CODE OF CONTRACT

CONTRACT DEFINITION

DictionaryA
voluntary,
deliberate,
and legally
binding agreement between two or more competent parties.
Contract Act 2056 an agreement between two or more than two
parties to do or not to do any business ,which can be enforceable as
laws.
Process of shifting the responsibility of executing the work to the
third party - a contractor

ELEMENTS OF CONTRACT

Offer and acceptance

Consideration
Capacity to control
Lawful purpose
Possibility of performance
Free consent
Certainty/ uncertainty
Legal relationship
Written
Two or more competent parties

Significance of contract
To make agreement legally enforceable
To specify what the contractor must do and what the owner must pay
To specify what will be done if either party fails to perform
To specify quality and quantity of work to be done
To specify the time frame within which the work is to be completed
and payment is to made.

To set out in advance the course of action that will be taken in

different possible situation.
To define words and establish common meaning.
To specify what is and what is not included in the contract
To specify how the contract will be terminated
To specify the responsibilities of the parties not just to each but
also to the third parties such as: government, community in which
work is to be done, workers, sub-contractors, materials supplier,
unions etc.

CONDITION OF CONTRACT
Agreement is reached between different parties followed by certain
terms and references that binds all the parties reaching the agreement.
Condition of contract depends upon the nature of work, type of contract
and the situation
Condition of contract contains two parts:
1. General condition of contract (GCC)
2. Special condition of contract (SCC)

GENERAL CONDITION OF CONTRACT

Definition and interpretation
Contract duration
Engineers duties and responsibilities
Payment procedure
Security deposit
Defective works
Addition and alterations
Price escalation
Sub letting
Arbitration

TYPES OF CONTRACT
1. Unit Rate Contract
. based on estimated quantities of items included in the project and their unit rate.

2. Lump sum contract

. Owner agrees to pay a contract a specified lump sum after the completion of work without
regarding a cost breakdown.

3. Design and built contract

. Contract may be concluded in order to have design and construction of work carried out by
the same construction entrepreneur.

4.Turnkey contract
. Contract may be concluded by mentioning the performance capacity

5. EPC
. EPC stands for engineering, procurement and construction contract
. In EPC contractors designs, procures the necessary materials and builds the project, either
directly or by subcontracting part of work.

6. Cost-Reimbursement contract

Construction work of nature of high risk and unpredictable condition of work, which a
construction entrepreneur does not agree to do or cannot do under the unit rate contract, costreimbursement contract may be concluded.

7.Time and material rate contract

In order to have a work carried out by computing the labor based on time and the materials
based on unit rate, a time and material rate contract may be concluded.

8. Management contract
Construction work carried out through different sub-contractors subject to the condition that
legal and contractual obligation relating to the quality and completion period of construction
work shall be undertaken by the construction entrepreneur himself/herself.

9.Piece work contract

Construction work related to small scale maintenance and repair which requires to be carried
out frequently as and when required, piece work contract may be concluded.

10. DESIGN, SUPPLY AND ERECTION CONTRACT

11. BUILD OWN OPERATE TRANSFER(BOOT) CONTRACT
BOOT is a form of project financing, wherein a private entity receives
a concession from the private or public sector to finance, design,
construct and operate facility stated in the concession contract.

Contract Agreement
Contract agreement documents in cooperates the following items:

Tender notice
Instruction to the bidder (general rules and direction for the use of the contractors)
Letters of the submission of the tender.
Letter of acceptance of the tender.
The addenda- the final contract is obviously subject to the addition, or alterations
agreed to by parties and such it is necessary that the correspondence exchanged and
conditions modified, is called addenda
Form of contract
Condition of contract
Schedule A-showing the details of materials if any, to be supplied by the owner to the
contractor
Schedule B-BOQ
Specification
Drawings

Termination of contract
A contract may be brought to the end
When no further action is required
By breach
By mutual agreement
By frustration
By convenience

Breach of contact

Violation of obligation, engagement, duty or agreement

Non performance of a promise
Refusal or neglect to execute as per contract
Disrespect of contractual obligations

Effect of breach of contract

Termination
Claims, dispute and arbitration situations
May allow a party to bring the other party in default to court
Serious breach ma make it impossible for contract to perform. contract killer

Agreement definition
An agreement is any verbal or written understanding reached between two or
more parties that is not enforceable by law.
Generally about the relative rights and responsibilities of the parties (mostly
friends, family or closed ones) with respect to one another
A promise made between closed parties, mostly based on trust and mutual
understanding
No guarantee of attainment by parties involved and can be changed at any time

Agreement VS Contract
An agreement lacks one or more essential elements that are required in order
to form a valid contract that will be considered legal
A contract more rigidly outlines the terms of the relationship formed between
the two parties than an agreement
Every Contract is an Agreement but every Agreement is not a Contract

Agreement + Legality= Contract

Procurement

Preparation
before
Inviting
openinviting
bid by determining prequalification
tendering
Procurement is acquisition of any Project preparation
Estimating of quantities
goods, consultancy
Tendering services or
other services or carrying out or Cost estimating
causing to be carried out any Approval of estimate
construction
work,
by
an Resource planning
Tender
document
preparation
Inviting
open bid
without determining prequalification
organization.
Execution of Procurement

Why tendering?
To select best contractor
To get quality work
To get work at competitive price
To maintain transperancy
Public private partnership

Some Definition
International competitive bidding
Sealed quotation
Direct procurement
Work through users committee
Work may be done by force Account (Amanat)

Procurement
Tendering

Selection
of Bidder

Negotation

contract

Some Definition
Earnest money
It is amount of money deposited while bidding a tender as a guarantee of the
partys willingness of carrying out the work awarded to him.
Bidder shall have to submit the bid along with bid security of 2 to 3% of
estimated amount of bid

Performance security
It is the amount of money deposited by a successful bidder as a security for
satisfactory performance.
In Nepal , security deposit is equal to 5% of contract amount for Nepalese firm
where as it is 10% of contract amount for foreign contractor.
This is refunded after completion of defect liability period.

Liquidated damages
Liquidated damages are remedies available to any contracting party to
compensate for the financial loss suffered as the result of a proven breach of
contract.

FIDIC

FEDERATION INTERNATIONALE DES INGENIEURS CONSEILS

ESTABLISHED IN 1993
OBJECTIVE-Promoting the interest of consulting engineering firms globally
It is best known for its range of standard conditions of contracts for the construction, plant and
design industries.
FIDIC forms are the most widely used forms of contract internationally, including by the World
Bank
FIDIC Rainbow
Red book
condition of contract for construction for building and engineering works designed by the
employer.
Yellow book
Condition of contract for plant and design-build
Silver book
Condition of contract for EPC/ Turnkey Projects.
Green Book
Condition of short form of contract
Blue Book
Contract for Dredging and Reclamation Works.
White Book
Client/consultant Model Services Agreement
Gold Book

BIBLIOGRAPHY

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