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CA - Overview of Contract MGT & Contract Law (India)

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16 views52 pages

CA - Overview of Contract MGT & Contract Law (India)

Uploaded by

john2024one
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Overview of Contract Management &

Contract Law

Dr S N Rao
Director, ESCI
Contract management
Contract
Types of contracts
Contract Law
Contract management
Disputes & Resolution
Contract
A Promise enforceable by Law

Offer +Acceptance (Legally binding)

To be legally binding as a contract, a


promise must be exchanged for adequate
consideration. i.e., benefit a party
receives
Contracts
Essentials of a Valid Contract
• There must be an agreement or meeting the
minds
• The agreement must be between parties
competent to enter into a contract
• The Parties must give free consent
• The agreement must be supported by lawful
consideration.
• Subject matter must be definite and lawful
Contracts by Government
Article 299
Deed must be by authorised person
Transparency in the deal
Public Interest in accepting Tenders should
prevail
Negotiations should be done with a purpose
and prudence.
CONTRACTING IN
GOVERNMENT
Government is, by far, the largest contractor in
any Country, so too in India . Supply products
(purchases ) and services (Consultancy, labour
etc.,)
WHAT IS THE SIGNIFICANCE OF GOVT.
CONTRACTS ?
Contract between private parties is absolutely
binding and valid if section 10 of the Indian
Contract Act 1872 is satisfied.
SECTION-10
“All agreements are contracts if they are made by
the free consent of parties competent to contract,
for a lawful consideration and with a lawful
object, and are not hereby expressly declared to
be void______”
Contracts entered into between private persons
and the Government are governed by Article
299 of Constitution of India.
ARTICLE 299
“All contracts made in exercise of the executive power of
the Union or the State shall be expressed to be made by
the President or by the Governor of the State as the case
may be and all such contracts and all assurances of
property made in the exercise of that power shall be
executed on behalf of the President or the Governor by
such person and in such manners as he may direct or
authorise”
Neither the President nor the Governor shall be
personally liable_______”
Types of Contracts
Lumpsum
Item Rate
Cost Plus Percentage
Cost + Fixed Fee
Maximum Price
Turnkey
Form of Contracts
Formal & Informal
Express & Informed
Unilateral & Bilateral
LAW OF CONTRACT
Freedom of contract
Contract adhesion
Exclusions & Exemptions
Sanctity of Contract
CONTRACTS ARE GOVERNED
BY
Indian contract Act 1872
( as amended by Act 4 of 2003)
Deals mainly with general and limiting
principles such as – formation, Validity,
performance or breach and remedies therefore.
Not a complete code on contract since statutes
dealing with negotiable instruments Act 1881,
the Indian Arbitration & Conciliation
Act 1996, the sale of Goods Act 1930 are not
covered by the Contract Act
WHAT IS AN AGREEMENT
“Every promise and every set of promises forming
the consideration for each other is an agreement
” Section 2 (e) of the Indian Contract Act.

AGREEMENT AND CONTRACT


An agreement which is enforceable by Law is
considered to be a Contract – Section 2 (h) of
the Indian Contract Act.
All Agreements are Contracts if
they are made by

Free Consent
Party's Competent to Contract
Lawful Consideration
Lawful Objective
Contract Management
Contract Organisation
• Owner
• Contractor
• Architects & Designing / Engineer
• Suppliers / Sub – Contractors
• Statutes and Mandates
Contract Management ..contd
Management of Contracts
• Pre – Contract Requirements
• Contract Operation
• Issues and Problems arising
Disputes & Resolutions
Closure of Contract
Contract Management
Pre – Award Stage (Tenders)
Award of Contract (Agreement)
Performance of the Contract
(Execution Process)
Post Completion of Stage
Pre – Award Stage
(Tenders)
Tenders
Negotiated Tenders
Limited Tenders
Open Competition
Mode of Publication
Notice inviting tenders
Submission of Tenders
Irregularities in submission
– How to Treat?
Conditions by contractors in tender
With drawl of Tender
CONTRACT CONDITIONS THAT HAVE
MONETARY IMPLICATIONS
 EXTENSION OF TIME
 LIQUIDATED DAMAGES
 PENALITIES
 PAYMENT TERMS LIKE MOBILISATION
ADVANCE, SECURITY DEPOSIT, TIME LIMIT
WITHIN WHICH BILLS ARE TO BE PAID, STAGES
OF PAYMENT
 ARBITRATION CLAUSE
 MACHINERY AND MATERIALS ISSUED BY
CLIENT WHETHER FREE OR AT FIXED COST
 ESCALATION
 LIMITATIONS OF LIABILITIES
MODES OF INVITING TENDERS

 NEGOTIATED TENDERS

 LIMITED COMPETITION

 OPEN COMPETITION
REQUIREMENTS TO BE FULFILLED
BEFORE INVITING TENDERS

 SANCTION TO BE OBTAINED

 URGENT WORKS WITH NO TIME

 SPLITTING OF WORKS TO BE
DISCOURAGED
TENDER DOCUMENTS TO BE READY
BEFORE INVITING TENDERS

 NOTICE INVITING TENDERS


 STANDARD FORM OF TENDER
 SCHEDULE OF QUANTITIES OF WORK
 COMPLETE SET OF DRAWINGS
 COMPLETE SET OF SPECIFICATIONS
 ESSENTIAL ARCHITECTURAL
DRAWINGS
INFORMATION TO BE PROVIDED IN
NOTICE
 QUALIFICATIONS
 NAME
 EMD
 SECURITY DEPOSIT
 TIME LIMIT
 COST
 MODE OF SUBMISSION
 DATE, TIME AND PLACE OF OPENING
TENDERS
PREPARATION AND SUBMISSION
OF TENDER

 PURCHASE OF BLANK TENDER FORM


 STUDY OF TENDER DRAWINGS
 VISIT TO THE SITE OF WORK
 ROUGH VERIFICATION
 ANALYSIS OF RATES
 DECIDING THE PERCENTAGE
 WORKING OUT THE LUMPSUM
 CHECKING OUT THE RATES
 COPIES OF DOCUMENTS
IRREGULARITY IN SUBMISSION OF
TENDER

 UNSIGNED TENDER MAY BE BINDING


 ESTIMATES AS OFFERS ARE BINDING
 PAYMENT OF EARNEST MONEY
 WITHDRAWAL OF TENDER PRIOR TO ITS
ACCEPTANCE
 PRE QUALIFICATION OF TENDERS
Acceptance of Tender
Letter of Intent
Mode of Communication
Date of Acceptance
Revocation of Acceptance
Rejection of Tender
Operation of Contracts
Interpretation
Duties / Obligations of Owner
Duties / Obligations of Contractor
Organising the Project Execution
Monitoring the progress
Award of Contract
(Agreement)
ESSENTIAL CHARACTERISTICS
OF A CONTRACT
The terms of the contract must be clear and
precise.

Time is the essence of contracts

The terms of contract should be enforced


strictly. This responsibility rests with both
parties.

Revision of rates in accepted agreements during


the currency of such agreement is prohibited.
CONTRACT DOCUMENT
CONTAINS
 NOTICE INVITING TENDERS
 INFORMATION & INSTRUCTION TO TENDERERS
 GENERAL CONDITIONS OF CONTRACT
 SPECIAL CONDITIONS OF CONTRACT
 SCHEDULE OF QUANTITIES & COST
 TENDER DRAWING
 SPECIFICATION OF WORKS
 FORMS FOR BANK GUARANTEE IN RESPECT OF EARNEST MONEY
 PERFORMANCE GUARANTEE
 MOBILISATION ADVANCE
GENERAL CONDITIONS OF
CONTRACT
Formulated in advance

Not individually negotiated

Any ambiguity in the interpretation of


clauses is likely to lead to litigation, loss
of resultant goodwill and waste of time.
Contents of Contract Agreement

Scope of Work
Schedule of list of work or items of work
General Conditions
Special Conditions
Specifications
Notice of Tender, Correspondence to
acceptance and letter of acceptance
Contents of Contract Agreement
• Scope of Work
• Schedule of list of work or items of
work
• General Conditions
• Special Conditions
• Specifications
• Notice of Tender, Correspondence to
acceptance and letter of acceptance
Performance of the Contract
(Execution Process)
Problems & Issues
Interpretation of Contract
Handing over site
Materials – Issue and use
Drawings & Designs
Payments
Deviations in Contracts
Escalation of rates
Extra Items
Extra Quantities
Change of Specifications
Time over runs & Extensions
Loss to Owners / Neighbours properties
Disputes & Resolution
CONTRACT MANAGEMENT
FUNDAMENTAL PRINCIPLES TO BE FOLLOWED:
Ensuring good workmanship by proper supervision
Keeping proper account of materials used.
Ensuring scheduled inspections .
Recording measurements and obtain signature of the
contractor.
Carrying out prescribed test checks as stipulated.
Ensuring adherence to specifications and drawings
EXTENSION OF COMPLETION
PERIOD
Granting of extension of time is however
a matter of discretion. While so doing
care should be taken to ensure that the
contract was not placed on time
preference terms.

Extension with or without financial


implications.
VARIATIONS IN QUANTITIES
World Bank conditions : For a particular item if
difference is more than 25% provided the change
exceeds 1% of initial contract price, the Engineer shall
adjust the rate to allow for the change.

If the quantity exceeds the above, it will be referred to


the Employer. The rate in BOQ shall be used. If it does
not correspond to any item in BOQ, the contractor
shall offer the quotation. Finally mutually agreed rate
is paid.

Supplemental rates -as per agreement conditions.


BREACH OF CONTRACT

Is failure to perform an obligation arising out of


the contract.

• Total Breach

• Partial Breach

• Anticipatory Breach
COMMONEST BREACHES OF
CONTRACT
• Abandonment or total failure to complete
either to start with or midway in execution.

• Delay in completion of the works

• Defective work
BREACH BY THE OWNER
• Failure to handover possession of the site to
the Contractor
• Delay in supply of working drawings, details,
designs and decisions
• Delay in supply of materials
• Ordering suspension or stoppage of work or
entering with the progress of work in any
manner.
• Failure / Delay in making payments of R.A.
Bills, extra items, excess quantities, including
settlement of final bill.
Contd…
• Failure/Delay in nominating specialist
subcontractors and suppliers.
• Delay caused by other agencies employed at
the site of work by the owner in addition to
the contractor.
• Wrongful deduction of liquidated damages /
penalty.
• Termination of contract wrongfully and
illegally.
• Failure / Delay in appointing architect or an
Engineer or in filling the vacancy.
BREACHES BY CONTRACTOR

• Abandonment or total failure to complete

• Delay in completion

• Defective design, materials and / or


workmanship

• Failure to submit planned programme

• Unauthorised sub-contracting
Contd…
• Failure to insure as required

• Failure to employ qualified engineers

• Failure to maintain and submit labour


reports

• Payment of unauthorised wages

• Failure to take safety precautions

• Causing damage to property of work of


other agencies.
CONTRACTOR’S IMPLIED
CONDITIONS
Contractor to do work and supply materials
implicitly undertakes:

• To do work in workman like manner that is


with care & skill
• To use the material of good quality and where
specifications of quality are agreed this will
mean good of their expressed kind.
• Both the work and material will be reasonably
fit for the purpose for which they are required.
FORCE MAJEURE

-“An absolute necessity or compulsion,


circumstances beyond one’s control”

• Natural Calamities

• Civil War

• Strikes
ARBITRATION – ARBITRATION
ACT 1940
Arbitration is the settlement of dispute by the
decision not of a regular and ordinary court of
Law but of one or more persons called
arbitrators.

Advantages – Efficient, Expeditious, Economical


substitute to court actions.

Disadvantages – Legal principles may be


violated, rules of evidence may be waived,
injustice.
• Department – Contractor Syndrome

• Not understanding even genuine grievances

• Claims as a matte of extra profit – not genuine


Post Completion of Stage

Disputes arising out - Dispute


Resolution
THAN Q

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