UNIT 06: CONTRACTING

PREPARED BY
MS.P.K.CHOWDHARY
LECTURER, ELECTRICAL
Estimating and Costing
• When any work is to be carried out it is necessary to know the
number of various materials required and its cost and labor
involved for the completion of work satisfactorily.
• The method of computation of all required engineering
materials and the expenditure likely to be incurred in carrying
out a given work before the actual execution of work is called
estimation.
• Hence an estimation includes calculation of quantity involved
and quality aspects of the material required.
• The quantity aspect is governed by the study and analysis of
drawings plans, blueprints, etc.
• The quality aspect governs the specifications of materials in
the work and workmanship.
• An estimate may be approximate or detailed. In a detailed
estimate apart from the cost of work inclusive of labor it must
include an allowance for chargers like overhead charges,
stock incidental charges, contingencies, supervision charges,
inspection charges, transportation charges, and miscellaneous
Purpose of Estimating and
Costing
1. To fix up the budget and complete details of the required
materials for carrying out the complete work or project prior
to execution. By fixing the budget we will come to know
about how much money it will cost for work.
2. To exercise control over the quality of materials required
depending upon the work to be executed.
3. To fix up the cost of various materials, tools, plants,
equipment's to carry out work including other costs like the
cost of labor, supervision inspection, transportation stock
incidental contingencies, etc.
4. To find the most economical procedure for the execution of
work or project.
5. To keep the estimates in a systematic way for future
reference. It will also help us in the future if we are doing any
work again.
6. To work as a guide to the contractor as well as supervisory
staff for quality execution work. It will also guide us while
Qualities of a good Estimator:
1. A good estimator must be able to understand
blueprints, Drawings plans, Electrical layouts etc.
2. An estimator must have good knowledge of
various materials that are used for execution of
work.
3. A good estimator must have knowledge of current
market prices, the availability of new products and
their quality. 
4. An estimator should have a good imagination and
experimenting power.
5. An estimator should be disciplinary and should go
to the work site from time to time for inspecting
the ongoing project.
6. He also is a well trained technical person with
experience in the relevant field.
Essential elements of Estimating
and Costing:
Prior to begin any electrical project, the market study,
knowledge of various materials their price, cost must be known.
This helps in designing and executing the project.
The estimator must know the following essential elements for
estimation:
1. Material specifications.
2. Price lists from different dealers.
3. Latest quality and cost of materials.
4. Purchase procedure/system.
5. Labour cost and time required to achieve successive states of
completion of the project.
6. Terms and conditions of supply of material.
7. Collection of different catalogs from eminent suppliers.
8. Preparation of material schedules.
9. Calculation of labour cost and material cost.
10.Availability of materials in the market.
Estimates:
Electrical estimating is a process used by
electricians, construction managers and engineers to
determine the amount and cost of electricity
required for a specific process. 
Types of Estimates

Rough Detaile Supplement Annual Revise

Estimat d ary Estimate Maintenan d
e Estimat ce Estimat
e Estimate e
1)Rough Estimate:
• Rough estimate is also called Abstract estimate,
Preliminary estimate or approximate estimate.
• A Rough Cost Estimate is an initial estimate that uses
prior experience and other non-project data to
estimate the cost of a project.
• Rough estimate is first prepared (prior to start the
work) to decide financial aspects and policy matter
giving the idea of cost to be incurred for the proposed
project work.
• The primary study of project is done and for all the
different items, different materials, labour, etc. are
considered and estimate is prepared by the
department to whom this work is assigned.
• The administrative department of the project receives
this estimate and by careful study the estimate
(suggesting some corrections) approval is given by the
2) Detailed Estimate:
• Once final approval of rough estimate is passed by
authorities, then the detailed estimate is prepared. This is
done before the quotations or tenders are invited for the
said materials.
• This detailed estimate is forwarded to the higher
authorities to get the Technical Sanction.
• In the detailed estimates, unforeseen charges,
transportation charges and contingencies as well as labour
charges are added.
• Some projects are nearer to the city locations, but in case
the project location is at remote place then additional
provision of carriage of material are added in the estimate.
• Generally 2 to 5% of total project cost is Included in the
detailed estimate on account of unforeseen charges.
• The detailed estimate includes:
a) Material cost
b) Transport cost
3) Supplementary Estimate:
• Sometimes it is needed in some additions in the
original work, the project work is in process a fresh
detailed estimate is prepared to supplement the
original work. This estimate is called as supplementary
estimate.
• Drawings, designs and other documents are also
attached to the supplementary estimate.
• Report explaining necessity of additional work is also
attached to such estimates and is forwarded to get the
sanction of higher authorities.
4) Annual Maintenance Estimate:
• Machinery, electric wiring work, control system
equipments need repairs and maintenance for same
working and increasing the life of the same. So
provision of about 1.5% of the capital cost is required
as annual maintenance in this estimate.
5) Revised Estimate:
• This estimate is a detailed estimate and is prepared as
fresh, like estimate originally prepared.
• The estimate is to be revised due to
i. Changes in rates of components in the market,
ii. Changes in the works of project,
iii. Due to unforeseen reasons, etc.
• For such estimate comparative statement showing
variation in each item of work, quantity, rates and
original cost-revised cost.
• Also a note to be attached with is revised estimate
giving excess expenditure or saving in each Item.
• Revised estimate is to be forwarded to the higher
authorities.
Factors to be considered while preparation of
detailed Estimate and economical execution
of work:
Following factors are to be considered while
preparing detailed estimate:
1.Material required along with quantity
2.Specification of materials
3.Availability of materials
4.Transportation of materials
5.Location of site for project
6.Availability of labour
1) Quantity of materials: An estimator must
prepare a list of materials required as per the layout
of the installation planned and also decide the
quantity required. The rates should be framed out
according to the volume of work.
2) Specification of Materials: The full specification
of material is to be provided so as to have control
over the quality of material used. By providing full
specifications it will help electrician while doing
wiring and also it will easy to find correct
equipment.
3) Availability of Materials: The estimator must
make sure that supply of materials is available at
the site of work properly in time so that work is not
hampered due to non-availability of materials. This
4) Transportation of materials: Transportation cost
is also an important factor. If the site of project is
nearer to localities, towns, etc. where material is
available then transportation cost will be less.
Frequent transportation of small quantities of
materials is inconvenient.
5) Location of site: If site is nearer then it is
convenient for transportation, work activities etc.
But if the site is at remote place then due to
different modes of transportation there are chances
of damage/loss of items and materials.
6) Availability of labour: Sufficient skilled, semi-
skilled and non-skilled labor is to be provided to
carry out the whole work. Labour charges should be
as minimum as possible for the economy of the
Concept of Contracts:
• The term contract is defined as an agreement between
two or more parties which has a binding nature, in
essence, the agreement with legal enforceability is said to
be a contract. It creates and defines the duties and
obligations of the parties involved.
• First and foremost, an offer is made by one party to
another, which when accepted by the party to whom it is
made, leads to the agreement. If that agreement is
enforceable in the court of law, it is known as a contract.
Process of
Contracts
Types of Contracts:
1. Item rate contract
• This is also known as Unit price contract.
• In this contract, contractor quotes his rates for per unit of each
item of construction.
• Bill of quantities is prepared as accurately as possible.
• Certain reasonable variations in the quantities being accepted by
both the parties.
• Most of the public works are carried out under this form of the
contract.

2. Percentage rate contract

• 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.
• Department fix up the rates of different items in tender.
• Contractors are offered to carry out the work as per the rates
shown in bill of quantities of tender or percentage above or
below the rates indicated in the bill.
• There is no possibility of tampering or manipulating with the
rates by contractor.
• As contractors are not required to quote their own rates for an
3. All in contract
• Its a rare form of contract but considered first because, the owner
ceases to be the promoter and delegates a large firm or
consortium/association to perform both, design and construction.
• This type of contract is suitable for some exceptional works and is
rarely adopted for normal works.
• The work most suited for this type of contract are industrial
facilities where firms are in market with their patented processing
plants.

4. Labour contract
• When the owner is in the position to purchase the required
materials himself, then he invites tenders only for the labour work.
• The contractor put up their rates for the labour per unit execution
of each item.
• These rates includes the use of contractor’s plant and equipment,
all necessary false-work, contractor’s supervision and contractor’s
profit.
• The overall responsibility of the work is of the contractor.
• Owner has to see that the necessary materials are brought on site
as per required.
• The Owner has also to keep watch that there no wastage of
5. Lump – Sum contract
• It is the oldest type of contract and is still popular in some
countries.
• Contractors are required to quote a fixed sum for execution of a
work in all respects (according to drawing, design and
specifications supplied to them with the tender within the
required time).
• Schedule Of Rates (SOR) is also provided to the contractors to
workout the cost of extra items.
• No payment can be recovered by the contractor until the whole is
completed.
• There is no intermediate payment is made to the contractor.

6. Cost Plus Percentage Rate Contract

• In this type of contract, the contractor is paid the actual cost of
the work plus an agreed percentage in addition to allow for profit.
• An agreement is prepared with all the conditions of contract in
advance.
• Contractor arranges material and labour at his cost and keeps
proper accounting.
• Contractor is paid by the owner the whole cost together with
7. Cost Plus Fixed Fee Contract
The contractor is paid by the owner with an agreed fixed lump sum
amount over and above the actual cost of the work.
Fee doesn’t vary with the cost of the work as in case of cost plus
percentage rate contract.
8. Cost plus fluctuating/sliding fee contract
• The contractor is paid the actual cost by the owner of contract plus
an amount of fee inversely variable according to the increase or
decrease of estimated cost agreed first by both the parties.
• Higher the actual cost, lower will be the value of fee.
• The contractor shall not try to increase the actual cost of the work as
in case of ‘cost plus percentage rates’ or shall not be indifferent to in
case of ‘cost plus fixed fee contract’ because the interest of
contractor is totally involved with variations in the actual cost.
• The actual cost is thus lower and lower so both the owner and
contractor will be benefited.
9. Target Contract
The contractor is paid on a cost plus percentage basis of work performed
under this contract, and in addition he receive a percentage plus or
minus on saving of excess effected against the agreed estimate of total
cost.
10. Build-Operate-Transfer (BOT)
• The contractor undertakes the design, finance, construct, operate
and maintain the works for a concession in considerations of the
exercise or to enjoy the rights, powers, benefits, privilege,
authorities and entitlements including the amount receivable from
the collection of charges levied on the beneficiaries who use the
work and in some cases annuity payment each year.
• For example, in case of a road or bridge, the contractor constructs
the structure and is entitled to collect toll from the road user for the
concession period.

11. Turn key contract

• It sometimes happens that the owner contemplating a construction
project desires to deal with only one party for all services, both
engineering and construction, in connection with the work.
• offers are invited from specialised contractors for all planning,
design, specifications, estimations, construction and supervision
under one contract on competitive basis.

12. Negotiated contract

• When work is awarded on contract by mutual negotiation between
the parties without call of tender.
13. Sub-contract
• Its an agreement between two contractors (the sub contractor
and the main contractor), in which the sub contractor undertakes
to carry out for the main contractor a particular portion of the
work which main contractor has undertaken from the owner.
• The main contractor is responsible for the contract, product and
payment of his subcontractor.
• The owner’s claims for damages are to be made against the
main contractor.
• No claims for damage can be done against the owner by the
subcontractor.
Role of Contractor:
• Prior to go into the contract, the contractor should (with his
team of experts) know the project, (small, medium, big, very
large) and with his capability go into the contract.
• With mutual consultation and frequent meetings see the
priority of the parts of the project.
• Make available materials, machines, experts, labour,
transportation etc. effectively.
• If work is very large, he can appoint subcontractor into the
scheme and take the responsibility of following documents.
• Appoint the supervisors at proper places to control the
labourers, see the progress and get the progress report from
the supervisors.
• Should see the work is not with held due to non-availability of
labour, material, machines.
• Keep good relations with the firms of which he got the contract
of execution.
• He should see that completion of the work in time as agreed in
the contract to avoid any penalties which may put him in loss.
Qualities of a Good Contractor:
1. Vision: A successful contractor sees the big picture and
understands every detail that leads up to the finished
project.  
2. Optimism: The contractor has to continually make choices
about how to fulfill the needs of the project. The contractor
with a thriving firm sees challenges as opportunities for
solutions.
3. Communication Skills: The most successful contractors are
good communicators. They have the kind of “people skills”
that enable them to be fluid communicators with clients,
workers, and other construction professionals.
4. Innovativeness: Successful contractors do not shy away
from trying out new ideas in order to improve the quality,
efficiency, and effectiveness of their building steps.
5. Flexibility: Flexibility is often necessary to make
adjustments when things do not work as expected. The
contractor who is flexible is able to see the big picture and
long-range objective rather than the cluster of minutia.
Tender:
It is an invitation from the owner to the
contractor to execute some work at specified
cost in specified time. It is published in the
form of tender notice in news papers, notice
boards, gussets, etc. according to the cost of
works.
Types of Tender:
1. Open tender– An oral talk or written document between
the Engineer and the Contractor for certain small jobs
to be performed. Sometimes it is advertised.
2. Sealed tender—Invited for important or huge projects;
wide publicity is given; always written documents are
made.
3. Limited tender—Only a selected no. of contractors are
invited to quote their rates
4. Single tender—Invitation is given to only one firm to
render a service by quoting their rates. If the quoted
rates are high, it will be negotiated prior to the
agreement of the contract.
5. Rate contract—usually adopted for supply of materials,
machine, tools & plant, etc. (items to the store). It
specifies the supply at a fixed rate during the period of
contract. The quantities are not mentioned in type of
TENDERING PROCESS

Stage 1: Stage 2: Stage 3:

PREPARATION APPROVAL DOCUMENTATION
TO TENDER

Stage 6: Stage 5: Stage 4:

AWARD PROCESSING INVITATION
CONTRACT
 STAGE 1: PREPARATION
 Final completion of drawings, specification, measurement / take-off
process.
 Choose conditions of contract.
 Parties involved: architect, engineers, QS, client, project manager

STAGE 2: APPROVAL TO TENDER

 Discussion and decision on type of tender to be used.
 Selection of tender:
 Open
 Selective
 Negotiate Shortlist the selected
contractor
 Parties involved: CLIENT, CONSULTANT, PROJECT
MANAGER
 STAGE 3: DOCUMENTATION
Contract based on quantities
 Compilation of:
 Letter of invitation to tenderers
 Articles of agreement /
conditions of contract
 Form of tender
 Form of tenderer’s details. i.e:
contractor’s registration,
organization background, track
record (past and present
projects)
 Letter of acceptance
 Bank and insurance guarantee
forms (performance bond)
 Bank and insurance guarantee
forms (advance payments)
 Specifications
 Bills of quantities
 Relevant drawings
Contract based on tender & specs
 Compilation of:
 Letter of invitation to
tenderers
 Articles of agreement /
conditions of contract
 Form of tender
 Form of tenderer’s details.
i.e: contractor’s registration,
organization background, track
record (past and present
projects)
 Letter of acceptance
 Bank and insurance guarantee
forms (performance bond)
 Bank and insurance guarantee
forms (advance payments)
 Specifications
 Summary of tender
 Schedule of rates
 Relevant drawings
STAGE 4: INVITATION
 Based on selection of tendering methods
 Open / competitive / bid tender – produce tender notice
 Selective – shot listed contractors will be invited to tender if they wish
 Negotiated – only one contractor is approached- direct entry to project

STAGE 5: PROCESSING
 Received tender submitted by contractor
 Tender assessment / evaluation
 Completed tenders are received
 Arithmetical check
 Reasonable tender sum
 Reasonable completion time
 Capabilities of tenderers under considerations
 Tender recommendation / report – tender board
STAGE 6: AWARD CONTRACT

 Pre-award meeting with contractors –

validation of lowest complying bid
 Validate lowest bid - Pre-contract meeting
with contractor for contract signing
 Approval by tender board / treasury (tender
exceeds RM10 mill.) – an acceptance of
tender form is issued to tenderer , signed by
the authorised officer
E-Tendering System:
Benefits of E-Tending to Tendering
authorities:
Benefits of E-Tending to Contractors:
Quotations:
An offer in terms of rates made by the supplier
(manufacturer) in a sealed envelope in reply to a
quotation letter for supply of
materials/machines/items or undertaking a work in
terms and conditions is called as “Quotation”.
Quotation Format:
Comparative Statement Format:
Comparison between Quotation &
Tender:
Principles of Execution of works:

Stage 1: Stage 2:
PLANNING (Before EXECUTION OF
work is started) WORK

Stage 6: Stage 5:
PAYMENT (BILLING) COMPLETION OF
OF WORK WORK
Stage 1: Planning (Before work is
started)
• Administrative approval is obtained before commencement
of any work.
• Technical sanction is obtained on a detailed estimate
designed properly.
• Expenditure sanction will be accorded and allotment of
funds will be made.
• After receiving approval collection of materials, arrangement
of all tools and special equipments as per requirement shall
be made.
• With receipt of technical sanction, action will immediately be
initiated for taking possession of land or building.
• Preparation of proper tender and contract documents shall
be done in order to sell them to intending tenderers.
• On receiving tenders, work-order will be issued to
acceptable tenderers after performing agreements with
contractor.
• Material schedule i.e. list of various materials required to be
Stage 2: Execution of Work
a) Supervision: Superintending engineer, executive engineer,
assistant engineer connected with the work will frequently inspect
the work to ensure that work is being executed according to
drawings and specifications provided in contract document.
b) Site order books: Site order book is maintained and entries are
made whenever any senior officer visits the site and gives
instructions to his junior officer. It is necessary that a record of the
instructions is maintained in the site order book.
c) Quality control during installation: The materials supplied and
works carried out by the contractor shall be according to the
specification prescribed. An engineer in-charge has the authority to
carry out tests as frequently as deemed necessary to ensure quality
of work.
d) Issue of materials: During execution of work no materials must be
issued or altered without sanction of authority.
e) Progress report: Every officer or sub-ordinate in-charge of a work
shall furnish a progress report to his next higher authority at the
beginning or each month.
f) Payment: Monthly or interim payment as per terms and conditions
Stage 3: Completion of Work
• According to terms and conditions of the contract, a
completion certificate is to be given by the engineer-in-charge
to the contractor on completion of work.
• Before the work is declared completed in all respects and final
payment is released to the contractor, the work has to be
inspected by a superintending engineer.
• On being satisfied himself that the work has been completed
in all respects according to the contract and handing over
arrangement is ready the above concerned officer should
record necessary certificate as stated below:

“I have inspected the work ______ contract value of which is ₹

_______ vide agreement no. _______ to day _______ dated. As a
result of this inspection and my previous inspection, I find that
the work has been carried out generally to specifications and has
been completed satisfactorily.”

• In case there be defects found during the inspection these

Stage 4: Payment/Billing of Work
1. The payment to the contractors for works or supply or material,
road metal and plants etc. are made on the basis of
measurements recorded in the measurement books. 
2. When the work or supply is completed or sufficiently
progressed, the detailed measurements are taken usually by
the section officer and recorded in the measurement book and
an abstract of quantities are prepared and the cost is
calculated at the rate of the contract agreement.  From the
abstract of quantity and the rate, a bill is prepared for
payment.
3. Bill and Voucher
          Bill: Bill is the account of work done or supply of
materials made and includes the particulars and quantities of
work done or material supplied and amount due.  Reference to
the agreement number, order number are also given in the bill.
          Voucher: Voucher is a written document with details
which is kept in record as a proof of payment.  For any
payment, a bill is prepared and payment is made on the bill,
Stage 4: Payment/Billing of Work
4. Types of Bills
          The various standard forms of bills and vouchers are used for
payment, according to the nature of works.  White forms are used for
running bills and yellow forms are used for final bills.  The following  are
the different types of bills.
• First and Final bill
• Running account Bill – form A
• Running account Bill – form c
• Lump sum contract  Bill
• Hand receipt

5. 4. Types of payment
Payment to contractors are made in a variety of ways, as listed below:
• First and Final Payment
• Running on Interim or ‘on account’ payment.
• Final payment
• Advance payment
• Secured Advance payment