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Contract Management
Contract management is a process which enables all the parties to a contract to
meet their obligations in order to deliver the objectives required from the contract.
The purpose of contract management is to obtain the services as agreed upon in
the contract and achieve value for money.
Thus, the aim and objective of Contract Management is a Zero Dispute
stage of project completion within the time and budget frame work.
Contract
As per the Contract Act, an agreement enforceable by law is a contract.
A Promise is an accepted Proposal;
An Agreement is a Promise and
An Agreement enforceable by law is a contract.
A person makes a proposal (offer). When it is accepted by other, it
becomes a promise.
Promises, express or implied
Insofar as the proposal or acceptance of any promise is made in words,
the promise is said to be express.
Insofar as such proposal or acceptance is made otherwise than in words,
the prom-ise is said to be implied.
- - For example, if a person enters a bus, there is implied promise that he
will pay the bus fair.
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Contract Agreement;
ii.
iii.
iv.
Contract data;
v.
Conditions of contract
a.
b.
c.
vi.
Specifications;
vii.
Drawings;
viii.
Bill of Quantities.
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Formation of Contract
Our first act in formation of a contract is to invite tenders through a Tender
Notice, which is an invitation for offer. The tender submitted by contractor is the
offer. Offer that is finally accepted is a contract.
STEPS INVOLVED IN FORMATION OF CONTRACT:
Proposal and its communication;
Acceptance of proposal and its communication;
Agreement by mutual promises;
Contract;**
** PN: A Contract can never be conditional acceptance. Sc.7 of ICA says
Acceptance must be absolute.
Essentials of a Contract
Essential elements of a (valid) contract are
An agreement;
Offer and acceptance;
Lawful consideration;
Capacity to enter into contract, i.e. competence of the parties;
Free consent of both parties;
Lawful object and
Intention to create a legal relationship.
It must be noted, writing is not essential for the clarity of a contract, except where
a specific statue requires writing.
E.g.
Contract for sale of immovable property must be in writing, stamped and
registered.
Contracts which need registration should be in writing.
Trust should be created in writing.
Contract made without consideration on account of natural love and
affection should be in writing.
Promise to pay a time barred loan should be in writing, as per the
Limitation Act.
An Arbitration agreement/ clause must be in writing.
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Types of Contracts
Unit Rate/ Unit Price Contract :
This is also called item rate contract / value contract / measurement contract
or schedule rate contract. In this type, the contractors are required to quote
rates for individual items of work on the basis of schedule of quantities
furnished by the Owner. This schedule indicates full description of the items,
estimated quantities and their units. The Contractors are required to express
rates and work out the cost against each item and thereby draw up the total
amount tendered for the work.
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the Employer only needs to turn the key to commence operation of the
constructed facility.
BOT Contract :
The concept of Build, Operate and Transfer (BOT) project is the most viable
way of building up the National network. NHAI brought this concept into
practice in the year 2000. Under the BOT scheme, the projects are offered on
concession for a specific time period and this concession period involves both
implementation and operation & maintenance of the project.
Basic differences from other conventional projects/ contracts:
The returns are spread over a longer period.
Sound financial & engineering skills are warranted.
No protection against any price variation during implementation period.
Cost and time overrun upsets the returns.
EOT granted by authority does not provide much remedy.
FIDIC was originally derived from the British Institution of Civil Engineers (ICE)
standard form of contract.
FIDIC was founded in Belgium in 1913 by three European countries. The original
founding countries were France, Belgium and Switzerland. At present
membership is drawn from 74 countries.
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During updating its traditional books, FIDIC has noted that certain projects have
fallen outside the scope of the existing Books. Accordingly FIDIC has not only
updated the Standard forms but has expanded the range, and has in September
1999 published a suite of four new Standard Forms of Contract which are
suitable for the great majority of construction and plant installation projects
around the world.
The existing Books will still be available as long as there is a demand, but it is
expected that the new suite will supercede and expand the range of the existing
Books.
However, the previous edition of the Red Book (the fourth edition) continues to
be widely used and it seems likely that the 1999 edition will not replace it in the
medium term, at least in certain parts of the world.
The new Red Book is the traditional form for civil engineering construction in
which the Contractor constructs to the Employer's design. There is however
provision for the Contractor to carry out design where specified. The form
maintains the role of the Engineer and the payment mechanism is based on
measure and value. The new Red Book revises the previous Red Book version
and incorporates current thinking on the management of contracts.
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The new Yellow Book replaces the existing Yellow and Orange Books. It is
intended to be used for Design and Build contracts and for Plant Contracts. The
Engineer administers the contract and payment is on periods or installments of
the Lump Sum.
3) Silver Book : Conditions of Contract for EPC Turnkey Projects.
1st Edition; 1999
The Silver Book is an entirely new FIDIC form for BOT and similar projects. It is
intended to be used on fixed-price turn key projects. There is no Engineer,
instead the Employer deals directly with the Contractor. Risk is placed largely
with the Contractor. Payment is on periods or installments of the Lump Sum.
4) Green Book : Short Form of Contract.
1st Edition; 1999
The Green Book is an entirely new FIDIC form and adopts the overall risk
philosophy of the Red and Yellow Books. It is intended for contracts of relatively
small value, short construction time or involving simple or repetitive work. There
is no Engineer and the payment mechanism is required to be specified in the
Appendix to the Form of Agreement, but payment is at monthly intervals. It does
not matter who provided the design. Also it does not matter whether the project
involves construction, electrical, mechanical, or other engineering work.
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In detail about
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Contract Agreement;
Letter of Acceptance (LOA) and Notice to Proceed (NTP);
Tender Document;
Conditions of Particular Application (COPA) - Part II;
General Conditions of Contract i.e. FIDIC - Part I;
Specification;
Drawings;
Priced Bill of Quantities.
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20.4
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29.1
36.5
40.1
42.1 / 42.2
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44.1
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38.2
50.1
58
65.3 / 65.5
70.2
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Rate of Progress : If for any reason, which does not entitle the
Contractor to an extension of time, the rate of progress of the Works or
any Section is at any time, in the opinion of the Engineer, too slow to
comply with the Time for Completion, the Engineer shall so notify the
Contractor who shall thereupon take such steps as are necessary,
subject to the consent of the Engineer, to expedite progress so as to
comply with the Time for Completion. The Contractor shall not be
entitled to any additional payment for taking such steps.
47.1 / 47.2
48.1 / 48.2 / Taking-Over Certificate : When the whole of the Works have been
48.3
substantially completed and have satisfactorily passed any Tests on
Completion prescribed by the Contract, the Contractor may give a notice
to that effect to the Engineer, with a copy to the Employer, accompanied
by a written undertaking to finish with due expedition any outstanding
work during the Defects Liability Period. Such notice and undertaking
shall be deemed to be a request by the Contractor for the Engineer to
issue a Taking-Over Certificate in respect of the Works.
Taking-Over Certificates may be issued in respect of specified Sections
or parts of the Works, which are either complete or are incomplete but
have been taken over by the Employer.
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59
The Engineer is entitled to proof that certified sums have been paid to
nominated Subcontractors before issuing any further certificate. Unless
the Contractor shows he has reasonable grounds for refusing to make
such a payment and proves that he has so notified the nominated
Subcontractor, the Employer may make direct payments and deduct the
equivalent sum from the Contractor. The Engineer is to show the
deduction on the next certificate which should not be delayed.
70.1
Increase or Decrease of Cost : The rise and fall in the cost of labour,
materials etc is to be taken into account in accordance with a
fluctuations clause as set out in Part II (COPA). That is called Price
Adjustment or Escalation and the formula for calculating the amount is
usually defined in Part II (COPA)
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Claim - Introduction
A claim is a demand or assertion by one of the parties seeking, as a matter of
right, adjustment or interpretation of contract terms, payment of money,
extension of time or other relief w.r.t. the terms of the Contract.
Extra - Contractual Claims : These are claims for breach of contract which are
not covered under the express provision of contract but are tenable under the law
applicable to Contract Act / Common Law and/or implied covenant of good faith
and reasonable expectation, fair dealings, implied duty of cooperation, and full
disclosure and warranty of suitable specification / design.
Quantum Merit Claims : Provide remedy for a Contractor who has carried out
work under the instruction of the Owner but no price has been agreed.
Counter Claims : The claims raised by the opposite party to counter the claims
of the claimant is called as counter claims.
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Extra Item
The works which are not expressly or by implication included in the Contract but
necessarily required for the completion of the work.
Incorrect drawings.
Suspension of work.
Damages to works.
Delay in payment.
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Tips
1)
2)
3)
4)
5)
6)
7)
Do not fail to apply for Extension of Time well before the expiry of the
contract period with appropriate reasons.
8)
9)
Be on the look out to get information on certain relevant details viz. increase in
taxes, escalation, force-majeure conditions etc. which have impact on the job.
10)
Read the contract between the lines and not the lines alone for better
interpretation of the same to our advantage.
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