Buildings Contracts

Introduction

Attracting the highest Foreign direct investment as well as government expenditure, Its complexity lies in the large number of stakeholders, huge amount of capital and a long checklist of legal compliances involved. Construction contract is the most basic aspect that governs the entirety of processes involved in a construction project. They are also the source of most disputes that arise in any construction activity. A good understanding of how a construction contract is form, its features and requirements is therefore essential to any individual involve in the sector. Essential elements of a buildings contracts.

What is a buildings contracts?

Building or construction contract is an agreement enter into between a landowner and a contractor or multiple contractors regarding any building or engineering work that is to be undertaken on the land. The formation of a buildings contracts usually involves submission of tender by contractors in which the general description of the proposed work, plans, drawings, specifications and other documents as may be necessary would be given. Once the tender is accept, these become part of the contract. Apart from these, the contract would also contain the rights and obligations and liabilities of each party, agreed duration of the work, terms of payment etc.

It may also include the estimate of the quantity and cost of materials labour charges and other costs, other conditions such as mode of settlement of disputes, mode of execution of work and any other specific terms and conditions required for the particular work. These contracts are extremely dynamic in nature since they are often dependent on unforeseeable or unpredictable factors such as weather and labour conditions, changes in the  market, economy etc.

Essential elements of a buildings contracts

A buildings contracts, are like any other contract, governed by the provisions of the Indian Contract Act, 1872 and has to fulfil all the conditions specified under the Act to be valid and enforceable. The formation of a building contract is usually preceded by a series of invitations to offer, offers, tenders, exchange of documents, negotiations etc. At the culmination of these, what form0 a contract takes would depend upon the kind and complexity of the construction activity proposed to be undertaken. 

Various Features

However, there are various features that are fundamental to and are therefore commonly part of every construction contract. Every construction contract is often a compilation of a number of individual documents detailing different aspects of a construction project. It can also take the form of a single complex multi page document with a large number of sections detailing different aspects of the proposed construction activity. The documents that are most commonly found as part of a constructions contracts are: 

(a) the main agreement, (b) the general conditions, (c) the specifications, (d) the bills of quantities, (e) the drawings, (f) the schedule of rates, (g) the form of tender, and (h) the bond. 

These documents become part of the contract and as much enforceable provided that ‘intention to incorporate’ them to the contract exists.

Apart from these, the contract must also incorporate the requirements under various labour legislations such as provisions relating to labour conditions, employee benefits, workmen compensation, insurance etc. Further,  buildings contracts may involve multiple subcontracts if the builder chooses to not hire employees directly. This decision is usually taken by the project manager base on cost-effectiveness and time factors.

Types Of Construction Contracts 

Construction contracts types are usually define by the manner in which the disbursement is going to be made. But they may also vary according to other terms such as duration, quality, specifications, etc. The most common types are:

Following can be consider as types of contracts useful for construction work:-

Lump sum or fix price contract:

Lump sum or fix price contract is the type of contract, where all construction related activities are regulate with a total fix price agreement. These are favoure in situations when a clear scope and a define schedule is negotiate and accept. 

Cost plus contract:

Actual cost, purchase and other expenses incurre from the construction work are include in these contracts. Before the negotiation begins a specific expense amount must be include in cost plus type of contract. This amount represents a percentage of material and labour cost which covers the continuing cost of operations and the contractors profit. Cost can be direct or indirect and it must include critical cost expectations of the contract.

Time and material contracts where scope is not clear:

These contracts are used when the capacity and quantity of time and material is undetermine, which makes the project risky. The owner and contractor agrees on the tariff per hour or per day including possible additional cost during construction. Periodically the owner can determine the duration of the project with the contractor which must be performedlpp to reduce the risk at minimum.

Unit pricing contract:

These are commonly call hourly rate contracts which combine reimbursable expenses and fix price type of contract. These contracts can be adjust during the process in which the owner offers certain quantities and prices for predetermined number of items included for construction.

Bilateral contracts:

Both parties involved in a bilateral contract promises to implement certain things or ideas which can reduce the overall construction cost.

Unilateral contracts:

In a unilateral contract one party who is the bidder requires performance from the other party rather than a promise and the offer maker cannot be sued for abandoning the project or not being able to finish his or her work since he or she did not make a promise. Therefore, only the bidder is require by the law to comply.

Implied contracts:

Contracts can be implie either by fact or law

Implied in fact:

Joint agreements create obligations and creates intention among the parties where both are not express in words. This type of contract is not articulate directly but through facts and circumstances, which demonstrates the shared intention to achieve an agreement made between the parties.

Implied in law:

This is known as a quasi contract because the contract does not represent a real agreement.

Express contracts:

During formation of the express contracts the parties are forming conditions either orally or in writing. The offer is wholly accept with the terms and conditions of the offeror.

Simple contract:

A simple contract can be write or oral. The following are not require for the contract to be legal in binding. 1. Witnesses, 2. Signature, 3. Seals.

Standard building Contract

Although building contracts may differ in type and content and there is no single standard format for them, the forms create by the International Federation of Consulting Engineers (“FIDIC”), ICE (Institution of Civil Engineers) and the model publish by the IIA (Indian Institute of Architects) are being extensively adopted in government and private construction projects especially in complex building construction projects requiring detailed contract provisions. The common features seen in a standard form contract are:

• The owner is responsible for providing the land and the design for the construction which is usually supply to the contractor by the architect or the design team working on the owners behalf. However, standard building contracts also have optional provision for” contractors designed portion” if the appointed contractor is to be responsible for the designs of the specific of the work.
• Depending on the type of standard building contract used the owner (through its advisors) will need to provide drawings and specification, work schedules or bills of quantities to specify the quality and quantity of work at tender stage.
• Standard building contracts are administer either by the architect, quantity surveyor or a contract administrator.
• Works can be carry out in sections of the overall construction process.

Conclusion

Concluding a building contract involves a number of complicated steps. Negotiation is the first of these. A good negotiator having the characteristics and skills to land the best deal is crucial. Further, these contracts most often run into hundreds of pages and contain a huge number of clauses and subclauses. Moreover, since building contracts is extremely dynamic and aspects such as time and  costs may vary depending upon a number of conditions, it is important that the contract accounts for all such unforeseeable circumstances. These necessitate heavy but intricate legal drafting. Therefore, documentation and drafting of these contracts should be done with extreme care. Further, the parties intending to undertake a construction contract should also employ due-diligence to:

1. Ensure that the contractor has a license, 

2. Ensure that the contractor has insured for contracts risk and Workman’s compensation, 

3. Conduct research, check references, consult the best business bureau to make sure the contractor is reputable, 

4. Get the contract thoroughly review by consultants and attorneys to make sure it complies with the state laws and regulations.