Construction Management

Unit 1: Introduction
 Course Code : OE 1
Course Name : Construction Management

Brief Introduction

Dr Surya Kant Sahdeo

Assistant Professor
Department of Civil Engineering
NIT Raipur, Chhattisgarh, India

Qualification:

Postdoc – Queen’s University Belfast, United Kingdom and IIT Madras, India
Ph.D. – IIT Roorkee, India
M.Tech. – IIT Kharagpur, India
B.Tech – MIT Manipal, KA, India
 Introduction of Construction Management
What is Construction Management?
• Construction management is a professional service that provides a project’s
owner(s) with effective management of the project’s
a) schedule,
b) cost,
c) quality,
d) safety,
e) scope, and
f) function.
• Construction management is compatible with all project delivery methods.
• No matter the setting, a Construction Manager’s (CMs) responsibility is to the
owner and to a successful project.
• At its core, a capital project is made up of three parties (excluding the CM):
• The owner, who commissions the project and either funds the
project directly or finances it through a variety of methods.
• The architect/engineer, who designs the project
• The general contractor, who oversees day-to-day operations and
manages subcontractors.
• The CM represents the owner’s interest and provides oversight over the entire
project directly for the owner.
• His/her mandate is to work with all parties to deliver the project on time, at or
under budget, and to the owner’s expected standard of quality, scope, and
function.
• CMs are uniquely qualified through combined
a. education and
b. experience to work with the
• owner,
• architect,
• general contractor, and
• other stakeholders
• to determine the
• best possible sequence of construction operations and
• develop a detailed schedule and budget, while also
• establishing plans for project safety and security and
• helping the owner manage risk.
• This requires using project management information systems (PMISs) and complex
planning techniques, like critical path method, as well as knowledge of construction
methods.
What is the project life cycle?
• The project life cycle includes the steps required for project managers
to successfully manage a project from start to finish.
• There are five phases to the project life cycle. Each of these project
phases represents a group of interrelated processes that must take
place for a successful project.
• 5 stages of project life cycle:
1. Initiating phase
2. Planning phase
3. Execution phase
4. Monitoring and controlling phase
5. Closing phase
 1. Initiating phase
• This phase is to determine the vision for your project, document what you hope to accomplish through a
business case, and secure approvals from a sanctioning stakeholder.
• The initiating phase of the project life cycle consists of two separate processes: the project charter and
stakeholder register.
• The key components of the project charter include:
a) Business case: A business case is developed during the early stages of a project and outlines the why, what,
how, and who necessary to decide if it is worthwhile continuing a project.
b) Everyone involved will be able to discuss their own suggestions or concerns and the budget and costs can
be agreed and signed off upfront.
Why you need a business case:
Preparing the business case involves an assessment of:

• Business problem or opportunity • Technical solutions

• Benefits • Timescale
• Risk • Impact on operations
• Costs including investment appraisal • Organizational capability to deliver the
project outcomes
b) Project Scope
• A project scope details exactly what will be delivered at the end of a project.
• It sets out the parameters of the work to be done.
• The purpose of the project scope is to get your stakeholders and team on the same page.
• This provides a concise summary, where everyone can refer back to your: Meetings,
Deliverables, Agreements, which begins by writing a thorough project scope document.
• How to write a project scope.
• Step 1: Collect crucial project information like Stakeholders, Team, Project sponsors, Templates,
Research, Experience on other projects
• Step 2: Define project deliverables.
• Step 3: Assess available resources.
• Step 4: Identify inclusions and exclusions.
• Step 5: Consider project constraints: project constraints are limiting factors for your project that can
impact quality, delivery, and overall project success.
• Step 6: Build out a project schedule.
• Step 7: Tailor the scope to your project and organization.
• Step 8: Compile and review.
c) Deliverables: Project deliverables are the results delivered to the
client or stakeholders at the end of a project.
d) Objectives:
e) Resources needed
f) Milestone plan and timeline
g) Cost estimate
h) Risks and issues
i) Dependencies
• Everyone involved will be able to discuss their own suggestions or
concerns and the budget and costs can be agreed and signed off
upfront.
• Having this initiating phase is important not only for the project, but
for all the teams involved to have their say on what is needed for the
project.
2. Planning Phase
• Outline and define the reason for the project.
• • What exactly are we going to do?
• • How are we going to do it?
• • When are we going to do it?
• • How will we know when we’re done?
• This plan should include:
• • Project management plan
• • Project scope
• • Work breakdown structure
• • Resource plan
• • Budget estimation
3. Execution Phase
• The executing phase should involve the following vital parts:
•• Team development
•• Stakeholder engagement
•• Quality assurance
•• Communications
•• Client management
• During this time, communication is important, there will be times
where the client or stakeholders will want to updates and progress
reports.
4. Monitoring and controlling phase
• Make sure that you can keep an eye on the overall progress of the
project as well as individual aspects.
• Always
•• stay vigilant
•• tracking and
•• reporting with the team,
•• aware of any potential problems before they get out of hand.
5. Closing phase
• It’s essential to formally close the project and secure a sign-off or
approval from the customer, stakeholders, and/or project sponsor.
• This process might include:
•• Delivering the project
•• Hosting a post-mortem meeting
•• Archiving project records
•• Celebrating or acknowledging the achievement
•• Officially disbanding or releasing the team
 CONSTRUCTION ECONOMIES
• What is construction Economics?
• Construction economics is a branch of general economics. It consists of application of
techniques and expertise of economics to the particular area of construction industry.
• • Highlighting the economic aspect of engineering decision making.
• • Not only the initial cost, but overall life cycle cost of a project should be considered.
• Construction economics include study of the following:
• Client’s requirements:
a) Structure meets the client’s needs
b) Design is within the available funds
c) Building is available on the specified date
d) Final cost closely resembles the estimate
e) Quality / safety ensured
• Construction economics includes the study of the following as well:
• How the new construction affects the surrounding areas. This will
consider aspects of planning, general amenities affected
• The relationship of space and shape. Influence of design on cost
• Assessment of initial cost estimate that is sufficiently accurate which
will be useful for comparison throughout the building process
• The reasons and methods of controlling costs.
• The methods adopted should be sufficiently accurate but flexible
enough to suit client’s requirements
• Estimating the life of buildings and materials. The emphasis on initial
costs has moved to costs in use
• Other important aspects to be considered:

 Role of surveyors, engineers and builders employed in the industry

 Division of industry between the design and construction process
 The size of construction industry, its relation with other industries and national economy
 Types of developments undertaken
 The types and sizes of construction firms, and the availability of specialist contractors
 The variations in building costs and factors that influence variations, such as market
conditions, regional locations
 Physical /unique nature of the project
 Organization of construction process

• For considering all the above aspects concept of value of money and cash-flow
diagrams are studied.

• We need to compare the alternatives – method of equivalence is used.

Economic Decision making:
• The situations like for present economies and for which the time-value of
money is not considered.
• Comparison of designs or elimination of over-design
• Designing the economy of production/maintenance/ transportation.
• Economy of selection
• Economy of perfection
• Economy of relative size
• Economy of location
• Economy of standardization and simplification- in which the
engineer has to take a decision among the competing alternatives.
 • For these situations three methods of evaluation are taken:
1. Out-of-pocket commitment comparision
2. Payback period
3. Average annual rate of return
Out-of-pocket commitment comparision: is the total expense required for an alternative.
Eg: Pre-cast factor produce 1,00,000 railway sleepers per year. Economic choice
Steel Formwork Wooden Formwork
Life One year One month
Cost of preparing one set of formwork Rs. 4,00,000 Rs. 50,000
Cost of fixing and removing formwork per Rs. 10 Rs. 9
sleeper

• The out-of-pocket commitment will include the total loabour cost incurred for production of the
sleepers/year and the cost of using the sleeper:
• Steel Sleeper, out-of-pocket commitment = (10× 1,00,000 )+ 4,00,000 = Rs. 14,00,000
• Wooden Formwork, out-of-pocket commitment = (9 × 1,00,000) + (12 × 50,000) = Rs. 15,00,000
• Out-of-pocket commitment for steel formwork is less than wooden formwork.
• The decision would be steel form work.
Payback period: may be taken as the number of years it takes to repay
invested capital.
• Payback period does not consider the returns after the pay-back period.
Eg: Let a contractor have 2 companies of excavators.
Excavator-Brand A Excavator-Brand B

Availability at down payment Rs. 4,00,000 Rs. 4,00,000

Return 1st yr- Rs. 50,000 All the four yrs- rs. 1,50,000 each
2nd yr- Rs. 1,50,000
3rd and 4th yr- Rs. 2,00,000

• The payback period for Brand A = 3yrs, the initial investment is recovered in 3yrs, the fourth yr return
is overlooked.
• The payback period for Brand B = is somewhere between the second and third year. So, the returns
after the payback period are overlooked.
• The payback period for Brand B (interpolation) = 2.67 years.
Average annual rate of return: the alternatives are evaluated on the basis of only
average rate of return expressed in %. Does not distinguish timings of cash flow.
The average annual return from Brand A =

= 150000
• Here, 4 is the number of years. The above-average return is converted into % to
get the average annua; rate of return.
• Average annual rate of return for Brand A in % = × 100 = 37.5%
• The average annual return from Brand B = = 1,50,000
• Average annual rate of return for Brand A in % = × 100 = 37.5%
• Thus from this method both the brands stand equal.
Time Value of Money:
• Time value of money is defined as the purchasing power of money
now to the purchasing power of the same money in future. It is a method of
assessment of market for the value of money with time.
• It is a method of assessment of cash flow from present time to future
with the analysis of profit or loss, or the benefits one would get with the
amount.
• A certain amount of money is variant on the factors like inflation,
dynamic interactions between demand and supply, etc.
• Tools of analysis help construction engineers logically take economic
decisions.
• Tool- Interest on the amount lent by the borrower to do something
now instead of waiting for that never doing it.
• Interest could be simple or compound.
• There are different methods for assessment of time value of money,
they are:
1. Compound interest method
2. Nominal and effective interest rate methods
3. Equal life alternatives
4. Unequal life alternatives
5. Incremental cost analysis
 Cash- flow diagrams:
• Is a visual representation of the inflow and outflow of funds.
• It does not necessarily follow any pattern.
• To simplify the analysis, it is assumed that all the cash flow (inflow or outflow)
happens at the beginning or end of a particular period (week, month, quarter,
year.
• Horizontal axis (X)- Time in appropriate scale in terms of weeks, months etc.
• Vertical axis (Y)- Amount involved in transactions.
• X is maintained in scale, Y may or may not be maintained in scale.
Summary of
transactions

Alternative-1 Alternative-2
• In construction economies we deal with 2 types of problems
• Income expansion
• Cost reduction.
• We can also distinguish the cask flows into revenue-dominated and cost-
dominated cash flow diagrams.
• Revenue-dominated cash flow diagrams- incomes or savings
• Cost-dominated cash flow diagrams- periodic cost or expenditures.

• Based on the above concept the case flow diagrams for construction
can be distinguished as:
• Project Cash-flow diagram
• Company Cash-flow diagram
Project Cash-flow diagram
• It can be made from contractor and owner perspective.
• The following details (from contractor’s perspective) are required:
1. Gross bill value, time of submission
2. Measurement period (monthly, weekly, bi-monthly etc)
3. The certification time is taken by the owner. Normally it takes 3 to 4 weeks to
process the bill and release of the payment.
4. The retention money deduced by the owner and the time to release the retention
money.
5. The mobilization advance, the plant and equipment advance, and the material
advance, and the terms of their recovery.
6. Break-up cost (labor cost, materials cost, plant and equipment cost,
subcontractors cost)
7. Credit period (delay between incurring a cost and the actual time at which the
cost is reimbursed) enjoyed by the contractor in meeting the costs towards
labour, materials, plant and equipment, and overheads).
Factors affecting project cash-flow:
• In addition to mobilization advance, some other factors that puts impact
on project cash flow:
1. Margin- is the excess over cost. Margin better is the contractor’s cash
flow.
2. Retention- retention reduces the margin. Retention bigger cash flow
problems.
3. Extra claims- like extra work, changes in quality and specification etc.
Extra claims take long time to settle and thus worsen the cash flow.
4. Distribution of margin: such as uniform or front loading and back loading
5. Certification type
i. Over-measurement- where the amount of work certified in the early
months of a contract is greater than the actual work done at site.
ii. Under-measurement- where the amount of work certified in the early
months of a contract is less than the actual work done at site. Negative cash
flow from contractor.
iii. Delay in receiving payment from the client
iv. Delay in paying labour, plant hires, materials suppliers and suncontractors
6. Certification period
7. Credit arrangement of the contractor with labour, material, plant,
equipment suppliers and other subcontractors.
Company cash-flow diagram
• A construction company executes a number of projects at any time.
• The company’s cash-flow is an aggregation (sum) of all the outings
and incomings for all the projects that the company is executing
besides the head office outings and incomings.
• Head office outings- rents, electricity charges, water charges,
telephone, tax, bills, hire charges for office equipment, payment of
stakeholders, etc., from the head office as well as regional and site
offices.
Determining Capital Lock-up
• While estimating the margin and retention money on the contractor’s cash-flow diagram, we see
that the company sometimes faces negative cash flow in the early stages of the project.
• In the negative cash-flow stage the decision has to be made to use

Burrow money from the market Use own cash reserves and deprive of being
and pay interest on the money able to earn interest on the amount

• The area under the negative cash flow period is used to calculate the financing charges for the
project by the contractor.
• The total area = unit of Rs. x months known as Captim, i.e., Capital x time.
Determining the cash requirement of a
project
• With the knowledge of cumulative cash outflow and cumulative cash
receipt or cumulative inflow, we can determine the cash required for
a project.
•-
 Evaluating alternatives by Equivalence
• For economic comparison between alternatives, the principle of equivalence is
used which reduces different alternatives to a common baseline.
• Like a lump of Rs. 1000, in a single installment immediately or
• Four installments of Rs. 400 every year for four years, with payments being received at
the end of years 1, 2, 3 and 4.
• The method of equivalence can only be established or alternatives can be
compared only when the applicable conditions for compounding and the rates
of interest are known.
Interest calculations:

It actually converts the geometric increase/ decrease of installments into a uniform series.
Evaluating alternatives by equivalence
• Once the concept of cash flow is understood, the next step is to check
among the different alternatives from an economic point of view.
• CM involves cost comparisons between alternatives of different
engineering efficiency, like one is at a high initial cost and low
operation and maintenance cost compared to another alternative.
• All use the concept of the time value of money.
• Some methods used for the purpose of engineering economic
analysis are:
1. Present worth comparison
2. Future worth comparison
3. Annual cost and worth method
4. Rate of return method.
 Present worth comparison:
• At time-zero cash flow in terms of an
equivalent single sum is determined using
an interest rate( or discounted rate).
• This method is based on flowing
assumptions:
• Cash flow is known
• Cash flow does not include the effect of
inflation.
• The interest rate is known
• Comparisons are made with before-tax cash
flows.
• Comparisons do not include consideration of
the availability of funds to implement
alternatives.
• Comparisons do not include intangible (which
Type 1: Alternatives with equal lives
• The present worth of both alternative is evaluated.
• The alternative with maximum present worth is the most economical
alternative.
• For cash dominated cash-flow diagrams, the alternative with the
lowest present cost is chosen.
Type 2: Alternatives with Unequal lives
• The alternatives don’t have equal lives and one among them might be
replaced or re-established in the tenure so any cost likely to incur
during that time should be appropriately accounted for in the
budgeting at the outset.
• 2 approaches:
• Common multiple method
• Study period method
 Common multiple method:
• A common life period in some multiples is considered for both alternatives.
• Eg: the alternatives with life periods of 2, 3, 4, 6, etc will be put for a period equal to the
least common multiple of their life periods. In this case, it is 12 yrs, which means 2 yrs life
period alternative will be replaced 6 times whereas 3yrs life period alternative will be
replaced 4 times, and so on for achieving a common life period and then choosing between
the alternatives.
• This assumption is valid only if the common multiple of alternative life periods is small.
 Study period method:
• The study period is chosen on the basis of the length of the project or the service lives of
the alternatives.
• An appropriate study period reflects the replacement circumstances.
• The service life may be shortest life period of alternatives taken into consideration that
technological obsolescence is avoided.
• We assume that all the assets will be disposed off at the end of the analysis period.
Type 3: Alternatives with infinite lives
• The projects which have a reasonably very long life, Eg.: Dams, tunnel
projects, power projects etc.
• Capitalized equivalent (CE) method is used.

Capitalized equivalent (CE) method:

• CE is a single amount determined at time zero, which at a given rate of
interest will be equivalent to the net difference of receipts and disbursements
if the given cash flow pattern is repeated forever.
• 1st covert the actual cash flow into the equivalent cash flow of equal annual
payment.
• CE analysis is very useful to compare long-term projects.
• To understand the merits of different types of road alignments or surfaces,
etc.
Future worth comparison:

Annual cost and worth comparison:

Rate of return method:
• Competing alternatives in the area of investment.
• It is regarded as an index of profitability
• Methods:
1. Minimum Attractive Rate of Return (MARR)
o The minimum rate of return below which the company will not be interested
in investment.
o Factors: conditions of market, level of competition, cost of capital.
o More competition – less MARR, For Eg in the Construction business of
building sector
 2. Internal Rate of Return Method(IRR)
• The interest rate that reduces the present worth of a given cash flow to zero.

• In principle, IRR can be determined by equating the net present worth of the cash flow to
zero, i.e., setting the difference of the bebifits and cost of the present worth to zero
=0
• Its is not possible to calculate the rate of return for the cash flow alone or revenue alone.
• IRR should not be used for ranking of projects as it may give enormous results, and one may
need to evaluate alternatives using incremental rate of return.
3. Incremental Rate of Return (IRoR)
• The incremental analysis is based on the principle that every rupee of investment is as
good as the other.
• If an alternative requires a higher initial investment than the other and the evaluation is of
the rate of return on the increment of initial investment, the return yielded on this extra
investment is called the IRoR.
• The analysis makes the assumption that sufficient funds are available to finance the
alternatives with the highest investment, and
• That there are opportunities to utilize surplus funds at a rate higher than the MARR.
• Compare the rate of return of all alternatives with the assumed MARR.
• If the alternative less rate of return than assumed MARR, drop it out
 Role of a project manager
• The project manager is the king pin around which the complete project
revolves.
• He integrates the various resources under changing environments for
successful achievement of project objectives
• He assumes total responsibility and accountability for success or failure
of the project
• In particular his responsibilities include team building, financial control,
contract management, technical management, resource management
and quality management

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 Role of a project manager
• Executive governance functions: following are the important functions that
need attention of project manager
1. Managing worker safety and healthy work environment
2. Manage the project so that it serves the purpose for which the project is
undertaken
3. Coordinate between several components to meet the requirements
4. Minimising changes in scope of work
5. Managing the quality of work to eliminate the rework

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 Role of a project manager
6. Organising the project with people skills
7. Keep a watch on planned procurement and productivity
8. Manage the project within budgeted cost
9. Completing the project within the time
10.Manage and administer contract effectively
11.Manage risk successfully
12.Maintain professional ethics

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 Role of a project manager
• Leadership functions: Project manager should positively influence the
work groups to achieve the mission

1. Envision the project processes that integrate the tasks, teams and
people with a view to leading the organisation towards the defined
goals. This includes

a) Managing the client, end user and external stake holders to ensure
that the project meets their expectations

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 Role of a project manager
b) Monitoring progress with appropriate control systems, to ensure that
the team learns from its mistakes
c) Managing himself, by reviewing his performance to ensure that his
leadership of the team is a positive contribution to the project
d) Planning in order to ensure that the team sets realistic targets and
obtain appropriate resources to achieve those targets
e) Managing the team in order to maximise their performance both as
individual and collectively

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 Role of a project manager
b) Energise the human resources by developing and motivating individuals
and work group to work enthusiastically. This involves
c) Developing the peoples skills to their full potential and careers
d) Organising and networking project team
e) Committing the organisation to accomplish project objectives
f) Motivating individuals and teams to do their best

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 Role of a project manager
3. Enable the individuals and work groups to perform enthusiastically to
their full potential. This involves
a) Communicating effectively to influence the organisational behaviour and
ensure customer satisfaction
b) Coaching individuals and teams rather than directing
c) Monitoring work progress to accomplish objectives
d) Managing changes and conflicts
e) Delivering the project to the satisfaction of customer

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 Role of a project manager
• In order to fulfil his assigned role effectively, and efficiently a project
manager has to have managerial skill, technical expertise, business
acumen, leadership qualities, excellent communication and interpersonal
skills
• These qualities can be achieved by educational qualification and desirable
experience

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 Causes of project failure
• Commonly construction projects fail to achieve time or cost objectives

• As per available data about 50% of the projects are delayed by 1 to more than 100
months

• About 56% projects have cost overruns of about 20%

• Following factors contribute to these delays

1. Inadequate project formulation: poor field investigation, inadequate field information,
incorrect cost estimates, lack of experience, inadequate project analysis, poor
investment decision
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 Causes of project failure
2. Poor planning for implementation: inadequate time plan, inadequate
resource plan, inadequate equipment supply plan, interlinking not
anticipated, poor organisation of resources, poor cost planning

3. Lack of proper contract planning and management : improper pre-

contract actions, poor post award contract management

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 Causes of project failure
4. Lack of project management during execution: delays due to ineffective or
inefficient working practices, change in scope of work, difficult location or
local laws
5. Failures can be due to unforeseen natural calamities

Main causes of project failure

6. Cost estimation failure
7. Management failure

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 Cost estimation failure
• Cost estimation is a continuous process. It requires financial commitment at
various levels and by various agencies involved in the project
1. Inception stage: The client or the promoter basing his judgement on the
feasibility cost estimates (variation ±30%), accepts engineering costs and
signals start of the engineering phase of the project
2. Preparatory stage: during this phase, his professional team and consultants
develop the design, the specifications and the drawings

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 Cost estimation failure
• Based on these details, bill of quantities is prepared by using detailed
estimation methods (cost variation ±10 to 20%).
• BOQ contains work quantity estimates and indicates an approximate cost
• Accuracy depends on time taken, scope of work, availability of past data
and method of execution
• At this stage, client may review the cost, prior to giving permission for
tendering action

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 Cost estimation failure
3. Contractor’s tendering and execution stage: on receipt of tender from
client, contractor along with his consultants prepare his detailed
estimates based on BOQ received (± 2 to 10% variation)

• Inaccuracy in quoted cost by contractor can affect the project feasibility

and contractor’s business

• Tendered cost becomes the financial commitment for client to pay the
contractor at pre-decided frequency

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 Cost estimation failure
• Also tendered cost is commitment by contractor to finish the project in
accepted time and cost
• A bid on higher side by the contractor means an opportunity missed for
new business
• On the other hand, lower quote price may lead to lower profits or even
loss
• When contractor is lowest, there is a question on his judgement, hence
clients consultants must review the cost

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 Cost estimation failure
• The estimation process continues during the execution stage.
• Contractor keeps a track of actual costs and analysing variances from
estimated costs and trends
• Final bill will decide the final commitment of the client
• A construction project, based on inaccurate cost estimates is bound to fail
unless its performance objectives are revised and additional funds
inducted

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 Management failure
• A project environment comprises various interrelated constituents such
as resources, tasks and technology along with the people working against
time under stress to achieve the common project objectives
• The problems of management are very complex and don't have a simple
solutions
• Following are the causes of management failure

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 Management failure
1. Planning failure: it is due to unclear objectives, and targets, unworkable
plans, top managements failure to backup the plan, failure to identify
critical items, lack of understanding of operating procedures and policy
directions, reluctance to take timely decisions and ignorance of
appropriate planning tools and techniques

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 Management failure
2. Organisational failure: it is due to incorrect organisational structures
resulting in conflict, confusion of responsibility, inadequate delegation of
authority at various levels, higher management interference, lack of
stress on accountability and a tendency of people to escape
responsibility

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Management failure
3. Resource failure: it is due to improper choice of project manager
and other staff and failure to procure and position resources as per
the planned schedules
4. Directional failures: it can be attributed to a lack of team spirit,
internal conflicts, poor human resources management and labour
strikes

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 Management failure
5. Controlling failure: it is due to unclear targets, inadequate information
flow, incompetency in adopting appropriate monitoring techniques and
an absence of timely corrective measures

6. Coordination failure: it can be attributed to a breakdown of

communication at various levels, lack of day to day decisions to fill
procedural gaps and an absence of cooperation

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 Management failure
7. Other failures: they may be due to faulty procurement of machinery and
materials, bad workmanship, poor performance of sub contractors,
accidents, bad weather and failure to adopt to the local conditions

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 Construction economics
• Construction activities involve a large sum of money and continue for
several years
• Today engineers are expected to manage materials, machines and labour
and evaluate them for economic efficiency
• Engineers also have to consider financial aspects like return and risk of
investment while taking construction decisions
• In developing country like India, engineer must produce more for every
rupee spent

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Contracts / Memorandum of understanding
• All agreements between two or more parties are contracts, if they are
made by the free consent of the parties, competent to the contract for
the lawful consideration and with a lawful object and are not expressly
declared to be void.
• Elements of contract:
1. Offer and acceptance: there must be lawful offer by one side and
lawful acceptance by the other side
2. Lawful consideration: all contracts must be supported by lawful
consideration

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 Contracts / Memorandum of understanding
3. Capacity: the parties must be legally capable of entering into an
agreement
4. Free consent: The agreement must be based on free consent of all the
parties
5. Lawful object: The object of agreement must not be illegal, immoral or
opposed to public policy
6. Certainty: It must be possible to ascertain the meaning of the
agreement
7. Possibility of performance: The contract must be cpable of being
performed. An impossible objective can not be enforced a contract
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 Contracts / Memorandum of understanding
• Some of the contract conditions are discussed below
Title: Scope of contract
Clause: The contractor shall carry out and complete the works in every
respect referred in the title of this tender in accordance with the terms
and conditions of contract (payment terms, running bill, incomplete work)

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 Contracts / Memorandum of understanding
Title: Sufficiency of tender
Clause: The contractor shall be deemed to have satisfied himself before
tendering, as to correctness of and sufficiency of his tender

Title: Work to the satisfaction of engineer in-charge

Clause: The contractor shall execute the works to the satisfaction of
engineer in-charge, whose decision about the acceptance of works shall
be final and binding on the parties

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