Overview of Contract Management & Contract Law

Dr S N Rao
Director, ESCI

Contract management
Contract Types of contracts Contract Law Contract management Disputes & Resolution

Contract
A Promise enforceable by Law Offer +Acceptance (Legally binding) To be legally binding as a contract, a promise must be exchanged for adequate consideration. i.e., benefit a party receives

Contracts
Essentials of a Valid Contract
There must be an agreement or meeting the minds The agreement must be between parties competent to enter into a contract The Parties must give free consent The agreement must be supported by lawful consideration. Subject matter must be definite and lawful

Contracts by Government
Article 299 Deed must be by authorised person Transparency in the deal Public Interest in accepting Tenders should prevail Negotiations should be done with a purpose and prudence.

CONTRACTING IN GOVERNMENT
Government is, by far, the largest contractor in any Country, so too in India . Supply products (purchases ) and services (Consultancy, labour etc.,) WHAT IS THE SIGNIFICANCE OF GOVT. CONTRACTS ? Contract between private parties is absolutely binding and valid if section 10 of the Indian Contract Act 1872 is satisfied.

SECTION-10 All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void______ Contracts entered into between private persons and the Government are governed by Article 299 of Constitution of India.

ARTICLE 299
All contracts made in exercise of the executive power of the Union or the State shall be expressed to be made by the President or by the Governor of the State as the case may be and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such person and in such manners as he may direct or authorise Neither the President nor the Governor shall be personally liable_______

Types of Contracts
Lumpsum Item Rate Cost Plus Percentage Cost + Fixed Fee Maximum Price Turnkey

Form of Contracts
Formal & Informal Express & Informed Unilateral & Bilateral

LAW OF CONTRACT
Freedom of contract Contract adhesion Exclusions & Exemptions Sanctity of Contract

CONTRACTS ARE GOVERNED BY

Indian contract Act 1872 ( as amended by Act 4 of 2003) Deals mainly with general and limiting principles such as formation, Validity, performance or breach and remedies therefore. Not a complete code on contract since statutes dealing with negotiable instruments Act 1881, the Indian Arbitration & Conciliation Act 1996, the sale of Goods Act 1930 are not covered by the Contract Act

WHAT IS AN AGREEMENT
Every promise and every set of promises forming the consideration for each other is an agreement Section 2 (e) of the Indian Contract Act. AGREEMENT AND CONTRACT An agreement which is enforceable by Law is considered to be a Contract Section 2 (h) of the Indian Contract Act.

All Agreements are Contracts if they are made by Free Consent Party's Competent to Contract Lawful Consideration Lawful Objective

Contract Management
Contract Organisation

Owner Contractor Architects & Designing / Engineer Suppliers / Sub Contractors Statutes and Mandates

Contract Management ..contd

Management of Contracts
Pre Contract Requirements Contract Operation Issues and Problems arising

Disputes & Resolutions Closure of Contract

Contract Management
Pre Award Stage (Tenders) Award of Contract (Agreement) Performance of the Contract (Execution Process) Post Completion of Stage

Pre Award Stage (Tenders)

Tenders
Negotiated Tenders Limited Tenders Open Competition Mode of Publication Notice inviting tenders Submission of Tenders Irregularities in submission
How to Treat?

Conditions by contractors in tender With drawl of Tender

CONTRACT CONDITIONS THAT HAVE MONETARY IMPLICATIONS

EXTENSION OF TIME LIQUIDATED DAMAGES PENALITIES PAYMENT TERMS LIKE MOBILISATION ADVANCE, SECURITY DEPOSIT, TIME LIMIT WITHIN WHICH BILLS ARE TO BE PAID, STAGES OF PAYMENT ARBITRATION CLAUSE MACHINERY AND MATERIALS ISSUED BY CLIENT WHETHER FREE OR AT FIXED COST ESCALATION LIMITATIONS OF LIABILITIES

MODES OF INVITING TENDERS

NEGOTIATED TENDERS LIMITED COMPETITION OPEN COMPETITION

REQUIREMENTS TO BE FULFILLED BEFORE INVITING TENDERS

SANCTION TO BE OBTAINED URGENT WORKS WITH NO TIME SPLITTING OF DISCOURAGED WORKS TO BE

TENDER DOCUMENTS TO BE READY BEFORE INVITING TENDERS

NOTICE INVITING TENDERS STANDARD FORM OF TENDER SCHEDULE OF QUANTITIES OF WORK COMPLETE SET OF DRAWINGS COMPLETE SET OF SPECIFICATIONS ESSENTIAL ARCHITECTURAL DRAWINGS

INFORMATION TO BE PROVIDED IN NOTICE

QUALIFICATIONS NAME EMD SECURITY DEPOSIT TIME LIMIT COST MODE OF SUBMISSION DATE, TIME AND PLACE OF OPENING TENDERS

PREPARATION AND SUBMISSION OF TENDER

PURCHASE OF BLANK TENDER FORM STUDY OF TENDER DRAWINGS VISIT TO THE SITE OF WORK ROUGH VERIFICATION ANALYSIS OF RATES DECIDING THE PERCENTAGE WORKING OUT THE LUMPSUM CHECKING OUT THE RATES COPIES OF DOCUMENTS

IRREGULARITY IN SUBMISSION OF TENDER

UNSIGNED TENDER MAY BE BINDING ESTIMATES AS OFFERS ARE BINDING PAYMENT OF EARNEST MONEY WITHDRAWAL OF TENDER PRIOR TO ITS ACCEPTANCE

PRE QUALIFICATION OF TENDERS

Acceptance of Tender
Letter of Intent Mode of Communication Date of Acceptance Revocation of Acceptance Rejection of Tender

Operation of Contracts
Interpretation Duties / Obligations of Owner Duties / Obligations of Contractor Organising the Project Execution Monitoring the progress

Award of Contract (Agreement)

ESSENTIAL CHARACTERISTICS OF A CONTRACT

The terms of the contract must be clear and precise. Time is the essence of contracts The terms of contract should be enforced strictly. This responsibility rests with both parties. Revision of rates in accepted agreements during the currency of such agreement is prohibited.

CONTRACT DOCUMENT CONTAINS

NOTICE INVITING TENDERS INFORMATION & INSTRUCTION TO TENDERERS GENERAL CONDITIONS OF CONTRACT SPECIAL CONDITIONS OF CONTRACT SCHEDULE OF QUANTITIES & COST TENDER DRAWING SPECIFICATION OF WORKS FORMS FOR BANK GUARANTEE IN RESPECT OF EARNEST MONEY PERFORMANCE GUARANTEE MOBILISATION ADVANCE

GENERAL CONDITIONS OF CONTRACT

Formulated in advance Not individually negotiated Any ambiguity in the interpretation of clauses is likely to lead to litigation, loss of resultant goodwill and waste of time.

Contents of Contract Agreement

Scope of Work Schedule of list of work or items of work General Conditions Special Conditions Specifications Notice of Tender, Correspondence to acceptance and letter of acceptance

Contents of Contract Agreement

Scope of Work Schedule of list of work or items of work General Conditions Special Conditions Specifications Notice of Tender, Correspondence to acceptance and letter of acceptance

Performance of the Contract (Execution Process)

Problems & Issues

Interpretation of Contract Handing over site Materials Issue and use Drawings & Designs Payments

Deviations in Contracts
Escalation of rates Extra Items Extra Quantities Change of Specifications Time over runs & Extensions Loss to Owners / Neighbours properties Disputes & Resolution

CONTRACT MANAGEMENT
FUNDAMENTAL PRINCIPLES TO BE FOLLOWED: Ensuring good workmanship by proper supervision Keeping proper account of materials used. Ensuring scheduled inspections . Recording measurements and obtain signature of the contractor. Carrying out prescribed test checks as stipulated. Ensuring adherence to specifications and drawings

EXTENSION OF COMPLETION PERIOD

Granting of extension of time is however a matter of discretion. While so doing care should be taken to ensure that the contract was not placed on time preference terms. Extension with implications. or without financial

VARIATIONS IN QUANTITIES
World Bank conditions : For a particular item if difference is more than 25% provided the change exceeds 1% of initial contract price, the Engineer shall adjust the rate to allow for the change. If the quantity exceeds the above, it will be referred to the Employer. The rate in BOQ shall be used. If it does not correspond to any item in BOQ, the contractor shall offer the quotation. Finally mutually agreed rate is paid. Supplemental rates -as per agreement conditions.

BREACH OF CONTRACT
Is failure to perform an obligation arising out of the contract.

Total Breach

Partial Breach Anticipatory Breach

COMMONEST BREACHES OF CONTRACT

Abandonment or total failure to complete either to start with or midway in execution.

Delay in completion of the works

Defective work

BREACH BY THE OWNER

Failure to handover possession of the site to the Contractor Delay in supply of working drawings, details, designs and decisions Delay in supply of materials Ordering suspension or stoppage of work or entering with the progress of work in any manner. Failure / Delay in making payments of R.A. Bills, extra items, excess quantities, including settlement of final bill.
Contd

Failure/Delay in nominating subcontractors and suppliers.

specialist

Delay caused by other agencies employed at the site of work by the owner in addition to the contractor. Wrongful deduction of liquidated damages / penalty. Termination illegally. of contract wrongfully and

Failure / Delay in appointing architect or an Engineer or in filling the vacancy.

BREACHES BY CONTRACTOR
Abandonment or total failure to complete Delay in completion Defective design, workmanship materials and / or

Failure to submit planned programme Unauthorised sub-contracting Contd

Failure to insure as required Failure to employ qualified engineers Failure to maintain and submit labour reports Payment of unauthorised wages Failure to take safety precautions Causing damage to property of work of other agencies.

CONTRACTORS IMPLIED CONDITIONS

Contractor to do work and supply materials implicitly undertakes:

To do work in workman like manner that is with care & skill To use the material of good quality and where specifications of quality are agreed this will mean good of their expressed kind. Both the work and material will be reasonably fit for the purpose for which they are required.

FORCE MAJEURE
-An absolute necessity or compulsion, circumstances beyond ones control Natural Calamities Civil War Strikes

ARBITRATION ARBITRATION ACT 1940

Arbitration is the settlement of dispute by the decision not of a regular and ordinary court of Law but of one or more persons called arbitrators.

Advantages Efficient, Expeditious, Economical substitute to court actions.

Disadvantages Legal principles may be violated, rules of evidence may be waived, injustice.

 Department Contractor Syndrome Not understanding even genuine grievances Claims as a matte of extra profit not genuine

Post Completion of Stage

Disputes arising out - Dispute Resolution

THAN Q