VESP Vision

To be the centre of excellence in the field of technical

education.

Program Code:- CE6I

Course Name:- CONTRACTS AND ACCOUNTS

Course Code : - 22601

Course coordinator: SANSKRUTI D

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 Unit No: 2
Unit Name: Contracts
12 Marks

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Concept Map

Contract

Types of
engineering BOT
contract

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Learning Objective/ Key learning

► Objective , definition of contract

► Types of engineering contract

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 Introduction

● It is derived from Latin ‘contractum’ ( Drawn together )

● Def – It is undertaking by a person or firm to do any work under certain terms &

conditions.

● The work may for construction, maintenance & repair.

● It is also for supply of materials, labours & transport of materials.

● It is agreement bet two parties enforced by law as The Indian Contract Act 1872.

● Contractors – The persons or firm who undertakes any type of contract

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 Objects of contract-

● To execute the work speedily as per agreement & spec.

● To execute work by experienced persons.

● For execution of work latest tech. & m/c used.

● Without interference of contractor it should be checked by supervisor.

● To execute work at most competitive rate.

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 Requirement of valid contract-

● 1. It must be in writing.

● 2. Attested by witnesses.

● 3. It can be enforced in court of low.

● 4. Parties concerned must be competent.

● 5. Parties should give free consent for agreement.

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 Requirement of valid contract-

● Contract in Writing :

● According to the law, the contract should be in writing and should be signed by both the
parties.

● The exact names must be written and signed.

● In case of joint partnership, the name of the partners are written and signed by only one
partner who is having a power of attorney to sign the document.

● In case of Government department, the officer duly authorised signs the contract on
behalf of the department.

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 Requirement of valid contract-

● 2. Attested by Witness :
The signatures of both the parties should be attested by another responsible person or
the officer.

● The seal of the department is also fixed on the agreement.

3. Can be Enforced in Court of Law :

● All the conditions should be according to law, because the court can force only such
conditions.

● The parties signing the contract cannot escape from the responsibility just by saying
that they have signed without knowing and without interpretation of conditions.
→ It is the duty of both parties to study the subject matter and sign..

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 Requirement of valid contract-

● 4. Parties must be Competent :

● As per the Indian Contract Act, the parties signing the document should be legally

competent.

● The persons who are minor, mad and drunken are not legally competent. If they sign,
the contract will be void.

● 5. Free Consent :

● Both the parties should sign the document without any force by other parties.

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 Types of contract-

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 Types of contract-

● Lump sum contract

● The Contractor constructs the works in accordance with a design & specification
provided by the Employer, but for a fixed lump sum of money

● There are no individual rates quoted and no schedule for different items

● Upon the completion of work, detailed measurements of whole work checked and a
fixed lump sum amount is released to the contractor

● In large projects, part payments are made at different stages of work on mutually agreed
terms

● In case the contractor stops the work in between, he is not entitled for any payment

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 Lump sum contract

● Advantage

● The owner knows beforehand the exact cost of construction and therefore he can make
necessary arrangement for finance

● The contractor can earn more profit by in depth planning and effective management at
site

● Disadvantage

● The project has to be studied thoroughly

● Unforeseen details of work are not specified

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 Item rate contract

● In this type of Contract, the Contractor undertakes the works in accordance with design
& documents provided by the Employer on item rate basis

● The Contractor is only responsible for the execution of the Works as per the schedule
within the framework of the Contract

● Amount to be received by contractor depends on Bill of Quantities (BOQ)

● Payment is made to the Contractor as per the measured quantities of actual work
execution

● Suitability

● Suitable for all types of engineering works financed by public/govt. bodies

● Suitable for works which can be split into various items and quantities under each item can be
estimated with accuracy
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 Item rate contract

● Advantage

● Changes in drawings and quantities of individual items can be made as per requirement
within agreed limits

● Payment is made as per actual work done

● Disadvantage

● The total cost of work can only be known upon completion

● Additional staff is required to take detailed measurements

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 Percentage Rate contract

● It is a modified form of item rate contract in this case the bill of quantities consists of

description of items as per sanctioned estimate with their quantities rates unit and amount

● The contractor is asked to quote only the percentage above or below or at par with the rates

shown in the schedule

● The same percentage figure is applicable to all the items

● The additional l benefit by this form over the item rate contract is that there is not scope for any

unbalanced tender the work of scrutiny of tenders becomes very simple

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 Cost plus percentage Rate contract

● In this type of contract the contractor is paid the actual cost of the work plus certain

percentage as a profit for his professional service

● The contractor has to keep all the records for cost of materials and cost of labour the engineer

in charge check the records and recommendations for the payment

● Advantage
● The contractor is assured of his profit whatever may be the fluctuation of rates of materials and
labour so better quality of work is assured
● Dispute due to extra items is eliminated
● suitable for private works
● Disadvantage
● Total cost of work is not known until the completion of work
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 Cost plus fixed fee contract

● The contractor is paid the actual cost of work, over and above this agreed lumpsum amount is
paid to cover his overhead charges and profit the contractor receive fixed free irrespective of
the cost of work
● Advantage
● The owner bears the actual cost therefore contractor performs the work in the best interest of
owner resulting good quality work
● Changes in in design and method of construction if needed can be easily carried out without
disputes
● Work can be executed speedily

● Disadvantage

● Not suitable for government work

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 Labour contract

● In this case contractor quotes rates for all the items of work only for the labour work excluding the

materials which are supplied by the department free of cost

● The contractor has to make his own arrangement for the supply of tools plant centring materials and

scaffolding extra required for the work

● This method is very popular as the material are supplied by the owner or the department

● the contractor is not affected by the the

fluctuations of rate of material in market

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 Demolition contract

● In this contract the owner invite the tender for demolition of an existing structure so that the

land on which such structure is standing can be developed in best lucrative form

● There is is no construction activity and the successful tenderer has to take away the material of

the the old building and to hand over the site in the form of open plot of the land

● The contract should clearly state that the contractor is responsible for making necessary

arrangements for cutting of the existing service

connections off water supply, drainage and electricity

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 Negotiated contract

● In this type of contract Negotiation across the table takes place between representatives of the

owner and the main contractor for project cost and other conditions of contract

● Detailed project specifications are arrived at by discussions

● It involves extended discussions for finalisation as a competitive contract

● Most of the consultancy projects of world bank are negotiated contracts

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FIDIC contract

● Evolved by an International body of consultants - Federation Internationale des Ingenieurs

Conseils (FIDIC)

● FIDIC was originally founded in 1913 by the National Associations of Belgium, France and

Switzerland and is now best known as the organisation which publishes standard forms of

contract documents

● Every Project has contract document consisting of Part I – General Conditions & Part II –

Conditions of Particular Application (COPA)

● Is a very equitable form of contract, fair to both Owner & Contractor and employs the principle

of a neutral “Engineer”
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 Classification of contractors on the basis of financial limits

● The contractor are classed according to their technical capability and financial status
● the class of contractor is given by the competent authority and certificate is issued to the
contractor
● There are various categories of registration of contractors, depending upon the limit of
tendering and classed as I, II ,III, IV, V, VI, VII or as A1, A, B, B+, B1, C, D
● For example, in P.W.D., Executive Engineer is the authority for giving registration. Construction
● work of roads, bridges, building, dams etc. is carried out through contract agencies.
● These agencies must be registered contractors.
● According to capability of executing the works of value upto the limits given as below,
● contractors are awarded classes.

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 Classification of contractors on the basis of financial limits

● The contractor are classed according to their technical capability and financial status
● For general works :
● Class I - without limit
● Class II - upto 750 lakhs
● Class III - upto 300 lakhs
● Class IV - upto 150 lakhs
● Class V - upto 50 lakhs
● Class VI - upto 15 lakhs
● Class VII - upto 7 lakhs.
● Class VIII - upto 3 lakhs.
● Class IX - upto 2 lakhs.

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 Documents required for registration

● The various documents are required to be submitted along with the application.
● 1. Proof of financial status, supported by certificate of solvency.
● 2. Professional capacity and experience certificate.
● 3. Income-tax clearance certificate.
● A. List of technical personnel employed with qualification and experience.
● 5. List of machineries owned by contractor.
● 6. Attested copies of partnership deed (if any) and power of attorney.
● 7. Registration fee is required to pay while submitting the form in the department.
● In case of graduate engineers and diploma holders, there is a provision of getting registration
directly for class VII contractor.
● They will be exempted from payment of earnest money at the time of submitting the tender,
and only one percent of estimated cost is required to be paid as security deposit.
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 B.O.T

● In B.O.T the government grants investment enterprises to construct a public infrastructure by

financing and authorizing them to pay off loans, reclaim investment by charging from users or

by selling the product.

● After the lease period the investor should transferred the infrastructure to the government

without any expense.

● B.O.T saves time and releases burden on public budget for infrastructure development.

● In B.O.T private investment are more encouraged.

● New infrastructure is developed in short period of time.

● Problems on land acquisition are major concern for delaying of BOT projects.
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 B.O.T

● Example:-

● 1. Chatham ROB on BOT base on NH-8 by Ashiwika Construction Company. Project Cost Rs.

9.33 Crore, completed on 15/7/1998 Concession of Project :- 22/04/2000

● 2. Narmada Bridge on B.O.T basis on NH-8 by L&T & E.C.C

● 3. Pune –Mumbai Express Highway Constructed on BOT basi

● They will be exempted from payment of earnest money at the time of submitting the tender,

and only one percent of estimated cost is required to be paid as security deposit.

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 B.O.T

● Advantages-
● Fast development of infrastructure is possible
● Public facility which they will not have got after so many years
● On completion of project, the expenditure incurred will be collected by of toll and this
amount is used for maintenance of project.
● Quality of work is good since public, private partnership is there for construction of project.

● ●Disadvantages
● Problem on land acquisition are major concern for delaying of BOT projects.
● Private section may have monopoly in operating the project.
● Toll to be collected by private financing body may be revised every year which may be an
extra burden on public.
● Private builder may not maintain it in good condition and government or public may have to
take the help of court of law.

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