contracts by austin s. rodrigues

7/29/2019 Contracts by Austin S. Rodrigues

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Contracts By Austin Socorro Rodrigues

H.o.D. (Computer Engineering) and

Lecturer (Civil Engineering), Government Polytechnic, Panaji


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The word contract has been derived from the wordcontractum, a Latin Word which means drawntogether.


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All agreements are contracts if they are made by the free

consent of parties competent to contract, for a lawfulconsideration and with a lawful object, and are not herebyexpressly declared to be void.


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(a) When one person signifies to another his willingness todo or to abstain from doing anything, with a view toobtaining the assent of that other to such act or

abstinence, he is said to make a proposal;(b) When a person to whom the proposal is made,signifies his assent there to, the proposal is said to beaccepted. A proposal, when a accepted, becomes a

promise;(c) The person making the proposal is called thepromisor, and the person accepting the proposal iscalled promisee,


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(g) An agreement not enforceable by law is said to bevoid;

(h) An agreement enforceable by law is a contract;

(i) An agreement which is enforceable by law at the optionof one or more of the parties thereto, but not at the option

of the other or others, is a voidable contract;(j) A contract which ceases to be enforceable by lawbecomes void when it ceases to be enforceable.


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There must be an offer by a person called promisor

There must be an acceptance of the offer by another person

called promiseeThere must be some consideration (an act or abstinence) bythe promise to the promisor

The agreement between the parties must be enforceable by law

then it is called contractAn agreement without any obligation does not become acontract. Thus, every contract is an agreement but not vice-

versa.


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All agreements are contracts if they are made by the free

consent of parties competent to contract, for a lawfulconsideration and with a lawful object, and are not herebyexpressly declared to be void.


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The requirements are as follows:Lawful subject matter

Legally competent parties

Valid Consideration

Free Consent

Provisions of Law with regard to form (ofcontract)


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The consideration or object of an agreement is lawful,unless -It is forbidden by law; or is of such nature that, if

permitted it would defeat the provisions of any law or isfraudulent; of involves or implies, injury to the person orproperty of another; or the Court regards it as immoral,or opposed to public policy.

In each of these cases, the consideration or object of anagreement is said to be unlawful. Every agreement ofwhich the object or consideration is unlawful is void.


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The persons entering into a contract should be legallycompetent.

Minors, idiots, Lunatics, drunken persons areconsidered to be legally incompetent parties to enterinto a contract.


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A person attains majority at 18 years. If he has aguardian, then for some cases, it is fixed at 21 years.Infancy is protected by Law.

A contract with a minor is absolutely void.


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Only a minor can take advantage of any contract

involving him and the other party is bound torespect his privilege.

A minors consent cannot be ratified on hisattaining majority.

An idiot is a mentally deficient person.


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A lunatic or an insane person, is a person with anunsound mind. An insane person can make a validcontract during the lucid intervals.

Drunken persons are treated on the same footing aslunatics. A contract may be held valid if in the opinionof the court, such persons entered into contract with

good faith and with knowledge of what they weredoing.

A convict loses his right to contract during the periodof sentence.


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The law assumes that the works under acontract are not done free of charge andhence to make an agreement legal, a validconsideration is essential (money/material).The consideration may be executor (future),executed (present or past). The

consideration, which a promise gives apromisor, must be something to which thelaw attaches value.


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The contract must be in writingIt must be registered according to the law ofRegistration of documents

It must be between parties standing nearrelation to each other

It should proceed out of natural love and

affection between the parties.


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{As per Section 13: Two or more person aresaid to consent when they agree upon thesame thing in the same sense.}

If a contract is to exist, the law requires thatthere should be a real agreement with freeconsent of the parties concerned. The terms

and conditions should be clearly understoodby both the parties. Normally, signaturesindicate agreement.


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coercion, (section 15) or

undue influence, ( section 16), or

fraud, (section 17), or

misrepresentation, (section 18), ormistake, (section 20,21, and 22).


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is the committing, or threatening to

commit, any act forbidden by the IndianPenal Code (45 of 1860) or the unlawfuldetaining, or threatening to detain, anyproperty, to the prejudice of any person

whatever, with the intention of causing anyperson to enter into an agreement.


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If one signs a contract under influenceof other person, there is no freedom ofthought, and the contract can be

declared void.


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[e.g. Hotel Dolphin] means and includes anyof the following acts committed by a party toa contract, or with his connivance, or by hisagents, with intent to deceive another partythereto his agent, or to induce him to enterinto the contract;


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In law, misrepresentation means mis-

statement made innocently and withthe honest belief as to its truth.

The party misled by misrepresentation

can avoid the contract. Intentionalmisrepresentation so as to deceive theother party is known as fraud and is

punishable.


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[Kundaim slope cutting project, soft soil=rock] Inthis case, consent is absent. Mistake may be either oflaw or fact. Mistake of law is no excuse, as everyone

is supposed to know the law. (One cannot withdrawfrom the contract). To make a contract void on thegrounds of mistake of fact, the mistake must be onthe part of both the parties. (Mistake of fact couldbe as to the nature of contract, the personcontracted with, the subject matter, the identity ofsubject, price of subject, etc.)


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the law requires that certain types of contractsmust be in writing, signed by the concerned

parties and include the following points:Scope and nature of services to be performed

The consideration in respect of performance of

such servicesTime limit for completion of work

Signature of parties

Other conditions of contract.


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1. Lump Sum contract

2. Item Rate or Unit Price contract3. Percentage Rate Contract4. Labour contract5. Material Supply contract

6. Piece Work Agreement7. Cost plus percentage rate contract8. Cost plus fixed fee contract9. Cost plus sliding or fluctuating fee scale contract

10. Target contract Measured or Schedule contract11. Negotiated contract12. Rate contract13. Turn Key contract

14. Conditional Contract


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The contractors execute the entire work, for a fixed sum ofmoney, as per the plans and the specifications.

The owner supplies the required information in detail to thecontractor

Based on Owners Documents, the contractor arrives at a certainamount.

This contract will be useful only when it is possible to workoutthe exact quantities of all the items of work to be executed.


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Low Costs:

Each contractor works out the lump-sum at his own rates witha certain profit. Due to competition among other contractors,the contractor may reduce his profits and thereby the costs maybe lowered.

Definite Amount:

The definite and the final total amount of money to be spenton the project is known to the owner at the time of granting thework to the contractor for execution. Thus, the owner knowsbeforehand exactly the cost of the entire job.


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Early completion:

As the payment for the job is on lump-sum basis, the sooner thecontractor finishes the job, greater will be his profits. [also, it ispointless spending more time as since the amount will remain same,he might as well finish early and be free for other jobs.

Better Planning:

Since the complete picture of the work (i.e. different items and totalcosts) is known before hand, excellent planning and efficient

management (of material, manpower and equipment : a good siteengineer will know beforehand the material to be brought, but willhave stocked just enough with a factor of safety, so that the work goeson non-stop and money is not blocked in stores) can be achieved.


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Conflicting Interests:

The interest of the owner and contractor may be conflictingunder this form of contract. For any amount fixed, the owner

will try to derive maximum advantage whereas the contractorwill try to get away by doing the bare minimum work. (This canbe overcome by exact specification for each work wood for

frames to be First Class Matti without knots).Extra Work:

The plan and specifications of the entire work should be readyin all respects before the work is allotted to the contractor. No

extra work can be done, if it is decided later as the total amounthas already been fixed. The contractors can ask for a larger thana normal fee to do that extra work, however petty it may be. (e.g.construction of additional room, wax polishing for floor, fixing

bidet in toilet or bath tub).


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High Costs:

In case, the plans or specifications for some items are not readybut the intention is conveyed to the contractor, he mayincrease his amount to meet the worst situation. This willresult in higher costs due to uncertainties.

Difficulty in payment:

Difficulty arises in making interim payments as the ownermust be satisfied that work upto a particular stage is

satisfactorily completed. (e.g. if payment is to be made afterfixing the door frames, then there is a real scope formisinterpretation as frames can be erected before anymasonary is erected or along with it.)


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In this form of contract, the contractor quotes hisrate per unit of individual items of work on thebasis of the schedule of quantities furnished by theowner/department.

The quantities are supplied to the contractor with thetender form and he fills up his rate for that item ofwork.

The rate includes material, labour, overheads andprofits. This form of contract is very much useful

when the quality is precisely known and the quantityapproximately.

Most PWD contracts are carried out under this formof contract.


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Elasticity: this form of contracts makes it possible to makereasonable variations in the quantities of items during theprogress of work. The difference in costs due to such

variations can be easily worked out using contractorsrates.

Economical: as the payment to the contractor is to be

made on a unit basis, only the amount for actual workdone by the contractor shall be paid by the owner aftertaking measurements on site.

Starting of work:Work can be started immediately after

the rates of various items of work are agreed upon,without waiting for other formalities.

Part Work: Different items can be given to different partieslike tiling, painting, shuttering, etc..


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Errors in quantity:

In case there are errors in quantities by the owner, the contractorsubmits an unbalanced tender and if work executed under theserates, the owner can lose money unnecessarily.

Classification of materials: Sometimes, classification ofmaterials result in dispute between the owner and the contractor.e.g. in excavation, it may not be easy to differentiate between mudand murrum, murrum and soft rock, etc [then engineeringdefinition is treated as final].

Conflicting Interests: The owner will be interested in getting asmany items and quantities done under the lower rates, while the

contractor would prefer the higher rates. (e.g. previous case)Finals costs: Under this contract, it is not possible to know theexact total cost of a job beforehand. It can only be ascertained afterthe completion of the work totally.


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In this form of contract, the department draws up theschedule of items with the quantities, rates, units andamount. Thus, the department fixes the rates per item.The contractors are then required to offer to carry out the

work for this basic cost and charge a sum in the form ofa percentage for each item of work. They may quote atpar, higher or even lower than those rates quotes by thedepartment.

The work is generally awarded to the one whose totalamount is the least.


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No unbalanced Tender:As there is no provision forthe contractor to quote his own rate for the entireitem of work, benefit due to increased quantities witha beneficial rate cannot be availed of by a contractor.

Thus, there is no possibility of unbalanced tender.e.g. For Earthwork Excavation, for quantity = 5000 m3,

if Rate is Rs. 5/m3, then the department Amount is Rs.50,000/-, and if the contractor quotes 10% which is

equal to Rs 5000/-.So, if the quantity increases by Rs 100-200m3, hecannot change his price.


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Formation of Ring: Since the contractors are to writedown only the percentages above, at par or below thedepartment price, it is very easy to write such a rate ina few minutes. Then the tenderers can easily form aring, even upto the time of submission inorder to allotthe work to a particular contractor at a high ratewithout actual competition. This leads to drainage ofowners money.


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This is a contract where the contractor quotes rates for

each item of work exclusive of material costs, whichare supplied by the department free of cost (i.e. hequotes only for labour to do the work and his profit).


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Departmental Material used: The material stored by thegovernment or owner is utilized.

Material is of owners choice: Choice of quality ofmaterial is entirely with the owner

Progress of work: Since the owner gives the requiredquantity of material himself, the progress of work ismaintained by him.

No undue profit to Contractor: Also, the chances of acontractor making small profit on the material is nullified.


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This type of contract requires the contractors to offer their

rates for supply of the required quantity of material,inclusive of all local taxes, transport and delivery chargesto the specified stores within the time limit agreed to.


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As the material is received at the store through acontractor, the owner need not worry of the loss ofmaterial.

The owner can accept the material after inspection.


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Constant control of quality of material is difficult if it is received

in batches.


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A Termination by performance:When a

contract is carried out as per its terms andconditions, it is natural that it will be treated asterminated as soon as the work is completed in allrespects. Such a performance is known as specificperformance and is an ideal condition fortermination.


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Termination by agreement

Termination by breach

Termination by the impossibility of performance

Termination by operation of provision of law


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The process by which the parties under a contract

get their disputes and differences settled throughthe intervention of an impartial person or acommittee of experts in a judicial manner isknown as arbitration and those impartial persons

are known as arbitrators.


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Engineering contract documents usually contain thefollowing:Tender noticeLetter of Acceptance of Tender and Written Order tocommence Work

General Rules and Directions for use of contractorsForm of Contract (Or Tender Form)Conditions of ContractSchedule A showing details of materials, if any to besupplied by owner to contractorSchedule B Bill of QuantitiesSpecifications to be described in wordsGeneral, Detailed or ParticularContract drawings describe pictorially


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The tender Notice in detail includes importantinformation and conditions, such as time of completion,EMD, Refund of EMD, period of validity of Rates quoted,site inspection, rates to include all taxes, addresses, etc..

All such particulars are not included elsewhere in thecontract documents.

Also, counter references are made to this informationgiven in the tender notice. So, the tender notice is a very

important document on which tenders and subsequentagreements are based. Therefore, it must be included inthe contract documents.


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This means payment made on a running accountto a contractor for work done by him but notmeasured.

Advance payment is not generally made to acontractor, but may be made under special caseswhen work is sufficiently progressed butmeasurement cannot be taken for certain valid

reasons. On the certificate of the AssistantEngineer, the value of work is done and paymentaffected. Measurements are taken as soon aspossible.


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It is an advance payment made on the security of materialsbrought by the contractor to the site of work, when thecontract is for completed items of work.

Secured Advance may be allowed by the Executive Engineerin the interest of the work upto an amount not exceeding 75%of the value of the materials brought to the site of work,provided they are of imperishable nature.

A statement will have to be signed by the contractor underwhich the department possesses the right of the materials.Lime, sand, coal, surkhi are considered perishable materialsand as such no advance is permissible.