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What is a Contract?
The Contracts or agreements between various parties are framed and validated by the Indian Contract Act.
Contract Act is one of the most central laws that regulates and oversees all the business wherever a deal or
an agreement is to be reached at. The following section will tell us what a contract is.

Contract Act
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is anything that is an
agreement and enforceable by the law of the land.

The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act defines
the term agreement as “every promise and every set of promises, forming the consideration for each other.

Agreement = Offer + Acceptance.

Difference Between Agreement And Contract

Let us see how a contract and agreement are different from each other. This will help you summarize and
make a map of all the important concepts that you have understood.

Contract Agreement

A promise or a number of promises that are not

A contract is an agreement that is enforceable by
contradicting and are accepted by the parties
law.
involved is an agreement.

An agreement must be socially acceptable. It

A contract is only legally enforceable.
may or may not be enforceable by the law.

An agreement doesn’t create any legal

A contract has to create some legal obligation.
obligations.

All contracts are also agreements. An agreement may or may not be a contract.
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A person A agrees to sell his house to a person B for 50 lakh.” This is an example of:

a. A contract
b. An agreement
c. Neither a Contract nor an Agreement
d. It is a contract as soon as A gets the money.

Answer: Let us see what we need for the above to be a contract. We need Accepted Proposal (Agreement) +
Enforceable by law (defined within the law). We have an “accepted proposal” by A as inferred from the phrase
“A agrees to sell”, but we don’t know whether B has been made a party to the agreement or not. So this is
neither a contract nor an agreement and the answer is C) Neither neither a Contract nor an Agreement.
Elements of a contract

A contract is much more than an agreement between two people. There must be an offer and acceptance,
intention to create a legally binding agreement, a price paid (not necessarily money), a legal capacity to
enter a contract of your own free will, and proper understanding and consent of what is involved. Any
duress, false statements, undue influence or unconscionable dealings could make a contract illegal and
void.

Essential elements of Contract

1. Offer and acceptance

A contract is formed when an offer by one party is accepted by the other party.

2. Intention to create legal relations

A contract does not exist just because there is an agreement between people. The parties to the
agreement must intend to enter into a legally binding agreement. Where the parties are entering into an
arms-length commercial arrangement, it will generally be presumed that the parties objectively intended
to create legal relations and make a binding contract.

3. Consideration

“Consideration” is the price paid for a promise made by one party to the other party. The price must be
something of value, although it need not be money. Consideration may be a right, interest or benefit going
to one party, or some forbearance, detriment or loss given, undertaken, tolerated or suffered by the other
party.

4. Legal capacity
Not all people are free to enter into a valid contract. Contracts involving:
•people who have a mental impairment;
•young people (minors);

5. Consent

Entering into a contract must involve the elements of free will and proper understanding of what each of
the parties is doing.
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In other words, the consent of each of the parties to a contract must be genuine. Only where the essential
element of proper consent has been given is there a contract that is binding upon the parties.

Proper consent may be affected by any of the following matters:

•mistake;
•misrepresentation or misleading conduct;
•undue influence
•unfair contract terms in standard form contracts.

6 Illegal and void contracts

The law will not enforce all contracts. A contract (or a term of a contract) that involves illegal conduct may
be void and unenforceable.

“All agreements are contracts but all contracts are not agreements.”
CONTRACT = AGREEMENT + ENFORCIBILITY BEFORE LAW

OFFER
When a person made a proposal, when he signifies to another his willingness to do or to abstain from
doing something.

TYPES OF OFFER:
Express offer - When offer is given to another person either in writing or in oral.
Implied offer - When offer is given to another person neither in writing nor in oral.
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Specific offer - When offer is given to a specific person.

General offer - When offer is given to entire world at alarge

Cross offer - When both the persons are making identical offers to each other in ignorance of other’s offer.

Counter offer - When both the persons are making offers to each other which are not identical in
ignorance of other’s offer.

Standing offer - An offer which remains continuously enforceable for a certain period of time.

ACCEPTANCE
When a person made a proposal to another to whom proposal is made, if proposal is assented there to, it
is called acceptance.

LEGAL RULES FOR ACCEPTANCE

• Acceptance must be given as per the mode prescribed by the offerer.

• Acceptance must be given before the lapse of time or within reasonable time.
• Acceptance must be unconditional.
• Acceptance may be given by any person in case of general offer.
• Acceptance may be given by any specific person in case of specific offer.
• Acceptance must be communicate
• Mental acceptance is no acceptance or acceptance must not be derived from silence.
• Acceptance must not be precedent to offer.

CONSIDERATION

“when at the desire of the promisor , or promisee or any other person has done or abstained
from doing or does or abstains from doing ,or promises to do or to abstain from doing ,
something , such an act or absinence or promise is called a consideration for the promise
When a party to an agreement promises to do something he must get “something” in return .This
“something” is defined as consideration.

LEGAL RULES AS TO CONSIDERATION

1) It must move at the desire of the promisor.

2) It may move by the promisee .
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3) It must be past ,present or future .
4) It must be real .
5) It must not be illegal , immoral or opposed to public policy .

Contract without consideration is void – Exceptions:

Love & affection .

Compensation for voluntary service .

Quasi contract

Quasi means almost or apparently but not really & Contract means an agreement enforceable by law. * A
Quasi contract is not a contract at all, because the essential elements for the formation of a contract are
absent. It is an obligation imposed by law upon a person for the benefit of another even in the absence of a
contract. It is based on principle of equity.

Eg :- In case of plumber who accidently install a sprinkler system in the lawn of the wrong house. The
owner of the house had learned the previous day that his neighbour was getting new sprinkle . That
morning, he sees the plumber is installing them in his own lawn. Pleased at the mistake , he says nothing,
and then refuses to pay when the plumber hands him the bill now it’s comes under quasi contract because
the man already knew that the
sprinkler were being installed mistakenly ,so court would may him pay because of quasi-contract.

Salient Features of Quasi Contractual Rights:-

 A quasi contract is not a real contract.
 It is not based upon the offer and acceptance rule.
 It does not arise from any formal agreement but it is imposed by law.
 It is a right which is available not against the entire world, but against particular person(s) only.

A quasi-contract exists in the absence of a written contract and may be court ordered to avoid one party
gaining at the expense of another party’s actions.

Contract types

The following are the various types of contracts, for execution of civil engineering works:

1. Item rate contract

2. Percentage rate contract
3. Labour contract
4. Lump Sum or Fixed Price Contract
5. Turnkey Contract
6. Design and Build
7. EPC Contract
8. Cost Plus Contracts
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1. Item rate contract

For this contract, contractors are required to quote rates for individual items of work on the basis of
schedule of quantities furnished by the client’s department. This method is most scientific and accurate.

 Advantages:
• Since, the contractors have to quote rate and amount of each and every item by themselves, ring
formation is difficult.

 Disadvantages:
 Contractor may intentionally quote high rate for a small quantity item in anticipation that the
quantity of the item may increase during execution. Thus, the client may suffer financially.
 Preparation of comparative statement may take considerable time.

2. Percentage rate contract

In this form of contract, the client’s department draws up the schedule of items according to the
description of items sanctioned in the estimate with quantities, rates, units and amounts shown therein.

 Advantages:
• There are no rates for individual items the benefit due to increase in quantities will not be availed
by the contractor.
• Comparative statement can be prepared quickly.
• Overwriting & erasing of rates etc. can be avoided.

 Disadvantages:
 contractor may quote rate too low or too high in such case it is too time consuming to cancel the
lowest tender ,to get approval of higher authorities as there is no guarantee of quality.
 Tenders can form the ring. This lead to loss of govt money.
 Two or more contractors may quote the same rate with negotiation then it is difficult to allot the
work to any one contractor.
 The total cost of work is not known until its completion.

3. Labour contract

This is a contract where the contractor quotes rates for the item work exclusive of the elements of
materials which are supplied by the client’s Department.

4. Lump Sum or Fixed Price Contract

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Under a Lump Sum or Fixed Price Contract, the contractor agrees to perform the work specified and
described in the contract for a fixed price. The price of a fixed contract can only be changed upon the
execution of a change order, under which the owner and the contractor either

(1) Agree for the contractor to perform additional work that falls outside the scope of the original work for
an agreed upon extra compensation or

(2) Agree to remove certain work from the original scope of work and reduce the price of the contract in
proportion to the work that the contractor no longer has to perform.

These types of contracts are appropriate when a clear scope and a defined schedule have been reviewed
and agreed upon.

5. Turnkey Contract

A turnkey contract is a business arrangement in which a project is delivered in a completed state. Rather
than contracting with an owner to develop a project in stages. The developer is hired to finish the entire
project without owner input. The builder or developer is separate from the final owner or operator, and
the project is turned over only once it is fully operational. In effect, the developer is finishing the project
and “turning the key” over to the new owner.

This type of arrangement is commonly used for construction projects ranging from single buildings to
large-scale developments.

Difference between lump-sum contract & turnkey contract

Under a traditional lump-sum contract, the owner agrees to pay the developer to complete a project that
is built to the owner’s specifications. The owner is given many opportunities to make decisions throughout
the project, and to make changes as needed. In a turnkey contract, the owner is generally left out of the
building process entirely as the developer handles all decisions and problems related to construction.

A contract of this kind may also be used in the residential home building industry. With a turnkey
agreement, a builder or developer completes both the construction and the finishes in the home before
turning it over to the homeowner. The homeowner is often offered a chance to select finishes, including
curtains, paint colors and carpeting.

6. Design and Build

Design and Build procurement works on the basis that the main contractor is responsible for undertaking
both the design and construction work on a project, for an agreed lump-sum price.

Design and build projects can vary depending on the extent of the contractor’s design responsibility and
how much initial design is included in the employer’s requirements. Nevertheless, the level of design
responsibility and input from the contractor is much greater on design and build projects than a traditional
contract with a contractor’s designed portion.
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The employer has control over any design elements of the project that are included in their requirements,
but once the contract is let responsibility over design passes to the contractor, so the employer has no
direct control over the contractor’s detailed design.

The contractor can carry out the design in a number of ways. Often they will appoint their own consultants
or use their own in-house team. It is also common practice for the contractor to take on the employer’s
consultants and continue to use them to complete the detailed design under what is known as a novation
agreement.

7. Engineering procurement and construction contract

Engineering, procurement, and construction (EPC) contracts, sometimes called turnkey contracts are
similar to design and build contracts, in that there is a single contract for the design and construction of the
project, but generally with an EPC contract, the client has less say over the design of the project and the
contractor takes more risk.

On a design and build project, the client may produce an outline design upon which tenders are sought. On
an EPC project, the client may seek tenders based on a performance specification and then have no input
into the design, other than if variations are instructed.

Payment can be on a lump sum, cost reimbursable basis, or some other basis, but generally the client
would be likely to seek a fixed price, lump sum agreement where the responsibility for cost control is taken
by the contractor. This gives the client a relatively risk-free arrangement, with one point of responsibility
and cost certainty. They can therefore operate the contract with the minimum resource.

8. Cost Plus Contracts

The Cost Plus Contract is a type of a construction contract under which the owner agrees to pay the
complete cost of the materials and labor needed to needed to build the project along with a fee for the
contractor’s overhead and profit. This contract type is favored where the scope of work is highly uncertain
or indeterminate and the type of labor, material, and equipment needed to build the project is also
uncertain in nature.

This type of contract involves payment of the actual costs, purchases or other expenses generated directly
from the construction activity. Under this arrangement, complete records of all time and materials spent
by the contractor on the work must be maintained. Cost Plus Contracts must contain specific information
about certain pre-negotiated amount (some percentage of the material and labor cost) covering
contractor’s overhead and profit. Costs must be detailed and should be classified as direct or indirect costs.

There are multiple variations for Cost plus contracts, and the most common are:
Cost Plus Fixed Percentage Contract– Compensation is based on a percentage of the cost;
Cost Plus Fixed Fee Contract– Compensation is based on a fixed sum independent the final project cost.