applied engineering law

8/11/2019 Applied Engineering Law

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APPLIED ENGINEERING LAW

PROF. VANDANA BHATT


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BECAUSE WE CANNOT HANDLE THECONTRACT?

BECAUSE WE HAVE BECOME LITIGANT?

BECAUSE WE MEAN NO BUSINESS AND ARENOT INTERESTED IN DEVELOPMENT?

IS IT TRUE?


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19TH CENTURY CONSTRUCTION SCENERIO

NAME DATE OF START DATE OFCOMPLETION

ESTIMATEDCOST IN RS.

ACTUALCOST IN RS

1. THE UNIVERSITYLIBRARY & RAJABAICLOCK TOWER

16TH JAN 1869

( 9 YEARS)

NOV.1878 6,32,451.00 6,32,120.00

2. P.W.D. BUILDING 21ST MAY 1869 1ST APRIL 1872 4,38,937.00 4,14,484.00(3 YEARS)

3. THE GENERAL POSTOFFICE

21ST FEB.1869 11TH APRIL 1872 5,99,992.00 5,94,200.00

(3 YEARS)

4. PRESIDENCYMAGISTRATES COURT

3RD NOV 1871 31ST DEC. 1888 3,87,361.00 3,73,694.00

(4 YEARS)

5. THE LAW COURTS 1ST APRIL 1871 NOV.1878 16,47,196.00 16,44,528.00

(7 YEARS)6. MUNICIPAL BUILDING 25TH APRIL 1889 31 ST JULY 1893 11,88,082.00 11,19,969.00

(4 YEARS)


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CONTRACT

Ingredients/ necessity of contract to be enforceable by LAW

Must have free consent legal Agreement

Must have legal Consideration

Come to an existence only after absolute

acceptance


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TYPES OF CONTRACTS : -Following are the different types of contracts:

LUMP-SUM CONTRACT: - In this contract all the items, their specifications and quantities are declared atthe time of contract. All the detail drawings of the project are given to the contractor at the beginning only

and the total amount (lump sum) of the work is asked. The contractor having the low cost is given the work

in this contract. This contract is generally adopted in small and the project of less importance.

Following are the advantages of the lump-sum contracts:-

Due to competition among the contractors, the contractors tries to take the work at less profit,resulting in low cost of the work.

As the total cost of the work is known before hand, the one can arrange the funds in time.

The contractors profit depends on the time of completion and hence for getting more profit the

contractor tries to complete the work as early as possible.

Following are the disadvantages of the lump-sum contract:-The owner tries to get the maximum work out of money he spends, whereas the contractor tries to get

the maximum profit; this causes the conflicts.

As the plans and specification are fixed beforehand therefore it becomes very difficult to adjust the

addition and alterations in the plan and the specification at a later stage.


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ITEM RATE CONTRACT: - In this contract, rate of each and every item is asked by the contractors.The scrutiny of the tender is then done which is a legal process, the most suitable tender is then

accepted and the work is awarded by signing the contract.

Following are the advantages of the item rate contracts:-

Quantity variation up to 25-50% is allowed in this type of the contract.

As the contractor gets the payment against the actual quantities of the item done by him hence

the method is more economical because no excess payment is made.

As the rates are item wise the contractor is not worried regarding the uncertainties in the plan

and specifications.

The work can be started after accepting the tenders without waiting for all the detailed drawing

and specification.

Following are the disadvantages of the item rate contract:-

It becomes difficult to exactly calculate the final cost of construction resulting in difficulties for the

arrangement of the funds.

As the work is usually started before getting the final drawings and specification if at a later stage

the changes are made resulting in demolishing of some work it will be loss to the owner and will

also result in increase of the construction cost.


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PERCENTAGE CONTRACT:In this contract, rate of each and every item is

given by the Owner. Contractors quote percentageabove or below of the rates and cost given by theOwner.

Advantages: Analysis is easyPreparation of bills are easyNo unbalance items

Disadvantages:Check on Variation is not easy.Extra Items rate working is not certain.


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COST PLUS PERCENTAGE CONTRACT: - This is also known as cost plus

contract. In this type of contract the contractor agrees to take the work of

construction for a fixed percentage over the actual cost of construction for his

service. This type of contract is given when the contractor is not agreeing to do

the work on other types, due to uncertainty and fluctuation in market rates of

material and labour.

LABOUR CONTRACT: - In this type the contractor has only to provide labours

for the work. The engineers, supervisors and other responsibility lies on the

owner itself. The material fluctuation does not cause dispute in this case but

the responsibility of quality lies with the owner and one has to go for another

contractor for materials.


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MATERIAL CONTRACT: - This is done for the supply of material between the owner

and the material manufacturer or suppliers.

PIECE WORK CONTRACT: - In this type of contract the materials are provided by theowner and other things such as labour, supervisors, engineers, methodology, and

technology are provided by the contractor. The whole work is divided into parts.

GLOBLE CONTRACT: - These are the multinational projects. Proper quality control and

maintenance is required in such projects. The various types of global contracts are

BOT(Built, Operate and Transfer) and BOOT( Built, Own, Operate and Transfer)

TARGET CONTRACT: - In this type the time of completion is fixed. In such contracts

the owner must be ready with all the necessary requirements of the contract in time. In

this contract the cost of work is also fixed in the beginning .In this contract the

contractor has to use skills to do the work faster and to keep the cost of work as low as

possible.


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PROCESS OF ENGINEERINGCONTRACT FORMATION

May be by invitation of OfferThere has to be an Offer

Offer gets scrutinisedOffer may be negotiatedOffer must be accepted in absolute terms

Contract come to an existence


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MAY BE BY INVITATION OF OFFER

Owner conceive projectInvite offer

Publically

By Private invitation to selected firms

Process is called Invitation of Offer/Notice Inviting Tender (NIT) or TenderNotice


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NITIn news paperOr Privately circulatedContent of NIT

Name of Work with location

Name of the Owner/ Employer Estimated cost

Schedule time of completion

EMD/SD and form of it.

Cost of Blank Tender form

Dates from to purchase of tender, Place, Time

Last date of Submission of Sealed Tender, time, place

Date and time of Opening of Sealed Tender and place.

Qualification of Tenderor including if any registration required

Pre-Bid Meeting time, date and place if Proposed.

Drawings for inspection if not provided with blank tender form.

Time to keep offer open after submission( Quasy Contract)


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THERE HAS TO BE AN OFFER

Tenderor purchasing tender after studymay put up offer or may notIf, decide to submit offer must be done inprescribed manner i.e.One or two envelope system

Must be sealedMust satisfy all requirements


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OFFER GETS SCRUTINISED

After opening sealed tender it getsscrutiniseMethod of scrutiny is always different fordifferent organisation including in publicand private sectorIt required to be compared amongst alltenderors offer


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COMPARISON / SCRUTINY OFOFFERS

Depending upon type of tender it need bescrutinised by preparing comparativestatement.

Type is depend on basis of inviting offer onthe - Item-Rate/Percentage Rate/ Lumpsum/Cost Plus etc..


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COMPARISION STATEMENTESTIMATED CONTRACTOR 1 CONTRACTOR 2 CONTRACTOR 3

ITEMNO QTY RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT

1 10CU.MT 100 1000 95 950 110 1100 80 800

2 20 NOS 250 5000 150 3000 200 4000 240 4800

3 100SQ.FT 20 2000 19 1900 18 1800 19 1900

4 30 NOS 200 6000 200 6000 180 4400 220 6600

TOTAL 14000 11850 12300 12900

% ABOVE

BELOW


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TRADE CONVENTION

HRI= HIGH RATED ITEM +15% THENESTIMATED RATE

LRI = LOW RATED ITEM 15% THEN

ESTIMETED RATEUNBALANCED TENDER/OFFER = TOTAL

NOS OF HRI AND LRI ITEMS ARE +/-30%


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In case of unbalanced offer from all bidders further

analysis need to be carried out

Find out how many items are HRI/LRI from initial stage

of performance of contract.

More HRI at initial stage Tender is unbalance

More LRI in initial stage may be considered for

acceptance.

If conditions are stipulated by bidder convert the same

in to financial implication.Some time extra security deposite is demanded for

performance of LRI/unbalance offer


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CONVERTING CONDITIONS IN TOFINANCIAL IMPLICATION

For example tenderor has put up conditions for asking

Mobilisation Advance likeRs. 10,00,000/- as to be recovered from 2 nd RA bill in fourequal installment it effects on employer/owner shall beworked out as 2nd RA bill usually placed after two months of starting work.Subsequent bills will be t every month and recovery fromeach bill shall be 2,50,000/-

Working= first two months interest on full amount2*10,00,000/100*.015=

Third Month 7,50,000/100*.015Fourth Month 5,00,000/100*.015Fifth Month 2,50,000/100* .015

Total of all these amount will be a loss of interest to Owner if

Advance is given Interest free so on----------


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Offer may be negotiated

In event Owner wish to negotiate the offerhe can do so and if accepted by both the

parties then it becomes acceptance.However in event of Public contracting

usually it is the lowest tenderor whoseoffer is accepted.


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OFFER MUST BE ACCEPTEDIN ABSOLUTE TERMS

In event Owner under his own conceptsend the letter of acceptance which inlegally sense may not be an acceptancesuch letter is always taken as counterofferfrom owner.

Case of S. N. Thakkar Vs. MIDC forconstruction of Water Treatment Plant.


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CONTRACT COME TO ANEXISTENCE

As per Indian Contact Act 1872 When offeror

receive the knowledge of acceptance Contract

comes to an existence.

This can be by Letter of Intent (LOI) and/ or

Work Order (WO)


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CONTRACT ADMINISTRATION,

SHORTCOMINGS AND REMEDIESCONTRACT IS A SET OF ENFORCEABLE PROMISES.

IN THIS CONTEXT, FOLLOWING DOCTRINES AREMOST IMPORTANT.

1. WAIVER 2. ESTOPPELS

3. ELECTION 4. ALTERATION


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WAIVER ON BREACH OF ANY TERM OF CONTRACT, BY ONE PARTY THERE

COMES TO THE OTHER PARTY. THE OTHER PARTY NOT EXERCISING ITSRIGHT IS CALLED A WAIVER

ESTOPPELS

ESTOPPELS IS A COROLLARY TO WAIVER IN THE SENSE THAT ONCE

YOU HAVE WAIVED A RIGHT, YOU ARE STOPPED FROM ENFORCING THE

RIGHT. YOUR ACTION CREATING RELIANCE FOR OTHER PARTY

CREATES AN ESTOPPELS FOR YOU. YOU CANNOT REVERSE THE

ACTION WITHOUT CREATING A LEGAL DETRIMENTS TO YOU.


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ALTERATION

WHEN ONE ALTERS A CONTRACT, THE OTHER PARTY HAS A RIGHT TO

REPUDIATE OR AFFIRM. IT IS THE AFFIRMATION THAT CREATES NEW

CONTRACTUAL RELATIONS AND REPUDIATION BECOMES

WAIVER .

ELECTION FOR RELIEF OR OTHERWISE, YOU MAY HAVE A FEW OPTIONS. YOUR

OPTING FOR ONE, CREATES ESTOPPELS FOR OTHER. LIQUIDATED

DAMAGES LINKED TO EXTENSION OF TIME IS ONE SUCH SITUATION SO

YOU ARE ADVISED TO PUT THAT PHRASE WITHOUT PREJUDICE.


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IMPLIED TERMS OFCONTRACT

Architects, Engineers, are expected to giveDrawings and Designs meeting standardsexpected and in timely fashion. Theirmonitoring is an implied duty and so also tocreate environment of no impediments to

contractors freedom to execute the job.

Contractor must complete job within reasonable period, even if no period is specified.

Contractor has freedom to plan and sequence the job to derive maximum advantage if nosequence is expressly provided in contract.


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EXPRESS TERMS OFCONTRACT

Time, money, Scope, Specifications, Alterations, Deviations, Acceptancestandards, Maintenance liabilities etc.are mostly Express part ofconstruction contracts and these areprovided in Body of Contract.


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General Rules of Interpretation: In deciding the "Breach of Contract" the adjudicatingforum reads the terms and conditions within aframework of certain rules. reading intentions of partiesfrom contract documents.

These rules are as follows :-1. Words be given plain meaning - Plain Meaning Rule

Words which could have two meanings will be giventhat meanings which makes Contract valid rather thanvoid.

2. If certain things are expressly mentioned, it will excludeother things of similar nature - Expressio Unius Rule

3. General word like "etc." be narrowed down to meanonly things of same genre - Ejusdem generis Rule .

4. Words have to be construed forcibly against the drafter- Contra Profrentem Rule .


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First of all what is a claim?

Well here are a few suggestions, according toyour point of view:

A claim is a disguised form of blackmail A claim is the last chance to bail out a losing job A claim is an assertion to a contractual right

It is probably not difficult to guess who expressedwhich point of view, but at least the commonthreat is clear. What is being discussed is extramoney .


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More formally, a contractor's claim may be defined as: A legitimate request for additional compensation(cost and/or time) on account of a change in theterms of the contract

In fact today there are few such contracts in which thereare no claims, negotiations and settlements before thecontract is finally closed out.

It is essential to know exactly what is expected of thecontractor under the terms of the contract, both beforesigning (indeed at the time of bidding), as well as during its

execution.


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This knowledge must not just be limited to seniormanagement at the home office.

Site supervisors who deal with the day-to-day workmust be equally well informed.

Strictly speaking, every clause and requirement of thecontract must be clearly understood, if the contents ofthe contract are to be faithfully carried out.


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It is a matter for great regret, that somecontracts are written by lawyers in sucha way that only other lawyers canunderstand them. And even then they donot always agree!

So what chances have the owner andcontractor in understanding theirrespective obligations in such contractualrelationships?

AND


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Three simple rules can bepromulgated to avoid making claims:

1. Know exactly what the contractrequires

2. Do what the contract requires,but without interference

3. Don't do anything else, withoutproper documentation


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Claim IdentificationPASTCivil engineering works were1. less complicated,2. conventional design, and3. required less specialized sub-contract work.4. The contracts were for relatively less money, and of

shorter durations.5. Profit margins were higher, with even a few rupees put

away for contingencies.6. Relationships between the owner, architect or

engineers and the contractor, as well as between thecontractor and his sub-contractors, were much closerand less formal.

7. May be, if an extra was not allowed on this piece of


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NOWBut market conditions have changed.The state of the economy and high interest rates have madeowners much more anxious to hold down original capitaloutlay, and avoid additional costs.

Revisions have been made to owner-consultant agreementsdesigned to take control of funds out of the consultant'shands. Revisions are made to standard contract formsintended to transfer increased liability to the contractorsand sub-contractors, as well as require more onerouswarranties. Stiffer competition prevails ,


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NEED All of these give rise to a greater possibilityfor disputes and claims. So it is prudent torecognize the situation and deal with it in arealistic, positive and sensible manner.This is much better than trying to brushthings under the carpet until the end of the

job For fear of upsetting the friendly (?)contractual relationship.

S f Di t


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Sources of DisputeSo typical sources of disputes and claims are worth noting.Theoretically, any clause in the contract could become the basis of aclaim. Indeed, it is a wonder that contracts have not become muchsimpler on this account alone.

However, we are governed by explicit law, expressed by a professionwhose major product is more words! Generally, claims may be identifiedas falling into one of the following main groups:

1) Changed conditions. Conditions different from that represented by the contractdocuments, or known at the time of bidding on the work, such asdifferent soil conditions, or unknown obstructions etc.

2) Additional work. Disputes over the pricing and timing of additional work required, or evenwhether a piece of identified work is in the contract or not. Bewareparticularly of omissions in the design documents, requiring changes tomake a system work,

3) Delays. These refer to delays strictly beyond the contractor's control.They may be caused by the owner directly, or by one of his agents.

A prime example is failure to give access to the site of the work in atimely way. Or details promised by the owner is not delivered on time.

4) Contract time. Disputes over a contractor's request for time extension on account ofchanged conditions, required changes to the contract, or owner causeddelays.

Claim Notification


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Claim NotificationWhich comes first, the dispute or theclaim?Typically, the dispute comes first, principally because the paperwork invariably falls behind the progress of the work.

Progress payments are late. Changes cannot be processed

without agreement on prices. Sub-contractor prices are difficultto obtain, especially if the real cost is out of all proportion to thework required.

Documentation for regulatory approvals have a notorious habitof getting bogged down somewhere.

Even progress meeting minutes, wherein everyone agreed to docertain things in a certain sequence, somehow fail to appear until

the following meeting, when it is all over!


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So what starts out as a minor issue, something thatmight be resolved by early agreement at the time of thework, gradually grows out of all proportion and becomesthe basis for a formal claim. In some cases, a claim isfiled by a contractor with little or no forewarning, andthis itself gives rise to a dispute.

Either way, a claim should be made only aftercareful consideration, in a formal and objectivemanner, on precisely what contractual grounds,how much money is being sought and how thatsum is arrived at, and the corresponding timeextension to the contract, if appropriate. That'squite a tall order!


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Reserving Rights Very often a contractor does not know the real cause for claim untilsome time after the events that have given rise to the situation.

A typical case involves the accumulated impact of a series ofchanges , each of which may appear minor , but collectively have adisrupting effect out of all proportion to the work involved.

Other changes may give rise to a re-scheduling of work, withconsequent loss of productivity. Often, these impacts are difficult todetermine until some time later.

Notwithstanding, the prudent contractor will be constantly vigilant forthe types of situations described, and will give the earliest possiblewarning to the owner, of his intent to claim and the anticipatedgrounds for doing so.

In this way, under most contracts, the contractor is able to preservehis rights to claim until such time as the necessary information can becollected and appropriate analyses conducted.

d


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Record KeepingObviously, the extent of record keeping required for a particular construction

job will depend on the type of contract. However, some record keeping will berequired in any case because it is:

1) Required by law2) Required by the terms of the contract3) Needed to control the on-going work4) Needed as data for estimating future work5) Needed for preserving the contractor's rights under the contract

The first item may be ascertained by referring to the authorities having jurisdiction over the place of the work.

The second may be determined by a thorough reading of the contract

documents, both in terms of the administrative requirements contained in thegeneral and special conditions, and the technical requirements contained inthe specifications.

The third, fourth and fifth items are for the contractor to decide, and dependlargely on his disposition.


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Perhaps the best case that can be made is that,if the contractor wishes to remain

profitable he must maintain control of hison-going work, and control of on-goingwork requires on-going records.

Some records may need to be kept daily, othersweekly, and still others monthly. Differentfrequencies are appropriate for different records,but the key is that all such records must be on-going.

It is no use shutting the stabledoor after the horse has bolted!

A Typical Set of Records


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A Typical Set of Records A good set of records that might be kept on a fair sizedconstruction project could well include the following files. Note thatthese files are assembled into blocks of like subject matter. Thisapproach greatly facilitates ease of filing and subsequent recall.

1) Original Contract Tender Documents2) Issued for Construction set, and all subsequent revisions3) Instructions to contractor4) Contemplated Change Notices issued by the owner, Change

Estimates, and Change Orders received

5)Sub-contractor quotes, contracts, purchase orders andcorrespondence6) Shop drawings, originals, all revisions and re-submissions7) Shop drawing transmittals, and transmittals log8) Daily time records

9) Daily equipment use10) Daily production logs, e.g. concrete pours etc.11) Material Delivery and Use Records, including expediting12) Accounting records: pay-roll, accounts payable and receivable,

etc.

13) Progress Payment Billings under the contract

14) Daily Force Account Records, pricing and billings15) C Mil S h d l M S h d l


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15) Contract Milestone Schedule or Master Schedule16) Short Term Schedules and up-dates17) Task schedules and analyses18) Original tender estimate19) Construction control budget20) Actual Cost Reports, weekly or monthly, including Exception Reports.21) Forecast-to-Complete Estimate up-dates22) Productivity Reports/Analyses23) Inter-office correspondence, including memos and faxes (all filed by topic).24) Contract correspondence25) Minutes of Contractual Meetings26) Minutes of Site Coordination Meetings27) Requests for information28) Notice of claims for delays and/or extra cost by contractor29) Government Inspection Reports30) Consultant Inspection Reports

31) Accident Reports32) Daily diary or journal entries33) Notes of telephone conversations34) Progress Reports, weekly, monthly or quarterly35) Progress photographs36) Any other reports, such as special consultant reports

37) A Filing Record of all the Record Files that are being maintained

F h I R d


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Focus on the Important RecordsThat's quite a healthy list, and needs the administrative staff to support it. Most of the listis automatic and self explanatory. However, the last items are often overlooked and aretherefore worth elaborating.

Original Records As noted earlier, for the prudent contractor anxious to stay solvent, records are requiredfor estimating future work, and for protecting his contractual rights.

However, there can be little argument that reliable data cannot be extracted from recordscreated after the fact.

Even the best of memories are fallible, and the written record serves to provide the solidreminder.Data may be extracted, analyzed and presented in a different light, but satisfactoryrecords cannot be created later.

Instant memos/Site order BookFor example, all verbal directives should be committed to writing immediately andexchanged with the other party.This serves to keep the other party properly informed, clarify understanding if theinstructions were not clear, and, of course, to preserve contractual rights.

Personal diaries


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Diaries can provide a wealth of information. Unfortunately, they tend to be overlooked,In any case, what should be recorded are solid facts such as the sub-contractors andequipment on site, work reallocation and for what reasons, delivery problems, weatherconditions, visitors to the site, discussions, and seemingly innocuous comments about the

work.Needless to say, what should be avoided, are personal opinions and derogatory remarks. Theycould be read out in court!

PhotographsFor record purposes, these must show what is actually going on at the time with the locationand view point identified, as well as the date and photographer's name.

A camera which prints the date on the negative is a great start and well worth the expense.Computer Application

As we have seen, the road to contract documentation is long and arduous.The worst part is trying to find that vital piece of information amongst the morass of paper,which is now so urgently required.

Forward the micro-computer. These are now so inexpensive, and so powerful that it seemsimpossible to do without them.

However, the secret is to get data organized as early in the job as possible, then commit toconsistent maintenance, regular backup and off-site storage.

Even the common Speedy Memo can be produced faster on a PC, with the added advantage

that it can be put in storage in a manner that can be readily traced.


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Managing the Records As well as managing the files, the records themselves also needmanaging. Some simple rules can help as follows:

1) Determine what records are to be kept, and how. Establish logsof the records, so that they can be found, referred to and/orfollowed up as required. This greatly facilitates managing,analyzing and comparing contracts.

2) Once the records have been identified, ensure that they are infact set up, maintained and used for managing the job.

3) Review the record keeping system from time to time, becauserecords have a habit of growing in unexpected ways - like half thecorrespondence showing up under Miscellaneous , and the otherhalf under General .


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In addition, some records may becomeobsolete or redundant, and should bediscontinued. Unnecessary record keepingcan waste a lot of time and money.

4) Records also take up space and equipment.

Determine the useful life of the differentcomponents, and take a systematic approachto record disposal.

5) Take steps to ensure accuracy, reliabilityand hence credibility. Unreliable records canbe quite useless, as well as a waste ofmoney, and possibly even detrimental.

Useful Tips for Staying out of Trouble


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Useful Tips for Staying out of TroubleThe following tips are suggested for keeping a contractor out of trouble:

1. Develop a master schedule and a detailed schedule that fits the required dates in thecontract. Then develop a detailed schedule, especially with the help of major, or criticalsub-trades. Distribute this schedule information to all concerned , including theowner and his consultants, so that everyone knows what is expected of them, and canplan their work effectively and economically.

2. If the owner, or his consultants cause a delay, notify them promptly, politely but firmly, inwriting.

3. Avoid an impossible bid, or sub-contractor price, even in a tight bidding situation,

when you know the subcontractor cannot do the work for the money.

4. Make sure that not only the contractor's MAIN TEAM, but also each of the sub-contractorcan perform their work without interference or delays by any others.

5. Where close coordination is required, make sure there is proper communication takingplace at a level that can have a positive impact on the work.

6. As general contractor, coordinate the entire work , including that of sub-contractor, bytaking charge and ensuring that all activities are effectively organized

7. According to the old axiom, remember that time is money . This is just as true for theowner, the consultant, the contractor and all the sub-contractors.


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Measurement of Damages Breach ofConstruction Contracts

PARTY IN BREACH TIME OF BREACH

MEASURE OF

DAMAGES

Owner Before construction

begins

Profits (contract price

less cost of materials andlabor)

Owner After construction begins Profits plus costsincurred up to time of

breach

Owner After construction iscompleted Contract price

Contractor Before construction iscompleted

Generally, all costsincurred by owner tocomplete construction


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Early resolution of disputes in Contract is a must forall concerned in view of fast erosion in value ofmoney.

The Engineering Disputes Resolution needs a rarecombination of legal and engineering talent.


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(A) EXECUTION OF CONTRACT: CHANGES/ EXTRA ITEMS/ VARIATIONS. DIFFERING SITE CONDITIONS.

DELAYS AND ITS CONSEQUENCES .(B)ADMINISTRATION OF CONTRAC:

PAYMENTS OF DUES.

CLOSURE OF CONTRACT /TERMINATION LOSSES.

TYPES OF CLAIMS


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Introduction

Owners and Contractors have one common objective:

To Complete the project in time and within Budget

Fai lure of objec t ive of t im e leads to fa i lure of B udg et and g ives r i se

to Disputes

Owner pre-estimate their delay losses and name a sum

recoverable from the Contractor to meet delay damages in form

of Liquidated Damages. Contractor do not find such clause and made to Dispute for their

claims.


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Causes of Delays

Agencies causing the Delays:

1) Owners and his team mates.

2) Contractor and his team mates.

3) Nature, i.e. Causes of force majeure type.

4) Society through some change in statutes, Byelaws etc. or

through its impact of socio political nature.


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Causes of Delay on the par t of the ow ner and contrac tor : There are the part ies of th e Contract

1) Defects in documents/design/decision.

2) Incompetence of parties to cope with the changes.

3) Differing site condition.

4) Attitude of anyone or both the parties.

Causes of Delays


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1) Excusable and non excusable delay.

2) Critical and non critical delay.

3) Concurrent delay.

Typ es of Delay :

Types of Delays


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1) Ex c u sab le an d n o n ex c u sab l e d el ay.

Non foreseeable situation.

Non critical in impact.

Concurrent with partys delay.

Types of Delays

Cons iderat ion to excuse :

Contract lays areas of obligations. Failures to meet

obligations give rise to the other party to excuse or not to

excuse the delay.


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A . Ex c u sab le Delays:

1. Labour disputes.

2. Fire.

3. Unusual delay in deliveries.4. Unavoidable delays.

5. Compensable delays.

6. Unforeseen delay in Transportation.

7. Other causes beyond the contractors control.

Types of Delays


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B. Non Excusable Delays:

1. Ordinary and foreseeable weather condition.

2. A subcontractors delays.

3. The contractors failure to adequately manage and

coordinate the project site.

4. The contractors financing problems.

5. The contractors failure to mobilize quickly enough. 6. Delay by contractor in obtaining materials.

7. Poor workmanship.

Types of Delays


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2) Critical and non Critical Delays:

Delay in some part of total performance stipulated as

Contract obligation

Non Cri t ica l na ture - Delays which may not upset total

time frame of the Contract.

Cri t ica l na ture - Delays which may upset total time

frame of the Contract

Types of Delays


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Non Executable Delays :

1. Lack of competence and skill for the job.

2. Inadequate deployment of labour force.

3. Insufficient financial resources.

4. Failure to supply proper equipment.

5. Bad workmanship removal and replacement delays.

By Contractor :

Types of Delays

3) Concurrent Delays:One par ty undergoes a phase of Delay of i t s ow n m aking, the o ther par ty too

is de layed du e to i t s ow n d ef ic iencies .

By Owner :

1. Non handling over of site and/or Access.2. Non supply of facilities promised in contract.3. Non supply of promised materials.4. Improper of Inadequate Drawings.5. Failure to make Timely payments.

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Compensable delays:

1. The owners failure to coordinate multiple prime contractors.

2. The owners failure to provide adequate access to the project.

3. The owners failure to provide the right of way.

4. Suspension of the contractors performance.

5. Change orders issued by the contractor.

6. Any interference by the owner with contractors performance.

7. Delay caused by a third party under the control of the owner,

such as the Architect or the Engineer.

Compensable delays

Eff f D l


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Effect of Delays :

For Owner:

For Contractor:

1. Delay in use of project.

2. Locked up capital.

3. Escalanation in subsequent investment.

1. Delay in getting profit.

2. Idling of resources men, money, machines.

3. Acceleration losses.

4. Productivity loss due to uncontracted work - period.

Effect of Delays

A l i L


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Facts needed to establish :

1. Th e o w n er o r d er ed t h e co n t rac t o r to a c c el er at e t h e

con trac tor perform ance.

2. Th e c o n t r ac t o r r ea s o n ab l y at t em p t e d to ac c e le rat e i t s

performance.

Acceleration Losses

To ca tch up wi th the los t t im es , ow ners o f t en o rderContrac tors to accelerate the pace of wo rk. To achieve th isone has to dep loy m ore resources .

A l ti L


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Acceleration Cost :

1. Overtime costs.

2. Additional labour costs.

3. Stacking of trade costs.

4. Loss of labour efficiency costs.

5. Additional equipment costs.6. Additional supervision costs.

7. Increased material delivery costs.

8. Increased overhead costs.

Acceleration Losses

The Contrac tor inc urred addi t ional cos ts as a resul ts ofaccelerat ion.

A l ti L


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Documents to price and prove Acceleration costs :

1. Notes and meeting minutes.

2. Correspondence between parties.

3. Project managers and superintendents daily log books.

4. Detailed job cost information.

5. Budgets and estimates.

6. Change orders.

7. Design changes.

8. Job schedules.

Acceleration Losses

A l ti L


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Elements of Acceleration damages :

1. Labour inefficiency.

2. Increased material costs.

3. Excess equipment costs.4. Supervision.

5. Subcontrol costs.

6. Overload.

7. Subcontractors claims.

8. Other costs if any.

Acceleration Losses

Productivity Losses


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Factors of Reduced productivity arises from Delays:

1. Morale and job attitude get affected.

2. Crew size changing brings inefficiency.

3. Supervisory effects get diluted.

4. Learning curve efficiency gets jeoparadised.

5. Site access and services maintenance.

6. Changed weather conditions factors.

Productivity Losses

Delay m ay push job to be done in som e o ther c l ima t ic o r

Envi ronm ental se t up than con templa ted .Th is r educ ed the p rodu c t iv i ty, susp ens ions d i s rup t rhy thm towo rk New batches of Workers take t ime to learn

Superv i s ions su ffe rs d ue to new assoc ia t ions

onclusions


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onclusions

Time is essence of the Contract. there are

c i rcum stances com pell ing ex tens ion of t im e wh ich i s g ra ted

but t im e does m ean mo ney.

Due to Delay in com plet ion of Project Cost of theProject w i l l increase , w hich gives r ise to th e Disp utes betw een

the Owner and Contracto rs . Bo th the par t ies su ffer f rom the

delays.

Delay co n t r ibu te to loss o f p roduc t iv i ty which n eed to

be com pensated. Delay c la im s analys is sh ou ld be at tempted

to analyse the Delays and id ent i fying the defaul ters .


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Change Order and Extra items


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As far as the law of contracts in general isconcerned, construction contracts do not have anyspecial legal rules .

Construction contracts are like any other legallyenforceable agreement.

However, they do possess certain characteristicsthat make it appropriate to group them together in

a class.

One such feature of construction contracts are the concepts of changes and extras .


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Although changes can occur with any contract, they are more prevalent in theconstruction context.

Closely examining the definitions of changes and extras reveals conceptualdifferences between them. Their distinctive meanings will be revealed in the following.

A change can be described as a modification to thescope of work set out in the construction contract, ascontemplated by its terms.

Most construction contracts contain provisions that allow the owner to add to, oralter, the scope of work, often under the heading change management or thelike. Generally, the work is of a similar nature or character as already required tobe performed by the contractor.

The contractor is legally obligated to complete the additional scope of workimposed by the owner so long as it is contemplated under the changemanagement provisions of the contract.

"E t " h h h d l h l d ff


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An "Extra", on the other hand, is a slightly different concept.

It can be described as work arising outside and

entirely independent of the construction contractand not required for its performance.

An extra is not contemplated under the change managementprovisions, and as such, the contractor is not obligated to perform thecontemplated extra.

Typically, the scope of work imposed by an extra is so clearly andobviously beyond the original scope of work, that it could not havebeen anticipated by the contractor that it might be called upon toperform that work.

Although the contractor is not legally obligated to perform extra work,the contractor may choose to amend the construction contract toinclude the new scope of work imposed by the extra, if he so chooses.

Changes versus Extras


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g

Changes Modification of scope of work as anticipated inthe contract

Similar character to existing scope of work Contractor legally obligated to perform

Extras Independent of construction contract Different character - not

anticipated by contractor Contractor not legallyobligated to perform but can perform if it chooses

Why do changes/extras occur?


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Why do changes/extras occur?

Unanticipated site conditions

Design errors or deficiencies

Changing needs of the owner

Contractor believes they are being ask toperform work outside the scope of theircontract

Identifying Changes


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Identifying ChangesScope of Work

Contract: additional work expressly anticipatedin the contract.

Implied Terms: additional work a reasonablecontractor ought to have known they would becalled upon to perform.

Custom or Trade Practice: work generallyknown that trade/contractor would be calledupon to perform.


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Identifying Extras

Scope of Work so peculiar, unexpected, or different fromwhat any person reckoned or calculated

upon

What items are NOT extraSpecifically provided for in the contract

Supplying material of better quality withoutinstruction from the owner


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Variation

What is a Variation?Dictionary

"Any change to the works as detailed ordescribed in the contract documents."

- Engineering Contract Dictionary

"Alterations, additions or omissions in work,materials, working hours, work space, etc."- Building Contract Dictionary


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A valid variation cannot change thescope or nature of the works to beexecuted

Blue Circle Industries PLC v HollandDredging Company (U.K.) Ltd. (1987) 37BLR 40 Held: Construction of an island was not avalid variation to the works, it was whollyoutside the scope of the original contract.


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Categories

1. Work specifically required under contract2. Changes3. Extras

Best Practices in Change


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Best Practices in ChangeManagement

Review and follow your contract give notice

follow change management procedures key to consider not only compensation butextensions to contract time

Cannot agree - request a change directive Consider IMPACT


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(1990) 4 SCC 647S. Harcharan Singh vsUnion of IndiaHead Note +/- 20 %variation of extra work is reasonable

AIR 1990 SC 313Mahabir Kishore & others Vs. State Of Madhya Pradesh Unjustenrichment - Ingredients


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(2003) 7 SCC 417NAHI vs Gangaenterprises Offer can be withdrawnbut EMD could be forfeited.

(2002) 10 SCC- 516Manipur vsShangreihan Muivah Delay in paymentof Running A/c bill not to attractinterest


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AIR 1975 SC 763 Bombay Housing Board Vs.M/s. Karbhase Naik & Co.Head Note C Observance of condition as regards writtennotice mandatory Non service of noticeentitled contractor claim damagesContractor not bound to carry out extrawork.

AIR 1979 SC 720 Hind Construction Vs. State ofMaharashtra Time whether essence Question of intention notice precondition tomake essence.


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Air 1989 SC 1034 P.M.Paul Vs. Union ofIndiaHead Note & Paras 12,13 &14 20%price rise allowed. Escalation normalincident Arising out of gap of time inperforming Contract.

FUNCTION OF CONTRACT ADMINISTRATOR


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1. TO DRAFT APPROPRIATE CONTRACT DOCUMENTS FOR EACH PLAYERCONSTRUCTION PROCESS.

ARCHITECTS

CONSULTING ENGINEERS CONTRACTORS VENDORS SERVICES-PROVIDERS

2. TO TAKE CARE OF PROJECT-INTEREST VIS--VIS REGULATORY AGEN3. DURING THE PROGRESS OF WORK TO MONITOR PROGRAMMES FINAL

AND COMMITTED BY VARIOUS AGENCIES AND TO CO-ORDINATE FORGETTING THE COMMITMENTS TRANSLATED TO ACTIONS.

4. TO BRING IN FLEXIBILITY OF PLANNING AND SCHEDULING TO SMOOTRANSIT THROUGH POINTS OF FAILURES.

5. TO DEVELOP A SYSTEM OF PERFORMANCE FOR ALL VITAL AREAS OFPROJECT-ADMINISTRATION.

6. TO CREATE WORK-ENVIRONMENT OF PARTNERING THE PROJECTTHROUGH INFORMAL ENVIRONMENT ON THE PROJECT.

7. TO GET CONFIDENCE OF ALL THE TEAM MATES OF THE PROJECT BYOFFERING A FAIR ADJUDICATION-SYSTEM IN CASE SOME OF THEDIFFERENCES REMAIN TO BE RESOLVED.

ADDITIONAL DUTIES


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ADDITIONAL DUTIES1. VALUE ENGINEERING BE GOT DONE FOR ALL MAJOR PROP2. ESTIMATION BASED ON REALISTIC COST3. SYSTEMS APPROACH TO ACHIEVE GOALS AND USE COMPU

MANAGED TOOLS TO STAY INFORMED OF PROBLEM ANDSOLUTIONS

4. CASH FLOW ESTIMATION ON AND ASSURANCE FORUNINTERRUPTED JOB PROGRESS

5. PROGRESS VS. SCHEDULE FOR PREDICTION OF TIME AND C

6. DEVELOPMENT OF MATERIALS AND EQUIPMENT MANAGE7. SAFETY8. CLAIMS SETTLEMENT.

CONSTRUCTION

APPARENT ROLE OF CONTRACT ADMINISTRATO


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ERRORS IN BID

CHANGES AND EXTRASDIFFERING SITE CONDITIONS

PAYMENT CLAUSE

EXTENSION OF TIME

NOTICES

ORAL INSTRUCTIONS ACCELERATION

DISPUTES ABOUT MISREPRESENTATION

DOCUMENTS AID BY CONTRACT ADMINISTRATOR


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1. Schedules Bar- chart, C.P.M. etc with all

revisions

2. Change Notices extras, additions, omissions

3. Minutes of Meetings

4. Job Correspondence

5. Progress Reports

6. Log-books of Equipments.


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LEGAL ASPECT OF CONTRACT ADMINISTRATIOIN THE FIRST EDITION OF 1768, ENCYCLOPEDIA BRITANNICA PAGE 26 DEFINES ADMINISTRATOR AS

A PERSON LEGALLY EMPOWERED TO ACT FOR

ANOTHER WHOM LAW PRESUMES INCAPABLE

FOR ACTING FOR HIMSELF

THIS PUTS THE CONTRACT ADMINISTRATOR UNDER LOT OF TLIABILITY IN ADDITION TO EXPRESSED CONTRACTUAL LIABILIT

HE MUST OWN IMMENSE RESPONSIBILITIES, AS HE ACTS ON BEHOF THOSE INCAPABLE OF DISCHARGING THAT ROLE.

IF NO CONTRACT ADMINISTRATOR


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EFFECT ON PROJECT:

NO PROPER CONTRACTS DRAFTEDNO ONE TO HAVE DIALOGUE WITH STATUTORY AUTHORITIESNO ONE TO MONITOR PROMISES MADE BY EACH AGENCY ANTO ESTABLISH AND OPERATE PROPER CO - ORDINATING

SYSTEMNO VALUE ENGINEERING DONE IN ADVANCENO ONE TO KEEP WATCH ON ESTIMATES, REVISIONS ANDPROCUREMENTSNO ONE TO ACT AS A VERY FRIENDLY LEADER TO BE GUIDEDBY SENSE OF EQUITY AND FAIRNESSNO ONE TO ACT AS A COMPLIMENT TO CONSTRUCT MANAGE

USE COMPUTER IN ADMINISTRATION


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SITE CONDITION STORAGE SPACE, ACCESS, CONGESTION,CONDITION

OWNERCONSULTANTS DECISION, CHANGES,STOPPAGE/SUSPENSION, EXTRA ITEMS,INSPECTION, QUALITY CONTROL

DESIGN/DRAWINGS SUFFICIENCY, CORRECTNESS, CHANGES,CONFLICTS, CO-ORDINATIONS

WORK FORCE UNDER/OVER-MANNING, TRADE STACKINLOW SKILL, INADEQUATE INSTRUCTIONSWORK REWORK, ESTIMATION ERRORS, POOR

WORKMANSHIPSUPPLIES MATERIAL MANAGEMENT

SCHEDULES RESOURCE BASED CPM AND REVISIONSMISCELLANEOUSINFORMATION

WATER/ELECTRICITY, HEALTH, SAFETY,SECURITY ARE OTHER AREAS TO BEWATCHED


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ROLE OF CONTRACT ADMINISTRATOR DISTINC

FROM CONSTRUCTION MANAGER WHO HANDLTECHNOLOGY WHILE CONTRACTOR

ADMINISTRATOR HALTS AN ABORTION OF A

DREAM CONCEIVED BY THE PROJECT OWNERS.

THERE COULD BE NEAR GENIUS CONTRAC

ADMINISTRATOR WHO CAN ACHIEVE EXPECTE

RESULT BUT MOST OFTEN IT IS A TEAM WORK.

I am tempted to quote an American Judge(E C Ernst Inc Vs Manhattan Construction


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(E. C. Ernst. Inc. Vs. Manhattan ConstructionCo. of Texas):

Gentleman, this is a case whichshould be settled between the

parties Being trained in the field,you are in a far better position toadjust your differences than thoseuntrained in the related fields . The

parties litigant should realise that, inmost situations, they are by their

particular training better able toaccomplish this among themselves .


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PITFALLS IN CONTRACTFORMATION


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Any projects would have acontinuous streak of problemscoming up and getting solved. It isone long story of how one strugglesagainst so many odds to have aproject shaped in three D and putto use.


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When we talk of all types ofengineering jobs do have these in plenty butcertain types could have more than the other.

pitfalls

TIME

S P & C L d V MSRDC


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S.P & Co. Ltd. Vs. MSRDCNH4 Project Mumbai Pune Express Way

Firm Drawings29%

Revised Drawings71%

Firm Drawings Revised Drawings

0%

0%

22%

78%

Firm Drawings before stipulated dateFirm Drawings after stipulated dateRevised before stipulated dateRevised after stipulated date

DEFAULT


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Prakash Const. Vs. MSRDCBonus not Paid for change of Mile Stones

STATUS OF DRAWINGS TILL ORIGINAL PERIOD

97%

3%

1

2

When we look into the areas of Pitfalls,almost any one could pose a challenge.Following are the areas to keep guard against


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Following are the areas to keep guard against.

1. Insufficient Pre-design Investigations

2. Defective design Concept.3. Defective Bid document4. Unrealistic Specifications5. Errors in drawings6. Incompetent sub-contractors7. Incompetent Supervision8. Materials control9. Market fluctuation10. Safety in Construction11. Regulatory Agencies-Permits-Royalties12. Laws governing construction13. Socio-political environment14. Finance Management -Taxes, Overheads,

Profits

15. Fast changes in Technology.

Insufficient Pre-design Investigations


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Insufficient Pre design Investigations

V. P. Shah Vs. M W S & S Board

Coconut costing Rs. 20 lacs

Defective Design Concept.


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g p

National park Earthen dam

Defective Bid document


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Defective Bid document

Excavation in all soil including initial lead and lift

PPI Vs. MCGM

Unrealistic Specifications


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CHOUGULE VS BPCLCOARSE AGGREGATESPECIFICATION IN KERALA

Errors in drawings


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Blue Star 1 micron instead of 10 micronVAPOUR BARRIER

Incompetent sub-contractors


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Incompetent sub contractors

Popular construction Vs. MES

Incompetent Supervision


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MCGM VS ENGINEERING SCIENCEHUGE CLAIMS PAID TO CONTRACTORS

M k t fl t ti


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Market fluctuation

Steel prices increased abnormally


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Laws Governing Construction


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To understand interpretation of law

Michigan Vs.. MCGM

OR

Socio political environment


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Socio-political environment

Finance Management


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a ce a age e tTaxes, Overheads, Profits

Timely payment of RA bills

When we can examine each one


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.

When we can examine each one

of these and some more, inevery area, we see a number ofuncertainties against which onehas to manage.

It calls for real versatile geniusto overcome these pitfalls.

On all fifteen topics covering areas of


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On all fifteen topics covering areas ofgambling with probabilities of provinggreat pitfalls, at least a big volume canbe written with case histories.

Each area has created heaps of disputesThe list is only given as home work toprepare details of dos and don'ts related to these areas.

Only technical knowledge does not necessarily


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lead to a successful project.

For success of Project it is necessary to haveproject completed within Time and Cost.

For this Contract Administration and ProjectManagement are both necessary.

For sound administration ability to analyze

contract, knowledge of basic Law andleadership quality are required in addition tosound knowledge of concern engineering .

(2002) 5 SCC 433


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(2002) 5 SCC 433

Build India Const System.vs.

Union of India Sect. 62 of The Indian contract act saysWhatever Alteration, additions, deletion of

the terms of contract shall be done withmutual consent of the parties

(2005) 8 SCC 438


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Subash Projectsvs.

West Bengal Power

development Corp. Ltd.

PRIVITY OF CONTRACT

MCGM


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Vs. Asian Tech Pvt. Ltd

DEWATERING

Air 1988 SC 254


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S. A. JaisVs.

Gujarat Electricity Board


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Knowledge of law for engineers is like

having

First Aid Box

for immediate relief to avoid frustration of

contract and also to avoid wrong evolution

of laws.

STUDY OF RISK IS STUDY OF LAW


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STUDY OF RISK IS STUDY OF LAW

o Risk can be failure of a project in terms of

Engineering or a commercial failure .

oIn both cases study relates to fixing andevaluating liability

o Liability flows from obligations.

o Obligations are interpreted by law.

Categories of Risk


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Categories of Risk

As per Miller and Lessard after study oflarge and medium sized Organisations,categorized amongst other Risks as below

Demand for ProjectsFinancial need of projectsTechnical Risks

Construction, Operation,MaintenanceRegulatory like Environmental

ENGINEERING LAW


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It is efficiency and clarity of our legal

system that can effectively reduceuncertainty and hence the risksThe document we handle to shape a

project is contract and the tool tointerpret Rights and Obligations isEngineering Law Firstly, let us have proper risks allocation

amongst various players and secondlyhave reasonable system of law.

Problems of Engineering Law


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SLOW AND INCONSISTENCE

Indian courts are very slow to adopt proper doctrines andmodern tools to refine its findings. There is lot of inconsistencyand contradictions in our law.

ABSENCE OF PROPER TOOLS

There is no appreciation for use of Artificial Intelligence in thefield of resolving disputes. No invitation to experts to interactwith courts or Arbitral forum is encouraged. Prospects are dim.

NO LEGAL REFORMS

U.S.A has over 600 statutes to govern contracts. UK has so manyincluding Unfair Contract Terms Act 1977 They have caselaw numbering over 20,000 judgments.

Time as essence & Extension of Time


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The law says time is not perceived as an essence ofcontract in cases where the contract has provisionfor extension of time and also for recovery ofdamages for delay in performance. AIR. 1979 SC720 Hind construction vs. State ofMaharashtra

The risk is not this interpretation. Many of us arenot aware that extension of time requiresconcurrence of both the parties and ought to bereasonable. Section 62 Indian Contract Act 1872

Provisional Extension without prejudice is foundlegally tolerable

Levy Of Penalty / Liquidated Damages


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The well laid law in case of LD byConstitution Bench in AIR 1963 SC 1405Fateh Chand vs. Balkrishan Dass hasgot eroded or confused or mis-understoodby recent judgement of SAW Pipes (2003)5 SCC 705 ONGC vs. Saw Pipes

On Employer side one cannot recover delaydamage in excess nor in lieu of damage

AIR 1962 SC 1314 Chunilal Mehta vs.Century Spinning Mills.

Excepted Matters :


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Excepted Matters :

The word finality renders amatter excepted 2002 (4) SCC

45 General Manger NorthernRailway vs. Sarvesh Chopra .

Exclusion Clauses In Contract


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The Courts in India, unfortunately do not find anyterm in contract as unconscionable and exculpatoryi.e. unenforceable or unfair. The excellent

judgment of Supreme Court on Contracts of

Adhesion in Brojo Nath Ganguly case AIR 1986SC 1571 Central Inland Water TransportCorporation Ltd vs. Brojo Nath Ganguly doesnot apply to Construction Contract.

UNFAIR TERMS


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Kokan Railway Corporation Limited Clause No.15.4 FORFEITURE OF SECURITY DEPOSIT: Whenever any claim against the Contractor for the

payment of a sum of money arises out of or underthe contract the Corporation shall be entitled torecover such sum by appropriating part or wholeof the security deposit of the Contractor

Clause No. 21.5 MEANING AND INTENT OF SPECIFICATION


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MEANING AND INTENT OF SPECIFICATION AND DRAWING: to the Chief Engineer who shall have thepower to correct any errors, omissions ordiscrepancies, in the specifications,drawings, classification of work or materialsand whose decision in the matter in disputeor doubt shall be final and conclusive. Thisis Excepted Matters since 2002

Clause No. 60.1 RIGHT OF CORPORATION TO DETERMINE


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CONTRACT:

The Corporation shall be entitled to determine andterminate the contract at any time should, in theCorporations opinion, the cessation of workbecome necessary owing to paucity of funds or

from any other cause whatsoever

This is case of Illusory Consideration adoctrine not appreciated by Indian ConstructionLaw Inspite of Sec 23 of Contract Act 1872.

Plant and Machinery can be


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Railways shall be entitled to takepossession of any material ..machinery.. and to employ the samewithout the contractor being entitledfor any compensation for wear and tearor even destruction thereof

Plant and Machinery can bedestroyed

OUR LAW


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OUR LAW .

Coming to the drawings and designs as suppliedby the Employer Government, it is interesting toknow law laid down by Mumbai High Court

AIR 1994 Bom 48 State of Maharastra vs.Saifuddin Mujjaffarali Saifi

There is no room for any impliedundertaking by the employer that thecompletion in accordance with the design or

specification is possible or practical "

VS. INTERNATIONAL LAW


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Let us compare this with internationallyacknowledged Spearin doctrine (UnitedStates Vs Spearin, 248 U.S. 132 (1918)

If the contractor is bound to build according toplans and specifications prepared by theowner, the contractor will not be responsiblefor the consequences of defects in the plan and

specifications.

Site Inspection Clause


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pIn recent time, we have growing concern oninterpretation of law related to SiteInspection. Courts having not made cleardistinction, the Site Inspection ismisinterpreted as site investigation Doctrine of Superior Knowledge doesnot exist in Indian Construction Law.

Termination or Rescission of


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Contract the rescission in law means nullity ofcontract i.e. as if there was no contractbetween the parties.On termination, what survives is Arbitrationclause only 2007 (2) ALR 339 (SC)National Agricultural Co-op MarketingFederation of India Ltd vs. Gains Trading

Ltd

Variations :Variation Beyond + 25 % Over Agreemental Values And Its


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y gPaymentsIf the railways decide to get additional quantity i.e. variationbeyond + 25% over agreemental value, the payment will be doneas per rate mentioned below:For 1st 15% increase in the agreement value, the rate will bereduced by 2% in the incremental value of the agreement.For next 10% increase in the value, rates will be further reducedby 2% (i.e. total 4%) in the further incremental value of the

agreement.

COMPARE

Puranchand Nangia case (2000) 8 SCC 343 NationalFertilizer vs. Puranchand Nangia can upset such atrociousclause and declare it to be ultra-vires, the law.

BANK GURANTEES


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FOR OUR COURTS B.G. IS PRO-NOTE. ALLEGED BREACH /DAMAGE NEED NOT BEPROVED

Let us examine this situation in the spirit ofwhat Supreme Court itself laid down in famouscase of Thippareddy AIR 1987 SC 1359 TheExecutive Engineer ThungabhadraReservior Divison Munirabad vs. ThippaReddy One cant be judge in ones own cause

LAW CHANGEDWE LOST RS. 20,000 CRORES AND MORE

We had thereafter the floodgate opened cruelly


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We had thereafter the floodgate opened cruellyagainst the descent right of the contractingfraternity to claim such adjustment through series of judgments AIR 1988 SC 1166 ContinentalConstruction Ltd. Vs. State of Madhya Pradesh, AIR1992 SC 232 Associated Engs. Co. vs. Govt. of

Andhra Pradesh and another AIR 1997 SC 980 NewIndia Civil Electors Pvt. Ltd. vs. .ONGC, AIR 1999 SC3627 Rajasthan State Mines & Minerals Ltd. Vs.Eastern Engineering Enterprise & Another .

In recent years, damage to estimated overRs.20,000 crores were denied to contractors, whenthe prices of steel and cement went up. TheEmployer got enriched at the cost of contractors.

GOOD LAW VANISHES TOO SOON


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To cite the recent example, in 2007 Arb W.L. J (1) SC K.N. Satyapalan Vs. State of Kerala, the Supreme Courtallowed compensation even though the contract clearlyexcluded payment for escalation, payment for dumpingsite not being available and payment for inconveniencecaused by anti-social elements.

in matter of eleven days thereafter, in a judgement 2007 Arb. W.L. 99 (SC) Ramnath Vs Union of India published in the same report, a few pages after asserts

that the Arbitrator is not permitted to go beyondfour corners of the contracts

Doctrine of conflict of interest in


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appointment /nomination clause in

contract.

Since 18 years - a paper titled

Beware, contract has ArbitrationClause (1989 Mumbai Seminar ) therisk remains undiluted.

Neutrality is fictitious

Echley Formula


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Again 18 years after .

Supreme Court has appreciated EchleyFormula and allowed Head officeoverheads to be computed on the basis ofECHLEY formula 2006(2)ALR 498 SC Mc. Dermott International Inc. vs.

Burn Standard Co. Ltd

BEWAREPRIVITY OF CONTRACT


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The law laid down in Subhash Project case2005 (8) SCC 438 Subhash ProjectMarketing Ltd vs. West Bengal PowerDevelopment Corporation.

The Supreme Court decreed against thecontractor to pay a portion of his assumedprofit to L & T, who were the competitors andhad failed to get the work. This would mean,one has to carefully interpret doctrine ofPrivity of Contract .

Can we have German Law?


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I end by referring to provision in German Civil CodeSec. 138

Contract could be void whereby a person profitingfrom distress, irresponsibility or experience ofanother..

Advice of American Judge Gentleman, this is the case which should be settledbetween the parties trained in this field, you are farbetter position to adjust your differences thanthose untrained in these related fields. E.C.Erust Inc. Vs Manhattans Construction Co. of