CODE OF CONTRACT

CONTRACT DEFINITION

Dictionary- A voluntary, deliberate, and legally binding agreement between two or more competent parties.

Contract Act 2056 “an agreement between two or more than two parties to do or not to do any business ,which can be enforceable as laws.”

Process of shifting the responsibility of executing the work to the third party - a contractor

ELEMENTS OF CONTRACT Offer and acceptance

Consideration

Capacity to control

Lawful purpose

Possibility of performance

Free consent

Certainty/ uncertainty

Legal relationship

Written

Two or more competent parties

Significance of contract

To make agreement legally enforceable

To specify what the contractor must do and what the owner must pay

To specify what will be done if either party fails to perform

To specify quality and quantity of work to be done

To specify the time frame within which the work is to be completed and payment is to made.

To set out in advance the course of action that will be taken in different possible situation.

To define words and establish common meaning.

To specify what is and what is not included in the contract

To specify how the contract will be terminated

To specify the responsibilities of the parties not just to each but also to the third parties such as: government, community in which work is to be done, workers, sub-contractors, materials supplier, unions etc.

CONDITION OF CONTRACT

• Agreement is reached between different parties followed by certain terms and references that binds all the parties reaching the agreement.

• Condition of contract depends upon the nature of work, type of contract and the situation

Condition of contract contains two parts:

1. General condition of contract (GCC)

2. Special condition of contract (SCC)

GENERAL CONDITION OF CONTRACTDefinition and interpretationContract durationEngineer’s duties and responsibilitiesPayment procedureSecurity depositDefective worksAddition and alterationsPrice escalationSub lettingArbitration

TYPES OF CONTRACT1. Unit Rate Contract‒ based on estimated quantities of items included in the project and their unit rate.

2. Lump sum contract‒ Owner agrees to pay a contract a specified lump sum after the completion of work without

regarding a cost breakdown.

3. Design and built contract‒ Contract may be concluded in order to have design and construction of work carried out by

the same construction entrepreneur.

4.Turnkey contract‒ Contract may be concluded by mentioning the performance capacity

5. EPC‒ EPC stands for engineering, procurement and construction contract‒ In EPC contractors designs, procures the necessary materials and builds the project, either

directly or by subcontracting part of work.

6. Cost-Reimbursement contract– Construction work of nature of high risk and unpredictable condition of work, which a

construction entrepreneur does not agree to do or cannot do under the unit rate contract, cost-reimbursement contract may be concluded.

7.Time and material rate contract‒ In order to have a work carried out by computing the labor based on time and the materials

based on unit rate, a time and material rate contract may be concluded.

8. Management contract‒ Construction work carried out through different sub-contractors subject to the condition that

legal and contractual obligation relating to the quality and completion period of construction work shall be undertaken by the construction entrepreneur himself/herself.

9.Piece work contract‒ Construction work related to small scale maintenance and repair which requires to be carried

out frequently as and when required, piece work contract may be concluded.

10. DESIGN, SUPPLY AND ERECTION CONTRACT

11. BUILD OWN OPERATE TRANSFER(BOOT) CONTRACT‒ BOOT is a form of project financing, wherein a private entity receives

a concession from the private or public sector to finance, design, construct and operate facility stated in the concession contract.

Contract AgreementContract agreement documents in cooperates the following items:

• Tender notice• Instruction to the bidder (general rules and direction for the use of the contractors)• Letters of the submission of the tender.• Letter of acceptance of the tender.• The addenda- the final contract is obviously subject to the addition, or alterations

agreed to by parties and such it is necessary that the correspondence exchanged and conditions modified, is called addenda

• Form of contract• Condition of contract• Schedule A-showing the details of materials if any, to be supplied by the owner to the

contractor• Schedule B-BOQ• Specification• Drawings

Termination of contractA contract may be brought to the end

• When no further action is required• By breach• By mutual agreement• By frustration• By convenience

Breach of contact• Violation of obligation, engagement, duty or agreement• Non performance of a promise• Refusal or neglect to execute as per contract• Disrespect of contractual obligations

Effect of breach of contract• Termination• Claims, dispute and arbitration situations• May allow a party to bring the other party in default to court• Serious breach ma make it impossible for contract to perform. ”contract killer”

Agreement definition

• An agreement is any verbal or written understanding reached between two or more parties that is not enforceable by law.

• Generally about the relative rights and responsibilities of the parties (mostly friends, family or closed ones) with respect to one another

• A promise made between closed parties, mostly based on trust and mutual understanding

• No guarantee of attainment by parties involved and can be changed at any time

Agreement VS Contract

• An agreement lacks one or more essential elements that are required in order to form a valid contract that will be considered legal

• A contract more rigidly outlines the terms of the relationship formed between the two parties than an agreement

• “Every Contract is an Agreement but every Agreement is not a Contract”

Agreement + Legality= Contract

ProcurementTendering

Inviting open bid by determining prequalification

Inviting open bid without determining prequalificationWhy tendering?• To select best contractor• To get quality work• To get work at competitive price• To maintain transperancy• Public private partnership

Some Definition

International competitive bidding

Sealed quotation

Direct procurement

Work through users committee

Work may be done by force Account (Amanat)

Preparation before inviting tendering• Project preparation• Estimating of quantities• Cost estimating• Approval of estimate• Resource planning• Tender document preparationExecution of Procurement

Procurement is acquisition of any goods, consultancy services or other services or carrying out or causing to be carried out any construction work, by an organization.

Selection of Bidder

Negotation contract

ProcurementTendering

Earnest money• It is amount of money deposited while bidding a tender as a guarantee of the

party’s willingness of carrying out the work awarded to him.• Bidder shall have to submit the bid along with bid security of 2 to 3% of

estimated amount of bid

Performance security• It is the amount of money deposited by a successful bidder as a security for

satisfactory performance.• In Nepal , security deposit is equal to 5% of contract amount for Nepalese firm

where as it is 10% of contract amount for foreign contractor.• This is refunded after completion of defect liability period.

Liquidated damages• Liquidated damages are remedies available to any contracting party to

compensate for the financial loss suffered as the result of a proven breach of contract.

Some Definition

FIDIC• FEDERATION INTERNATIONALE DES INGENIEURS CONSEILS• ESTABLISHED IN 1993• OBJECTIVE-Promoting the interest of consulting engineering firms globally• It is best known for its range of standard conditions of contracts for the construction, plant and

design industries.• FIDIC forms are the most widely used forms of contract internationally, including by the World

Bank

FIDIC RainbowRed book condition of contract for construction for building and engineering works designed by the

employer.Yellow book Condition of contract for plant and design-buildSilver book Condition of contract for EPC/ Turnkey Projects.Green Book Condition of short form of contractBlue Book Contract for Dredging and Reclamation Works.White Book Client/consultant Model Services AgreementGold Book FIDIC Design,Build and Operate project.

BIBLIOGRAPHY • www. Google .com

• Engineering Professional practice course reference manual

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