Contract Administration

1.Responsibilities/Liabilities

3. Statutory Requirements and

Principal, contractor

social

2. Settlement of claims

obligations

- claims for advance

4. Files and records

- claims for payment of bills

- claims for extras/ variations
- claims for cost escalations
- claims for time extensions

responsibilities

Contract
Administration

1.

Performance, cost and time depends on three conditions:

The parties to the contract must have a clear understanding of and

commitment to their obligations.

2.

Employer should select a project team with adequate experience good

exposure to project problems, ability to give prompt decisions, make
timely payments and to settle extra items/ claims judiciously.

3.

The contractor should select a competent project manager and other

members of the team, make a correct assessment and deploy required

resources, by proper forward planning, keeping in view time, cost and
quality control.

1 a] Responsibilities / liabilities of Principal

To nominate Engineer in charge/ Project Manager and his

team.

Giving possession of site, obtaining necessary sanctions,

permissions.

Supplying Instructions to carry out the work.

Furnishing necessary plans, designs, drawings, specifications,

etc., sufficiently in advance.

Timely supply of materials to the contractor in required

quantities and quality as specified in schedule of Materials.

Contd

Nominating / approving the Sub-Contractors.

Supervision of the work

Ensuring that execution works is as per drawings, design and

specifications.

Monitoring progress, quality of work.

Giving necessary instructions, guidance.

Giving clearances without undue delay.

Issuing necessary certificates.

Ensuring coordination among the contractors.

Contd

Maintaining good relationship, working condition.

Ensuring smooth progress of work.

Noninterference in contractors work.

Settlement of the claims.

Claims for payment of bills, extras/variations, cost escalations,

time extension.

Compliance

with

statutory

requirements

and

social

responsibility / obligations.

Preparing and submitting reports to the owner, maintenance of

files, records, documents.

1 b] Responsibilities / Liabilities of Contractor

i) Execution of works in compliance with plans, drawings, design
and specifications.
ii) Execution of works to meet performance criteria of Quality,
Time and Cost.

iii) Ensuring safety and security of the staff, laborers.

iv) Selection of resourceful sub-contractors, coordinating and
monitoring their work.
v) Setting up and running the site organization

contd
Procurement of materials, labor at reasonable cost, ensuring
their proper usage and storage.
Controlling the wastage
vii) Planning and organizing the execution of work. Providing
designs of those minor works for which the Principal has not
provided the designs.
viii) Maintenance of construction equipment and machinery.
ix) Labor safety and welfare.

Contd
x) Providing assistance to the Principal for supervision,
monitoring, quality checking, measurements, etc..
xi) Submitting all claims in time.
xii) Site clearance and handing over possession of works after
completion.

SETTLEMENT OF CLAIMS
a) Claims for advances:Contractors will have a need for large amount of money before
commencement of the execution of works for

Mobilization and preparations for commencement of the

execution of works.

Purchase of plant, machinery, Equipment, tools etc.,

Payment of advances for materials, sub contracts

Working capital, contingency, etc.

 Following

is a list of various advances that can be

made available to contractor in major contracts:
Mobilization advance
Advance

against machinery and equipment's

Advance

against materials

Advance

for work done but not measured.

[purpose, conditions, guarantee to be provided, recovery of advances]

Mobilization advance:Purpose:- to facilitate mobilization of construction resources to the site and

make arrangements for commencement of the execution of works.

Conditions:

This advance may be granted to the extent of about 5% to 10% of the

contract value.

Where the work is of specialized nature and mobilization expenses are likely
to exceed 10% of the contract value, additional advance may be made
available through a specific enabling clause in the contract conditions.

Mobilization advance may not be necessary for minor contracts ( contract

value, say, < 10 to 25 lakhs)

Mobilization advance

In contracts of very large value, mobilization advance may be

given in installments in accordance with an agreed schedule
specified in contract conditions, as and when the contractor
incurs the expenses.

[NOTE: - in many international contracts under FIDIC conditions

and world bank aided projects, mobilization will be treated as a
separate item of work and payments are done on quoted rate

basis.]

Mobilization Advance
Guarantee to be provided:This advance will be given against a bank guarantee to be
furnished by the contractor.
The principal will be entitled to make sure that the mobilization
advance released to the contractor is utilized for the particular
contract for which it has been given. The bank guarantee can be
encashed if the contractor fails to properly account for the

advances received against the expenses incurred towards

mobilization.

ii) Advance against machinery and equipment:Purpose:- to remunerate the contractor for his investments on
plant, machinery, equipment, tools etc..
Conditions:

Advance against plant, machinery, equipment, tools, etc., bought

to the site for use in the execution of works under the contract
can be given for both new purchases for the contract as well as
the existing, deployed at the site.

The advance in case of new purchases can be up to 75% to

90% of the cost , subject to furnishing of satisfactory evidence

of purchase and cost by the contractor.

Contd.

In case of existing, plant, machinery, equipments, tools,

etc., deployed at the site up to 50% of their estimated present

value may be given as advance. In this case, a certificate from

an approved valuer about their present value estimated
according to accepted norms of valuation, must be provided

by the contractor.

These advances are normally limited to about 10% of the

contract value. In special cases it may be 20% or even higher.

Contd
Guarantee to be provided:

These advances are provided against the security of

the plant , machinery, Equipment, tools, etc., deployed
at the site on their hypothecation to the owner/
Principal by executing a deed of hypothecation.

A bank guarantee may be accepted in lieu of

hypothecation.

Advance against materials:Secured advances can be granted to the contractor

against non-perishable materials brought to the site for

consumption in the works under the contract.

In civil construction contracts these materials include

coarse and fine aggregates, boulders, bricks, size stones,
tiles, wood etc., [steel and cement if not supplied by the
Principal].

Contd.
Conditions:- these advances are provided under the following termsi) Advance is granted up to 75% of actual cost of materials purchased

and brought to the site.

ii) The advance has to be recovered within a period of three months
from the month in which advance is paid.

iii) The contractor must provide adequate storage and protection for
these materials against damage by weather/ other causes and
pilferage.

iv) The contractor must provide an Indenture Bond or Surity Bond by

executing a suitable deed.

Advance for work done but not measured:

Sometimes the contractor makes a request for payment against

a part of work that is completed but its detailed measurement and

/ or quality assurance checks has not yet been done. In such cases
the contractor can be paid up to 80% of the value of such work as

advance payments.

The advance so provided must be recovered in the subsequent

monthly running bill based on detailed measurement and quality

assurance checks of all works completed till then, including the

work against which advance payment has been done.

RECOVERY OF ADVANCES:The recovery of advances should be so regulated that it does not hinder the
availability of funds to the contractor.
Therefore recovery of funds can commence after at least work of the value
equal to 10% of the contract value is completed and paid to the contractor.
The recoveries are made in such a phased manner that the total
principal amount against all types of advance granted to the contractor
together with interest ( if any ) there on is fully recovered by the time
80% of the value of the work under the contract is completed and within a
suitable timeframe that is not exceeding 90% of the originally scheduled
completion time in the contract.

Contd
If

there is an exceptional delay due to some

genuine reasons and the contract period has

been extended, then, the advance recovery period

may also be rescheduled, if deemed necessary.

SETTLEMENT OF CLAIMS FOR PAYMENT OF BILLS:

This is the most sensitive and vital issue in contract

management. Timely payment of bills is a basic obligation of the

Owner / Principal.

Its delay / denial will be a cause for frustration to contractors

resulting in disputes.

A smooth and assured cash flow to the contractor fetches a

better rate and will serve as an incentive, motivation for better

performance by the contractor.

Contd

Normal expected Time Schedule for payment of Bills are:-

Interim or running bills: with in a fortnight or a month

Final bill :- within three to six months.

If final bill is held up due to any reason advance to the extent of

90% of the bill amount may be paid pending settlement of the final
bill.

MEASUREMENT OF WORKS:

IS 1200 standard mode of measurements of Buildings

Unless otherwise specified measurement of civil construction

works are done as per the guidelines provided in this standard.

A measurement book (M B) to be maintained in which

measurements are recorded.

-

Measurements are to be recorded by the Principals authorized

engineer in the presence of the authorized representative of the

contractor. His signature should be obtained on M.B. as a token of

acceptance of the measurement.

Contd..
Each set of measurements should include the following:i) name of the work / contract , its reference code number
ii) name of the contractor
iii) date of agreement and date of commencement of work

iv) date of recording the measurement

v) reference of the previous measurement.

RECOVERIES TO BE MADE FROM THE BILLS:1) security deposit

2) recoveries from the advances paid

3) retention money (if any)
4) liquidated damages for delay in construction time

5) income tax deductions and any other statutory deductions

ISSUES IN SETTLEMENT OF CONTRACTORS BILLS

-

Payment at reduced rates

Payments to the sub- contractor

Suspension of works

Defects liability period

NOTE:-

interim

partial

payments,

Entire/partial

occupancy of the works by owner/ principal will not be

deemed as acceptance of work or its materials which are not
in accordance with the specifications.
.

(C) CLAIMS FOR TIME EXTENSIONS

The time period for completion of contract work may be specified

by giving :
a specified date for completion
number of calendar months
number of weeks from the date of commencement within which the
works should be completed.

The reasons for delay in completion of the works are categorized

as delays attributable to i) Principal ii) Contractor iii) Neither

i) DELAYS ATTRIBUTABLE TO THE PRINCIPAL

These include the following:-

1. Not able to give the possession of whole or part of the site.

2. Not able to secure mandatory clearances from the relevant
government authorities.
3. Delay in supplying drawings, designs, specifications, etc,
4. Delay in issuing materials agreed to be supplied by principal

as per schedule A of the contract.

Contd..
5. Delays due to extra items of work or variations in quantities of
the items of work, beyond specified limits.
6. Delay in checking contractors work and giving the clearance
to proceed with the work.

7. Temporary suspension of the work by the principal.

8. Delay due to other contractors work.

Contd

Most contracts presume that such delays will be within

reasonable and tolerable limits. Hence, do not provide for any

compensation to be payable to the contactor for delays that are
attributable to the Principal. Only time extensions as required

will be granted.

However, if there is a delay beyond reasonable tolerable limits

then it constitutes a fundamental breach by the principal and at

the option of the contractor, the contract can be terminated. He

can then, even, file a claim for a suitable compensation also.

Contd

A few contracts do provide for compensation to be payable to

the contractor for delays attributable to the Principal which are

beyond the specified limit. The compensation payable will be
based on the estimate of contractors loss due to idle men and
equipment.

ii) DELAYS ATTRIBUTABLE TO CONTRACTOR

These include in addition to contractors own defaults, labour
strikes / disputes, bad weather, delays due to transportation, non-

availability of materials, laborers, etc.

In order that the contractor makes sincere efforts to minimize
such delays all contracts usually provide for the compensation to
be paid to the owner for delay in completion of the works due to the
reasons attributable to the contractor. Such a compensation which
is deductible from contractors bill is termed as Liquidated
Damages.( L.D.)

Contd
A maximum limit for L.D. is specified in the contracts
usually 10% to 15% of the total contract value and if
L.D. reaches this limit, it constitutes a fundamental
breach by the contractor and at the option of the

principal, the contract can be terminated (termination is

not mandatory or automatic)

iii) DELAYS ATTRIBUTABLE TO NEITHER

these include natural calamities, earthquake, massive landslides,
Acts of Government, Acts of Terrorism, wars, prolonged General
Strikes.
In all three cases, where delay is within acceptable limits, a

reasonable extension of time for completion as assessed by the

Engineer In-Charge will be provided and then time extension has
to be got approved by the Engineer-in-charge from the competent
authority of the Principal.

Contd

Delays beyond acceptable limits attributable to the Principal/

Contractor constitute a fundamental breach of the contract.

Delays beyond acceptable limits attributable to neither

constitute a Force Majeure / Frustration.

CLAIMS FOR EXTRAS/ VARIATIONS

Settlement of claims for extras / variations
Engineer-in-charge has the power to make additions, deletions,
alterations to the original B.O.Q such changes would not invalidate the
contract. However , this power usually has the following limitations:i) the variation in quantities of individual items of the work are

permitted up to a limit specified in the contract. ( generally, 25% to

30% of the quantity included in the B.O.Q)
ii) if variations in quantities of individual items of work exceed above

defined limits then it will be treated like an extra item of work.

Contd

iii) the total variation in the contract value due to variations in

quantities or extra items/ deletions shall be limited to 15% to
20% of the original contract value, as awarded.

If variations, extra items and deletions exceed the limits specified

as above then the contractor can refuse to execute such
variations, extra items or deletions.

PROCEDURES FOR FIXING RATES OF EXTRA ITEMS OF WORK

1st preference:- the rate is derived from any similar or allied

item in the contract document with suitable modifications for
rates of materials and (or) labour as decided by the Engineerin-charge.

2nd preference:- where no such similar/allied item of work

exists in the contract document the rate shall be derived from
the latest available CPWD schedule of rates ( to be specified in

the contract document) with suitable modifications for

escalations and contractors overheads profits.

3rd preference:- if the rates are not available in CPWD

schedule also, then , the rates should be derived from

accepted norms of rate analysis based on the market

rates for materials and labour with a provision of about
15% to 25% towards contractors overheads profit.

The rates as fixed from any of the above methods shall

be agreed upon between Engineer-in-charge and the

contractor before the commencement of such items of
work.

The rates and quantity of such items of work shall be got approved

from competent authority of the Principal.

If there is disagreement over the rates between the Engineer-in-

charge and the contractor then the matter will have to be settled
through the dispute settlement process specified in the contract.

Pending the approval of rates by the competent authority of the

Principal / settlement of the rates by the dispute settlement process ,

payment can be made to the contractor as an advance , by taking a rate
equivalent to 75% to 90% of the proposed rate.

In order to avoid disagreements over the rates, sometimes, the

tenderers are asked to quote their rates, at the time of tendering

itself for anticipated extra items of work and for those items of work
where quantities are likely to vary beyond specified limits.

SETTLEMENT OF CLAIMS FOR COST ESCALATIONS

The price adjustments for escalations in costs, when provided for
in contracts, will be governed by the following conditions:i) the materials covered in schedule A, which are issued by the
principal, shall be excluded from the scope of price adjustments for

escalations as these would be issued at a fixed price.

ii) the price adjustment shall be done from the date indicated in the
contract document.(usually date of submission of bid or date of
award of contract)

iii) the price adjustments will be provided up to date of

completion, initially specified in the contract or such

extended period of time as sanctioned for reasons not

attributable to the contractor.
iv) price adjustments shall be determined for each quarterly
or monthly running bill as per, the procedure and based on
indices, specified in the contract documents.

v) price adjustments shall be given to the extent of 75% to

85% of the escalation in costs.

PRICE ADJUSTMENT PROCEDURE:-

Price adjustment shall be calculated separately for the cost of

labour, cement, POL(petroleum, oil and lubricants) and other
materials. They are then added up to arrive at the escalations in

costs which have to be paid.

ADJUSTMENTS FOR LABOUR COMPONENT:VL = { K *( PLR/100)} * { (L1 L0)/L0}

K= Allowable escalation factor (0.75 to 0.85 usually)

PL = Percentage of cost due to labour

R = quantity of work done in the billing period.
L1 = labour index on 28 days prior to billing date
L0 = labour index on base date/ reference date.
VL = variation cost due to labour.

CPI Consumer price index

MLW Minimum labour wage.

Files and Records:

The following is a list of some of the typical files and records that many
become necessary for a major civil engg, construction contract .
A.

Contract Document with all its amendments/ modifications.

Amendments/ modifications to drawing, designs, specifications, BOQ.

Construction progress

Minutes of meeting between the principal and contractor

Record of staff, labor, equipment, etc., deployed at the site by the contractor.

Record of instructions given to the contractor.

B.

Field office files and records:

Correspondence with consultants, H.O, supplies,

statutory bodies, govt. authorities etc.

Samples of approved materials, suppliers warranties.

Manufacturers certificates for pre-fabricated items,

equipment's etc.

Reports at operation tests, field investigations.

Documentation of measure of safety, hazard warnings.

Inspection reports of statutory authorities.

C.

D.

Construction files and records:

Work progress reports

Reports of quality check/ measurements

Concrete batch plant reports (for critical works)

Contractors submission for claims, records of its processing

Miscellaneous files and records:

Labour welfare standards review records

Job conferences

Construction photographs/ video-graphs

Records of dignitaries and other visitors to the site, their

impressions

Social Responsibilities/ obligations

Statutory requirements

Social responsibilities/ obligationgs

Joint responsibility

Some of the commonly required facilities/ measures for a large project in a remote area
are listed below, and the responsibilities of the Principal, Contractors for their provision
are discussed.
1.

Approach Roads:

The main approach road to the site and the major roads within the site which are
likely to be used by many contractors are constructed and maintained by the
Principal.

The subsidiary(or internal) roads within the contractors work area and from the
colonies of the contractors personal, his stores, offices etc., are constructed and
maintained by the contractor.

2.

Housing and Sanitation:

These include houses for staff, labour, colonies, site offices, stores etc.,

These facilities are to be provided by the contractor for his staff and
labour and by the principal for his personnel.

A few houses and office's constructed by the principal may be made

available temporarily to the contractor in the initial period on agreed
charges.

Provision may be made in the contract to take back a specific number

of houses, officies, stores etc., built and used by the contractor at
depreciated cost at the end of the contract period.

Such aspects should be considered in the planning of infrastructural

facilities for the project and they have to be clearly specified in the
special conditions of the contract (SCC)

3.

Power and water Supply:

Arrangements must be made by the principal for taking off power and
water by the contractor from within a reasonable distance (usually 1 or
2km ) from his work place.
From the designated taken points further distribution and it maintenance
is the responsibility of the contractor.
The contractor should also make arrangements for maintaining proper
voltage, standby generator, water storage and its pumping to take care of
disruption in supplies. The contractor cannot claim any compensation or
extension of time for disruption of time for disruption in power or water
supplies.
The designated points of take off of power and water should be clearly
identified and specified in the SCC.

4.

POL supply, Banking and communication facilities:

The communication facilities include post, telegraph, wireless, telephone etc.,

POL supply, banking, and communication facilities must be ensured at the
project site by the principal.

Contractor can avail these facilities by paying the applicable user charges.

5.

Medical, Educational shopping facilities and entertainment:

The basic minimum facilities in respect to these have to be made available at

the project area by the principal.

Tender documents should clearly indicate the provision made with regard to
these facilities and its applicable usage charges, their location, transport
arrangements that are made available.

6.

Law and order, security arrangements:

It is the general obligation of the state and central government to

provide general security, maintain law and order.

The principal has to interact with the government authorities to

ensure the law and order and security arrangements are set up at
the site. The costs involved in providing the required facilities in
respect of these have to be taken care by the principal.

However, the security and maintainance of works under the

contract, materials, plant and equipments etc., is the
responsibility of the contractor.