Friday, December 27, 2013

Building Contract Agreements



Building contract is defined as an agreement under which a person, invariably a contractor undertakes for reward the carrying out for another person called the owner or employer, works of building of civil engineering character. In other words, Building contract agreements are agreements for construction of buildings and other structural work proposed to be constructed, which fall within the category of ordinary contracts and are governed by the provisions of Indian Contract Act including the basic rules as envisaged under the said Act such as, competency of the parties to the contract, consent, existence of consideration to the agreement and not against the public policy.


There are two methods which are generally used by the owners and the contractors as detailed below:
Contract entered after inviting tenders: Under this method, the person who wants to construct a building invites tenders by advertising or issuing the Tender for 3 or more contractors and after choosing the best tender, accepts the tender amount with other terms and conditions.

Acceptance by the owner of the property constitutes a valid contract. Subsequently, a formal agreement is entered into between the owner and the contractor. For constituting a valid building agreement by adopting the instant method,The agreement should contain all the necessary and mandatory terms and conditions, particulars of the work required to be done and the schedule of quantities and rates. This method of agreement is generally followed by the Government, Local authorities, Architects and other public corporations and trusts.


Unlike in the former, in this mode of agreement, the owner and the contractor straight away negotiate and enter into a construction agreement and averments pertaining to the tenders cannot be looked into for evidence unless some ambiguity in the interpretation of recitals in the agreement exists. This method is generally adopted by commercial firms or individuals.

Format of the agreement: Generally the construction agreement that is available with the architect will be in the printed form where in blanks are filled in by hand or some provisions are altered by hand, if necessary. In doing so, care has to be taken to see that there is no inconsistency between the written words or provisions and those remaining in print. In case of any inconsistency, the word incorporated in the blank prevails over the one already printed since the words filled in the blanks will articulate the intention of the parties.

Appointment of an Architect: Irrespective of the magnitude of construction, once the hunt for an contractor is over, the immediate step to be taken by the owner is to appoint an architect who is duly qualified. However, the owner and the architect have discretion to choose the mode for entering into the construction agreement. The architect prepares preliminary drawings and estimates and then prepares working drawings and specifications and bills of quantities and other documents relevant for the contract. It is also the general practice to appoint a clerk of works or resident engineer for carrying day to day supervision of the work and to see that the instructions of the Architect and structural engineer are complied with by the contractor.




Lump sum contract: In this type of contract, the contractor agrees to carry out the work for a fixed amount irrespective of anything else, which would be arrived at after mutual negotiations between the parties to the contract. It is not advisable to opt for this method since it may lead to lot of confusion.

Items rate contract: Under this category, work is divided into several items of work and the contractor quotes price of each item including the remuneration that will be paid in accordance with the work carried out at the rates agreed upon, which can be

assessed with the help of a qualified Architect or a Civil Engineer. Percentage contract: In this case, the contractor is paid certain percentage of amount on the total actual cost of the building as agreed earlier.
Cost plus percentage contract: In this category, the contractor gets the actual cost of work as well as certain percentage over and above the said cost which is accepted by the owner.
General conditions of a building contract:


Description of the work to be executed.

Estimated quantities and rates payable.

Payment of earnest money and method of payment of running bills.
Time allowed for completion of the work.

Provision for extension of time.

Issuing interim and final certificate by the Architect.

Submission of the interim bills by the contractor and their payment.

Materials to be supplied by the owner.

Alterations, additions and omissions to be made if repaired according to the orders of the Engineer-in-charge.
Action and compensation payable in case of bad work.

Inspection of work.

Responsibility of the contractor for the acts done personally or through the agents authorized to undertake such acts.
Payment of damages or penalty in case of fai I ure of the contractor to commence or to carry outthe work according to the contract.

Liability of the contractor for compensation for delay in execution or completion of work.

Forfeiture of earnest money or security deposit.

Responsibility of the contractor to supply ladders, scaffoldings and other material required for construction

Contractor's responsibility to remove condemned work or materials.

Giving of notices and payment of fees to local authorities.

Contractor's liability to pay statutory wages to workers.

Liability of the contractor to provide lights, fences and other precautions at the work site.

Liability of the contractor in case of breach of any of the terms and conditions envisaged in the contract, including payment of labour charges.

Who has to bear the expenses incurred for supply of Electricity, water supply required for execution of the work.

Adjudication of disputes pertaining to the contract either by referring to an Arbitrator or otherwise.

Liability of the contractor for workmen compensation in case of injury or death during the course of employment.



Architect plays a pivotal role in a building contract since the entire object of the contract to construct the building depends upon amount of commitment and diligence involved. Certain duties have been vested upon the architect such as:

To insect the site of the roused building an to advise the owner about its suitability.

To prepare plans, drawings, specifications and estimates.
Get the plans sanctioned by the local authorities.

 Prepare tender or contract documents with all necessary conditions.

After acceptance of the tender and contract entered into, to supervise the work of the contract.


Apart from this, if there is any dispute regarding the construction then the Architect has to decide and give his decision by issuing a certificate to that effect. Further, the Architect has to administer and monitor day to day activities involved in the construction.



The contractor can appoint a Sub-Contractor for carrying out either for the whole work or part of the work, with or without the consent of the owner. However, if the consent of the owner is not obtained, Privacy of contract between the owner and the Sub-Contractor does not exist unlike with the contractor personally appointed by the owner and in such case the contractor alone will be liable for all the acts done by the Sub-Contractor. Similarly the Sub-Contractor does not derive any right to raise claim against the owner pertaining to the construction contract.


Considering the present scenario where the cost involved for constructing a building is mounting and several instances where the construction project is left incomplete due to lack of co-ordination between the owner, contractor and the architect, it is advisable to enter into a construction agreement, after complying with all the mandatory requirements as envisaged under the statute and reduce the same in writing to manifest the specific duties and obligations vested on all the necessary parties. For successful completion of the construction project, it is necessary to incorporate 11 the terms & conditions of the contract explicitly.



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