Contractual Relations

During the life cycle of projects, various parties come together and work to fulfill objective of the project. We need to know how these parties are communicating to each other and what ways are they communicating among themselves. The first point is called delivery methods or contractual relations and the second issues are termed as type of contracts. The flow of information between various parties involved takes place in many ways. i.e. there are different approaches used to organize the project team to manage the entire design and construction process. Thus we shall discuss various delivery methods. The relations existing between various parties also vary in terms of monetary payment and goods as well as service delivery. These points we shall discuss for type of contracts.

          The owner needs to know how to communicate with contractor or designer. Designer or contractor can direct report to him or owner can hire a person or company which can help him in fixing, communicating designer, contractor. There are other many possibilities such that he can have in-house specialists who can help him in designing or supervising the work. Similarly, owner can pay the contractor or designer based on unit work of execution or percentage of the total cost based on the contractual agreements. In this chapter, we shall discuss the various arrangements between project team and contractual agreements existing between them. We shall also discuss the process of awarding contracts, documents involved.

           Although the exact nature of arrangement in terms of reporting sub reporting getting feed-back, payments of execution is unique to the particular project, these discussions will help us in understanding particular project team arrangement. Also, we can make our own arrangement depending upon the local nature of the project.

Stages of awarding contract         

The stage of awarding construction contract is dependent of the methods of delivery of the project. In the tradition way of delivery, contract documents are prepared after the completion of design. Generally designer helps the owner to prepare estimate of the project. If owner maintains an engineering department, an estimate is prepared by the engineering department. Specification of the items used for construction is very important from point of view of quality of design and quality of construction. Specification is generally prepared by the designers. During the design, designer may take owner advice in preparing specification of the items. The drawing and specification prepared by designer form the basis for the awarding contract.

           A tender notice is advertised in the news paper depending upon the type of work. It may be in nation newspaper or local news paper. In a large project, tenders are invited from person/company from any country called the global tendering. A typical tender notice is given in the table. Sometime this process is carried out in two stages. In the first stage the aim is to select the contractor who has good experience of executing the similar kind of job and have required technical competence. The process is called “pre qualification”. The contract documents are sold to these pre qualified contractors. Many a time designer himself identifying the competent contractor based on his experience.

            The contract document is bought by the contract or by paying some fees. Contractor prepares their offer and submit to the owner. The offer by contractor to the owner is called Tender and process is called submitting tender. Sometime owner ask to submit the tender in two separate documents. The first offer provides the specification of the item to be used. This is called “technical bid ”. And price offer is given separate which is “price-bid”.

Disputes & Arbitration

During the performance of the contract, disputes may arise between the employer, engineer and contractor for various reasons of default in performance, progress payment, rates, time, etc. Negotiated amicable settlement is the endurable, quick solution, which requires mutual trust, cooperation, give and take policy, flexibility instead of rigidity of one's view, and vision for future relations. Unresolved disputes can conveniently be resolved through arbitration, which bears the stamps of law of natural justice, than resolution in court. Again, arbitration cannot succeed unless there is cooperation between contractor, client and arbitrator(s). Many times, when the award received is not palatable to either of the contesting parties, the unhappy party tries to drag on further in court to set aside the award. This defeats the very purpose of the arbitration process. The court does not set aside the award on flimsy ground or sits again for the judgment but on specific grounds. The court may even ask the arbitrator to review his award if any item is omitted. The responsibility imposed on the arbitrator is conduct the proceedings with prudence and diligence and not arbitrarily or whimsically and discharge his responsibilities in a cordial manner. The reasons for setting aside the award has been set out in Arbitration Act, 1940, which has since been modified in Arbitration & Conciliation Act 1996. As per the new Act, the award itself is considered as a decree and it need not be filed in the court. It is final and binding on both parties unless disputed by either party. The tendency to challenge the award should vanish, instead the aim should be to reach a negotiated, agreed, amicable and early settlement. It is hoped that better awareness and acceptance of this method fructifies in future.