Construction contracts are the most complex contracts. There are so many stakeholders and items involved with the construction projects. Handling several issues simultaneously is only possible through a strong and meticulously prepared contract document the provisions of which not only act as driving force for various compliances and regulations required but also are legally binding to all the parties entered into the contract. The professionals therefore must be aware of basic contract documents to be used for construction projects. Contracts used in the construction projects are of many types. Please click the link below to know more about the type of contracts in detail.

Contract: Definition and Types of Contracts

There are some basic provisions or contract documents which must be incorporated in construction contracts to ensure smooth execution of the contract. Some of these basic provisions are mentioned below:

Standard Form of Agreement

Standard form of agreement is one of the most important document of any construction contract. This document is placed at the beginning of the contract and it defines the agreement between the parties. The name of parties, entering into the contract, the date & place of signing the contract, name & amount of assignment are specified in this document. It is always better if the order of precedence of the documents is also mentioned in ‘Standard Form of Agreement’, to avoid future disputes. The signatures of authorized persons from all the parties and name & signature of witnesses are also inscribed in this document.

Letter of Acceptance

‘Letter of Acceptance’ is also included in the contact. It a letter which formalizes the acceptance of bidder’s bid/proposal by the client. It is issued in the standard format in the letterhead of the client and normally contains name & address of the contractor, name of work and value of contract, any taxes, value & deadline of the performance security to be deposited by the contractor.

Scope of Work

Scope of work defines the work to be done by the contactor, the deliverables and the statement of work. It must specify all the tasks, obligations, duties & responsibilities of the contractor to accomplish the assignment.

General Conditions of Contract (GCC)

General Conditions of Contract (GCC) are the general terms and conditions of the contract such as definitions, subcontracting, details to personnel and equipment, employer’s & contractor’s risks, insurances, safety, procedure for dispute resolution, time control (extension of time), quality control, cost control (variations), payment conditions, taxes, liquidity damages, bonuses, contract termination, etc. These conditions may or may not be directly related to the work but compliance of these conditions is necessary for all the parties. The general conditions as well as special conditions of contract are always incorporated in standard forms of contracts like FIDIC contract documents.

Special Conditions of Contract (SCC)

Special Conditions of Contract (SCC) are related to specific requirements for the work. These are generally the addendum to the ‘General Conditions of Contract (GCC). Normally each clause of GCC is extended by corresponding clause of SCC, which defines the provisions specific to the work. If any party wants to customize the contract as per the specific work, then it may be reflected in SCC and the GCC are not changed. They are general conditions which are same for each contract.

Bill of Quantities (BOQ)

Bill of Quantities contains various items of the work to be executed & their quantities. The contractor has to quote the rates to items at the designated place. Sometimes, indicative rates also mentioned in the BOQ so that the contractor can compare their rates with the indicative (estimated) rates of the employer. Bill of Quantities is prepared in excel format and it automatically calculates the quoted price of items as well as the total quoted amount of work on the basis of the rates quoted by the contractor. This document is one of the most important part of the contract.

Work Schedule

Work schedule basically mentions the plan to accomplish the work. A work cannot be performed without a proper plan. A project schedule depicts delivery date of various deliverables, milestones, project duration and other useful information. Tasks are grouped under specific work breakdown levels such as civil, electrical and mechanical works.

Drawings

Drawings are integral part of any construction contract. Drawings show dimensions, location, sizes, shapes and quantities of the items to be delivered by the contractors. The drawings must incorporate every details so that no confusion remain to the contractor while performing their job. The drawings should show plan, elevation and cross section of the elements.

Technical Specifications

Technical specifications define the material uses, dimensions of the element, workmanship, etc. of the work item. Technical specifications are normally available in standard codes of practice or circulars of the organization owning the project. Detailed technical specifications of the work items should be made part of the contract. If it is not possible to incorporate the detailed specifications due to some reason, then the reference of the code of practice or source of information from where the specifications were drawn, should be given in the contract. Technical specifications define the end product and the cost of work depends on the technical items, therefore these should be made available to the contractor during the bidding process, so that the bidders may quote their rates accordingly. Every task should be covered in technical specifications and deviation limit should also be given along with specifications.

Copies of Performance Securities (Bank Guarantees)

Performance security is the amount of money deposited by the contractor at the time of contract signing to guarantee that he or she will perform their obligations as per the contract. Performance security is normally in the form of bank guarantee issued by a bank. The bank guarantee submitted by the bidder should be verified from the issuing bank and kept in safe custody. A copy of bank guarantee or other form of performance security is included in the contract for future reference.  

Joint Venture (JV) Agreement

Sometimes the bidders make joint ventures before bidding, either to meet bidding qualification criteria or to complement the specializations of each other. The copy of joint venture agreement should be included in the contract for future reference to solve any potential disputes between the JV partners in future.

Environment Management Plan & Social Management Plan

Construction projects may adversely affect environment. The plants and equipment may cause air and noise pollution. Waste disposal is also a potential cause of pollution. Improperly disposed muck from excavation may also damage trees & vegetation and may also disrupt the flows of river if disposed at the river side. Construction projects also attract various social issues such as land acquisition, rehabilitation and resettlement of effected people, etc. Many government organizations & multilateral funding agencies/ organizations, therefore impose conditions on the contracts pertaining to various environmental and social compliances to be followed by the parties into the contract. The bidders therefore, has to submit environment and social management plans along with their bids to demonstrated their commitments towards various social and environmental compliances. These environment and social management plans should necessarily be made part of the contract.

Power of Attorney

The power of attorney given by the contractor to someone authorizes that person to sign the contract, submit various information and documents and to take the decisions on behalf of the contractor. The power of attorney is an important document and should be made part of the contract. It should be kept in mind that only the person authorized to do so should sign the contract and other documents because signing of the documents by a person other than the authorized one may create legal complications later on.

Summary

The above mentioned documents should necessarily be included in the construction contracts and the provisions under these documents should be meticulously prepared to cover all the potential foreseeable and also unforeseen issues which may arise in future. The incorporation of these documents is in the best interest of all the parties into the contract to execute the contract in a cordial environment and to avoid instances of disputes and litigations.