Role of a construction project manager

AR421 Construction Project Management A construction project manager oversees all aspects of a construction project, from planning and
budgeting to execution and completion, ensuring the project is delivered on time, within budget,
Module 2. Construction contracts & and to the required quality standards by coordinating with various stakeholders like architects,
engineers, subcontractors, and clients, while managing risks and maintaining safety compliance
management throughout the building process.

E V S Kiran Kumar Donthu, PhD

Construction Contracts What is a Contact?

Civil Engineering Projects are generally run A contract is a legally binding agreement between two or more parties to exchange something of
value. In construction, it is usually money in exchange for construction services to build a facility.
using Contracts why? A contract imposes both contractual and legal obligations on both parties that are very difficult or
impossible to change.
For small works, an informal understanding, or at
the most some informal memo of understanding Contracts will be enforced no matter how harsh the terms, provided the contract was freely
on paper would do. agreed upon. As stated by one court, parties cannot ignore provisions of the agreement to suit
their own convenience or profit.
For more complex or larger works/projects, a
Contract would be required to spell out the A construction contract signed with the client is for completing
various issues clearly. the specified scope of work,
within the specified time,
as per the specifications
as per specified contract conditions,
for the contract price
Contract principles Stages of contract
According to the definition of contained in the Indian Contract Act, only those
agreements are contracts which are enforceable as such, having been made by free consent of
parties, by persons competent to contract, for lawful consideration and lawful object and which
are not expressly declared to be void by any statue.
Pre Post
Construction
A contract is normally between two parties- eg., between the client and the contractor/ construction construction
consultant,..
A contract has two facets: the expectations from the contractor and the rewards both are
equally important, to the two parties Design consultancy Construction Maintenance
Scope/ DPR Services Facility management
Expectations preparation Equipment
good contract is one which is never referred
owners believe that once a contract is made it should be kept aside and work should
go on smoothly.

Parties involved in a contract Other parties

Service and Supply Organizations
Manufacturers and supplier of construction materials and equipment
Insurance companies and sureties
Banking and Financial Institutions
Consultants and Attorneys

Owners Architect, Engineers Construction Contractors Labour Force Regulatory Agencies

Public Owner and Subcontractors Organized
(Government bodies) Entities who determine the Open shop Local, State and Central Governments
Private Owner (also means, methods, Piece rate
include quasi-public techniques, sequence, workers
bodies) procedures and direct the Labour General Public
actual construction subcontractors
Construction planning must consider impact on public and environment
activities
 Typical contracts Owner-A/E Contract for
professional services Liability in contracts
(Design and bid plans &
specifications)
Construction is a risky business!!?
Advertisement of
bids
Owner-Contractor
Construction contracts
Contractor Joint
Contract Liability
(prime contracts)
Venture agreements Results when a party to the contract breaches the contract by failing to conform
to one or more of its provisions.
Bids Expressed provision
Implied provision

Insurance Sub-contractor Labour Purchase order

Surety bonds agreements agreements and agreements
contracts

Liability in contracts Liability in contracts

For a party to claim damages under a theory of
Statutory Liability contract liability, it must establish the existence of
It is imposed by law or statute a contract.
Can be express or implied
Not uncommon for a construction contractor to
sue A/E or CM for alleged failure to properly
Strict Liability (Negligence & unsafe practices) perform their duties associated with the contract,
although contractor does not have a contract
Many individuals believe that their liabilities are limited to those resulting from breach of the directly with them.
provisions in the contracts to which they are party.
The damaged contractor could well have a valid breach of contract cause of action against the owner for failing
In living our daily lives, we cannot, with impunity, either intentionally or unintentionally to manage or control the other prime contractors properly.
conduct our affairs in a manner that will injure or damage others.
Owners often protect themselves from such breach of contract suits by inserting exculpatory clauses, or
Negligence causing injuries to workers or third parties due to unsafe working conditions, disclaimers.
defective construction materials, and failing to warn about potential hazards. Express
warranties also impose strict liability on the contractor (eg. Leaking roof)
Contractual conditions
General Conditions
Very definitive statements, clause by clause, of all
general items
Terms and conditions that will govern the performance
of the contract work
The general concept of this section is to include all A valid contract shall have
clauses that will remain the same, contract after Contract must not be contrary to law or
contract, changing very infrequently
contrary to public policy
Competence to call for or offer or accept
Supplementary Conditions Contracts
Project specific matters Reasonable certainty/ Clarity of terms
Proper subject matter
Those that are either site specific or in some
Considerations
other way apply only to the specific contract

Obligations of contract Tender process

Offer Publicity Price bid evaluation
Whether written or oral, a legally binding offer must be clear & complete Negotiation
Mode of call (e-Tender)
Performance security/performance
Specific formats only in response to IFB or RFP/RFQ Notice inviting tender (NIT) guarantee (PG)
Offer Pre-bid meeting Signing of contract
Debriefing
What happens if Sub- Corrigenda and addenda Procurement Inception Report
Contract? Bid receipt
Acceptance Accept Bid opening and processing
A contract between two parties cannot be legally binding unless there is a Technical bid
meeting of the minds mutual agreement without duress
Financial/price bid

Consideration Consider
Mainly Money for construction contracts
Each party must have a rational reason for entering into the contract
 Tender process
Agreement is offer + acceptance
Tender is offer (quote & bid) to carry out work
Attributes of a good bid

Before tendering Fairness

Correctly spell out and document the need and scope of Equitability
the activity
Decide the procurement strategy in terms of packaging, Transparency
contracting, pricing and procurement procedure Competitiveness
Tender action
Cost effectiveness
Tender evaluation, negotiation etc.
Award and enter into the agreement other objectives like, social
Contract management security, promotion of
indigenous materials and
processes, etc.

Case study- Tender evaluation Bid proposal

The assessment of tenders was carried out in two stages. The first stage involved a coarse assessment of all tenders to identify IFB or RFP typically include:
the tenders to be considered in depth. The second stage involved a detailed appraisal and examination of the most favoured
tenders together with negotiation with tenderers, as appropriate, leading to final recommendation. The tender assessments A description of the contract work
were carried out by groups reporting to the Chairman and Executive. The activities involved included: The identity of the owner
Finance department: Examine financial package; check front loading; bring all tenders back to net present value utilizing the The place, date, and precise time of the bid opening
Interim Payment Schedule included in the tender; arithmetical check of BoQs; check alternative offers; identify most The penal sum of the required bonds (bid bond/ Earnest Money
favourable in financial terms. Contracts/legal department Examine the covering letter and all qualifying statements; indicate Deposit (cash/ DD/ BG), performance bond etc.);
cost and time implications of qualifications. A description of the drawings and specs, their cost, and where they
Programming department: Check that the programme adheres to schedules of milestones and critical dates may be obtained
identified in the contract documentation. Rules regarding withdrawal, modifications, late bids etc.
Consultants/civil engineering department: Examine alternative design offers and recommend any which warrant further Period of bid validity
consideration and advise on any planning implication; examine method statement to highlight any anomalies and areas of
non-acceptance; prepare detailed cost comparison to enable cost centres and activity bills to be compared with
estimate.
Utilities and civil planning: Evaluate the implications of the submission on traffic, land access and utility diversions. IFB generally used when bidders must strictly confirm to drawing and specs.
RFP generally when bidders may propose variations for the project
At the second-stage assessment a detailed study would be undertaken and questions of clarification would be developed.
Following the issue of the questions to the tenderers and receipt of the answers all outstanding matters would be clarified.
The confirmation wrap-up letters would be incorporated into the contract.
Bidding document Contract document
Bidding documents consisting of the Invitation to Bid, the Drawings
Instructions to Bidders, and the Bid Form Complement the specifications
Scope, source of funds, eligibility, qualifications , bid Should be sufficiently clear to adequately show exactly what is to be
built
preparation, documents to be enclosed, price, currency,
security, other bid submissions required [construct Certain features may be shown in general terms, requiring the
contractor to prepare the detailed drawings
only,design & construct, EPC]
In fixed-priced bids should be adequately sufficient& complete and
General Conditions of Contract clear; even bar bending schedules may be enclosed
Special Conditions of Contract Specifications
Specifications The technical requirements for each division of work in the contract
will be completely detailed in specifications
Drawings, Bill of Quantities, Price Format Many times, mere reference to applicable Codes of Practice may not
Reports of investigations of physical conditions be adequate
Should conform to Uniform Construction Index or Master spec format
Should be carefully drafted so that both parties to the contract have a
mutual understanding of the precise technical requirements.

Contract document Traditional contract methods

Reports on site conditions Rate contract
Often concern the geotechnical aspects of subsurface conditions Each item shall use the pre-determined rate for the execution of works. Quantities may not be specified
in the contract, and the contractor shall execute any quantity within stipulated time during the validity
Usually appear in the form of written evaluations and soil boring logs period of the contract.
Other examples are weather records, stream flow hydrographs etc.
Item rate contract
The contractor quotes the unit price for each item in the BOQ during the tender stage and undertakes
the execution of work on the accepted item rate. The payment is released based on certified
Owners often/ mostly use disclaimers, to escape liability Bidders measurement of the actual quantity of each item executed.
to verify the site conditions themselves
Percentage contract
The Employer provides the schedule of rates with the item, unit rate, and quantities. The contractor
quotes the percentage above or below the schedule of rates.
Lump-sum contract
The contractor quotes the price as a single tendered amount. The contractor shall include all
requirements and shall comply with provisions of the contract. The employer shall not pay
for any missing detail/item or make any price adjustment subject to the contract conditions and scope.
Other contract methods Public-private partnership (PPP)
Design and build Public sector entity (employer) enters into a contract with a private entity or consortium to finance,
In this the owner/client/ employer provides detailed scope, the performance specifications and design construct and operate an asset/facility that may also provide services for design. This arrangement is
basis report at the time of bidding. The design, as well as the construction, is the responsibility of the suitable for long-term projects aiming at cost-recovery model within the concession period. The
contractor. selected private entity would be responsible for procurement, construction, operation, and
Engineering, procurement and construction (EPC) maintenance for a specific period. The contractor shall transfer the facility to the client/employer on
successful completion of services.
The employer shall provide the basic concept and drawings along with the budget amount at the
tendering stage. The contractor is responsible for all engineering, procurement and construction
including commissioning and handing over. He shall be responsible for removal snags and routine Build, Own, Operate and Transfer (BOOT),
maintenance of facility during the defect liability period.
Build, Own and Operate (BOO),
Turnkey contract Build, Operate, Lease and Transfer (BOLT),
The employer shall provide the performance requirements to the contractor who shall design, execute
the works and demonstrate the performance of the facility based on an agreed price within stipulated Build, Operate and Transfer (BOT),
time. Design, Build, Operate and Transfer (DBOT),
Design, Build, Finance, Operate and Transfer (DBFOT), and
Hybrid Annuity Model (HAM).

Commercial terms of a contract Example with different commercial terms

Fixed-Price Contracts (FP) Estimated project cost: 1.5 Cr
Lump sum
Cost outcome at total cost to
Item Rate Commercial terms completion Contractor's profit owner
1.35 Cr 6.75 L 1.42 Cr
CPPF @ 5% agreed profit 1.65 Cr 8.25 L 1.73 Cr
Cost-Reimbursable Contracts 1.35 Cr 7.5 L 1.42 Cr
CPFF @ 5% profit on estimated cost
Cost plus percentage fee (CPPF) 1.65 Cr 7.5 L 1.72 Cr
Cost plus fixed-fee (CPFF) CPIF @ 5% profit. 50-50 split on 1.35 Cr 15 L 1.5 Cr
underruns and overruns 1.65 Cr 0L 1.65 Cr
Cost plus incentive fee (CPIF) 1.35 Cr 7.5 L 1.42 Cr
Guaranteed Maximum Terms (GMP) GMP 5% profit on estimated cost 1.65 Cr - 7.5 L 1.57 Cr
Fixed price, competitively bid@ 5% 1.35 Cr 22.5 L 1.57 Cr
profit on estimate 1.65 Cr - 7.5 L 1.57 Cr
Standard formats of contract documents in India Contract risk factors
CPWD Before submitting the bid, the contractor should know what kind of contractual
MES situation will be encountered if the bid is selected and contract awarded.
State PWDs
Other Central Govt Corporations- NTPC, NHPC, Will the contract be fair, or will it be heavily biased in favour of the owner?

Model Standard Contract For Domestic Aside from the of associated with the actual construction
Construction CIDC, work, what contractual risks lie buried in the contract language?
CEA/ MoP
Model Contract Form- Institution of Architects,
India Many contractors do a Risk Analysis before submitting a tender/ taking up tender
work (expensive work by itself!)- multi-level tender presentations before
submission

Contract risk factors Red flag (to be more attentive)

Do not sign a contract until you have read and understood every single word Dispute Resolution and Governing Law Clause
Changes Clause
Differing Site Conditions Clause
Not often possible nowadays; Standard contract formats will help.
Delays and Suspensions of Work
Terminations and Partial Terminations (Default, convenience)
Preparation of cost estimate time consuming and expensive.
Other important ones
Time provisions (notice to proceed)
Do not undertake a cost estimate and start bid preparation until you have read and Liquidated or actual damages for late completion
understood the potential contract Site availability and access to the site
Payment and retention provisions Indemnification clauses (hold harmless)
Reports on physical site conditions Measurement and payment provisions
Carefully examine and understand the provisions of certain key contract clauses Exculpatory clauses Variation in quantities
Deal Breaker clauses Insurance and bond provisions Escalation provisions
Force majeure Documents for contract management
Force majeure is a legal term that refers to an unexpected event that prevents a Procurement strategy document (inception report)
party from fulfilling their obligations under a contract. It's often used in contracts to Request for information (RFI)/Expression of interest (EOI)
protect parties from liability if they can't perform their obligations due to an event Bid/tender documents:
outside their control. Notice/invite for bid/tender
RFQ/RFP (including pre-qualification)
Bill of quantities
The clause usually enumerates what constitutes a reason for excusable delay.
Drawings, and
Questions arise regarding responsibility for extra costs arising when the owner either delays Acceptance criteria
or suspends the work. Who pays? Addendum/corrigendum issued during procurement process
Ranges from owner pays for delays caused by him (may not be really force majeure type) to Contract conditions (GCC and SCC)
those that are completely silent of the issue to those containing -damages-for
clauses limited to extension of time only (latter is common understanding!) Bid proposals
Be clear on what causes are covered & what are not! Purchase orders/work orders
Any amendment in these documents.