t most important lect

1. By:-Abduselam H.
KIOT

2. What is a Contract?
 The agreement between two parties
creating rights and duties, which is
enforceable by law to undertake certain work
for the payment of a sum of money is known
as contract.
 The contract inevitably follows a proposal
from one party and its acceptance by the
other.
 Such contract legally binds the two parties to
undertake the works on the one hand and

3. Cont’d…
What is an Agreement?
 Agreement is defined as “every promise and every
set of promises forming the consideration for each
other is an agreement.”
 Two main characteristics of an Agreement
 Plurality of persons: - Two or more persons
 Consensus in idea: - Identity of minds
What is a Promise?
 “When the person to whom the proposal is made
signifies his assent there to, the proposal is said to be
accepted thus a proposal when accepted becomes a
promise.”

4. Cont’d…
Difference between Agreement and
Contract
 Agreement = offer + acceptance
 Contract = agreement + enforceability

5. Purpose of contract:
To enforce law
To clearly show that terms and
conditions of contract which the parties
agree with.
To clearly show the rights and
obligations of performances from the
contracting parties.
To clearly show the remedial measures in
cases for non-performances.
To clearly show special risks and their
treatment. Etc.

6.  Contract management process can be idealized in to
three major processes.
Contract Management and Its
Process:
Contract closing
Contract
administration
Negotiations
Contract agreement
Contract implementation
Change management
Claims and dispute management
Closing of
accounts
Contract evaluation
Contract formulation

7. Cont’d…
 Contract laws vary from one country to
another country, and the law governing a
specific contract will be determined by the
place where the contract was made or by
the place of performance unless expressly
provided otherwise.
Contracts are referred to in a number of
ways.
 When one party makes a promise for the
performance of an act, the contract is
unilateral, because only one obligation is

8. The parties to contract:
 The construction team for a major project most
commonly consists of three primary members:
1) client: who initiate, pays for and is the ultimate owner
of the project.
2) the contractor: “supplier” shall mean the bidder
whose bids will be accepted by the owner for the award
of the works and carries out the actual construction.
3) consultant: who may design the work and
supervise the work in the role of the engineer.
 In some big project there is also a fourth entity with an
interest in the contract which is Funding agency.

9. Cont’d…
 There are formal legal agreements between the funding
agency and the client, the client and the contractor, the
client and the consultant (engineer). But there is no
legally binding contract or agreement between the
consultant and the contractor.

10. Rights and Responsibilities
Right of the Owner: Depending on the type of
contract and its specific wording, he may be
authorized:
 to require contract bonds, from the contractor,
 to approve the surety proposed,
 to retain a specified portion of the contractor’s periodic
payments,
 to make changes in the neglect work,
 to with hold payments to the contractor for adequate
reason, and
 to terminate the contractor to expedite the work,
 to use completed portions of the project before
contract termination, and

11. Responsibilities of the owner
 Construction contracts make the owner responsibilities
for furnishing property surveys that describe and
locate site,
 Securing and paying for necessary easements,
 Providing certain insurance, and making periodic
payments to the contractor.
 The owner is required to make extra payment and grant
extensions of time in the event of certain eventualities
provided for in the contract.
 When there are two or more prime contractors on a
project, the owner has a duty to coordinate them and
synchronize their field operations.

12. Right of the architect-engineer
 The architect-engineer represents the owner in the
administration of the contract and acts for him during
the day - to- day construction operations.
 The architect-engineer advises and consults with
the owner, and communications between owner and
contractor are made through the architect-engineer.
 It is his direct responsibility to see that the
workmanship and the materials fulfill the requirements of
the drawings and specifications.
 Interpreting the requirements of the contract. The usual
stipulation is that “the decision of the architect-engineer
shall be final and binding on both parties.”
 Answering to questions of fact.

13. The Contractor
The contractor has few rights and many obligations
under the contract. His major responsibilities are:
 To construct the project in conformance with the contract
documents
 The contractor is expected to give his personal attention
to the conduct of the work
 The contractor is required to conform to laws and
ordinances concerning job safety
 The contractor is responsible for and warrants all
materials and workmanship
 Insurance coverage is an important contractual
responsibility of the contractor

14. The most important contractor rights
 Asking progress payments according to
contract document.
 Termination of the contract for cause,
 Right to extra payment and extensions of
time as provided,
 Appeals from decisions of the owner or
architect-engineer.
 The contractor is free to subcontract portions of his
contract,
 Purchase his materials where he chooses,
and

15. Basic elements of contracts
To be valid and enforceable, a contract
must contain four basic elements:
1. Agreement (meeting of minds)
resulting from an offer and acceptance:
2. Consideration or mutual obligation:
3. Competent parties:
4. A lawful purpose:

16. 1. Offer and acceptance.
 When an owner sends a letter of award to a contractor
this act is a legal offer to get the work executed in
accordance with the terms stated in the award
letter/order.
 However, agreement does not exist, until the contractor
accepts the offer, when this occurs, the law deems that
a “meeting of the minds” exists regarding the proposed
contract.
 In the event that an owner invites a quotation/tender
from a contractor, the contractor’s quotation responds
for the offer. Agreement then exists, when the owner
accepts the quotation.
 The law required acceptance of an offer in terms that
were identical with the terms of the offer.

17. 2. Consideration
 In addition to the “meeting of minds” a valid
contract must also contain the element of
obligation.
 Most contracts are bilateral and both the parties
agree to do something.
 The contract must be drawn so that each party is
bound. If both the parties are not bound, in the
eyes of the law no contract exists.
 In this “mutual obligation” concept, the statement
regarding bill of quantities, specifications, price,
time schedule etc. must be specific enough to bind
both the parties to definable level of performance.

18. 3. Competent parties
 A valid contract must be made by persons having full
contractual capacity. A contract made by a minor or by
an insane or intoxicated person is usually entirely void
or voidable at the option of the incompetent party.
4. Legality of purposes.
 A contract whose primary purpose is legal but one of
whose ancillary terms are illegal, may be either void or
valid, depending upon the seriousness of the illegality
and the extent to which the illegal part can be
separated from the legal part of the contract.

19. Essential features of a contract
1. The first and most important feature of a good contract
is that both the parties- the owner and the contractor-
should know exactly as to what is expected from each
of them, and what the financial commitments are. The
drawings and the schedule of quantities taken together
should be able to spell out clearly as what is to be done
by the contractor.
2. The quality of materials and workmanship required
should be elaborated clearly. Where possible reference
of standard specification books should be given.

20. Cont’d…
3. The contract should be made equitable both to the
owner organization and the contractor. This will
facilitate timely, efficiently and properly completion of
the project, without centering into litigation, claims,
and disputes. Since there is always a necessity for an
appropriate, fair, just and practically workable
contracts.
4. In order to keep prices as fair for both the parties, it is
necessary that conditions of the contract must be
reasonable, specific and clear. Payments should be
prompt; powers of supervising staff should be clearly
defined. Otherwise the contractor will increase the
rates for vague and unreasonable conditions, so as to
meet the uncertainties.

21. Cont’d…
5. Targets of desired quantity of finished work ensuring
quality and its planning and monitoring system should
be specified in the contract so as to avoid cost over-
runs. Efforts should be made to cove-up the backlog.
6. Provision should be made for contract progress review
meetings to be held with the contractors. It is preferred
that item wise targets should be fixed weekly (or
monthly for long duration project). For such meetings
network charts, resource allocation etc. should be
used.

22. CIVIL ENGINEERING
CONTRACTS
 The civil engineer may be called upon to design and
carry out the construction of a large variety of works
such as residential and public buildings, roads, bridges,
railways, dames, docks, airports, power stations, water
supply and drainage schemes, tunnels, land
reclamation and similar other works.
 Most construction works fall under one of the following
two groups:
 I. Public Works: Works which are constructed in the
interest of the public. Typical of such works are
highways, railways, dames, and public buildings. These
are financed by the government or public bodies.
 II. Private Works: Works constructed for an individual,
or group of individuals or a corporation or body that is or

23. Types of Contracts
 Contracts for the civil engineering works may be
broadly classified as under:
1. Lump- sum contract
2. Item rate or unit price contract
3. Percentage rate contract
4. Cost- plus- percentage contract
5. Cost plus fixed fee contract
6. Cost plus fluctuating fee contract
7. Target contract
8. All in contract or Turn- key contract
9. Labor contract

24. 1. Lump- sum contract
1.1 Nature of agreement
 The contractor agrees to carry out entire work as
shown in the drawings and described by the
specifications, supply labor and materials, all for a
total stipulated sum of money.
 There is no individual rates quoted, thus it becomes
difficult to make adjustment in the contract value if any
change are to be made in the work latter on.
But sometimes the agreement makes provisions
to adjust the ‘fixed sum’ allowing for the cost of
extra work, variations, omissions, etc.

25. Cont’d…
1.2. Mode of payment to contractor
 A lump- sum contract is usually an ‘entire’ contract and
such no payment can be recovered until the whole work
is completed.
 However, invariably the agreements include a special
provision for series of partial payments to the contractor
as work progresses, rather than final settlement after
acceptance of work by the owner.
1.3. Advantages
 The owner can decide whether to start or to shelve the
project knowing the total lump sum price quoted by
different contractors.
 If no extras are contemplated, the tenders tell the owner

26. Cont’d…
 He needs not to employ the staff to keep periodical
accounts of the contractor’s materials, labor and output.
 From the contractor’s standpoint of view, the greatest
advantage is that whatever benefits the contractor can
earn, depends upon his excellent planning an efficient
management.
 1.4. Drawbacks
 Before the contract is let out, the project has got to be
thoroughly investigated and all the contract documents
to be kept ready in every respect.

27. Cont’d…
 If the nature, extent, and details of the work
are not properly defined by the contract
documents, many additional features may
have to be determined and provided for as
the project progresses. These features may
not be the part of the original agreement and
hence may give opportunity to the contractor
for claiming their payment at abnormal rates.
 The contractor may submit high tenders to
protect him from the un-certainties of the
work.

28. 1.5. Suitability of contract
 A lump- sum contract can usually be used successfully
by a contractor who has considerable experience in
the similar type of works and whose cost he can
predict with reasonable accuracy.
 The kind of work which is suitable for such type of
contract may be enumerated as:
 Work involving difficult foundations, emergency
projects that has to be rushed through without time to
prepare complete set of contract documents and
maintain operations

29. 2. Item- rate or unit price
contract:
2.1 nature of agreement: An item rate contract is one
which the contractor agrees to carry out the work as per
drawings, bill of quantities and specifications in
consideration of a payment to be made entirely on
measurements taken as the work proceeds, and at the
unit- prices tendered by the contractor in the bill of
quantities.
 2.2 Advantages
 The owner can avoid the delay that would be necessary
in making a large number of contract drawings to show
in details everything that would be needed as on the
case of lump- sum contract.
 Bill of quantities which forms a part of contract
documents greatly assists on keeping the tendered sum

30. Cont’d…
 2.3 Disadvantages
 The owner cannot be absolutely sure of the cost to him
until the work is completed.
 A lot of book- keeping and computations are involved on
both sides as work progresses.
 As quantities are likely to vary and so there is a
possibility that the contractor may be submitting an
unbalanced tender on the basis of shrewd anticipation.
 The ‘extra items’ are often a source of trouble.

31. Cont’d…
 2.4 Suitability of item rate contract.
 It is widely used in the execution of project
works, financed by the public bodies or the
government. Generally, suitable large works
which can be split into separate items and the
quantity under each item can be estimated with
reasonable accuracy

32. Assignment one
 Compare and contrast by writing the Nature,
Advantages, Disadvantages and Suitability of
the following types of contract. [(a) 1, 5; (b) 2,
6; (c) 3, 4]
1. Percentage rate contract
2. Cost plus fixed fee contract
3. Cost plus fluctuating fee contract
4. Target contract
5. All in contract or Turn- key contract
6. Labor contract
 Submission date: November 25

33. Contract Documents
Contract documents are the documents
in which the scope and the
requirements of a project are
comprehensively laid down.
 In these documents the obligations and
responsibilities of the parties to the
Contract as well as the Engineer’s powers,
duties and functions which flow from such a
Contract are defined.
 The Contract Documents adopted for Civil
Engineering construction comprises the

34. A. Instruction to renderers
 The instructions to Tenderers are usually the first section
included in the bound volume of the tender Documents.
And it consists:
(a) Instructions on filling in tender form
(b) Data to accompany tenders:
(c) Delivery of Tenders:
(d) Letter of Capacity
(e) Validity and Price Variations:
(f) Special Conditions
(g) Instructions on completion of the Bill of
Quantities, Schedule of Rates, Day work Schedule

35. B. Form of Tender
 The Form of Tender is the part of the document that
Tenderers is required to fill in to make an offer to
execute the works.
 The Form of Tender is accompanied by an Appendix
which forms part of the Tender. In the Appendix, figures
which need to be inserted under the various clauses in
the Conditions of Contract are filled in.
C. Form of Agreement
 The Form of Agreement is the formal document
conforming the existence of a Contract between the
Employer and the Contractor.
 Parties in government construction contracts are
required to execute the agreement with signatures

36. D. Form of Bond
 The form of Bond is the legal document by which the
Contractor gives effect to the requirement of providing
a performance bond for the Contract in a sum
usually not exceeding 10 per cent of the Tender Sum.
E. Conditions of Contract
 It is the standards Form of Contract such as:
 The Institution of Civil Engineers (ICE) Conditions of
Civil Engineering Construction prepared by the
Association of Consulting Engineers, and
 The International Conditions of Contract (FIDIC) or
modifications thereof.

37. F. Special Conditions of
Contract
 The special Conditions of Contract are essentially
those which have to be drafted to suit a particular
situation.
 They are matters for which clauses are not included in
the standard Conditions of Contract.
G. Specifications
 The scope of works together with the general and
technical requirements of a project is described in the
Specifications.
 . They also define the quality of materials and
workmanship as required from the contractor

38. H. Tender Drawings
 The Contract Drawings are the drawings on
which the Works are to be carried out and
which the Contract price is based.
I. Bill of Quantities
 A Bill of Quantities is the document where
brief descriptions of items of work required
under the Contract together with the
quantities of such items of work are listed.

39. document
 The preparation of tender document is the first step in
the contract system. Main constituents of tender
documents are:
1) Notice Inviting Tender (NIT). This is the general
notice issued by the owner inviting tenders from the
prospective constriction firms.
 This tender notice generally covers the following:
 Name, and details of types or work, its estimated value,
program
 Earnest money and the manner of its payment.
 Price of tender document, and date and place up to which it
can be purchased.
 Place, and last date and time of submission of tender
documents, and date and time of its opening.

40. Cont’d…
2) Definitions: - To avoid any ambiguity various terms
should be defined.
3) Clauses of contract (Conditions of Contract):-
Various contract conditions are mentioned in the
documents for better contract management. Some the
common clauses are mentioned hereunder.
 Security Deposit: - This is also known as ‘retention
money’ and is collected by the owner by deducting a
percentage of the measured value of the work from the
‘’on account payment’’ to the contractor.
Contract Duration: - The time schedule is laid down in
the contract.
 Defect Work: - According to this clause owner can ask
the contractor to rectify or remove and re – execute any

41. Cont’d….
 Defect Liability Period: - This is also termed as the
‘’maintenance period’’. The work once passed or
accepted may reveal defects after some time.
 Rescinding of the Contract: - The owner can rescind
the contract on account of lapses of contractor like,
progress, failure to complete work within stipulated
time, failure to rectify the defective work, within
stipulated time, performance in inefficient or improper
manner, unauthorized practices, breach of terms and
conditions etc.
 Payment Terms: - Small value contracts, or where
work is stipulated to be completed within a month, only
full and final payment is made.

42. Cont’d…
 Escalation of Contract Amount: - In most contracts,
contractors are paid according to the contracted rate.
But in certain longer duration contracts, there is
provision of adjustment in contract amount based on the
variation in market rates of materials and labour.
 Alterations in Specifications, Drawings and
Designs: - Due to certain constraints, sometimes it
becomes necessary to modify the contracted work.
 Execution of Extra Items: - Sometimes it becomes
necessary to execute certain items, to complete the
defined works, which are missing in schedule of
quantities. Such items are known as extra items’.
 Payment of Taxes: - There is a provision in the contact
for payment of sales tax or other local taxes etc. by the
contractor.

43. Cont’d…
 Arrangement of Tools, Accessories, Appliances,
Water, and Electricity:- The contract specifies that
contractors is responsible for making arrangement of
necessary tools plants, accessories, appliances,
implements, scaffolding etc.
 Schedule of Tools, Plants and Machineries: - items
of tools, plants and machineries which will be provided
by the owner for use by the contractor are mentioned in
this schedule.
 Labour Laws:- Contract should clearly specify that
contractor should follow all the relevant acts
 Special Conditions of Contract: These special
conditions are also known as supplementary or
additional conditions.

44. Types of Tendering
Following are the three types of tendering:
1. Open Tendering.
2. Limited (or restricted) Tendering.
3. Single Tendering.
1. Open Tendering: - Where the owner has registered
the contractors, each and every registered contractor,
in this system, is free to submit tenders in response to
invitation for tenders.
2. Limited ( restricted) Tendering: - In this
system, tenders are invited form restricted list of firms. This
system is generally adopted when either value of work is
limited or the work is of special used nature requiring
special technique/equipment/experience.

45. Cont’d…
3. Single Tendering: - In this system, tender are
invited for one party only. Single tendering is adopted:
 When value of work is very small
 Work is of high technical nature and only one firm
has experience for the same
 When the firm who has been invited offers the rates
is reliable, well known for reasonability of rates.

46. Assignment Two
1. What are causes of dispute in any construction
project?
2. Write all the dispute resolution methods.
 (Discuses briefly and widely)
Submission date: November 25