Overview of Contract Management

1
Overview of Contract Management Contract Law

• Dr S N Rao
• Director, ESCI

2
Contract management

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

3
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

4
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

5
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.

6
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.

7

• 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.

8
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_______

9
Types of Contracts

• Lumpsum
• Item Rate
• Cost Plus Percentage
• Cost Fixed Fee
• Maximum Price
• Turnkey

10
Form of Contracts

• Formal Informal
• Express Informed
• Unilateral Bilateral

11
LAW OF CONTRACT

• Freedom of contract
• Contract adhesion
• Exclusions Exemptions
• Sanctity of Contract

12
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

13
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.

14
All Agreements are Contracts if they are made by

• Free Consent
• Party's Competent to Contract
• Lawful Consideration
• Lawful Objective

15
Contract Management

• Contract Organisation
• Owner
• Contractor
• Architects Designing / Engineer
• Suppliers / Sub Contractors
• Statutes and Mandates

16
Contract Management ..contd

• Management of Contracts
• Pre Contract Requirements
• Contract Operation
• Issues and Problems arising
• Disputes Resolutions
• Closure of Contract

17
Contract Management

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

18
Pre Award Stage (Tenders)
19
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

20
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

21
MODES OF INVITING TENDERS

• NEGOTIATED TENDERS
• LIMITED COMPETITION
• OPEN COMPETITION

22
REQUIREMENTS TO BE FULFILLED BEFORE INVITING
TENDERS

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

23
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

24
INFORMATION TO BE PROVIDED IN NOTICE

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

25
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

26
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

27
Acceptance of Tender

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

28
Operation of Contracts

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

29
Award of Contract (Agreement)
30
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.

31
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

32
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.

33
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

34
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

35
Performance of the Contract (Execution Process)
36
Problems Issues

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

37
Deviations in Contracts

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

38
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

39
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 or without financial
  implications.

40
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.

41
BREACH OF CONTRACT

• Is failure to perform an obligation arising out
  of the contract.
• Total Breach
• Partial Breach
• Anticipatory Breach

42
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

43
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

44

• Failure/Delay in nominating specialist
  subcontractors and suppliers.
• 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 of contract wrongfully and illegally.
• Failure / Delay in appointing architect or an
  Engineer or in filling the vacancy.

45
BREACHES BY CONTRACTOR

• Abandonment or total failure to complete
• Delay in completion
• Defective design, materials and / or workmanship
• Failure to submit planned programme
• Unauthorised sub-contracting
• Contd

46

• 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.

47
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.

48
FORCE MAJEURE

• An absolute necessity or compulsion,
  circumstances beyond ones control
• Natural Calamities
• Civil War
• Strikes

49
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.
50

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

51
Post Completion of Stage

• Disputes arising out - Dispute Resolution

52
THAN Q