1~Text Book~Construction Contract Management

8/10/2019 1~Text Book~Construction Contract Management

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______________________________________________________________________AKS/TRG-NR/CCM/Rev-3 By : Ajay Kumar Singhal Page 1 of 25

Dated 22-Aug-2011 Construction Contract Management

Contract Managementwith particular reference to

Construction Contracts- For Contracting Companys Professionals

Prepared by

Ajay Kumar SinghalMobile # 98101 53530

All rights reserved. No part of this document may be reproduced or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of

Writer.


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Contract Management

Contract management is a process which enables all the parties to a contract tomeet their obligations in order to deliver the objectives required from the contract.

The purpose of contract management is to obtain the services as agreed upon inthe contract and achieve value for money.

Thus, the aim and objective of Contract Management is a Zero Disputestage of project completion within the time and budget frame work.

Contract

As per the Contract Act, an agreement enforceable by law is a contract.

A Promise is an accepted Proposal;

An Agreement is a Promise and

An Agreement enforceable by law is a contract.

A person makes a proposal (offer). When it is accepted by other, itbecomes a promise.

Promises, express or implied

Insofar as the proposal or acceptance of any promise is made in words,

the promise is said to be express.

Insofar as such proposal or acceptance is made otherwise than in words,the prom-ise is said to be implied.

- - For example, if a person enters a bus, there is implied promise that hewill pay the bus fair.

An agreement becomes a contract when : There is some consideration.

Promise cannot be one sided. Only a mutual promise formingconsiderationfor each other is agreement.- - For example,Aagrees to pay Rs 100 to Band Bagrees to give him a book which ispriced at Rs 100. This is set of promises which form consideration foreach other.

However, if A agrees to pay Rs 100 to B, but B does not promise

anything, it is not set of promises forming consideration for each otherand hence not an agreement.

Also ifAinvites Bto dinner and Bagrees to come, it is not an agreementas defined in Contract Act.


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The parties are competent to contract.

Who are competent to contract -Every person is competent to contractwho is of the age of majority according to the law to which he is subject,and who is of sound mind, and is not disqualified from contracting by anylaw to which he is subject.

There is free consent of both parties.

Free consent Consent of both parties must be free.

Consent obtained through coercion (force / cruelty), undue influence,fraud, misrepresentation or mistake is not a free consent. - - Two ormore persons are said to consent when they agree upon the same thingin the same sense.

Their object is lawful.

The term contract does not mean only the short agreement to which the

signatures of the parties are affixed, but, includes all other documents andcorrespondence which are mentioned to form integral part of the agreement.That is why it is customary to refer to them as contract documents.


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Documents generally forming part of the Contract

i. Contract Agreement;

ii. Letter of Acceptance (LOA) & Notice to proceed (NTP);

iii. Contractors bid/ Tender Doc.

iv. Contract data;

v. Conditions of contract

a. Conditions of Particular Applications.

b. General Conditions of Contract.

c. Any other set of conditions namely: Project Specific Conditions,Special Conditions of Contract, subsequent amendmentsincorporated etc.

vi. Specifications;

vii. Drawings;

viii. Bill of Quantities.


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Formation of Contract

Our first act in formation of a contract is to invite tenders through a TenderNotice, which is an invitation for offer. The tender submitted by contractor is theoffer. Offer that is finally accepted is a contract.

STEPS INVOLVED IN FORMATION OF CONTRACT:

Proposal and its communication;

Acceptance of proposal and its communication;

Agreement by mutual promises;

Contract;**

** PN: A Contract can never be conditional acceptance. Sc.7 of ICA saysAcceptance must be absolute.

Essentials of a Contract

Essential elements of a (valid) contract are-

An agreement;

Offer and acceptance;

Lawful consideration; Capacity to enter into contract, i.e. competence of the parties;

Free consent of both parties;

Lawful object and

Intention to create a legal relationship.

It must be noted, writing is not essential for the clarity of a contract, except wherea specific statue requires writing.

E.g.

Contract for sale of immovable property must be in writing, stamped and

registered.

Contracts which need registration should be in writing.

Trust should be created in writing.

Contract made without consideration on account of natural love and

affection should be in writing.

Promise to pay a time barred loan should be in writing, as per the

Limitation Act.

An Arbitration agreement/ clause must be in writing.


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Types of Contracts

Unit Rate/ Unit Price Contract :This is also called item rate contract / value contract / measurement contractor schedule rate contract. In this type, the contractors are required to quote

rates for individual items of work on the basis of schedule of quantitiesfurnished by the Owner. This schedule indicates full description of the items,estimated quantities and their units. The Contractors are required to expressrates and work out the cost against each item and thereby draw up the totalamount tendered for the work.

Percentage Rate Contract :In this form of contract, the Owner prepares schedule of items with quantities,rates, unit and amount shown therein. The Contractors are required to offerpercentage above, below or at par with the rates given in the schedule. The

percentage quoted by Contractor is applicable on the overall schedule.

Cost plus Percentage Contract :Cost plus percentage contract are generally adopted when conditions aresuch that the rates of labour, material etc. are liable to fluctuate and there isan element of uncertainty in the scope of the work. In this type of contractsthere is an arrangement between the Owner and the Contractor by which theparties agree that the work ordered would be completed and paid for on thebasis of actual cost incurred plus a fixed percentage as profit.

Lump Sum Contract :In a lump sum contract, the Owner has essentially assigned all the risk to thecontractor, who in turn can be expected to ask for a higher mark-up in order totake care of unforeseen contingencies. Beside the fixed lump sum price, othercommitments are often made by the Contractor in the form of submittals suchas a specific schedule, the management reporting system or a quality controlprogram. If the actual cost of the project is underestimated, theunderestimated cost will reduce the Contractors profit by that amount. Anoverestimate has an opposite effect, but may reduce the chance of being a

low bidder for the project.

Turnkey / EPC Contract :This type of contract arrangement (also known as package deal, cle-en-main, or EPC) places the duty to design, engineering, procurement,construction of the facility and thereafter preparation of start-up procedures, tocreate operational manuals and training people to operate the facility etc. onthe Contractor.

The term turnkey tends to mean the most extreme form of placing design

and construction responsibility on the Contractor, such that after completion


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Traditional FIDIC Forms of Contract :The three books are

1) Red Book : For Works of Civil Engineering Construction.4th Edition, 1987; Reprinted in 1988 & 1992 with amendments.

This is recommended for building or engineering worksdesigned by the Employer or by his representative i.e.Engineer.

The Contractor constructs the works in accordance with a design providedby the Employer.

However, the works may include some elements of Contractor-designedcivil, mechanical, electrical and/or construction works.

2) Yellow Book : For Electrical and Mechanical works.3rd Edition; 1987 reprinted.

This is recommended for the provision of electrical and/ormechanical plant, and for the design and execution of buildingor engineering works.

The Contractor designs and provides, in accordance with the Employersrequirements, plant and/or other works; which may include anycombination of civil, mechanical, electrical and/or construction works.

3) Orange Book : For Design Build and Turnkey.1st Edition; 1995.

This is recommended where Contractor takes totalresponsibility for the design and execution of an engineeringproject.

The Contractor carries out all the Engineering, Procurement andConstruction (EPC) : providing a fully-equipped facility, ready for operation(at the turn of the key).


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During updating its traditional books, FIDIC has noted that certain projects havefallen outside the scope of the existing Books. Accordingly FIDIC has not onlyupdated the Standard forms but has expanded the range, and has in September1999 published a suite of four new Standard Forms of Contract which aresuitable for the great majority of construction and plant installation projectsaround the world.

The existing Books will still be available as long as there is a demand, but it isexpected that the new suite will supercede and expand the range of the existingBooks.

However, the previous edition of the Red Book (the fourth edition) continues tobe widely used and it seems likely that the 1999 edition will not replace it in themedium term, at least in certain parts of the world.

1999 Suit of FIDIC Forms of Contract :The four books are -

1) Red Book : Conditions of Contract for Construction.

For Building & Engineering works, Designed by the Employer. (an update of oldRed Book) 1st Edition; 1999

The new Red Book is the traditional form for civil engineering construction inwhich the Contractor constructs to the Employer's design. There is howeverprovision for the Contractor to carry out design where specified. The formmaintains the role of the Engineer and the payment mechanism is based onmeasure and value. The new Red Book revises the previous Red Book versionand incorporates current thinking on the management of contracts.


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2) Yellow Book : Conditions of Contract for Plant and Design-BuildProjects.

For Electrical & Mechanical Plant, and for Building & Engineering works,Designed by the Contractor. (replaces both old Yellow & Orange Book) 1stEdition; 1999

The new Yellow Book replaces the existing Yellow and Orange Books. It isintended to be used for Design and Build contracts and for Plant Contracts. TheEngineer administers the contract and payment is on periods or installments ofthe Lump Sum.

3) Silver Book : Conditions of Contract for EPC Turnkey Projects.

1st Edition; 1999

The Silver Book is an entirely new FIDIC form for BOT and similar projects. It isintended to be used on fixed-price turn key projects. There is no Engineer,instead the Employer deals directly with the Contractor. Risk is placed largelywith the Contractor. Payment is on periods or installments of the Lump Sum.

4) Green Book : Short Form of Contract.

1st Edition; 1999

The Green Book is an entirely new FIDIC form and adopts the overall riskphilosophy of the Red and Yellow Books. It is intended for contracts of relativelysmall value, short construction time or involving simple or repetitive work. Thereis no Engineer and the payment mechanism is required to be specified in theAppendix to the Form of Agreement, but payment is at monthly intervals. It doesnot matter who provided the design. Also it does not matter whether the project

involves construction, electrical, mechanical, or other engineering work.


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In detail about

Red Book : Conditions for Works of CivilEngineering Construction

Fourth edition, 1987; Reprinted in 1988 with editorial amendments;Reprinted in 1992 with further amendments.

About FIDIC Part I & II

While framing FIDIC Conditions, it was recognized that while there are numerousClauses which will be generally applicable but there are some Clauses whichmust necessarily vary to take into account of the circumstances and locality ofthe Works. The Clauses of general application have been grouped together andare referred as Part I General Conditions. The guidelines are given in FIDICbook to prepare a Part II document (i.e. Conditions of Particular Application(COPA)) which needs to be specially drafted to suit each individual contract.

The General Conditions are linked with COPA, by the corresponding numberingof the Clauses, so that Parts I and II together comprise the Conditions governingthe rights and obligations of the parties.


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Essential Features and Concepts of FIDIC

Based on domestic contract.

General Conditions not applicable can be disregarded.

Legal concepts are based on the common law system.

Conditions are fairly balanced and equitable to both the parties, so far asthe rights and obligations are concerned.

Concept of responsibility and liability based on sharing of risks. Risksharing is balanced. Risk is allocated to the party that is best able to bearand control that risk.

Supervision of works and administration of the contract by Engineer, who

is appointed by the Employer.

Dual functions of Engineer an agent of the Employer and also anindependent and impartial person.

Engineer is not a party to the Contract and the FIDIC Conditions imposeobligations on the Employer that the Engineer duly performs.

Employer should not restrict the powers of the Engineer other than thesituations where specific approval of the Employer is provided in thecontract. He should not influence or interfere with the functioning of the

Engineer.

Compensation and time extension allowed when uncalculated hindrancesoccur.

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

Work must continue, regardless of differences: amicable settlementencouraged.

If a dispute arises, reference to DRB (Dispute Review Board).

Dispute resolution procedure is: DRB >>> amicable settlement >>>Arbitration.


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Various Important Sub-Clauses

Instructions in Writing (Sub-Clause 2.5) Where the Engineer does not give written confirmation of an verbal instruction tothe Contractor then the Contractor, within 7 days, may himself confirm to theEngineer that he has received such an instruction. If the Engineer fails, inwriting, to contradict such a notice within 7 days the instruction is deemed tohave been given by the Engineer to the Contractor.

Priority of Contract Documents (Sub-Clause 5.2) The several documents, forming the Contract are to be taken as mutuallyexplanatory of one another, but in case of ambiguities or discrepancies, thepriority of the documents forming the Contract shall be as follows :

1) Contract Agreement;2) Letter of Acceptance (LOA) and Notice to Proceed (NTP);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;8) Priced Bill of Quantities.

Programme to be Submitted (Sub-Clause 14.1) Once the Contract has been awarded a detailed Construction Programme needto be submitted within the specified time period as indicated in Part II (COPA).Generally, within 28 days from the date of receipt of Letter of Acceptance (LOA).

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

Once the Contract has been awarded a detailed Cash Flow Estimate need to besubmitted within the specified time period as indicated in Part II (COPA).Generally, within 28 days from the date of receipt of Letter of Acceptance (LOA).

The Employer will require a cash-flow estimate to enable him to ensure thatfunding is available when required.


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Performance Security (Sub-Clause 10.1)

Contractor to obtain security for his proper performance of the contract andprovide to the Employer such security within 28 days after the receipt of theLetter of acceptance. The performance security shall be valid up to DefectsLiability Period.

Insurance (Sub-Clause 25.1)

The Contractor shall supply the insurance policies to the Employer within 84 daysof the Commencement Date. The Engineer should be kept informed. TheContractor's policies must be with insurers and in terms approved by theEmployer.

If the Contractor fails to provide or maintain the policies, the Employer may do so

and deduct the premiums from sums due to the Contractor.

Notice of Claims (Sub-Clause 53.1 / 53.2 / 53.3 / 53.4 / 53.5)

A Contractor intending to make a claim for additional payment must give noticethat he will do so within 28 days of the event. Thereafter he must keep recordsincluding any records required by the Engineer, who will be entitled to inspectsuch records. Within 28 or an agreed number of days of the Contractor's notice,he should send a detailed claim to the Engineer. If the claim has a continuing

effect, he should send regular interim claims followed by a final claim once theeffects cease. If the Contractor fails to give notice, keep records or providedetails, his entitlement will be limited by what can be proved from the records thatdo exist.


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Events Entitling Contractor, Extension of Time and Cost

Notices / Information's Required To Be Given by Contractor -

FIDIC Clause Requirement for giving Notice / Informations

6.3 / 6.4 Disruption of Progress / Delays and Cost of Delay of Drawings : If

the planning or execution of the Contractor's works is likely to behampered because of late issue of drawings or instructions by theEngineer, it is important that the notice is given to Engineer informingthat late issue will have certain cost and time effects.

12.2 Not Foreseeable Physical Obstructions or Conditions : In spite ofthe pre-tender investigations of the Site by the parties, the Contractormay encounter unforeseen physical obstructions or physical conditions,other than climatic conditions. The Contractor is required to give theearliest possible notice to the Engineer.

20.4 The Employer's Risks are :

(a) war, hostilities (whether war be declared or not), invasion (attack),act of foreign enemies,

(b) rebellion, revolution, insurrection, or military or usurped power, orcivil war,

(c) ionizing radiations, or contamination by radio-activity from anynuclear fuel, or from any nuclear waste from the combustion of nuclear

fuel, radio-active toxic explosive, or other hazardous properties of anyexplosive nuclear assembly or nuclear component thereof,

(d) pressure waves caused by aircraft or other aerial devices traveling atsonic or supersonic speeds,

(e) riot, commotion or disorder, unless solely restricted to employees ofthe Contractor or of his Subcontractors and arising from the conduct ofthe Works,

(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 forin the Contract,

(g) loss or damage to the extent that it is due to the design of the Works,other than any part of the design provided by the Contractor or for whichthe Contractor is responsible,

(h) any operation of the forces of nature against which an experiencedcontractor could not reasonably have been expected to takeprecautions.


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Notices / Information's Required To Be Given by Contractor


20.4 / 65 Clause 20.4 should be read in conjunction with clause 65 (Special

Risks). Clause 65 makes it clear that the Contractor is not liable for theconsequences of Special Risks upon the works or other property nor forinjury or loss of life.

Clause 65.3 also, entitles the Contractor to payment for rectifying thedamage "so far as may be required by the Engineer or as may benecessary for the completion of the Works.

27.1 Fossils : For the purpose of the Contract all articles of geological orarcheological interest discovered on the Site are considered theproperty of the Employer. Sometimes contractor suffers, delays and costdue to Engineer instruction relating to discovery of fossils/antiquities etc.

29.1 Interference with Traffic and Adjoining Properties : The Contractor

should comply with all local legislation and regulations and the rules ofall public bodies and companies affected by the works. The Contractorwill indemnify the Employer against any breaches, but the Employer willbe responsible for and will indemnify the Contractor in respect of matterssuch as planning permission.

36.5 Engineers Determination where Tests not Provided for : Where

provision of Tests are not provided in Contract but tests conducted andit is found that materials, plant or workmanship are in accordance withthe provisions of the Contract.

40.1 Engineers Determination following Suspension / Suspensionlasting more than 84 days : If the progress of the Works or any partthereof is suspended on the instructions of the Engineer and ifpermission to resume work is not given within a period of 84 days then,unless the Contractor is responsible for the suspension, the Contractormay, by notice to the Engineer, require permission, within 28 days, toproceed. If such permission is not granted, the Contractor may elect to

treat the suspended work as omitted or, where all work has beensuspended, treat the Contract as repudiated (rejected).

42.1 / 42.2 Possession of Site and access Thereto/Failure to Give Possession: If the Employer fails to provide the Possession of Site (or portionsthereof where appropriate) and Access Thereto in accordance with therequirements of the contract / programme.


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69.4 Contractors Entitlement to Suspend Work : Contractors entitlement

to suspend work or reduce the rate of work where the Employer fails topay to the Contractor his due amount. (Here due payment means -Employer fails to pay, the Contractor the amount due under anycertificate of the Engineer within 28 days after the expiry of the timestated in Sub-Clause 60.10 within which payment is to be made).

51 / 52 Variations : Where the Contractor intends to claim extra payment inrespect of the varied work, i.e.

(a) increase or decrease of the quantity of any work included in theContract,

(b) omission of any work (but not if the omitted work is to be carried outby the Employer or by another contractor),

(c ) change the character or quality or kind of any work,(d) change the levels, lines, position and dimensions on any part of the

works,(e) execute additional works of any kind necessary for the completion of

the works, or(f) change any specified sequence or timing of construction of any part

of the works.

44.1 Extension of Time for Completion : In the event of delay on accountof causes given in various clauses the Contractor is entitled forextension of time.

- Contractor is required to notify to Engineer with a copy to Employer,within 28 days after such event has first arisen.

- Further, within 28 days after such notification, Contractor to submitdetailed particulars of any extension of time to which he considershimself entitled.

- However, where an event has a continuing effect, Contractor has tosubmit interim particulars at intervals of not more than 28 days andfinal particulars within 28 days of the end of the effects resulting fromevent.


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Events Entitling Contractor, Cost Alone



17.1 Setting-Out : Incorrect setting out data given to Contractor by Engineer

(i.e. position, levels, dimensions or alignment of any part of the works).

20.3 Loss or Damage Due to Employers Risks : Any loss or damagehappening from any of the risks defined in Sub-Clause 20.4, EmployersRisks.

38.2 Uncovering and Making Openings : The Engineer may require, as aconsequence of later discovery, that work already covered up beuncovered and inspected and tested. Contractor incurs costs for testingor uncovering works and such tests or uncovering shows that theContractors works were not defective.

50.1 Contractor to Search : This clause permits the Engineer to instruct theContractor to search for the cause of a defect, shrinkage or other fault inthe Works emerging prior to the end of the Defects Liability Period.Depending on whose responsibility the fault turns out to be, theContractor either bears the cost himself or receives additional payment.

58 Provisional Sums : "Provisional sum" is defined. The Contractor will beentitled to the sum determined by the Engineer in respect of workcovered by the provisional sums. The Engineer may issue instructions in

relation to provisional sums for work or the supply of materials etc eitherby the Contractor who is to be paid pursuant to clause 52 (Valuation ofvariations) or by a nominated Subcontractor who is to be paid pursuantto clause 59.4 (Payments to nominated Subcontractors).

65.3 / 65.5 Damage to Works by Special Risks : Replacement or rectification ofmaterials or Contractors equipments and/or rectification of damagecaused to works or any materials or plant on or near or in transit to thesite, or any of the contractors equipment by Employers Risks asdefined in Sub-Clause 20.4 of FIDIC.

70.2 Subsequent Legislation : Any affect upon the cost of the worksresulting from changes in the any National or State Statute, Ordinance,Decree or other Law or any regulation or bye-law of any local or otherduly constituted authority, or the introduction of any such State Statute,Ordinance, Decree, Law, regulation or bye-law, occurring after the date28 days prior to the Tender date, are to be established and added to ordeducted from the contract price.


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Other Important Sub-Clauses of FIDIC


4.1 Subcontracting : The Contractor shall not subcontract the whole of theworks. Also except otherwise provided by the Contract, the Contractorshall not subcontract any part of the works without the prior consent of

the Engineer. The Contractor shall not be required to obtain suchconsent for

a) the provision of labour.

b) the purchase of materials which are in accordance with the standardsspecified in the Contract, or

c) the subcontracting of any part of the Works for which theSubcontractor is named in the Contract.

46.1 Rate of Progress : If for any reason, which does not entitle theContractor to an extension of time, the rate of progress of the Works orany Section is at any time, in the opinion of the Engineer, too slow tocomply with the Time for Completion, the Engineer shall so notify theContractor who shall thereupon take such steps as are necessary,subject to the consent of the Engineer, to expedite progress so as tocomply with the Time for Completion. The Contractor shall not beentitled to any additional payment for taking such steps.

47.1 / 47.2 Liquidated Damages for Delay : If the Contractor fails to complete the

whole or any specified Section of the Works by the due date, theEmployer may deduct or recover from the Contractor the daily amountspecified in the contract up to a given maximum amount. If the worksare handed over on a piecemeal basis, the amount of liquidateddamages is reduced proportionately.

48.1 / 48.2 /48.3

Taking-Over Certificate : When the whole of the Works have beensubstantially completed and have satisfactorily passed any Tests onCompletion prescribed by the Contract, the Contractor may give a noticeto that effect to the Engineer, with a copy to the Employer, accompaniedby a written undertaking to finish with due expedition any outstanding

work during the Defects Liability Period. Such notice and undertakingshall be deemed to be a request by the Contractor for the Engineer toissue a Taking-Over Certificate in respect of the Works.

Taking-Over Certificates may be issued in respect of specified Sectionsor parts of the Works, which are either complete or are incomplete buthave been taken over by the Employer.


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49.1 / 49.2 /49.3 / 49.4

Defects Liability : This clause defines the Defects Liability Period as anagreed period, usually six or twelve months running from the date ordates of the Taking-Over Certificate. The Contractor is obliged to

complete any outstanding work and remedy any defects during orshortly after this period. Unless any remedial work undertaken by theContractor was due to a cause which was not the Contractor'sresponsibility, he receives no extra payment for works executed duringthis period. If the Contractor remedies defects not of his making, he ispaid as if the work was a variation. If the Contractor fails to carry out theremedial works within a reasonable time, the Employer can take onalternative contractors to execute the works and charge the Contractorthe cost of remedying the Contractor's defects.

59 Nominated Subcontractors : The Contractor need not employ any

nominated Subcontractor against whom he has reasonable objection orwho refuses to enter into a sub-contract which is back to back with themain contract and which indemnifies the Contractor in respect of thenominated Subcontractor's breaches and against the negligence of hisworkmen and misuse of any Temporary Works.

The Engineer is entitled to proof that certified sums have been paid tonominated Subcontractors before issuing any further certificate. Unlessthe Contractor shows he has reasonable grounds for refusing to makesuch a payment and proves that he has so notified the nominatedSubcontractor, the Employer may make direct payments and deduct the

equivalent sum from the Contractor. The Engineer is to show thededuction on the next certificate which should not be delayed.

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 afluctuations clause as set out in Part II (COPA). That is called PriceAdjustment or Escalation and the formula for calculating the amount isusually defined in Part II (COPA)


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Clause 67 : Settlement of Disputes : This clause is the disputes clause andintroduces a 3-stage process. Any dispute should be referred in writing to the Engineerwho is given 84 days in which to give his decision. Unless the contract has come to anend, the Contractor continues to execute the Works and both parties must give effect to

the Engineer's decision. If either party is dissatisfied with the decision or the Engineerfails to make a decision, they have 70 days in which to give notice of their intention tocommence arbitration. If they fail to give such notice, the Engineer's decision willbecome final and binding upon the parties.

For 56 days after the notice of arbitration is given, the parties try to settle the disputeamicably.

If neither the Engineer's decision nor the attempts at amicable settlement havesucceeded in resolving the dispute, the matter is referred to arbitration under the rulesof the ICC. The arbitrator will have power to look into any decision of the Engineer and

replace any certificates etc. that the Engineer has made. The parties may use freshevidence and arguments and may call the Engineer as a witness. The arbitration maybe commenced before or after the completion of the Works.


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However, generally Sub-Clause 67.1 is substituted in COPA with Disputes ReviewBoard. In this If any dispute arises between the Employer and the Contractor inconnection with, or arising out of, the Contract or the execution of the Works, whetherduring the execution of the Works or after their completion and whether before or afterthe repudiation or other termination of Contract, including any disagreement by eitherparty with any action, inaction, opinion, instruction, determination, certificate or valuation

of the Engineer, the matter in dispute shall, in the first place be referred to the DRB.

Dispute Review Boards :

Dispute Review Boards are very useful in construction contracts. The traditionalmethods of resolution of dispute come after the fact, (when the project is complete andthe parties have already become adversaries). On the other hand, a Dispute ReviewBoard visits the job site regularly during construction and is kept advised of contract asit progresses.

Normally, the Dispute Review Board consists of three members. One member isappointed by each party. The third member (who becomes the Chairman) is selected bythe two members and approved by the parties. The members are expected to have :

a) experience with the type of construction,b) familiarity with interpreting contract documents, andc) adequate background in the construction industry. They must not have any

affiliation with the parties.

The Board, after recording the parties' submissions, suggests a settlement. If it is notacceptable to both the parties, they can make a request to the Board to make further

efforts, or pursue litigation or arbitration, as the case may be.


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Claim - Introduction

A claim is a demand or assertion by one of the parties seeking, as a matter ofright, adjustment or interpretation of contract terms, payment of money,extension of time or other relief w.r.t. the terms of the Contract.

Claims can be classified as

Contractual Claims :Such claims have a basis in the contract itself. Gives rise

to entitlement where a particular provision can be quoted.

Extra - Contractual Claims :These are claims for breach of contract which are

not covered under the express provision of contract but are tenable under the law

applicable to Contract Act / Common Law and/or implied covenant of good faith

and reasonable expectation, fair dealings, implied duty of cooperation, and full

disclosure and warranty of suitable specification / design.

Quantum Merit Claims :Provide remedy for a Contractor who has carried out

work under the instruction of the Owner but no price has been agreed.

Ex Gratia Claims :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 favour the

authority concerned may in certain circumstances consider that hardship calls for

mercy or moral liability.

Counter Claims :The claims raised by the opposite party to counter the claims

of the claimant is called as counter claims.


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Extra Item

The works which are not expressly or by implication included in the Contract but

necessarily required for the completion of the work.

How to Identify Extra Items ?

Go through the Contract documents carefully (especially BOQ, Technical

Specifications, Tender Drawings and Tender Data).

Any work executed at site but not included in the Contract price and not required

in its performance will be extra item.

Claims and Its OriginClaims originate from various sources and the basis of claims can be :

Alterations, Additions and Omissions (Variation).

Conflicting conditions of Contract.

Delay in handing over of site / commencement.

Non-apparent or unforeseen conditions on the site.

Change in work sequences.

Delay in supply of drawings.

Incorrect drawings.

Drawing / Specifications discrepancies.

Late information / approval.

Inclement weather (severe or stormy).

Suspension of work.

Damages to works.

Delay in payment.


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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 Clients 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

implications at an appropriate time.

6) Correspondence to Clients to be progressively built-up. Never fail to reply any

of Clients 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

Guarantees 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 same to our advantage.

To contact, e-mail at : [email protected]

1~Text Book~Construction Contract Management

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