01

Contracts

Course Unit 3
 Leonardo, John Rick I.
02

Introduction
3.1
WHAT IS CONTRACT?
a written or spoken agreement, especially one
concerning employment, sales, or tenancy,
that is intended to be enforceable by law.
What is a Construction Contract?

A construction contract is a formal

agreement of terms between an owner
seeking to outsource work and the
independent contractor or specialist
who intends to take up the job.
 Do I need a
construction
contract?

PROS OF HAVING
A CONTRACT
Protects both parties
Work is detailed
Disputes will be handled
well.
CONSEQUENCES OF
NOT HAVING ONE
 CONSEQUENCES OF
NOT HAVING ONE

LIKE SUPER DAMING CONFLICTS!!!!!!!!

PHILIPPINE
LAW THAT
WILL SAVE
YOU
ARTICLE 1170 UNDER THE
CIVIL CODE
Those who in the performance of their
obligations are guilty of fraud, negligence,
or delay, and those who in any manner
contravene the tenor thereof, are liable for
damages.
COMPONENTS
OF AN
EFFECTIVE
CONTRACT
The basic construction contract will typically
identify/include the following parts:

Owner - Who is hiring the contractor.

General Contractor - Individual or construction
company that is responsible for the oversight of the
construction.
License Number - The general contractor’s state
license number.
Work site - Where the construction is to be
completed.
Project Description - A detailed description of the
work and construction to be completed by the
contractor. This can also include project plans and
specifications.
Contract Price - The total price to be paid for the
project.
Payment Basis - When and how the payments will be
made. Terms for final payment. This will also define
any penalty and interest for late payments.
Construction Schedule - The dates that the
construction will begin and when the
construction will be substantially completed by.
This will also detail how the project schedule will
be divided.
Contract Document List - Any drawings,
blueprints, exhibits, or other documents that are
part of the contract.
Construction Scope - A description of all
construction activities that will be part of the
project.
Conditions & Responsibilities - Details
responsibilities for the owner and contractor,
including who is responsible for providing certain
documents and information.
Contract Laws - Details the governing laws, lien
requirements, claims procedures, arbitration
procedures, insurance, and liquidated damages.
03
Gonzales Joemel Ivan

Bidding and Contract Award

3.2
 Bid preparation

In the United States, as in

much of the world,
construction contracting is a
highly competitive business.
What is Bidding?
Bidding is an offer to set a price tag
by an individual or business for a

product or service or a demand

that something be done.
Construction Bidding

A construction bid is the process of

providing a potential customer
with a proposal to build or manage
the building of a structure.
Why do companies bid?

Profit is an obvious and principal

motive for bidding in a
construction contract.
Why do companies bid?

To keep their equipment in

operation and to prevent the loss
of skilled workers and managers.
Why do companies bid?

Desire for prestige and the

maintenance of goodwill with
regular clients.
In order to create successful construction bids,
remember the industry golden rules: Start with
highly accurate cost estimates, and submit the
lowest bid of all the competing contractors.
 Bid Bid
Solicitation Selection

Contract
Subcontracting Formation

Bid Project
Submission Delivery
Bidding procedure
The principal steps in the bidding procedure for a fixed-
price construction contract include solicitation, bid
preparation, bid submission, bid opening, selection of
the lowest qualified bid, and contract award.
Contract award
After the bids are opened, they are evaluated by the
owner to determine the lowest qualified bid. The
qualification of a contractor is the determination that
the contractor possesses both the technical and
financial ability to perform the work required by the
contract.
SUBCONTRACTORS
Subcontracts are contracts between a prime
contractor and secondary contractors or
suppliers.
 04

Construction
Contracts

Gadaingan, Bryan Jeffrey

3.3
Contract
Elements
Offer
- normally a bid or
proposal submitted by a
contractor to build a
certain facility according to
the plans, specifications,
and conditions set forth by
the owner
Acceptance
- acceptance is the
agreement between the
client and the contractor
after the bidding. Usually
takes the form of a contract
award
Consideration
- is the value that each
party brings to a contract.
Usually takes the form of
cash payment, but it may
legally be anything of value
 Types of
Contracts
Lump Sum Contract

- names a total price for the entire job. This price

accounts for all time and materials, regardless of
changes or issues
Cost Plus Contract

- made of two parts: a predetermined fee and

accumulated costs. This fee is the agreed price
owners will pay contractors. It can be a percentage
of the total project cost or another form of
payment
Unit Pricing Contract

- under a unit price contract, a contractor is paid

for the actual quantity of each line item performed
as measured in the field during construction
 Contract
Documents
Agreement

- the agreement is the most fundamental

document in a construction contract. This
document will set out the general purpose of the
contract and the contract price
General Conditions

- the framework of the construction contract

documents. General conditions establish all the
rights and obligations of the contracting parties.
Additionally, it will lay out the roles of every party
and the responsibilities of each
Specific Conditions

- an addition or amendment to the general

conditions section. This document will detail the
specific clauses and conditions for each task or
project
Plans

- plans provide a simple overview of the project

as a whole. The architect or construction manager
should present these to contractors before any
construction activities begin
Specifications

- contains all the technical data and performance

requirements. The specs should detail the materials
and techniques the contractors must use on any
given task
 05

Plans and
Specifications
3.4

Padpad, Kyle Sims

06

Plans

Construction plans are Contract drawings are

drawings that show the usually organized and
location, dimensions, and numbered according to
details of the work to be specialty, such as
performed. structural, electrical, and
mechanical.
07

Specifications
Construction technical specifications provide the detailed requirements for the
materials, equipment, and workmanship to be incorporated into the project.

A method specification states the A performance (or result or end-

precise equipment and procedure to result) specification, on the other
be used in performing a hand, specifies only the result to be
construction operation. achieved and leaves to the contractor
the choice of equipment and method.
 09
Division Title

1 General Requirements
Table 18–1 Organization of the
2 Site Work
uniform system for building
3 Concrete
4 Masonry specifications
5 Metals
6 Wood and Plastics This format was developed by the
7 Thermal and Moisture Protection Construction Specifications
8 Doors and Windows Institute (CSI) and is usually
9 Finishes
identified as the CSI format or
10 Specialties
11 Equipment Uniform System for Building
12 Furnishings Specifications.
13 Special Construction
14 Conveying Systems
15 Mechanical
16 Electrical
08

Shop Drawings and

Samples

Shop drawings are drawings, charts, and other Samples are physical examples of

data prepared by a contractor or supplier which materials, equipment, or

describe the detailed characteristics of workmanship which are submitted

equipment or show how specific structural to the owner for approval prior to

elements or items of equipment are to be their incorporation in a project.

fabricated and installed.

 10
Contract documents should contain the specific
requirements for submission of shop
drawings and samples. Some suggested provisions
include:
Identification of items requiring samples or
shop drawings.
Procedure for submission of shop drawings,
including format, marking, and number and
distribution of copies.
Procedure for submission of samples,
including size and number required.
Eliminating the requirement for shop
drawings and samples when standard catalog
items are to be used.
 03

Contract
Administration

Jimenez, Aubrey Gail G.

3.5
06

Progress Report and Progress payments are made at the interval

specified in the contract, usually monthly or
Payment upon completion of certain milestones.
Construction contracts commonly
Failure of the contractor to attain a
require the contractor to submit a
satisfactory rate of progress may provide the
proposed progress schedule to the
basis for termination of the contract by the
owner shortly after contract award.
owner, as described later in this section.
The owner’s representative must
It is customary to withhold a percentage of the
continuously evaluate the
value of work completed as a guarantee against
contractor’s progress to keep the
defective work and to ensure that the remaining
owner informed and to provide a
work can be completed within the unpaid
basis for the approval of the
amount of the contract. The amount withheld is
contractor’s requests for progress
referred to as retainage or retention. A retainage
payments.
of 10% is rather typical.
07
Changes and Delays
The usual construction contract contains a
clause authorizing the owner or owner’s
representative to order changes to the project
within the general scope of the contract. The
document directing such a change is referred
to as a change order.
Change orders may also be used to
formalize adjustments to the contract
required by site conditions differing from
those anticipated at the time of contract
award (commonly referred to as “changed
conditions”).
To minimize disputes, all change orders issued
should contain an adjustment in contract time
and price which is mutually acceptable to the
contractor and owner.
In estimating the cost associated with a change
or owner-caused delay, the contractor must be
careful to evaluate its effect on other project
activities.
To obtain reimbursement of consequential
costs, the contractor must be able to document
their existence.
 04
Changes and Delays
The three general categories of delay include:

Those beyond the control of either the contractor or owner (“acts of God”) - Any
financial compensation to the contractor would be provided by the contractor’s
insurance, not by the owner.
Those under the control of the owner - the owner must compensate the contractor for
any additional costs incurred as well as provide an appropriate time extension to the
contract.
Those under the control of the contractor - the contractor is responsible for
reimbursing the owner for any damages (actual or liquidated) resulting from the
delay.
07
Acceptance and Final
Payment
The acceptance of a completed project
is customarily based on a final
inspection performed by the owner’s
representative and conditioned upon
the correction of any deficiencies
noted.
If the facility or a portion thereof is
substantially complete,the owner's
representative will execute a certificate
of substantial completion for the work.
Upon correction of all deficiencies on the punch list
of record, the contractor should notify the owner’s
representative of this fact and submit a request for
final payment, together with any other documents
required by the contract (such as releases of liens,
an affidavit that all payrolls and bills connected with
the project have been paid, consent of surety to final
payment, etc.
Final payment and its acceptance by the contractor
usually constitute a waiver of all claims by either the
owner or contractor except for unsettled liens and
claims and deficiencies falling under warranty
provisions.
06
Claims and Disputes
A claim is a request by the contractor for a
time extension or for additional payment
based on the occurrence of an event
beyond the contractor’s control that has not
been covered by a change order.
Disputes are disagreements between the
contractor and owner over some aspect of
contract performance. In addition to unsettled
claims, disputes may involve such matters as
substitution for specified materials, the
responsibility for delays in project completion,
and the effect of changes ordered by the owner.
In recent years there has been an
increase in the use of alternate dispute
resolution (ADR) methods instead of
taking the matter to court.
In 1966, the American Arbitration
Association, together with a number of
professional organizations involved in
construction, established arbitration
procedures for the construction industry,
known as the Construction Industry
Arbitration Rules.
Contract Termination
Most construction contracts are
terminated by satisfactory performance,
one method of contract termination.
Other non adversary methods of contract
termination include mutual agreement
and impossibility of performance.
The principal adversary basis for
contract termination is for breach of
contract.
The basis for termination by the contractor based
on breach of contract is usually the failure of the
owner to make the specified progress payments or
owner-caused delay of the project for an
unreasonable period of time.
Termination by the owner for breach of contract is
most commonly due to failure of the contractor to
make reasonable progress on the project or to
default by the contractor.