CONTRACT DOCUMENTS

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.

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:
 Measurement Contracts
 Lump sum Contracts
 Cost plus fee Contracts
 Turnkey Contracts
 Build-Own-Operate and Transfer (BOOT) Contracts.

1. Measurement Contracts
 Percentage 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.
~ The tenderer quotes % above or % below the
estimated cost put to tender.
~ Payment is made on the basis of actual quantities
executed and measured.
 Item Rate Contracts –
~ 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.
 ~ Payment is made for the actual work done based on
measurements.

2. Lump sum Contracts

 Scope of Work, construction drawings & detailed
specifications are given to tenderer along with terms and
conditions of contract.
 Schedule of quantities ma or ma not form a part of tender
documents. The tenderer quotes are 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.

3. Cost Plus Fee Contracts

 This method of contract is adopted for
~ Emergency works
~ For miscellaneous works
~ For 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.

4. Turnkey Contracts
 In a turnkey contract, the contractor takes full responsibility
for design, construction & commissioning of the facility of
defined scope for a fixed lumpsum price.
  For a turnkey contractor, TIME IS TURLY 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.
 Such type of contractors are seen more in commercial
defence and interior projects.

5. Build-Own-Operate and Transfer (BOOT) Contracts

 With the liberalization and opening up of the economy,
private sector is encouraged to execute public works, own
them, operate for a specific period and transfer the same to
public authority.
 The entrepreneur will recover his investment during the
period he owns and before the transfer of asset.
 This type of contract is adopted for highway projects,
airports, convention centre, IT parks, power plants and
bridges. Government avoids funding and allows a private
person or group to invest, build & transfer the facility after
recovering their investment.
 Government can also join with private companies or
consortia in the form of separate holding company
specifically constituted for the purpose.

General Conditions of Contract

There is no uniformity in general conditions of contract adopted by
various central and state government departments. The practice
adopted by central/state public sector undertaking and consultants in
private sector is also at variance.

Critical clauses:
 General Conditions of contract adopted by Indian Institute of
Architects and
 General conditions of contract for Central PWD work 2003.
General Conditions of Contract - Critical Clauses Adopted by
IIA :

1. Performance bond (Security deposit):

Sum to be deposited as security is mentioned in the appendix to
each contract. This deposit is to be made with architect within 10
days of signing the contract in the form approved by the architect
and it shall remain till the defect liability period expires

2. Damages for non-completion:

Liquidated damages as mentioned in the appendix to the contract
shall be recovered

3. Determination of contract :
 Owner can determine the contract if contractor
~ Suspends the work
~ Fails to give regular progress
~ Fails to remove or rectify defective work or materials
~ Sublets the work without written permission
~ Bankruptcy Notice period is 14 days. (Clause 48)
 Contractor can determine the contract if the owner
~ Fails to make payment within specified period
~ Interferes or obstructs issue of certificate for payment
~ Suspends work for a continuous period
~ Force majeure
~ Fails to issue necessary instructions and drawings
~ Fails to decide extension of time etc. (clause 49)

4. Interim payment:
To be issued by the architect within the period and payment to be
made by the owner as mentioned in the appendix to the contract.

5. Completion certificate:
 The Architect is required to give several certificates during the
execution of work. These certificates mentioned below are of
special significance.

a. Virtual completion certificate:

Building is fit for occupation though some minor works are yet
to be completed.

b. Penultimate Certificate:
This certificate is issued to enable collection of fee by a
consultant from the contractor as prescribed in the agreement.

c. Interim and Final Certificates:

Interim certificate provides for interim payment to the
contractors. It is to be honored within specified period.
Retention money is recovered from interim payments. Final
certificate is issued to the contractor after expiry of defect
liability period reckoned from date of virtual completion of
work. On expiry of defects liability period plus one month for
notice and rectification of defects, contract can be rescinded.
Submission of all documents containing measurements and
valuation within a reasonable time from the date of virtual
completion of work which ever is later. The final certificate may
also authorize release of balance retention money.

6. Materials:
Within 30 days of signing of agreement contractor shall submit for
approval of the Architect a complete list of all materials he and his
sub-contractors propose to use in the work of definite brand or
make which differ in any respect from those specified.

7.Fluctuations:
The contractor shall not claim any extras for fluctuation of price
and the contract price shall not be subject to any rise or fall of
prices.
8.Variations:
The Architect may issue instructions requiring a variation. Rates
applicable are, quoted rates of similar items, based on fair
valuation, day work rates or market rates.

9.Defective work:
All materials and workmanship shall be subject to inspection,
examination and test by the Architect at any or all times during
manufacture and/or construction. The architect shall have the right
to reject both defective materials and workmanship or work which
requires any correction.

10.Defect Liability Period:

The contractor shall make good at his own cost and to the
satisfaction of the architect; all defects, shrinkages or small faults,
arising in the opini9n of architect from work or materials not being
in accordance with drawings or specifications or schedule of
quantities or the instructions of the architect, which may appear
within Defects Liability Period (12months).

11.Arbitration:
All disputes shall be referred to and settled by the architect who
then states his decision in writing. Such decision may be in the
form of a final certificate or otherwise.
The decision of the architect with respect to any of the excepted
matters shall be final and without appeal.
If the decision of the architect is not acceptable to either party, a
notice shall be given within 28 days after receiving the notice of
the decision. The disputes or differences shall be referred to sole
arbitration of a fellow of Indian Institute of Architect mutually
agreed by the parties.
The arbitration shall be conducted as per the Act in force. (The
Arbitration and Conciliation Act 1996)
12.Excepted Matters:
The decision, opinion, certification (Except for payment) with
respect to all or any of the matters mentioned below are final and
without appeal. These are termed as excepted matters.
 Interpretation of drawings, specifications and Bills of
quantities.
 Architect’s instructions in writing Contractor’s field
organization and equipment.
 Assignments or subletting.
 Approval of materials and workmanship.
 Delay caused by nominated sub-contractors or suppliers.
 Extension of time due to inclement weather, strike, an act
of God.

Certificates to be Issued by the Architect (I.I.A. Contract Form):

 Certificate for nominated sub-contractor.
 Stipulated date of completion of sub-contractor’s work
 Interim certificate stating the amount due to the contractor.
 Refund of half of retention money on virtual completion of
work.
 Final certificate.
 Stipulated date of completion.
 Virtual completion.
 Completion of rectification of defects.
 Loss and/or expense.
 Penultimate certificate.

General Conditions of Contract Adopted by Central p.w.d - Brief

Summary of Critical Clauses:
 Prequalification of contractors for works estimated to cost above
Rupees five crores.
 Validity of tenders from the date of opening: 60 days.
  In case of discrepancy in provisions, precedence shall be
Description of item
~ Particular specifications
~ Special conditions
~ Drawings
~ Department’s Specifications
~ B I S specifications

1. Performance bond and security deposit:

 Irrevocable performance guarantee of 5% of tendered value to
be deposited within 15 days of issue of letter of intent.
 Deduction at the rate of 10% of gross amount of each running
bill.

2. Compensation for delay:

 1.5% per month of delay to be computed per day basis, subject
to a maximum of 10% of tendered value.
 Bonus for early completion: I% of tendered value per month
computed on per day basis payable along with final bill subject
to a maximum of 5% of tendered value.

3. When contract can be determined:

Contract can be determined by Engineer-in-charge under the
following circumstances.
*Delay
*Inferior workmanship
*Claim for damages
*Work not commenced within I /8th of stipulated time.
There is no provision for determination of contract by the
contractor.
4. Payment on intermediate certificates to be regarded as
advance:
 Interim or running payments are made for works whose estimated
cost is more than Rs.20,000 provided that value of the bill is more
than specified amount in the contract.

5. Completion certificate and completion plans:

Contractor gives a notice of completion within ten days of
completion. Engineer-in charge inspects the work and issues a
completion certificate within thirty days of receipt of such notice if
there are no defects. Otherwise a provisional certificate shall be
issued indicating list of defects for rectification.
Before issue of final completion certificate, contractor is required
to rectify all defects and should remove scaffolding, surplus
materials, and rubbish from site of work.
Completion plans shall be submitted for all internal and external
electrical works as per general specifications for electrical works
part I & II of Central PWD.

6. Payment of final bill:

Payment in respect of items where there is no dispute and for
disputed items with quantities and rates as approved by Engineer-
in-charge shall be made within 3 months for works of tendered
value up to 5 lakhs and within 6 months for works exceeding Rs 5
lakhs.

7. Materials supplied by the government:

The quantum, place of issue, and rates to be charged are given
under this clause.

8. Payment of advances and recovery:

 Secured advance on non-perishable materials:
This advance is admissible on nonperishable. Non-fragile and
non-combustible materials brought to site for bonafide use on
work. Advance is given up to 75% of its assessed value on
signing of an indenture.
  Mobilization advance:
Admissible for works whose estimated cost put to tender is
rupees two crores and above. Maximum advance is 10% of the
tendered value of work.
Advance is paid in two or three installments.
Proof of utilization of first installment is necessary before
obtaining second installment and so on.
 Plant & Machinery and shuttering material advance:
Advance is restricted to 5% of tendered value. Advance
admissible is further restricted to 90% of price of new plant &
machinery on production of evidence and to 50% of depreciated
value for second hand and used plants.
Valuation by an approved valuer may be insisted in respect of
old plant & equipment.

9. Escalation clause:
Provisions made for reimbursement for price variation in respect of
all works whose schedule period of completion is more than 18
months. Escalation is not payable for extended period of contract
even if extension of time is granted without levy of compensation.
Payment is made at quarterly intervals.

10.Pricing of Deviations / Variations:

The Engineer-in-charge shall have power
 To make alterations, omission from, additions to, or
substitutions for the original specifications drawings, designs
and instructions that may appear to him to be necessary or
advisable during the progress of the work.
 To omit a part of the work in case of non-availability of a
portion of the site or for any other reasons and the contractor
shall be bound to carry out the work in accordance with any
instructions given to him in writing.

11.Action in case work not done as per specifications:

  All works in course of execution or executed shall be open
and accessible to inspection and supervision of Engineer-in-
charge, his superiors and subordinates of quality control
organization and Chief Technical Examiner’s office.
 If any work has been executed with unsound, imperfect or
unskillful workmanship, or with materials or articles not in
accordance with the contract, such work shall rectified,
removed and reconstituted in whole or part at contractor’s
expenses.
 The Engineer-in-charge may point out substandard quality
within six months from the date of completion of work.

12.Contractor liable for damages, defects during maintenance

period:
 The defect liability period shall be 6 months for works
costing Rs.10 lakhs and below. It shall be 12 months from the
date of final completion certificate for all other works costing
above Rs.10 lakhs.
 Any damages to the building, shrinkage or other faults appear
within this period, the contractor shall make good the same at
his expense.

13.Settlement of disputes and arbitration:

 Except where otherwise provided in the contract, all disputes
and issues shall be referred to Superintending Engineer in the
first instance.
 If decision is not given or not acceptable, the contractor may
appeal to Chief Engineer within time limits specified.
 If decision is not given or decision is not aceptable within 30
days contractor may give notice to Chief Engineer for
appointment of arbitrator along with list of disputes and
amounts claimed.
 The arbitration shall be conducted according to provisions of
the "Arbitration and Conciliation Act 1996".
The arbitration shall adjudicate only such disputes referred to by the
appointing authority.
Fees payable if any to arbitrator shall be paid equally by both the
parties.

14. Refund of security deposit:

The security deposit of the contractor will be refunded after
 Issue of Labor Clearance Certificate
 After expiry of defect liability period (Ail defects rectified.
 Finalization or works accounts (Final bill passed and paid.