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Contract Trade Usage

• Trade customs in law is termed as trade usage- contract document is silent
A written agreement between two parties, especially one concerning employment,
on few points but as a traditional practice parties know about that.
execution, sales, or tenancy, that is intended to be enforceable by law.

Essential requirements: – Trade usable acceptability criteria

1. Lawful subject matter (FSI, crime, etc.) • Certainty, lawful, reasonable and well-known
2. Legally competent parties (minors)
3. Valid consideration (mutual consent- % work completed Vs payment)
4. Free consent (no party shall be pressurized)
5. Provisions of law with regard to form-

• Scope and nature of the services to be performed

• Consideration in respect of performance of such services
• Time limit for the completion of the work
• Signatures of parties

Forms of Contract Unit-price or item-rate:- rates per unit of each item of construction. (measure
& value contract-most of the public works are carried out under this form)

• Lum-sum (fixed rate) • Advantage-flexible, economical, removal of uncertainties, starting of work

before freezing all specifications
– exact quantities were estimated
– Advantages: Low cost, definite amount, timely completion
• Disadvantages- conflicting interests, material classification, final cost,
– Disadvantages: Conflicting interest, extra work not possible, High cost
damage due to changes
due to uncertainty

Termination of Contract
Cost-plus or percentage:-

• Contractor's fees for service • Performance

– Cost-plus fixed percentage • Agreement
– Cost-plus fixed sum • Breach
– Cost-plus a fixed sum with a profit-sharing clause • Operation of the provisions of law
– Cost-plus fixed sum with a bonus clause
– Cost-plus a variable percentage

• Advantages- No conflicting interest, extra work, early completion, starting

of work

• Disadvantage- final cost, inferior work, illegal for public bodies, checking
contractor’s account


Types of contracts
• Labor contract
• Package deal contract-design and cost estimate by contractors
• Demolition contract • Engineer
• Negotiated contract • Contractor
• Schedule of prices contracts • Owner

Contract between Engineer & Owner (Trade of Money & Quality)

• Clearness, death of owner, statutory provisions, absence of required license,

competition, construction cost, plans not used by owner

Earnest Money Mobilization Fund

• Money to be deposited with tender document (1-2%) • Initial investment for several articles like centering, labor,
– Only interested and competitive parties may take part. travel of staff, erection of temporary structures, etc.
– For punishment if contractor has quoted false information.

Security Deposit
• Money to be deposited after the award of tender (@ 5%)
– Deposit for loans.
– For punishment if contractor executes the work not in line
with tender document.

• It is an offer in writing for executing certain specified work or
for supplying specified materials subject to certain terms and • Tender with least cost
conditions like rates, time limit, etc.
• If party fails to accept the tender with security deposit owner
may consult to second lowest party.
• Classification
– Open or public Revocation of Tender
•By owner
– Selected or limited
•By Contractor
– Negotiated

– Opening of Tenders (In front of all stakeholders)

– Scrutiny of Tenders (Cross verifications of all the terms and
conditions by assigned committee)


Unbalanced Tender
Tender Form

• Price • Itemized contract- contractor may quote less rates for several items
and more rates for few items, wherein total cost remains
• Earnest Money unaffected.
• Security Deposit
• Use of equipments & organisation-less for few equipments owned
• Time Limit by contractor and higher cost for hired equipments
• Tender Validity
• Miscellaneous • Working capital- high cost for few items which are likely to get
completed in early stage for generating working capital

• Speculations on the mistakes in the estimate- if in the tender

document mistake in quantity estimate is there, contractor can use
his expertise and quote different rates for under estimated (higher
cost) or over estimated (lower cost) items.

Liquidated Damages Advertisement

• Loss in terms of amount per day of delay in the form of • Title, Owner, Brief description of work, issue of tender form,
liquidated damage. receiving the tender, type of contract, Earnest money &
• Owner may lose his right if security deposit, plan and specification, award of contract,
– Act of owner signature.
– Certificate of engineer
– Clause of extension
– Original contractor termination

Contract Document • Direct & Indirect Cost quoted by contractor

• Title Page, Index, Tender Notice, Information, Tender Form,
Conditions of Contract, Specifications, Drawings
• Basic Price Contract- Due to market fluctuations in price of
Qualification of Contractors materials/labours, there may be often conflict between owner
and contractor. Hence if basic price contract method is
Post-qualification- After tenders are opened followed there’s always provision of altering rates of items for
Advantages- Full competition, sound contract, saving in time the benefit of both the parties.
Disadvantage-Doubt of favoritism, short period decisions, undue

Pre-qualification- Before release of tender

Advantages- Facility for acceptance, sufficient time for decision, sound contract,
better class of contractor
Disadvantage-No real competition, doubt of favoritism


Conditions of contract • Peculiarities:

1. No. of clauses -
2. Relation with technical provisions -
• Def.- The clauses which relate to the work as a whole are 3. Use –
written in a separate contract document, known as the
general provisions or conditions of contract. • General Provisions: Conditions relating to
1. Documents- (BOQ, schedule of prices, drawings, IS specifications, Notices, costs,
• Objective- The main objective of framing the conditions of
contract is to avoid dispute between the parties concerned 2. General obligations of the contractor- access to works; acts, by-laws, regulations,
and thus, to keep them out of the court of low. insurance, site management, etc.
3. Labor & Personnel- accidents, first aid, rates of wages , performance indicators, etc.
4. Assignments & Sub-letting- Specialist contractor, etc.
• Importance-The conditions of contract are framed in the legal 5. Work Execution- addition, alteration, omission, defective work, materials, etc.
phraseology and in case of complicated contracts, the lawyers 6. Measurements & payments
are entrusted to frame the conditions for the contract. 7. Default and non-completion
8. Dispute settlement
9. Special condition, if any

• Failure to complete the work in time

Typical Clauses • Right to suspend the work by the owner
• Compliance of laws
• Definition- Engineer, Owner, Contractor, drawing, etc. • Patent rights & royalties
• Labour laws
• Establishment and preservation of the control points • Public travel
• Storage of tools and materials • Abandonment
• Interim payment to the contractor
• Contractor to study particulars of work • Final payment
• Engineer during construction • Possession prior to completion
• Rates of contractor to remain firm during contract period
• Receiving instructions from the engineer • Payment of the extra work
• Fencing, watching and lighting
• Removal of employees of the contractor • Method of measurement of completed works
• Alteration, additions & omissions • Bankruptcy of contractor
• Maintenance
• Arbitration • Site clearance on completion of the works
• Inferior materials and workmanship • Clerk of works
• Protection of trees and shrubs
• Extension of time for the completion of work • water for construction

Conditions of Contract
• Inspection and testing of materials
• Facilities for other contractors
• Time limit and rate of progress
• Nominated sub-contractors
• Sanitary arrangements
• Insurance of works, materials, construction plant, etc.
• Damage to persons or property
• Use of intoxicants
• Work at night or on holidays
• Services required for the contractor’s purposes
• Temporary works
• Prevention of nuisance
• Pollution of streams
• Controlled materials
• Documents mutually explanatory
• First aid