CONSTRUCTION CONTRACTS

UNIT 1

CONSTRUCTION CONTRACTS
CONTRACT LAWS AND REGULATIONS
CONTENTS
1.Definition
2.Elements of Contract
3.Types of Contract & Suitability
4.Indian Contract act 1872
5.Design of contract document
6.Law of Torts

CONSTRUCTION CONTRACTS
CONTRACT LAWS AND REGULATIONS
The law relating to contracts in India is contained in Indian
Contract Act, 1872. The Act was passed by British India and
is based on the principles of English Common Law. It is
applicable to all the states of India except the state of Jammu
and Kashmir.
LAW
Law means a set of rules which governs our behaviours and
relating in a civilized society. So there is no need of Law in a
uncivilized society
REGULATIONS
Guidelines for adhering law framed by the government

CONSTRUCTION CONTRACTS
ELEMENTS OF CONTRACT
1.OFFER OR PROPOSAL
When one person signifies to another his willingness as per
requirements he is said to make a proposal
2. ACCEPTANCE
When the person to whom the proposal is made, signifies his
assent there to the proposal is said to be accepted.
PROMISE
When an proposal is accepted it becomes promise
PROMISOR
Person making the proposal is called as promisor
PROMISEE
Person accepting the proposal is called as promisee

CONSTRUCTION CONTRACTS
ELEMENTS OF CONTRACT
AGREEMENT
Every promise and set of promises forming the
consideration for each other. In short, agreement = offer
+ acceptance.
VOID AGREEMENT
An agreement not enforceable by law is void
CONTRACT
Agreement enforceable by Law is a contract
3. CONSIDERATION
Without consideration if contract is formed it becomes invalid
and some form of consideration should be there and should be
reasonable
ELEMENTS OF CONTRACT
4.LAWFUL SUBJECT MATTER
The object of agreement should be lawful and legal
If it is against the public policy then the law will not permit the
contract
Even for govt. work Thorough investigations and reasoning
should be done for applying
If the work is stopped at midway there is no compensation to
contractor
Ways contract cannot be entered
Antisocial work
Impossible occurrence
Uncertain events

CONSTRUCTION CONTRACTS
ELEMENTS OF CONTRACT
5. LEGAL CAPACITY
Parties must be legally competent to enter the contracts
Minors and Insane (Persons with unsound mind) cannot enter
contract
Persons who are declared as insolvent cannot enter contract
Profile of the contractor should be collected before entering
the contract
Persons who are punished by government under criminal law
cannot enter the contract

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ELEMENTS OF CONTRACT
6. STATUE OF FRAUD
For avoiding fraud some legal provisions are made
For mobilizing Labour or work 10 % of money is claimed from
the owner by the contractor for work more than 1.0 crore
Contract must always be in writing only

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TYPES OF CONTRACT

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TYPES OF CONTRACT
1. LUMPSUM CONTRACT
Lump sum includes costs plus overheads and profits (One Price)
Price quoted is a guaranteed price as per contract documents
Payment based on a scheduled percentage scheme (monthly
progress claims)
ADVANTAGES
Reduction in cost due to stiff competition among contractors
Low risk on the owner / Higher risk to contractor
DISADVANTAGES
Changes is difficult and costly
Contractor is free to use the lowest cost of material equipment,
methods

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TYPES OF CONTRACT
2. ITEM RATE OR UNIT PRICE CONTRACT
Quote Rates / Prices by units
No total final price
Re-negotiate for rates if the quantity or work considerably exceeds
the initial target
Payment to contractor is based on the measure
Unbalanced bids
Higher risk to owner
Ideal for work where quantities cannot be accurately established
before construction starts

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TYPES OF CONTRACT
ADVANTAGES
Suitable for competitive bid
Easy for contract selection and Early start is possible
Flexibility : quantities and scope can be easily adjusted
DISADVANTAGES
Final cost not known from the beginning (BOQ only is estimated)
Staff needed to measure the finished quantities and report on the
units not completed.
Unit price sometime tend to draw unbalanced bid

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TYPES OF CONTRACT
3. TURNKEY OR INTEGRATE CONTRACT
Owner specifies only functional requirements
Design planning etc. is decided by the contractor
Then it is handed over the owner and the payment is done
Owner will not interfere in any work
ADVANTAGES
Strains for the owner is completely eliminated
DISADVANTAGES
10 % contract profit is added and contract cost gets increases
Accounts (or) Payment cannot be checked for the quality

CONSTRUCTION CONTRACTS
TYPES OF CONTRACT
4. LABOUR
Contract is for Labour part alone materials and machineries will be
supplied by the owner
Contractor is paid for quantities of work done on measurement of
different items of work at stipulated rate
5. MATERIAL
Contract is for supply of materials alone within the specified time
Contractor quotes the rates of materials including carriage and
delivery charges and local taxes
6. EQUIPMENT
Contract is done only for equipment

CONSTRUCTION CONTRACTS
TYPES OF CONTRACT
7. MAINTENANCE
Contract only for maintenance for maintenance of work
8. COST PLUS PERCENTAGE
Actual cost is given and sum is given as profit for contractor
(usually 10%)
ADVANTAGES
As the contractor can take decisions independently and quickly
work can be completely
No chance of any dispute for carrying out extra work
When fluctuations in market (Ideal choice)
DISADVANTAGES
Contractor will try to increase the cost of project to increase his
margin of profit
CONSTRCUTION CONTRACTS
TYPES OF CONTRACT
9. COST PLUS FIXED FEE
Contractor agrees to do work for the actual cost plus a fixed sum as
his profit
ADVANTAGES
As the contractor can take decisions independently and quickly
work can be completely
No chance of any dispute for carrying out extra work
When fluctuations in market (Ideal choice)
DISADVANTAGES
Contractor will try to increase the cost of project to increase his
margin of profit

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TYPES OF CONTRACT
10. COST PLUS SLIDING FEE
Actual cost is given and fee is sliding based on profit or reduction in
project cost amount will be given (Owner will fix approximate
estimate of project cost)
If project cost increased fees will be reduced
If same normally 10 % given
If reduced additional Bonus will be provided
ADVANTAGES
Contractor will try to minimise the project cost
DISADVANTAGES
Contractor fee is based on Estimated cost

CONSTRCUTION CONTRACTS
TYPES OF CONTRACT
11. PERCENTAGE CONTRACT
Owner will prepare Estimate, rate, total quantity and total amount
is prepared most accurately and most probably
Tender will be called for here contractor has to furnish at what
percentage contractor is ready to do the work
Advantages
Complete rate analysis is given by owner itself and only single
value has to be quoted
Easy comparison can be done by owner and minimum amount
chosen

CONSTRUCTION CONTRACTS
TYPES OF CONTRACT
12. NEGOTIATED CONTRACT
Only by negotiation contract is given to contractor this is normally
employed under war times and Emergency etc. This may be any of
the contract type
13. BOT CONTRACT
Contractor on own will arrange resources, construct , manage and
take the revenue by operating the facilities for certain years
It will be hand over to Owner after agreement is over

CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER 1
COMMUNICATION, ACCEPTANCE AND REVOCATION OF
PROPOSALS
The communication of a proposal is complete when it becomes to
the knowledge of the person to whom it is made only in writing and
oral
As far as acceptance is completed soon as he makes or send
information to contractor Even without acceptance letter he can
takes up the work
A proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer, but not
afterwards
An acceptance may be revoked at any time before the
CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
A proposal is revoked
By the communication of notice of revocation by the proposer to
the other party
By the lapse of the time prescribed in such proposal for its
acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance
By the failure of the acceptor to fulfil a condition precedent to
acceptance; or
By the death or insanity of the proposer, if the fact of the death
Sometimes owner may give specifications for the work
If contractor has came with alternate specifications which might
reduce cost
CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER 2
VALIDITY OF AGREEMENT AND CONTRACT
All agreements are contracts if they are made by the free consent
of parties otherwise agreement becomes void
Under coercion some contracts may be formed
Threatening to life and property
Black mile
Unlawful detailing
Concealment of fact
Promise without any intention of performance
By mistake if contractor or owner may enter some values the laws
will not permit mistake and proposal has to carried out as usual
If mistakes are on both sides then under any one option contract
may be cancelled
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INDIAN CONTRACT ACT 1872
Agreements for unlawful activities are not valid
Activity banned by law
Activity cause injury to person or property
Activity against public policy
Agreement without consideration is void
Agreement must be in writing and registered
Agreement which prevents the marriage of any person or law
permits prevents from doing any lawful profession or trade or
business of any kind is void
Agreement restrains the legal processing is void
Minors and Persons with in sound mind are not competent to
enter in agreement
Agreements are void if the meaning of the content are not
certain
CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER 3
CONTIGENT CONTRACT
Contracts which are made for small changes
For impossible or uncertain things law will not permit
During the execution of projects certain items may be required to
be deleted or added in the original agreement
The contract which is entered by parties to do not to do certain
contigent works are called contigent contract
Contigent agreement on impossible event is void

CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER 4
PERFORMANCE OF CONTRACT
The work should be executed by the contractor unless the work is
stopped with reasons are executed under the provision of law
In the event of death of contractor his representative should
execute the work
When the contractor is ready to execute the work but the owner is
not accepted then the contractor is not responsible for performance
but offer should fulfill the conditions
Must be unconditional
Performance must be made at specified time
Contract must provide reasonable opportunity to check
whether the work is carried out as per specification
CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
When contractor refuses to perform the work or disabled himself
from preforming the work owner may put an end to contract
When the owner accepts the performance of third person he
cannot enforces the contractor
When work is carried out by 2 persons jointly owner may insists
any one of them to carry out both of them are fully responsible
If time and place of work is specified then contractor can execute
the work
If time and place not specified then owner should tell
Contractor can work during business hours of the day
If one party prevents the performance of others then the contract
becomes void
But compensation should be paid to affected party
CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
If the contractor fails to execute then the contract becomes void
CHAPTER 5
CERTAIN RELATIONS RESEMBLING THOSE CREATED BY
CONTRACT
If a person incapable of entering in to contract or any one whom
he is legally bound to support (money, work etc.) He is supplied
by another persons with necessaries suited to his conditions in
life
The person who has furnished such supplies its entitled to be
recover from property of such incapable person
When a person who is interested in the payment of money which
another person is bound by law to pay and who therefore pays it
is entitled to be reimbursed by another in the form of property or
CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
When a person does anything for another person not willing to do
so gratuitously and such another person enjoys the benefit the
later is bound to make compensation
A person who finds goods belonging to another and takes them in
to his custody is subject to the same responsibility
CHAPTER 6
CONSEQUENCES OF BREACH OF CONTRACT
If the contract is broken by any party
Property will suffer
Suffered party has to pay compensation

CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
If breach is for valid reasons then one party need not pay
compensation and further he can get compensation
If breach is accepted by two parties no need to pay
compensation
If any penalty is indicated in contract agreement then the party
who has broken the contract has to pay to other
It should be reasonable normally not more then project loss
CHAPTER VII DELETED
CHAPTER VIII
INDEMNITY AND GUARANTEE
Contract of Indemnity is a contract by which one party promises
to save the other from loss

CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
A contract of guarantee is a contract who perform the work or
liability by a third person in case of default of a party or whom
surety is given.
Person who gives the guarantee is called surety and for whom
guarantee is given is called Principal debtor and the person to
whom guarantee is given is called creditor
The liability of surety is coextensive with that of principal debtor
A guarantee which extends to a series of transactions is called
continuing guarantee. This guarantee may be anytime be
revoked
The death of surety will discharges him automate from the
contract

CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER IX
BAILMENT
Delivering goods to another person subject to some terms and
conditions
Bailor - Person who is supplying the goods
Bailee Person who is receiving the goods
The Bailor is bound to disclose to the Bailee faults in the goods
bailed
If the Bailor hides any faults and if any loss Bailor has to
compensate
In all cases Bailee is bound to take as much care of the goods
bailed to him as a man of ordinary prudence and similar to his own
goods
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INDIAN CONTRACT ACT 1872
CHAPTER X
PLEDGE
Pawner - Delivering goods against loan
Pawnee - Person who is receiving the goods against the loan lend
by him
If a time is stipulated for the payment of the debt for which the
pledge is made and the Pawner is unable to make payment in time,
Pawnee may sell the goods and recover his dues
CHAPTER XI
AGENCY
A person who is acting on behalf of another person is called agent
An agent is a person employed to do any work for other or to
represent other with 3rd person. The person for whom such work is
CONSTRUCTION CONTRACTS
INDIAN CONTRACT ACT 1872
CHAPTER XI
AGENCY
A person who is acting on behalf of another person is called agent
An agent is a person employed to do any work for other or to
represent other with 3rd person
The person for whom such work is done is called Principal
A Person who attain the age of majority and who is of sound mind
may employ an agent or may act as agent
If the contract between principal and agent permits then sub
agents can be appointed by the agents
The agent is responsible to the principal for the acts of subagents

CONSTRCUTION CONTRACTS
INDIAN CONTRACT ACT 1872
An agency can be terminated by the principal at any point of
time if he likes provided the contract is made without
consideration
If the contract is made with consideration and if the principal
revokes the authority given to the agent before completing the
work the loss if any faced by the agent is to be compensated by
the principal
The agency will get cancelled automatically if principal or agent
dies or becomes insane
Reasonable notice in writing must be given for revocation of
authority by principal or surrendering authority by agent
The termination of authority of an agent causes termination of all
sub agents
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CONSTRUCTION CONTRACTS
DOCUEMENTS

CONSTRUCTION CONTRACTS
FIDIC FEDERATION INTERNATIONALE DES
INGENIEURS-CONSEILS
Founded in 1913
Expanded in 1945 to include 40 national associations
Published first Conditions of Contract in 1957
In 2004 has 64 member associations
Headquarters in Switzerland
Web Site : www.fidic.org

Pre 1957 no internationally recognised contract conditions

First red book based on UK ICE conditions

FIDIC has international committees to improve contracts

CONSTRUCTION CONTRACTS
FIDIC
Contract Documents 1999

Conditions of Contract for Construction (Red Book)

Conditions of Contract for Plant & Design Build (Yellow Book)

Conditions of Contract for EPC Turnkey Projects (Silver Book)

Short Form of Contracts (Green Book)

FIDIC - Conditions of Contract for Construction

Works designed by Employer or Engineer

Contractor Constructs in accordance with designs provided

May include some design elements

CONSTRUCTION CONTRACTS
FIDIC
FIDIC - Conditions of Contract for, Plant & Design Build

Electrical & Mechanical Plant

May include building and engineering

Design & Execution of works

Contractor designs and constructs in accordance with Employers

Requirements

Engineer Administers

CONSTRUCTION CONTRACTS
FIDIC
FIDIC Document Usage Short Form of Contract

Small capital value projects

Simple content

Contractor constructs to Employers designs

No Particular Conditions

No Impartial Engineer

CONSTRUCTION CONTRACTS
GENERAL CONDITIONS OF CONTRACT
The conditions are intended to govern and regulate the
obligation of formal contract.

Although the headings and topics included within different

sets of GCC vary, there is a certain similarity of subject
matter

CONSTRUCTION CONTRACTS
GENERAL CONDITIONS OF CONTRACT

CONSTRUCTION CONTRACTS
 TYPICAL SEQUENCE OF PRINCIPAL
EVENTS DURING CONTRACTS
Issue of the Submission 1.6 Signing of 8.1 10.1 Issue of 11.9 Issue of the
Tender of the the Contract Commencement Taking-Over Performance
Documents Tender Agreement Date Certificate Certificate

Base
Defects
Date
8.2 Time for Notification
Completion1 Period3

28d <28d Delay attributable <21d

11 Notifying
to the of Defects
Contractor2

Tender 4.2 Issue of the 9.1 Tests on Remedying

period Performance Security Completion4 of Defects

4.2 Return of
the Performance
Security

CONSTRUCTION CONTRACTS
 TYPICAL SEQUENCE OF PAYMENT
EVENTS ENVISAGED IN CLAUSE
14(CONTRACT PRICE AND PAYMENT)
14.3 Contractor 14.6 Employer 14.7 Employer
submits gives Contractor makes the
Statement to the notice of amount payment to the
Employer considered due Contractor

<56d
Each of the
monthly (or
otherwise)
interim <28d
payments

The final Employer verifies the draft final statement, Contractor

payment submits information
<42d

14.11 Contractor submits 14.11 Contractor 14.7 employer

draft final statement to the submits Final Statement makes payment
Employer and the 14.12 discharge

CONSTRUCTION CONTRACTS
 TYPICAL SEQUENCE OF DISPUTE
EVENTS ENVISAGED IN CLAUSE 20
Party gives 20.2 Parties 20.4 A Party 20.4 A Party may 20.6 A Party
notice of appoint the refers a dispute issue a notice of may initiate
intention to DAB to the DAB dissatisfaction arbitration
refer a dispute
to a DAB

Parties present Amicable

submissions to the DAB settlement

<28d <84d <28d <56d

DAB gives Arbitrator/s

its decision appointed

DAB: the persons so named in the contract or other persons appointed under
sub-clause (appointment of the dispute adjudication board)

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FIDIC CONDITIONS OF
CONTRACT

CONSTRUCTION CONTRACTS
FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

CONSTRUCTION CONTRACTS
FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

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FIDIC CONDITIONS OF CONTRACT

CONSTRUCTION CONTRACTS
GENERAL CONDITIONS
The following are main items that include in the general
conditions for the tender ( or the construction contract)

CONSTRUCTION CONTRACTS
Contract : include contract agreement, letter of acceptance, letter of
tender, specifications, drawings, schedules, tender, appendix to tender,
bill of quantities.

Parties and persons : party, employer, contractor, engineer,

contractor representative, employers' personnel, contractors personnel,
sub- contractor, DAB (dispute adjudication board), FIDIC.

Dates , tests, periods and completion include base date,

commencement date, time of completion, test on completion, taking
over certificate, defects notification period, performance certificate, day

Money and payment Accepted contract amount, contract price, cost,

final , interim payment certificate, currency, provisional sum, retention
money,

CONSTRUCTION CONTRACTS
 The main definitions that are included in and repeated in the articles of
general conditions, are:
Employer : The party named in the Contract as the "FIRST PARTY" who will
enter into contract with the Contractor for the execution of the Works
covered by the Contract, or any other party authorized by the Employer to
exercise the powers and obligations of the First Party, provided that the
Contractor will be informed accordingly in writing
Contractor : The person, company or joint venture named as Second Party
in the Contract whose Tender has been accepted by the Employer and with
whom the Employer has entered into Contract, and includes the
Contractors personal agents and his legal successors
Engineer: The Consulting office, or Engineering office or Engineer or any
other technical body appointed from time to time by the Employer to
exercise in whole or in part the powers of the Engineer in accordance with
the Conditions of the Contract provided that the Contractor shall be
accordingly notified in writing.
CONSTRUCTION CONTRACTS
 Engineers Representative - Any resident engineer, or clerk of
works appointed by the Engineer from time to time
Contract - The documents constituting these Conditions (Parts I
and II), the Specification, the Drawings, the Bill of Quantities, the
Tender, the Letter of Acceptance, the Contract Agreement, and
such further documents as may be expressly incorporated in the
Letter of Acceptance or Contract Agreement (if completed).
Contract Sum - The sum stated in the Letter of Acceptance as
payable to the Contractor for the execution and completion of the
Works and the remedying of any defects therein in accordance
with the provisions of the Contract, subject to such additions
thereto or deductions therefore as may be made under the
provisions of the Contract.
Equipment is the Contractors machinery and vehicles brought
temporarily to the Site to construct the Works.
CONSTRUCTION CONTRACTS
 Site - The land and other places provided by the Employer or
designated as such where the Works are to be executed, and any
other places specifically designated in the Contract as forming
part of the Site.

Approval (written approval)

Time (calendar / working days)

CONSTRUCTION CONTRACTS
ENGINEER'S DUTIES AND AUTHORITY
a) The Engineer shall carry out the duties specified in the Contract .

b) The Engineer shall exercise the authority specified in or

necessarily to be implied from the Contract . Provided, that the
Engineer shall obtain the specific approval of the Employer, in
compliance with the terms of his appointment, and after submitting his
recommendations to the Employer in writing, in the following matters :
issuing variation orders;
deciding on the extension of Time for Completion and applying the
Liquidated Damages Clause;
approving the appointment of Subcontractors;
notifying the Contractor on suspension of Works; and any other
matters as may be set out in Part II of these conditions).

(c) Except as expressly stated in the Contract, the Engineer shall have
no authority to relieve the Contractor of any of his obligations under
the Contract
CONSTRUCTION CONTRACTS
ENGINEER'S REPRESENTATIVE

The Engineer's Representative shall be appointed by and be responsible to

the Engineer and shall carry out such duties of watching and supervising the
execution and workmanship of the Works and to test and examine any
materials to be used or workshop employed in connection with the Works. He
shall exercise such authority as may be delegated to him by the Engineer

ENGINEER'S AUTHORITY TO DELEGATE

The Engineer may from time to time delegate to the Engineer's
Representative any of the duties and authorities vested in the Engineer and
he may at any time revoke such delegation. Any such delegation or
revocation shall be in writing and shall not take effect until a copy thereof has
been delivered to the Employer and the Contractor .
Any communication given by the Engineer's Representative to the Contractor
in accordance with such delegation shall have the same effect as though it
had been given by the Engineer

CONSTRUCTION CONTRACTS
PROVIDED THAT :

(a)any failure of the Engineer's Representative to disapprove

any work, materials or Plant shall not prejudice the authority of
the Engineer to disapprove such work, material or Plant and to
give instructions for the rectification thereof

(b)if the Contractor questions any communication of the

Engineers Representative, he may refer the matter to the
Engineer who shall confirm, reverse or vary the contents of such
communication .

CONSTRUCTION CONTRACTS
 CONTRACTORS GENERAL OBLIGATIONS
The Contractor shall design (to the extent specified in the Contract), execute
and complete the Works in accordance with the Contract and with the
Engineers instructions, and shall remedy any defects in the Works.

The Contractor shall provide the Plant and Contractors Documents specified
in the Contract, and all Contractors Personnel, Goods, consumables and
other things and services, whether of a temporary or permanent nature,
required in and for this design, execution, completion and remedying of
defects.
The Contractor shall be responsible for the adequacy, stability and safety of
all Site operations and of all methods of construction. Except to the extent
specified in the Contract, the Contractor Shall be responsible for all
Contractors Documents, Temporary Works, and such design of each item of
Plant and Materials as is required for the item to be in accordance with the
Contract, and shall not otherwise be responsible for the design or
specification of the Permanent Works.

CONSTRUCTION CONTRACTS
 The Contractor shall, whenever required by the Engineer, submit
details of the arrangements and methods which the Contractor
proposes to adopt for the execution of the Works. No significant
alteration to these arrangements and methods shall be made
without this having previously been notified to the Engineer.

If the Contract specifies that the Contractor shall design any part
of the Permanent Works, then unless otherwise stated in the
Particular Conditions:

A. the Contractor shall submit to the Engineer the

Contractors Documents for this part in accordance with
the procedures specified in the Contract;

B. these Contractors Documents shall be in accordance with

the Specification and Drawings, shall be written in the
language for communications
CONSTRUCTION CONTRACTS
ASSIGNMENT AND SUBCONTRACTING ASSIGNMENT AND

SUBCONTRACTING

ASSIGNMENT OF CONTRACT

The Contractor shall not, without the prior consent of the Employer,
assign the Contract or any part thereof, or benefit or interest therein
or thereunder, otherwise than by :

A charge in favor of the Contractor's bankers of any moneys

due or to become due under the Contract, or

Assignment to the Contractor's insurers of the Contractor's

right to obtain relief against any other party liable.

CONSTRUCTION CONTRACTS
SUBCONTRACTING

The Contractor shall not subcontract the whole of the Works. Except

where otherwise provided by the Contract, the Contractor shall not

subcontract any part of the Works without the prior consent of the

Engineer.

Any such consent shall not relieve the Contractor from any liability or

obligation under the Contract and he shall be responsible for the acts,

defaults and neglects of any Subcontractor, his agents, servants or

workmen as fully as if they were the acts, defaults or neglects of the

Contractor, his agents, servants or workmen.

Provided that the Contractor shall not be required to obtain such
consent for :
(a) The provision of labor
(b) The subcontracting of any part of the Works for which the
Subcontractor is named in the Contract.
CONSTRUCTION CONTRACTS
ASSIGNMENT OF SUBCONTRACTOR'S OBLIGATIONS

In the event of a Subcontractor having undertaken towards the Contractor in

respect of the work executed, or the goods, materials, Plant or services
supplied by such Subcontractor, any continuing obligation extending for a
period exceeding that of the Defects Liability Period under the Contract, the
Contractor shall at any time, after the expiration of such Period, assign to the
Employer, at the Employer's request and cost, the benefit of such obligation
for the unexpired duration thereof.

LANGUAGE AND LAW

Arabic language shall be the ruling language of the Contract Documents

unless stated otherwise in these conditions, and consequently all
correspondence, payment statements, and take-over certificates shall be
drawn in this language.

CONSTRUCTION CONTRACTS
PRIORITY OF CONTRACT DOCUMENTS

The several documents forming the Contract are to be taken as mutually

explanatory of one another, but in case of ambiguities or discrepancies
the same shall be explained and adjusted by the Engineer who shall
thereupon issue to the Contractor instructions thereon and in such event,
unless otherwise provided in the Contract, the priority of the documents
forming the Contract shall be as follows:

(1) The Contract Agreement (if completed);

(2) The Letter of Acceptance;

(3) The Tender;

(4) Part II of these Conditions;

(5) Part I of these Conditions; and

(6) Any other document forming part of the Contract.

CONSTRUCTION CONTRACTS
PERFORMANCE SECURITY
The Contractor, upon receiving the Letter of Acceptance, shall obtain and
provide to the Employer before signing the Contract, the Performance
Guarantee in the value of ten percent of the Contract Sum, as a guarantee
of the proper execution of the Works in accordance with the Contract.
This guarantee shall be issued by a licensed bank or financial institution
acceptable to the Employer. The guarantee shall be prepared in the form
included in part B of these conditions. The obtaining of such guarantee
shall in all respects be at the expense of the Contractor.
INSPECTION OF SITE
The Employer shall have made available to the Contractor, before the
submission by the Contractor of the Tender, such data on hydrological and
sub - surface conditions as have been obtained by or on behalf of the
Employer from investigations undertaken relevant to the Works but the
Contractor shall be responsible for his own interpretation thereof.

CONSTRUCTION CONTRACTS
The Contractor shall be deemed to have inspected and examined the Site and its
surroundings and information available in connection therewith and to have
satisfied himself (so far as time is practicable), before submitting his Tender, as
to :

(a) The form and nature thereof, including the sub - surface conditions,

(b) The hydrological and climate conditions,

(c) The extent and nature of work and materials necessary for the execution
and completion of the Works and the remedying of any defects therein, and

(d) The means of access to the Site and the accommodation he may require
and, in general, shall be deemed to have obtained all necessary information,
subject as above mentioned, as to risks, contingencies and all other
circumstances which may influence or affect his Tender.

The Contractor shall be deemed to have based on his Tender, the data made
available by the Employer and on his own inspection and examination, all as
aforementioned.

CONSTRUCTION CONTRACTS
SUFFICIENCY OF TENDER

The Contractor shall be deemed to have satisfied himself as to the

correctness and sufficiency of the Tender and of the rates and prices
stated in the Bill of Quantities, all of which shall; except insofar as it
is otherwise provided in the Contract, cover all his obligations under
the Contract (including those in respect of the supply of goods,
materials, Plant or services or of contingencies for which there is a
Provisional Sum) and all matters and things necessary for the proper
execution and completion of the Works and the remedying of any
defects therein.

CONSTRUCTION CONTRACTS
PROGRAMME TO BE SUBMITTED
Within a specified time (in days), after the date of the Letter of
Acceptance, the contractor shall submit a programme to the engineer for
his consent in such a way and detail as the engineer shall reasonable
prescribe for the execution of the works.
It is also required that whenever the engineer requires, the contractor
shall provide in writing, for his information, a general description of the
arrangement and methods which the contractor proposes to adopt for
the execution of the works
REVISED PROGRAMME
If it appears to the engineer, at any time, that the actual progress of the
works does not conform to the programme to which consent, is given;
The contractor at the request of the engineer, is required to produce a
revised programme necessary to ensure completion of the works within
the Time for Completion.
CONSTRUCTION CONTRACTS
CASHFLOW ESTIMATE
The contractor shall within time stated in Part II provide a detailed cash flow
estimate, in quarterly period, for all payments to which the contractor will be
entitled under the contract (to the engineer) and the contractor shall
subsequently supply revised cash flow estimates at quarterly intervals, if
required to do so by the engineer.

Such cash flow statements do not relieve the contractor of any of this duties or
responsibilities under the contract.

CONTRACTORS SUPERINTENDENCE
The contractor is needed to provide all necessary superintendence during the
execution of the work and thereafter, as long as the engineer consider it
necessary for proper fulfillment of the contractors obligations under the
contract.
If the approval of Contractors representative is withdrawn by the Engineer then
Contractor shall replace him by any other representative approved by the
Engineer.
CONSTRUCTION CONTRACTS
CONTRACTORS EMPLOYEES
The contractor shall provide on the site only skilled and experienced
technical assistants and foremen to provide proper superintendence to
skilled, semiskilled and unskilled labour as is necessary.
ENGINEER AT LIBERTY TO OBJECT
The Clients engineer having objection on the contractors worker when
they misconduct themselves, or are incompetent or negligent in the
proper performance of his duties. Such workers should be replaced as
soon as possible.
SETTING OUT
The contractor has to look after about the accurate setting out of the
works and the provision of all necessary instruments, appliances and
labour in connection with the foregoing responsibilities.
The contractor shall rectify any error if caused regarding setting out
unless it was caused due to incorrect data provided by Engineer in writing.

CONSTRUCTION CONTRACTS
INSURANCE

The Contractor shall insure the following

The full replacement cost for the plant and materials to be

incorporated in the works plus 15 percent of the full replacement cost

in addition to be insured for the additional costs like rectification of

loss or damage, Professional fees, Demolishing cost and removing the
debris from the work.

The Contractors Equipment and other things brought to the site for
a sum sufficient for its replacement.

CONSTRUCTION CONTRACTS
SCOPE OF COVER

For the cases mentioned the insurance will be in the joint names of the
contractor and the employer, and shall cover

The employer and the contractor against all loss or damage other than
force Majeure causes stated below from start of work till take over by
Employer.

The contractor during Defects Liability Period for loss or damage caused
prior to beginning of Defects Liability Period.

EXCLUSIONS

There shall be no obligation of insurance to cover force Mejure issues such

as War, Hostilities, Invasion, Act of Foreign enemies. Rebellion, Revolution,
Insurrection, Military or usurped power or civil war. ionizing radiation,
Contamination by radioactivity Pressure waves from aircraft or other aerial
devices

CONSTRUCTION CONTRACTS
DAMAGE TO PERSONS AND PROPERTY

The Contractor indemnifies and holds harmless, the Employer on following

issues.

Death of or Injury to any person or

Loss of or damage to any property other than Works which may arise
out of execution and completion of the works, subject to following
exceptions
EXCEPTIONS

The exceptions referred above are

The permanent use or occupation of land by the works.

The right of employer to execute the works over under or through the land.

Damage to the property during the execution of the work if the damage is
unavoidable in the process of execution and remedying the defects as per
the Contract.

CONSTRUCTION CONTRACTS
 Damage to property and persons who are either injured or dead
because of any act or neglect of the Employer, his agents, other
Contractors who are not directly employed by the contractor.

The Employer shall indemnify the Contractor against all claims

arising out of exceptions provided in the contract.

THIRD PARTY INSURANCE

The Contractor shall insure in the joint names of the Employer and
himself, without limiting his or Employer obligations and
responsibilities, against injury or death to any person, loss or
damages to the property arising out of the performance of contract.
This insurance is not to cover the exceptions above

MINIMUM AMOUNT OF INSURANCE

The insurance made shall be for at least the amount specified in the
appendix of the Tender.
CONSTRUCTION CONTRACTS
SUSPENSION
The Contractor shall, on the instructions of the Engineer, suspend
the progress of the Works or any part thereof for such time and in
such manner as the Engineer may consider necessary and shall,
during such suspension, properly protect and secure the Works or
such part thereof so far as is necessary in opinion of the Engineer.
Unless such suspension is :

Otherwise provided for in the Contract, or

Necessary by reason of some default of or breach of contract by the

Contractor or for which he is responsible, or

Necessary by reason of climatic conditions on the Site, or

CONSTRUCTION CONTRACTS
 Necessary for the proper execution of the Works or for the safety
of the Works on any part thereof (save to the extent that such
necessity arises from any act or default by the Engineer or the
Employer or from any of the risks defined in GCC), or

By mutual agreement in writing by both parties to the Contract,

provided that the Employer shall not suffer the expenses
resulting from such suspension, provided always that the
Contractor shall not be entitled to recover any such extra
expenses unless he gives to the Engineer written notice of his
intention to claim within (28) days of the Engineers order,

CONSTRUCTION CONTRACTS
ENGINEER'S DETERMINATION FOLLOWING SUSPENSION

The engineer shall after consulting the contractor and the employer
determine,

Any extension of time

The amount to be added to the contract price, due to suspension.

SUSPENSION OF WORK FOR MORE THAN 84 DAYS

If the progress of the work is suspended for more than 84 days then
the contractor can give a notice for resumption of work within 28
days of receipt of order.

If permission for resumption is not given within the said period then
the contractor can consider it as termination of contract.

CONSTRUCTION CONTRACTS
TIME FOR COMPLETION

The whole of the Works and, required to be completed within a

particular time as stated in the Appendix to Tender, shall be
completed,, within the time stated in the Appendix to Tender for the
whole of the Works or the Section (as the case may be), calculated
from the Commencement Date, or such extended time as may be
allowed under next clauses.

No mobilisation period will be allowed for as an extension of the

Completion Time, as such period is considered to be included in it.

CONSTRUCTION CONTRACTS
EXTENSION OF TIME FOR COMPLETION

In the event of :

The amount or nature of extra or additional work, or

Any cause of delay referred to in these Conditions, or

Exceptionally adverse climatic condition (but no extension of time

shall be granted for the anticipated climatic changes), or

Any delay, impediment or prevention by the Employer, or

Other special circumstances which may occur, other than through a

default of or breach of contract by the Contractor

CONSTRUCTION CONTRACTS
CONTRACTOR TO PROVIDE NOTIFICATION AND DETAILED
PARTICULARS

The Engineer is not bound to make any determination unless the

Contractor has

within 28 days after such event has first arisen notified the Engineer
with a copy to the Employer, and

within 28 days, or such other reasonable time as may be agreed by

the Engineer, after such notification submitted to the Engineer
detailed particulars of any extension of time to which he may
consider himself entitled in order that such submission may be
investigated at the time.

CONSTRUCTION CONTRACTS
INTERIM DETERMINATION OF EXTENSION

If it is impracticable for contractor to provide details of delay within

28 days, the extension shall still be granted, if contractor can provide
interim details.

But the full details of event need to be provided within 28 days of

the end of the effects resulting from events.

CONSTRUCTION CONTRACTS
LIQUIDATED DAMAGES FOR DELAY

If the Contractor fails to comply with the Time for Completion, for the
whole of the Works or, if applicable, then the Contractor shall pay to
the Employer the relevant sum stated in the Appendix to Tender as
liquidated damages for such default and not as a penalty for every
day or part of a day which shall elapse between the relevant Time for
Completion and the date stated in a Taking-Over Certificate of the
whole of the Works or the relevant Section, subject to the applicable
limit stated in the Appendix to Tender.

The rate of liquidated damages stated in the Appendix to Tender is

exclusive of any additional supervision costs in respect of the
unjustified time lapse in completing the Works, and the Contractor
shall bear such costs.

CONSTRUCTION CONTRACTS
REDUCTION OF LIQUIDATED DAMAGES

If, before the Time for Completion of the whole of the Works or, if
applicable, any Section, a Taking-Over Certificate has been issued for
any part of Works or of a Section, the liquidated damages for delay in
completion of the remainder of the Works or of that Section shall, for
any period of delay after the date stated in such Taking-Over
Certificate, and in the absence of alternative provision in the
Contract, be reduced in the proportion which the value of the part so
certified bears to the value of the whole of the Works or Section, as
applicable.

The provisions of this Clause shall only apply to the rate of liquidated
damages and shall not affect the limit thereof.

CONSTRUCTION CONTRACTS
TAKING-OVER CERTIFICATE

When the whole of the Works have been substantially completed and
have satisfactorily passed any Tests on Completion prescribed by the
Contract.

The Contractor may give a notice to that effect to the Engineer, with
a copy to the Employer, accompanied by a written undertaking to
finish with due expedition any outstanding work during the Defects
Liability Period. Such notice and undertaking shall be deemed to be a
request by the Contractor for the Engineer to issue a Taking-Over
Certificate in respect of the Works.

CONSTRUCTION CONTRACTS
TAKING-OVER CERTIFICATE

The Engineer shall conduct an inspection of the Works and report his
findings to the Employer with a copy to the Contractor.

The Engineer may either certify that the works have been properly
completed or ready for acceptance or give instructions in writing to
the Contractor specify the works which, in the opinion of the
Engineer, require to be done by the Contractor and to the Engineer's
satisfaction, within a prescribed period of time before acceptance.

If the contractor considers the Engineer's report to be incorrect, he

may give a notice to that effect to the Employer, who shall, in the
manner he deems suitable either investigate the situation to
ascertain the validity of the Engineer's report or form a Committee
for the Taking-Over of the Works.

CONSTRUCTION CONTRACTS
 The Employer shall, within ten days from receipt of the
Engineer's report, form a "Taking-Over Committee", including the
Engineer as one of its members, and notify the Contractor of the
time and date fixed for carrying out an inspection of the Works.

The Engineer and the Contractor shall, in the meanwhile,

prepare all necessary schedules, data, bills and drawings as are
necessary to facilitate the said Committees work.

The Committee shall, within ten days from the date of being
formed, conduct in the presence of the Contractor or his
authorised agent an inspection of the Works, and having done
so, shall draw up a memorandum of certification of the Works
which shall be signed by the Committee members as well as by
the Contractor or his authorised agent. Copies of the same shall
be given to the Employer and the Contractor.
CONSTRUCTION CONTRACTS
 The Engineer shall within seven days of the date of delivery of the
memorandum of the Taking-Over Committee to the Contractor,
issue a Taking-Over Certificate in respect of the Works, stating the
date on which, in his opinion, the Works are considered to be
substantially completed in accordance with the Contract and the
date of commencement of the Defects Liability Period.

The Engineer shall enumerate in the Taking-Over Certificate all

defects and faults to be remedied by the Contractor within a
prescribed time starting from the start of the Maintenance Period.

The Contractor is entitled to comment or object to the memorandum

of the Taking-over Committee in writing to the Engineer, provided he
does so within (7) days from the date of signing the memorandum.

The Engineer, in such a case, shall study the objection and submit
his findings to the Employer.

CONSTRUCTION CONTRACTS
VARIATIONS

If the Engineer feels the necessity to make any variations of the form,
quality or quantity of the Works he has the authority to instruct the
Contractor to do so and the Contractor shall do any of the following:

a) Increase or decrease the quantity of any work included in the contract.

b) Omit any such work (but not if the omitted work is to be carried out by the
Employer or by another contractor).

c) Change the character or quality or kind of any such work.

d) Change the levels, lines, position and dimensions of any part of the works.

e) Execute additional work of any kind necessary for the completion of the
works.

f) Change sequence or timing of construction.

Note : Max Allowable variation by Fidic is 15%,

CONSTRUCTION CONTRACTS
INSTRUCTIONS FOR VARIATIONS
The Contractor is not supposed to make any variation without an
instruction of the Engineer.
No instructions are required if work execution results into increase/decrease
of quantities than those stated in the Bill of quantities.
VALUATION OF VARIATIONS
All variations and any additions to the Contract Price shall be as per the
rates and price of variations present in the Contract.
If the Contract does not contain any rates or prices applicable to varied
work, the rates and prices of the Contract shall be used as the basis for
valuation.
In the event of disagreement the Engineer shall notify the Contractor with a
copy to the Employer. Till the time the rates are agreed or fixed, the
Engineer shall determine provisional rates or prices to enable on-account
payments to be included in certificates issued

CONSTRUCTION CONTRACTS
POWER OF ENGINEER TO FIX RATES

The Engineer shall determine the rate for varied work if existing
rates in the contract are inappropriate, in consultation with Employer
and Contractor.

If agreement is not reached on the rates, the engineer shall fix

provisional rates which are appropriate in his opinion, to enable on
account payment for payment certificates issued under
clause of payment, until such time as rates or prices are agreed,
provided Contractor or engineer has given notice of 14 days to each
other about their intention to seek varied rates.

DAY WORK

The Engineer if he feels that it is necessary, can issue a

instruction that any varied work shall be executed on a day work
basis according to the terms and conditions provided in the day work
CONSTRUCTION
schedule. CONTRACTS
VARIATIONS EXCEEDING 15 PERCENT
If, on the issue of the Taking-Over Certificate for the Whole of
the Works, it is found that as a result of:

a) All varied work valued (cases listed in the start of variation)

b) All adjustments upon measurement of the estimated

quantities set out in the Bill Of Quantities, excluding Provisional Sums,
day works and adjustments of price made under Clause of increase or
decrease of the cost (There shall be increase/decrease in contract
price based on rise and fall in cost of labor and material as provided in
the part II of these conditions) that the contract price has varied in
excess of 15% then Engineer will decide increase/decrease to contract
price having regards to Contractors site and general overhead cost.
This change if any shall be related to 15% excess level over contract
price.
CONSTRUCTION CONTRACTS
PROVISIONAL SUM

DEFINITION

Provisional Sum means a sum (if any) which is specified in

the contract as a provisional sum. Provisional Sum shall only be
used in whole or in part, in accordance with the Engineers
instructions and the Contract Price shall be adjusted accordingly.

USE OF PROVISIONAL SUMS

The Engineer shall have authority to issue instruction for the

execution of work or for supply of goods or services under provisional
sum.

CONSTRUCTION CONTRACTS
MONTHLY STATEMENTS

The contractor shall submit to the Engineer after the end of each month
six copies of statements showing the amounts to which the contractor
considers himself to be entitled up to the end of the month in respect of:

a) The value of the permanent work.

b) Any other item in the Bill of Quantities including those for

contractors equipment.

c) And plant delivery by the contractor on the sire for

incorporation in the permanent works but not incorporated in
such works.

d) Adjustment under the increase or decrease the cost.

e) Any other sum to which the contractor may be entitled under

the contract.

CONSTRUCTION CONTRACTS
MONTHLY PAYMENTS

The Engineer shall, within 28 days of receiving such statement, deliver

to the employer an interim payment certificate stating the amount of
payment due to the contractor subject.

a) Firstly to retention of the amount calculated by applying the

percentage of retention stated in the appendix to tender until the
amount so retained reaches the limit or retention money stated in
the appendix to Tender.

b) Secondly to the deduction other than pursuant to

liquidated damages for delay of any sums which may have become
due and payable by the contractor to the Employer.

Provided that the engineer shall not be bound to certify any payment in
the net amount thereof, after the retention and deduction, would be less
than the minimum Amount of interim payment certificate stated in the
appendix to tender.
CONSTRUCTION CONTRACTS
PAYMENT OF RETENTION MONEY

a) Upon the issue of the taking-Over Certificate with respect to the

whole of the works, one half of the retention money, shall be
certified by the Engineer for payment to the Contractor.

b) Upon the expiration of the Defect Liability Period for the work
other half of the Retention Money shall be certified by the Engineer
for payment to the contractor. The expression expiration of the
Defect Liability Period shall for the purpose of the clause, be
deemed to mean the expiration of the latest of such periods
provided also that if at such time there shall remain to be executed
by the contractor any work instructed, pursuant to clause 49 and 50
in respect of the works the Engineer shall be entitled to withhold
certification until completion of such work.

CONSTRUCTION CONTRACTS
CORRECTION OF CERTIFICATES

The Engineer May in any interim Payment Certificate carryout any

correction or modification in any previous Interim Payment Certificate.

STATEMENT AT COMPLETION

Not later than 84 days after the issue of the Taking-Over Certificate in
respect of the whole of the works, the contractor shall submit to the
Engineer six copies of Statement of completion showing in detail,

a) The final value of all work done

b) Any further sums which the contractor considerers to be due

and

c) An estimate of amount which contractor considers will

become due.

The engineer shall certify payment

CONSTRUCTION CONTRACTS
FINAL STATEMENT

Not later than 56 days after the issue of Defect Liability Certificate
the contractor shall submit to the Engineer for six copies of draft final
statement showing in detail.

a) The value of all the work done in accordance with the

contract

b) Any further sum which contractor consider to be due to him

If the Engineer disagree or cannot verify any part of draft final

statement, contractor shall submit any further information required.

The Engineer shall deliver to the Employer an Interim Payment

Certificate for those part of the draft final statement, which are not in
dispute.

CONSTRUCTION CONTRACTS
DISCHARGE

Upon submission of final statement, the contractor shall give to the

Employer, written discharge confirming that the total of the final statement
represent full and final settlement of all monies due to the contractor.

Provided that such discharge become effective only after payment due
under the final payment certificate has been paid to the contractor and the
performance security is returned.

FINAL PAYMENT CERTIFICATE

Within 28 days after receipt of final statement, and written discharge the
Engineer shall issue a final payment certificate stating:

a) The amount which is finally due under the contract .

b) After giving credit to Employer for all amount previously paid

other than under clause 47 and all sums to which Employer is entitled
under the contract.

CONSTRUCTION CONTRACTS
CESSATION OF EMPLOYERS LIABILITY

The employer shall not be liable to the contractor connection with the
contract or execution of the work unless the contractor shall have
included a claim in respect thereof in his final statement.

TIME OF PAYMENT

i. The amount due to the Contractor under any interim Certificate

issued by the Engineer be paid by Employer to the contractor
within 56 days.

ii. Final payment Certificate within 56 days after such Final Payment
Certificate has been delivered to the Employer. In the event of
the failure of employer to make the payment within the time
stated the Employer shall pay contractor interest at the rate stated in
appendix to tender

CONSTRUCTION CONTRACTS
 LAW OF TORTS

CONSTRUCTION CONTRACTS
CONTENTS
Torts: Overview

Torts: Relevance for Construction Contractors

Torts: Basic Principles affecting Construction

Contractors

Torts: Defenses and Strategy against Tortious Liability

CONSTRUCTION CONTRACTS
TORT: MEANING AND
OVERVIEW
Denotes a breach of duty imposed by law

Nature of the Duty: To act as a reasonable person

exercising reasonable diligence

Tort exceeds the obligation of a party under contract:

the duty could be to the other party in a contractual
relationship, as well as to any third party who, it is
reasonably foreseeable, would get affected by the
actions of a person.

CONSTRUCTION CONTRACTS
CONSTITUENTS OF TORT
There must be a wrongful act committed by a person.

The wrongful act must give rise to a legal damage or

actual damage.

The wrongful act must be of such nature as to give rise

to a legal remedy in the form of an action for damages.

CONSTRUCTION CONTRACTS
TORT: RELEVANCE FOR CONSTRUCTION
CONTRACTORS
Construction Contracts should be watertight to provide complete
framework for liability between the parties.

Tortious liability would therefore be limited to the category of

liability to a third party.
Badly drafted construction contracts can open tortious liability
between the parties, since there can be concurrent liability
under both tort and contract

Types of Tortious actions relevant for Constr. Contractors:

Negligence

Nuisance

Trespass

CONSTRUCTION CONTRACTS
TORT: RELEVANCE FOR CONTRACTORS
Other relevant legal principles under Tort law:

Absolute Liability

Strict Liability

Vicarious Liability

NEGLIGENCE
Breach of legal duty to take care which results in damage.

Three constituents: (i) legal duty to take care on part of a party to

the injured party, within the scope of duty of the said party, (ii)
breach of this duty to take care and (iii) consequential damage.
Existence of legal duty to take care is determined on basis of general
principle of proximity and foreseeability. Established in case of
Donoghue v. Stevenson [1932 AC 562(HL)].

CONSTRUCTION CONTRACTS
NEGLIGENCE: PRINCIPLE IN
DONOGHUE V. STEVENSON
You must take reasonable care to avoid acts or omissions which you
can reasonably foresee would likely to injure your neighbor. Who
then in law is my neighbor?persons who are so closely and directly
affected by my act that I ought reasonably to have them in
contemplation as being so affected when I am directing my mind to
the acts or omissions which are called in question.

CONSTRUCTION CONTRACTS
STANDARD OF DUTY TO TAKE
CARE
The degree of duty of care is that of an ordinary prudent person.

EXCEPTIONS

If a person is highly skilled about a particular business , the law

would hold him guilty of negligence in failing to use such expert
skill,

If a persons holds himself out as being specifically competent to

do things requiring professional skill, he will be held liable for
negligence if he fails to exhibit the care and skill of one ordinarily
an expert in that business.

Conformity with the general and approved practices could

generally lead to an inference in favor of the defendant.

CONSTRUCTION CONTRACTS
FORESEEABILITY PRINCIPLE AS
APPLIED BY COURTS TO
CONSTRUCTION CONTRACTORS
A builder of defective premises may be liable in negligence to persons
who thereby suffer injury

A designer or builder owes a duty of care to all persons who might be

reasonably be expected to be affected by the design/construction of
the premises. The duty is to take reasonable care that such persons
would not suffer injury as a result of the faults in the
design/construction of premises. (Anns v. London Merton Burough;
Rimmers v. Liverpool Council)

Owners duty to ensure that the premises are safe can be discharged
by appointment of competent persons to undertake the task of doing
so.

CONSTRUCTION CONTRACTS
TORTIOUS LIABILITY FOR
NEGLIGENCE
Depends on facts of the case. Courts can take cognizance of new
fact situations.

Junior Brooks v. Vetichi:

Owners remedy under tort law against sub-contractors for laying

down defective floor. Damage to the floor was a direct and
foreseeable result of sub-contractors negligence.

CONSTRUCTION CONTRACTS
NUISANCE: MEANING AND RELEVANCE
Nuisance is anything done to the hurt or annoyance of the lands
or tenements of another and not amounting to trespass.

It is an old cause of action that is losing its relevance in light of

developments in Environment laws which impose greater and
more certain liability in relation to damage to adjoining
lands/property.

Nuisance are of two kinds

Public nuisance

Private nuisance

CONSTRUCTION CONTRACTS
PUBLIC AND PRIVATE NUISANCE
Public Nuisance is an act causing any common injury, danger or
annoyance to the public, and does not create a right for civil action
in any one person. In India, remedy under Section 91, CPC.

Private Nuisance results when use or authorization of use of ones

property, or of anything under ones control, injuriously affects
another.

EXAMPLES:

(i) Obstruction to light and air

(ii) Disturbance of right to support

(iii) Escape of deleterious substances into anothers property,

etc.

CONSTRUCTION CONTRACTS
TRESPASS: BASIC PRINCIPLES
Positive act of interference or entry, however slight, onto the
property of another.

Ignorance of the boundaries will be no excuse in an action for

trespass

Slightest violation of a boundary will be a trespass, (e.g.: placing

objects on another persons land, driving nails into his wall, using it
to support scaffolding, or leaving a ladder, planks or a shed or
piling rubbish).

Trespass equally includes a violation of the air space above the

another persons land, at a height which would interfere with any
use of his land.

CONSTRUCTION CONTRACTS
OTHER PRINCIPLES OF LIABILITY
Absolute Liability

Strict Liability

Vicarious Liability

CONSTRUCTION CONTRACTS
ABSOLUTE LIABILITY: RULE LAID
DOWN BY SUPREME COURT OF INDIA
IN THEanOLEUM
Where enterprise isGAS LEAK
engaged CASE or inherently
in a hazardous
dangerous activity, the enterprise is strictly and absolutely liable to
compensate all those who are affected by the accident and such
liability is not subject to any exceptions.

The enterprise cannot escape liability by showing it had taken all

reasonable care and there was no negligence on its part.

This principle, however, has been rarely applied since it was

formulated.

CONSTRUCTION CONTRACTS
STRICT LIABILITY: RULE IN RYLAND V.
FLETCHER
The person who, for his own purpose, brings on his land and
collects and keeps there anything likely to do mischief if it escapes,
must keep it in at his peril; and if he does not do so is prima facie
answerable for all the damage which is the natural consequence of
its escape.

The liability under this rule is strict and it is no defense that the
thing escape without that persons willful act, default or negligence
or that he had no knowledge of its existence.

CONSTRUCTION CONTRACTS
STRICT LIABILITY: EXCEPTIONS
Only applicable when non-natural use of land

Not applicable when:

the escape of the object was due to act of God

the escape was a result of an act of a stranger, or default of the

person injured

the thing was present with the consent of the person injured or
for common benefit of person injured.

it is the consequence of an act done for public purpose in the

discharge of a public duty under the express authority of a
statute.

CONSTRUCTION CONTRACTS
REMEDIES FOR TORTIOUS ACT
Action for Damages

Injunction

Specific restitution of a property (in an action for detention of

property)

Recovery of land (in cases of wrongful dispossession)

CONSTRUCTION CONTRACTS
MEASURE OF DAMAGES
Determined on facts and circumstances- burden of proof on injured
party.

Compensatory Damages which, so far as money can compensate,

will give the injured party reparation for the wrongful act

Pecuniary loss: Actual expenses, loss of earnings

Non-pecuniary losses, e.g., pain & suffering.

Damages for Nervous Shock

Nominal Damages awarded where no substantial harm caused.

Action to establish a legal right.

Exemplary Damages to deter a party from similar conduct.

CONSTRUCTION CONTRACTS
DEFENSES & STRATEGIES TO MITIGATE
LIABILITY (1)
Effective watertight contracts that allocates risks between
Contractor and Owner of a Project/Site.

Clear provisions for handing over of works and transfer of risks to

Owner once Contractors obligations are completed.

Provisions for Indemnity by Owner for third party claims. Only

exceptions: Gross negligence or willful misconduct of Contractor.

Obtaining all required statutory clearances, and compliance with

applicable laws, also provides a mitigation against potential
tortious claims.

CONSTRUCTION CONTRACTS
DFENSES & STRATEGIES TO MITIGATE
LIABILITY (2)
Cost of adequate insurance should be covered in cost of contract.
Provision to be made for Third Party Liability insurance & Builders
All Risk Insurance as Project Owners responsibility.

Contractors right to be an additional insured in policies taken out

by the Project Owner.

Owners insurance policies to provide for waiver of subrogation in

favor of Contractor.

Contractor should also require from all of its subcontractors

insurance with the same coverage and limits as it agrees to with
the Owner.

CONSTRUCTION CONTRACTS
STEPS TO MITIGATE LIABILITY
Facts are critical in tortious cases. Contractors should therefore
maintain clear records of activities and obtain Owners agreement
to the records on regular basis. (E.g.: In large EPC Contracts this is
done through weekly/monthly progress meetings).

The specific defenses against tortious claims are tailored to the

facts of each case and are based on challenging the basis of
liability:
Causation

Remoteness Foreseeability

Intervening Acts or events

Mitigation of Damages not taken by Plaintiff.

CONSTRUCTION CONTRACTS
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