Construction Contracts and

Specifications
 Contract
A WRITTEN OR SPOKEN
AGREEMENT, ESPECIALLY ONE
CONCERNING EMPLOYMENT, SALES,
OR TENANCY, THAT IS INTENDED TO
BE ENFORCEABLE BY LAW.
 ELEMENTS OF CONTRACT
Elements of a Contract. The requisite elements
that must be established to demonstrate the
formation of a legally binding contract are :-

(1) Offer
(2) Acceptance;
(3) Consideration;
(4) Mutuality of obligation;
(5) Competency and capacity; and, in certain
circumstances,
(6) A written instrument.
 CONTRACT DOCUMENTATION
The contract documentation is all documents which, when combined, form the
basis of the contract, including all pre-tender, tender and contractual
documentation.
The documents that make up the contract documentation include:

Contract – the binding document or agreement between you and the owner to
carry out the building work. The type of contract you use will depend on the size
and complexity of the project.

Contract conditions – define the legal rights and obligations, or the rules by which
each party (you and the owner) must comply

Special contract conditions – as the name suggests, special conditions that are an
extension of the general conditions and apply specifically to the project
Bill of quantities – a list of materials, parts and labour (and their costs) that are
included in the contract.

Drawings – the architectural and structural plans of the building.

Specifications – set out the technical requirements of the work. They describe the
project and requirements for materials and workmanship, and add clarity to the
drawings
Other documents – including technical and pricing schedules.
 TYPES OF CONTRACTS

•Lump Sum or Fixed Price Contract Type

•Cost Plus Contracts

•Time and Material Contracts

•Unit Pricing Contracts

 Lump Sum or Fixed Price Contract Type

A lump sum contract is normally used in the construction industry to reduce

design and contract administration costs. It is called a Lump Sum because the
contractor is required to submit a total and global price instead of bidding on
individual items. A lump sum contract is the most recognized agreement form on
simple and small projects, for example, projects with a well-defined scope
or construction projects where the risk of different site conditions is minimal.
This type of contract usually is developed by estimating​labor costs, material
costs, and adding a specific amount that will cover contractor’s overhead and
profit margin.

WHEN TO USE IT?

A lump sum contract is a great contract agreement to be used if the requested
work is well-defined and construction drawings are completed.
 ADVANTAGES
•Low risk to owner.
•'Fixed' construction cost.
•Minimize change orders.
•Owner supervision is reduced when compared to Time and Material Contract.
•Contractor will try to complete the project faster.
•Accepted widely as a contracting method.
•Bidding analysis and selection process is relatively easily.
•Contractor will maximize its production and performance.

DISADVANTAGES
•It presents higher risk to contractor.
•Changes are difficult to quantify.
•The Owner might reject change order requests.
•The project needs to be designed completely before the commencement of activities.
•The construction progress could take longer than other contracting alternatives.
•Contractor will select its own means and methods.
•Higher contract prices that could cover unforeseen conditions.
 Cost Plus Contracts
This type of contract involves payment of the actual costs, purchases or other
expenses generated directly from the construction activity. Cost plus contracts must
contain specific information about a certain pre-negotiated amount (some
percentage of the material and labor cost) covering contractor’s overhead and
profit.

Cost-Plus-Contract: When to Use It?

A cost-plus-contract might be used when budget is being restricted or when there

is a high probability that actual cost might be reduced. This type of contract is
preferred when there is no enough data to perform a detailed estimate of the work,
or when the design is not completed.
It is also a preferred by governmental agencies because they can select the
contractor based on their qualification, instead of the low bidder. It is widely used
to perform research and development works, because the risk can be controlled
by the contracting officer.
 Time and Material Contracts
It is used when scope of the project is not clear.
The owner and the contractor must establish an agreed
hourly or daily rate, including additional expenses that could
arise in the construction process.
The costs must be classified as direct, indirect, markup, and
overhead and should be included in the contract.
Direct Costs: Labor, materials, supplies, equipment and
professional consultants being contracted by the general
contractor.
Overhead Costs (or Indirect Costs): Business related expenses
that are necessary to perform the contract. Overhead costs
are usually a percentage of labor costs and can include office
rent, insurances, office supply, communication expenses and
drawing printing or reproduction.
 Unit Price Contracts

Unit price contracts is probably another type of

contract commonly used by builders and in federal
agencies. Unit prices can also be set during the bidding
process as the owner requests specific quantities and
pricing for a pre-determined amount of unitized items.
By providing unit prices, the owner can easily verify
that he's being charged with un-inflated prices for
goods or services being acquired. Unit price can easily
be adjusted up and/or down during scope changes,
making it easier for the owner and the builder to reach
into agreements during change orders.
 CONTRACT SPECIFICATIONS
Specification describes or specifies the nature and the class of
work, materials to be used in work, workmanship etc and is
very important for the execution of the work. The cost of the
work depends upon the specifications. From the study of
specifications,one can easily understand the nature of work
and what the work shall be. The drawings of the building show
the arrangement of rooms and various parts and the
dimensions –length breadth and height with very brief
description of different parts. Drawings do not furnish the
details of different items of work, the quantity of materials,
proportion of mortar and workmanship which are described in
“SPECIFICATIONS.”Thus the combination of drawings and
specifications define completely the structure. Drawings and
Specifications form the important part of contract document.
 ADVANTAGES
•The contractor will not be able to reduce
workmanship.
•It can focus on quality instead of cost.
•It could cover all related expenses.
• Contractor’s risk is minimized.
DISADVANTAGES
•Might lead to disputes when trying to recover
construction related expenses.
•The project's duration could be longer than
expected
 GENERAL SPECIFICATION OF A 1ST
CLASS BUILDING
Foundation and plinth - Foundation and plinth shall be of 1 st class
brickwork using 1:4:8 cement concrete.
Damp proof course – D.P.C shall be of 4 cm (1.5”) thick cement
concrete 1:2:4 and two coats of bitumen laid hot.
Superstructure – Superstructure should be of 1-class brickwork
with 1:6 cement mortar. Lintels over doors and windows shall be
of R.C.C.
Roofing- Roofs should be of R.C.C. slab provided with an
insulation layer and R.C.C beams as required. Height of rooms
shall not be less than 3.3 m (10 feet).
Flooring – Bed Room, Drawing room and dining room floors shall
be of vitrified tiles/marbles. Bathroom and W.C. floors shall be
of anti skid floor tiles.
 GENERAL SPECIFICATIONS
Finishing :- Inside walls should be of 12 mm and
outside walls should be of 20mm
thick.Drawing,Dining and bedrooms –inside shall
be distempered, and others-inside white washed
3 coats. Outside shall be coloured snowcem
washed two coats over one coat of white wash.
Doors and Windows:-Well seasoned teak wood.
Doors and Windows shall be varnished or painted
two coats with high class Enamel paint over one
coat of priming.
 CONTRACT CONDITIONS
Contracts are common in the business world. A contract is
a type of legally binding written or spoken agreement. A
valid contract will create a mutual obligation. This means
that each of the parties is obligated, or required, to
perform a duty under the contract.
There are three different forms of conditions. These
conditions are categorized by the point in time that the
condition must occur. There are conditions that must occur:
• Before
• During, or
• After the contractual duty
Let's look at each of these forms of conditions.
 CONTRACT CONDITIONS
Condition Precedent:-Sometimes a contract will require that a
certain act or event occur before some other act or event. This form
of condition is known as a condition precedent. A condition
precedent is something that must occur before a party is obligated
under the contract. The condition precedes the party's obligation.

Condition Concurrent:-The second form of contract condition is one

that must occur at the same time as some other act or event. This is
known as a condition concurrent.

Condition Subsequent:- It occurs after some other act or event

occurs. This type of condition terminates the parties obligations and
ends the contract.

.
 CONTRACT MANAGEMENT
Contract management or contract administration is
the management of contracts made with customers,
vendors, partners, or employees.
Contract management includes negotiating the terms
and conditions in contracts and ensuring compliance
with the terms and conditions, as well as documenting
and agreeing on any changes or amendments that
may arise during its implementation or execution. It
can be summarized as the process of systematically
and efficiently managing contract creation, execution,
and analysis for the purpose of maximizing financial
and operational performance and minimizing risk.
 ARBITRATION AND SETTLEMENT
Arbitration, a form of alternative dispute
resolution (ADR), is a technique for the resolution
of disputes outside the courts.
A third party reviews the evidence in the case
and imposes a decision that is legally binding on
both sides and enforceable in the courts.
Arbitration is a proceeding in which a dispute is
resolved by an impartial adjudicator whose
decision the parties to the dispute have agreed,
or legislation has decreed, will be final and
binding
 Advantages and disadvantages
ADVANTAGES:-
•In contrast to litigation, where one cannot "choose the judge,
arbitration allows the parties to choose their own tribunal. This is
especially useful when the subject matter of the dispute is highly
technical: arbitrators with an appropriate degree of expertise.
•Arbitration is often faster than litigation in court
•Arbitral proceedings and an arbitral award are
generally non-public, and can be made
confidential
 DISADVANTAGES
•Lack of transparency:- As mentioned, the fact that arbitration
hearings are generally held in private rather than in an open
courtroom, and decisions are usually not publicly accessible, is
considered a benefit by some people in some situations.
•Uneven playing field:- Some are concerned that the "take-it-or-
leave-it" nature of many arbitration clauses work in favor of a large
employer or manufacturer when challenged by an employee or
consumer who has shallower pockets and less power.
•Price issue:-The parties pay the costs of the arbitrator and hiring
the venue. If you go to court, you do not pay for the judge.
• Appeal Rights:- An arbitration award is final and binding and, in
many jurisdictions, there is a limited right of appeal, even if the
arbitrator makes a mistake of fact or law.