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Unit 3 Notes On Contracts and Tenders: S. Sampath Kumar, Dept of Civil, Velammal Engineering College
Unit 3 Notes On Contracts and Tenders: S. Sampath Kumar, Dept of Civil, Velammal Engineering College
INTRODUCTION:
A proposal made and accepted becomes a promise. Every promise and every set of
promise forming the consideration for each other is an “ agreement”.
When a work is carried out by entering into an agreement with another party for its
execution, the work is said to be done on “contract basis”.
Contract means any kind of undertaking written or verbal by a private person or a firm
for construction, maintenance or repairs of a work for the supply of material. This
agreement is enforceable by law.
Contractor
A person who enters into an agreement with another person or department for the
execution of the work or supplies to be made, under certain conditions is called
“contractor’.
Qualifications of contractor
There are no fixed norms of qualifications of a contractor. There are some essentials
which a contractor is expected to have such as: -
Quotation
Tenders
Earnest money
It is a guarantee is the shape of money, gives by the contractor along with their tenders,
confirming their willingness to work for the department. Mode of earnest money to be
sent is informed by the department which is in the shape of draft in favor of the
department (Competent Authority). It is generally 2% of the total estimate.
In case, if the tender of the contractor is not accepted. The money is refunded
immediately.
Security money
This is the money which the contractor is has to deposit with the department when the
contract is allotted to him. It is 10% of the total estimate. This money also includes
earnest money already deposited by the contractor. This deposit is kept as check so that
the conditions of the contract agreed upon are fulfilled and the work is completed to the
satisfaction of the authorities. This money can be forfeited by the department if the
progress and quality of the work is not satisfactory.
Classification of Tenders
i) Open or public tender
ii) Selected or limited tender
iii) Negotiated tender
i) Open or public tender: In this type of tender any contractor can enter into
competition and all formalities of giving opportunity to compete are to be fulfilled. It
is compulsory for public works and because of competition, it may result in low cost.
But there are chances of dispute as mistakes found at later stage area difficult to be
adjusted. It is also not suitable for complicated and specialized jobs.
It is also proves to be laborious for the engineer as the work may have to be entrusted
to an unknown contractor. This end result is likely to be that the work goes to a
contractor who is not fit for the work and even though the initial price is low, the final
cost including the cost of delays, claims, extra items, non-tender items etc is likely to
ii) Selected or limited tender: For this type of tender, the architect after
consultation with his client, invites a limited number of contractors for filling up the
tender or the project. It results into competition on a small scale. But it proves to be
useful for specialized and skilled works. It also leads to early successful completion
of the project.
iii) Negotiated or Single party or Exclusive tender: This is the advanced form of
selective tender and the contract is given by negotiations with one or at the most two
contractors. As such there is no competition in this type of tender and hence, it may
prove to be costly. But when the work is to be completed in target time without
sacrificing for the quality the negotiated tender may prove to be the only alternative
Classification of contracts
In such types of contracts, the contracts, the contractor undertake to execute the work at
fixed rates as mentioned in P.W.D. schedule of rates book plus premium as prevailing at
that time. The amount is paid to the contractor on the quantity and kind of work done or
supplies made.
In this type of contract, the contractor agrees to execute the work as per supplied
drawings and specification, with all contingencies at a fixed sum of money. This practice
of giving contracts on lump sum basis is generally followed in Military Engineering
Service (M.E.S.)
In this type of contract fixed sum is proposed for the completion of work as specified and
a schedule of rates as agreed upon by which to regulate the price to be paid or to be
adjusted for additions and alterations.
It is not a general type of agreement in use in all departments but is used only in the
department where its use has been permitted by the government concerned. Conditions
and limit of cost of work is also fixed by the government concerned.
Generally “ Piece Work “ systems are agreements given in the form of “Work order”. It
contains only description of various items of work and rates to be paid for each item.
Quantities of work are not mentioned.
As is only an agreement the Govt. can ask the contractor to stop work, if not satisfied
with the quality and progress of the work. On the other hand, the contractor can refuse to
carry out the work, if not satisfied with payment or other reasons concerning work.
In this system, agreements are executed on “Work order Form”. It contains only
description of the work and rates to be paid for each item. Quantity of the work is not
mentioned. Quotations are invited from the contractors to complete such type of works.
In this case, the limit of the work is upto Rs. 10,000/- or any other limit fixed by the
department. It is only an agreement and the competent authority can ask the contractor to
stop the work if not satisfied with his work. On the other hand, the contractor can refuse
to carry out the work, if not satisfied with the payment procedure or any other reason
concerning work.
Before floating a tender, a department must have the following conditions fulfilled, so as
the allotment of the contract to the contractor becomes a smooth process.
a) A set of detailed drawings of the proposed work, with complete data (technical)
b) Material statement mentioning material to be supplied by the department and the
material to be brought by the contractor.
c) The time required to complete the project.
d) Mode of payment and deductions to be from each bill as security.
e) Penalty to be imposed on the contractor in case of delay on the part of the contractor.
f) Complete specifications of scheduled and non-–scheduled items as per P.W.D.
specifications.
g) Conditions regarding arrangement of stay of labor and rates of minimum wages as
fixed.
It is prepared by the administrative wing after all the above mentioned formalities are
complete including Administration approval. Technical sanction, funds, land acquisition
etc. Sealed tenders are invited by giving advertisement in leading newspapers, by sending
letters to reputed contractors and displaying notice board of the department. The date of
issue of the notice should be about 4 weeks before the receipt of tenders. Mode to send
the earnest money should be mentioned in the advertisement. Cost of tender from and its
availability should be mentioned. Incomplete tender forms are likely to be rejected as per
mentioned.
OPENING OF TENDERS
The tenders are opened at the place mentioned in the tender form. i.e. in the office of
executive Engineer, on the date and time mentioned. Executive Engineer, Divisional
Accountant and office superintendent represent the departments on one side and
contractors or their representatives are on the other side. The lock of the box in which
sealed tenders are dropped by the contractors is opened in the presence of all. After
checking the seals of the tender covers, these are opened and are signed by both the
parties. Comparative statement is prepared item wise and the work is allotted to the
lowest bidder. The competent authority has powers to reject the tender of the lowest
bidder, but he has to give reasons and confidential remarks, financial position and
reputation of the contractor is also considered. Earnest money to the bidders of rejected is
The following officers have been given powers to accept a tender in P.W.D. the limit of
power may vary from department and state to state.
ACCEPTANCE LETTER
The following points should be kept in mind while an acceptance letter is prepared
a) The amount quoted in the letter of acceptance should be the same as agreed in the
tender.
b) Endorsement of the letter to Accountant General of the State Covering the following
points:
i) Amount of the Administrative Approval accorded for the work included in the
contract.
ii) Reference to Technical sanction.
iii) Comparative statement of the tenders (original) also any covering note for NOT
accepting the tender of the lowest bid is attached.
CONTACT AGREEMENT
It is a contract deed between the government and the contractor. Divisional Engineer
signs on behalf of government. He is responsible for correct preparation and execution of
the agreement.
The condition of the different departments varies for the preparation of the contract
agreement. Preferably these should be between the framework of manual of order.
To
Sh. ABC
Contractor
Patiala
Dear Sir,
On behalf of Governor of Tamil Nadu, I am accepting your tender for the above
mentioned work. Please attend ‘Divisional Office (North) immediately, for instructions
regarding taking over the site and commencement of the work.
1) Schedule I and II
2) Particular Specifications
3) Complete set of drawings (duty signed by both the parties )
You are requested top return the copy of this letter singed as a token of acceptance.
Yours faithfully
Signature of the Contractor
Note: Schedule No I: It deals with the requirement and their rates per unit. In case of supply, approx
quantity is also mentioned.
Schedule No II: It deals with issue of stores to the contractor. Rates and place of issue is also mentioned.
1. Labour contracts
2. Negotiated contracts
3. Schedule of price contracts
4. Package deal contracts
5. Demolition contracts
6. Turnkey Contracts
1. Labour contracts
Some times, the owner is in a position to purchase the required materials himself. In such
cases, he invites tenders only for the labour work. The contractors put up their rates for
the labour required per unit execution of each item. It is absolutely necessary to state that
these rates include:
Overlall responsibility of the work is of the contractor and he has to arrange in such a
way that proper rate of progress is maintained for the work. The owner has al has to see
that the necessary materials are brought on site as and when required. The owner has also
to watch that there is no wastage of the materials since the contractor is to be paid only
for the labour work.
2. Negotiated contracts
In this type of contracts, the tender contains only description of all possible items of
construction . In another form of this type of contract, the engineer quotes his rates in the
tender and the competing contractors are simply asked to quote a higher or a lower
percentage to the rates mentioned by the engineer. This form of contracts is useful for the
simplest type of work such as maintenance work.
S. Sampath Kumar, Dept of Civil, Velammal Engineering College Page 8
4. Package deal contracts
In this type of contract, the owner gives his requirements in broad outline to the
contractors together with the site data. The contractors then proceed to prepare their own
design of the project and finally submit the same to the owner with the estimated cost of
the project as per their design on a lump sum basis. The construction work of the project
is then given to the contractor whose design is accepted by the owner. This type of
contract is suitable only under certain circumstances, especially when the project
demands special considerations for its design and successful completion. Eg oil
refineries, nuclear power stations, important bridges, sewage treatment plans, chemical
factory, engineering workshop etc.
5. Demolition contracts
This is the simplest type of contract in the sense that the owner invites tenders for the
demolition of an existing structure so that the land on which such structure is standing
can be developed in the best lucrative manner. As such is no construction activity and the
successful tenderer has to take all the materials of the old building and to hand over the
site in the form of an open plot of land. The contractor in turn pays a specified amount to
the owner.
i. The contracts is given to the contractor quoting the highest amount and not the
lowest one as in case of ordinary building contracts.
ii. The owner should take the entire amount from the contractor before handing over
the building to him for demolition.
iii. The contractor must clearly state that the contractor is responsible for making
necessary arrangements for cutting off the existing service connections of water
supply, draining and electricity,
iv. The contractor should be asked to take out insurance policies for labourers, third
party risks etc. and to keep the owner free from all such claims.
6. Turnkey contracts
Arbitration
The process by which the parties under a contracts get their disputes and differences
settled through the intervention of an impartial person or a committee of experts in a
judicial manner is known as arbitration. The impartial person or persons are known as
arbitrators.
1) It is the reference of disputes and differences by parties which are at least two in
number
It some times happens that the parties to a suit agree to refer the matter to a referee
and they agree to honour the statement made by the referee. In this case, the referee
makes only the statement or pronounces his opinion from the facts and data available
to him. The court of law then decides the case and gives judgment on the basis of the
contents made by the referee.
It is generally understood that all matters may be referred to the arbitration except
those which are prohibited by a statute or which are against the public policy. The
matters which can be reffered to arbitration under the provisions of the act can be
summarized as follows:
Following are, however the matters which cannot be referred to arbitration under the
provisions of the Act:
The arbitration without intervention of a court arises from the execution of an arbitration
agreement. Only in exceptional circumstances, the court may set aside the award of the
arbitrators. After the award by the arbitrator is declared the parties concerned can apply
for a decree on the award, same as any other decree of a court of law.
1. The arbitration agreement between the parties must be valid and it should have
been entered between them before the institution of any suit.
2. A dispute or a difference must have arisen to which the arbitration agreement
applies
3. The dispute or a difference must be of such type that a valid arbitration can be
enforced for it.
Arbitration by suits when a suit is pending before a court and when the parties desire to
settle the same through arbitration before the judgements is pronounced, they can apply
for the same and in such cases the court may refer the matter to the arbitrator appointed in
such a manner as may be agreed upon between the parties
Arbitrators
An arbitrator is more or less like a private judge chosen by the parties and endowed by
them with power and privilege to decide the matter of dispute between them.
1. He must act fairly and honestly in the arbitration proceedings throughout the
reference
2. He must have a clear idea about contractual obligation in general because he
cannot ignore the contents or obligation of the contract
3. He must not allow his award to be influenced by negotiation for settlement of
disputes between the parties before him
4. He should have a working knowledge of the law
It should, however be noted that an arbitrator is not bound by the technical rules of
procedure which the court must follow as such he is not supposed to record separate
findings on the various points referred to him and it is not necessary for him to write a
reasoned judicial decision. As a matter of fact an arbitrator is only required to give an
intelligible decision which embodies or determines the rights of the parties with respect
to the subject matter of reference.
Explain the intent of following in conditions of contract for civil Engineering works
(May 2010 = 16 Marks)
i) Arbitration ii) Sub-letting
i) Arbitration
The main purpose of including this clause is to avoid the tedious procedure of litigation
and thus to avoid legal formalities delays and expenses. It is a procedure in which the
parties concerned submit their disputes to any impartial person or a committee of experts.
The important points to be included in this clause would be
The notice regarding the submission of the dispute to arbitration shall be given in
writing within a reasonable period after the dispute has risen. But no case such
demand shall be entertained after the date of the final payment. It is further
agreed that the contractor shall not cause a delay in the works during the
arbitration proceeding unless agreed upon in writing with the owner.
The remuneration of the arbitrator shall be decided by the arbitrator himself only,
unless otherwise agreed in writing and he shall fix the share of the costs and
charges of the proceeding on either or both the parties concerned. It is understood
and agreed that the award is given by the arbitrator shall be final and binding to
both the parties concerned.
ii) Sub-letting
In order to guard against the behaviour of the sub contractors appointed by the main
contractor, this clause is included in the conditions of contract. The clause should also
provide for two important points:
It is hereby agreed that the contractor shall not sub-let or assign any part of the
works under this contract to any person or persons without obtaining the written
consent of the owner through the engineer. It is also further agreed and
understood that assigning or sub letting any part of the works shall not in any way
give a cause the contractor to get himself released from the obligations, terms and
conditions of this contract. The owner shall consider the contractor responsible for
all the works carried out by the sub contractors. The payment to all sub-contractor
shall be made by the contractor and not by the owner in any case.
e-Tendering