•  In	
  addiAon,	
  since	
  the	
  Contractor	
  gets	
  an	
  addiAonal	
  amount	
  at	
  the	
  end	
  of	
  the	
  
project,	
  it	
  provides	
  maximum	
  incenAve	
  for	
  the	
  Contractor	
  to	
  control	
  costs	
  and	
  
perform	
  effecAvely	
  and	
  on	
  schedule.	
  
WHAT	
  ARE	
  THE	
  DISADVANTAGES	
  OF	
  COST	
  +	
  CONTRACT?	
  
	
  
•  In	
  this	
  Contract	
  also,	
  the	
  Architect	
  does	
  not	
  have	
  a	
  role	
  to	
  play,	
  and	
  so	
  quality	
  of	
  
work	
  cannot	
  be	
  checked	
  and	
  controlled	
  by	
  an	
  expert.	
  
•  Since	
  the	
  Contractor	
  is	
  reimbursed	
  based	
  on	
  the	
  records	
  of	
  the	
  workers	
  he	
  has	
  
employed	
  and	
  the	
  materials	
  he	
  has	
  bought,	
  one	
  can	
  never	
  be	
  sure	
  if	
  these	
  records	
  
are	
  genuine,	
  as	
  there	
  is	
  no	
  way	
  of	
  verifying	
  them.	
  So,	
  this	
  type	
  of	
  Contract	
  is	
  
rarely	
  adopted	
  in	
  India.	
  
WHAT	
  IS	
  A	
  PROJECT	
  MANAGEMENT	
  CONTRACT?	
  
Project	
  Management	
  Contracts	
  are	
  a	
  type	
  of	
  Contract	
  where	
  the	
  Architect	
  agrees	
  to	
  
manage	
  the	
  Contract,	
  as	
  defined	
  by	
  the	
  scope	
  of	
  the	
  agreement,	
  for	
  a	
  specified	
  
duraAon	
  of	
  Ame	
  for	
  monetary	
  consideraAon.	
  This	
  type	
  of	
  Contract	
  can	
  be	
  short	
  term	
  
or	
  long	
  term.	
  
WHAT	
  ARE	
  THE	
  ADVANTAGES	
  OF	
  PROJECT	
  MANAGEMENT?	
  
•  The	
  Clients	
  can	
  focus	
  on	
  their	
  core	
  operaAons	
  while	
  the	
  Architect	
  (Project	
  
Manager)	
  looks	
  a[er	
  the	
  management	
  of	
  Projects,	
  people	
  and	
  issues,	
  ensuring	
  
that	
  deadlines	
  are	
  met,	
  quality	
  is	
  maintained	
  and	
  costs	
  are	
  controlled.	
  
•  The	
  Project	
  Manager	
  coordinates	
  with	
  all	
  the	
  agencies,	
  including	
  the	
  Consultants,	
  
the	
  Contractor	
  and	
  the	
  Suppliers	
  to	
  ensure	
  that	
  the	
  construcAon	
  of	
  the	
  project	
  
goes	
  on	
  smoothly.	
  
WHAT	
  ARE	
  THE	
  DISADVANTAGES	
  OF	
  PROJECT	
  MANAGEMENT?	
  
Some	
  Clients	
  hesitate	
  to	
  go	
  in	
  for	
  Project	
  Management	
  Contract	
  as	
  they	
  have	
  to	
  pay	
  
extra	
  for	
  project	
  management,	
  in	
  addiAon	
  to	
  the	
  fees	
  paid	
  to	
  the	
  Architect.	
  However,	
  
there	
  are	
  lots	
  of	
  Clients	
  nowadays,	
  who	
  opt	
  for	
  Project	
  management	
  as	
  it	
  saves	
  them	
  
from	
  a	
  lot	
  of	
  headache	
  and	
  they	
  can	
  concentrate	
  on	
  their	
  work	
  as	
  the	
  building	
  comes	
  
up.	
  Moreover,	
  in	
  the	
  long	
  run,	
  since	
  the	
  project	
  is	
  completed	
  on	
  Ame,	
  and	
  costs	
  are	
  
controlled,	
  the	
  Client	
  actually	
  saves.	
  

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Contract and Types of Contract

  • 1. A  Contract  is  a  legal  agreement  between  two  or  more  people  for  an  exchange  of  goods   or  services.  Contracts  are  enforceable  by  Contract  law.  There  are  many  different  types   of  Contracts  and  they  vary  between  industry  and  according  to  the  type  of  services   performed.   WHAT  IS  A  CONSTRUCTION  /  BUILDING  CONTRACT?    A  Contract  between  an  Owner  of  a  site  and  a  Building  Contractor,  se@ng  forth  the   terms  under  which  construcAon  is  to  be  carried  out,  the  basis  of  remuneraAon,  the   Ame  scale,  and  the  penalAes,  if  any,  (for  failure  to  comply  with  terms  of  the  Contract)  is   termed  as  a  Building/ConstrucAon  Contract.     Architects  in  India  generally  adopt  IIA  form  of  1979   WHAT  ARE  THE  COMMON  CONTRACT  DOCUMENTS?     The  Contract  Documents  are  all  documents  which,  when  combined,  forms  the  basis  of   the  Contract.  It  is  recommended  that  both  parAes  to  the  Contract  execute  or  endorse   complete  sets  of  all  Contract  documents  and  these  should  be  preserved  intact.  A   possible  list  of  documents  that  makeup  the  Contract  Documents  include:   The  Contract  or  Agreement  to  be  used  by  the  parAes.   CondiAons  of  the  Contract  –  these  define  the  legal  rights  and  obligaAons  of  the  parAes;   another  way  of  describing  the  general  condiAons  is  as  the  rules  by  which  each  party  will   operate  in  performing  their  obligaAons  as  set  down  under  the  Contract.   Special  condiCons  of  Contract  –  these  are  an  extension  to  the  general  condiAons  and   apply  specifically  and  individually  to  each  project/Contract.   Bill  of  quanCCes  –  it  lists  quanAAes  of  the  various  items  and  the  material  to  be  included   in  the  Contract.  It  can  also  be  used  as  the  basis  for  valuaAon  of  variaAons  and  assists   the  preparaAon  of  progress  claims.  The  extent  to  which  the  Owner  warrants  the   completeness  of  a  bill  of  quanAAes  or  a  schedule  of  rates  depends  upon  the  terms  of   the  Contract.   All  drawings  required  in  building  the  structure  (contract  plans  including  Architectural   and  Structural).  These  include  drawings  from  relevant  Consultants.   All  SpecificaCons  –  sets  out  the  technical  requirements  of  the  work  It  describes  the   project  and  adds  clarity  to  its  drawings;  describes  the  requirements  for  materials  and   workmanship.   All  other  documents  considered  necessary,  for  example,  Schedule  or  Annexure  to  the   Contract  completed,  all  technical  schedules,  all  pricing  schedules.   CONTRACT  
  • 2. APPLICATION  TO  BUILDING  CONTRACT   The  contractor  as  a  promisor  makes  a  proposal  to  carry  out  a  construcAon  job  for  a   specified  consideraAon.  This  offer  is  called  the  tender.  The  owner  to  whom  this  offer  is   made  gives  his  assent,  which  means  that  he  has  accepted  the  proposal  and  is  ready  to   pay  for  the  cost  of  the  work.  This  results  in  a  valid  contract.  The  assent  is  given  by  the   employer  or  his  architect  in  the  form  of  work  order.         MODE  OF  ACCEPTANCE   The  acceptance  of  tender  can  be  in  wriAng  or  it  can  be  oral  acceptance  when  the   employer  hands  over  the  possession  of  the  site  and  permits  the  contractor  to   commence  the  works  (unless  the  tender  provides  foe  a  wriRen  acceptance  only).   However  the  acceptance  has  to  be  :   1.  In  absolute  that  is  without  counter  offer  and   2.  Must  be  within  reasonable  Ame  if  the  tender  does  not  provide  period  during  which   tender  is  to  remain  in  force.   EXECUTION  OF  CONTRACT   The  contract  is  executed  on  stamp  paper  of  the  value  as  prescribed  under  Indian  Stamp   Act  1899  and  must  be  signed,  sealed  (in  case  of  public  bodies)  and  delivered.   Unstamped  documents  cannot  be  admiRed  in  evidence  before  an  arbitrator  or  court.  In   such  cases  parAes  will  be  asked  to  get  the  document  duly  stamped  by  paying  Stamp   duty  as  well  as  penalty.  Proper  stamping  before  the  execuAon  of  contract  results  in  the   saving  of  Ame  labour  and  money.     CONTRACT  BY  PRIVATE  PARTY  AND  PUBLIC  BODY     The  contract  by  a  private  party  is  executed  by  signing  the  necessary  contract  document   whereas  in  case  of  Public  bodies,  Government  and  Local  AuthoriAes,  the  same  should   be  made  under  their  respecAve    seals.     RETROSPECTIVE  APPLICATION  OF  CONTRACT   It  is  common  pracAce  to  sign  building  contracts  a[er  the  work  has  already  started.  In   spite  of  this  it  is  understood  that  contract  will  apply  retrospecAvely  to  works  already   executed.     DISCHARGE  OF  CONTRACT   A  contract  can  be  discharged  in  four  ways:   1.  By  agreement   2.  By  performance   3.  By  being  excused  by  law  from  performing  it   4.  By  breach   The  contract  becomes  void  due  to     1.  MisrepresentaAon   2.  Fraud   3.  Mistake      
  • 3. WHAT  HAPPENS  IF  THERE  ARE  INCONSISTENCIES  BETWEEN  PRINTED  MATTERS  IN  THE   CONTRACT  AND  WRITTEN  CLAUSES     When  there  are  printed  and  typewriRen  clauses  in  a  contract,  they  have  to  be  given   equal  effect  unless  there  is  an  inconsistency  between  the  two  in  which  case  greater   force  is  given  to  the  laRer.  This  is  due  to  the  fact  that  wriRen  words  are  the  immediate   language  and  express  their  meaning.  However  printed  porAon  cannot  be  discarded  in   toto.     UNAUTHORIZED  WORKS   Now-­‐a  days  in  Mumbai  and  out  of  Mumbai  there  has  been  a  sprawl  of  unauthorized   works.  The  contractor  in  such  cases  would  be  at  loss     1.  When  he  has  entered  into  a  contract  to  commit  an  illegal  act  whereby  the  contract   becomes  void  and   2.  When  he  has  entered  into  a  contract  unaware  of  it  being  illegal.  This  happens  when   the  owner  produces  necessary  plans  and  structural  drawings  duly  signed  by  the   professionals,  but  not  approved  by  the  authority.  Here  he  stands  at  the  losing  end   because  the  act  is  illegal  and  the  contract  becomes  unenforceable.      
  • 4. Contracts  are  usually  categorized  according  to  the  type  of  payment  but  can  be   tailored  to  incorporate  common  elements  from  several  different  Contract  types.   Some  of  the  common  forms  of  Contract  are  examined  below.   •  UNIT  PRICE  (ITEM  WISE)  CONTRACT   •  LUMP  SUM  (  FIRM  FIXED  PRICE)  CONTRACT   •  LABOUR  CONTRACT   •  COST  +  CONTRACT   •  PROJECT  MANAGAMENT  CONTRACT   WHAT  IS  UNIT  PRICE  (ITEM  WISE)  CONTRACT?     This  kind  of  Contract  is  based  on  esAmated  quanAAes  of  items  included  in  the  project   and  unit  prices  which  have  been  agreed  to.  The  final  price  of  the  project  is  dependent   on  the  quanAAes  of  the  items  needed  to  carry  out  the  work.  The  terms  of  this  type  of   Contract  o[en  accommodates  flexibility  for  price  adjustment.  The  agreed  to  value   may  be  subject  to  amendment  if  the  volume  is  reduced  or  exceeds  the  original   negoAated  terms  and  price.   WHAT  ARE  THE  ADVANTAGES  OF  UNIT  PRICE  CONTRACT?     •  The  Architect  is  involved  in  this  type  of  Contract  because  it  is  he  who  provides   the  quanAAes  of  each  item  (in  the  Bill  of  quanAAes),  and  negoAates  the  unit   prices  with  the  Contractor.  Moreover,  in  this  type  of  Contract,  the  Owner  makes   payments  to  the  Contractor  only  a[er  the  Architect  has  verified  the   measurements  at  Site  and  cerAfied  the  Contractor’s  bills  for  payment.  This  way   the  Owner  is  safe  as  he  is  paying  only  for  the  volume  of  work  done  at  site  and   not  paying  anything  extra.  Also,  he  is  assured  (because  the  Architect  is  involved),   that  the  quality  of  the  work  will  be  up  to  the  mark.   •  In  this  type  of  Contract,  the  Contractor  has  to  iniAally  invest  his  own  money  for   starAng  the  work,  and  so  the  Owner  need  not  worry  about  giving  the  Contractor   a  big  advance.   •  In  general  this  Contract  is  considered  the  most  scienAfic  and  most  suitable  for   construcAon  projects  where  the  different  types  of  items,  but  not  their  numbers,   can  be  accurately  idenAfied  in  the  Contract  documents.   •  The  Contractor  is  also  safeguarded  against  any  conAngencies,  or  variaAons  in   labour  or  material  rates.   WHAT  ARE  THE  DISADVANTAGES  OF  THE  UNIT  PRICE  CONTRACT?     The  Contractor  has  to  invest  his  own  money  iniAally.Though  this  is  one  of  the  most   preferred  Contracts  in  ConstucAon/Buildings,  it  is  not  unusual  to  combine  a  Unit  Price   Contract  for  parts  of  the  project  with  a  Lump  Sum  Contract  or  other  types  of   Contracts.   TYPES  OF  CONTRACT  
  • 5. PROBLEM   CondiAon  No.  4  of  I.I.A.  form  of  contract  lays  down  that  the  owner  reserves  the  right   to:   1.  Increase  any  of  the  quanAAes   2.  Decrease  any  of  the  quanAAes   3.  Totally  omit  any  item  of  work   And  the  contractor  shall  not  claim  any  extras  or  damages  on  these  grounds.  CondiAon   4  further  provides  that  any  error  in  descripAon  or  in  quanAty  or  omission  of  item   from  the  contract  bill  shall  not  viAate  this  contract  but  shall  be  treated  as  a  variaAon.     However  in  pracAce  to  avoid  unpleasant  situaAon  of  depriving  the  contractor  of   reasonable  profit,  the  construcAon  industry  and  the  government  departments  agree   that  increase  or  decrease  in  quanAAes  cannot  be  beyond  a  specified  percentage  and/ or  amount.  For  example,  The  Mumbai  Housing  and  Area  Development  Board  provides   for  such  a  conAngency  subject  to  certain  terms  and  condiAons  as  below:   1.  QuanAAes  of  item  below  plinth  may  vary  to  any  extent  due  to  local  condiAons  for   which  the  contractor  will  not  be  enAtled  to  the  revised  rates.   2.  For  super  structure  items  the  contractor  is  bound  to  execute  works  in  excess  up   to  25%  of  the  tendered  quanAAes  without  claiming  revised  rates  for  such  excess.   3.  Even  if  the  executed  quanAAes  are  more  than  25%  of  the  tendered  quanAAes  the   contractor  will  not  be  enAtled  to  the  revised  rates  for  such  excess  quanAAes  if  the   value  of  such  excess  excess  quanAes  at  the  tendered  rate  does  not  exceed   Rs5000/-­‐.   ILLUSTRATION     Tender   QuanAty   Rate   Amount   50mm  G.I.  pipes   QuanAty  executed   It  exceeds   permissible  limit  of   25%  value  of  excess   quanAty  at  tender   rate     100  R.M.   150  R.M.       50  R.M.   Rs.  95/-­‐per  R.M.   Rs.9500/-­‐         50xRs.95/-­‐   =  Rs.  4750/-­‐   This  amount  is  less  than  Rs.5000/-­‐and  hence  the  contractor  is  not  enAtled  to  the   revised  rates.  
  • 6. WHAT  IS  A  LUMP  SUM  (FIRM  FIXED  PRICE)  CONTRACT?     With  this  kind  of  Contract  the  Contractor  agrees  to  do  the  construcAon  and   compleAon  of  the  building  at  a  designated  Ame  for  a  fixed  price  or  Lump  Sum.  Also   named  “Fixed  Fee  Contract”,  this  type  of  Contract  is  o[en  used  in  Building   Contracts.  Fixed  Fee  or  Lump  Sum  Contract  is  suitable  if  the  scope  and  schedule  of   the  project  are  sufficiently  defined  to  allow  the  esAmaAon  of  the  project  costs.  The   scope  of  the  Contract  defines  the  expectaAons  of  both  parAes.  This  type  of  Contract   provides  a  degree  of  certainty  for  both  parAes  because  the  Contract  clearly  spells   out  what  is  involved.   WHAT  ARE  THE  ADVANTAGES  OF  LUMP  SUM  CONTRACT?     •  A  lump  sum  Contract  provides  for  a  price  that  is  not  subject  to  any  adjustment  on   the  basis  of  the  Contractor’s  cost  experience  in  performing  the  Contract.  This   Contract  type  places  upon  the  Contractor  maximum  risk  and  full  responsibility  for   all  costs  and  resulAng  profit  or  loss.   •  Since  the  price  is  fixed,  any  unforeseen  conAngencies  or  variaAons  in  material  or   labour  prices  do  not  affect  the  Owner.   •  It  provides  maximum  incenAve  for  the  Contractor  to  control  costs  and  perform   effecAvely  and  imposes  a  minimum  administraAve  burden  upon  the  ContracAng   parAes.   Lump-­‐sum  Contract  can  be   1.  A  fixed  sum  contract  or  lump-­‐sum  contract   2.  Area  based  Contract     Turn  key  Contracts:   It  is  a  broad  classificaAon  of  Lump-­‐sum  contract.  In  this  case  the  builder/developer   contractor  purchases  the  land,  employs  his  own  architect/engineer  and  agrees  to   hand  over  completed  tenements  to  the  employer  (usually  a  society)  against   specified  rate  per  S.M.  of  area;  subject  to  payments  by  installaAons  as  the  work   progresses.  
  • 7. •  A  lump  sum  Contract  can  be  used  in  conjuncAon  with  an  award-­‐fee  incenAve   and  performance  incenAves,  when  the  award  fee  or  incenAve  is  based  solely  on   factors  other  than  cost.  The  Contract  type  remains  Lump  Sum  when  used  with   these  incenAves.  A  lump  sum  Contract,  shall  be  used  when  the  risk  involved  is   minimal  or  can  be  predicted  with  an  acceptable  degree  of  certainty.  However,   when  a  reasonable  basis  for  firm  pricing  does  not  exist,  other  Contract  types   should  be  considered,  and  negoAaAons  should  be  directed  toward  selecAng  a   Contract  type  (or  combinaAon  of  types)  that  will  appropriately  Ae  profit  to   Contractor  performance.   WHAT  IS  A  LUMP  SUM  CONTRACT  WITH  PRICE  ADJUSTMENT?     It  provides  for  upward  and  downward  revision  of  the  stated  Contract  price  upon   the  occurrence  of  specified  conAngencies.  A  lump  sum  Contract  with  economic   price  adjustment  may  be  used  when  there  is  serious  doubt  concerning  the  stability   of  market  or  labor  condiAons  that  will  exist  during  an  extended  period  of  Contract   performance,  and  conAngencies  that  would  otherwise  be  included  in  the  Contract   price  can  be  idenAfied  and  covered  separately  in  the  Contract.  Economic  price   adjustments  are  adjustments:     •  based  on  established  prices  of  specific  items  or  the  Contract  end  items,   •  based  on  actual  costs  of  labor  or  material  that  the  Contractor  actually   experiences  during  Contract  performance  and   •  based  on  cost  indexes  of  labor  or  material  that  are  specifically  idenAfied  in  the   Contract.   In  establishing  the  base  level  from  which  adjustment  will  be  made,  one  shall   ensure  that  conAngency  allowances  are  not  duplicated  by  inclusion  in  both  the   base  price  and  the  adjustment  requested  by  the  Contractor  under  economic  price   adjustment  clause.   WHAT  ARE  THE  DISADVANTAGES  OF  THE  LUMP  SUM  CONTRACT?     •  An  Architect  is  not  involved  as  this  Contract  is  an  agreement  between  the  Owner   and  the  Contractor  for  a  final  fixed  price.  So  the  Architect  does  not  have  a  role  to   play  ,  and  so  quality  of  work  cannot  be  checked  and  controlled  by  an  expert.   •  Since  specificaAons  are  not  clear,  the  Contractor  can  use  alternaAve/inferior   brands  of  materials.   •  Also  there  is  a  lot  of  ambiguity  in  the  specificaAons,  measurements,  mode  of   payment,  etc.   •  Though  the  Contract  is  made  on  a  fixed  price,  the  Contractor  may  claim  extras  by   giving  different  reasons,  since  the  specificaAons,  measurements  are  not  clear.   •  The  Contractor  takes  money  in  advance  from  the  Owner,  and  then  he  proceeds   with  the  work  at  his  own  pace.  Also  someAmes,  the  Contractors  deliberately  hold   up  work  towards  the  end,  so  as  to  extract  maximum  money  from  the  Owner.  So   the  Owner  feels  helpless  as  his  money  is  with  the  Contractor.  
  • 8. WHAT  IS  A  LABOUR  CONTRACT?     In  this  type  of  Contract,  the  Owner  buys  and  supplies  all  the  material  required  for   the  construcAon  to  the  Labour  Contractor  and  only  uses  his  labour.  The  system  of   employing  Contract  labour  is  prevalent  in  most  industries  including  ConstrucAon,   involving  skilled  and  semi  skilled  jobs.  A  workman  is  deemed  to  be  employed  as   Contract  Labour  when  he  is  hired  in  connecAon  with  the  work  by  or  through  a   Contractor.  Contract  workmen  are  indirect  employees;  persons  who  are  hired,   supervised  and  remunerated  by  a  Contractor  who,  in  turn,  is  compensated  by  the   Owner  of  the  site.  Contract  labour  has  to  be  employed  for  work  which  is  specific   and  for  definite  duraAon.   WHAT  ARE  THE  ADVANTAGES  OF  A  LABOUR  CONTRACT?   •  This  kind  of  Contract  is  someAmes  preferred  by  the  Owner,  because  he  buys  all   the  material  by  himself  and  thus  saves  a  lot  on  the  Contractor’s  profit.   •  Moreover,  the  Owner  can  buy  the  materials  of  his  choice  and  can  be  sure  of  the   brand  that  will  be  used  in  the  construcAon.   WHAT  ARE  THE  DISADVANTAGES  OF  A  LABOUR  CONTRACT?     However,  I  personally  would  discourage  a  Client  from  entering  into  this  type  of   Contract  for  the  following  reasons:   •  In  this  Contract  also,  the  Architect  does  not  have  a  role  to  play,  and  so  quality  of   work  cannot  be  checked  and  controlled  by  an  expert.   •  There  is  a  lot  of  headache  and  tension  involved  in  running  around  and  arranging   for  the  supply  of  materials  at  site,  on  Ame  as  the  work  progresses.   •  It  is  easy  to  get  fooled  on  the  quality  of  sand,  bricks  etc.  because  the  Owner  is   not  very  experienced  in  assessing  the  quality.   •  It  is  difficult  to  strike  a  good  bargain  when  negoAaAng  with  suppliers  and   vendors,  because  the  Owner  is  a  one  Ame  Client,  whereas  the  Contractor   normally  has  an  advantage  as  he  is  a  regular  Client  and  a  relaAonship  is  built   between  him  and  the  suppliers.   •  There  is  every  possibility  of  pilferage  of  the  material  stored  at  site.   •  Very  o[en  labourers,  masons  etc  do  not  turn  up  to  site  as  they  may  be  lured  for   a  day  to  some  other  site  and  hence  the  work  gets  delayed.   •  Since  the  workers  are  generally  paid  for  the  work  on  a  daily  basis,  the  labour   Contractor  may  purposely  go  slow  so  that  he  he  takes  longer  to  complete  the   job  and  so  get  paid  more.   •  Inferior  labour  status,  casual  nature  of  employment,  lack  of  job  security  and   poor  economic  condiAons  are  the  major  characterisAcs  of  Contract  labour.   While  economic  factors  like  cost  effecAveness  may  jusAfy  system  of  Contract   labour,  consideraAons  of  social  jusAce  call  for  its  aboliAon  or  regulaAon.   •  In  fact,  in  my  experience,  I  have  seen  that  in  most  cases,  the  Owner  ends  up   spending  almost  as  much,  at  the  end  of  the  project  as  he  would  have  if  he  had   chosen  any  other  type  of  Contract.  
  • 9. WHAT  IS  A  COST  +  CONTRACT?   This  type  of  Contract  is  not  popular  in  India.  This  is  a  Contract  agreement  wherein   the  Owner  agrees  to  pay  the  cost  of  all  labor  and  materials  plus  an  amount  for   Contractor  overhead  and  profit  (usually  as  a  percentage  of  the  labor  and  material   cost).  It  is  like  a  Labour  Contract,  but  here  the  Contractor  buys  the  materials  and   provides  the  labour  and  is  reimbursed  accordingly.  This  type  of  Contract  is  favored   where  the  scope  of  the  work  is  indeterminate  or  highly  uncertain  and  the  kinds  of   labor,  material  and  equipment  needed  are  also  uncertain.  Under  this  arrangement   complete  records  of  all  Ame  and  materials  spent  by  the  Contractor  on  the  work  must   be  maintained.   This  type  of  Contract  can  be  altered  according  to  the  basis  on  which  the  addiAonal   amount  paid  to  the  Contractor  is  fixed.   COST  +  FIXED  %  CONTRACT–  It  is  based  on  a  percentage  of  the  cost   COST  +  FIXED  FEE  CONTRACT  –  It  is  based  on  a  fixed  sum  independent  of  the  final   project  cost.   COST  +  FIXED  FEE  BONUS  CONTRACT  –It  is  based  on  a  fixed  sum  of  money  and  a   bonus  is  given  if  the  project  finishes  below  budget,  ahead  of  schedule  etc.   COST  +  FIXED  FEE  WITH  SHARING  ANY  COST  SAVINGS  CONTRACT–  It  is  based  on  a   fixed  sum  of  money  and  any  cost  savings  are  shared  with  the  Owner  and  the   Contractor.   INCENTIVE  CONTRACTS  –  It  is  based  on  the  Contractor’s  performance  on  the  agreed   target  –  budget,  schedule  and/or  quality.   WHAT  ARE  THE  ADVANTAGES  OF  THE  COST  +  CONTRACT?     It  has  the  advantages  of  the  Labour  Contracts.   •  In  addiAon,  since  the  Contractor  gets  an  addiAonal  amount  at  the  end  of  the   project,  it  provides  maximum  incenAve  for  the  Contractor  to  control  costs  and   perform  effecAvely  and  on  schedule.   WHAT  ARE  THE  DISADVANTAGES  OF  COST  +  CONTRACT?     •  In  this  Contract  also,  the  Architect  does  not  have  a  role  to  play,  and  so  quality  of   work  cannot  be  checked  and  controlled  by  an  expert.   •  Since  the  Contractor  is  reimbursed  based  on  the  records  of  the  workers  he  has   employed  and  the  materials  he  has  bought,  one  can  never  be  sure  if  these  records   are  genuine,  as  there  is  no  way  of  verifying  them.  So,  this  type  of  Contract  is   rarely  adopted  in  India.  
  • 10. WHAT  IS  A  PROJECT  MANAGEMENT  CONTRACT?   Project  Management  Contracts  are  a  type  of  Contract  where  the  Architect  agrees  to   manage  the  Contract,  as  defined  by  the  scope  of  the  agreement,  for  a  specified   duraAon  of  Ame  for  monetary  consideraAon.  This  type  of  Contract  can  be  short  term   or  long  term.   WHAT  ARE  THE  ADVANTAGES  OF  PROJECT  MANAGEMENT?   •  The  Clients  can  focus  on  their  core  operaAons  while  the  Architect  (Project   Manager)  looks  a[er  the  management  of  Projects,  people  and  issues,  ensuring   that  deadlines  are  met,  quality  is  maintained  and  costs  are  controlled.   •  The  Project  Manager  coordinates  with  all  the  agencies,  including  the  Consultants,   the  Contractor  and  the  Suppliers  to  ensure  that  the  construcAon  of  the  project   goes  on  smoothly.   WHAT  ARE  THE  DISADVANTAGES  OF  PROJECT  MANAGEMENT?   Some  Clients  hesitate  to  go  in  for  Project  Management  Contract  as  they  have  to  pay   extra  for  project  management,  in  addiAon  to  the  fees  paid  to  the  Architect.  However,   there  are  lots  of  Clients  nowadays,  who  opt  for  Project  management  as  it  saves  them   from  a  lot  of  headache  and  they  can  concentrate  on  their  work  as  the  building  comes   up.  Moreover,  in  the  long  run,  since  the  project  is  completed  on  Ame,  and  costs  are   controlled,  the  Client  actually  saves.