Contract Management Book

Tenders & Contracts & Contract Management -0-

TENDERS & CONTRACTS AND CONTRACTS MANAGEMENT


Chapter 1 Fundamentals of Contract

INTRODUCTION The word contract is derived from the latin word Contractus which means drawn together. In construction major work is done through contract. Every time a contractor makes an offer to do a construction work and every time the offer is accepted, a contract is formed. It determines the obligations of the parties in their dealing with each other. The parties to the contract are bound to each other for a certain period of time by a unique and exclusive relationship which they have created for their mutual benefit. This unique relationship called Privity of Contract gives them obligations which they agree to accept so that they both may benefit. This contractual relationship persists until the contract is discharged or terminated, i.e., until it is performed or terminated because of impossibility, by mutual agreement, by bankruptcy or by breach of contract. An agreement without any obligation does not develop any contractual relationship. The court shall not enforce an agreement which violates the provisions of law, or which is against the established public policy which has adverse effects on the morale of the society as a whole. A person cannot escape from the responsibility by simply stating that he entered the contract unknowingly. It is the duty of the contractor to study the legality of the subject matter before entering into a contract. HISTORY OF CONTRACT IN INDIA Law Anterior to Contract Act : (Introduction of English Law to India) The characters of the 18th century which established the courts of justice for the three presidency towns of Calcutta, Madras and Mumbai, introduced in their jurisdictions English Common Law and Statute Law. The application of English law to the natives of India within the jurisdiction of the Supreme Court led to many inconveniences. This is due to the fact that laws are created to stabilize a society. Each society has a particular culture. So, to preserve the culture, laws are formulated accordingly. If the laws of a culture are implied on another culture it will create chaos. To obviate this, the statute of 1781 empowered the court at Calcutta (the then Supreme Court) and statute of 1797 empowered the courts of Madras and Bombay (the then recorders court) to determine all actions and suits against the inhabitants of the said towns, provided that their succession and inheritance to lands, rents, goods and all matters of contract and dealing between parties should be determined in case of Muslims, by the law and usages of Muslims and in case of Hindus by the laws and usages of Hindus, and where only one of the parties should be a Muslim or Hindu, by the laws and usages of the defendant. This continued till the formation of the Indian Contract Act.

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Mayank JainTypewriterIntroduction to law ,indian legal system

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THE INDIAN CONTRACT ACT : ACT IX OF 1872. Section 1 : Preamble : It is expedient to define and amend certain parts of the law relating to contracts, i.e., Law of religions. Title : This act may be called as Indian Contract Act 1872. Extent and Commencement : It extends to the whole of India except the state of Jammu and Kashmir, and it shall come in force from September 1st, 1872. Section 2 : Following terms used in ICA 1872 which need to be understood :- Interpretation Clause : In this act the following words and expressions are used in the following senses, unless a contrary intention appears from the context. Proposal : When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that to other such act or abstinence, he is said to make a proposal. Promise : When person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted become a promise. Promiser and Promisee : The person making the proposal is called the Promiser and the person accepting the proposal is called the Promisee. Consideration : When at the desire of the promiser the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing something, such act or abstinence or promise is called consideration for the promise. Agreement : Every promise and every set of promises, forming the consideration for each other is an agreement. Promises which form the consideration or part of the consideration for each other are called reciprocal promises. An agreement not enforceable by law is said to be void. An agreement enforceable by law is a contract. An agreement which is enforceable by law at the option of one or more parties there to, but not at the option of the other or others is a voidable contract. A contract which ceases to be enforceable by law becomes void.






There must be an offer or a proposal which the person accepting has had an opportunity of considering and which when he accepts he knows will form a binding contract. In other words, the proposer and the acceptor must agree upon the same thing, in the same sense. Unless this is done, do not constitute a contract. This rule is essential in order to avoid inconvenience in business, and leave no doubts in the minds of either party on the matter. EVERY CONTRACT IS AN AGREEMENT BUT EVERY AGREEMENT IS NOT A CONTRACT Consideration, in legal sense, is defined as an act or promise to do something by one party in return of an act or promise by the other party. It may consist of paying definite amount or giving interests . etc. In all engineering contracts consideration is in the form of an amount of money and it is clearly mentioned in the contract. As per ICA, it may be executory (future), executed (past) or present and all types of considerations are included in the law. Impossible promises or acts are not entertained by law because of the absence of a valid consideration. Section 25 of ICA provides for an exception to the general rule that agreement without consideration is void.

i) The contract must be made in writing. ii) It must be registered according to the law of registration of documents. iii) It must be between parties standing in near relation to each other. iv) It should proceed out of natural love and affection between the parties.

These principles are based on the principles of equity. Trade Usage (TU): It is possible for trade customs or trade usage to form a part of the terms of contract, although not expressly incorporated in the written or the oral agreements of the parties. Where the contract is silent about a particular item or fact, the court may be guided by the prevailing practice or custom of trade in the locality w.r.t. particular item of trade. Following are the requirements to be satisfied by a trade usage to be made acceptable to the court. i) Certainty : TU must be certain. It must be with the same degree of certainty as any

other contractual term. The issue of certainty is the issue of law. ii) Lawful : The TU must not be contrary to law. A TU giving conduct or behavior which

is illegal would not be entertained by law. iii) Reasonable : The TU must be reasonable in the eyes of law, i.e., it must be fair and

proper and such that a right minded and honest person would adopt. A trade usage which is of general convenience to all the parties engaged in a trade will not be usually regarded as unreasonable.

iv) Well-Known : TU must be notorious, i.e., to say so well known in the trade that any

person who make the contract knows it. The proof of notoriety is a matter of evidence.





Offer and Invitation to Offer : The word Proposal is synonymous in English with Offer. But the language of these definitions confine proposal to an offer to be bound by promise. Before the parties enter into a contract, preliminary negotiations usually take place between them. A party may ask for some information or supply some information and invite the other party to make an offer is the intention of the party who is supplying the information. The test for differentiating an offer from an invitation is that - does the person who is making the statement intend to be bound by it as soon as it is accepted or does he intend to do some further act before he becomes bound by it the former amounts to a proposal or an offer. As for e.g.:- Invitation of Tender (NIT), invitation by a company to invest in shares, Auction sales. In such a case, the inviter retains the rights to some other Act (to accept/reject, to allot/not allot shares, refuse to sell, withdraw or postpone the auction sale.




ASSIGNMENT 1

1. Explain the following terms with examples:-

a. Privity of Contract b. Consideration c. Trade usage d. Offer and invitation to offer.

2. Explain how the contracts were governed before I.C.A. 1872 came into existence.


Chapter 2 Various Parts of Contracts

A contract contains the following parts :- 1) Agreement : It controls the legal aspects of the contract. 2) Conditions : General and special; it controls the method of operation of the contract. 3) Specifications: Control quality of materials and workmanship of items of work and generally

reflects the class of the building. 4) B.O.Q. and 5) Drawings : B.O.Q. and drawings control quantities of items of work and financial

aspects of work. These parts are complementary to each other and they all go together as one. If the contract says that a stipulated order of superiority is indicated, then in the event of a dispute, the designer decides which part of the contract governs. I. The Agreement : It is a brief of the project and appears to consist mostly of

statements of facts. It is the most important part both in law and in fact. It contains - 1) The names of the contracting parties. 2) A description of the work and the address (sometimes not more than a title). 3) A list of contract documents as above. 4) The name of the designer. 5) The contract sum or amount. 6) The procedure of payment. 7) The contract time or period of completion or specific date. 8) The signature of the contracting party and the witnesses.

The agreement is the heart of the contract and anything wrong with the heart jeopardizes life. The statements made in the agreements are of vital importance as they go to the root of the contract and the law says that anything which goes to the root is vital. II. General Conditions : Definition Clauses which relate to the work as a whole are written in a separate contract document and are known as general conditions of the contract. Object The main objective of framing the conditions is to avoid dispute between the parties concerned and thus to keep them away from the court of law. Importance These are framed in the legal phraseology and in the case of complicated contracts, the lawyers are entrusted to frame them. Thus, they carry more weight and any breach of contract will lead to serious legal formalities.

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III. Regularities 1) No. of Clauses : There is no definite rule regarding the number of clauses to be

included in each type of contract. It mainly depends upon the character of work. Clauses which are suitable for one work may not be suitable for the other works. The person framing the conditions must make a careful study of the work before framing the conditions of the contract.

2) Relation with the technical provisions : (Specifications) There is no sharp

distinction between the technical provisions. Few clauses may fit in either group and it is the engineers who decide whether a particular clause is to be inserted in the technical provisions or in the general provisions.

3) Use : Technical provisions are used at any stage of work but clauses in the general

conditions may not be used at all during the contract period. This is due to the fact that the situation for which it was framed may not have arisen during the contract period.

Conditions generally related to :- 1) Documents : BOQ, drawings, IS, Notices, etc. 2) General Obligations of Contractor : Access to the work acts, byelaws, regulations, tensing,

insurances, setting outs, etc. 3) Relating to Labour and Personnel : Accidents, Contractors representative, first aid, rates

and wages, laws, etc/ 4) Relating to assignments and sub-letting, sub-contracting, etc. 5) Regarding Execution of Works : Alterations, extra items, damages, defective work,

materials, protection, safety services, etc. 6) Relating to mmts. and payments : Method of mmts., payment to sub-contractors. 7) Relating to default and non-completion, bonus, etc. Bonus clause is very complex and

needs separate discussion. 8) Relating to settlement of disputes. 9) Special Conditions : Equipments nominated supplier, environmental awareness, etc. The general conditions of the contract are, as the name implies, those terms and conditions which have such a general nature that they apply to the work as a whole. They are important because they are agreed to as requisites to do the work, i.e. they must be carried out if the contract is to be performed and completed as a whole. If the conditions of the contract are obscure (not prominent) or of lesser requirements, they should be placed elsewhere in the contract because they are not the true terms and conditions e.g. properly heated or A/c site office or serving chilled ice cream. Is there a breach of contract? No! For a contract to be breached, something important must happen, or not happen and it is not likely that owner could sue the contractor for breach of contract in these cases.



A breach of contract is defined as failure without legal reasons to comply with the terms of contract. When a contract is breached, the party not guilty of breach is relieved by law from his duties arising out of the contract, and he may seek remedy for the breach of law. The law provides for two common remedies for breach of contract :

1) Damages to be paid in money to the hurt party by the party in breach of contract or 2) Specific performance of the contract by a court order.

The second remedy is difficult to apply because the breach is due to some kind of inability in the first place and who would want a contractor doing a construction job under a court order? If a construction contract is breached because of lack of money, damages may be difficult to collect. This is one reason for a performance bond in which a surety guarantees contractors performance. If a breach of contract is from the owners side, contractors usual remedy for such a breach is to place a lien (mortgage) on the property the construction work and land on which it stands. A lien is a statutory legal claim registered against real property or work done and materials supplied to the property. Documents for contract are not the same as tender (bidding) documents. Documents for tendering are bidding documents and others are contract documents. To distinguish clearly between them, we must know their uses and functions for which they are intended. The critical point is the time when a contract is made. Prior to this event, documents cannot be called contract documents, they are called bidding documents which may or may not lead to a contract, as an owner is not bound to accept any of the bids he receives. Tender documents are Notice of tender (Invitation), Instruction to bidders, Bid form (blank), Agreement (blank), General Conditions, Special Conditions, Specifications, BOQ and Drawings, Bid bond (EMD), Performance bond (blank), Addenda, Modifications. B.O.Q. (Bill of Quantity) :

1) Title of the project, title of sections, name and address of the Architect or Engineer (Designer).

2) Description of items, IS references. 3) Rates and amount of each item against the description. 4) Quantities are provisional; increase, decrease or omission will have no extra claims for

damages on these grounds. 5) BOQ should be completely filled (alternate items also) in ink. 6) No alterations to be made in BOQ unless authorized by the designer of the project. 7) Rate column should be filled in both words and numerals. In case of discrepancy, words

shall prevail.









8) In case of error in the amount column, the rate shall be firm and amount shall be amended.

9) All errors in totaling and C.F. shall be corrected. 10) Method of measurements shall be of IS 1200 or SP-27. 11) Any errors in description, quantities or omissions of items shall not vitiate this contract

but shall be corrected. IV. The study of specifications is dealt in Chapter Nos. 6, 7 and 8. V. Drawings :

The following types of drawings are prepared in the whole project life cycle :-

1) Preliminary drawings : These drawings help in preparing approximate estimate of the project in the conceptive stage for feasibility studies.

2) Tender drawings : These drawings are prepared in the developing stage of the project. These drawings help the contractors to bid for the project.

3) Contract drawings : These drawings are prepared after the contract is executed and these drawings help contractor to build the project during the executive stage of the project.

4) Workshop drawings : These are the detailed drawings basically prepared by a contractor during the executing stage. These drawings help contractor to execute the complex activities by his method statement. These drawings are to be approved by a consultant or client before executing.

5) The Built drawings : All the variations of providing services designed during the actual execution of the project are recorded in this form. These drawings help in the maintenance of the project.

DISCUSSION ON BONUS CLAUSE : Introduction of Bonus Clause in Contracts In all civil engineering contracts, the contractor is subjected to liquidated damages and penalty provision if he delays the work which results in loss to the owner. There is an argument that it is natural and fair that the contractor be entitled to bonus if he completes the work earlier than the scheduled date, as the owner can benefit from the early use of the facility. Hence the bonus provision must be included in contracts. The contractors and their associations are asking for a bonus clause. Even some enlightened and progressive owners consider it fair to have bonus provision. Many committees set up by the government have gone into the depth of this question and they have recommended the acceptance of the principle of bonus. There are some valid points which are usually raised by the owners, contractors and users. Contracts are not full turnkey and are usually divided into many parts so even if the particular part of the contract gets ready earlier it may not be useful and give returns to owners or users.






Considering the present situation of resources, can any owner be confident of full-filling his obligations as per the contract in a satisfactory manner and in time? There are many other departments with whose co-operation, commitment and performance the owner and contractor can complete on schedule. Can the owner expect such commitments from these indirect participants under the present environment? With all good intensions there may be some delays from the owners side and the date of completion may have to be extended. So, in such cases will not the contractor expect the extended date to be considered for bonus? Can a contractor be confident in his own capacity in terms of organization, resources and technology to finish the work ahead of time? Is the contractor prepared to accept that bonus is payable only on the basis of the contracted date of completion and not revised due to extensions because of delay either on his side or on the owners side? With all the best planning there could be a delay on the contractors side and in such a case is he prepared or resourceful enough to achieve completion as per the original schedule? Similarly there may be a delay from the owners side in such a case where the contractor is getting time extension, if prepared to put in extra resources and complete the work according to the original schedule, is he entitled to bonus? The user may consider that the contractor may scarifies quality to complete the work ahead of time to get a bonus. The user and owner also consider whether the bonus will create another point of dispute, arbitration and court case? The owner and user wonder whether they can make the bonus question absolute and not an arbitrable item. What would happen if the scope of the work changes, quantities change and a new time schedule is adopted? Will bonus be due on a revised time schedule? There are many owners who consider bonus as a good incentive which makes both the department and the contractors to plan works and contracts in a better manner, give a thought to all possible problems and find out the possible solution in proper time. The users consider that even if the contractor puts extra efforts and resources to complete work according to original time schedule inspite of delays on his part on the part of the owner, the benefits the contractor gets are considerable over and above the bonus. Contractor saves on his OHs, his resources become free for other works, he gets a better image, the entire organization becomes more dynamic, he gets immediate cash instead of going for arbitration or court and get a devalued award amount after a considerable time. What should be the bonus? The question as to what could be the bonus quantum has also been taken up and discussed in committees. Many views have been expressed.



i) Same as liquidated damages. ii) Savings in supervision cost of owner. iii) Savings in interest charges on finance and investment by owner. iv) Savings in escalation amount of the extended periods on owners failures. v) Early revenue gain or benefit on use of the constructed facility.

Conclusions and Recommendations The introduction of a bonus clause is not new. It has been introduced and implemented in many government and private contracts. From all angles it is to be concluded that reward for early completion in terms of bonus will definitely improve the construction sector performance and fairness will be introduced into the contracts. It is worthwhile introducing the Bonus Clause on critical works and where the scope of the work is definite.

i) Bonus to be substantial to make the proposal attractive and acceptable. ii) The original dates of completion be the criteria irrespective of extension either due to

contractors or owners fault. iii) It may be in terms of amount per day with or without ceiling. iv) It may be worthwhile to introduce even stage wise bonus with proper safeguard for

final completion. This will make both owner and contractor to plan better and be alert. v) To safeguard and avoid disputes by making bonus clause not arbitrable on any ground.




ASSIGNMENT 2

1. Differentiate between Tender and Contract documents.

2. The general condition in Indian tenders is as under :

The information & data shown in the drawings & mentioned here in are furnished for information only & govt. will not be responsible for accuracy thereof & / or for any deductions, interpretations or conclusions drawn there from the contractors. Contractor shall deemed to have visited the site, obtain all information & satisfied himself before submitting the tender. Analyze critically the above condition.

3. It was agreed in the contract that contractor shall never litigate for any claims which may

arise at a later stage. Will this condition prevent the contractor from going to court?

4. A contractor sued an architect under the building contract for negligent measurements & certifying for a much less sum then the balance due to the contractor. Can contractor succeed in sueing & getting the due payment?

5. In a contract of a multistoried building having basement for car parking, the total works

was handed over by the contractor to client after consultants approval. The specifications did not show waterproofing to be done in the basement. The oxford dictionary meaning of basement that is must be water proofed. During defect liability period basement was flooded due to unprecedented rains & all cars parked in the basement got damaged. Consultants recommended client to forfeit the retention money of the contractor saying that which was a substantial amount. As a contractor what will you argue?

6. A contractor does not provide safe access to the engineer for checking the works & also he

does not serve engineer tea/coffee & snacks. If both are written conditions of contract is there a breach of contract from contractor?

7. Explain the characteristics of conditions of contract and BOQ (Bill of Quantity).

8. Draft bonus clause acceptable by both (the client and contractor the parties) to contract.


Chapter 3 Various Types of Contracts

TYPES OF CONTRUCTION CONTRACTS

Cost Analysis of a Project

(Source : Contracts and Specifications by Glen M. Hardy)

Probably the best and the most direct method to understand the reasons for different types of contracts is to examine and analyze the costs of construction. The costs of all construction projects can be divided into two major categories 1) Direct costs and 2) Indirect costs. Direct costs arise out of the fact of doing construction work. Indirect costs are those which arise out of the fact of being in the business, whether any work is being done there or not. Direct costs are of two types; items of work and job O.H. of items. Indirect costs are also of two types; i) Operating O.H. Costs and (ii) Profit. All the direct costs are called cost and all the indirect costs are called fees. We arrive at one type of contract, costs + fee and if we add costs and fee we come to the second type of contract i.e. Lump sum. These two types of contracts represent two extreme poles of contractual and financial relationship. Most of the contracts lay in between these two.

Items of Work

Costs incurred for specific items of work

The Work

Fee

Stipulated Sum

Cost

The Site The Firm

Costs that cant be allocated to specific items

Costs that cant be allocated to specific items

At the Job

Indirect Cost Direct Cost

Operating

The Motive

Difference between all costs & all incomes

Profit

Overhead Costs








The types of most common contracts are as follows :-

1) Lump sum contract. 2) Max. cost / Target contract. 3) Unit price / Item rate contract 4) Turnkey contracts. 5) Cost + Fee contracts.

1) Lump Sum Contract (stipulated sum, fixed price) :

In this contract type, the contractor stipulates (to make an expressed demand) the amount of money for which he is prepared to do the work. He can do this by the information given by the owner/designer in a correct and complete form. Information can be made available through tender documents. In this type, the contractor carries a greater share of financial risk as he knows the probable total extent of financial commitments. If no changes are made, the final cost would be the original lump-sum offered This type of contract will be useful only when it is possible to workout the exact quantities of limited items. e.g. sanitary block for a school building, a compound wall, a small room for watchman etc. Some miscellaneous items which cannot be usually carried out under any other form of contract are given on L.S. basis. E.g. ornamental doors, demolition of existing structures, making an opening in the existing slab or beams etc.

Contractors obligations in L.S. Contracts : In this type of contract, it is the primary duty of the contractor to do the work as defined and required by the contract document, within the time stated in the contract document (Agreement).

The contractors primary right is to be paid the contract amount, usually in installments, in the agreed manner and at proper times.

The important characteristic of L.S. contract that affects the contractors duty is the legal concept of a fixed sum for a completed job of work:. It is required by a contractor to provide and install work that is reasonably inferable there from (the contract documents) as being necessary to produce the intended results, i.e., in the absence of anything to the contrary in L.S. contract, the contractor is required to provide and do everything necessary to complete the work for the purpose for which it is designed.

As for examples, it means that even though the designers drawings for a two-storied house did not show a staircase, and the specifications made no mention of it, the contractor would be obliged to install a staircase so that the intended result a livable two-storied house was produced.

The works that are indispensably necessary to complete the whole work are included by implication, if not specifically in the L.S. contract. If a construction contract is for the building of a house and it says that the house is to be completed and ready for occupation by April 1st 1990, this wording overrides any omissions. If the flooring is not specified, the contractor may provide and install whatever flooring is reasonable for that class of the house.











Mayank JainTypewriterTYPES OF CONSTRUCTION CONTRACTS


In a L.S. contract, any specific risk can be isolated, described, precluded and provisions can be made to pay the extra costs if a contingency arises, thus making it unnecessary for bidders to allow for contingencies in their bids.

An owner or a designer acting on his behalf can remove practically all risk from himself in L.S. contract by prescribing that contractor shall complete the work so that it will be completed and ready for use by a certain date.

This is the ultimate performance specification the contractor will consider as many possible risks as they can, calculate their effects and probabilities and make allowance for each risk in their estimates and bids.

Is that what an owner would want? It is more sensible to limit contractors risks and therefore his prices.

E.g. All in estimate and bid for excavating any material except for rock and water, which require blasting or dewatering.

If blasting or dewatering is necessary, it will be at an extra cost to be added to the contract sum or Allow for foundations down to the depths shown on drawings. If it is necessary to go deeper, the extra cost will be paid for by addition to the contract sum.

2) Unit Price or Item rate Contract :

In this type of contract the contractor quotes his rate per unit of each item of work. The approx. quantities of all possible items of construction are worked out and put up in the tender form.

This form of contract, is useful when the quality of the work is known but the exact quantities of items of work is not known previously. Most of the public works are done under this form of contract. They are also known as measured contracts.

Advantages Disadvantages

1) Elasticity : The contract is elastic in nature and it is possible to make reasonable variations in the quantities of the tender as the rates of these items are known.

1) Conflicting Interests : Owner will be interested in getting such items executed by the contractor for which his prices are less and contractor wants the opposite.

2) Economical : As the payment is done on a unit bases only, the amount of actual work done by the contractor shall be paid by the owner and thus it may prove economical.

2) Classification of materials : Sometimes classification of materials results into a dispute. e.g. if earth is not available in the earth work contractor may claim it as loose rock.

3) Absence of uncertainties : The contractor is not worried regarding the uncertainties in the plans and specifications as his rate is on unit bases for a particular specification, so he will quote fair rates.

3) Final costs : It is practically impossible to know the exact final cost of the work in advance. If the final cost exceeds considerably from the estimate then the owner may have financial difficulty which may lead to the suspension of work.














4) Starting of the work : The work can be started as soon as a contractor is fixed and it is not necessary to wait until the final plans of the work are ready.

4) Damages due to changes : If the plans and specifications of some items of work are not ready, then demolition of some done work shall have be done to accommodate the subsequent changes in the plan which will increase the cost.

(Source : Estimating and Specification by S. C. Rangwala)

3) Cost plus Contracts :

In this form of contracts, the contractor agrees to complete the structure for a certain fee (for his services). This form of contract becomes very useful when the quality as well as the quantity of various items of construction are not known previously and in times of unsettled market conditions when no contractor is coming forward to carryout the work on unit-price basis. Various methods are used to adjust the fee of the contractor for his services in relation to the total cost of work.

1) Cost + fixed % :- A fixed % of the total amount spent by the owner is given to the contractor as his fees. This % usually varies between 15 to 10. E.g. if the total cost of the work is Rs.800,000/-, contractors fees @ 10% = Rs.80,000/- shall be paid to the contractor.

2) Cost + fixed sum :- In this arrangement, in addition to the total cost of material and labour. the owner agrees to pay a definite amount to the contractor for his service. Thus it determines the fixed amount instead of %.

3) Cost plus a fixed sum with a profit sharing clause :- This arrangement is adopted to induce the contractor to bring down the cost of construction lower than its estimated amount. The contractor is given a share in the amount thus saved, in addition to his fixed sum as agreed. Usual % sharing in such cases ranges between 25% to 50%. E.g. estimated cost of work = 15,00,000/-, contractor completes this work in Rs.12,00,000/-. If the contractors fixed sum for fees is 150,000/-. He shall be paid 12,00,000 + 15,00,000 + .25 X 3,00,000.

4) Cost plus fixed sum with a bonus clause : This arrangement is adopted when the work is to be completed urgently. A target date is fixed for the completion of work and if the contractor is able to manage early completion of work, he is paid a certain amount per each day of early completion in addition to his normal fixed sum. Likewise a penalty clause is also adopted for late completion.

5) Cost-plus variable % :- In this arrangement the contractor is paid on a variable % base to the cost of the work done. A sliding scale in relation to the cost of the work is prepared for contractors %. The % increases with the decrease in the actual cost from the estimated amount and it decreases with the increase in the actual cost from the estimated amount. E.g. estimated cost of work is Rs.12,00,000/- and contractors % is 10% at this amount the variable % scale can be as below :-

Actual Cost Contractors % Amount to be paid to contractors

13,00,000 6% 78,000/- 12,80,000 7% 89,600/- 12,40,000 9% 1,11,600/- 12,00,000 10% 1,20,000/- 11,80,000 11% 1,29,800/- 11,60,000 12% 1,39,200/- 11,50,000 13% 1,49,500/-













Thus the contractor gets more amount if he is able to bring down the actual cost lower than the estimated amount. Consequently, an incentive is provided to the contractors to complete the work in time and cost. Advantages of Cost-plus contract :- i) No conflicting interest : The contractor is guaranteed for a certain fixed profit even in

unstable market he will normally act in the best interest of the client. Owner is also fee to spend on the work as much as he likes.

ii) Extra work : Dispute arising due to extra works is totally eliminated since there are no extra items.

iii) Early completion of the work : The decisions can be taken earlier so it reduces the time of completion.

iv) Early starting of the work : The work under this contract can be started even before the final plans and specifications of work are ready.

Disadvantages : i) Final cost : Final cost cannot be predicted. ii) Inferior work : The work of inferior quality is demolished and replaced at the owners

cost. Also the changes after construction of an element cause extra money to the owner.

iii) Illegal for public bodies : For public bodies as the owners, it becomes illegal in normal circumstances.

iv) Checking of the contractors amount. v) More supervision is needed.

4) Turnkey (All-in-one Package Deal) Contracts :

Here the owner gives his requirements in a broad outline to contractors together with the site data. The contractors then submit their own design and construction offer along with the conditions. This type of contract is useful in specialized contracting works such as thermal power plants, nuclear power plant, oil refineries, important bridges,. etc.

Labour Contract : Sometimes the owner is in a position to purchase the required material himself, so he invites tenders for the labour work only. It is absolutely necessary to state that these rates include use of contractors plants and equipments, all necessary false work, contractors supervision and contractors profit. Overall responsibility of the work belongs to the contractor. The owner has to see that the required material is available as and when required. He should also see that wastage or pilferage of materials is minimum. S.O.R. Contract : Here the tender contains only the description of all possible items of construction. Tender simply fill their prices for each item or the contractor quotes his rates in the tender by higher or lower % to the SOR rates. Negotiated Contract : Here there is no open competition and the owner carries out negotiations with selected contractors. It cannot be used in public works due to the absence of open competition. However, in emergency or when the time of completion is a major consideration it can be given by the PWD through special laws.













ASSIGNMENT 3 1. Mention the types of the contract you will suggest for the works listed below. Give reasons

for your suggestions. (a) A school building with 16 class rooms. (b) Decoration of a shop. (c) A prestressed concrete bridge. (d) A building with architectural requirements (e) A concrete road 1 km long & 3.5 meter wide. (f) 100 Nos. identical bungalows on uneven plot of land. (g) Client owns land in CBD area of a big city but does not have money to develop the

land for building a commercial complex. (h) There are unstable market conditions & PWD has to complete a job under

emergency in a limited time. (i) Donor is a contractor for building a grant in aid educational institute like SBST. (j) For construction of a building with lots of architectural features. (k) Fixing a projector for citys planetarium. (l) Constructing a Navigable bridge connecting an island at 25 km. away in sea.

2. Analyze the cost of a project and explain the two extreme types of contracts emerging out

the analysis. 3. Explain the legal spirit of lumpsum contract.


Chapter 4 Parties to the Contract

A construction contract involves specific relations between specific people to perform specific functions. It can involve hundreds of people but they can be categorized into the following titles.

1) Owner 2) Designer 3) Consultants 4) Contractor 5) Suppliers 6) Employees 7) Other parties

In reality, it is possible for any individual to perform more than one function. There is a great scope for flexibility of thought and imagination in the possible arrangements through manipulation of the functions indicated by the given title. 1) OWNER

The owner is a person or a party who owns the rights of the land and who presumably has the means to develop the land. The owner desires development and therefore initiates the design and contract process. He also pays for the process as it progresses upto completion, the owner owns the development (building). To bring about the development of his land, the owner must get involved in the contractual relationships with several parties. The owner of the property is obliged to ensure that all the work done on his property confirms to all the local ordinances and regulations. He usually ensures the all the necessary permits to authorize all works are secured to the satisfaction of the local authorities. The owner often passes this responsibility to the contractor but the liability rests with the owner of the project and property. The owner of the property may be an individual person, husband and wife, a family, a company, a public body or government, but by law they are all viewed as individual legal entities like individual persons. The owner may develop the land with his own resources. He may use his own money or use ownership rights as security to raise money.

2) DESIGNER

The designer is a person or a party retained by the owner to design the project contemplated (considered) by the owner. He can be an architect if functions and appearance predominate or he may be an engineer if the project involves design where engineering principles predominate. E.g. bridges, dams, tunnels, etc. He can be any other person as specialist such as an interior designer. The designer enters into a contract with the owner to provide a service. The exact extent of the service is described in the contract. These are usually detailed working drawings, specifications sufficient to permit bidding for the work. Other services can be supervision and certifying payments on account of work done the designer will work as an agent of the













Mayank JainTypewriterROLES AND FUNCTIONS OF PARTIES TO CONTRACT


owner and he will look after the work as if it was his own. He should be very careful in designing and estimating the project, otherwise he will put the owner in a very bad position. The owner can sue him for his carelessness. Now-a-days buildings are becoming too complicated to handle single-handedly by a consultant. Time schedule is also very tight, so the consultant requires the services of many other specialist consultants to assist him to complete the project on time. In short, the owner contracts with the designer because the designer has the access to the means of design in the form of experience, staff, equipments and relationship with specialists.

3) CONSULTANTS

The consultants as a group comes under two categories; those who directly contract with the designer and those who contract directly with the consultant.

i) Direct Consultants : These are the consultants who specialize in a

particular aspect of construction. E.g. structural system, services system. ii) Indirect Consultants : These consultants contract with direct consultants to

provide highly specialized services, E.g. guidance in cost control production of specifications and contracts, inspection services, computer services, quantity surveying.

4) CONTRACTORS

The contractor is a person, a firm or a party who contracts with the owner to build the building. The owner contracts with the contractor because the contractor has an access to the means of construction. He has experience, staff, equipments, funds and business connections that enable him to undertake construction work. He is known as the main contractor.

5) SUB CONTRACTORS

These also fall under two categories those who contract directly with the contractor E.g. service contractor are the direct sub-contractors and those who contract with the sub-contractors are known as indirect sub-contractors. E.g. ducting insulation, thermal controls, fans and motors.

6) SUPPLIERS

The owner, the contractor and the sub-contractor have to enter into a contract with the suppliers of materials, equipments, m/c, systems, man power, etc.

7) EMPLOYEES

Persons employed in the above heads will come under this category. Moreover, employees of the organizations concerned with safety, health and welfare of public inspects of tests the supplies and contractor work under legislation at the local, regional or national level.






8) OTHERS

In every construction project there will be several other parties who get involved in contract with the owner depending upon the circumstances. E.g. bankers, mortgage men, real estate people, lawyers, etc.

RELATIONSHIP AMONG THE PARTIES Although infinite flexibility is the key aspect of the relationship, this can be represented in three patterns.

1) Traditional Arrangement 2) Management Arrangement 3) Package Arrangement.

It is important to realize that contractual relationship exists among some of the parties or persons but not necessarily among all of them. 1) TRADITIONAL ARRANGEMENT :

Others

Specialist testing, others

Indirect S.C.

Site work Struc. services

Direct S. C.

Contractor

Others Individual Corporation Public Dept.

Owner

Generalist Specialist

Designer

Suppliers

Indirect Consul

Direct Consul

Specialist inspection

Spec. Manu.

Site work Struc. services

Architect Engineer

Contract for Services Contract for Implementation


In a traditional arrangement, a relatively rigid structure of the relationships is exists. There is a vertical pattern with the establishment of a hierarchy of power and responsibility. Privity of contract exists between the parties as shown in the figure. All the parties identified here will have a special relationship with their employees and with a variety of firms or companies who may provide particular goods or services. 2) MANAGEMENT ARRANGEMENT :

Reference : Contracts by Keith Coiller

Others

Mana-

ger

Desig-

ner

Cont.

Services

Sub. Contr.

Contra. Finishes

Const. Site

Work

Owner

Contr. Work

S U P P L I E R S

L A U S N T S T N O C

Contracts for Services

for implementation Contracts


ASSIGNMENT 4 1. Explain the various titles of the parties to the contract. Justify their titles. 2. Design Privity of Contract for BOT contracts.


Chapter 5 Specifications

DEFINITIONS

1) The act or process of specifying, i.e. to name or to state explicitly (in detail). 2) The detailed and precise presentation of plan or proposal of something. 3) Written description of an invention for which a patent is sought.

INTRODUCTION Various proportions and relative positions of various parts of a structure are shown on the drawings. It is not possible to furnish data regarding the quality and the quantity of materials and quality of workmanship and the methods of measurements of construction items. Plans and specifications are the tools prepared by the designer which the contractor uses to build a building. These terms have very definite, well organized connotations (suggestions by a word or a thing). Specifications is a very important contract document because the law recognizes specifications as a part of a legal contract between both the parties. It is also required in case of arbitration or contract cases. The nature of specifications varies with the type of the contract. The specifications of poor quality causes delay and arbitration. Object :-

1) The main object is to state the information to fulfill the quantitative and qualitative needs of the design for the project.

2) The specifications defines the quantity and the quality of materials and quality of workmanship of construction items, which helps the contractor to quote correct rates at the time of filling the tender.(Rate Analysis).

3) The information and instructions contained in the specification will help the contractor and the supervising staff during the execution of works.

Specifications is a legal document and it should be prepared with great care and skill. Following are the alphabetically listed Ten-Commandments (laws) of writing good specifications:- 1) Be Complementary : Relate all the parts of the contract without any omission and

minimum overlapping (repetitions). 2) Be Concise : Say only what has to be said, use least no. of words, use numeral

abbreviations and list out materials and products. 3) Be Consistent : In style, attitude and firmness. 4) Be Correct : Check for errors and inaccuracies. 5) Be Current : Eliminate out-of-date references.


6) Be Fair : The contract should be a bargain to both the parties. 7) Be Objective : The job is to bid and built. 8) Be Organized : Use standard formats wherever possible, division of contract

documents in sections. 9) Be Practical : Contractors are not magicians, wealthy, stupid or dishonest, use

prevailing materials and methods of that locality. 10) Be Specific : Do not talk in generalities or use ambiguous words and phrases. 1) Be Complementary :

All the parts of the contract documents (agreement, conditions, specifications, BOQ and drawings) should be complementary. i.e. it should be made to fit each other with no omissions and minimum overlapping, particularly drawings and specifications. (Drawings show the scope of work and dimensions and specifications show quality). It is unnecessary and dangerous to duplicate or repeat information and instructions in more than one part of the document because of the chance of making a mistake in one or the other place.

2) Be Concise :

Say only what has to be said. Use the least no. of words, because each word has to be interpreted legally. Fewer the no. of words, lower the chances of misinterpretation. Also fewer words save the time required to type, proof read, printing and paper. E.g. the contractor shall be, The general conditions of contract apply to the works of this section, a, an, the ..

Use numerals instead of writing nos. in words, because drawings are made in numerals, so there can be better co-relation between drawings and specifications. Moreover, these are quicker to type, easier to correct or change, and simple to read and to understand.

e.g. 1.5 mts. Instead of one point five meter.

Also use abbreviations instead of writing out full titles of well known things. A list of it can be attached in the contract document. Listing of materials and products often helps to eliminate unnecessary words or phrases.

3) Be Consistent :

In style and attitude. Use simple present tense and imperative mood. Select correct words and then put them into correct context in the specifications. Each word should be examined w.r.t. all possible meanings. Many words have optional meaning and spellings. Use only one type throughout.


4) Be Correct :

Check and double check the names of manufacturers, model nos., products and local suppliers, confirm nos., quantities, amounts, proportions of mixes and spellings. Clauses taken from previous jobs must be reviewed to make certain that they fit in the new project. Graphical conventions and abbreviations are understood in particular regions only. In one contract a 500 mts. road was typed as a 500 km road.

5) Be Current :

Titles, dates, standards, govt. regulations, manufacturers literatures which are in present use and easily available should be specified. Reference records should be updated. Industry practices and procedures are changing from time to time, to improve services or to take advantage of new technology. So, one must keep in touch with these moves.

6) Be Fair :

Do not put undue responsibility and financial risk on any one party. If the writer includes unfair clauses which give an advantage to one party, the other party will try to get around these conditions and thus cause problems to all concerned. The more fair and equitable the specifications, the more smoothly the job will run. Excavation in all types of soils and conditions or provide and apply two coats of asphalt paint on the external surfaces of a foundation wall below G.L. are examples of unfair clauses. Following are the escape clauses which frequently occur in contracts but these should never be used. E.g. to the satisfaction of the architect, where directed by the engineer, unless otherwise directed from an approved source, at the discretion of the owner.

7) Be Objective :

The objective is to bid and build. It should be such that the offer can be made, accepted, and constructed.

8) Be Organised :

Several portions and parts of the contract have to be put together in an organized manner. Present project specifications are mainly divided into following technical categories :-

1) Recognition of main elements 2) Organizing as per the sequence of work. Regconition of main elements :

Front and Back Cover, Flysheets to identify the project table of contents, contract portion, specifications, drawings, bidding portion.


Organizing as per the sequence of work :

i) General Work. ii) Civil Works : earthwork, concrete, masonry, metals, wood and plastics, thermal and

water protection, doors windows and glazing, finishing and painting, site development.

iii) Services. iv) Specialties. v) Equipments and M/c. vi) Conveying systems. vii) Mechanical Installation.

9) Be Practical :

Contractors are not mind readers. They cannot guess what is in the owners or the designers mind. They have to do what is indicated in the contract documents. Contractors are equally emotionally involved in the construction. Contractors are not stupid. They probably know the ins and outs of their trade more than anyone else in the locality and the designer should utilize their expertise. Contractors are not dishonest. Majority of the disputes involving contractors arise from the difficulty in interpretation of specifications. The more care taken to eliminate these difficulties, the harder it becomes for crooks to operate, and easier for the honorable contractors to do their work. It is advisable to adopt local industry techniques and practices wherever possible.

10) Be Specific :

Include only those things in the contract that pertain to the contract and which can and will be enforced. Dont write ambiguous words or phrases as these cause problems due to misinterpretation. 1) Any This word introduces choice. E.g. Patch any crack in the plaster. 2) Either This word is confusing. E.g. Paint either side of the door. 3) Or equal This expression should be avoided as it gives choice and opinion to the

contractor. Designer should reserve such decision and write or other approved. 4) And/Or Avoid this phrase. Use and or or but not both. E.g. remove tools

and/or debris. Which thing should the contractor remove? 5) ETC This should never be used. It is impossible to tell which the next item is and

upto what nos. E.g. remove tools, rubbish, equipments, etc. What is the next and how many?

6) Use This word does not mean provide. Contractor may use the things provided by the owner.


ASSIGNMENT 5

1. Explain through examples Principles of Good Specification Writing. 2. Take one sample specification from any contract you are involved and redraft the

specification by applying principles of good specification writing.


Chapter 6 Types and Sources of Specifications

TYPES OF SPECIFICATIONS

1) Brief Specifications and 2) Detailed Specifications

a) General or Standard b) Particular

Brief specifications are used only at the time of preparing the estimate. They do not form the part of the contract document. Detailed specifications describe technical requirements of each item of construction. They provide detailed instructions regarding the quality of the final project. They also describe tests to be performed for the approval of materials and to check the consistency of the supply. These should be concurrent with the drawings. Detailed specifications are of two categories a) General or Standard Specifications b) Particular or Special Specifications. GENERAL OR STANDARD SPECIFICATIONS : These are formulated in a manner such that it can be used on any project. Care should be taken to (i) Use it on a particular job and (ii) For variable requirements blank spaces can be provided and can be filled up as per particular requirement. These are prepared by various public authorities or trade associations for the use throughout the country. Equality and reliability of these specifications will depend upon the interests, abilities and biases of the persons preparing them. For their use in the contract, care must be taken for the reasons, purposes and even motives of the organization issuing such general specifications. These should be updated regularly. It simplifies the control on the quality of the work. SOURCES OF SPECIFICATIONS i) Govt. Departments : CPWD, PWD, MES, ISI, Railways IRC, etc. ii) Others : Clients requirements, previous specification, drawings, site investigation, etc. iii) Professional Associations : Like Architects, Consultants like EIL, Tata Consulting

Engineers and Contractors produce well researched, reliable, fairly unbiased and uniform information for use in the construction contracts.


iv) Trade Associations : The service trade personnel like roofers and painters produce

manuals and pamphlets of practice for use in the construction contracts. Some of them are excellent but these show inclination towards protection of affairs of the member of the association. So while using them care should be taken to protect the interest of the other party.

v) Manufacturers Associations : They also produce specifications on products or systems

that have been well proved in the market. These can be used as a guide to enable member companies to manufacture products within known and acceptable tolerances.

vi) Manufacturing Companies : Many reputed and reliable companies produce promotional

literature of one type or the other for their products. Such literature will be varying in quality as per the knowledge, experience and ability of the person or the firm preparing the information and the budget available to research the product and to print and distribute the literature.

Other factors are deliberate or accidental suppression of negative features of the product and the extent to which the information about the products superiority to the actual facts related to the product is correct.

Although there are good reliable companies, a few unreliable companies also make products and their specifications. So this point must be carefully surveyed before specifying a particular companys products.

vii) Text and Reference Books : It is an excellent source available. In short, factors to be

considered while selecting the specifications from various sources are : (a) Nature of the source of information. (b) Its potential reliability. (c) Motive of the persons or the bodies preparing specifications. (d) Updating by removing obsolete specifications.

PARTICULAR SPECIFICATIONS : These are prepared for specific projects and they may include general specifications either in fact or in reference. These are intended to be used on one job only, although may be applicable in parts or full to similar jobs. Specifications are also classified as under :-

a) Open b) Restricted c) Closed d) Prescription e) Performance f) Proprietary


a) Open Type : These are desirable from the owners point of view as these permit the widest possible amount of competition in price. Any company that makes a product or a system that meets the parameters specified can bid for the job. The owner or the designer do not care which product is used, provided it meets with the requirements of the specifications. E.g. using toilet partitions for use in school or public buildings. It usually does not matter which company makes the partitions, provided they function properly and economically for adequate life. Many companies make such products and all are able to bid for supply and installation of these partitions.

b) Closed Type : Sometimes the owner or the designer require a specific item or a

system, made by one or two companies only. These is no competition, so there is a financial benefit to these companies. The owner may pay inflated price. If there is substantial amount involved, it is better to negotiate a good price for that item or system in advance before using it for the specification. The contractor can be instructed to include that amount of money in his bid and then special sub-contract is arranged to ensure delivery and installation of that item or system. E.g. installing a major projector for a city planetarium. If the price cannot be negotiated, then funds should be arranged for or the project should be scrapped off. Another example, BK. Manufacturing Co. having a new H.O. designed, the company will not like to build this building with the bricks of their competitors.

c) Prescription Specifications : The method to be followed by the contractor is

described in detail. The contractor follows the described method to arrive at the required results. If the desired results are not obtained, it might not be the fault of the contractor. E.g. a roofing contractor who followed the prescribed specifications to put a roof on the building, the roof blew away in a storm. A more common example is brick masonry where everything is mentioned.

d) Performance Specifications : In contrast to prescribed specifications, the detailed

description of the end result is given. Method to achieve this end result is left to the contractor although there are some suggestions given. E.g. in A/c system, temperature, flow of air, noise levels are specified but the system of m/c, ducting insulation and grills is left to the contractor. The problem in this type is that what will be the useful life and maintenance cost?

e) Proprietary Specifications : This specification writer mentions manufacturers by

name, model no. and describes optional features like colour, style and accessories. This can be restricted or closed. In this type the writer has to survey all the products he wants to specify. In PWD, it is not adopted because i) monopoly is created ii) doubt of favorism is put on the specification writer iii) it is possible that other manufacturers may be able to supply the same article of better quality and at cheaper rates.


LANGUAGE OF SPECIFICATIONS Language is one of the basic modes of human communication w.r.t the world of ideas. Drawing is the main language for engineers, but drawings are to be accompanied by written notes describing many abstract quantities such as time, legal relationship, value and other technicalities that cannot be graphically represented. Language is a pattern of both shapes and sounds. The sounds are interpreted as spoken words and shapes are interpreted as written words. In both these patterns, there are barriers to clear communications which are interruptions, faulty interpretations, distractions, diversions and other filters between the source and the terminal in the communication chain. The specification writer does not want to loose the attention of the persons who will be reading them. Some general principles of specification writing can be developed as : 1) Choose words carefully 2) Use least no. of words 3) Arrange words to command attention. 4) Eliminate distractions and diversions. Learning building technology is like learning another language. Building technology has its own vocabulary or terminology and it has its own forms of syntax and grammar. To become proficient in writing specifications, it is necessary to learn this particular language by studying construction materials, codes, methods, contracts, procedures, systems, costs and the like. Important things to be observed in this context are: 1) Meaning of words 2) Form of words 3) Categories of words 4) Punctuation and 5) Verbs. 1) Meaning of the words : In construction contracts, any word that has more than one

meaning should be placed in a context where the intended meaning expresses only one interpretation. E.g. consider the word Pitch, which is often used in the construction communications. There are 10 current and 4 obsolete meanings of this word.

a) A distillate of tar. b) A reserved portion of the ground. c) To set-down and erect a tent. d) A slope or inclination. e) A point on a scale. f) To throw underhand. g) To fall headlong. h) Fancy sales talks. i) A musical tone. j) A screw convolution. i) Earth or Soil ii) Paving Stone iii) A quantity as in the pitch fork. iv) The highest point in the falconry.

Thus, such words can be misinterpreted very easily and they require very careful consideration.


2) Forms of words : In construction specifications most important are forms and nos., case, tense and mood. One must be very careful about quantities, putting words in the right context, selecting the correct verb and tense and mood to achieve desired actions by parties to whom specifications are to be read. E.g. Time Flies here Noun-time Flies Verb. Now compare with Flies Time here Noun-Flies and Verb Time.

3) Categories of words : There are 8 categories of words i) Nouns ii) Pronouns iii) Verbs

iv) Adverbs v) Adjectives vi) Prepositions vii) Conjunctions viii) Interjections. Some words appear in several categories. E.g. Paint can be either noun, verb or adjective. Some words in one category can have several meanings. E.g. moment means, a short time and result of motion about an axis. Different words can have identical sounds. E.g. site, sight, cite, etc.

i) Nouns : Denotes persons, places, things, and this is the largest category of words

in the language. Specifications writers must develop extensive vocabulary of construction nouns by studying construction materials and methods.

ii) Pronouns : These are substitutes for nouns. E.g You, he, she, it, this, that, what,

who, etc. Their use should be avoided in specifications as they are general, not specific.

iii) Verbs : Expresses occurrence of an action or existence of a state. E.g. construct,

notify, supply. iv) Adverbs : Quality or limit of verbs. They give verbs more specialized meaning. E.g.

He builds well and compare with He builds wells. v) Adjectives : They qualify or limit nouns. They give nouns more specialized

meaning. E.g. The word Pitch after the word roof makes roof an adjective. E.g The roof pitch is steep/soft.

vi) Conjunctions : These are used to link the phrases or sentences together. E.g.

and, but. They can be usually avoided.

vii) Interjections : Such as on, ah have no place in the construction specifications except when the job runs over the budget.

4) Punctuations :

i) Apostrophes () usually proceeds or follows the possessive S either in singular or in plural. They can usually be avoided.

E.g. Perform work to Architects direction singular Perform work to Architects direction plural Perform work as directed by architect preferred.


ii) Asterisks (*) : Usually signify a footnote or a word of warning. E.g. Mortar for internal use * shall consist of 1 part cement, 1 part times and 6 parts sand. * do not use antifreeze chemicals in the mortar.

iii) Colons (:) : Usually suggest an elaboration of the things just stated. They

replace the word shall be or shall e.g. Cement : Type 1 Portland Grout : 1 part cement, 3 parts sand, 3 parts gravels.

iv) Commas (,) : Used to separate phrases or words occurring in lists. E.g. provide

ladders, tools, brushes, and clothes. Compare with provide, ladders, tools, brushes and clothes.

v) Dashes (-) : Should not be used in specifications. vi) Exclamation Marks (!) : Never required in specifications. (except in connection

with the price) vii) Hyphens (-) : are used either to join words together to make their meaning

more precise or used to divide lengthy words at the end of the lines. e.g. Joining : rust resistant, built-up.

Division : Avoid contractor, contract-tor use (preferable) con-tractor, or contract-or.

viii) Slashes (/) : These should be used with particular care as they can mean either

add or multiply or divide. e.g. and/or, . ix) Periods (.) : These are the full stops. But are also used to denote decimals. x) Question Marks (?) : Should never be used in specifications. The project manual

should answer the questions, not pose them. xi) Parenthesis ( ) : Are generally used for secondary insertions. E.g. Mortar for

external use shall consist of 1 part cement, part lime, and 4 parts sand (ASTM type M)

xii) Quotion Marks ( ) : Inverted commas are used to denote model nos. E.g.

provide and install Cera sanitary fitting. xiii) Semi Colons (;) : In place of periods where two statements suggest closely

linked activities.

5) Verb Section : Will, shall, may can, must, could, should, ought to, have to, have got to, are to, are, could have, would have, etc. Normally select present tense and imperative mood. e.g. Install fixtures to be supplied by owner, rather than. Install fixtures which will be supplied by the owner OR Install fixtures supplied by the owner.


ASSIGNMENT 6 1. Through examples explain various types of specifications stating their advantages and

disadvantages.


Chapter 7 Fair and Equitable Contracts

NEED TO EVOLVE FAIR, EQUITABLE and EFFICIENT CONTRACT MANAGEMENT SYSTEM Construction work is generally carried out through contracts. The contract documents lay down the relationship and contracts are governed by ICA 1872 which was prepared under the colonial rules. Till to date, even though there are changes in it, the spirit of the contract act remains the same. i.e. in favour of the owner. The present contract agreement form is not fair and equitable. Even though the contract is between the owner and the contractor, there are many direct and indirect participants who also influence the contract. Since about 50% of the national plan outlays are allotted to the construction sector even the slightest improvement in the productivity of this sector which could be achieved by efficient management of contract, construction process and system, will be a great boon to the national economy. The need to evolve fair and efficient construction management system is the need of today. Factors like planning, technological innovations in construction techniques, mechanization, use of a variety of new materials etc. have a considerable influence on construction costs; but an aspect which is equally important is the mode of execution of works. Although there are a no. of construction departments and organizations under the central ministries and states which execute works financed from public funds, construction is largely executed through the agency of private contractors. Departmental execution is generally resorted to the special cases only. The volume of construction handled by voluntary organizations, labour co-operatives and govt. sponsored private bodies is comparatively small. General conditions of contract which are at present in vogue in govt. departments were drawn upon in the pre-independence days when the magnitude of construction was small and the approach to the contractors problems was vastly different. Although these conditions are modified from time to time, the spirit underlying them has not materially altered. The present day developmental activities under which the magnitude of construction is large and more technical in nature, necessitates a different approach and a fuller appreciation of contractors problems. Contract forms in use in govt. depts., throw on contractor an undue share of risk of unforeseen conditions. Terms of payment and settlement of disputes are not equitable. Capital gets unduly locked up in the form of EM, SD, and retention money. If the rates quoted by the contractors are to be fair to both the parties, conditions of contract must not be unreasonable or vague and open to argument. Financial arrangements should be equitable and payments prompt. Powers of supervisory staff to suspend work, to order deviations and to reject work should be clearly defined. These reasonable and essential conditions cannot be said to prevail at present. Consequently, contractors cater for all these eventualities in their quotations and raise them correspondingly. Govt. would have to pay less if the conditions were more equitable. It is essential that all the factors which contribute towards an avoidable increase in cost are eliminated.






ORIGIN OF CONTRACT Construction is a complex process involving a no. of participants with differing requirements and attitudes. A major complexity is the contractual obligations linking the participants. The construction industry is one where the product - a building, a bridge or a power station, say is sold before it is built. This is quite unlike the manufacturing industry where the products cost is known. This is the characteristic of the origin of a contract bond associated with the construction industry in all countries at all levels of development. Because of this special nature, there is a complicated process of written documents which elaborately detail and define contractual obligations of the parties concerned. In the documents, the final product must be described and qualified in unequivocal terms, to enable the contracting agency to offer a firm price for the product envisaged. The scope, quality and substance of information exchanged among the participants, and their obligations, are all embodied in form of contract. Growing Difficulties due to mistrust: Earlier, the contract agreement used to be a document of only a few pages. Negotiations were done across the table. There was no protracted procedure to sign the agreement. All actions were based on mutual trust, but now these are based on mutual distrust between the owner and the contractor. There is distrust between the owner and the indirect participants, without whose co-operation the owner cannot fulfill his contractual obligations. For the improvement of the construction industry, this mistrust must change into a relationship of mutual trust. This is possible when all parties to the contract are made equal parties in sharing responsibilities and obligations are not one-sided. Thus, the disputes have increased for extras, variations, delays, non-fulfillment of obligations by the owner, unforeseen subsoil conditions, instead of analyzing the causes for the state of affairs and finding the remedies, have put a ban on procedures of settling disputes by arbitration. There has arisen a vicious circle of mutual suspicion and differing objectives, whereas the contract is supposed to have been entered into with the object of constructing a facility in time, at a reasonable cost and quality by both the parties for the benefit of the community. NEED FOR EVOLVING FAIR and EQUITABLE CONTRACT DOCUMENTS Many improvements are needed in contract documents which are initially tender documents and when accepted and signed by both the parties make contract. It is worthwhile looking at the views of the parties to the contract.










CONTRACTORS VIEWS

1) The tender documents should be standardized for a state or the country as a whole. At present each dept. in a state has its own contract form. This imposes too much strain and risk on the contractor who has to bid for many works in a short time, and proper scrutiny and understanding of each contract becomes difficult. For special types of works, an additional list of conditions could be included while the rest could be according to a standard format.

2) The conditions are loaded in favour of the owner and the contractors position is weakened.

The authorities and powers of various officials entrusted to operate a contract are limited and not well-defined. The procedures for approval are complicated. Checks and counterchecks, even within a department are based on mutual distress. This causes the officer in-charge to play safe. There is often non-fulfillment of obligations in time on the part of the officer on the owners side, as the responsibilities are not specific and pinpointed. This situation leads to disputes and claims and a vicious circle appears.

3) The types of soil, sub-soil conditions, hydrology materials, resources etc. are not properly

investigated and sufficient data are not available in the tender document. The project should have been undertaken after careful investigation by the owner and he is expected to have detailed and accurate information. Often this is not given and the contractor is asked to do his own investigations. This is not a practical proposal. Most of the disputes on contracts arise due to wrong, vague or incomplete data provided by the owner in the contract specifications.

4) The requirement of construction materials and their availability are not estimated,

investigated and planned by the owner, even for the items of materials to be supplied by him. The delay in supply of cement, steel, electricity, land, quarry rights, etc. retards progress, but the conditions of the contract do not hold owner responsible nor does it allow compensation to the contractor on the above grounds.

5) In most of the cases, projects are sanctioned without proper investigations or model

studies. After the work has started, the entire scope of work may be changed, making the contractors plight extremely difficult, as the contractor may not have the technical know-how, skill and equipment for such changed conditions. The resources arranged according to the earlier needs of the work thus become redundant.

6) Construction drawings are never ready in time and changes in them are an accepted

privilege of the owner. The situation again leads to claims and disputes. 7) Since the contractor has to invest heavily on labour, equipments and funds, any delay on

the part of the owner will cause to heavy losses to him. Delays on projects due to the owner not fulfilling his obligations are on the increase everywhere.

8) Any construction work involves the coordinated efforts of many govt. depts. and other

public utility services. Often, lack of understanding of the problems involved and uncoordination, affect the work. Further, the attitude, it is after all the contractor who will suffer, should change. In reality, the contractor is only a part of the entire system, and ultimately society and nation suffer, in an unfair and one-sided system.












9) The contract conditions do not provide for any fluctuations in the cost of wages and

materials. This provision is particularly necessary for the projects of duration of more than one year, as it is seen that policies of the govt. on taxation imports and export priorities and inflation, all affect the prices. Escalation based on the construction cost indices.

10) Another important matter that affects a contract is a change in the labour wages and

benefits that are introduced for many reasons social, economic, or political. Construction, being labour intensive, has a great effect on cost. So, suitable compensation models need to be introduced in a contract.

11) In the absence of any credit policy applicable to this industry, there is almost no fair chance

with banks and financial institutions to serve the construction activity in the country. There are three stages at which the contractor needs funds i) Registration EMD ii) SD and RD iii) procurement of plant and equipment and working capital for contract execution. The owners, banks and financial institutions should be able to help in these by adopting uniform codes for B.G. and insurance instead of deposits. This would help reduce locking up of funds.

12) At present, some manufacturers enjoy the facility of IDB Schemes to sell machinery on a

deferred payment basis with reasonable rates of interest. This facility is available to certain earthmoving machinery only on a differed payment basis. This should be extended to other construction equipments and vehicles to help improve the methods of working of medium and small size contractors.

13) Another problem is financing the contract itself. Tight money conditions deprive contractors

of the facilities of even short-term credits from suppliers and manufacturers of construction materials, stores and spares. This is particularly so with nationalized industries like oil, steel, cement which demand 20% to 30% advance against the order.

14) Financial problems can to a great extent be eased if the owner makes timely payments,

settles rates of extra items and stops unilateral deductions. Proper advance against plant, machinery and materials by the owners, and proper phasing of the recoveries, will also help to a great extent. Even though in some big contracts these conditions are being accepted of late, they are not followed in all contracts. With the present day tight money conditions such methods, if adopted, will ultimately help the owner in reducing the total costs.

OWNERS VIEWS The views of the owner are yet the other side of the picture. The owners or clients share their own

problems with the contractors. These are :-

1) Normally, private contractors except the few who are well organized, have no organization at all, nor do they have qualified men to manage.

2) Technical personnel are not employed and contracts have to specify employment of

technical persons and enforce this.










3) Haphazard construction practices are adopted which become responsible for failure of structures during