221ECE009

CONSTRUCTION CONTRACTS
METHODS AND EQUIPMENT
PROGRAM ELECTIVE 2
Module 1
Contracts Requirement of Contract, Elements of Contracts based on Indian
Contract Act (1872), Types of Contracts based on Stakeholder responsibilities,
Project Delivery Models – (Turnkey, EPC and PPP Models), Standard forms of
contract - (FIDIC, NHAI and CPWD), General conditions of the contract for
construction.
MODULE 2
Contract Administration Project Documentation, Submission and approval of
documents, Permits and approvals, Construction claims and disputes, Potential
major claim areas, The Bid Proposal Process and the Potential for Disputes,
Modes of resolving disputes, Understanding of Arbitration and Conciliation Act
1996 with latest amendments
MODULE 3
Contract Management Discharge of contract, Breach of contract, Tendering
issues, Risks in construction contract, Regulatory aspects and ethics, Intellectual
property act, Law of Torts, General Construction specifications, Commercial
Construction Specifications, Bonds, Types of Bonds, Insurance, Workers
compensation Insurance, Commercial general liability insurance, Builders risk
insurance.
MODULE 4
Construction Methods Horizontal Systems – Hand - set slab forms, Table forms,
Vertical Systems – Wall forms, Column forms, Combined Horizontal and Vertical
Systems – Tunnel Form Systems, TrenchSafety. Cost effective construction
methods - Prestressed concrete construction - 3D printing. Precast Flat Panel
System-3D Volumetric Construction-Flat Slabs-Hybrid Concrete Construction-
Precast Foundations-Insulating Concrete Formwork-Soil stabilisation methods
Module 5

Construction Equipment Dozers and graders, Scrapers, hydraulic excavators,

Draglines and Clamshells. Concreting equipment - Crushers – feeders – screening
equipment – batching and mixing equipment – hauling, pouring and pumping
equipment – transporters. Equipment for compaction- Pneumatic Tired Rollers,
Impact Compactors, Compaction Wheels, Intelligent compaction. Trucks and
Hauling Equipments - Capacities of Trucks and Hauling Equipment – Calculation
of truck productivity.
Module 1- Contents
● Contracts Requirement of Contract,
● Elements of Contracts based on Indian Contract Act (1872),
● Types of Contracts based on Stakeholder responsibilities,
● Project Delivery Models – (Turnkey, EPC and PPP Models),
● Standard forms of contract - (FIDIC, NHAI and CPWD),
● General conditions of the contract for construction.
Indian Contract act
• The Indian Contract Act, 1872 prescribes
the law relating to contracts in India and
is the key act regulating Indian contract
law.
• The Act is based on the principles of
English Common Law.
• It is applicable to all the states of India.
AGREEMENT
• The Indian Contract Act 1872, section 2(e), defines an
agreements as "every promise and every set of
promises, forming the consideration for each
other is an agreement.“
• A promise is essentially an offer or a proposal, made by
a person or an entity, towards another.
• The assent of the other, results in the acceptance of
the offer; thereby creating an agreement.
Offer
• When one person signifies
to another his willingness to
do or to abstain from doing
anything

Acceptance
• When the person to whom
the proposal is made,
signifies his assent there to,
the proposal is said to be
accepted.
Promise A Proposal when accepted becomes a promise.
In simple words, when an offer is accepted it
becomes promise.

Promisor When the proposal is accepted, the person

and making the proposal is called as promisor and the
promisee person accepting the proposal is called as
promisee.

Offeror-Accepter
PROMISOR-PROMISEE
Considerati When at the desire of the promisor, the promisee
on or any other person has done or abstained from
doing something such act is called a
consideration for the promise. i.e. something in
return.
Agreement Every promise and set of promises forming the
consideration for each other.

Agreement = Promise +Consideration

 CONTRACT

An agreement enforceable by Law is a

CONTRACT
Void contract
A contract becomes void when it is not enforceable by law.

VOID CONTRACT AGREEMENT

 For offending any law
 For immoral purpose
 Against public policy
 Impossible to perform
ELEMENTS OF CONTRACTS
1. Minimum two parties
2. Offer and acceptance
3. Intention to create legal obligation
4. Lawful consideration
5. Competent parties
6. Free consent
7. Lawful object
8. Not expressly declared void
9. Certainly and possibility of performance
10. Legal formalities
1. Minimum Two Parties
• At least two parties are necessary to form a contract .
• One person cannot enter into a contract with himself.
2. Offer and acceptance
• There must be an offer and an acceptance to the offer , resulting into
an agreement.
3.Intention to create legal obligation
• The parties must intend to create legal obligation.
• The party is ready to accept the legal consequences if he or she does
not perform his part of the contract.
4.Lawful consideration
• An agreement is legally enforceable only when each of the parties
thereto gives something and get something, that is consideration.
• It must not illegal or fraudulent or immoral or opposed to public
policy
5. Competent parties
• The parties to a contract must be competent, that is , of the age of
majority over 18 yrs of sound mind.
6.Free consent
• All the parties must give their free consent to form a valid contract.
• Consent means that the parties must agree about the subject matter
of the agreement in the same sense and at the same time.
7. Lawful object
• The object of the agreement must not be
✔ fraudulent; or
✔ Involves or implies injury to the person or property of another; or
✔ The Court regards it as immoral, or opposed to public policy.
• In each of these cases, the consideration or object of an agreement
said to be unlawful.
• Every agreement of which the object or consideration is unlawful is
void.
 8.Not expressly declared void
• An agreement expressly declared to be void under section 24 & 30

• Section 24 in The Indian Contract Act, 1872. 24. Agreements void, if

considerations and objects unlawful in part. —If any part of a single consideration
for one or more objects, or any one or any part of any one of several
considerations for a single object, is unlawful, the agreement is void
9.Certainty and possibility of performance
• The terms of contract must not be vague or uncertain.
• If an agreement is vague and its meaning cannot be ascertained, it
cannot be enforced.
10. Legal formalities
• Generally the contract may be oral or in writing.
• Certain contracts are required to be in writing and may even require
registration.
TYPES OF CONTRACTS
Main Contracts/head contracts
• prime contractor works for the whole project,
• a prime contractor usually makes more money per project.
Subcontracts
• subcontractor only works for part of the work
• However, a subcontractor may work on more projects over the same
amount of time, so their annual pay heavily depends on scheduling
and demand
Based on characteristics
A. The method by which the contractor is selected.
B. The method by which payment for the work under the contract is
evaluated.
C. The method by which responsibility for the technical and
administrative aspects of the work is allocated.
A. The method by which the contractor is
selected.
• The principal has two options when selecting the contractor
1. By a competitive tendering procedure
• Number of tenderers are invited to submit bids against a common set of
enquiry documents.
• Most widely used form of engineering contracts.
2. By direct negotiation with a selected contractor
• Principal negotiates directly with a contractor to arrive at a mutually
satisfactory agreement to undertake the work.
• Suitable for work for a highly specialized nature or
• Limited number of contractors experienced in the work
3.Combination of these methods

• Tender can be invited from a shortlist suitable contractors.

B. The method by which payment for the work under the contract
is evaluated.

• There are four basic methods of payment

1. By lump sum
2. By schedule of rates
3. By part lump sum , Part schedule of rates
4. By cost plus
1.By lump sum
• Either ‘fixed’ or ‘subject to cost adjustment’
• Fixed price contract- the contractor accepts responsibility for all
fluctuations in cost and charges due to
• Escalation
• Delays
• Other reasons
• No additional payment will be made to cover such cost.
• ‘Subject to cost adjustment’-Provision may made for
• additional payments due to fluctuations in wages and conditions
• Cost of delays outside the contractors control
2.By schedule of rates

• The contractor is paid for the work actually done at pre-agreed unit
rates.
• Also called as ‘Payment By Quantum Meruit’
• In this type of contract it is important that the items in the Schedule
of rates or Priced Bill of Quantities cover the whole of the work.
• It is used where the nature and extent of the work can accurately
defined but quantity of cannot.
3.By part lump sum , Part schedule of rates
• Part of work under the contract may be covered by a lump sum, Part of
it paid for under schedule of rates.
4. By cost plus
• Also called Cost reimbursement contract
• Contract amount PLUS (+) a fee to cover overhead cost and profit.
• The fee can be done of the following :
• A fixed sum
• A fixed sum with a profit sharing arrangement
• A fixed sum with a bonus arrangement
• A fixed fee with a sliding-scale adjustment
• A percentage of the costs
C. Classification by Technical and administrative responsibility

• Based on tasks are :

• Project management and coordination
• Engineering
• Design
• Documentation
• Construction /installation/Supply
• Procurement
• Supervision
• Construction
C. Classification by administrative
responsibility
• Based on responsibilities
1. Engineering (only) Contract
2. Engineering /Procurement Contract
3. Construction/supply/ Installation Contract
4. Engineering /procurement/Construction contract
5. Construction management contract
6. Turnkey contract
Procurement Contract

• A procurement contract is a legally binding agreement between a

purchaser (your company) and a supplier (your vendor).
• It describes what goods or services are expected to be provided by
the vendor, specifications such as delivery dates or quality control
requirements, and payment terms.
• A well-designed procurement contract is the foundation for a
successful and long-lasting supplier relationship.
• It allows both parties to ensure they’re fulfilling obligations by
communicating them explicitly and in writing.
TYPES OF CONTRACT
1. Design and build contracts
2. Management contracts
3. Construction management contracts.
1. DESIGN AND BUILD CONTRACT
• Designed for construction projects where
the contractor carries out both the design
and construction works.
• Design and construction aspects are
contracted with a single entity known as the
design builder or design build contractor.
• Design builder is usually the general
contractor, in many cases it is also the design
professional, architect or engineer.
• This system is used to minimize the project
risk for an owner.
2. MANAGEMENT CONTRACTS
• The characteristics of a management contract are that
the client engages the management contractor to
participate in the project at an early stage, contribute
construction expertise to the design and manage the
construction .
• The management contractor is not employed for the
purposes of undertaking any of the works, but solely
for managing the process.

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Management contracts
• In effect, management contracting is a
procurement method consisting of 100% sub-
contracting. Every item of building work is sub-
contracted to works contractors.
• The opportunity for the contractor to become part
of the design team arises not from the contract
structure but from early appointment and the
pattern of liability and responsibility outlined in
the contract.
Contractual relationships in management contracting
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 USE OF MANAGEMENT CONTRACTING
1. The employer wishes the design to be carried out by an
independent architect and design team.
2. There is a need for early completion.
3. The project is fairly large.
4. The project requirements are complex.
5. The employer, while requiring early completion, wants
the maximum possible competition in respect of the price
for the building works.

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Construction management contracts
• A construction management contract is a specific type of agreement
that governs the relationship between a client (often the owner of a
construction project) and a construction management firm or
professional.

• This contract outlines the roles, responsibilities, and terms that will
guide the construction management services for a project.
PROJECT DOCUMENTATION
 Tendering and contract information
The Enquiry Documents
The Enquiry Documents inform the tenderers of the nature, extent and
detailed requirements of the work under the proposed contract and
contractual obligations which will govern the performance of the
contract.
• They will also define the procedure to be followed when preparing and
submitting tenders.
• The Enquiry Documents are prepared by the principal and are issued
to tenderers under cover of a formal invitation to submit a tender.
 Parts of The Enquiry Documents

The Enquiry Documents

B. Contract c. Amendments to
A. Requirements
documents for The Enquiry
for tendering
tendering Documents

Invitation to tender Requirements for tendering

Form of agreement

Instructions to tenderers
Conditions of contract Contract documents for tendering

Content of Tender
Specification and drawings
Requirements for tendering
• To inform tenderers of the Principal’s requirements regarding the
preparation and submission of tenders.
• Once tenders have been submitted and evaluated , these documents
have no further relevance.
Comprising :
1. Invitation to tender
2. Instructions to tenderers
3. Content of Tender
1. Invitation to tender
• It’s a formal request to tenderers to submit an offer or a proposal to
undertake the work under the contact.

BID

• The form Invitation depend upon method used for inviting tenders.
• Open tendering procedure
• Invitation is a form of a public notice in the advertisements
section of one or more appropriate publications.
• Nominated or pre qualified tenderers
• Invitation is a form of a letter individually addressed to each
tenderers.
Invitation to tender includes Following
information
• Project identification
• A formal invitation to tender
• Outline of the work
• Location of the work
• Who is involved
• The type of contract
• Closing time, date and place for receiving tenders
• Procedure for opening tenders
• A request for the tenderer to confirm that the invitation will be either
accepted or declined.
2.Instructions to tenderers
• It contains all the provisions relating specifically to the preparation
and submission of tenders.
• Instructions to tenderers to ensure that what to do exactly when
submitting a tender.
3.Content of Tender
• Comprising
• Listing of all the forms
• Schedule and supporting documents required
• Declaration format.
• It gives clear idea regarding the preparation tender…so no excuse left
for the omission of important information or the misinterpretation of
the requirements.
b. Contract documents for tendering
• This group of agreements tells tenderers exactly
• what has to be done
• How the work is to be carried out
• Terms and conditions
• It comprising
1. Form of agreement
2. Conditions of contract
3. Specification and drawings
Form of agreement
• Following spaces are included in Form of agreement
• Date of the agreement
• Name and address of both parties to the agreement
• Name and identifying number of the contract
• Brief description of the work under the contract
• Schedule of documents
• Positions for the signature of the parties /seals
Conditions of contract
• Rules under which the contract will be administered.
• Basic provisions regarding the rights and obligations of the parties to
the contract and actions to be taken if any dispute occurs.
3.Specification and drawings
• Also referred to as ‘Technical requirements’.
• Discuss in detail the work to be performed and engineering
requirements for the work.
• Drawings are used to show details such as form,
size ,quantity ,location and so on.
C. Amendments to The Enquiry Documents/
CORRIGENDUM/TENDER ADDENDUM
• These documents are those issued during tender period.
• tender period means the period between the issue of the enquiry
documents and the opening of tenders.
• During this period it may be necessary to correct or amend one or
more of the enquiry documents.
• This can arise from queries raised by tenderers.
• May be errors or omissions in the documents or amendments due to
changed circumstances.
Amendments to The Enquiry Documents
• Such amendments should be in writing and issued to all tenderers as
a Notice To Tenderers.
• Notice To Tenderers forms part of the Enquiry documents and must
be prepared and distributed with the same care and attention as was
given to the Enquiry documents initially issued to tenderers.
Methods of Tendering
• 4 basic methods
❑Unrestricted tendering
▪Openly invited tenderers
▪ Pre-registered Tenderers
❑Restricted tendering
▪ Nominated Tenderers
▪ Pre-qualified Tenderers
Unrestricted tendering
• It is not suitable for major contracts as it can attract large number of
enquires.
• Some of which are may not be really serious
• Its from firms and individuals , reveal as being unsuitable.
• As a result , the Principal can be involved in an unnecessary expenditure of
time and money.
• Making a non refundable charge for ED can defray the cost of some extent &
it does tend to discourage such contractors
Restricted tendering
• The nature of the project requires the significant labour, plant and
material resources , involving heavy financing cost.
▪ Nominated Tenderers
▪ Pre-qualified Tenderers
Openly invited tenderers
• Contractors are invited by public advertisement to submit tenders for
the work.
• Suitable for smaller type of works
• Attract a good offer from a tenderer.

Pre-registered Tenderers
Contractors are invited , usually by public advertisement to apply for
registration
Nominated Tenderers

• To avoid most of the problems in unrestricted tendering by inviting a

selected number of contractors to submit bids.
• Contractors who have previously been pre qualified or whose past
performance is well known are in this list.
• Size and complexity of the project will large or specialist services
required.
Pre-qualified Tenderers
• Contractors invited by public advertisement to apply for pre qualified
as tenderers.
• From an analysis and evaluation of the applications , a short list is
prepared of suitably qualified tenderers who will be invited to submit
bids.
• Pre-registered Tenderers is simply to find out who is interested in
tendering without knowing beforehand their qualification or capacity
to do the work.
• Prequalification involves a screening process to determine the
contractors.
THE TENDER
• The tender documents comprise the tenderer’s offer to the principal
and are submitted in response to the invitation to tender.
• The important document is the tender form, which is issued with the
Enquiry Documents and completed and signed by the tenderer with
supporting documents.
The opening and checking of tenders
• Tenders can be opened in private or in public at the option of the
principal.
• The tenders are usually opened by the Engineer in the presence of a
witness or representative of the principal and the representatives of
the tenderers.
• Before each tender package is opened it should be checked by the
Engineer and displayed to the audience to show it is intact.
As each tender is opened , the engineer
should announce and record:
• The name of the tenderer
• The date and time of receipt of tender
• The tender sum
• The construction period and completion date
• The other relevant details (if applicable)
The evaluation of tenders
• Four phases:
1. Preliminary Evaluation
2. Post tender interview
3. Final evaluation
4. Risk analysis
Preliminary Evaluation
• following matters which may require further clarification.
• Tenderers management and administrative structure
• Financial statement
• Experience and tenderers background
• Bill of quantities…………
Post tender interview
• Its for further information from tenderers in Clarification of their
tenders.
• Before each interview is held , a list of questions arising from the
preliminary evaluation should prepared and printed under an
appropriate heading.
• The meeting should be chaired by the engineer and formal minutes
would be prepared.
Final evaluation
• It consists of three components
✔ General contractual and administrative review
✔ Financial appraisal
✔ Technical evaluation
Risk analysis
• Possible risks should be appraised
1. Inadequate performance by the contractor
2. Poor supervision and quality control
3. Inability to meet the date for practical completion and other programme
milestones dates
• Lowest tender sum and the most satisfactory result from the financial
appraisal may not be the best tender for the principal to accept.
• All factors considered in the evaluation process , including risk
analysis .
Evaluation report
• Following completion of the four phases of the evaluation process,
the engineer should be in apposition to compile an evaluation report.
• The tenders received should then be identified as :
• Conforming tenders
• Non conforming tenders
• Acceptable alternative tenders
AWARDING THE CONTRACT
• After the final decision made to accept a tender , A Letter of
acceptance , signed by the person authorised to do so by the principal
should be sent to the successful tenderers.
✔ An obligation is a juridical necessity to give, to
do or not to do.
 Obligations
✔ A duty, something to which
one is legally or morally
bound
✔ Oblige
✔ Obliged
✔ Obligatory
 Example
• Obligation to transfer
ownership of the car.
• Obligation to pay for it.
• Contract specifies the
obligations such as method
and amount of payment;
time’ place of delivery.
 Elements of obligation
Active Power to demand the object
subject Obligee/creditor

Passive Bound to perform the object

subject Obligor/debtor
Object Not a thing but a particular conduct of the debtor
Kinds :To give
To do
No to do
Who is a contractor?
• A person or entity identified as
such in the owner-contractor
agreement and is referred to
throughout the contract
documents.
• The contractor or his authorized
representative
The prime contractor of each trade or his authorized
representative.
 2.1 Contractor’s Obligations

Begins with the obligation to construct the

works in accordance with the documents within
the required time.
 2.1 Contractor’s Obligations
• To complete the works
• To ensure the suitability or effectiveness of the
works using the materials specified.
• Design responsibility
• To warn the employer in relation to an
impracticable design.
• Keeping a competent person in charge of the site.
 2.1.1 Standard of work
• Contractor’s basic obligation
• Comply with the terms of the contract.
• Includes both express terms and implied terms.
• Everything depends on the wording of the
contract.
 Express terms
• Express terms are terms that have been
specifically mentioned and agreed by both
parties at the time the contract is made.
• They can either be oral or in writing.
• A legal binding agreement must be complete
in its terms to be a valid contract.
 Implied terms
• Terms which although not mentioned by the
parties but was present in the minds of the
parties at the time on conclusion of the
contract.
 2.1.1 Standard of work
• Workmanship
• Standard of materials
• Suitability of materials
• Suitability of building
 a. Workmanship
• Present the requirements for
quality and consistency.
• ‘workmanship for the works …
shall be of the standards
described in the contract bills’.
 a. Workmanship
• Responsible for sub-contractor’s
workmanship also
 b. Standard of Materials
• “all materials and goods shall……, so far as procurable, be of
the respective kinds and standards described in the contract
bills.”
• Implied terms will more.
• Satisfactory quality merchantable quality ; Free
from any defects
• Contractor will not be liable for defective materials
where forced by the employer.
 c. Suitability of materials
• Standard appropriate to the works.
• Section 4 : Supply of goods and services
Act, 1982 :- goods shall be reasonably fit
for the purpose for which they are supplied.
d. Suitability of the building
• Implied term “building”
• When work complete, it should be fit for its
intended purpose.
 2.1.2 Statutory obligations
• Imposed by the acts of parliament and other
legislation such as government regulations.
• Failure by the contractor to comply with
obligation -------- breach of contract +
claim for damage.
 a. Contractor’s duties
• Building regulations, 1985
• Health and safety at work Act, 1974
• Construction regulations, 2007
• Compliance with local authority byelaws
• Regulations by statutory undertakers such as
electricity, gas and water boards etc.
• Payment
 a. Contractor’s duties
• Trade Disputes Act, 1929
• Contract Labour Act, 1970
• Building and other construction Worker’s Act, 1996
• Minimum wages Act, 1948
• Employees’ Provident Fund and Miscellaneous
Provision Act, 1952
• Employees’ State Insurance Act, 1948
 a. Contractor’s duties
• Employees’ Compensation Act, 1923
• Payment of Bonus Act, 1965
• Maternity Benefit Act, 1961
• Payment of Gratuity Act, 1972
• Payment of Wages Act, 1936
 a. Contractor’s duties
• Factories Act, 1948
• Industrial Employment Act, 1946
• Building and Construction Workers Act 1996
• Bonded Labour System (Abolition) Act 1976
• The Interstate Migrant Workers Act 1979
• The Dock Workers Act 1986
 a. Contractor’s duties
• The Plantation Labour Act 1951
• The Transport Workers Act
• The Beedi and Cigar Workers Act 1966
• The Child Labour (Prohibition and
Regulation) Act 1986
• The Mine Act 1952.
 Coordination
2.1.3
and management
CO-ORDINATION AND MANAGEMENT
• Main contractor has an important part to play in
managing the site and the persons who work on it.
• Control of persons on the site.
• The main contractor is responsible for
programming the overall project and coordinating
the contributions made by various other persons
and organizations, notably sub-contractors
 Exclusions of persons from work
• Extends to the employees of subcontractors.
• Contractor should employ skilled labours.
• Engineer has the power; only for lack of diligence
or workmanship.
 2.1.4 Transfer of materials
• Transfer of ownership in materials from contractor to
employer.
• Express provisions : retention of title clauses.
• Contract provisions
 Employer’s Obligations

Implied Obligation
Responsibility Of Contract Administrator
Responsibility Of Site Condition
Health And Safety
 2.4 Employer’s Obligations

Under JCT
• Payment ; contract sum
• Necessary nominations should be made; architect,
contract administrator, quantity surveyor
• Site obligations : date of possession of the site,
possession of any relevant part of site to contractor
• Insurance of the works
• Confidentiality : regarding rates
 Responsibility of Contract
Administrator
• Negligence ---- employer liable for the breach of
contract------ claim against the contract
administrator
• An employer who obstructs or interferes with the
issue of a certificate, or who puts improper pressure
on the contract administrator, will be liable to the
contractor.
 Responsibility of Site conditions
• Problems : site conditions changes; subsoil turnout to
be adverse; proposed method becomes impracticable
• Contractor’s risk
• Employer’s responsibility : incurs liability when the
project proves to be unexpectedly difficult or
expensive to carry out.
MODULE 2 -CONTENTS
• Contract Administration Project Documentation,
• Submission and approval of documents,
• Permits and approvals,
• Construction claims and disputes,
• Potential major claim areas,
• The Bid Proposal Process and the Potential for Disputes,
• Modes of resolving disputes,
• Understanding of Arbitration and Conciliation Act 1996 with latest
amendments
Non-adversarial dispute
resolution
• Contractual disputes in construction arise
because of a series of factors that combine in
various ways to produce arguments,
disagreements and, ultimately,
disputes.
Construction contract disputes depends
upon a variety of things such as the terms
of the contract :-
✔The technological issues of the site and the building,
✔ The character of the project personnel,
✔ the amount of time and money available,
✔ The realism of peoples’ expectations,
✔ Project environmental factors,
✔ The legal basis of the argument,
✔ The magnitude of the issue, and so on.
 BACKGROUND TO DISPUTES
• Motivating factors of individuals and organizations
– The people from any organization will not have similar
objectives.
– Objectives are influenced by education, family, friends and
even the media.
– To make matters even more complex, objectives change
for an individual as time passes.
– The complexity of objectives is thus due to the fact that
they can be personal and/or organizational, as well as
dynamic.
– This mismatches,that conflict can develop and escalate
very quickly.
 Causes of Disputes
1. Incorrect ground data
• Ground conditions
• Depth of groundwater table
• Rainfall and temperature data
• Availability of power & water.

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 Causes of Disputes
2. Use of faulty and ambiguous provisions and/or
language in contracts

• Language should be clear

• Should not be open to different interpretations.
• Absence of appropriate technical provisions
• Discrepancy
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 Causes of Disputes
3. Deviations

• Contract should be designed to occupy

changes
• Scope of work in contract should be properly
defined
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 Causes of Disputes
4. Unreasonable attitudes
• Professional approach is needed
• Delay in payments
5. Contractor being of poor means
• Lack of technical and financial resources

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 Causes of Disputes
6. Other reasons
• Hindrances due to other contractors working on
site
• Overpayment
• Owners not handing over the site on the date
and time specified
• Unreasonable attitude adopted by the contractor
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THE ROLE OF THE CONTRACT ADMINISTRATOR
• The contract administrator plays two role in a construction
project: -
• First, as agent for the employer in such matters as the issue
of instructions,
• Second, as an impartial decision maker in such matters as
certification and the valuation of variations and other
claims.
Decisions of the contract administrator may avoid or
resolve potential disputes
 Dispute Resolution
Steps involved in dispute resolution
❑ Negotiation
❑ Mediation
❑ Dispute Review Boards
❑ Arbitration
❑ Litigation
 Negotiation
• Usually Informal process
• Can be formal by meetings, documentation.
• If an agreement is made in negotiation then it has
legal significance.
• Fast process & does not involve additional
expenses
 Mediation
• Bringing in a respected, neutral, uninvolved
person to help everyone reach a mutually
acceptable resolution
• Mediators does not decide
• Try to advise and consult impartially
• Assists in bringing out a mutually agreeable
solution to problem.
 Mediation
• Voluntary process
• Private , confidential and conducted without
prejudice to any legal proceedings.
• Open channel of communication
• Time consuming
• Less cost
• Minimize further disputes
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 Conciliation
• Out of court dispute resolution instrument
• Parties are free to choose conciliator
• Voluntary , flexible and confidential.
• Decision taken by conciliator.
• Interest based; ultimate decision remains with parties
• Conciliator is asked to give a non binding settlement
proposal
• Conciliation ensures party autonomy
 Dispute Review Board (DRB)
• DRB ; 3 members; neutral members
• Comprises persons from contractor’s side and
owner’s side.
• Third person appointed by the other two.(veto)
• Chair person
• Established as a part of contract
• Hearings Toc H Institute of Science & Technology
 Arbitration
• Adversarial dispute resolution
• Why not Courts?
• Referring disputes to a third person in legal
terminology is termed as arbitration
• Third person : Arbitrator

Setting up a mutually acceptable tribunal for settlement

of disputes between the two parties to a contract.
 Arbitration
The agreement made by two or more parties between
whom some difference has arisen or may thereafter
arise, whereby they appoint another person to
adjudicate upon such dispute and agree to bind
themselves with the decision is known as arbitration
Arbitrator examines and evaluates the disputes; hearings
Judgment based on his experience and reasonable
discretion.
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 Acts
• Indian Arbitration Act, 1940
• Arbitration and Conciliation Act, 1996
• The act regulates the basic rules of arbitration,
rights, duties and powers of arbitrator.

• Section 2 of Indian Arbitration Act, 1940 defines

arbitration agreement and award.
 Section 2
Arbitration agreement
• Written agreement to submit present or future
differences to arbitration.
• When the agreement deals with the present or
existing dispute, it is called submission.
• When it deals with submission of future
disputes, it becomes a reference.
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 Section 2
Essential ingredients of Arbitration agreement
• The parties must be ad-idem

• Agreement must be in writing

• Agreement should be to refer either present or future disputes to

arbitration.

• Arbitrator must be a person recognized by law.

Arbitration award
Decision made by arbitrator
 Arbitrator
• Functions are judicial and the duties are not those
of a partisan agent.
• Should be an impartial judge to dispense equal
justice to all parties.
• Arbitrator must be informed about his appointment
and he must accept it.
• Sole arbitrator
• Even no of arbitrators : umpire required.
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Appointment of Arbitrator
• Have reputation of possessing unimpeachable
integrity and probity.
• Not be open to approach by any parties.
• Impartial, competent person.

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 Duties of an Arbitrator
• To act fairly to both the parties and in the proceedings
through out the reference.
• He must not favour any party and act impartially.
• He should observe the basic principles of
administration of natural justice.
• He is merely a valuer. Should carry out judicial
function in arriving at an award.
• Should strictly follow the terms. Must not decide
anything other than mentioned.
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 Powers of an Arbitrator
• Section 13
• To administer oath to the parties and witnesses.
• To make the award conditional
• To correct clerical mistakes or typographical
mistakes subsequent to the declaration of award.
• To interrogate and examine the parties and
witness. Toc H Institute of Science & Technology
 Powers of an Arbitrator
• To give notice to the parties to appear before him at
the time and place of meeting to be decided by him.
• To call for particulars of claims and adjourn the
proceedings.
• To make an award in respect of payment of interest
by one party to the other.
• The arbitrator can enquire, decide and adjudicate
upon the matters referred to him.
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 Litigation
• In court
• Judge
• Depends on size of disputes, nature of
disputes.

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 Arbitration vs Litigation
Advantages of Advantages of
arbitration litigation
• Cost • Legal aid
• Speed
• Third parties
• Technical complexity
• Legal complexity
• Convenience
• Privacy
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Financial remedies for breach of contract

● The primary remedy for any breach of contract is an award of

damages.
● Remedy is available , only available in cases of serious
breach.
● Damages are assessed with the intention of making
the innocent party’s position (so far as money can do
this) equivalent to what it would have been if the
contract had been properly performed.
GENERAL DAMAGES

● A legal remedy is a court order that seeks to uphold a

person’s rights or to redress a breach of the law.
● When one party breaches a contract, the other party may
ask a court to provide a remedy for the breach.
● The court may order the breaching party to pay money
to the non-breaching party.
TYPES OF BREACH

1. Anticipatory Breach
2. Actual Breach
1. Anticipatory Breach

Anticipatory breach of contract occurs when a party to

the contract expresses his incapability or refusal to
perform his part of the contract before the due date of
the contract.
2. Actual Breach

Actual breach of contract occurs when a party on the

date of the performance of the contract fails or refuses to
perform his part of the obligations specified in the
contract.
Purpose of an award of damages

Damages are assessed with the intention of making the

innocent party’s position .
Employer’s damages for contractor’s breach

Contractor’s damages for employer’s breach

 LIQUIDATED DAMAGES (LAD)

This term applies to a predetermined sum which becomes payable

by a party to a contract if certain specified breaches occur.
Where it exists, this type of entitlement replaces the normal right
to claim damages measured by the amount of loss actually
suffered.
Nature and purpose of liquidated damages

A claim for ‘liquidated damages’ can only succeed where the

contract makes express provision for it.
Most construction contracts do this, by means of a clause
providing that a contractor who is guilty of failure to complete the
works by the contractual completion date (as extended where
appropriate) shall pay or allow a certain amount of liquidated
damages for every day or week of delay.
Liquidated damages

They also save time and money on arbitration or litigation.

QUANTUM MERUIT CLAIMS

A quantum meruit claim is one in which the contractor

seeks payment of the reasonable value of work done for
the employer.
Quantum meruit claims are typically used when there is no
valid contract between the parties
QUANTUM MERUIT CLAIMS

There are four basic elements that must be proved in order to be successful.

1. Valuable services have been provided;

2. Services were provided to the defendant;
3. The defendant accepted, used, and enjoyed the services; &
4. The defendant was aware that the party providing the services expected
to be paid by the defendant.

If these four elements are successfully proved, the court will

declare an implied contract
How damages are awarded

Quantum meruit claim, the amount recoverable will be based on

the reasonable value of services that were provided.