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QUANTITY SURVEYING

AND
COST EVALUATION

UNIT -4 CONTRACTS

PRESENTED BY:
SANDEEP SONI
Asst. Professor
Civil Engineering Department
National Institute of Technology
Raipur (CG)
LEARNING OBJECTIVES
What is a contract ?
Indian Contract Act, 1872
Parties to a contract
Essential Elements of a valid contract
Classification of contracts
Breach of contract
Remedies for breach of contract
Damages
Termination of contract
Clauses in a contract
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DEFINITION OF A CONTRACT
Contract is an undertaking by a person or firm to do
any work under certain terms and conditions.
A contract is an agreement that is enforceable by a
court of law or equity.
If one party fails to perform as promised, the other
party can use the court system to enforce the contract
and recover damages or other remedy.

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Indian Contract Act, 1872

CONTRACT - According to sec.2(h), a contract is


defined as an agreement enforceable before the law.

AGREEMENT - According to sec.2(e), every promise


or set of promises forming consideration for each other.

PROMISE - According to sec.2(b), when a person made


a proposal to another to whom proposal is made, if
proposal is assented there to.

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OFFER - According to Sec.2(a), when a person made
a proposal, when he signifies to another his willingness
to do or to abstain from doing something.

AGREEMENT = OFFER + ACCEPTANCE

CONSENSUS - AD IDEM-
According to Sec.13, meeting of minds or identity of
minds or receiving the same thing in same sense at same
time.

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Agreement Legal Obligation

Contract
All agreements are not studied under the Indian Contract Act,
as some of them are not contracts. Only those agreements which are
enforceable at law are contracts.

CONTRACT = AGREEMENT + ENFORCIBILITY BEFORE LAW

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Is this a contract?

In each of the following examples, ask


yourself if there is mutual consideration?

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Is this a contract?
You order a book of Amazon.com. Your
credit card is charged, but no book ever shows
up.
Was there a legally enforceable contract?

Yes, you agreed to pay Amazon.com money


and they agreed to send you a book.
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Is this a contract?
Last year, your uncle promised you an iPhone for
your 18th birthday. When you turned 18, he gave
you his old broken basic cell phone.
Was there a legally enforceable contract?

No, while your uncle made a promise, he did not


receive any consideration in return. Consideration
has to be more than good feelings.
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Is this a contract?
You signed up for a week long summer basketball
camp which cost $100. You paid and went to the
camp. When you got to the camp, they just had
you watch football movies all day.
Was there a legally enforceable contract?

Yes. You agreed to pay money to the camp and


they were supposed to give you basketball
training.
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PARTIES TO A CONTRACT

Offeror
OfferorThe
Theparty
partywho
whomakes
makesan
anoffer
offerto
toenter
enterinto
intoaacontract
contract
Offeree
OffereeThe
Theparty
partyto
towhom
whoman
anoffer
offerto
toenter
enterinto
intoaacontract
contractisis
made
made

Offer
Offeror Offeree

Acceptance
Offeror makes an Offeree has the
offer to the power to accept the
offeree offer and create a
contract

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ESSENTIAL ELEMENTS OF A VALID CONTRACT (Sec.10)

1. Agreement.
2. Intention to create legal relationship.
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreements not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
10. Necessary Legal Formalities.

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CLASSIFICATION OF CONTRACTS

Contracts may be classified in terms of


their
(1) validity or enforceability,
(2) mode of formation, or
(3) performance.

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Classifications of Contracts: Enforceability

i. Valid contract A contract that meets all of the


essential elements to establish a contract
ii. Void contract No contract exists
iii. Voidable contract A party has the option of
voiding or enforcing the contract
iv. Illegal contract - An agreement forbidden by law.
v. Unenforceable contract A contract that cannot
be enforced because of a legal defense
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Classifications of Contracts: Formation (1 of 2)

i. Bilateral contract A promise for a promise

ii. Unilateral contract A promise for an act

iii. Express contract A contract expressed in oral


or written words

iv. Implied-in-fact contract A contract inferred


from the conduct of the parties
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Classifications of Contracts: Formation (2 of 2)

v. Quasi-contract A contract implied by law to


prevent unjust enrichment

vi. Formal contract A contract that requires a


special form or method of creation

vii. Informal contract A contract that requires no


special form or mode of creation
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Classifications of Contracts: Performance

1. Executed contract A contract that is fully


performed on both sides

2. Executory contract A contract that is not fully


performed by one or both parties

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Breach of contract
Contract typically creates an obligation to do or avoid
doing something, or to pay a sum of money
Breach of contract is the refusal or failure by a party to
a contract to perform an obligation imposed on them
under the contract
If one party does not do what they have promised to do,
they are in breach of contract
The injured party is entitled to a legal remedy

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Remedies for breach of contract
Equitable remedies:
quantum meruit, as much as he deserves for
partial performance;
Specific performance an order to make a party
perform his obligatons under the contract
Injunction a court order to stop someone
breaching a term of the contract

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Damages
The aim of damages in contract law is to put the
claimant in the position he would have been in if the
contract had been performed properly
Damages are designed to compensate for the loss
one has suffered
Expectation damages
Unliquidated damages the court decides how much
will be awarded in damages
Liquidated damages parties decide in advance

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Termination of an Offer
1.
1. Revocation
Revocation of of the
the offer
offer by
by the
the offeror
offeror
2.
2. Rejection
Rejection ofof the
the offer
offer by
by the
the offeree
offeree
3.
3. Counteroffer
Counteroffer by by the
the offeree
offeree
4.
4. Destruction
Destruction ofof the
the subject
subject matter
matter
5.
5. Death
Death or
or incompetence
incompetence of of the
the offeror
offeror or
or offeree
offeree
6.
6. Supervening
Supervening illegality
illegality
7.
7. Lapse
Lapse of
of time
time
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Termination of the Offer By
Act of the Parties
Revocation of the Offer (by Offeree) is possible if
communicated to Offeree before the offer is accepted.
Exception: Irrevocable Offers, based on detrimental reliance
or promissory estoppel, cannot be revoked.
Option Contracts: requires consideration.
Rejection of the Offer by the Offeree.
Effective only when actually received by the Offeror or its agent.
Counter Offer by the Offeree.
Rejection of original offer and simultaneous making new offer with
different, material terms. Original Offeror can accept.
Mirror Image Rule: at common law, material terms must be
identical or rejection.
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Termination of the Offer By
Operation of Law
Lapse of Time.
Offer automatically terminates by law based on terms
specified in the offer itself.
Destruction of Subject Matter.
Offer automatically terminates if subject matter destroyed
before offer accepted.
Death or Incompetence of either party.
Unless offer is irrevocable.
Supervening Illegality of Proposed Contract.
Statute or court decision making the offer illegal
automatically terminates it.
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Clauses in a Contract:
What to look for
Who are the parties involved?
What is the intent of the contract?
Does the contract clearly outline the
responsibilities of all parties?
How does the contract deal with
emergencies?
How can the contract be terminated?
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If the contract runs indefinitely, is it to be
reviewed on a regular basis?
What types and amounts of insurance are
required?
Which party is protected by the
indemnity clause?
Prior to signing, has the contract been
reviewed by the risk manager and legal
counsel?

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LEARNING OBJECTIVES
For TODAY
What is tender?
Types of Tender
Earnest Money
Security Deposit
Tender Notice
Liquidated Damages
Unliquidated Damages
Arbitration
Escalation
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TENDER :
Tender is an offer in writing to execute some specified
work or to supply some specified articles at certain
rates, within a fixed time under certain condition of
contract and agreement.
Sealed tenders are invited and the work is usually
entrusted to the lowest tender.
While inviting tenders the bill of quantities, detailed
specifications, conditions of contract and plans and
drawings are supplied on payment of the requisite cost
to the contractors who tender or quote their rates.

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TYPES OF TENDER:
Open Procedure: a process in which all interested parties are
able to submit bids and be considered for the advertised
contract. Selection and evaluation is carried out after the
receipt of tenders. This procedure provides the broadest scope
for competition as anyone can bid, but risks a large number of
tenders and can therefore incur high administration costs.

Restricted Procedure: this is a two stage process where the


selection and short-listing is carried out on the basis of a pre-
qualification questionnaire (PQQ). Responses to the PQQ
are assessed. From this exercise, candidates are invited to
submit a full tender from which a winning bidder is selected.
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Competitive Procedure with negotiation: this process allows
negotiations to be carried out with all bidders still in the
procurement. Following negotiation on submitted tenders, there is
a formal end to negotiations and bidders are invited to submit a
revised tender.

Competitive Dialogue: this is a process for situations where the


solution cannot be defined at the outset. Following the notice and
prequalification questionnaire, dialogue is permitted with potential
bidders to develop options before competitive tenders are invited.

Innovation Partnership: this process allows a supplier to enter


into a partnership with a contracting authority to develop an
innovative new product or service.

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Negotiated Procedure without prior
publication:
this process allows, in very limited circumstances,
the contracting authority to approach suppliers to
negotiate the terms of the contract without the
publication of notice or a call for competition.

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EARNEST MONEY:
While submitting a tender the contractor is to deposit
a certain amount, about 2% of the estimated cost, with
the department, as earnest money as guarantee of the
tender.
This amount is for a check so that the contractor may
not refuse to accept the work or run away when his
tender is accepted.
In case the contractor refuses to take up the work his
earnest money is forfeited.
Earnest money of the tenderer whose tender has not
been accepted is refundable.
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SECURITY DEPOSIT:
On acceptance of the tender, the contractor has to
deposit 10% of the tendered amount as security
money with the department which is inclusive of the
earnest money already deposited.

This amount is kept as a check so that the contractor


fulfills all the terms and conditions of the contract
and carries out the work satisfactorily according to
the specifications and maintain progress and
completes the work in time.
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If the contractor fails to fulfil the terms of contract
his whole or part of the security money is forfeited
by the department.
The security money is refunded to the contractor
after the satisfactory completion of the whole work
after a specified time, usually after one rainy
season or six months of the completion of the
work.
Instead of collecting the whole of security money
in one instalment before starting the work, this can
be collected gradually by deducting from the
running account bill of the contractor.
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TENDER NOTICE
Tender for work or supply are invited by issuing tender notice
in prescribed form.
In the tender notice following particulars are given :-
I. Name of the authorities inviting tender;
II. Name of the work and its location;
III. Estimated cost;
IV. Time of completion;
V. Cost of complete set of tender forms and conditions;
VI. Date, time and place of tender,
VII.Amount of earnest money and security money
VIII.Validity of tender ,etc.
. Tender notice is posted in the notice board of the department
and for major work the tender notice in brief is also given in
the newspaper. 34
LIQUIDATED DAMAGES:

It is a fixed stipulated sum of penalty by the


contractor or having no relationship with real
damage.

It is usually exorbitant and fixed per day varying


from Rs. 50.00 to Rs. 100.00 per day for the
excess period taken for the completion of the
work than that specified in the contract.
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UNLIQUIDATED DAMAGES:
This is known as ordinary damage having
relation with the actual damage done.

It will increase or decrease according to the


increase or decrease in the damage, for the
non-completion of the work within due date of
completion, or for not maintaining progress as
per condition of contract.

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ARBITRATION:
Arbitration is private justice born out of the
parties will.

By including an arbitration clause in a


contract, the parties choose to settle their
disputes in the event any arise out of court.
Those disputes will be submitted to arbitrators.

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ESCALATION:
Escalation refers to a provision in a contract
which calls for an adjustment in price in the
event of an increase or decrease in certain
costs.

Escalation clauses are becoming increasingly


common in dredging contracts as a means to cover
unexpected costs resulting from fluctuations in the
prices for raw materials, fuel and labour during the
course of the construction project.
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The Contractor when preparing a tender estimate
includes for costs of fuel, steel and wages and has
to evaluate the appropriateness of an escalation
clause to cover the risk of price fluctuations
during the execution period of the contract.

It is also referred to as Rise and Fall which


indicates that if the price of certain costs fall then
the contract price will be adjusted in the clients
favour.

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THANK YOU

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