CONTRACTS AND TENDERS

What is a contract?When two or more persons have common intention communicated to each other to create same obligation between them there is said to be an agreement. An agreement which is enforceable by law is a Contract.

CONTRACT DOCUMENT

Types of building contracts –There are basically five types of contracts which are adopted for execution of works by government departments or by private owners depending on the nature of work (as per The Indian Contract Act 1972):• Measurement Contracts• Lump sum Contracts• Cost plus fee Contracts• Turnkey Contracts• Build-Own-Operate and Transfer (BOOT) Contracts.

The Indian Contract Act 1972: there are several types of contracts.Contracts involve issues relating to1. Technology2. Finance3. Administration and Management

Contracts involve high monetary stakes. Contracts should be properly administered, governed and controlled as per provisions of Indian Contract Act 1972All contracts if they are to be valid and enforceable at law must have certain ingradients viz.

4. Mutual agreement between the contracting parties as to the terms and conditions of the contract.

5. Genuine intention of the parties to accept and fulfill their respective rights and duties under the contract.

6. Legal capacity of the parties to make a valid contract.7. Consideration of some value (such as payment for construction work done)

exchanged by the parties.8. Lawful nature of the object of the contract (eg: to build a structure that conforms

to all laws and regulations)

MEASUREMENT CONTRACTS

1. Percentage Rate Contracts –For small works and works of repetitive nature, percentage rate contracts are adopted. Owner indicates quantities and estimated rates for all items of work. The estimated cost is reflected in tender schedule.

1. The tenderer quotes % above or % below the estimated cost put to tender.

2. Payment is made on the basis of actual quantities executed and measured.

2. Item Rate Contracts – 1. For major works, item rate contracts are adopted. Owner indicates

quantities and units only for all items of work and the tenderer quotes rates for each individual item.

2. Payment is made for the actual work done based on measurements.

LUMP SUM CONTRACTS•Scope of Work, construction drawings & detailed specifications are given to tenderer along with terms and conditions of contract.

•Schedule of quantities may or may not form a part of tender documents. The tenderer quotes a fixed price for whole work tendered.

•If this type of contract is adopted, the owner will be knowing cost of work. However, this is subject to the conditions that there is no variation in scope of work.

•This type of contract can be considered when scope of work is frozen; when planning, designing and working drawings are completed before inviting tenders.

COST PLUS FEE CONTRACTS

This method of contract is adopted for-Emergency worksFor miscellaneous worksFor works in which scope cannot be defined properly at tender stage.

•Contractor is paid his actual cost of materials, labour, hire charges of machinery & a fee towards his profit and overheads.

•This fee may be a percentage of total cost with or without a ceiling or a lumpsum amount.

•Here contractor’s risk is minimum and owner’s liability is not known on the eve of commencement of works.

•Under some circumstances, this type of contract is adopted in government or private sector works.

TURNKEY CONTRACTS

•In a turnkey contract, the contractor takes full responsibility for design, construction & commissioning of the facility of defined scope for a fixed lump sum price.

•The contractor has to bear the normal risk of unforeseen site conditions, poor weather and foundation problems.

•For a turnkey contractor, time is truly equal to money & schedule slippage may adversely affect his profitability.

•A bonus or penalty clause may be included as an incentive or disincentive to the contractor to the work on time.

•This type of contract is suitable for projects where all the functional parameters are finalized and changes and extras are not made later.

•Such type of contractors are seen more in commercial defence and interior projects of multi disciplinary character and when timely completion is important.

INTERPRETATION CLAUSES:

1. Proposal: When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of the other to such act or abstinence, it is called “proposal”. The person making the proposal is called “promisor” (Contractor)

2. When the person to whom the proposal is said to be accepted and it becomes a promise. The person accepting the proposal is called the promisee (owner).

3. Consideration is the price in terms of money, good or services paid of the thing that the promisor wishes to have.

4. An agreement enforceable by law is a contract: an agreement not enforceable by law at the option of others is a voidable contract.

TENDERS

A 'tender' is called upon for executing certain specified work, or supplying specified materials; subjected to certain terms and conditions like rates, time limit, etc. It is an offer in written form: Legally speaking, it is an offer to receive an offer for the work, within the specified financial limits. An architect must observe the following, before inviting tenders:a) Accuracy in bill of quantities as far as possible.b) All plans, specifications and details are correct, without any ambiguity.c) No item should be over looked and special condition.

The tender documents issued to various contractors must be complete in every respect and should specify details of the work. Each tender form must contain the following:1. Special notice issued either in name of the owner or the architect.2. Tender acceptance letter from the contractor.3. Articles of agreement with special conditions of contract.4. General specification.5. Bill of quantities incase of item rate tender.6. Special conditions and detailed specifications of work in case of lump sum

tender.

TYPE OF TENDERSITEM RATE

1.Balanced one as no undue profit or loss to the contractor.

2. Speculation to a very small extend.

3. Work can be commenced after complying with a few formalities like acceptance of tender, etc.4. All plans, specifications should be prepared in advance. Elevations and details can be supplied later on. 5. Standard quality of materials and good workmanship are assured.

LUMP SUM

1.Unbalanced one resulting in excessive profit or loss to the contractor.

2. More of a speculative nature.

3. Unless all the formalities are compiled with the work cannot be commenced.

4.All the details, plans, elevations, specifications, etc. required to be prepared in advance.

5.Standard quality of materials and good workmanship are not assured.

COST PLUS PERCENTAGE

1. Unbalanced one resulting in more cost of construction and hence more profit for contractor unless checked by bonus and penalty clause.

2. No speculation at all.

3. Work can be commenced immediately without waiting for all formalities.

4. All details, elevations etc. need not to be prepared prior to the commencement of the work.

5. Standard quality of materials and good workmanship at the cost of economy.

6.Extra works are minimized.

7.Total cost of construction is not known prior to commencement of work.

8.Variations in the drawing can be made if required as the items of the works are measured and paid for.

9.Essential variations can be made so as not to spell the design.

6. More and more of extra works.

7. Total cost of construction is known prior to commencement of work.

8.Variations will be required considerable thinking due to exorbitant claims that can be made by the contractor for the extra work.

9. Design is likely to be spoiled due to restrictions on the variations.

6. More and more of extra works.

7. Total cost of construction is not known in advance.

8.Variations can be made resulting in the increased cost of construction.

9.Variations can be made so as not to spoil the design.

INVITATION OF TENDERPUBLIC TENDER SELECTED TENDER NEGOTIATED TENDERSuitable for public and private works. Compulsory for public works.

Suitable for private works Suitable for private works of small magnitude or for repair works, and works of additions and alterations to an existing building.

Keen competition and formation of a syndicate

Competition on a small scale, chances of formation of a syndicate are there.

No competition and no syndicate.

Financial integrity and organization for the work are not known

Financial integrity, etc. are known.

Financial integrity, etc. are known.

More chances of disputes Less changes of disputes Less changes of disputes.Opens field for new brilliant contractors.

New contractors do not step in the field.

Negotiated with one or maximum of two known contractors, and hence question of new contractors does not arise.

Not very well suited for specialized and skilled works.

Suitable for specialized and skilled works.

Suitable for specialized and skilled works but cost will be very high.

Cost of work will be low. Cost of work will be on a higher side.

Cost will be very high

Tenders must be opened in presence of the tenderers who choose to remain present.

Not essential that the tenders should be opened in the presence of the tenderers.

No opening of the tenders in this case

Mistakes committed by the contractors cannot be checked in advance.

Mistakes of the contractors can be checked and rectified prior to acceptance.

Mistakes of the contractors can be checked and rectified.

OPENING OF TENDERS

Following points should be observed while opening the tenders:

1.The tender should be opened in presence of the owner or committee members.2. A record must be kept for the list of tenderers and the money deposited by them. The earnest money should preferably be accepted in the form of bank draft.3. If the owner is not present, the architect along with one assistant should open the tender. The architect shall scrutinize the same, prepare comparative statements and forward them to his client, with his recommendation as to whom the work should be awarded and why.4. The lowest tender should be accepted after close investigating the reputation and standing of that contractor.5. Public tenders are invariably opened in the presence of the tenderers who choose to remain present.6. It is essential to ensure that they have been thoroughly checked and are without any mistakes.

T H A N K Y O U