VALID CONTRACT

NAME OF SUBJECT: CONTRACT DOCUMENT BUILDING BYELAWS

YEAR : 4TH SEMESTER : 8TH

NAME OF FACULTY : PROF. KAMLESH P MISHRA

SCHOOL OF PLANNING, ARCHITECTURE & INTERIOR DESIGN,

LAKSHMANGARH
DEFINITION
A Contract is a legal agreement
between two or more people for
an exchange of goods or services.
Contracts are enforceable by
Contract law. There are many
different types of Contracts and
they vary between industry and
according to the type of services
performed.
 WHAT IS A CONTRACT ?
-As per INDIAN CONTRACT ACT 1872
As per Contract Act, an “A promise or set of
agreement enforceable by promises which the law will
law is a contract. [section enforce”.
2(h)]

CONTRACT

The agreement will create The normal method of

rights and obligations that enforcement is an action for
may be enforced in the damages for breach of
courts. contract.
COMPONENTS OF A VALID CONTRACT
Parties to an contract

Offer/Proposal & Acceptance

Legal Capacity to contract

Lawful consideration

Agreement should not be void or voidable

Discharge of the Contract

PARTIES TO A CONTRACT

Promisor Promisee

A person making A person accepting

the proposal (offer) the proposal (offer)
is known as a is known as a
promisor promisee.

We can also He is also known as

recognize him as a an offeree.
proposer.
 LEGAL CAPACITY TO CONTRACT
WHAT IS LEGAL
CAPACITY?

The ability, capability, or fitness to

do something; a legal right, power,
or competency to perform some act.

An ability to comprehend both the

nature and consequences of one's
acts.

The parties must be legally capable

of entering into a contract
 Both parties must have provided
consideration, i.e. each side must promise
to give or do something for the other.

For Example

Property

Anything of
Value

Money
 DISCHARGE OF CONTRACTS

The cases in which a contract is

discharged may be classified as follows

By By
performance impossibility
of
By operation By lapse of
of law. time
By breach
of contract
or tender. performance
BY BY IMPOSSIBILITY OF BY OPERATION OF
PERFORMANCE PERFORMANCE LAW
• By death
OR TENDER • By insolvency
• Inherent impossibility
• the state of having
• Known/Unknown to the liabilities that exceed
• When both the parties parties
perform their promises and assets, inability of a
fulfil the contract debtor to pay their debt
• Subsequent impossibility • By merger
• Destruction of subject
matter of contract
COMMON CONTRACT
DOCUMENTS
The Contract Documents are all documents which,
when combined, forms the basis of the Contract. It is
recommended that both parties to the Contract
execute or endorse complete sets of all Contract
documents and these should be preserved intact.
 The Contract or Agreement to be used by the parties.

 Conditions of the Contract – these define the legal

rights and obligations of the parties; another way of
describing the general conditions is as the rules by
which each party will operate in performing their
obligations as set down under the Contract.
 Special conditions of Contract – these are an
extension to the general conditions and apply
specifically and individually to each project/Contract.
 Bill of quantities – it lists quantities of the various items and the
material to be included in the Contract. It can also be used as the
basis for valuation of variations and assists the preparation of
progress claims. The extent to which the Owner warrants the
completeness of a bill of quantities or a schedule of rates depends
upon the terms of the Contract.
 All drawings required in building the structure (contract plans
including Architectural and Structural). These include drawings from
relevant Consultants.
 All Specifications – sets out the technical requirements of the work It
describes the project and adds clarity to its drawings; describes the
requirements for materials and workmanship.
 All other documents considered necessary, for example, Schedule or
Annexure to the Contract completed, all technical schedules, all
pricing schedules.
FACTORS TO BE CONSIDERED
Overseeing the Construction Contractor’s work including
site visits during construction to ensure the work is carried
out according to the Contract documents,
monitoring the Contractor compliance with safety codes,
prevailing on wage requirements,
environmental regulations and
other state and local regulations.
NEGOTIATE CONTRACT
A crucial battle in negotiating Construction Contracts
is waged between the Owner’s desire to get the
work done and the Contractors desire to get paid
for the work performed or goods supplied
• The most important aspect of Construction Contracts
is to clearly define the subject matter of the
Contract, while entering into the construction
agreement.
• Experience and understanding of the administration
aspects of Construction Contracts is important.
• Cost overruns and mismanaged resources are a
frequent hazard that can adversely affect
Construction Contracts.
TYPES OF CONTRACT
Contracts are usually
categorized according
to the type of
payment but can be
tailored to
incorporate common
elements from several
different Contract
types.
UNIT PRICE (ITEM –WISE)
 This kind of Contract is based on estimated
quantities of items included in the project and unit
prices which have been agreed to. The final price
of the project is dependent on the quantities of the
items needed to carry out the work. The terms of
this type of Contract often accommodates flexibility
for price adjustment. The agreed to value may be
subject to amendment if the volume is reduced or
exceeds the original negotiated terms and price.
advantages
 In this type of Contract, the Contractor has to initially
invest his own money for starting the work, and so the
Owner need not worry about giving the Contractor a
big advance.
 In general this Contract is considered the most scientific
and most suitable for construction projects where the
different types of items, but not their numbers, can be
accurately identified in the Contract documents.
 The Contractor is also safeguarded against any
contingencies, or variations in labour or material rates.
disadvantages
 The Contractor has to invest his own money initially.
Though this is one of the most preferred Contracts in
Constuction/Buildings, it is not unusual to combine a
Unit Price Contract for parts of the project with a
Lump Sum Contract or other types of Contracts
LUMP SUM CONTRACT
 With this kind of Contract the Contractor agrees to
do the construction and completion of the building
at a designated time for a fixed price or Lump Sum.
Also named “Fixed Fee Contract”, this type of
Contract is often used in Building Contracts. Fixed
Fee or Lump Sum Contract is suitable if the scope
and schedule of the project are sufficiently defined
to allow the estimation of the project costs
advantages
 A lump sum Contract provides for a price that is not subject
to any adjustment on the basis of the Contractor’s cost
experience in performing the Contract. This Contract type
places upon the Contractor maximum risk and full
responsibility for all costs and resulting profit or loss.
 Since the price is fixed, any unforeseen contingencies or
variations in material or labour prices do not affect the
Owner.
 It provides maximum incentive for the Contractor to control
costs and perform effectively and imposes a minimum
administrative burden upon the Contracting parties.
disadvantages
 An Architect is not involved as this Contract is an agreement
between the Owner and the Contractor for a final fixed
price. So the Architect does not have a role to play , and so
quality of work cannot be checked and controlled by an
expert.
 Since specifications are not clear, the Contractor can use
alternative/inferior brands of materials.
 Also there is a lot of ambiguity in the specifications,
measurements, mode of payment, etc.
 Though the Contract is made on a fixed price, the Contractor
may claim extras by giving different reasons, since the
specifications, measurements are not clear.
LABOUR CONTRACT
 In this type of Contract, the Owner buys and supplies
all the material required for the construction to the
Labour Contractor and only uses his labour. The system
of employing Contract labour is prevalent in most
industries including Construction, involving skilled and
semi skilled jobs. A workman is deemed to be employed
as Contract Labour when he is hired in connection with
the work by or through a Contractor.
 Contract labour has to be employed for work which is
specific and for definite duration.
advantages
 This kind of Contract is sometimes preferred by the
Owner, because he buys all the material by himself
and thus saves a lot on the Contractor’s profit.
 Moreover, the Owner can buy the materials of his
choice and can be sure of the brand that will be
used in the construction.
disadvantages
 In this Contract also, the Architect does not have a role to play, and
so quality of work cannot be checked and controlled by an expert.
 There is a lot of headache and tension involved in running around
and arranging for the supply of materials at site, on time as the
work progresses.
 It is easy to get fooled on the quality of sand, bricks etc because the
Owner is not very experienced in assessing the quality.
 It is difficult to strike a good bargain when negotiating with
suppliers and vendors, because the Owner is a one time Client,
wheras the Contrctor normally has an advantage as he is a regular
Client and a relationship is built between him and the suppliers.
COST + CONTRACT
 This type of Contract is not popular in India. This is a
Contract agreement wherein the Owner agrees to pay
the cost of all labor and materials plus an amount for
Contractor overhead and profit (usually as a
percentage of the labor and material cost). It is like a
Labour Contract, but here the Contractor buys the
materials and provides the labour and is reimbursed
accordingly. This type of Contract is favored where the
scope of the work is indeterminate or highly uncertain
and the kinds of labor, material and equipment needed
are also uncertain
types
 COST + FIXED % CONTRACT- It is based on a percentage
of the cost
 COST + FIXED FEE CONTRACT – It is based on a fixed sum
independent of the final project cost.
 COST + FIXED FEE BONUS CONTRACT –It is based on a
fixed sum of money and a bonus is given if the project
finishes below budget, ahead of schedule etc.
 COST + FIXED FEE WITH SHARING ANY COST SAVINGS
CONTRACT- It is based on a fixed sum of money and any
cost savings are shared with the Owner and the Contractor.
 INCENTIVE CONTRACTS – It is based on the Contractor’s
performance on the agreed target – budget, schedule
and/or quality.
advantages
 It has the advantages of the Labour Contracts.
 In addition, since the Contractor gets an additional
amount at the end of the project, it provides
maximum incentive for the Contractor to control
costs and perform effectively and on schedule.
disadvantages
 In this Contract also, the Architect does not have a
role to play, and so quality of work cannot be
checked and controlled by an expert.
 Since the Contractor is reimbursed based on the
records of the workers he has employed and the
materials he has bought, one can never be sure if
these records are genuine, as there is no way of
verifying them. So, this type of Contract is rarely
adopted in India.
PROJECT MANAGEMENT CONTRACT

 Project Management Contracts are a type of

Contract where the Architect agrees tomanage the
Contract, as defined by the scope of the
agreement, for a specified duration of time for
monetary consideration. This type of Contract can
be short term or long term.
advantages
 The Clients can focus on their core operations while
the Architect (Project Manager) looks after the
management of Projects, people and issues,
ensuring that deadlines are met, quality is
maintained and costs are controlled.
 The Project Manager coordinates with all the
agencies, including the Consultants, the Contractor
and the Suppliers to ensure that the construction of
the project goes on smoothly.
disadvantages
 Some Clients hesitate to go in for Project
Management Contract as they have to pay extra
for project management, in addition to the fees
paid to the Architect. However, there are lots of
Clients nowadays, who opt for Project management
as it saves them from a lot of headache and they
can concentrate on their work as the building comes
up. Moreover, in the long run, since the project is
completed on time, and costs are controlled, the
Client actually saves.
DEFINITIONS
 “Contractor” means the person, firm or company whose
Tender has been accepted by the Employer and includes the
Contractor’s personal representatives, successors and
permitted assigns.
 “Contract Sum” means the sum offered by the Contractor
and accepted by the Employer for the execution of the
Works at the date of acceptance of the Tender for the
Works.
 “Contingency Sum” means the sum provided for work or
expenditure which cannot be foreseen at the time the tender
documents are issued which sum may include provision for
work to be executed or for materials or services to be
supplied by a Nominated Sub-contractor.
 DUTIES OF BUILDING CONTRACTOR
 Examine and interpret Clients’ plans or arrange for the drawing of plans, to meet
building regulations
 Submit tenders (offers to do jobs at a stated price), quotes or prices for the project to
Clients
 Arrange submission of plans to local authorities for approval and arrange inspections
of building work
 Organise Subcontractors to carry out all stages of building and negotiate rates of
pay
 Calculate quantities of materials required for building projects and order these from
building suppliers or advertise for tenders
 Arrange delivery times of materials to coincide with various stages of the building
process
 Supervise the work of Subcontractors to make sure buildings are of an acceptable
standard and are proceeding according to schedule
 Coordinate the activities of office staff involved in the preparation and payment of
accounts
 Talk to lawyers and financial institutions on matters relating to loans and contracts for
building projects
 ADVANTAGES OF CONTRACT

CAN BE COST-EFFECTIVE ENCOURAGES

CONSISTENCY
• The use of contract manufacturers means that
the hiring firm does not need to purchase
expensive manufacturing facilities,
equipment, machinery, raw materials or hire
specialized labor.
• This not only allows the hiring firm to focus
• Having a written agreement provides one
solely on sales, advertising and marketing
set of procedures for everyone to follow.
but also allows a firm that is comparatively
For example, if a group rotates its
more efficient at manufacturing to carry out
secretary and treasurer, each person
the process.
might track money and keep records a
• As a result, hiring firms often benefit from
little differently, which could create an
economies of scale and the purchasing
administrative muddle.
power of large manufacturers. All of these
• Providing the secretary and treasurer with
factors lower production costs.
written procedures will help prevent that
problem
HELPS PREVENT
AMNESIA
• Putting information and
decisions on paper means
keeping less of it in your head;
there's a limit to how many
details we can keep organized
in our brains.
• Even with people whom you
trust completely, you may have
had the experience of
remembering the same event or
conversation differently.
LEADS TO A WELL-
THOUGHT-OUT PLAN
• Putting ideas in writing helps a
group think through details that
might not have been ironed out
during discussions.
• Plans that seem really great
over a glass of wine don't
always make as much sense
when you lay them out on
paper.
 DISADVANTAGES OF CONTRACT

TIME AND MONEY LITIGIOUS ATMOSPHERE

• Perhaps the main disadvantage to
• Making every person who deals with
the use of contracts to reduce risk
an organization sign contracts that
is that drawing up contracts takes
are designed to reduce the
both time and money. To
company's risk can create an
construct an airtight contract, a
atmosphere in which everyone has
company has to employ the
their hackles up.
services of a lawyer to draft the
• This may not only breed suspicion,
contracts, and lawyers are seldom
but it can actually increase the
inexpensive.
likelihood of a lawsuit, as people
• In addition, focusing on contracts
forced to sign these contracts may
draws time away from other
seek the counsel of a lawyer they
activities that could help grow
wouldn't otherwise approach.
the business.