Guide to Contrustion Contract Management: Types, Conditions, Records to Maintain & Salient Conditions

What is the Construction Contract?

According to the classic legal definition, a contract is a promise or several promises under which the law recognizes a duty to perform and for a breach of which the law provides a remedy.

The Contract must be free from

1. Misrepresentation

2. Mistake

3. Duress

4. Undue influence.

 

To fully understand that definition, we need to look at the six elements of a contract.

i) Offer and acceptance.

ii) Consideration.

iii) Legal Capacity.

iv) Legal Purpose.

v) Genuine consent of parties.

vi) Agreement

 

Typical Parties for Works Contract

1. Owners

a. Public Owner (Government bodies)

b. Private Owner (also include quasi-public bodies)

2. Architect/Engineers (A/E)

3. Prime/General Contractor

4. Sub-contractors

5. Suppliers

6. Banks & Financial Institutions

7. Specialized Service Agencies

8. Labor

9. Regulatory agencies

10. General Public

 

Types of Contracts

1. Item Rate Contract

2. Cost Plus (Reimbursable Contract)

3. Lump Sum Contract

4. Design & Build a Contract

5. EPC (Engineering Procurement Construction) Contract

6. Two-Stage Tendering Contract

Also Read: Types Of Payments Contract Used In Construction Industries

 

Other Contract Types (In Govt. Infra Projects)

1. BOT (Build Operate & Transfer)

2. BOLT (Build Operate Lease & Transfer)

3. BOOT (Build Operate Own & Transfer)

 

Public Sector Projects

1. CPWD

2. PWD

3. BESPOKE (Separate State Level Contracts)

 

Private Sector Projects

1. FIDIC - stands for Fédération Internationale des Ingénieurs – Conseils, which means International Federation of Consulting Engineers. It is an international standard organization for consulting engineering and construction best known for the FIDIC family of contract templates.

2. Typical developer/owner contracts (again bespoke)

DOCUMENT FORMING PART OF THE BUILDING

1. Invitation to the Tender (NIT)

2. Form of Tender (offer letter including all revisions)

3. Annexure to Form of Tender (APPENDIX TO TENDER)

4. General Conditions (GCC)

5. Special / Particular Conditions (SCC / PCC)

6. Bill of Quantities (BOQ)

7. Technical Specification

8. List of Tender Drawings

9. Tender Correspondence / Amendment to NIT / Corrigendum / Addendums

10. Minutes of the pretender meeting

11. Tender Clarifications / Qualifications

12. Letter of Intent (LOI)

13. Letter of Award (LOA)

 

Salient Conditions of Any Typical Contract

Top 15 Conditions That We Should Look for In Any Contract (Apart from Safety & Quality Conditions)

 

COMMERCIAL CONDITIONS

1. Payment Terms

2. Performance Guarantee

3. Mobilization / Material Advance

4. Retention Condition

5. Escalation / Price Adjustment / Basic Rates

 

TIME-RELATED CONDITIONS

1. Contract Duration

2. Master Construction Schedule / Program

3. Delays and Notifications

4. Extension of Time Clause

5. Force Majeure

 

DISPUTE RELATED CONDITIONS

1. Claims Compensation Clause

2. Liquidated Damages Clause

3. Suspension of Works

4. Termination of Contract by Either Party

5. Dispute Resolution / Arbitration Clause

 

TYPES OF DELAY EVENTS

EMPLOYER DELAYS

1. Delay in obtaining relevant statutory approvals

2. Delay in payments

3. Delay in approval of samples, materials, mockups, design mixes, etc.

4. Discrepancies in contract/tender documents

 

CONTRACTORS DELAYS

1. Non-availability of the right number of resources – Plant, Equipment, Labor, and Formwork.

2. Non-availability of the right project staff or Frequent changes in project teams

3. Not maintaining the right cash flow at every stage of the project

4. Not monitoring the vendors/subcontractors with acumen skillset

5. Not maintaining the procurement strategy as planned

6. Not adhering to H&S and QA / QC protocols

 

NEUTRAL DELAYS (FORCE MAJEURE EVENTS)

1. Excessive rainfall / Cyclone/drought / Climatic changes / Epidemic / Pandemic

2. Any political changes including Elections

3. Law and order issues in the locality/town

 

RECORD KEEPING AND COMMUNICATION

A record can be in the form of

1. Emails

2. In & Outgoing Letters

3. Minutes of the Meeting

4. Daily reports (DPR)

5. Weekly reports (WPR)

6. Monthly reports (MCR)

7. Site instructions

8. Drawing registers

9. Pour cards

10. Inspection checklist

11. Submission of documents to authorities

12. Health & Safety documents

13. QA / QC & QMP documents

 

1. Request for information (RFI)

2. Variations / Change order instructions (VO / CO)

3. Material / Sample approval transmittals

4. Design approval transmittals

5. Labor induction records

6. Hindrance registry

7. Shop drawings – submission/approval

8. As-Built drawings

9. MCP submission, tracking & revisions

10. Confirmation of verbal instructions (CVI)

11. Early Warning Notices (EWN)

12. Monthly   interim RA bills – Submitted & certified

13. Payment receipt records

14. Photographs

15. Videos/text messages

16. Muster rolls/Attendance records

 

IMPORTANCE OF CONTRACTS

Why Contracts Management is Essential for Projects?

• It is mandatory that every member of the site team be fully aware of the key contractual obligations with the Employer, to ensure:

• Timely identification of risks and steps to mitigate them,

• Proactive thinking and notification to Employer,

• Understanding the repercussions of non-identification/ non-notification / non-remedying of risks or delays

• Understanding the repercussions of non-adherence / non-conformities to contractually agreed

terms and specifications

• Understanding the scope for claims (Extra items/ Variations/ Idle Claims, etc.)