Thursday, April 7, 2011

Estimation and Costing - Contracts


A contract is a legally enforceable agreement between two or more parties with mutual obligations.

The remedy at law for breach of contract is "damages" or monetary compensation

A strong contract should contain the maximum amount of details about the job along with responsibilities as possible

Types of Contracts:

1. Item rate contract
2. Percentage rate contract
3. Lumpsum contract
4. Labour contract
5. Materials supply contract
6. Piece-Work agreement
7. Cost plus percentage rate contract
8. Cost plus fixed fee contract
9. Cost plus fluctuating fee contract
10.Target contract

1. Item Rate Contract

For this contract, contractors are required to quote rates for individual items of work on the basis of schedule of quantities furnished by the client’s department

2. Percentage Rate Contract

For this contract, contractors are required to quote rates for individual items of work on the basis of schedule of quantities furnished by the client’s department

3. Lumpsum Contract

In this form of contract, contractors are required to quote a fixed sum (lumpsum amount) for execution of a work complete in all respects i.e., according to the drawings, design and specifications supplied to them with the tender within the specified time.

4. Labour Contract

This is a contract where the contractor quotes rates for the item work exclusive of the elements of materials which are supplied by the client’s Department.

5. Materials Supply Contract

In this form of contract, the contractors have to offer their rates for supply of the required quantity of materials, inclusive of all local taxes, carriage and delivery charges of materials to the specified site within the time fixed in the tender

6. Piece-Work Agreement

As the name signifies the piece-work agreement, it is that for which only a rate is agreed upon without reference to the total quantity of work to be done or the quantity of work to be done within a given period

7. Cost plus Percentage Rate Contract

In tendering for work on a “Cost Plus” basis, the contractor is paid the actual cost of the work, plus an agreed percentage in addition, to allow for profit

8. Cost plus fixed fee contract

In this type of contract, the contractor is paid by the owner an agreed lump-sum amount over and above the actual cost of work.

9. Cost plus Fluctuating Fee Contract

In this type of contract, the contractor is paid by the owner the actual cost of construction plus an amount of fee inversely variable according to the increase or decrease of the estimated cost agreed first by both the parties.

10. Target Contract

This is the type of contract where the contractor is paid on a cost-plus percentage work performed under this contract. In addition, he receives a percentage plus or minus on savings or excess effected against either a prior agreed estimate of total cost or a target value arrived at by measuring the work on completion and valuing at prior agreed rates.

Scope of Contract:

• Carefully state what work the contractor will perform

• Refer to plans, specifications and applicable codes, where appropriate

• Clearly state what is not in the contract and work that is not to be performed by the contractor

Contract Document:

• Title Page – Name of work and Work No.

• Index Page

• Tender Notice – Description, Cost, Date of Tender, EMD, Time of Completion

• Tender Form

• Bill of Quantities (BOQ)

• Schedule of Issue of Materials

• General Specifications

• Detailed Specifications

• Drawings – Plans, Elevations, Sections, Detailed Drawings, Site Plan

• Condition of Contract

Rates, Security Money, Time of completion, Progress to be maintained, Penalty for unsatisfactory or bad work, delay in completion, mode of payment, extension of time limit etc.,

Sufficiency of Tender:

The Contractor shall be deemed to have satisfied himself before tendering as to the

• correctness and sufficiency of his tender for the construction of the works

• rates and prices, which rates and prices shall, except in so far as it is otherwise provided in the Contract,

• cover all his obligations under the Contract and all matters and things necessary for the proper execution and completion of the Works.

Indian Contract Act 1872:

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended.

It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies to the whole of India except the state of Jammu and Kashmir. It is not a complete and exhaustive law on all types of contracts.


Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound.

It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides


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