s12-s17 Mba Acm CCM Red Flag Clauses Project MGMT 2022 23

04/18/2024 Dr. Madhav B.
Kumthekar NICMAR 1
CONTRACT and CLAIMS
MANAGEMENT
Dr. Madhav
Kumthekar
Associate Professor,
NICMAR, Pune
RED FLAG CLAUSES
04/18/2024 Dr. Madhav B. Kumthekar NICMAR 3

Red Flag Clauses of Construction Contracts
• Before a bid is submitted & accepted, the bidder must contemplate the
contractual situation to be encountered.
• Finding out the risk of performance + risk embedded in contract language.

Red Flag Clauses of Construction Contracts
Old adage
“Do not sign a contract until you have read and understood every single
word”.
• May not be possible in all cases.
• Understanding the key contract provisions ‟which underline significant

roles, responsibilities, and obligations.
• More prone to disputes and financial impact.

Red Flag Clauses
• Red Flag Clauses in contracts, are various provisions/clauses/conditions that really
need to be reviewed or need to have on your radar before executing a contract to
understand your rights and responsibilities.
These are also termed

• Killer Contract clauses or
• Dispute Prone Clauses

RED FLAG CLAUSES PERTAINING TO
PROJECT MANAGEMENT
Red Flag Clauses Pertaining to Project Management
• Time for completion
• Project commencement and progress
• Time as an essence
• Penalty and liquidated Damages
• Extension of time
• Delays - classification and implications
• Taking over
• Defect Liability Period
• Force Majeure
• Suspension and Termination
• Safety and sustainability
CLAUSES RELATED TO TIME EXTENSION AND DELAY

Provisions in Standard Form Contracts
Standard Forms of Contracts Clauses
FIDIC Form, 1992 edition 41.4, 43.1, 44.1– 44.3
1999 1st edition 8.1– 8.12
2017 2nd edition 8.1– 8.12
CPWD 2, 3, 5
Ministry of Statistics and Programme Implementation, Government of 27, 28, 29
India (MOS & PI)
NITI Aayog Model Form 10.4
PWD B-1 & B-2 (Standard Forms of Maharashtra State Government) 2
MDSS & APDSS (Standard form contract used in the states of Tamil 59
Nadu and Andhra Pradesh for public works)
Military Engineering Services IAFW Form 11A –11C

Contract Time – Time for Completion
Time is an important element in the performance of almost
every construction project.
• The contract documents contain a duration
– Stated as number of days
– Stipulated time within which the contractor must satisfactorily complete all of the
requirements of the contract documents.
• If contractor fails to do so,

– subjected to some very unpleasant consequences
– usually in the form of liquidated damages

Commencement Date
• Time period of contracts are mentioned but to avoid disputes, the starting date is to be
clearly identified.
The Commencement Date

• The date on which the time begins is an important matter.
• Contract time usually begin on
– the date the contract is signed, or
– on the date the contractor receives a formal “notice to proceed” or “letter of intent” from the owner.

Commencement Date
• CPWD - Cl. 5: The date of commencement of work shall be the date of start as specified in schedule
‘F’ or the first date of handing over of the site, which ever is later, ……
Commencement of Work
which ever is later
Date of start as First date of

specified in handing over of
schedule ‘F’ the site

Commencement Date
• FIDIC (1999) - Cl. 8.1 : Engineer gives the Contractor not less than 7 days’ notice of
Commencement Date; Commencement Date shall be within 42 days of Letter of Acceptance.
• FIDIC (2017) - Cl. 8.1 : not less than 14 days’ notice of the Commencement Date;
Commencement Date shall be within 42 days of Letter of Acceptance.
Letter of Acceptance Commencement Date

<= 42 days
>= 14 days (2017)/ >= 7 days (1999)
Notice of Commencement
Time of Completion
• Most construction contracts explicitly state construction time,

– designating either a completion date or
– within a specific number of calendar months/days
– within a specific number of days
• Contract states
– Calendar days includes Saturdays, Sundays and holidays
– Working days
• Working days - misinterpretation in the terms of overtime, premium time, multiple shifts
etc.
• Calendar days eliminates the controversy

Meaning of ‘Working Days’
• Where a contract provides that the work shall be completed within a
stipulated number of working days, dispute may arise as to the legal
interpretation of the term "working days".
• The term "working days" means the days on which it is possible to carry out
the work or the work is carried out.
• The reason for not carrying out the work could be any, such as Sundays,
holidays, bad weather, acts or omissions of the owner or his engineer/
architect necessitating suspension of work; etc.

Case - ‘Working Days’
Lewis Y, Jones, 251, S. W. 2d, 942, Court of Appeals of Texas. 1952.
• In one case the contract provided that the building was to be completed in 125
"working days".
• It further provided that if the contractor fail substantially to perform the work within the
time limit allowed, the owner would be permitted to deduct $25 for each day of the
delayed performance.
• However, in computing the amount of compensation for delayed performance Sundays
and holidays were to be excluded from excess days of performance.

Case - ‘Working Days’ contd…
• The contractor failed to complete the work in 125 days excluding Sundays and holidays
because of bad weather and acts of the owner.
• The owner, thereupon, deducted from the contract price compensation at $25 per day.
• The contractor raised a claim to recover the sum so withheld.
Interpretation of ‘working days’ ???

Owner claimed that under the contract

all days except Sundays and holidays constituted
"working days".

Contractor's contention
The term "working days" had a well

defined meaning did not include
• Sundays and holidays
• days when the work could not be
performed because of unusually bad
weather or
• days when the work was delayed by the
acts of the owner

• The Court sustained the contractor's

contention
Reason
• The owner and his architect, at the time the contract was entered into, must have
known the meaning of the term "working days" when used in a construction contract.

Contract Completion Date
When do we say that the project is completed?
The date of the owner’s issuance of completion certificate
Or
The date of the owner’s issuance of the certificate of substantial completion.
• Substantial Completion is related to the owner’s capability of using the structure
for its intended purpose, despite small defects to be corrected or minor items not yet
accomplished.

Time is of the Essence of Contract
• When the contract declares that “Time is of the essence,” this signifies that
– the stipulated completion or time is considered to be essential to the contract and
– is an important element of the contractor’s obligation.
• Failure by the contractor to complete the project within the time specified is
considered to be
– a breach of the contract and
– is actionable by the owner.

Time is of the Essence of Contract
• As per Indian Contract Act, all such contracts where time is of essence
become voidable due to delay.
• How to determine for which contracts time is of essence???

Time Is Of The Essence Of Contract
When is Time of the essence of the contract?
• Where the parties have expressly agreed to treat it as the essence of the
contract.
• Where delay operates as an injury; and
• Where the nature and necessity of the contract require it to be so
construed, for example, the object of making a contract.
Where time is of the essence of the contract and is extended, the extended
date is also of the essence of the contract.

Time May Be Implied as Essential
• The essentiality of time may also be implied from the surrounding circumstances
connected in each case with a particular contract.
Example 1
• A contract for the purchase of a house, where the object of the purchase was
immediately occupying it as the purchaser's own residence, included a condition that
the owner should give possession of the house on a stipulated date.
• There was a breach in the contract.
• It was held that time was the essence of the contract.
-Gedye v. Duke of Montrose, 26 Beav 45

Example 2
• However, in another case the Supreme Court observed
• "The law is well settled that in transactions of sale of immovable properties, time is not
the essence of the contract."
- Indira Kaur v. Sheo Lai Kapoor, AIR 1988 SC 1074

• Even if time is not of the essence, the Court may infer that the transaction is to be
performed within a reasonable time frame from
• i. the express terms of the contract;
• ii. the nature of the property; and
• iii. the surrounding circumstances, for example, the object of making a contract.

Contract Time
Time is of the essence
Indian Contract Act : Section 55
Effect of failure to perform at fixed time, in contract in which time is essential.
• if the intention of the parties was that time should be of the essence of the contract.
• the contract, or remaining work, becomes voidable at the option of the promisee

Contract Time
Indian Contract Act : Section 55 contd---
Effect of such failure when time is not essential.
• the contract does not become voidable by the failure to do such thing at or before the
specified time; but
• the promisee is entitled to compensation from the promisor for any loss occasioned to
him by such failure

Contract Time
Time is of the essence Indian Contract Act : Section 55 contd---
Effect of acceptance of performance at a time other than that agreed upon
• If a contract is voidable on account of the promisor’s/contractor’s failure to
perform his promise at the time agreed, and the promise/client accepts
performance at a time other than that agreed.
• Then the promise/client cannot claim compensation for any loss caused by
the delay.
• If he has to claim compensation, then, at the time of acceptance, he has to
give notice to the promisor/contractor of his intention to do so.

Contract Time
Promisee, Promissor
• For example, in a typical construction contract, to complete construction

within the stipulated time, the contractor is the promissor and the owner is
the promisee.
• However, to hand over the site for working or for making the payment, the
owner is the promissor and the contractor is the promisee.

Contract Time
Case I- Time is of the essence
Consider a construction contract which contains a time extension clause for client’s fault
and damages clause for contractor’s delay.
At the end of the contractual completion period, the project was only 80% complete and
delay was only due to contractor.
At this point of time:

• Does client have the authority to choose if he can allow the contractor to work with LD or
to terminate the contract immediately?

When Time Ceases To Be Of The Essence Of The Contract
• Even if there is an express condition in a contract of ‘time to be of the essence’, time
shall not be of the essence if contradictory conditions are included in the contract.
• Time ceases to be the essence of the contract if the terms of the contract provide for
– a possible extension of time to complete the work, or
– for the payment of liquidated damages in the event of delay or
– a similar condition whereby the parties to the contract expect the possibility of delay
in performance

Case
In a case decided by the Nagpur High Court the contract was as follows :
• "The whole of the work will be completed in 4 months from the date of getting
permission in writing from Mr....
• A fine of Rs.5/- per day will be exacted for every day after that date if the work' is not
completed within the above noted time".
• It was held that time was not the essence of the contract in this case.

• If there is an express provision that time is of the essence of the contract

and
• At the same time provisions are made for
– extension of time in certain contingencies without limit or qualification and
– for levy of penalty,
• It means that it is not the intention of the parties that time should be the
essence of the contract.

Time As The Essence Of The Contract
The effect of time of essence; does it place any obligation on the part of client
also?
Case 4 - Case decided by the Jammu & Kashmir High Court
(Mohinder Singh Vs Executive Engineer, AIR 1971, J&K)
The facts of the case :
(i)The contract between the petitioner contractor and the C.P.W.D. was for
construction of 27 km. of road costing Rs. 78,83, 287/-.
(ii) The time limit for this work was stipulated as six months.

Case 4 contd…
(iii) The tender of the contractor was not accepted within 90 days, the limit
required for acceptance.
The contractor informed the authorities by a letter prior to
commencing the work that as the final acceptance of the tender had been
delayed by the authorities and the rainy season had set in, the work would not
be completed in six months as originally specified.

Time As Of The Essence Of The Contract
Case 4 contd…
(iv) Out of the 27km length of the road, possession of 2km of land was not
given immediately to the contractor, but was given only after 3 months and 8
days.
(v) On the contractor's request, time for completion of the work was extended
on and off in accordance with the provisions made in the contract.
(vi) Running account bills had to be paid every fortnight but only 29 running
account bills were paid whereas 69 bills should have been paid.

Time As Of The Essence Of The Contract
Case 4 contd…
• In view of the facts mentioned-above it was held that time was not of the essence of
the contract.
• His Lordship observed: "It would be a contradiction in terms that time was of the
essence of the contract yet time being extended not once but a number of times.
• There is one more circumstance negating this plea of time being the essence of this
contract.
• In the original agreement running payments had to be made fortnightly. According to
the petitioner only 29 running bills had been paid from 1967 to 1970 whereas 69 such
bills should have been paid.

Case 4 contd…
J&K high court observed
• If time was of the essence of the contract it should be for both the parties and not for
only one of them.
• The respondents can not commit any defaults as far as their part of the performance of
the contract is concerned, and insist on the performance of the contract by the other
party within the time limit fixed."

When Time is of Essence - The innocent party can:
• Terminate the contract & put an end to all unperformed obligations of both
parties.
• Claim damage for the total loss on the basis of fundamental breach of
contract.
• Is contractor having any right in above situation (when it is the defaulting
party) ???
– Payment for the work done.

Damages in Projects
Damage: injury to property, comfort, health etc…

Then what are Damages???
• Damages constitute the sum of money claimed or adjusted to be payable as
compensation for the loss or injury sustained.
• The object of damages is to compensate the injured party for what he has lost or what
would have been in his pocket if he had not been injured by the other party.
• The purpose of paying damages is to keep the injured party in the same position had
there been no breach of contract by the other party.

Types of Damages in Projects
Liquidated Damages (LD):

• Sum which is mentioned in the contract as fair pre-estimated compensation for the
breach of the contract due to delay.
Un-Liquidated Damages :
• Not pre-fixed or determined.
• Requires the victim to present evidence for establishing the amount

Liquidated Damages
• Nature of almost all the construction projects

– the owner will incur hardship, expenses or loss of revenue should the contractor fail
to complete the work within the time specified by the contract.
• When the contract makes time as an essential part of the contract, then
failure on the part of the contractor to complete the project in the specified
time is
– a breach of contract and
– can make the contractor liable for damages to the owner.

Liquidated Damages
• Compensatory damages are difficult to determine with exactness

• In construction contracts it is common practice to have a provision
– contractor shall pay owner a fixed sum of money for each calendar day of delay in
satisfactory completion.
• Such delay damages are applicable only till the date
– of substantial completion or
– beneficial occupancy
• Some contracts specify that the architect – engineer certifies the project to
be complete.

Liquidated Damages
• The word liquidated merely signifies that the precise amount of the daily
damages to the owner
• It is established by agreement
• Advantage of liquidated damages provision in a construction contract

– possible avoidance of subsequent litigation between the owner and the contractor
regarding the amount of actual damages.

Liquidated Damages
• Liquidated damages are enforceable by law

– provided they represent a reasonable measure of the actual damages suffered
– prevents the owner from recovering its actual damages, even if the actual damages
suffered by the owner exceed the amount provided by the liquidated damages
provision
• The liquidated damages is deducted by the owner from the sum that is due
to the contractor at the time of final payment.

Liquidated Damages
• When the project delay is the fault of both the owner and the contractor, the
owner’s recovery of liquidated damages is generally precluded/ prohibited.
• It is to be noted that a liquidated damage clause normally works only one

way.
• It conveys no automatic right to the contractor to apply the provision in
reverse for owner-caused delay.

CPWD Clause – Compensation for delay [Clause 2]
• This clause deals with liquidated compensation to be imposed on the
contractor in case of delay.
• The compensation is predefined (liquidated) @ 1.5% of the contract value
per month to be computed on per day basis subject to maximum of 10% of
the contract value.
• The decision of the authority imposing compensation is final and binding
and it is not open to Arbitration.

• If Contractor fails to complete the work on date of completion, he has to pay
compensation as specified in schedule ‘F’.
• Total amount of compensation for delay shall not exceed 10% of the
Tendered Value of work.
• Compensation can be adjusted against any sum payable to the Contractor
under the present or any other contract with the Government.

Compensation for delay [Clause 2] contd…

• If a particular milestone is not achieved as mentioned in schedule F, the
amount shown against that milestone will be withheld without giving any
notice to the contractor.
• Withheld amount is released if the contractor catches up with the progress
of work.
• If contractor fails to make up for the delay in subsequent milestone(s),
amount mentioned against each milestone also is withheld.
• No interest, is payable on such withheld amount.

Is clause 2 a penalty clause????
• It is very important to understand that Clause 2 is for compensation and not for
penalty.
• Synonymous to difference between the common urdu words “Harzana” and “Jurmana”.
• The word used under this clause is compensation not penalty.
• Penalty clauses are not legally enforceable in India and damages must be proved.

What if provisional extension is granted during execution of work ???
• It must always be kept in mind that clause 2 is always to be read with clause 5 which
deals with the extension of time.
• A Judgement:
The last date of extension 31-7-1989 was fixed as the new date for completion of the work and
the obligation of the contractor was then to complete the work by that date.
That the contractor did.
The Court examined the relevant provisions of the Contract, Clause 5 and Clause 2 and gave
the decision that there is no delay in execution of the work.

Early completion bonus system
• Provisions in contract where the contractor will receive a bonus for
completing the contract ahead of schedule.
• Public agencies use this system where prompt completion of the project will
be of special economic significance to the public.
• Eg metro project
• Private owners likewise have found that providing an incentive to the
contractor for early completion of all the requirements of the contract is
beneficial to the owner.

CPWD Clauses – Incentive for early Completion [Clause 2A ]
• If the contractor completes the work before the stipulated date of completion, a bonus
@ 1% (one per cent) of the tendered value per month computed on per day basis, is
paid to the contractor.
• Maximum limit is 5% (five per cent) of the tendered value.
• The bonus amount is paid along with final bill after completion of work.
• This provision of the Clause 2A is applicable only when it is provided in ‘Schedule F’.

Extension of Time
• During the life of the contract, there are often occurrences that cause delay
or add to the period of time necessary to construct the project.
• The kinds of delays that justify an extension of time for the contractor
depends upon the language and provisions of the contract.
• An extension of time relieves the contractor
– From termination for default, or
– From the assessment of liquidated damages by the owner, because of failure to
complete the project on time.

Extension of Time
• A construction contract usually stipulates circumstances under which the
time for completion will be extended.
Extension of Time can be given if the works be delayed by:
i. Variation
ii. Force majeure, or
iii. Abnormally bad weather, or
iv. Serious loss or damage by fire, or
v. Civil commotion, local combination of workmen, strike or lock-out,
affecting any of the trades employed in the work, or

Extension of Time
Extension of Time can be given if the works be delayed by: contd….
vi. Delay on the part of nominated subcontractors or nominated suppliers
which the contractor has, in the opinion of the engineer-in-charge, taken
all practicable steps to avoid or reduce, or
vii. Delay on the part of other contractors or tradesmen engaged by the
employer in executing work not forming part of the contract, or
viii. Non-availability of stores which are the responsibility of the employer to
supply, or

Extension of Time
Extension of Time can be given if the works be delayed by: contd…
ix. Non-availability or break-down of tools and plant to be supplied or
supplied by the employer, or
x. Suspension of work by the employer, or
xi. Any other cause which, in the absolute discretion of the authority
mentioned in the schedule attached to the contract, is beyond the
contractor’s control.

Extension of Time
Delay due to Change Order
• The extension of time is formalized by a change order or addition of extra work to the
contract.
• In this situation the additional time or extension of time is negotiated along with the cost
of extra work.
Delay of the project caused by the owner is another cause of time extension.

Extension of Time
• Circumstances arising from unforeseeable causes beyond the control of and without
the fault or negligence of the contractor can contribute to late project completion.
• Contracts often list specific causes of delay deemed to be excusable and beyond the
contractor’s control.
• Certain causes are essentially of an undisputed nature, provided the contractor has
exercised due care and reasonable foresight.
• These causes include flood, earthquake, fire, epidemic, war, riots, hurricanes,
tornadoes and similar disasters

Extension of Time
• Less spectacular causes like strikes, freight embargoes, acts of the government,
project accidents, unusual delays in receiving ordered materials and owner caused
delays may or may not be defined as excusable delays in the contract.
Points of Concern at the time of bidding
• Unreasonable or untenable language in the contract with regard to excusable delays,
must be considered by the contractor at the time of making the decision to bid.
• If he decides to submit the proposal, then he has to consider it as a risk when he
prepares the bid or may negotiate with the owner at the time of negotiation.

Extension of Time
Extension Time Not Allowed
• Claims for extra time are not considered when they are based on delays
caused by conditions that existed at the time of bidding and about which the
contractor is expected to have had full knowledge.

Extension of Time
Extension Time Not Allowed
• Delays caused by failure of the contractor to anticipate the requirements of the
work in regard to materials, labour, or equipment required usually do not constitute
reasons for extra time.
• Adverse weather - unless it can be established that such weather was not
reasonably foreseeable and was unusually severe at the time of the year in which it
occurred and in the location of its occurrence.

Extension of Time
Change in Quantities
• In unit-price contracts actual quantities of work can vary from the architect-
engineer’s original estimates.
• Minor variations do not affect the time of completion
• Substantial variations have an extension of time.
• The contractor should promptly notify the architect-engineer, in writing,
regarding the need for an extension of time.

Extension of Time
Procedure to request EoT
• Whenever a delay in construction is encountered over which the contractor
has no control, the contractor must bring the condition to the attention of the
owner and/or architect-engineer
• He has to communicate in writing within a designated period of time after
the start of the delay.
• This time within which the contractor must let the architect-engineer know of
his request for an excusable delay is called a notice provision and is
specified in the construction contracts.

Extension of Time
Procedure to request EoT contd…
• This communication should present specific facts concerning

– times, dates and places and
– include necessary supporting data about the cause of delay.
• Failure by the contractor to submit a timely written request along with
documentation within the notice period will seriously jeopardize the chances
of obtaining an extension of time.

CPWD Clauses – Clauses related to time extension and delay
Time and Extension for Delay [Clause 5 ]

• The time allowed or extended time for execution of the Works is specified in the
Schedule ‘F’.
• These conditions provide for “Time is the essence of the Contract”.
• The execution of the works has to commence from
– the time period mentioned in schedule ‘F’ or
– from the date of handing over of the site whichever is later.
• If the Contractor commits default in commencing the work, his performance guarantee
is forfeited.

Time and Extension for Delay [Clause 5 ] contd…

• Circumstances for which time will be extended:
(i) variation
(ii) force majeure,
(iii) abnormally bad weather,
(iv) serious loss or damage by fire,
(v) civil commotion, local combination of workmen, strike or lock-out, affecting any of the
trades employed in the work,
(vi) delay on the part of nominated subcontractors or nominated suppliers which the
Contractor has, in the opinion of the Engineer-in-charge, taken all practicable steps to
avoid or reduce,

vii) delay on the part of other contractors or tradesmen engaged by Employer in
executing work not forming part of the Contract,
(viii) non-availability of stores which are the responsibility of the Employer to supply,
(ix) non-availability or break-down of Tools and Plant to be supplied by Employer,
(x) suspension of work by Employer,
(xi) any other cause which, in the absolute discretion of the authority mentioned in
Schedule F is beyond the Contractor's control;


• The provisions further stipulate that upon the happening of any such event causing
delay, the contractor shall immediately give notice thereof in writing to the Engineer-in-
charge within the stipulated time if on that count he intends to seek an extension of
time.
• The contractor shall nevertheless use constantly his best endeavours to prevent or
make good the delay and shall do all that may be reasonably required to the
satisfaction of the Engineer-in-Charge to proceed with the works.
Time and Extension for Delay Clause in various contract forms (pg 46)

PROJECT DELAYS-CASE STUDIES

PROJECT DELAYS
• Delay is something that is performed later than planned
• Delays on construction projects and the claims originating from such delays are an
integral part of the modern construction process.
• Construction projects have a tendency to suffer from delays and such delays carry
potential losses for all parties:
– for the employer (client, owner) through loss of use,
– for the contractor and subcontractors through their prolonged presence on site.

TYPES OF PROJECT DELAYS
Critical Delays and Non- Critical Delays
• Critical Delays are those delays that affect the duration of the project completion or
milestones of a project.
• Non Critical Delays are those delays that do not affect the duration of the project
completion or milestones of a project.

Concurrent Delays and Non- Concurrent Delays
• Concurrent Delays are two or more delays that occur at the same time and that affect
the critical path of a project.
• Non - Concurrent Delays are two or more delays that do not occur at the same time in
a project.

Excusable Delays and Non-Excusable Delays
• Excusable Delays are those delays that occur due to unforeseeable event which is
beyond the control of the Contractor.
• Eg. Owner changes, unforeseeable weather, strikes, differing site conditions
• Non - Excusable Delays are those delays that occur due to events which are within the
Contractor’s control.
• Eg. Slow progress of contractor/subcontractor, breakdown of equipment

Compensable Delays and Non- Compensable Delays
• Compensable Delays are those delays where the Contractor is entitled to extension of
time and /or additional compensation.
• Eg. Owner changes, differing site conditions [within owner’s control]
• Non - Compensable Delays are those delays where the Contractor is not entitled to
extension of time and /or additional compensation though it is an excusable delay.
• Eg. Beyond owner control events like unforeseeable weather, strikes

• Excusable Compensable Delays
Time extension + LD relief + Compensation
• Excusable Non - Compensable Delays

Time extension + LD relief
• Non Excusable
Time extension + LD relief + Compensation

OWNER CAUSED DELAYS
• Instances in which the work on a construction project is delayed by some act of
omission or commission
• On the part of the owner
• Someone for whom the owner is responsible
– Architect
– Engineer or
– Other contractors

OWNER CAUSED DELAYS
Examples
• Delays in making the site available to the contractor
• Failure to deliver owner-provided materials on time
• Unreasonable delays in the approval of working drawings
• Delays caused by another contractor
• Delays in issuance of change orders
• Suspension of work because of financial or legal difficulties

OWNER CAUSED DELAYS
Examples
• Delays in making the site available to the contractor
• Failure to deliver owner-provided materials on time
• Unreasonable delays in the approval of working drawings
• Delays caused by another contractor
• Delays in issuance of change orders
• Suspension of work because of financial or legal difficulties

Red Flag Clauses Pertaining to Project Management
• Time for completion
• Project commencement and progress
• Time as an essence
• Penalty and liquidated Damages
• Extension of time
• Delays - classification and implications
• Taking over
• Defect Liability Period
• Force Majeure
• Suspension and Termination
• Safety and sustainability
EXECUTION OF WORKS:
QUALITY OF WORK, DEFECTS AND MAINTENANCE
CLAUSES

Quality of Work, Defects and Maintenance
In contracts:
• Owner and his consultants (architects, structural engineers, etc. ) are
responsible for the design of the building or the structure.
• The professional experts prepare detailed drawings and specifications of
materials and workmanship.
• The duty of the contractor is to carry out the work exactly in accordance
with the drawings and specifications supplied to him.

In this regard every contract includes a clause that:
• The contractor shall execute the work in the most substantial and
workmanlike manner conforming exactly, fully, and faithfully to the designs,
drawings, and specifications.
• The condition may further provide that the contractor should appoint a
qualified engineer to get the work done according to the contract.

Defects and Maintenance Clause
• During execution there is a possibility of defects being overlooked.
• In this regard, most contracts include a ‘defects and maintenance clause’.
• Under this provision the contractor is bound to repair defective works and
replace improper materials as and when noticed.

• In this regard most contracts provide that if any work has been executed
with
– unsound, imperfect or unskilled workmanship,
– any materials provided by the contractor for the execution of the works are unsound
or of inferior quality
• The contractor must rectify the work at his own expense.

• Contractor often defends this accusation by a counter-allegation of faulty

designs or inadequate specifications provided by the employer.
• In case of disputes the real cause of failure is to be ascertained.

Quality of Work
Contractor’s Implied Obligations
Contractor’s
Materials
Implied
Obligations for
Workmanship
Quality of
Work
Design

Quality of Work
• The contractor’s responsibility to rectify the defective work at his own cost
arises only when it can be proved that he has not complied with the
drawings, specifications, and directions of the engineer.
The general principle to be adopted is

• where a contractor agrees to produce a certain result, he is responsible if
the result is not produced.

Quality of Work
• But, where the owner assumes to specify the manner of construction, to
produce the result, the owner assumes the responsibility if the work does
not turn out as expected.
• If the plans supplied by the employer are insufficient to produce the result
desired, the contractor is not responsible if he carries out the plans.

Quality of Work
Example
• In a case, the contract contained a clause that the waterproofing shall be
watertight.
• The specifications provided how the walls should be built and how the
waterproofing should be done.
• However, when one of the walls cracked and was found not to be
watertight, the owner brought in the suit to recover damages.

Quality of Work
• It was held by the court that “where an owner specifies how foundation
walls should be built and waterproofed, the contractor does not warrant that
they shall be watertight, though the contract represents that they shall be
watertight.”

Quality of Work
When Contract Is Silent??
• Where a contractor agrees to build a work for a specified purpose, and the
contract is silent as to the manner of construction.
• Then it is stipulated/ understood that
– The contractor will do his work in a good and workmanlike manner
– The contractor will supply good and proper materials
– The completed structure will be reasonably fit for its intended purpose.

Quality of Work
When Contract Is Silent??
• Where a contractor agrees to build a work for a specified purpose, and the
contract is silent as to the manner of construction.
• Then it is stipulated/ understood that
– The contractor will do his work in a good and workmanlike manner
– The contractor will supply good and proper materials
– The completed structure will be reasonably fit for its intended purpose.

Quality of Work
Guarantee by Contractor
• If a contractor is to submit a tender in accordance with specifications which
include “a guarantee that all material employed in the work will be first-class
and without defect and that all work specified” would remain defect-free for
a certain period; the contractor will accept the risk involved.

Quality of Work
Interpretation of Specifications
• The specifications are written instructions which supplement the drawings
and set forth the complete technical requirement of the work.
• The requirements such as arrangement, dimensions and types of
constructions which can more readily be expressed graphically are shown
on the drawings.
• The specifications, on the other hand, cover those features that can be
described in words.
• Thus, quality of materials and workmanship are usually the subject matter
of the specifications.
Quality of Work
• Both drawings and specifications are integral parts of the contract
documents.
• As such great care should be exercised to see that there is no conflict
between the drawings and specifications. In spite of due care, occasionally,
conflict may result between the drawings and specifications.
• In such cases, apply a rule of interpretation according to the priority of
documents given in the contract.

Quality of Work
• Occasionally, conflicts between the various parts of the specifications may
be the causes of disputes in construction contracts.
• Conflict arises on account of violation of a basic rule of specification writing,
namely either specify the methods or specify the results.
• For example, the specifications of cement concrete.
• The specifications usually state the proportion in which cement, sand, coarse
aggregate and water shall be mixed, together with the time for mixing and allowable
slump.
• It also specifies an ultimate 28-day compressive strength that the concrete must
develop.
Quality of Work
• Such specification, may relieve the contractor of the responsibility for the
final results if the contractor has faithfully followed the method.
• Where the construction of a finished product is split into a number of

independent items and the contract includes separate specifications for
each item, the specifications of each item are to be read in conjunction with
trade practice and in relation to all the specifications.

Quality of Work
Design Failure
• In the final analysis, the word “design” can be considered to be wide
enough to include materials, their quality, strength and also workmanship.
• Thus in a typical building contract wherein the contractor is supplied with a
full set of contract documents prepared by the owner’s architect/engineer
consisting of bill of quantities (BOQ), drawings, specifications, etc., and the
contractor faithfully follows the same in executing the work, he is not
responsible for defects, if any.

Quality of Work
Design Failure
• In a package deal or industrialized buildings, the builder is responsible for
the design failure, if any.
• However, he can sue the design engineer/architect to recover the loss, if
any.
• The common intention of all parties to the contract is that the engineer
should produce a design that would be fit for the purpose for which it was
required.

Improper Work, Defects, Maintenence
Removal of Improper Work
• As per the standard clauses, the opinion of the architect or engineer or the
internal or external technical auditor as to improper work is made final.
• Yet another clause normally provides for making good defects after
completion.
• The arbitration clause usually provides that defects after completion will be
subject to review by the arbitrator.

Improper Work, Defects, Maintenence
• As per the standard clauses, the opinion of the architect or engineer or the
internal or external technical auditor as to improper work is made final.
• This is applicable to improper work noticed in the course of construction
until the work is “green”.
• All work may be considered green for this purpose until the engineer or
architect has examined it during one of his visits.
• If, after inspecting the work during one of his visits, the architect or engineer
has not condemned the work, and if the contractor has obviously treated it
as finished, the first clause will no longer be applicable.
Improper Work, Defects, Maintenance
• However, careful an engineer or architect may be while inspecting the work
at his periodical visits, defects in materials and work may possibly be
overlooked or covered up in the intervening period.
• The rule is that the architect is not duty-bound to the contractor to point out
defective work during the progress.
• There is another clause that normally provides for making good defects
after completion.
• The arbitration clause usually provides that defects after completion will be
subject to review by the arbitrator.
• The defects and maintenance clause is inserted in a contract to empower
the engineer or architect for protecting the interest of the owner in case
defects appear in the work subsequent to completion.
• The clause, usually provides for the rectification of defects by the contractor
at his own cost.
• “Defect” includes any breach of the contract affecting
– quality of work, whether structural or merely decorative and
– faulty material or workmanship, or even design, if the design is the contractor’s
obligation under the contract.

• Obviously the contractor could not be held responsible for rectifying defects
for an indefinite period following completion.
• The clause usually stipulates a period of six months to one year as a
defects liability period during which it is expected that latent defects, may
possibly show themselves.
• The contractor’s obligation to rectify the defects extends only to defects that
have been discovered during the defects liability period.

• Obviously the contractor could not be held responsible for rectifying defects
for an indefinite period following completion.
• The clause usually stipulates a period of six months to one year as a
defects liability period during which it is expected that latent defects, may
possibly show themselves.
• The contractor’s obligation to rectify the defects extends only to defects that
have been discovered during the defects liability period.

Standard Forms of Contracts Clauses
FIDIC Form
1999 1st edition 7.1– 7.8, 9 -11
2017 2nd edition 7.1– 7.8, 9 -11
CPWD 6,7,11,14,17
Ministry of Statistics and Programme Implementation, Government of 33 - 36
India (MOS & PI)
NITI Aayog Model Form 11.1 – 11.17
PWD B-1 & B-2 (Standard Forms of Maharashtra State Government) 6,7,11,14,17
Military Engineering Services IAFW Form 44, 46

Railways 27, 50

FIDIC Clause 7.1 Manner of Execution
proper workmanship
Clause 7.1
Manner of good practices
Execution
Contractor’
obligations equipped facilities
non-hazardous materials

FIDIC - Clause 7.2
Contractor has to submit

“samples” of materials
relevant information
to get approval by the engineer

FIDIC - Clause 7.3 [Inspection]
• Empowers the employer’s personnel to have full access at reasonable time
to the site for inspection.
• Contractor has to give notice of any work “ready for inspection” (RFI) before
it is covered up.
• The engineer inspect the work, carry out measurements or testing.
• If no inspection is required then he has to inform the contractor, without
unreasonable delay.

FIDIC - Clause 7.3 [Inspection]
If the RFI notice is not given,

the engineer has a right to direct the contractor
to uncover the work for his inspection and
reinstate and make good at the contractor’s cost.

FIDIC - Clause 7.3 [Inspection]{2017 edition}
The provisions expressly stipulate
• Activities that may be carried out by the employer’s personnel at the site
• Places from which materials are procured
• Checking of progress of plant, manufacture of materials
• Making photographic and/or video recordings.

• If the contractor has given an RFI notice
– The engineer fails to give notice to the contractor, that no inspection is intended
– The employer’s representatives do not attend at the time stated or agreed,
• The modified condition empowers the contractor to cover the work and/or
proceed with packaging for storage or transport of the articles meant to be
inspected.

• If the contractor fails to give notice
• The engineer requires the work to be uncovered
• Then the work is to be reinstated and made good at the contractor’s “risk
and cost”.
• This ensures that the element of uncertainty in the undertaking of
uncovering and restoring the work is to be borne by the contractor.

FIDIC - Clause 7.4 [Testing by the Contractor]
• Deals with all tests specified in the contract except test after completion.
• If the contractor suffers any delay or incurs any cost, due to delay on the
part of the engineer to attend the tests (after having received 24 hours’
notice to that effect), then the contractor is entitled to extension of time and
payment of additional cost.
• The contractor must give notice to that effect to the engineer.
• Giving notice may be held to be a condition precedent.

FIDIC - Clause 7.4 [Testing by the Contractor]
Modifications in 2017
• In the 1999 edition, the time and place of testing was to be agreed by the
contractor with the engineer.
• In the 2017 edition the provision has been modified.
• The contractor is required to give notice, allowing reasonable time, stating
the time and place of testing.

FIDIC - Clause 7.5 [Defects and Rejection] 2017
The Engineer
Examination, shall give a Notice
inspection, to the Contractor
If Defective or
measurement or not according
describing the item
testing of any Plant, to the contract of Plant, Materials,
Materials, design or
Contractor’s design workmanship that
or workmanship has been found to be
defective.
FIDIC - Clause 7.5 [Defects and Rejection] 2017
Proposal Submission by Contractor for necessary remedial work.
Proposal review by Engineer and Notice for rectification (if any)
Re-Submission of Revised Proposal by Contractor.
Notice Issue by Engineer within 14 days after receiving the
Contractor’s proposal (or revised proposal).
Failure by the Engineer shall be considered as a Notice of
No-objection.
FIDIC - Clause 7.6 [Remedial works]
• The contractor’s liability continues to remove and re-execute the defective
work or any work urgently required for the safety of the works for any
cause, notwithstanding any previous test or certification by the engineer.

FIDIC - Clause 9 [Tests after completion]
• It provides for the contractor giving notice of 21 days or more indicating the
date when he will be ready to carry out the test.
• If there is an undue delay in carrying out the tests by the contractor and/or
failure by the contractor to carry out the tests, after receiving 21 days’ notice
from the engineer to that effect, the provision empowers the engineer to
carry out the tests at the risk and cost of the contractor.

• Contractor gives notice indicating the date of test.
• If there is an undue delay in carrying out the tests by the contractor and/or
failure by the contractor to carry out the tests, after receiving 21 days’ notice
from the engineer to that effect, the provision empowers the engineer to
carry out the tests at the risk and cost of the contractor.

• Clause 9.3 provides for retesting in case the works fail to pass the tests on
completion.
• Clause 9.4 stipulates consequences of any work’s failure to pass the tests
on completion, payment at reduced rates/cost or other remedies are
provided.

FIDIC - Clause 11 [Defect Liability]
• Apart from making the contractor liable for rectification of the defective
works at the cost of the contractor, it provides that if the defective work is
attributable to any cause, for which the contractor is not responsible, he
shall be notified and the provisions of the variation clause will be attracted.

• The employer is entitled to an extension of defects liability period on
account of any works, section or item of plant that are not put to use for the
purpose for which they are intended by reason of a defect or damage,
which shall not exceed two years.
• The wording of this clause may entitle the employer to point out the defects
noticed during the extended period, which is not to exceed two years.

Consequences of failure to remedy defects
• Provisions empower the employer to adopt any one of the three alternatives
as follows:
1. Carry out the work himself or by others in a reasonable manner at the cost
of the contractor and the contractor shall pay the employer the costs
2. Require the engineer to agree or determine a reasonable reduction in
price or

Consequences of failure to remedy defects
3. If the defect or damage deprives the employer of substantially/the whole
benefit of the works, he can terminate the contract and recover all sums
paid for the works, cost of removal, and financing costs including clearing
the site and returning the materials and plant to the contractor.
If the cause of the defect is not attributable to the contractor he is entitled to

access the site, search for the reasons, and will be entitled to payment of an
additional sum for the expenses incurred by him.
FIDIC - Clause 11.9 [performance certificate ]
• Issuance of a Performance certificate by the engineer to the contractor
within 28 days after the latest of the expiry dates of the defects notification
periods.

FIDIC - Clause 11.10 [Unfulfilled Obligations]
• Clause 11.10 declares that for unfulfilled obligations, the contract will
continue to subsist even after the performance certificate is issued.

FIDIC - Clause 11.11 [Clearance of Site]
• Clause 11.11 deals with the contractor’s liability to clear the site and remove
his materials, equipment, rubbish, etc. within 28 days, failing which the
employer may sell or otherwise dispose of the remaining items at the cost
of the contractor.

SUSPENSION OF WORK

Suspension of Work
• The conditions of the contract include a clause that empowers the owner to suspend
the work.
• This suspension is not considered as a breach of contract on his part.
• This clause protects the owner in the event of an emergency or an unexpected event.

Suspension of Work
Example …
• Assume an owner has signed a contract to construct the first storey of an already
existing ground floor house.
• The construction of the first storey is partially completed when the walls of the old
structure develop cracks.
• Under such circumstances, the engineer, on behalf of the owner, should have the
power to suspend the work until he can determine what is to be done.
• The investigations regarding the causes of the development of cracks and the remedial
measures may cause a considerable delay before he is sure that he can advise the
owner to go ahead with the work.

Suspension of Work
It should be noted….
• The right to suspend the work is not given to the contractor.
• The owner should make judicious use of the authority
• When a contract specifies a definite time for completion, an extension of time should be
granted to the contractor to make up for the time lost due to suspension.
• The extension should be liberal enough so that the contractor gets sufficient margin for
resumption of the work at a speed at which he was progressing when the suspension
was ordered.
• The contractor is entitled to reasonable compensation for his unavoidable expenses on
account of the suspension.

Suspension of Work
Suspension:
• Temporary stoppage of the work.
• May be due to reasons attributable to client or contractor.
• May affect part/whole work.
• May lead to Omission/termination.
• Care during suspension by contractor.

Suspension of Project
Suspension of Work [CPWD Clause 15]

• Order in writing of the Engineer-in-Charge (whose decision shall be final and binding on
the contractor)
Reasons
• Due to default of the contractor
• Due to reason attributable to client
– for proper execution of the works
– for safety of the works
Role of Contractor
• To protect and secure the works to the extent necessary.
• Carry out instructions given by the Engineer-in-Charge.

Suspension of Project
Suspension of Work [CPWD Clause 15] contd…

Contractor entitled for
• extension of time equal to the period of suspension PLUS 25%, for completion of the
item or group of items of work
• Separate period of completion is specified in the contract.
• If Suspension period > 30 days
– Compensation + 2% indirect expenses within fifteen days of the expiry of the period of 30 days
– No profit
• After 3 months of Termination
– Notice, Compensation + 2% indirect expenses
– No Profit.

TERMINATION OF CONTRACT

Termination of Contract
• Usually contracts are terminated after the satisfactory fulfillment of all contractual
obligations on the part of both parties.
• There are other means of bringing a contract to an end that are of interest and
importance to the construction industry.
• A contract contains a clause that includes the reasons for and methods of termination
of the contract.
• Material breach of contract by either party can be a cause for contract termination.

Breach of contract by owner
• Failure of making payments to the contractor
• Unreasonable delay in the project
• Failure or delay in performance
• Failure to coordinate the project
• Failure to provide the project site
• Financial insolvency of the owner
The contractor is entitled to damages caused by the owner’s failure to carry out its
responsibilities under the contract.

Breach of contract by contractor
• Failure to perform as per the contract
• Non performance, faulty performance
• Failure to maintain reasonable progress
• Failure to meet financial obligations
• Persistent disregard of applicable laws or instructions of the owner or architect/engineer
Such defaults by the contractor gives a right to the owner to terminate the contract.
When the owner terminates the contract because of breach by the contractor, the owner is
entitled to take possession of all job materials and to make reasonable arrangements for
completion of work.

Termination by mutual agreement by both parties
• Example: Contractor faces unanticipated contingencies such as financial reverses,
labour troubles, and loss of key personnel resulting in a considerable doubtful
performance of the contract.
• Under such circumstances, both owner and contractor may agree to terminate the
contract and the owner may engage another contractor.
• When little or no work has been done, termination of the contract by mutual consent
can sometimes be attractive to both parties.

Termination in publicly financed construction contracts
• Publicly financed construction contracts provide that the contract can be terminated at
any time by the owner in its best interest by giving the contractor a written notice.
• When such a provision is present, it means that the contractor has agreed to the
termination at the prerogative of the owner.
• Under such circumstances, the contractor is entitled to payment for all work done up to
that time, reasonable profit, plus expenses required for canceling subcontracts,
material orders, and demobilization.
• If the owner terminates the contract unexpectedly, the contractor may be entitled to the
full amount of anticipated profit plus costs.

Termination due to impossibility of performance
• A contract can be terminated because of the impossibility of performance under
situations beyond the control of either party.
• Impossibility of performance does not include the economic burden of either party but it
should be impossible or impracticable to proceed.
• Unexpected site conditions may make it impossible to carry out construction.
• Operation of law
• Performance is technically possible but costs are impracticable in a commercial sense.
• Destruction of the facility – renovation of an existing building that was destroyed by fire
before the renovation work was started.
•
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04/18/2024 Dr. Madhav B.

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 3

• Finding out the risk of performance + risk embedded in contract language.

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 4

• May not be possible in all cases.

• Understanding the key contract provisions ‟which underline significant

• More prone to disputes and financial impact.

These are also termed

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 6

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 9

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 10

• If contractor fails to do so,

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 11

The Commencement Date

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 12

which ever is later

Date of start as First date of

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 13

Letter of Acceptance Commencement Date

>= 14 days (2017)/ >= 7 days (1999)

• Most construction contracts explicitly state construction time,

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 15

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 16

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 17

Interpretation of ‘working days’ ???

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 18

Owner claimed that under the contract

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 19

The term "working days" had a well

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 20

• The Court sustained the contractor's

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 21

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 22

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 23

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 24

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 25

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 26

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 27

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 28

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 29

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 30

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 31

• For example, in a typical construction contract, to complete construction

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 32

At this point of time:

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 33

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 34

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 37

• If there is an express provision that time is of the essence of the contract

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 38

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 39

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 40

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 41

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 42

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 43

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 44

Damage: injury to property, comfort, health etc…

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 45

Liquidated Damages (LD):

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 46

• Nature of almost all the construction projects

04/18/2024 Dr. Madhav B. Kumthekar NICMAR 48

• Compensatory damages are difficult to determine with exactness