TYPES OF CONTRACTS &

TENDERS
SUBJECT : SPECIFICATION & ESTIMATION

Shubham Singh
180BARCH130
3C
 WHAT IS A CONTRACT ?
Agreements that are enforceable as
such having been made with the free
A mutual agreement between two or consent of the parties, by persons
more parties that something shall be competent to contract for a lawful
done, an agreement enforceable at consideration and lawful object and
law. which are not expressly declared to
be void by any statute.

Essentials of contract -:

• The contract shall be made by parties competent to contract.

• The contract shall be made by free consent of parties.
• There shall be a definite proposal and its acceptance.
• The contract shall be made with consideration that its objects are lawful.
• The meaning shall be certain
a) LUMP SUMP CONTRACT
◦ Nature of Agreement In case of a lump-sum contract, the contractor agrees to carry out the entire work as shown in the drawings and
described by specifications, by supplying labor and materials, all for a specified lump-sump.

◦ Sometimes, the agreement makes a provision for adjusting the “fixed sum,” allowing for the cost of extras, variations, omissions, etc.

Advantages-:
• Low risk to the owner.
• Fixed' construction cost.
• Minimize change orders.
• Owner supervision is reduced
• The contractor will try to complete the project faster.

Disadvantages-:
• It presents the highest risk to the contractor.
• Changes are difficult to quantify.
• The Owner might reject change order requests.
• The contractor will select its own means and methods.
• Higher contract prices that could cover unforeseen conditions.
b) ITEM RATE & UNIT PRICE CONTRACT
◦ Contractors are required to quote rates for individual items of work on the basis of schedule of quantities furnished by the
department. This schedule indicates full nomenclature of the items as per sanctioned, estimated quantities and unit therein.
◦ For example: This type of contract is followed by Railway Dept.

Advantages-:
• Ensures a more detailed analysis of cost by contractor.
• Elements of uncertainty absent.
• Unworkable rated tender maybe avoided leading to smooth progress and timely completion of work

Disadvantages-:
• Incorrect calculations by contractor can bring him losses.
• As quantities may increase or decrease, it requires careful considerations to avoid heavy losses due to unbalanced tender.
• Demands a comprehensive and intelligent scrutiny.
c) PERCENTAGE RATE CONTRACT
◦ In this form of the contract, the department draws up the schedule of items according to the description of items sanctioned in the
estimate with the quantities, units, rates, and amounts shown therein. When department fix the rate of item it is known as “Item
Rate Contract”.

Advantages-:
• There are no rates for individual items the benefit due to increase in quantities will not be availed by the contractor
• Comparative statement can be prepared quickly.
• Overwriting & erasing of rates etc. can be avoided.

Disadvantages-:
• Contractor may quote rate too low or too high in such case it is too time consuming to cancel the lowest tender ,to get
approval of higher authorities.as there is no guarantee of quality.
• Tenders can form the ring. This lead to loss of govt money.
• Two or more contractors may quote the same rate with negotiation then it is difficult to allot the work to any one contractor.
• The total cost of work is not known until its completion
d) LABOR RATE CONTRACT
◦ Contractor quotes rates or items work exclusive of the element of materials which are supplied by the department free of cost.

◦ For example: spreading and compacting metal and laying and fixing sleepers on the railway track.

Advantages-:
• Materials stored by the government are thus used.
• Difficulty in obtaining certain materials in open market is avoided ensuring better;: progress with standard quality of materials.

Disadvantages-:
• There may be delay in obtaining materials from department.
• Large storage area is required. Also, constant guarding is essential.
• Constant accounting of material by employing additional staff is important. This adds to ultimate cost of materials.
• Refund of surplus in good condition, wastage, damage etc. are involved.
e) MATERIAL SUPPLY CONTRACT
◦ An agreement by which a seller promises to supply all of the specified goods or services that a buyer needs over a certain time and
at a fixed price, and the buyer agrees to purchase such goods or services exclusively from the seller during that time.
◦ It is a sale agreement where one party agrees to sell and the other agrees to buy definite goods of economic value. The vesting of
rights may be immediate or in future. There can be two parties, namely the seller and the buyer. It is not necessary that any of them
be incorporated.

Advantages-:
• It provides the client with cost transparency and allows them to verify invoices and timesheets to ensure the costs are correct.
• It allows for greater flexibility in the extent of the works required.
• It allows works to progress even when there is no definitive plan for how it will be completed.

Disadvantages-:
• It can prove more risky for the client to proceed without a clear understanding of the final cost.
• It can increase the likelihood of disputes arising.
• Errors or inaccurate estimates can leave them with a low profit that may not be deemed worthwhile.
f) PRICE WORK AGREEMENT CONTRACT
◦ Only a rate is agreed upon without reference to the total quantity of work to be done within a given period. In case of petty work
valued up to Rs., 10,000 each inclusive of cost of materials maybe carried out by contractors through this contract. Detailed
specifications and total cost of whole work t0 be done are mentioned. It as terminable from either side at any time. There is no
security money/ penalty.

Advantages-:
• Urgent small work can be taken up for execution without inviting tender and considerable time is saved.
• If the contractor delays to execute or leaves the work partially complete, another contractor maybe engaged at anytime.

Disadvantages-:
• Approved contractors find little interest in small works, thus, these contracts are handed over to petty contractors with little
knowledge in management system.
g) COST PLUS PERCENTAGE RATE CONTRACT
◦ It is seen while discussing the above common forms of contracts that neither party is sure of the final cost of the project as will be
built till the completion of the project.

◦ In these days of increase price rise and absence of a satisfactory explanation to determine and pay escalation in the cost on a
mutually agreed basis, contracting can be reduced to gambling or betting.

Advantages-:
• There is no risk of loss arising from changing prices, wrong estimates and underestimated quotation. All agreed costs are
recovered.
• It provides an automatic or ready escalation clause, so that increase in cost is automatically adjusted and recovered
• The contract is settled at reasonable price

Disadvantages-:
• The risk for paying much more than expected on materials.
• Additional administration and oversight are needed to ensure that the contractor adheres to cost controls and other austerity
measures.
h) COST PLUS FIXED FEE CONTRACT
◦ Contractor is paid by the owner as agreed fixed lump sump amount over the actual cost of work. The fixed fee shall cover
overheads and profit to the contractor. The fee does not vary with the actual cost of work as in the cost plus percentage rate
contract.

Advantages-:
• Contractor shall naturally try to complete the work speedily.

Disadvantages-:
• Contractor can purchase material at higher rate and engage labor at higher charges to complete work quickly causing the
owner to lose a considerable amount.
i) COST PLUS SLIDING / FLUCTUATING FEE SCALE
◦ The contractor is paid by the owner, the actual cost of construction plus an amount of fee inversely variable to the increase or
decrease of the estimated cost agreed to. Thus, higher the actual cost, lower the value of fee and vice versa.

Advantages-:
• Contractor shall not try to increase actual cost. The actual cost is thus lowered.
• This is the best among cost plus type contract.

Disadvantages-:
• Estimated cost must be very accurately determined.
j) TARGET CONTRACT
◦ This form of contract is comparatively of recent origin. It combines the best features of the cost plus percentage and the cost-plus
fluctuating fee type contracts.

◦ The contractor is paid on a cost-plus percentage basis for work performed under the contract plus or minus a certain amount,
which is an agreed percentage of savings or excess affected against the target value.

◦ The target value is arrived at by measuring the work on completion and valuing it at the rates agreed to earlier.

Advantages-:
• Align the interests of the contractor and the client. Because both parties win or lose at the end of the project, they both have a
common interest in making sure that the project's actual costs remain below the initial estimate.
• Contractors are more likely to keep costs low, complete deliverables faster and produce an end product of higher quality.

Disadvantages-:
• Need careful input and oversight in order to be implemented correctly.
k) NEGOTIATED CONTRACT
◦ The negotiated contract is a case where the contract is awarded on the basis of a direct agreement with a contractor, by not going
through the process of competitive bidding.

◦ Hence, a negotiated contract is a kind of agreement where a specific firm is targeted, for a variety of causes, to carry out the
contract, although there is more than one firm that can carry out the contract.

Advantages-:
• Client has flexibility in terms of choosing their preferred contractor.
• Time and cost savings involved in removing the tendering process.
• Contractor’s costs and pricing are more transparent as they are not seeking to win the bid purely on the lowest tender.
• It can allow early supplier involvement.

Disadvantages-:
• There are fewer options for the client to choose between and so there may be less innovation.
• The costs may be driven up by the lack of competitive bidding.
• There is a heavy reliance on trust between the parties.
• It can be seen as anti-competitive and exclusive, with the potential for ‘cozy’ relationships to develop between the client and
the supplier.
l) TURNKEY JOB
◦ Combined Engineering and Construction contract.

◦ The owner undertaking a construction project deals with only one party for all services.

◦ Offers are invited from specialized contractors for planning, design plans, specification, estimates and services under one contract
on competitive basis, this contract may be drawn on firm price or cost plus basis.

Advantages-:
• Among which the cost of the project to be implemented is fairly constant, as it is implemented in the shortest possible time.
• The owner of this work does not bear any responsibility other than the contractor who bears the responsibility for this project in
a large way

Disadvantages-:
• This way is that the efficiency of the contracting company is not high
• The method of contract turnkey turnout is large, especially when its inflation rate is high in relation to the desired image related
to the construction sector
m) CONDITIONAL CONTRACT
◦ Performance of such contract depends on some future or uncertain events.

◦ Failing the event there is no obligation to perform the contract.

n) RATE CONTRACT
◦ Rate Contract means the agreement for supply of goods/ materials between Owner and Vendor, for a fixed period of time (i.e till
validity of Rate Contract, with no commitment of contractual quantity) on mutually agreed terms and conditions.

◦ The actual supply of goods/ materials shall take place only on issue of separate purchase orders for required quantity as and when
required by Owner.
 WHAT IS A TENDER ?
Tender is written offer submitted by
the contractors to execute certain
work or supply of some specified
articles or transport of materials at
certain rates with the terms and
conditions laid down in the tender
documents.
It should be kept In mind that a tender
document is just a proposal, it is not a
legal document like the contract
document.
In government work, it is generally
required to select a contractor on the
basis of competitive tendering and to
assure adequate competition. at least
three tenders need 10 be received for a
project to make the selection

A tender comprises a series of transactions, such as:

• Notice inviting tender (NIT) or invitation of tenders

• Submission of tenders by the contractors
• Acceptance by the relevant body such as the government, etc.
a) OPEN TENDER
◦ Open tendering is the process aimed at acquiring goods or/and services at the lowest price. The belief is to stimulate competition
and minimize discrimination. This is a transparent procurement process which allows fair play for competing contractors, suppliers,
or vendors.

◦ It is also known as open competitive bidding, open competition or open solicitation.

b) CLOSED TENDER
◦ A closed tender is when only selected persons or organisation are invited to submit a tender for a property. This is in contrast with
an open tender which is made available to anyone.
c) SELECTED TENDER
◦ A tender is a submission made by a prospective supplier in response to an invitation to tender. It makes an offer for the supply of
goods or services. In construction, the main tender process is generally the selection, by the client, of a contractor to construct the
works.

d) TWO-STAGE TENDER
◦ Used to allow the early appointment of a contractor, prior to the completion of all the information required to enable them to offer
a fixed price.

◦ In the first stage, a limited appointment is agreed allowing the contractor to begin work and in the second stage a fixed price is
negotiated for the contract.

◦ It can be used to appoint the main contractor early, or more commonly as a mechanism for early appointment of a specialist
contractor such as a cladding contractor. It may also be adopted on a design and build project where the employer's requirements
are not sufficiently well developed for the contractor to be able to calculate a realistic price.
e) SINGLE STAGE TENDER
◦ Single-stage tendering is the more traditional route, used when all the information necessary to calculate a realistic price is
available when tendering commences

◦ The discipline of a single-stage tender should prevent the project team from proceeding to construction without a complete design.
Clients and funders value the agreed contract sum as it gives greater security to an application for loons or grants.

◦ The full scope of work is priced in competition with other bidders.

f) NEGOTIATED TENDER
◦ Negotiated tendering occurs when the client approaches a single supplier based on their track-record or a previous relationship
and the terms of the contract are then negotiated.

◦ Negotiating with a single supplier may be appropriate for highly specialist contracts (where there may be a limited number of
potential suppliers), or for extending the scope of an existing contract.

◦ It can give the client the confidence of working with a supplier they already know, can reduce the duration and costs of tendering
and can allow early supplier involvement.
g) E-TENDER
◦ The e-tendering process in India is designed to ensure that the work to be done for the government or a particular client is done in
a fair way.
◦ An e-tendering process is a very important decision on which tender to bid or accept, it is not the only factor to be taken into
account.
◦ With the help of an eProcurement software, a professional team must be ready with all the tendering documents checked and
approved. The source of funding must also be available and the project financing should be put in place
References-:
◦ https://www.slideshare.net/rpundlik111/contracts-and-its-types

◦ https://www.contractworks.com/blog/what-are-target-cost-
contracts#:~:text=The%20most%20obvious%20benefit%20of,remain%20below%20the%20initial%20estimate.

◦ https://civiljungle.com/percentage-rate-contract/

◦ https://www.designingbuildings.co.uk/wiki/Negotiated_contract
THANK YOU