Contract Management, M Arch , Lecture 1,

Contract Management, M. Arch

1. CONTRACT MANAGEMENT AR. KANAK KASHYAP
LESSON PLAN

•INTRODUCTION
•BID CYCLE
•CONTRACT CONDITIONS
•CONDITIONS OF AGREEMENT
•OBLIGATION AND RESPONSIBILITIES OF THE PARTIES
•DUTIES AND LIABILITIES OF ARCHITECT
•IMPLIED AUTHORITY OF AN ARCHITECT
•ARCHITECT’S LIABILITY TO CONTRACTOR
•CONTRACTOR’S DUTIES AND LIABILITIES
•OWNER’S DUTIES AND LIABILITIES
•TENDERS
•BUILDING CONTRACT
•ARTICLES OF AGREEMENT
•SCOPE AND INTENT
•MISCELLANEOUS
•ARBITRATION
•TERMINOLOGIES

2. LAW AND COMMON MAN:
Law is a system of rules and guidelines which
are enforced through social institutions to
govern behaviour.
•Law can be made through Legislations,
Decrees, Regulations, Precedents and
CONTRACTS.
•The adjudication of Law is generally
divided into 2: Criminal and Civil.
•Criminal Law: deals with conduct
considered harmful to society, in which the
guilty party maybe punished or fined.
•Civil Law: deals with resolution of law suits
between individuals or organisations,
which provide a legal remedy to the
winning party.
•Types of Civil Law: Contract law, Property
Law, Trust Law, Tort law, Constitutional
Law, Administrative Law and International
Law.
CONTRACT LAW:
•The main Contract Law is codified in Indian
Contract Act.
•This came to effect on 1
st
September, 1872.
•Extends to the whole of India, except J&K.
•It governs entrance into contract and effects of
breach of contract.
•The Indian Contract Act is popularly known as
the Mercantile Law of India.
•This act is the main and most used act of legal
agreements in India.
CONTRACT:
•Any construction project involves three main
factors.
•Owner: the employer who finances the project
•Architect: who designs for the project
•Contractor: who executes the project
•The cementing force among all these people is
the CONTRACT, which expects all parties to
perform its obligations within the parameters
set out, so as to achieve the final goal.
CONTRACT MANAGEMENT AR. KANAK KASHYAP
INTRODUCTION

3. BID CYCLE
•A contract is an agreement which arises
out of acceptance of Offer/ Proposal.
•This agreement or promise necessarily
involves two or more persons.
•The one who makes this proposal is called
a Promisor and the one who accepts the
proposal is called a Promisee.
•This offer/ proposal is willingness to
Contract made with the intention that it
will become binding on both the parties as
soon as it is accepted.
•Quotation of prices or submitting of
tenders is an invitation of offer but not an
offer itself.
•Indian Contract Act states that all
agreements are contracts if they are made
enforceable by Law, by the free consent of
the parties competent to contract for a
lawful consideration and with a lawful
subject.
Invitation
to offer
Submit
tender
Accept &
negotiate
Agreement
Contract
CONTRACT MANAGEMENT AR. KANAK KASHYAP

4. CONTRACT CONDITIONS
•The conditions of contract virtually add
to the law laid down by the parties for
governing their respective conduct and
fulfilling their contractual duties and
responsibilities.
•The conditions form a part of the
contract document.
•The clauses included in these conditions
are governed by the character of the
proposed work.
•Since majority of massive projects are
executed for the public by the
Government departments and public
undertakings through well established
contracting companies, a common set of
conditions called the Standard Form of
Contract Conditions is placed.
•This saves the trouble of reading all the
conditions every time a tender is to be
submitted.
•Only special conditions included for each
project are read and understood.
CONDITIONS OF CONTRACT:

•Definitions of terms used
•Security Deposit
•Planning & Scheduling of work
•Suspension
•Time limit for completion/ delay in
completion
•Liquidated Damages
•Measurements and Bills
•Variations, Additions and Alterations
•Defects in substandard/ improper work/
materials
•Breach of Contract
•Arbitration.
CONTRACT MANAGEMENT AR. KANAK KASHYAP

5. 1.Scope of Work
1.Site analysis
2.EIA
3.Site Development
4.Building Services

2.Payment of Fees
1.If paid in advance – binding on both
parties
2.If not paid in advance – reasonable
remuneration based on Quantum Meruit

3.Schedule of Services
1.Site preparation
2.Concept Planning
3.Modifications
4.BMC Dwgs
5.Specs, Quantities and Estimates
6.Listing out consultants/ allied support
7.WD/ GFC Dwgs
8.Site Supervision (Clerk of Works)
9.2 sets of As Built Dwgs
•Quantum Meruit: reasonable remuneration in
proportion to benefits received by defending
party
•Clerk of Works
•Appointed by Architect
•Under direction/ control of Architect
•Paid by Client
•His employment cost not greater than
0.5% of overall project cost
CONTRACT MANAGEMENT
CONDITIONS OF AGREEMENT
AR. KANAK KASHYAP
4. Client Responsibilities
1.Provide all the necessary
information
2.Correct documents/ reports/ code
of Practice
3.Get all legalities and litigations in
place
4.Architect’s fee payment – within a
month of bill submission
5.Check his site for development,
corrections and alterations made
6.Preparations, invitations and
selection of Tenders.

6. Architect’s Duties:
•The duties of the Architect may or may
not be expressly defined in the contract,
however he is expected to secure the
interest of his employer.
•Producing Design
•Obtaining competitive prices for work
•Providing efficient supervision
•Administration of Contract.
•Issuing certification of work.
OBLIGATION AND RESPONSIBILITIES OF THE PARTIES
Architect’s Liabilities:
•Cannot lawfully employ another architect
to fulfil his responsibilities.
•The Owner is responsible for Architect’s
acts only if the acts are within the scope
of architect’s authority.
•He must not exceed authority given to
him.
•He is also liable for any fraudulent
misinterpretations of his power, making
secret profits, receiving rewards or bribe.
•Architect must have reasonable
knowledge of the law relating to building
regulations, Bye-laws and rights of
adjoining owners.
•He must realise the importance of
correctly estimating the project cost to
save the client/ Owner from suffering
from damages of excess cost.
•He must make reasonable enquiries about
the solvency and capabilities of the
contractor before directly/ indirectly
selecting him.
CONTRACT MANAGEMENT AR. KANAK KASHYAP

7. DUTIES AND LIABILITIES OF ARCHITECT- EXPRESS OR IMPLIED CONTRACT WITH THE OWNER
AR. KANAK KASHYAP
PLANS AND SPECIFICATION:
•The Architect is required to prepare drawings in accordance with the instructions of the client in
compliance with the regulatory authority.
•Architect has a free hand in designing however client’s requirements are to be respected.
•When architect has been employed to prepare drawings only he will not be responsible for failure of the
work provided the drawings should not be faulty.
•Drawings prepared should not result in extra item of work or lead to any malfunction.
•If the drawings are not submitted in time the architect becomes liable for breach of contract.
•The Architect cannot replace one material with another without the express authority of the client.
ESTIMATE OF WORK:
•Buildings have become more complex and expensive along with the more exacting clients.
•A realistic forecast of the actual cost which will be incurred in the form of estimates has become a
necessity.
•A margin of 10-15% is allowable provided the rest of the parameters remain unaltered.
•The architect is likely to create complications for himself if he submits a low estimate merely to get the
project.
•The architect must provide an estimate he can stand by.
•He should provide this by gaining complete knowledge of the client’s requirements.
•He must refer to previously executed works for comparing and working out the estimate.
•He must act as the guardian of the client’s funds by ensuring that the rates quoted are fair and
reasonable.
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8. AR. KANAK KASHYAP
TENDERS:
•The architect has to invite tenders for the works within reasonable time from the date of receiving
instructions from the client.
•If he delays the site may be acquired for public purpose, or get affected by a proposed role, their may be
inflation in material and labour costs, etc.
•He must ensure that the tender carries all the correct information and that there is no fraud.
•He is NOT authorised the work to a successful tenderer until the client confirms expressly or impliedly.
INQUIRIES ABOUT THE SITE:
•Architect’s first duty on being commissioned the job is to inspect the physical condition of the plot/ site.
•The inspection is to verify whether the site is vacant, or occupied with a structure, as also if any
encumbrances like easements prevail.
•Architect must make inquiries with the local authorities to check for the regulations applicable to the
site, what permissions will be required, if any litigations need resolving.
•The Architect is also required to document the existing conditions of the site such as area of plot, soil
conditions, MSL, proximity of any hazardous elements (industries/ affluent treatment plants, etc.)
•The architect can be said to have failed in his duties or can be charged for negligence should a failure
occur pertaining to faulty site conditions.
DUTIES AND LIABILITIES OF ARCHITECT- EXPRESS OR IMPLIED CONTRACT WITH THE OWNER
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•Authority can be defined as the orbit of functional powers of the architect within which he has to restrict
himself in performance of his duties.
•The express authority is clearly indicated in the building contract, from which the architect has to seek a
line of action and same sets out limitations to his duty and authority.
•The implied authority is ascertained from the ambiguities, omissions and defects in the clauses of the
contract as also from the conduct of the parties.
DUTIES AND LIABILITIES OF ARCHITECT- FROM BUILDING CONTRACT DOCUMENT
EXPRESS AUTHORITY
•Authority to vary/ modify design while keeping
the original idea/ scheme intact.
•Authority to alter quality and quantity of work
but has no right to change the specification of
work.
•Authority to add/ omit / substitute any work
within reasonable limit.
•Authority to order the removal of defective
materials from site.
•Authority to order removal and re-execution of
defective works.
•Dismissal from work of any person employed by
the contractor.
•Authority to certify part payments and issue final
certificates.
IMPLIED AUTHORITY
•No authority to order omissions from drawings as
extras / extra work.
•No authority to obtain the tender.
•No authority to enter into contract with the
contractor on behalf of the client.
•No authority to dismiss the contractor unless
effected by the owner.
•He cannot vary the building contract.
•He cannot give verbal orders if contract specifies
written orders only.
•He cannot commit on behalf of the owner.
•He has the authority to submit drawing details to
the contractor which were not shown in the
original drawings.

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10. AR. KANAK KASHYAP
•It is the duty of the architect to give proper and necessary supervision on work and issue all details from
time to time.
•Work should not be stalled for the lack of supervision.
•Right from soil investigation to the completion of the building, an architect is to supervise all activities
and materials used for the project.
•He is to supervise that the planning and execution of the project is well within the contract terms.
•The degree of personal supervision expected from the architect is more than his clerk of works.
•Blaming the clerk of works in case of a failure or negligence will not absolve the architect of his
responsibilities.
•Though the clerk of works is described as the second in command of the crew, the overall responsibility
remains with the architect.
DUTIES AND LIABILITIES OF ARCHITECT- FROM BUILDING CONTRACT DOCUMENT
•Defective workmanship or materials are to be inspected by the architect, however the contractor gives
an implied warranty that so far as the materials and workmanship are concerned the same are good for
safe construction.
•Patent defects are those which are identified before the issue of the final certificate.
•Latent defect are those which could only be identified after the issue of final certificate.
•A defect which became apparent only after the issue of the final certificate is not necessarily the latent
defect but may be a patent one.
•The architect’s final certificate is regarded as conclusive as to defects.
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•Architect is the agent of the owner.
•He cannot assume the role of being the representative for the contractor as well.
•Which means that the Architect cannot represent both the owner and contractor for a job assigned and
this applies regardless of good or bad faith.
IMPLIED AUTHORITY OF AN ARCHITECT- REPRESENTING BOTH OWNER AND CONTRACTOR
A designer was appointed for the designing and supervision of a swimming pool project. His observations
regarding the contractor proved the latter's inefficiency to complete the project in time. The designer
arranged with the contractor to direct the work on his behalf and in return asked for a third of the profit.
When the contractor refused to pay the decided sum at completion a legal suit was filed by the designer. The
Court found no merit in the designer’s plea as;
•The contract is void as against public policy and good morals and both parties thereto in Pari Delecto
(equally guilty) law will leave them as it finds them.
•No man can serve two masters. As an agent of the ‘Centre’ (owner) the designer was duty bound to
ensure complete and satisfactory performance and as an agent of the contractor interested in the
receiving of a third of net profit, the designer would always be under the temptation to minimize cost and
cut corners.
( Hashbrouck v/s Rymkevitch: 268, N.Y.C. 2d 604 (N.Y, 1966): law relating to Building and Engineering
Contracts in India by G.T. Gajria p,7- 1988 Ed. )
•The above case shows that the Architect owes undivided loyalty to the owner.
•The above situation will be considered valid only if the owner gives their consent for the same after
being made aware of all the give and take between the Architect and the contractor.
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•Although an acting agent of the owner, Architect has no right or authority to appoint
consultants and/or specialists without the consent of the owner.
•The owner makes all the appointments while the Architect’s job is limited to being an advisor
for the selection of the appointees.
•However the Architect must show complete vigilance in his duty of being the advisor, as he is
liable to the owner on part of the consultant/ specialist in case the contract lapses.
•At times the owner will ask the architect to appoint his own consultant/ specialist.
•In this case the Architect plays a dual role where he is liable to the owner for lapses in
contract on part of the consultant/ specialist at the same time the consultant/ specialist is
liable to the Architect.
•When an Architect appoints his own structural designer he is liable in case of a failure though
he has a right of action against the structural designer.
•In case of a package deal contract, the contractor alone is responsible.
•If an owner entrusts the task of designing a building to an Architect he is entitled to look to
that Architect to see that the building is properly designed.
•The Architect has no power whatsoever to delegate his duty to anybody else, certainly not to
a contractor.
IMPLIED AUTHORITY OF AN ARCHITECT- APPOINTMENT OF CONSULTANTS & SPECIALISTS
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•Acceleration means completion of the work ahead of its specified time limit, which converts
time into money.
•Delay in completion of the work means loss in revenue to the owner due to non-availability
of completed work in time.
•It also means a probable rise in the cost of material and labour
•Every contract provides for the contractor’s obligation to complete the work within specified
time limit or within the specified time limit plus extension granted under Condition No. 40
•This becomes the contractor’s right and he cannot be forced/ compelled to complete the
work earlier than the agreed date.
•Condition no. 40 also vests the Architect with the rights to extend the time of completion
under a set of circumstances given therein.
•These can be as follows;
1. there is an express term authorizing architect to require acceleration.
2. the parties have agreed by consent to acceleration against some considerations to be paid
to the contractor.
3. it can be proved that there is an implied instruction from the owner to that effect.
•The I.I.A. form of contract doesn’t, however, vest any express authority to the Architect to
issue acceleration instruction nor is there any implied authority to enter this field of
acceleration as it involves financial liabilities.
IMPLIED AUTHORITY OF AN ARCHITECT- NOT TO ORDER ACCELERATION
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•Depending on the circumstances of the case, acceleration can be broadly placed in two
categories:
1. Non-Compensable/ Voluntary acceleration.
2. Compensable/ Money Oriented acceleration.
IMPLIED AUTHORITY OF AN ARCHITECT- NOT TO ORDER ACCELERATION
Voluntary Acceleration
•Contractor proceeds with the work
diligently, completes ahead of the schedule,
even involving extra cost to him but without
any orders from the owner to accelerate
the work.
•In this case the contractor will not be
entitled to any extra payment.
Money Oriented Acceleration
•Two types of MOA’s as per type of
compensation offered.
•Negotiated MOA:
owner desires completion of work ahead of
schedule, calls in a short agreement
involving extra payments to the contractor
like a Bonus for early completion.
•Implied MOA:
the contractor issues a notice to avail his
right to extension of timeline, which is
rejected by the Architect to meet the
specified deadline, while all the extra
payment involved is taken into account.
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•Architect must possess professional equipment of the ordinary members of his profession.

•He must bring such professional expertise in the job commissioned to him especially in the
design and supervision.

•He must prove that he has not fallen short of the standard of care that ought to have been
observed by his fellow brothers with ordinary skills and competency.

•The extent of likely liability depends upon the relationship between the nature and
magnitude of the loss, the actual level of knowledge of the architect and the consequent
standard of care required.

•It also depends on the nature of activities, level of danger involved, etc.

•Each case will carry different criteria to decide the required standard of care and skill
IMPLIED AUTHORITY OF AN ARCHITECT- DUTY OF REASONABLE CARE
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•Condition no 21 makes it obligatory on the contractors to comply and give all notices
required by any authority/ bye-law/ regulation/ worker with whose system the same is or
will be connected.

•In general this obligation rests with the architect, because the owner relies upon the
architect for this function and the contractor relies upon the plans supplied by the architect
which must have been prepared as per rules and regulations.

•Architect must know the bye-laws to be followed as it forms a statutory duty either as a
licensee of the local authority or as may be a condition to get the approvals.

IMPLIED AUTHORITY OF AN ARCHITECT- STATUTORY OBLIGATIONS TO GIVE NOTICES
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•Architect cannot incur personal liability to the contractor.

•He is not bound for losses to the contractor for his actions even if they are improper but
within his authority.

•Contractor cannot take any action against the Architect for certifying less interim payments
than what are due.

•When the Architect exceeds his authority, he will be liable for the damages.

•For defects in the drawings, specifications or qualities, the Architect owes no responsibility to
the contractor.
ARCHITECT’S LIABILITY TO CONTRACTOR
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•The contractor cannot recover any payment for the works executed if the contract is an entire contract,
which expressly specifies no interim payments until he completes the works.

•Limited liability of the design rests on the contractor, so if the architect fails to mention/ specify the
material then the contractor can choose a suitable material for the intended purpose.

•There is an implied warranty by the contractor for the works finished to shape and size without the
payment of extra amount or wastage.

•If the contractor suggests an alternative building material an implied warranty is there that he will be
responsible for it even though the owner sanctioned this material.

•There is an implied liability for the safety of the adjoining buildings when executing the works.

•The contractor has no express or implied authority to vary the work even under the instructions from the
owner without the prior consultation of the Architect.

•In case the owner, after entering into a contract, expresses to alter the type of contract, then the
contractor will not be able to perform his duties unless the initial contract is discharged on the grounds
of impossible performance.
CONTRACTOR’S DUTIES AND LIABILITIES
CONTRACT MANAGEMENT

19. OWNER’S DUTIES AND LIABILITIES
•When the Owner/ Client of a proposed
project does not have a in-house
Engineering or Architectural staff, he
commissions an Architect/ Engineer to
carry out the project on his behalf.
•Most common point of dispute in this
contractual standing is the question of
Fees.
•Thus it is desirable to have a written form
of contract which is binding to both
parties.
•Contract between the Owner and the
Architect/ Engineer is a contract of
Agency, which is a legal relationship,
where one person appoints another to
perform on the transactions on his
behalf.
•Only after the Architect/ Engineer has
prepared the required drawings and has
been instructed to proceed with the
work, does have the authority of the
Client’s Agent/ Representative.
•To avoid disputes in future and to
safeguard his interests, the Architect/
Engineer should not agree to payment of
his fees being contingent upon the
happening of an event in the future.
•The method commonly employed is to
express the amount of fees as percentage
of cost of work.
Owner’s duties:
•Make suitable provisions for managing
the project with sufficient funds and
time.
•Provide all the relevant and important
information.
•Appoint the Principle Designer and
Principle Contractor to carry out their
duties.
•Be assured that adequate welfare
facilities are provided.

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•To appoint Architect, engineer, surveyor and other consultants and to pay their professional
fees.

•To give instructions to the Architect about his requirements for the project.

•To discuss the ‘Bid Evaluation’ with the Architect so that the right contractor for the said
project can be selected and genuine mistakes be corrected.

•Accept the tender or authorize the Architect to accept the tender on his behalf.

•To enter into a contract with the contractor.

•Give possession of the site in sufficient time for fulfilment of the contractual obligations.

•Not to interfere with the progress of the work and not to issue orders for extra works.

•To supply all the necessary and mandatory drawings/ instructions/ documents through the
agency of the Architect within reasonable time.

•To make necessary payments as may be certified by the Architect from time to time.
OWNER’S DUTIES AND LIABILITIES
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TENDERS
•It is an offer made by one party to another- for execution of specified work- at specified cost-
keeping in with all terms and conditions set therein the Tender document.
•It remains floating till the time it receives a seal of acceptance.
•Thereafter it forms a binding Contract.
•In case of building work and even in case of major repairs, it is the Architect who prepares a
detailed tender paper on behalf of the Owner/ Client.
•Tender is not an offer by the Owner/ Client.
•It is simply an invitation to offer to find out the extent of finance needed for execution of
work within the prescribed time limit.
•For the sake of uniformity- also to place all bidders on equal footings- the Architect only
prepares a comprehensive tender/ Bid Papers.
•The first page of this document contains a letter of offer to be signed by the contractor.
Prior to inviting of the tenders, it is the duty of the Architect to see that;
1.All the plans, specifications and details are not only clear and correct but without any
ambiguity.
2.Bill of Quantities should be as accurate as possible.
3.Special conditions if any should be thoroughly checked so that not a single item is
overlooked.
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NATURE OF TENDER
•Tenders set out paths for completion of building jobs.
•The paths can vary from item-rate to Labour work
•Different tenders have different terms and conditions.
•The accepted contracts derive their names from the types of tender.
•Thus nature of tender leads to the nature of contract for that said work.
•Nomenclature of the tender types is also based on the nature of the tender.
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CONCEPT OF BUILDING CONTRACT
•Indian Legislation has not set forth or codified Law relating to Building Contracts and perhaps
one may not come across such a piece of legislation even outside India.
•The chief reason for non-codification being the construction encompasses in itself a number
of operations and sub operations.
•It involves definitions of more than 7000 technical terms.
•It also looks into the problems connected with geo-climatic and regional variations in
construction work, nature of work, etc.
•Therefore a number of authors have penned down on the subject of Building Contract their
own definitions with the Contracts Act forming the basis.
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DEFINITION OF A BUILDING CONTRACT
•Definition 01:
•The contract is an agreement enforceable at Law between two or more parties
made by free consent of the parties competent to contract for a lawful
consideration and lawful object.


•Definition 02:
•A building or engineering contract may be defined as an agreement under which
a person (builder/ contractor) undertakes for reward to carry out for another
person (owner/ employer) works of a building or civil engineering character
- Hudson’s Building and Engineering Contracts


•Definition 03:
•Building Contract is defined as any contract where one person agrees for
valuable consideration to carry out building or engineering works for others
- Building Contracts by Keating
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BUILDING CONTRACT
•Building Contract is a species of genus contract.
•When parties enter into a building contract there are no special or overriding rules or
principles governing or covering their contractual relationship apart from or beyond those
rules which apply to contracts in general.
•Section 2 (h) of the Contracts Act,1872 defines contract as agreement enforceable at Law.
•Section 2 (e) defines agreement as every promise and every set of promises forming
consideration for each other.
•For the enforceability of the contract, Section 10 provides four essentials ,
the agreement must have been made by:
1. Free Consent
2. Parties competent to contract
3. Lawful Consideration and Object
4. Agreement must not be expressly declared to be void.
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SIMPLIFIED APPLICATION TO BUILDING CONTRACT
•The contractor as a promisor makes a proposal
•To carry out certain construction job for a specified consideration
•These offers take the form of tenders
•This proposal is said to have been accepted wherein the employer/ owner as the promise
takes upon himself the burden of parting with money being the cost of work
•This results in valid contract.
•The Indian Contract Act, 1872 does not provide any special mode of acceptance of the
tender.
•It can be in writing or it can be an oral acceptance when the employer hands over possession
of the site and permits the contractor to commence work.
•The acceptance of the work has to be in absolute and within reasonable time.
•The contract is executed on a stamp paper of value as prescribed by the Indian Stamp Act,
1899.
•It should be signed, sealed and delivered, otherwise these cannot be admitted as evidence
before an arbitrator or court.
•There are four ways in which a contract can be discharged; by agreement, performance,
being excused by Law from performing it, breach.
•Contract becomes void due to; misinterpretation, fraud, mistake.
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CLASSIFICATION OF BUILDING CONTRACTS
•Classification of building contracts may be considered as an alias for modes of execution of
the building works.

•Broadly there are two classifications which are popular with the Architects/ Engineers,
namely;
•Lump-sum contract including one with bonus
•Item- rate contract including rise and fall clauses

•Besides the above, other clauses of contract are;
•Cost plus percentage or cost plus fee
•Cost plus fixed fee with/ without bonus and penalty
•Labour contract
•Demolition work contract

•The following forms of contract also show the method/ execution of work;
•Day work
•Piece work
•Daily Labour
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LUMP- SUM CONTRACT
•It is an agreement creating an obligation on the contractor to complete the work as shown
on the drawing, described by specifications, subject to incidental variations, supplying all
materials, labour and other implements necessary, for a lump-sum or at unit rate per sq.m.
of plinth area.
•Lump-sum amount is subject to adjustments and payable by the owner as a reciprocal
obligation either in one moiety or by installments as may have been agreed
•Lump-sum contract creates two sub-clauses;
•Lump-sum or fixed sum contract
•Area based contract
•Besides the above mentioned, practice shows a third group of contract which can well be
incorporated in the broad classification of lump-sum contracts known as ‘Package Deal’ or
‘Turnkey’
•In this case the builder/ developer/ contractor purchases the land, employs his own
architect/ engineer and agrees to hand over completed tenements to the employer against
specified rate per sq.m. of the area, subject to payment in installments as the work progress
•The builder purchases the land in the name of the owner and enters the site as a licensee of
the owner to execute the work.
•These types of contracts can lead arbitration due to disputes if the problems are not handled
careful
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ITEM- RATE CONTRACT
•It is signed in case of item-rate tenders only
•This contract deals in measurement of each item of the work as given in the BOQ and sum to
be paid is arrived at based on the rates quoted against each item.
•In the BOQ all the items are described in detail along with the quantities.
•Here the rates are a part of the contract and the quantities which carry the prefix
‘approximate’ do not form part of the contract, in as much as variations in the quantities will
not vitiate the contract.
•Condition no. 4 of IIA form of contract lays down that the owner reserves the right to;
•Increase or decrease any of the quantities
•Totally omit any item of work.
•And the contractor shall not claim any extras or damages on these grounds
•Condition 4 further provides that any error in description or in quantity or omission of item
from the contract bill shall not vitiate this contract but shall be treated as a variation

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COST PLUS PERCENTAGE & COST PLUS FIXED FEE
•This contract creates an obligation on the contractor to supply all the materials, Labour and
implements for the execution of the work and the reciprocal obligation on the owner will be
the reimbursement of such cost plus a specified percentage as a profit for his services.
•A modification of this contract is the cost plus fixed fee
•The contractor is paid a fixed fee irrespective of the cost of the Labour, materials and other
incidental costs
•Whether this fixed covers only the profit or also overhead charges, must be made clear in
advance so as to avoid future litigations
•Since it is irrespective of the cost it takes the form of a specified sum of money and is usually
paid in installments.
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ARTICLES OF AGREEMENT
PREAMBLE
•The first page of IIA form of contract is known as the preamble.
•It sets out the description of five elements which get involved one way or another in a
contract;
•Owner
•Contractor
•Architect
•Nature of work
•Situs of work
•It starts with Articles of Agreement……………….and ends at the sum of Rupees……………with
the architect/ owner for due performance of this agreement.
•The second part of Preamble deals with:
•Contractor has supplied the owner with priced copy of BOQ called the contract bills
•Contract drawings and contract bills to be signed by both the parties
•Deposit of specified amount with the architect/ owner
•This completes the Preamble which forms the introduction to the contract, laying down
scope and purpose of the contract as also parties interested.
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ARTICLES OF AGREEMENT
AGREEMENT FOR CONTRACTUAL OBLIGATIONS
•At the back of the Preamble page of the IIA form of contract there is an agreement with four
fundamental clauses.
•These clauses are followed by attestation clauses where the parties sign, i.e. execute the
contract under hands.
•Two witnesses who have seen the parties sign in their presence are desirable.
•However even in their absence the contract will not lose its efficacy
•Clause 01:
•States the contractor’s obligation to carry out and complete the work subject to
conditions annexed.
•Clause 02:
•States the owner’s obligation to pay the contractor a specified sum hereinafter referred
as ‘Contract Sum’
•Clause 03:
•This fundamental condition relates to the meaning of the term ‘Architect’. (it is possible
for the owner to employ one architect for all the jobs or different architects for different
jobs. The IIA form contemplates one prime mover architect who will be responsible to
give the ‘Architect’s Instructions’)
•Clause 04:
•Conditions 1-58 along with the Appendix as part of this agreement, casts obligation on
parties involved to abide by the contract, submit themselves to said conditions and
perform their part of the said agreement.
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ARTICLES OF AGREEMENT
APPENDIX
•It is a figurative statement pertaining to a few conditions of the contract grouped together at
one place for the sake of convenience instead of mentioning figurative details at the relevant
places.
•Unless the Appendix is completed, the conditions will remain incomplete.
•It is required to be read along with the conditions to which each item of the Appendix
relates.

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SCOPE AND INTENT
•The anatomy or general scheme of the conditions usually starts with the scope and intent
which forms the ‘Key Conditions’
•The definitions and explanations follow thereafter
•It lays down that the general character and the scope of the work is illustrated and defined
by;
•Specifications
•Bill of Quantities
•Signed Drawings
•The contractor shall carry out and complete the work in every respect in accordance with;
•This contract
•With the directions of, and
•To the reasonable satisfaction of the architect
•The architect may in his absolute discretion and from time-to-time issue;
•Further drawings, details, and/ or
•Written instruction, directions, explanations
•All of which are collectively referred as ‘Architect’s instructions’
•The intention of the document is to include material, Labour, equipment and necessary
transportation for achieving the objectives of the contract.
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MISCELLANEOUS
FORCE MAJEURE:
•It is French Law terms which forms one of the grounds for grant of extension of time , and in
general will encompass all circumstances which are not dependent on the will of man and
which circumstances the man cannot control
•The striking examples of Force Majeure are:
•Strikes
•Break down of machinery
•War, whereby comes the permit system and shortage of materials
•Fire caused by lightning, etc.
LIQUIDATED DAMAGES:
•In order to bring home the importance of timely completion of work as also to compensate
the owner for any loss that he may have to undergo to some extent, some provision is
essential.
•It is obligatory on the contractor to pay pre-estimated damages in case he fails in due
performance of his contractual duties.
•Thus liquidated damages means a sum of money stated in the Appendix to the contract as
the damages payable in the event of specified ‘Breach of Contract’ by non-completion of
work within the stipulated or extended time limit.
•It is a genuine pre-estimate of the loss which the owner is likely to undergo or a lesser
amount.
•These are agreed in advance so that the contractor is aware of his potential liability.
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MISCELLANEOUS
BREACH OF CONTRACT:
•When a party fails to perform one or more of the obligations imposed upon him by the
contract, breach of contract occurs which gives immediate cause of action and a right to
damages as compensation for loss flowing from the breach.
•There are two parties to the contract, namely the owner and the contractor and as such any
one of them may fail to fulfill their obligations under the contract resulting in the breach of
contract and leading to its determination.
•The owner can determine the contract on three grounds:
•Default
•Bankruptcy
•Offences and other illegal acts
•The contractor can determine a contract on the grounds of non-issuance his interim
certificates or if carrying out of the work is put on hold/ delayed by the owner’s intervention.
CONTRACT MANAGEMENT

37. INTERPRETATION BY PARTIES TO CONTRACT
•Interpretation stands for the process
which the courts follow to ascertain the
meaning of the contract through the
words in which it is expressed.
•The aim of interpretation of a contract
is to ascertain and discover the intention
of the parties with which they had
entered into the contract or agreement.
•The interpretation of contract is the
determination of the meaning of the
words/terms used in its contents that are
ambiguous, not understood, and not
obvious.
•An interpretation involves a question of
law since there is a force of law between
the contracting parties.
•There are many rules and regulations
governing contract interpretation.
•Courts should always interpret contract
terms with the goal of identifying the
intention of the parties.
•Determining the intent of the parties
should be an objective analysis.
•The court should not consider subjective
intentions of the parties.
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ARBITRATION
DEFINITION:
It is the method of settling disputes and differences between two or more parties whereby they
appoint one or more persons to adjudicate upon the said disputes and differences that have
arisen or that may hereafter arise and agree to abide by the decision of the said one or more
persons nominated for the purpose of adjudication.
An Arbitration is the reference of a dispute or difference between not less than two parties for
determination after hearing the sides in judicial manner, by a person or persons other than a
court of competent , jurisdiction (Halsbury).
OR
Thus Arbitration aims at:-
1.Establishment of a domestic tribunal
2.By the parties
3.To adjudicate upon disputes and differences.
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KINDS OF ARBITRATION
ARBITRATION BASED ON ARBITRATION CLAUSE IN THE CONTRACT:
•It arises in case of arbitration clause in the contract whereby present or future disputes are
referred to the adjudication of the arbitral tribunal.
•No suit is filed in this case and the arbitral award takes the form of a decree of the court.
•The parties can have arbitration in this manner under CI 56 of I.I.A. form of contract or any
other form of contract which carries with it the Arbitration clause.
•This arbitration clause will constitute as an arbitration agreement.
ARBITRATION WITH THE INTERVENTION OF A COURT WHERE THERE IS NO SUIT PENDING:
Where the disputes and differences have arisen between the parties to which the arbitration
agreement applies, the parties have a dual choice:
•Appoint arbitral tribunal and get an award, if not,
•One of the parties may apply to the appropriate judicial authority with the original
arbitration agreement or duly certified copy thereof, the judicial authority will refer the
parties to arbitration.
ARBITRATION IN SUITS:
In case of a suit pending in a court, all the interested parties at any time before the judgment is
pronounced, agree that the disputes and differences be settled arbitration and judicial authority
will refer the parties to arbitration.
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KINDS OF ARBITRATION
In all the above cases the arbitration will be subject to the Arbitration and Conciliation Act, 1996
which is deemed to have come into force on 25
th
January 1996.

The Act deals with a number of categories of arbitration like:-

1.Domestic Arbitration

2.International Arbitration.

3.Foreign Arbitration.

4.Institutional Arbitration.

5.Statutory Arbitration.

For the purpose of academics we will look into elementary knowledge of Domestic arbitration,
which takes place in India and governed by Indian law.
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41. AR. KANAK KASHYAP
ADVANTAGES OF RESOLVING DISPUTES WITH ARBITRATION
1.Persons usually experts in the field are appointed and as such decisions will be fair and
refined. It will not involve any guess work. In case of dispute concerning a building
construction job, the person chosen as arbitrators are usually Architects or engineers who
possess expertise in the subject and are fully qualified to act as arbitrators.
2.Legal formalities are cut short and decisions can be reached in much shorter time as
compared to the time consumed in a court case.
3.Savings in cost.
4.Time, date and place of meeting can be arranged so as to suit the convenience of all
concerned.
5.Privacy; as hearing is not public.
6.The arbitrator can view the subject at any convenient time.
7.Finality in the award

The Arbitration and Conciliation Act 1996 deals with a number of terms like:
•Arbitrator
•Arbitral Tribunal
•Arbitration Agreement
•Arbitral Award.
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ARBITRAL AWARD
1.The award must be made without undue delay as otherwise the arbitrator’s mandate can be
terminated.
2.The award as a rule must be in writing and to be signed by the members of the arbitral
tribunal and signatures attested.
3.The award must be self explanatory without any ambiguity and must show nature of
adjudication whether unanimous or by majority. The decision by majority will form a binding
force in case unanimous adjudication is not possible.
4.The award to be made on Stamp paper of the necessary value.
5.After the award is made a signed copy to each party is submitted.
6.The arbitral award is to state its date and place of arbitration, claim adjudication in term of
money contents, interest on amount awarded or part thereof at rate deemed reasonable for
the said duration.
7.The award must provide interest on the awarded amount from the date of award to the date
of payment.
8.The arbitral award must provide for legal cost, cost of arbitration and the other incidental
expenses and the manner in which cost to be shared and paid.
9.The arbitral award has to be a reasoned one unless otherwise agreed by both the parties.
10.The arbitral award has the status of a Decree which is executable and not set aside by the
court. No additional application required to confirm the award.
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43. AR. KANAK KASHYAP
CONDUCT OF ARBITARTION PROCEEDINGS
1.Discussion of subject matter in general.
2.Necessary directions are given to the parties to submit within a specific time frame the
following copies to other side:
Statement of claim and facts supporting them,
issues of adjudication,
Relief or remedy sought,
the respondent’s defense,
disclosure of documents to be relied upon by the parties and inspection of the same to
either side.
3.Time, date and place of actual hearing is fixed.
4.The fees of the arbitral tribunal are made known to the parties and deposits on account are
called for from each party.
5.The arbitral tribunal will decide the dispute based on written submissions and documents
filed . If otherwise, oral hearings for presentation of evidence and arguments is conducted.
6.The arbitral tribunal can conduct an inspection of the subject matter of dispute.
7.On completion of the proceedings the tribunal has to make, declare and publish its award
either based on unanimity or majority.
8.The award has to be declared without any undue delay, and if found guilty of an unruly
extension of time the mandate can be terminated.
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44. AR. KANAK KASHYAP
•SERVICE:
means service of any description which is made available to potential users and includes the
provision of facilities in connection with banking, financing, insurance, transport, processing,
supply of electrical or other energy board or loading or both, housing construction,
entertainment, amusement, or the purveying of news or other information, but does not
include the rendering of any services free of charge or under a contract of personal service.


•DEFECT:
means any fault , imperfection or short coming in the quality, quantity, potency, purity or
standard which is required to be maintained by or under any law for time being in force
under any contract, express or implied or as is claimed by the trader in any manner
whatsoever in relation to any goods.

•DEFICIENCY:
means any fault, imperfection, short coming, inadequacy in the quality, nature and manner
of performance which is required to be maintained by or under any law for the time being in
force or has been undertaken to be performed by a person in pursuance of a contract or
otherwise in relation to any service.
TERMINOLOGIES
CONTRACT MANAGEMENT