ENGINEERING MANAGEMENT

8 CIVIL ENGINEERING CONTRACTS

8.1 DEFINITION

A contract is a legally enforceable agreement between two or more parties. The core of
most contracts is a set of mutual promises. The promises made by the parties define the
rights and obligations of the parties.

Contracts are enforceable in the courts. If one party meets its contractual obligations and
the other party doesn't ("breaches the contract"), the nonbreaching party is entitled to
receive relief through the courts.

8.2 ELEMENTS OF A CONTRACT

The first step in a contract question is always to make sure that a contract actually exists.
There are certain elements that must be present for a legally binding contract to be in
place.

a) Offer

An offer: an expression of willingness to contract on a specific set of terms, made

by the offeror with the intention that, if the offer is accepted, he or she will be
bound by a contract.

b) Acceptance

Acceptance: an expression of absolute and unconditional agreement to all the

terms set out in the offer. It can be oral or in writing. The acceptance must
exactly mirror the original offer made.

c) Counter-offer

A counter-offer is not the same as an acceptance. A counter-offer extinguishes

the original offer: you can’t make a counter-offer and then decide to accept the
original offer!

A counter-offer is when a person would like to accept an offer but on different

terms than those set out in the original offer. Again, there has to be an
acceptance of the counter-offer for there to be a contract.

d) Request for information

A request for information is not a counter-offer. If you ask the offeror for
information or clarification about the offer, that doesn’t extinguish the offer;
you’re still free to accept it if you want.

e) Invitation to treat

Is an invitation for other people to submit offers. Some everyday situations which
we might think are offers are in fact invitations to treat:

NB: an offer can be revoked at any time before it is accepted, so long as you
inform the person you made the offer to that the offer no longer stands.

Page 34
ENGINEERING MANAGEMENT

f) Consideration:

Consideration is the concept of legal value in connection with contracts. It is

anything of value promised to another when making a contract. It can take the
form of money, physical objects, services, promised actions, abstinence from

a future action and much more. Each party to the contract must receive
something of value.

This is best illustrated by an example: Suppose I promise to give you my watch,

but you don’t give me anything in return. If I break my promise and keep my
watch, you can’t then go to court and make me give it to you. The contract isn’t
legally binding: you didn’t give me any consideration for my promise.

So put simply, consideration is the price paid for the other’s promise.

g) Intention to create legal relations

If the parties make an agreement without any intention of being legally bound
then that agreement will not be regarded by the courts as a contract. In
commercial agreements there is a presumption that the parties intend the
agreement to be legally binding. To rebut this presumption a party will have to
produce clear evidence to that effect.

8.3 FORMATION OF A CONTRACT

In order to create an enforceable contract there must be an offer from one person (the
offeror) asking another person (the offeree) to do or not do something. There needs to
be an acceptance of this offer by the other person (the offeree). And lastly, there needs
to be payment of some kind (consideration) for the benefit that is gained from the
contract. Consideration is different from a gift or donation as these two types of
payments do not ask for a benefit in return, for example if you decide to give KShs.
10,000 to an animal charity then you are not entering into a contract with the charity,
they cannot ask anything of you and you cannot ask anything in return from them. Also,
consideration does not have to be money. It can consist of products or the performance
of a service.

8.4 TYPES OF CIVIL ENGINEERING CONTRACTS

a) Item rate contract

b) Percentage rate contract
c) Lumpsum contract
d) Labour contract
e) Materials supply contract
f) Piece-Work agreement
g) Cost plus percentage rate contract
h) Cost plus fixed fee contract
i) Cost plus fluctuating fee contract
j) Target contract

Page 35
ENGINEERING MANAGEMENT

8.4.1 Item rate contract

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

In this form of contract, the client’s department draws up the schedule of items
according to the description of items sanctioned in the estimate with quantities,
rates, units and amounts shown therein.
8.4.3 Lump sum contract

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

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

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

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

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

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

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

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

Page 36