IMPORTANT TERMS IN CONTRACT DOCUMENTS

LIQUIDATED DAMAGES (Penalty to the contractor against delays)

It is the compensation which is payable to the owner by the contractor due to

delayed construction.

UNLIQUIDATED DAMAGES (Penalty against breach of contract)

It is the compensation which is payable to the owner by the contractor or to the

contractor by the owner, when a contract is broken.

The party who has broken the contract is entitled to deposit the money to the
party who suffers.

EARNEST MONEY DEPOSIT (EMD, 1-2% of the Cost of Contract)

This money is a guarantee against the refusal of any contractor to take-up the
work after acceptance of his tender.

All the contractors, who quotes the tender (Participate in bidding) , deposit EMD
along with tender documents to the department.

EMD is refunded to all the contractors whose tenders are not accepted.

SECURITY DEPOSIT (SD, 5-10% of the Cost of Contract)

This money is deposited by the contractor to the department after the

acceptance of his tender & before the issuance of his work order. It is refunded
after the completion of the project with no interest.

This money is forfeited, if the contractor fails to complete the work in time with
specifications.
 OVERHEAD COSTS

These are administrative costs or ongoing expenses which are associated with the
execution of a project & are not directly attributed to create a product/service.

 Onsite Facilities. ...

 Vendor Fees. ...
 Travel Expenses. ...
 Office Expenses. ...
 Advertising and Marketing.

WORKING CAPITAL

It is the money which is available to a company for its day to day operations.

 Cash
 Inventories (track of materials, workforce, equipment and plant)
 Accounts receivable (loans, settlement amounts due for non- current asset
sales, rent receivable)
 Accounts Payable (bills, whether they are for jobs, subcontractors,
materials, equipment, work/service orders, office supplies or anything else
that needs to be paid)

MOBILIZATION ADVANCE (15% of the cost of the contract)

It is a monetary payment made by the client to the contractor to manage his

initial expenditure such as site mobilization, Overheads & Pre-liminaries(site
establishment, temporary services, security, safety and environmental protection,
control and protection, common user mechanical plant, common user temporary
works, the maintenance of site records)
OR It is a monetary payment made by the client to the contractor for the
activation of his physical & manpower resources.

Mobilization advance is issued after providing guarantee in the shape of

bank/insurance equal to the amount being issued. This amount is deducted from
contractor’s bills.

After project completion guarantee provided by the contractor is released.

ESCALATION

It is the process of compensating the contractor for the increase in cost of

equipment, material, labor due to price changes overtime.

CONTINGENCIES (5-10% of the cost of Contract)

Amount of money which is set aside to deal with unforeseen circumstances

(Incidental/Miscellaneous).It helps eliminate the panic that happens when the
weather causes delays or there is a personnel shortage or a change in expected
government funding.

A construction contingency protects your project from the unexpected problems

and issues that put many poorly planned projects at risk. 

Owner Contingency-Amount of money set aside for scope modification.

Contractor Contingency-Amount of money set aside for any error that occurs on
behalf of contractor.

Notice to Proceed

It is a notice from client to the contractor or from contractor to the sub-

contractor. It indicates the date of commencement of work i.e. when the
recipient should start their work.

WORKING DRAWING/CONSTRUCTION DRAWING/SCALED DRAWING

A complete set of drawings (Architectural-structural-mechanical),containing all

the plans, elevations & details needed by the contractor along with specifications.
It is created before the start of construction & is given to the contractor.

SHOP DRAWING/MEP(Mechanical, Electrical & Plumbing)

Building components that need fabrication are Pipes, Structural Columns, Joist,
Truss & Handrails etc. So the detailed information about their dimensions &
material specifications, welding, bolting, painting are provided to the fabricator
through shop drawings.

AS BUILT DRAWING

Revised drawing which is created & submitted by the contractor after a

construction project is finished. It contains changes made from initial drawing
during construction process & provide exact property as it appears upon
completion.

REQUEST FOR QUOTATION/PRICE BID/CALL FOR BID

When a company request a quote/rates against items from suppliers for the
purchase of products.

INVITATATION TO BID (When Price is a major factor)

When a company seeking bids having detailed understanding of the work & steps
necessary to complete it & leaving price as a major determining factor in choosing
among service provider then invitation to bid would be most effective option.

Every bidder can produce the same product, only cost is the difference.

REQUEST FOR PROPOSAL (When Price & technical expertise are major factors)

When a company seeking bids do not have detailed understanding of the work &
steps necessary to complete it & require experience & expertise in addition to the
price in order to achieve superior final product then, RFP is most effective option.

Construction Disputes Resolution Methods

Construction disputes arises when there is a disagreement or conflict
between the contracting parties. Here we have described some of the
methods to resolve such disputes.
Negotiation (CONSENSUAL PROCESS)
Negotiation is a process of resolving the disputes with discussions and
arguments.
Mediation (CONSENSUAL PROCESS)
Mediation is a process in which a third party is involved for resolving
disputes without imposing any legal binding.
Adjudication In Adjudication, third party involved in resolving the disputes
without any legal binding, but the other parties have to comply with
decision.
Arbitration (ADJUDICATIVE PROCESS) A dispute resolution process in which
parties seeking resolve are legally bound to comply with the third party’s
decision
Expert Determination It is a process in which expert services are hired for
the dispute resolution.
Litigation (ADJUDICATIVE PROCESS) A Litigation is the process of acquiring
legal assistance from the court for dispute resolution.