BUILDING CONTRACT

DEFINITION OF CONTRACTA Contract is a legal agreement between two or more people for an exchange of
goods or services. Contracts are enforceable by Contract law. There are many
different types of Contracts and they vary between industry and according to the
type of services performed.
CONSTRUCTION / BUILDING CONTRACTContracts are an essential part of the construction industry. A Contract between an
Owner of a site and a Building Contractor setting forth the terms under which
construction is to be carried out, the basis of remuneration, the time scale, and the
penalties, if any, (for failure to comply with terms of the Contract) is termed as a
Building/Construction Contract.

CONTRACT
DOCUMENTS
The Contract Documents are all documents which, when combined, forms the basis
of the Contract. It is recommended that both parties to the Contract execute or
endorse complete sets of all Contract documents and these should be preserved
intact. A possible list of documents that makeup the Contract Documents include:

The Contract or Agreement to be used by the parties.

Conditions of the Contract - these define the legal rights and obligations
of the parties; another way of describing the general conditions is as the rules by
which each party will operate in performing their obligations as set down under the
Contract.

Special conditions of Contract - these are an extension to the general

conditions and apply specifically and individually to each project/Contract.

Bill of quantities - it lists quantities of the various items and the material to
be included in the Contract. It can also be used as the basis for valuation of
variations and assists the preparation of progress claims. The extent to which the
Owner warrants the completeness of a bill of quantities or a schedule of rates
depends upon the terms of the Contract.

Drawings - required in building the structure (contract plans including

Architectural and Structural). These include drawings from relevant Consultants.

Specifications - sets out the technical requirements of the work It describes

the project and adds clarity to its drawings; describes the requirements for
materials and workmanship.

Other documents considered necessary, for example, Schedule or Annexure

to the Contract completed, all technical schedules, all pricing schedules.

NEGOTIATING
CONTRACTSA crucial battle in negotiating Construction Contracts is waged between the Owners
desire to get the work done and the Contractors desire to get paid for the work
performed or goods supplied.

Clarity -The most important aspect of Construction Contracts is to clearly

define the subject matter of the Contract as cost overruns and mismanaged

resources are a frequent hazard. Hence while entering into the construction
agreement, experience and understanding of the administration aspects of
Construction Contracts is important.

Selecting the Contract type is generally a matter for negotiation and

requires the exercise of sound judgment. Negotiating the Contract type and
negotiating prices are closely related and should be considered together. The
objective is to negotiate a Contract type and price (or estimated cost and fee) that
will result in reasonable Contractor risk and provide theContractor with the greatest
incentive for efficient and economical performance.

MANAGING CONTRACTS Managing Construction Contracts requires a hands on approach to ensure

compliance with Contract terms and conditions and external regulations that may
affect the industry. Some of the core aspects and external factors that can impact
Construction Contracts are:
Overseeing the Construction Contractors work including site visits during
construction to ensure the work is carried out according to the Contract documents,

Monitoring the Contractor compliance with safety codes,

Prevailing on wage requirements,

Environmental regulations and

Other state and local regulations.

BUILDING CONTRACT TYPES

Contracts are usually categorized according to the type of payment but can be
tailored to incorporate common elements from several different Contract types.
Some of the common forms of Contract are described below.
1.
UNIT PRICE (ITEM WISE) CONTRACT
2.
LUMP SUM ( FIRM FIXED PRICE) CONTRACT
3.
LABOUR CONTRACT
4.
COST + CONTRACT
5.
PROJECT MANAGEMENT CONTRACT

1. UNIT PRICE (ITEM WISE) CONTRACTThis kind of Contract is based on the estimated quantities of each item of the
building project and unit prices (for each item) which have been agreed to. The final
price of the project is dependent on the quantities of the items needed to carry out

the work, which may eventually vary from what was initially estimated. This type of
Contract therefore accommodates flexibility for price adjustment.

ADVANTAGES OF UNIT PRICE (ITEM WISE) CONTRACT:

Involvement of the Architect- The Architect is involved in this type

of Contract because it is he who provides the quantities of each item (in the Bill of
quantities), and negotiates the unit prices with the Contractor. Moreover, in this
type of Contract, the Owner makes payments to the Contractor only after
the Architect has verified the measurements at Site and certified the Contractors
bills for payment. This way the Owner is safe as he is paying only for the volume of
work done at site and not paying anything extra. Also, he is assured (because the
Architect is involved), that the quality of the work will be upto the mark.

Initial investment by the Contractor - In this type of Contract, the

Contractor has to initially invest his own money for starting the work, and so the
Owner need not worry about giving the Contractor a big advance.

Most Scientific type of Building Contract - In general this Contract is

considered the most scientific and most suitable for construction projects where the
different types of items, but not their numbers, can be accurately identified in the
Contract documents.

Contractor is also safeguarded- against any contingencies, or variations

in labour or material rates.
DISADVANTAGES OF THE UNIT PRICE (ITEM WISE) CONTRACT:

From the Contractor's point of view, there is one disadvantage and that is,
he has to investhis own money initially. Sometimes, Owners can be tricky and may
try to get rid of the Contractor after he has started the work without paying for it.
Though this is one of the most preferred Contract in Construction/Buildings, it is
not unusual to combine a Unit Price Contract for parts of the project with a Lump
Sum Contract or other types of Contracts.

2(a). LUMP SUM (FIRM FIXED PRICE) CONTRACT With this kind of Contract the Contractor agrees to do the construction and
completion of the building at a designated time for a fixed price or Lump Sum. Also
named "Fixed Fee Contract", this type of Contract is often used in Building
Contracts. Fixed Fee or Lump Sum Contract is suitable if the scope and schedule of
the project are sufficiently defined to allow the estimation of the project costs.The
scope of the Contract defines the expectations of both parties.
ADVANTAGES OF LUMP SUM CONTRACT:

Fixed Price - A lump sum Contract provides for a price that is not subject to
any adjustmenton the basis of the Contractors cost experience in performing the
Contract. This Contract type places upon the Contractor maximum risk and full
responsibility for all costs and resulting profit or loss.

Certainty - This type of Contract provides a degree of certainty for both

parties because the Contract clearly spells out what is involved.

No Unforeseen price variation for the Owner - Since the price is fixed,
any unforeseen contingencies or variations in material or labour prices do not affect
the Owner.

Control Costs - It provides maximum incentive for the Contractor to control

costs and perform effectively and imposes a minimum administrative burden upon
the Contracting parties.
DISADVANTAGES OF THE LUMP SUM CONTRACT:

Architect is not involved - An Architect is not involved as this Contract is

an agreement between the Owner and the Contractor for a final fixed price. So the
Architect does not have a role to play, and hence the quality of work cannot be
checked and controlled by an expert.

The specifications are not clear - Therefore, the Contractor can

use alternative/inferior brands of materials.

Ambiguity - There is a lot of ambiguity in the specifications, measurements,

mode of payment, etc.

Extras - Though the Contract is made on a fixed price, the Contractor

may claim extras by giving different reasons, since the specifications,
measurements are not clear.

Money taken in advance - The Contractor takes money in advance from

the Owner, and then he proceeds with the work at his own pace. Also sometimes,
the Contractors deliberately hold up work towards the end, so as to extract
maximum money from the Owner. So the Owner feels helpless as his money is with
the Contractor.

A lump sum Contract can be used in conjunction with an award-fee incentive and
performance incentives, when the award fee or incentive is based solely on factors
other than cost. The Contract remains Lump Sum when used with these incentives.
A lump sum Contract, which best utilizes the basic profit motive of business can be
used when the risk involved is minimal or can be predicted with an acceptable
degree of certainty. However, when a reasonable basis for firm pricing does not
exist, other Contract types (or Combination types) should be considered that will
appropriately tie profit to Contractor performance.
2(b). LUMP SUM CONTRACT WITH PRICE ADJUSTMENTIt provides for upward and downward revision of the stated Contract price upon the
occurrence of specified contingencies. A lump sum Contract with economic price
adjustment may be used when there is serious doubt concerning the stability of
market or labour conditions that will exist during an extended period of Contract

performance, and contingencies that would otherwise be included in the Contract

price can be identified and covered separately in the Contract. Economic price
adjustments are adjustments:

based on established prices of specific items or the Contract end items,

based on actual costs of labor or material that the Contractor actually

experiences during Contract performance and

based on cost indexes of labor or material that are specifically identified

in the Contract.
In establishing the base level from which adjustment will be made, one shall ensure
that contingency allowances are not duplicated by inclusion in both the base price
and the adjustment requested by the Contractor.

3. LABOUR CONTRACT In this type of Contract , the Owner buys and supplies all the material required
for the construction to the Labour Contractor and only uses his labour. A workman is
deemed to be employed as Contract Labour when he is hired in connection with the
work by or through a Contractor. Contract workmen are indirect employees; persons
who are hired, supervised and remunerated by a Contractor who, in turn, is
compensated by the Owner of the site. Contract labour has to be employed for work
which is specific and for definite duration.
ADVANTAGES OF A LABOUR CONTRACT:
Save on Contractor's Profit - This kind of Contract is sometimes preferred
by the Owner, because he buys all the material by himself and thus saves a lot on
the Contractors profit.

Control over Materials - Moreover, the Owner can buy the materials of his
choice and can be sure of the brand that will be used in the construction.
DISADVANTAGES OF A LABOUR CONTRACT:
As an Architect, I personally would discourage a Client from entering into this type
of Contract for the following reasons:

No role for Architect -In this Contract also, the Architect does not have a
role to play, and so quality of work cannot be checked and controlled by an expert.

Tensions for the Owner - There is a lot of headache and tension involved in
running around and arranging for the supply of materials at site, on time as the
work progresses.

Quality of Materials may be compromised -It is easy to get fooled on

the quality of sand, bricks etc because the Owner is not very experienced in
assessing the quality.

May not get a good bargain- It is difficult to strike a good bargain when
negotiating with suppliers and vendors, because the Owner is a one time Client,
whereas the Contractor normally has an advantage as he is a regular Client and a
relationship is built between him and the suppliers.

Pilferage - There is every possibility of pilferage of the material stored at

site, because it is not the responsibility of the Labour Contractor.

Delay in Work -Very often labourers, masons etc do not turn up to site as
they may be lured for a day to some other site and hence the work gets delayed.

Go slow on the Project - Since the workers are generally paid for the work
on a daily basis, the labour Contractor may purposely go slow so that he he takes
longer to complete the job and so get paid more.

Social injustice - Inferior labour status, casual nature of employment, lack

of job security and poor economic conditions are the major characteristics of
Contract labour. While economic factors like cost effectiveness may justify system of
Contract labour, considerations of social justice call for its abolition or regulation.
In fact, in my experience, I have seen that in most cases, the Owner ends
up spending almost as much, at the end of the project as he would have if he had
chosen any other type of Contract.

4. COST + CONTRACTThis type of Contract is not popular in India. This is a Contract agreement wherein
the Owner agrees to pay the cost of all labor and materials plus an amount
for Contractor overhead and profit (usually as a percentage of the labor and
material cost). It is like a Labour Contract, but here the Contractor buys the
materials and provides the labour and is reimbursed accordingly.
This type of Contract is favoured where the scope of the work is indeterminate or
highly uncertain and the kinds of labor, material and equipment needed are also
uncertain. Under this arrangement complete records of all time and materials spent
by the Contractor on the work must be maintained. This type of Contract can be
altered according to the basis on which the additional amount paid to the
Contractor is fixed.
COST + FIXED % CONTRACT- It is based on a percentage of the cost

COST + FIXED FEE CONTRACT It is based on a fixed sum independent of

the final project cost.

COST + FIXED FEE BONUS CONTRACT It is based on a fixed sum of

money and a bonus is given if the project finishes below budget, ahead of schedule
etc.

COST + FIXED FEE WITH SHARING ANY COST SAVINGS CONTRACT- It

is based on a fixed sum of money and any cost savings are shared with the Owner
and the Contractor.

INCENTIVE CONTRACTS It is based on the Contractors performance on

the agreed target - budget, schedule and/or quality.
ADVANTAGES OF THE COST + CONTRACT:

It has the advantages of the Labour Contracts.

Incentive for the Contractor - In addition, since the Contractor gets an

additional amount at the end of the project, it provides maximum incentive for the
Contractor to control costs and perform effectively and on schedule.
DISADVANTAGES OF COST + CONTRACT:

role for Architect - In this Contract also, the Architect does not have a
role to play, and so quality of work cannot be checked and controlled by an expert.

No Proof- Since the Contractor is reimbursed based on the records of the

workers he has employed and the materials he has bought, one can never be sure if
these records are genuine, as there is no way of verifying them. So, this type of
Contract is rarely adopted in India.

No

5. PROJECT MANAGEMENT CONTRACT Project Management Contracts are a type of Contract where the Architect agrees
to manage the Contract, as defined by the scope of the agreement, for a specified
duration of time for monetary consideration. This type of Contract can be short term
or long term.
ADVANTAGES OF PROJECT MANAGEMENT:

No worries for the Owner - The Clients can focus on their core operations
while the Architect (Project Manager) looks after the management of Projects,
people and issues, ensuring that deadlines are met, quality is maintained and costs
are controlled.

Co-ordination - The Project Manager coordinates with all the agencies,

including the Consultants, the Contractor and the Suppliers to ensure that the
construction of the project goes on smoothly.
DISADVANTAGES OF PROJECT MANAGEMENT:

Extra Cost -Some Clients hesitate to go in for Project Management Contract

as they have topay extra for project management, in addition to the fees paid to
the Architect However, there are lots of Clients nowadays, who opt for Project
management as it saves them from a lot of headache and they can concentrate on
their work as the building comes up. Moreover, in the long run, since the project is
completed on time, and costs are controlled, the Client actually saves.

BUILDING CONTRACTOR | NATURE OF WORK

DEFINITION OF CONTRACTOR:
Contractors are defined in each state according to the law and are usually
considered those who contract, bid, negotiate a price or offers to construct,
supervise, oversee, schedule, direct, alter, repair, install, improve, move, demolish,
furnish labor, etc.
TYPES OF CONTRACTORS:
There are various types of Contractors such as building (residential and
commercial); electrical; plumbing; mechanical; highway; and environmental, etc.

DEFINITION OF A BUILDING CONTRACTOR:

Contracts - A Building Contractor is an organization or individual that

contracts with another organization or individual (the Owner) for the construction of
a building, road or any other execution of work or facility.

Construction - A Building Contractor is responsible for the means and

methods to be used in the construction/execution of the project in accordance with
the Contract documents which usually include the Contract agreement, budget, the
plans and specification of the project that are prepared by a design professional
such as an Architect.

Supplying of Labour, Materials, Equipment etc. - A Building Contractor

usually is responsible for the supplying of all material, labour, equipment,
(engineering vehicles and tools) and services necessary for the construction of the
project. To do this it is common for the Building Contractor to retain a construction
labor force or he may subcontract part of the work to other persons and companies
that specialize in these types of work. These are called Subcontractors.
Subcontractors put up the foundation, walls, roof, electrical and plumbing systems,
supply the labour etc.

Owner acting as a Contractor -Occasionally the Owner commissioning the

construction of the building, chooses to act as the Contractor. In such cases, he
works directly with various Subcontractors and takes on all liability for proper
sequencing of the work, and dealing with the realities of construction.
However, more times than not, the risks far outweigh the potential reward of saving
the Contractor's profit even if things go perfectly. Owners considering this approach
should keep in mind that Contractors make a living working with known
Subcontractors. An established Contractor will have established relationships that
will outlast one construction project and the Subcontractors will acknowledge this
with their cooperation whereas the Owner seldom has this advantage as most
Subcontractors will recognize the risk of working with a one time client with higher
bids. Also the Owner is likely to be cheated on the quality of building materials and
products as he is not an expert in it.
DESCRIPTION OF A CONTRACTORS WORK An Owner or Client prepares a program of his needs and selects a site (often in
consultation with an Architect). The Architect assembles a design team of
Consultant Engineers and other experts to design the building and specify the
building systems.Today Contractors frequently provide pre-design services by

participating in the design stage to help in getting an accurate estimation of budget

and scheduling so as to improve the over all economy of the project. Otherwise the
Contractor is hired just to build the building at the close of the design phase.
The Owner, Architect and Building Contractor work closely together to meet
deadlines and budget. The Building Contractor then works with Subcontractors to
ensure quality standards and make sure that the project is completed within the
specified time and budget.
DUTIES OF A BUILDING CONTRACTOR A building contractor has the following duties:

Understand plans: Examine and interpret Clients' plans.

Arrange sanction plans: Arrange for the drawing of plans to meet building
regulations.

Submit sanction plans to authorities: Arrange submission of plans to

local authorities for approval and arrange inspections of building work.

Submit tenders: (offers to do jobs at a stated price), quotes or prices for the
project to Clients.

Organise Subcontractors: to carry out all stages of building and negotiate

rates of pay.

Calculate quantities of materials: required for building projects and order

these from building suppliers or advertise for tenders.

Arrange delivery times of materials to coincide with various stages of the

building process

Supervise the work of Subcontractors to make sure buildings are of an

acceptable standard and are proceeding according to schedule

Coordinate the activities of office staf involved in the preparation and

payment of accounts

Talk to lawyers and financial institutions on matters relating to loans and

contracts for building projects

Undertake some of the building work personally.

WORK DEMANDS OF A BUILDING CONTRACTOR - A Contractors work is mostly

outdoor and demands the following:

Working in dusty or polluted environment

Full use of hands/fingers

Heavy lifting

Mainly outdoor work

Physical efort* Reading or writing

Standing for long periods

PERSONALITY
TRAITS
OF
A
GOOD
BUILDING
CONTRACTOR A Building Contractor must have the following traits in order to make a mark:

Good communication skills

Management and leadership skills

Good organisational skills

Technical aptitude.