1. CONSTRUCTION MANAGEMENT AND ADMINISTRATION
UNIT –IV
Contracts

2. List of topics Introduction of contracts
Types of contracts: Conditions of contract
Tender : Tender form, Tender Documents, Tender Notice, Work Order. 
Project Delivery Methods : Public Private Partnership (PPP)
Stages of awarding contract
Procedure for execution of PWD works
Safety in construction
Workmen compensation act
Contract labor act
Demolition of buildings

3. Introduction of contracts
Construction contracts are formalized in the form of a written document which defines clearly the Rights and Obligations of each party
Contract describes precisely the Legal, Financial and Technical provisions of the work
It usually contains clauses that specify
Completion time
Liquidated damages
Payments to the contractor
Scope and nature of work
It is agreed and signed by both parties
The elements of a contract consists of
Job Offer
Monetary consideration and
Acceptance

4. Types of construction contracts
Lump sum contract
Item rate contract / scheduled contract
Lump sum and scheduled contract
Cost plus percentage/fixed fee contract
Special contracts

5. 1. Lump sum contract
The Contractor constructs the works in accordance with a design & specification provided by the Employer, but for a fixed lump sum of money
There are no individual rates quoted and no schedule for different items
Upon the completion of work, detailed measurements of whole work checked and a fixed lump sum amount is released to the contractor
In large projects, part payments are made at different stages of work on mutually agreed terms
In case the contractor stops the work in between, he is not entitled for any payment
In-house progamme (June 29, 2007)

6. 1. Lump sum contract Suitability Merits Demerits
Suitable for works in which contractors have prior construction experience
Not suitable for difficult foundations, excavations of uncertain character, and projects susceptible to unpredictable hazards and variations
Merits
The owner can decide whether to start or shelve the project knowing the total lump sum price quoted by different contractors
The contractor can earn more profit by in depth planning and effective management at site
Demerits
The project has to be studied thoroughly
Unforeseen details of work are not specified
Many additional items may have to be undertaken as the work progresses, giving opportunity to the contractor for claiming higher rates for the extra items

7. 2. Item rate contract / Scheduled contract
In this type of Contract, the Contractor undertakes the works in accordance with design & documents provided by the Employer on item rate basis
The Contractor is only responsible for the execution of the Works as per the schedule within the frame work of the Contract
Amount to be received by contractor depends on Bill of Quantities (BOQ)
Payment is made to the Contractor as per the measured quantities of actual work execution
In-house progamme (June 29, 2007)

8. 2. Item rate contract / Scheduled contract
Suitability
Suitable for all types of engineering works financed by public/govt. bodies
Suitable for works which can be split into various items and quantities under each item can be estimated with accuracy
Merits
There is no need of detailed drawings at the time of awarding contract as in case of lump sum contract. The detailed drawings can be prepared after the contract is awarded
Changes in drawings and quantities of individual items can be made as per requirement within agreed limits
Payment is made as per actual work done
Demerits
The total cost of work can only be known upon completion
Additional staff is required to take detailed measurements

9. 3. Lump sum and scheduled contract
Similar to the lump sum contract except that the schedule of rates is also included in the contract agreement
The contractor offers to do a particular work at a fixed sum within specified time as per plans and detailed specifications
Extra amount to be paid or deducted for any additions or deletions made during the progress of work is regulated by schedule of rates
Measurement of different items of original work are not required but extra items are required to be measured for payment
The original work shall however be checked and compared with the drawings and specifications

10. 3. Lump sum and scheduled contract
Suitability
Suitable for construction works for which contractors have prior work experience and can consequently estimate the project cost more realistically
Merits
The owner can know from tenders as to what the project will cost and can decide whether to start or defer the project
Changes in drawings and quantities of individual items can be made as per requirement within agreed limits
Demerits
The project has to be studied thoroughly and all the contract documents are required to be completed before awarding contract
Non scheduled extra items arising out of changes made in the drawings and specifications are often a source of dispute

11. 4. Cost plus percentage/fixed fee contract
When the scope and nature of the work can at least be broadly defined this type of contract is desirable
The design is in the scope of the Employer
In this type of contract the Contractor is paid at actuals for his expenditure at site and a certain percentage or fixed fee over & above
Amount of fee determined by considering
Scope of work
Approximate cost
Nature of work
Estimated construction time
Man power and equipment
There could be a variant by giving a proportional bonus for early completion or proportional Liquidated Damages for any delay
The Contractor is selected based on merit rather than the fee alone
In-house progamme (June 29, 2007)

12. 4. Cost plus percentage/fixed fee contract
Suitability
Suitable for construction works required to be completed expeditiously and where it is difficult to foretell difficulties likely to be encountered
Important structures where the cost of construction is immaterial
Merits
The owner bears the actual cost therefore contractor performs the work in the best interest of owner resulting good quality work
The work can be taken in hand even before the detailed drawings and specifications are finalized
Changes in in design and method of construction if needed can be easily carried out without disputes
Work can be executed speedily
Demerits
This form of contract cannot be adopted in case of normal works of public bodies and govt. departments
The final cost of the work is not known in advance and this may subject the owner to financial difficulties

13. 5. Special contracts Turn-key contract Package contract
Negotiated contract
Continuing contract
Running contract
FIDIC Contract
In-house progamme (June 29, 2007)

14. a) Turnkey contract
Under this contract, the Contractor carries out all the Engineering, Procurement and Construction (EPC) providing a fully-equipped facility, ready for operation (at the “turn of the key”)
It is an integrated contract in which all works related to civil, electrical, mechanical e.t.c., are in the hands of a main contractor
Also the main contractor takes total responsibility from planning to commissioning stage
The owner need not to coordinate the work of different sub-contractors
This type of contract is suitable, where a higher degree of certainty of final price and time is required
In-house progamme (June 29, 2007)

15. b) Package contract
Two or more related jobs, each of which form a separate contract are combined in a single contract
Design and development + construction + maintenance
Supply + maintenance
Plan of work and standards are established and the work is carried out accordingly by the contractor
The main contractor is responsible for safeguarding the owner’s interest and for this reason, prior approval of design and technical aspects have to be taken from the owner
Responsibility for correctness of the design lies with the main contractor

16. c) Negotiated contract
In this type of contract Negotiation across the table takes place between representatives of the owner and the main contractor for project cost and other conditions of contract
Detailed project specifications are arrived at by discussions
It involves extended discussions for finalisation as a competitive contract
Most of the consultancy projects of world bank are negotiated contracts

17. d) Continuing contract
New or additional work is awarded on the basis of agreed terms and conditions of existing contract
It requires no retendering hence can save time and money
e) Running contract
These provide goods and services at specified intervals or as and when required by the owner
The contract price is not fixed and payment is based on actual goods supplied and services rendered as specified in the contract document

18. f) FIDIC contract
Evolved by an International body of consultants - Federation Internationale des Ingenieurs Conseils (FIDIC)
FIDIC was originally founded in 1913 by the National Associations of Belgium, France and Switzerland and is now best known as the organisation which publishes standard forms of contract documents
Every Project has contract document consisting of Part I – General Conditions & Part II – Conditions of Particular Application (COPA)
Is a very equitable form of contract, fair to both Owner & Contractor and employs the principle of a neutral “Engineer”
In-house progamme (June 29, 2007)

19. Tender drafting and tender analysis
Types of tenders
Contract document
Specifications
Important conditions of contract

20. Types of Tender
Open Tender : If Job Value > Prescribed limit (Say 25 Lacs)
Global tender
Limited Tender : If job value <= Prescribed limit
Single or Restricted Tender : If only a particular firm is the manufacturer.

21. Contract document
The contract document generally follows a standard format
It consists of the contract agreement (on non-judicial stamp paper of prescribed value) and the following set of documents, each page of which is signed both by the owner and the contractor
Cover page/Title page:
Contents page:
Notice inviting tender (NIT):
Tender form:
Schedule of issue of materials:
Drawings:
Specifications
General specifications
Detailed specifications
Conditions of contract

22. Notice Inviting Tender (NIT)
Tender form
NIT contains
Brief description of work
Estimated cost of work
Date and time of receiving the tender
Amount of earnest money (EMD)
Security money
Time of completion
Tender form consists of
Bill of quantities
Contractor’s rates
Total cost of work
Time for completion
Security money to be deposited
Penalty clauses etc.

23. Schedule of issue of materials
It contains the list of materials to be issued by the department or owner to the contractor with rates and place of issue
Drawings
These comprise a complete set of fully dimensioned drawings including plans, elevations, sections detailed drawings and site plan

24. Specifications are of the following types
Contract specifications
Guide specifications
Standard specifications
Manufacturer’s specifications

25. 1. Contract specifications
The specifications prepared for a particular job to accompany the working drawings are called contract specifications
These are further classified as
General specifications/Brief specifications
To give the general idea of work
Detailed specifications
To give detailed description of each item of work

26. 3. Standard specifications
2. Guide specifications
These specifications provide a guideline for preparing contract specifications and give a broad idea about the class and type of construction for a particular purpose (e.g. Model Concession Agreement)
3. Standard specifications
These specifications re prepared for various materials or group of materials for the guidance of all concerned with construction (e.g. IS 456)
4. Manufacturer’s specifications
Manufacturers prepare specifications of their products for the guidance of users. These specifications also include installation instructions and other guidelines for use and maintenance of products. Generally provided in the form of Manuals

27. Important Conditions of Contract
Time of completion (TOC)
Delay and extension of time (EOT)
Penalty
Compensation for delay in completion of work
Liquidated damages
Debitable agency
Valuation of variations
Settlement of disputes
Force majeure and natural disasters
Price escalation
Termination of contract

28. Important Conditions of Contract
Time of completion (TOC)
The contractor is required to complete the work with in agreed time of completion which is specified in suitable unit of time(year, month, week). The contractor is also required to maintain a proportionate progress of work
Delay and extension of time (EOT)
Delay in completion of work not attributed to the contractor should be brought to the notice of owner by the contractor in writing, with in the time specified in the contract, for seeking extension of time. The owner will satisfy himself that the delay is not on account of a lapse on the part of the contractor before granting suitable extension of time
Penalty
It is fine imposed on the contractor for non-fulfillment of his contractual obligations such as failure to maintain required progress of work, delay in completion, poor quality, bad workmanship

29. Important Conditions of Contract
Compensation for delay in completion of work
The contractor is liable to pay compensation to the owner for delay attributed to him in completion of work. The amount of compensation may be stated as a percentage of the estimated cost of work fro each unit of time delay. The maximum limit of compensation may be 10% of the contract price
Liquidated damages (LDs)
It is a fixed stipulated sum payable by the contractor on account of penalty for delays and does not bear any relationship to the real damage to the owner. It is generally high and fixed per day for the excess period over that specified in the contract for completing the work
Debitable agency
whenever the contractor fails to fulfill his contractual obligations in respect of progress or quality of work even after giving due notice by the owner, it becomes necessary to appoint a debitable agency which works at the cost and risk of the contractor. This agency is in the form of labor or other contractor to fulfill the contractual obligations of the main contractor. The expenses incurred are charged from the bill or security of the original contractor

30. Important Conditions of Contract
Valuation of variations
The valuation of variations is based on change orders issued in writing by the owner. Generally, the variation in individual items of work should not be more than 25% and variation in total cost should not exceed 10%
Settlement of disputes
Efforts should be made to resolve disputes amicably between the owner and the contractor through mutual discussions and negotiations. Arbitration clause may be incorporated in the contract to settle disputes not resolved through mutual discussions and negotiations
Force majeure and natural disasters
Natural disasters are acts of nature, such as unprecedented floods/rainfall, earthquake, hurricanes, typhoons, fire etc. these disasters along with occurrence of riots, civil commotion, revolt etc. are beyond the control of the contractor and may lead to financial and time loss. The contractor should obtain an insurance policy for such risks as can be covered by insurance. In event of financial or time loss contractor can claim compensation and an extension of time

31. Important Conditions of Contract
Price escalation
During work execution labor wages (L), material prices (M) and Petrol Oil Lubricants (F) may increase as a result of inflation
Variation in Labor cost = W *Y/100*(LI-LI0)/LI0
Variation in Material cost = W *X/100*(MI-MI0)/MI0
Variation in POL cost = W *Z/100*(FI-FI0)/FI0
Generally y=30%, x=65%, z=5%
Compensation for escalation is normally worked out at quarterly interval
Termination of contract
In the event of default or bankruptcy of the contractor
Default includes abandoning the work, failure in progress, non observation of rules/instructions etc.
Due notice served before termination of the contract

32. Project Delivery Methods
A project delivery method is a system designed to achieve the satisfactory completion of a construction project from conception to occupancy.
A project delivery method may employ any one or more contracting formats to achieve the delivery
Design-Bid-Build (DBB)
Multiple Primes
Construction Management At Risk (CMAR)
Design-Build (DB)
Bridging
PPP
Integrated Project Delivery (IPD)

33. Risk and Control-Project delivery methods

34. Public Private Partnership (PPP) or P3
A project delivery method which combines architectural and engineering design services with construction performance under one contract
A private entity or consortium of investors provides some or all of the required capital with a commitment to deliver a completed project for a public sector owner in exchange for revenue that the completed facility is anticipated to generate.

35. PPP-Private Finance Initiative (PFI) model
Public private partnership is a partnership which leverages private funding and the strengths of private entrepreneurship and management, for the maximum provision of public services in a climate of scarce public resources.
The PFI is a PPP special case where all the finance needed for the capital funding and its basic operation is supplied by the private sector in return for a service charge.

36. P3 Benefits P3 can benefit public projects in the following ways:
Targets alternative revenue and funding sources to close a funding gap
Allows use of low cost tax-exempt or taxable financing
Transfers risk to the private sector
Not subject to capital budget allocations or voter referendums
Accelerates construction starts
Reduces construction cost and interest rate risks
Takes advantage of private-sector efficiencies and innovations in construction, scheduling, and financing
Provides efficiencies in long-term operations and maintenance
Presents an opportunity to combine public and private uses in mixed-use developments to leverage economic development

37. Disadvantages of P3
The owner may experience higher total life cycle costs
The proposal process can be very expensive for all involved
A high level of expertise is required to execute a P3 project

38. BOT & its variants Is a recent development
Incorporates financing issues, returns on investment, etc
Invariably involves an EPC Contract for the implementation of the Project
Risk Management is a major issue for such contracts
Time is the essence of such contracts
For the Employer, such single-point responsibility may be advantageous, but the benefits may be offset by having less control over the design process and more difficulty in imposing varied requirements.
Design Build Operate Transfer (DBOT), Design finance Build Own Operate and Transfer (DFBOOT) etc. are variants of BOT
In-house progamme (June 29, 2007)

39. Detailed Project Report (DPR)

40. Stages of awarding a contract
The complete process of awarding contract can be summarized as follows
Preparation of contract document
Advertising the tender, tender notice
Pre-bid meeting
Submitting Tender by contractor
Study of the tender by owner
Clarification regarding conditions or specifications
Preparing comparative list
Awarding contact

41. Procedure for Execution of Works ( CPWD works manual)
The broad procedure to be followed by a Ministry or Department for execution of works under its own arrangements shall be as under
The detailed procedure relating to expenditure on such works shall be prescribed by departmental regulations framed in consultation with the Accounts Officer
Preparation of detailed design and estimates shall precede any sanction for works
No work shall be undertaken before issue of Administrative Approval and Expenditure Sanction by the competent Authority on the basis of estimates framed
Open tenders will be called for works costing Rupees five lakhs to Rupees ten lakhs
Limited tenders will be called for works costing less than Rupees five lakhs
Award of work should be done before commencement of the work
Final payment for work shall be made only on the personal certificate of the officer-in-charge of execution of the work in the format given below:
“ I…………………………………………., Executing Officer of (Name of the Work), am personally satisfied that the work has been executed as per the specifications laid down in the Contract agreement and the workmanship is up to the standards followed in the Industry.”

42. References
Construction-Project-Management by Peter Feweings
CPWD Construction manual
CMAA Owner’s Guide to Project Delivery Methods - August 2012