By : Ajay Kumar Singhal

Contract Management
with particular
reference to
Construction Contracts Contract
By : Ajay Kumar Singhal

2
AKS/TRG-NR/CCM/Rev-0, dated 18-Jan-2009

CONTRACT MANAGEMENT Contract

Contract management is a process which enables all
As per the Indian Contract Act,
the parties to a contract to meet their obligations in
order to deliver the objectives required from the An Agreement enforceable by law is a Contract.
contract.

The purpose of contract management is to obtain the • A Promise is an accepted Proposal;

services as agreed upon in the contract and achieve
value for money.
• An Agreement is a Promise and
• An Agreement enforceable by law is a contract.
Thus, the aim and objective of Contract
Management is a “Zero Dispute” stage of project
completion within the time and budget frame work.
3 4

An agreement becomes a contract when : Documents generally forming part of the contract :
• Contract Agreement;

ƒ There is some consideration. • Letter of Acceptance (LOA) and Notice to Proceed (NTP);
• Contractors’ Bid / Tender Document;
ƒ The parties are competent to contract.
• Contract Data;
ƒ There is free consent of both parties.
• Conditions of Contract
ƒ Their object is lawful.
– Conditions of Particular Applications.
– General Conditions of Contract.
The term contract does not mean only the short
– Any other set of conditions namely: Project Specific
agreement to which the signatures of the parties are
Conditions, Special Conditions of Contract, Subsequent
affixed, but, includes all other documents and
Amendments incorporated etc.
correspondence which are mentioned to form
integral part of the agreement. That is why it is • Specifications;
customary to refer to them as Contract documents. • Drawings;
5 • Bill of Quantities. 6

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FORMATION OF CONTRACT ESSENTIALS OF A CONTRACT

• Our first act in formation of a contract is to invite tenders
through a Tender Notice, which is an invitation for Essential elements of a (valid) contract are:
“offer”. The tender submitted by contractor is the “offer”. • An agreement;
Offer that is finally accepted is a contract.
• Offer and acceptance;
STEPS INVOLVED IN FORMATION OF CONTRACT: • Lawful consideration;
• Proposal and its communication; • Capacity to enter into contract, i.e. competence of
• Acceptance of proposal and its communication;
the parties;
• Agreement by mutual promises;
• Contract;** • Free consent of both parties;
• Lawful object and
** PN: A Contract can never be conditional acceptance. • Intention to create a legal relationship.
Sc.7 of ICA says “Acceptance must be absolute”. 7 8

ESSENTIALS OF A CONTRACT contd. Types of Contracts

It must be noted, writing is not essential for the Unit Rate / Unit Price Contract
clarity of a contract, except where a specific statue
requires writing.
• This is also called item rate contract / value contract / measurement
contract or schedule rate contract.
E.g. • In this type, the Contractors are required to quote rates for
• Contract for sale of immovable property must be in individual items of work on the basis of schedule of quantities
furnished by the Owner.
writing, stamped and registered.
• This schedule indicates full description of the items, estimated
• Promise to pay a time barred loan should be in writing, as quantities and their units.
per the Limitation Act.
• The Contractors are required to express rates and work out the
• An Arbitration agreement/ clause must be in writing. cost against each item and thereby draw up the total amount
tendered for the work.
9

Types of Contracts Types of Contracts

Percentage Rate Contract Cost Plus Percentage Contract

• In this form of contract, the Owner prepares schedule of items with • Cost plus percentage contract are generally adopted when
quantities, rates, unit and amount shown therein. conditions are such that the rates of labour, material etc. are liable
to fluctuate and there is an element of uncertainty in the scope of
• The Contractors are required to offer percentage above, below or the work.
at par with the rates given in the schedule.
• In this type of contracts there is an arrangement between the
• The percentage quoted by Contractor is applicable on the overall Owner and the Contractor by which the parties agree that the
schedule. work ordered would be completed and paid for on the basis of
actual cost incurred plus a fixed percentage as profit.

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Types of Contracts Types of Contracts

Lump Sum Contract Turnkey EPC Contract

• In a lump sum contract, the Owner has essentially assigned all the
risk to the Contractor, who in turn can be expected to ask for a
• This type of contract arrangement (also known as ‘package deal’
or EPC) places the duty to design, engineering, procurement,
higher mark-up in order to take care of unforeseen contingencies.
construction of the facility and thereafter preparation of start-up
• Beside the fixed lump sum price, other commitments are often procedures, to create operational manuals and training to people
made by the Contractor in the form of submittals such as a to operate the facility etc. on the Contractor.
specific schedule, the management reporting system or a quality
control program.
• The term ‘turnkey’ tends to mean the most extreme form of placing
design and construction responsibility on the Contractor, such that
• If the actual cost of the project is underestimated, the after completion the Employer only needs to turn the key to
underestimated cost will reduce the Contractor’s profit by that commence operation of the constructed facility.
amount.
• An overestimate has an opposite effect, but may reduce the
chance of being a low bidder for the project.

Types of Contracts Types of Contracts

BOT Contract FIDIC form of Contract

• The concept of Build, Operate and Transfer (BOT) project is the most • Federation Internationale Des Ingenieurs Conseil (i.e. International
viable way of building up the National network. NHAI brought this
Federation of Consulting Engineers) published standard forms of
concept into practice in the year 2000. Under the BOT scheme, the
construction contract for international use which are fairly balanced
projects are offered on concession for a specific time period and this
and equitable so far as the rights and obligations of both the parties
concession period involves both implementation, operation and
maintenance of the project
are concerned.

• Basic differences from other conventional projects / contracts :

™The returns are spread over a longer period.
™Sound financial & engineering skills are warranted.
™No protection against any price variation during implementation period.
™Cost and time overrun upsets the returns.
™EOT granted by authority does not provide much remedy.

The Traditional FIDIC Forms of Contract : The three books are -

Red Book : For Works of Yellow Book : For Orange Book : For

FIDIC Civil
Construction.
4 th
Engineering

Edition, 1987;
Reprinted in 1988 & 1992
Electrical and Mechanical
works.
3rd Edition; 1987 reprinted.
Design – Build and
Turnkey.
1st Edition; 1995.

Contract
with amendments.
This is recommended for This is recommended for the This is recommended
building or engineering provision of electrical and/or where Contractor takes
works designed by the mechanical plant, and for the total responsibility for the
Employer or by his design and execution of design and execution of
representative i.e. Engineer. building or engineering works. an engineering project.
The Contractor constructs The Contractor designs and The Contractor carries
the works in accordance provides, in accordance with out all the Engineering,
with a design provided by the Employer’s requirements, Procurement and
the Employer. plant and/or other works; Construction (EPC) :
which may include any providing a fully-
However, the works may
combination of civil, equipped facility, ready
include some elements of
mechanical, electrical and/or for operation (at the “turn
Contractor-designed civil,
construction works. of the key”).
mechanical, electrical and/or
construction works.
18

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The 1999 Suit of FIDIC Forms of Contract : The four books are - The 1999 Suit of FIDIC Forms of Contract : The four books are -
Red Book : Conditions of Contract for Yellow Book : Conditions of Contract Silver Book : Conditions of Contract for Green Book : Short Form of Contract.
Construction. for Plant and Design-Build Projects. EPC Turnkey Projects. 1st Edition; 1999
For Building & Engineering works, For Electrical & Mechanical Plant, and 1st Edition; 1999
Designed by the Employer. for Building & Engineering works,
(an update of old Red Book) Designed by the Contractor. The Silver Book is an entirely new The Green Book is an entirely new
1st Edition; 1999 (replaces both old Yellow & Orange FIDIC form for BOT and similar FIDIC form and adopts the overall risk
Book) 1st Edition; 1999 projects. It is intended to be used on philosophy of the Red and Yellow
fixed-price turn key projects. There is Books. It is intended for contracts of
The new Red Book is the traditional The new Yellow Book replaces the no Engineer, instead the Employer relatively small value, short
form for civil engineering construction existing Yellow and Orange Books. It deals directly with the Contractor. Risk construction time or involving simple
in which the Contractor constructs to is intended to be used for Design and is placed largely with the Contractor. or repetitive work. There is no
the Employer's design. There is Build contracts and for Plant Payment is on periods or installments Engineer and the payment
however provision for the Contractor to Contracts. The Engineer administers of the Lump Sum. mechanism is required to be specified
carry out design where specified. The the contract and payment is on in the Appendix to the Form of
form maintains the role of the Engineer periods or installments of the Lump Agreement, but payment is at monthly
and the payment mechanism is based Sum. intervals. It doe’s not matter who
on measure and value. The new Red provided the design. Also it doe’s not
Book revises the previous Red Book matter whether the project involves
version and incorporates current construction, electrical, mechanical,
thinking on the management of 19 or other engineering work. 20
contracts.

Now we will discuss in detail about FIDIC Part – I & II

Red Book While framing FIDIC Conditions, it was recognized that while
there are numerous Clauses which will be generally

Conditions for applicable but there are some Clauses which must
necessarily vary to take into account of the circumstances
and locality of the Works. The Clauses of general application
Works of Civil have been grouped together and are referred as Part I –
General Conditions. The guidelines are given in FIDIC book

Engineering to prepare a Part II document (i.e. Conditions of Particular

Application (COPA)) which needs to be specially drafted to
suit each individual contract.
Construction The General Conditions are linked with COPA, by the
corresponding numbering of the Clauses, so that Parts I and
Fourth edition, 1987; Reprinted in 1988 with editorial
II together comprise the Conditions governing the rights and
amendments; Reprinted in 1992 with further amendments.
obligations of the parties.

Essential Features Essential Features

and Concepts of FIDIC and Concepts of FIDIC
☻Based on domestic contract. ☻Supervision of works and administration of the contract by
Engineer, who is appointed by the Employer.
☻General Conditions not applicable can be disregarded.
☻Dual functions of Engineer – an agent of the Employer and
also an independent and impartial person.
☻Legal concepts are based on the common law system.
☻Engineer is not a party to the Contract and the FIDIC
☻Conditions are fairly balanced and equitable to both the Conditions impose obligations on the Employer that the
parties, so far as the rights and obligations are concerned. Engineer duly performs.

☻Concept of responsibility and liability based on sharing of ☻Employer should not restrict the powers of the Engineer other
risks. Risk sharing is balanced. Risk is allocated to the party than the situations where specific approval of the Employer is
that is best able to bear and control that risk. provided in the contract. He should not influence or interfere
with the functioning of the Engineer.

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Essential Features
and Concepts of FIDIC
☻Compensation and time extension allowed when
Various
Important
uncalculated hindrances occur.

☻All claims, from either Party, have to follow a procedure.

☻Work must continue, regardless of differences : amicable

settlement encouraged. Sub-Clauses
☻If a dispute arises, reference to DRB (Dispute Review Board).

☻Dispute resolution procedure is : DRB >>> amicable

settlement >>> Arbitration.
of FIDIC ……
26

FIDIC Contracts FIDIC Contracts

Instructions in Writing (Sub-Clause 2.5) – Priority of Contract Documents (Sub-Clause 5.2) –
The several documents, forming the Contract are to be taken
Where the Engineer does not give written confirmation of an as mutually explanatory of one another, but in case of
verbal instruction to the Contractor then the Contractor, within ambiguities or discrepancies, the priority of the documents
7 days, may himself confirm to the Engineer that he has forming the Contract shall be as follows :
received such an instruction. If the Engineer fails, in writing,
to contradict such a notice within 7 days the instruction is 1) Contract Agreement;
deemed to have been given by the Engineer to the 2) Letter of Acceptance (LOA) and Notice to Proceed (NTP);
Contractor. 3) Tender Document;
4) Conditions of Particular Application (COPA) - Part – II;
5) General Conditions of Contract i.e. FIDIC - Part – I;
6) Specification;
7) Drawings;
27 8) Priced Bill of Quantities. 28

FIDIC Contracts FIDIC Contracts

Programme to be Submitted (Sub-Clause 14.1) – Performance Security (Sub-Clause 10.1) –
Once the Contract has been awarded a detailed Construction Contractor to obtain security for his proper performance of the
Programme need to be submitted within the specified time period as contract and provide to the Employer such security within 28 days
indicated in Part – II (COPA). Generally within 28 days from the date after the receipt of the Letter of acceptance. The performance
of receipt of Letter of Acceptance (LOA). security shall be valid Defects Liability Period.

Cash Flow Estimate to be Submitted (Sub-Clause 14.3) – Insurance (Sub-Clause 25.1) –

Once the Contract has been awarded a detailed Cash Flow Estimate The Contractor shall supply the insurance policies to the Employer
need to be submitted within the specified time period as indicated in within 84 days of the Commencement Date. The Engineer should be
Part – II (COPA). Generally within 28 days from the date of receipt of kept informed. The Contractor's policies must be with insurers and in
Letter of Acceptance (LOA). terms approved by the Employer.

The Employer will require a cash-flow estimate to enable him to

ensure that funding is available when required. 29 30

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FIDIC Contracts
Notice of Claims (Sub-Clause 53.1 and 53.2 / 53.3 / 53.4 /
53.5) –
Events Entitling
A Contractor intending to make a claim for additional
payment must give notice that he will do so within 28 days of
the event. Thereafter he must keep records including any
Contractor,
Extension of
records required by the Engineer, who will be entitled to
inspect such records. If the Contractor fails to give notice,
keep records or provide details, his entitlement will be limited
by what can be proved from the records that do exist.

Time and Cost

31 32

Entitling Extension of Time & Cost Entitling Extension of Time & Cost
6.3 / 6.4 6.3 / 6.4 - Disruption of Progress / Delays and Cost 6.3 / 6.4 20.4 - The Employer's Risks are :
a) war, hostilities (whether war be declared or not), invasion (attack), act
12.2 of Delay of Drawings : When planning or execution 12.2 of foreign enemies,
of the Contractor's works is likely to be hampered b) rebellion, revolution, insurrection, or military or usurped power, or civil
war,
20.4 / 65 because of late issue of drawings or instructions by 20.4 / 65 c) ionizing radiations, or contamination by radio-activity from any nuclear
the Engineer, it is important that the notice is given to fuel, or from any nuclear waste from the combustion of nuclear fuel,
27.1 Engineer informing that late issue will have certain 27.1 radio-active toxic explosive, or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof,
29.1 cost and time effects. 29.1 d) pressure waves caused by aircraft or other aerial devices traveling at
sonic or supersonic speeds,
36.5 36.5 e) riot, commotion or disorder, unless solely restricted to employees of
the Contractor or of his Subcontractors and arising from the conduct of
40.1 12.2 - Not Foreseeable Physical Obstructions or 40.1 the Works,
Conditions : Inspite of the pre-tender investigations f) loss or damage due to the use or occupation by the Employer of any
Section or part of the Permanent Works, except as may be provided
42.1 / 42.2 of the Site by the parties, the Contractor may 42.1 / 42.2 for in the Contract,
encounter unforeseen physical obstructions or g) loss or damage to the extent that it is due to the design of the Works,
51 / 52 51 / 52
physical conditions, other than climatic conditions. other than any part of the design provided by the Contractor or for
which the Contractor is responsible,
69.4 The Contractor is required to give the earliest possible 69.4 h) any operation of the forces of nature against which an experienced
notice to the Engineer. 33
contractor could not reasonably have been expected to take
34
44.1 44.1 precautions.

Entitling Extension of Time & Cost Entitling Extension of Time & Cost
6.3 / 6.4 Clause 20.4 should be read in conjunction with 6.3 / 6.4 27.1 - Fossils : For the purpose of the Contract all
12.2 clause 65 (Special risks). Clause 65 makes it clear 12.2 articles of geological or archeological interest
that the Contractor is not liable for the consequences discovered on the Site are considered the property of
20.4 / 65 of Special Risks upon the works or other property nor 20.4 / 65 the Employer. Sometimes contractor suffers, delays
for injury or loss of life. and cost due to Engineer instruction relating to
27.1 27.1
discovery of fossils/antiquities etc.
29.1 Clause 65.3 also, entitles the Contractor to payment 29.1
for rectifying the damage "so far as may be required
36.5 by the Engineer or as may be necessary for the 36.5
29.1 - Interference with Traffic and Adjoining
40.1 completion of the Works“. 40.1 Properties : The Contractor should comply with all
local legislation and regulations and the rules of all
42.1 / 42.2 42.1 / 42.2
public bodies and companies affected by the works.
51 / 52 51 / 52 The Contractor will indemnify the Employer against
any breaches, but the Employer will be responsible for
69.4 69.4 and will indemnify the Contractor in respect of matters
44.1
35
44.1 such as planning permission. 36

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Entitling Extension of Time & Cost Entitling Extension of Time & Cost
6.3 / 6.4 36.5 - Engineer’s Determination where Tests not 6.3 / 6.4 42.1 / 42.2 - Possession of Site and access
Provided for : Where provision of Tests are not Thereto / Failure to Give Possession : If the
12.2 12.2
provided in Contract but tests conducted and it is found Employer fails to provide the Possession of Site (or
20.4 / 65 that materials, plant or workmanship are in accordance 20.4 / 65 portions thereof where appropriate) and Access
with the provisions of the Contract. Thereto in accordance with the requirements of the
27.1 27.1
40.1 - Engineer’s determination following contract / programme.
29.1 Suspension / Suspension lasting more than 84 days 29.1
: If the progress of the Works or any part thereof is 69.4 - Contractor’s Entitlement to Suspend Work :
36.5 36.5
suspended on the instructions of the Engineer and if Contractor’s entitlement to suspend work or reduce
40.1 permission to resume work is not given within a period of 40.1 the rate of work where the Employer fails to pay to the
84 days then, unless the Contractor is responsible for Contractor his due amount. (Here due payment
42.1 / 42.2 the suspension, the Contractor may, by notice to the 42.1 / 42.2
means - Employer fails to pay, the Contractor the
Engineer, require permission, within 28 days, to proceed. amount due under any certificate of the Engineer
51 / 52 51 / 52
If such permission is not granted, the Contractor may
within 28 days after the expiry of the time stated in
69.4 elect to treat the suspended work as omitted or, where 69.4 Sub-Clause 60.10 within which payment is to be
all work has been suspended, treat the Contract37 as
44.1 44.1 made). 38
repudiated (rejected).

Entitling Extension of Time & Cost Entitling Extension of Time & Cost
6.3 / 6.4 51/52 - Variations : Where the Contractor intends to 6.3 / 6.4 44.1- Extension of Time for Completion : In the
claim extra payment in respect of the varied work, i.e. event of delay on account of causes given in various
12.2 12.2 clauses the Contractor is entitled for extension of
20.4 / 65 a) increase or decrease of the quantity of any work 20.4 / 65 time.
included in the Contract,
¾Contractor is required to notify to Engineer with a
27.1 b) omission of any work (but not if the omitted work is to 27.1
copy to Employer, within 28 days after such event
29.1 be carried out by the Employer or by another 29.1 has first arisen.
contractor),
36.5 36.5 ¾Further, within 28 days after such notification,
c) change the character or quality or kind of any work,
Contractor to submit detailed particulars of any
40.1 d) change the levels, lines, position and dimensions on 40.1 extension of time to which he considers himself
any part of the works, entitled.
42.1 / 42.2 42.1 / 42.2
e) execute additional works of any kind necessary for the ¾However, where an event has a continuing effect,
51 / 52 completion of the works, or 51 / 52 Contractor has to submit interim particulars at
69.4 f) change any specified sequence or timing of 69.4 intervals of not more than 28 days and final
construction of any part of the works. particulars within 28 days of the end of the effects
39 40
44.1 44.1 resulting from event.

Entitling Cost Alone

17.1 17.1 - Setting-Out : Incorrect setting out data given to
Contractor by Engineer (i.e. position, levels,

Events Entitling
dimensions or alignment of any part of the works).
20.3

20.3 - Loss or Damage Due to Employer’s Risks :

38.2 Contractor is obliged to rectify the damage caused by

Contractor, Cost 50.1

the Employer's Risks (20.4) at the Employer's
expense, only if required by the Engineer to do so.

Alone 58
38.2 - Uncovering and Making Openings : The
Engineer may require, as a consequence of later
discovery, that work already covered up be uncovered
and inspected and tested. Contractor incurs costs for
65.3 / 65.5 testing or uncovering works and such tests or
uncovering shows that the Contractor’s work were not
41
70.2 defective. 42

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Entitling Cost Alone Entitling Cost Alone

17.1 50.1 - Contractor to Search : This clause permits the 17.1 65.3 / 65.5 Damage to Works by Special Risks :
Engineer to instruct the Contractor to search for the Replacement or rectification of materials or
cause of a defect, shrinkage or other fault in the Contractor’s equipments and/or rectification of
20.3 20.3
Works emerging prior to the end of the Defects damage caused to works or any materials or plant on
Liability Period. Depending on whose responsibility or near or in transit to the site, or any of the
38.2 the fault turns out to be, the Contractor either bears 38.2 contractor’s equipment by Employer’s Risks as
the cost himself or receives additional payment. defined in Sub-Clause 20.4 of FIDIC.

50.1 50.1 70.2 - Subsequent Legislation : Any affect upon the

cost of the works resulting from changes in the any
58 - Provisional Sums : The Contractor will be
National or State Statute, Ordinance, Decree or other
entitled to the sum determined by the Engineer in
58 58 Law or any regulation or bye-law of any local or other
respect of work covered by the provisional sums - for
duly constituted authority, or the introduction of any
work or the supply of materials etc pursuant to clause
such State Statute, Ordinance, Decree, Law,
65.3 / 65.5 52 (Valuation of variations) or by a nominated 65.3 / 65.5
regulation or bye-law, occurring after the date 28 days
Subcontractor pursuant to clause 59.4 (Payments to
prior to the Tender date, are to be established and
nominated Subcontractors). 43 44
70.2 70.2 added to or deducted from the contract price.

FIDIC Contracts
Notices / Information's Required To Be Given by Contractor
Other Important FIDIC
Clause
Requirement for giving Notice / Information’s

Sub-Clauses 4.1 Subcontracting : The Contractor shall not subcontract the

whole of the works. Also except otherwise provided by the
Contract, the Contractor shall not subcontract any part of
the works without the prior consent of the Engineer. The

Of Contractor shall not be required to obtain such consent for

–
a) the provision of labour.

FIDIC ……
b) the purchase of materials which are in accordance with
the standards specified in the Contract, or
c) the subcontracting of any part of the Works for which the
Subcontractor is named in the Contract.
45 46

FIDIC Contracts FIDIC Contracts

Notices / Information's Required To Be Given by Contractor Notices / Information's Required To Be Given by Contractor
FIDIC Requirement for giving Notice / Information’s FIDIC Requirement for giving Notice / Information’s
Clause Clause
47.1 / Liquidated Damages for Delay : If the Contractor fails to complete
46.1 Rate of Progress : If for any reason, which does not entitle 47.2 the whole or any specified Section of the Works by the due date,
the Contractor to an extension of time, the rate of progress the Employer may deduct or recover from the Contractor the daily
of the Works or any Section is at any time, in the opinion of amount specified in the contract up to a given maximum amount.
the Engineer, too slow to comply with the Time for If the works are handed over on a piecemeal basis, the amount of
Completion, the Engineer shall so notify the Contractor liquidated damages is reduced proportionately.
who shall thereupon take such steps as are necessary,
subject to the consent of the Engineer, to expedite
progress so as to comply with the Time for Completion.
The Contractor shall not be entitled to any additional
payment for taking such steps.

47 48

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FIDIC Contracts FIDIC Contracts

Notices / Information's Required To Be Given by Contractor Notices / Information's Required To Be Given by Contractor
FIDIC Requirement for giving Notice / Information’s FIDIC Requirement for giving Notice / Information’s
Clause Clause
48.1 / Taking-Over Certificate : When the whole of the Works have 49.1 / Defects Liability : This clause defines the Defects Liability Period
48.2 / been substantially completed and have satisfactorily passed any 49.2 / as an agreed period, usually six or twelve months running from
48.3 Tests on Completion prescribed by the Contract, the Contractor 49.3 / the date or dates of the Taking-Over Certificate. The Contractor
may give a notice to that effect to the Engineer, with a copy to the 49.4 is obliged to complete any outstanding work and remedy any
Employer, accompanied by a written undertaking to finish with defects during or shortly after this period. Unless any remedial
due expedition any outstanding work during the Defects Liability work undertaken by the Contractor was due to a cause which
Period. Such notice and undertaking shall be deemed to be a was not the Contractor's responsibility, he receives no extra
request by the Contractor for the Engineer to issue a Taking-Over payment for works executed during this period. If the Contractor
Certificate in respect of the Works. remedies defects not of his making, he is paid as if the work was
a variation. If the Contractor fails to carry out the remedial works
within a reasonable time, the Employer can take on alternative
Taking-Over Certificates may be issued in respect of specified
contractors to execute the works and charge the Contractor the
Sections or parts of the Works, which are either complete or are
cost of remedying the Contractor's defects.
incomplete but have been taken over by the Employer.
49 50

FIDIC Contracts FIDIC Contracts

Notices / Information's Required To Be Given by Contractor Notices / Information's Required To Be Given by Contractor
FIDIC Requirement for giving Notice / Information’s Clause 67 : Settlement of Disputes
Clause
59 Nominated Subcontractors : The Contractor need not employ any
nominated Subcontractor against whom he has reasonable
objection or who refuses to enter into a sub-contract which is
back to back with the main contract and which indemnifies the
Contractor in respect of the nominated Subcontractor's breaches
and against the negligence of his workmen and misuse of any
Temporary Works.
The Engineer is entitled to proof that certified sums have been
paid to nominated Subcontractors before issuing any further
certificate. Unless the Contractor shows he has reasonable
grounds for refusing to make such a payment and proves that he
has so notified the nominated Subcontractor, the Employer may
make direct payments and deduct the equivalent sum from the
Contractor. The Engineer is to show the deduction on the next
51 52
certificate which should not be delayed.

FIDIC Contracts Dispute Review Boards

Notices / Information's Required To Be Given by Contractor
Dispute Review Boards are very useful in construction contracts. The
FIDIC Requirement for giving Notice / Information’s traditional methods of resolution of dispute come after the fact, (when the
Clause project is complete and the parties have already become adversaries). On
the other hand, a Dispute Review Board visits the job site regularly during
67 However, generally Sub-Clause 67.1 is substituted in construction and is kept advised of contract as it progresses.
(Contd.) COPA with “Disputes Review Board”. In this … If any
dispute arises between the Employer and the Contractor in Normally, the Dispute Review Board consists of three members. One
member is appointed by each party. The third member (who becomes the
connection with, or arising out of, the Contract or the Chairman) is selected by the two members and approved by the parties.
execution of the Works, whether during the execution of The members are expected to have :
the Works or after their completion and whether before or
after the repudiation or other termination of Contract, a) experience with the type of construction,
b) familiarity with interpreting contract documents, and
including any disagreement by either party with any action, c) adequate background in the construction industry. They must not have
inaction, opinion, instruction, determination, certificate or any affiliation with the parties.
valuation of the Engineer, the matter in dispute shall, in the
first place be referred to the DRB. The Board, after recording the parties' submissions, suggests a
settlement. If it is not acceptable to both the parties, they can make a
request to the Board to make further efforts, or pursue litigation or
53 54
arbitration, as the case may be.

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 By : Ajay Kumar Singhal

FIDIC Contracts
Notices / Information's Required To Be Given by Contractor
FIDIC Requirement for giving Notice / Information’s
Clause
70.1 Increase or Decrease of Cost : The rise and fall in the cost
of labour, materials etc is to be taken into account in
accordance with a fluctuations clause as set out in Part II
(COPA). That is called Price Adjustment or Escalation and
the formula for calculating the amount is usually defined in
Part – II (COPA) Claim
55 56

Claim - Introduction Claims can be classified as -

The very word claim can mean different things to different
people. In the general sense the word can refer to a routine Contractual Claim
application for something which is an undeniable right. One can
“claim” a lottery prize or a payment under an insurance policy. Such claims have a basis in the contract itself. Gives rise to
The word does not necessarily imply, error or omission, or the entitlement where a particular provision can be quoted.
possibility that someone is at fault.
For the Employer claims reflect an increase in the price for the Extra Contractual Claim
project and which may threaten a project’s commercial viability.
For the Contractor claims may reflect a further source of income These are claims for breach of contract which are not covered under
from the project. the express provision of contract but are tenable under the law
Construction Contracts are of executory nature and their timely applicable to Contract Act / Common Law.
completion is dependent upon fulfillment of reciprocal
obligations by both the parties in the manner prescribed in the Quantum Merit Claims
contract. In a large number of cases, time and cost over run
takes place and disputes / claims arise between the parties due Provide remedy for a Contractor who has carried out work under 58
the
57
to non-fulfillment of obligations by either party. instruction of the Owner but no price has been agreed.

Claims can be classified as - Claims and Its Origin

Claims originate from various sources & the basis of claims can be:
Ex-gratia Claims
• Alterations, Additions and Omissions (Variations).
• Conflicting conditions of Contract.
Ex-gratia claim is one where no legal remedy is available to the
Contractor but arise out of hardship. On the ground of equity or • Delay in handing over of site / commencement.
favour the authority concerned may in certain circumstances • Non-apparent or unforeseen conditions on the site.
consider that hardship calls for mercy or moral liability. • Change in work sequences.
• Delay in supply of drawings.
Counter Claims • Incorrect drawings.
• Drawing / Specifications discrepancies.
The claims raised by the opposite party to counter the claims of the • Late information / approval.
claimant is called as counter claims. • Inclement weather (severe or stormy).
• Suspension of work.
• Damages to works.
59
• Delay in payment. 60

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 By : Ajay Kumar Singhal

Tips

Tips
1) Be fully conversant with all the Clauses in the
Contract, Technical Specifications, Scope of works
etc.
2) Monitor the job on a day to day basis.
3) Whenever deviation arises in the form of Client’s
requirements through Drawings, Site Orders, Letters
etc. make note of the same and inform to Clients
immediately.
4) If it involves cost implications, same can be indicated
and approval sought.
5) In case of occurrence of delays due to various factors
intimate the same to Clients about it. The exact
duration may be notified later including cost
61 implications at an appropriate time. 62

Tips
6) Correspondence to Clients to be progressively built-
up. Never fail to reply any of Client’s letters.
7) Do not fail to apply for “Extension of Time” well
before the expiry of the contract period with
appropriate reasons.
8) Follow-up with Commercial Department for renewal
of Insurances, Bank Guarantee’s well in time.
9) Be on the look out to get information on certain
relevant details viz. increase in taxes, escalation,
force-majeure conditions etc. which have impact on
the job.
10) Read the contract between the lines and not the
lines alone for better interpretation of the same63to
our advantage.

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