CONTRACT DOCUMENT & IT'S TYPES

CONTRACT DOCUMENT & IT’S TYPES

What is ‘CONTRACT’?

A Contract Document is a binding legal agreement which is enforced by law between the two or more parties. The term ‘Contract’ is derived from the Latin word ‘Contractum’ which means ‘drawn together’. Furthermore, it is a voluntary agreement between the parties to avoid conflicts or disputes. In 1872, according to the Indian Contract Act, a contract document is an agreement which is enforced by law. The Contract is a branch of the law of liability under the jurisdiction of civil law traditions. In addition, the Contract law concerns the rights, power, control, duties and the responsibilities that arise from agreements.

Contract Agreement or Formation of Contract is based on three important aspects. They are Offer (Proposal), Acceptance (Promise) and Consideration (Agreement). So in this post, we will discuss the contract document and agreements, laws, etc. Also, its classifications, forms, types of Contracts and Contractors details in brief.

Elements of a Valid ‘Contract Document’:

A contract must contain various essential elements in an agreement. Such requirements are as follows:

  • Lawful Subject Matter
  • Legally Competent Parties
  • Valid Consideration
  • Free Consent
  • Provision of Law with regard to Law
CONTRACT DOCUMENT
Elements of a Valid ‘Contract Document

Classification of Contract Document:

Contract Document cab be classified into the following ways. They are:

1. On the basis of Enforceability

a. Valid Contract

A Valid Contract is a contract which contains all the requirements of the Indian Contract Act. Requirements like the lawful offer, acceptance, free consent, etc. For Instance: X and Y are two persons, X wants to sell his bike in Rs 30,000. Y agrees to buy an X bike. So, it is an agreement which is enforceable by law. Hence, it is a contract agreement.

b. Void Contract

A Void contract is like a Valid contract, but it becomes void due to the change of situation or conditions. For Instance: ‘A’ and ‘B’ are two persons, ‘A’ wants to sell his dog in Rs 5000. ‘B’ agrees to buy ‘A’ dog. But, the dog died in an accident. Thus, a valid contract changes into the void contract because of the failure of the performance.

c. Voidable Contract

A Voidable Contract is a contract which becomes voidable when the agreement is not free. In this contract, the agreement is not binding to one or other of the parties. Hence, one of the party can avoid fulfilling the contract. For Instance: ‘A’ and ‘B’ are two parties, Party A promises to sell his car to Y in Rs 1,00,000. However, party B took party A at his gunpoint. So, party A is distressed and the contract is voidable from his side.

d. Unenforceable Contract

An unenforceable contract is a contract which is valid from all the aspects but because of non-fulfilment of some technical issues, it cannot be binding in any law legally or enforced by law. It is an unlawful contract or an invalid contract.

2. On the basis of Formation

a. Express Contract

In Express Contract, the terms and conditions of an agreement have been undertaken or agreed on both the parties by orally or in writing at the time of formation of the contract. For Instance: ‘A’ and ‘B’ are two parties, Party A tells to B, that he wants to buy his bike on Rs 50,000 and B agrees and accepts his offers on phone. So, this contract is termed as Express Contract.

b. Implied Contract

An Implied contract, is a contract that comes into existence during the control of the parties. For Instance: Order placed for a cup of coffee in a restaurant.

c. Quasi Contract

In the Quasi-contract, there is no intention for the parties to form a contract but it is made by law. For Instance: X and Y are businessmen, X accidentally leaves some items at Y home. It imposes an obligation on Y to either return the goods to X or pay these goods.

d. E-Com Contract

In E-Com Contract, the contract is created on the internet. For Instance: Any Business deal that has been done online.

3. On the basis of Execution

a. Executed Contract

A contract is called an Executed contract when both parties to a contract have performed their obligations. For Instance: When a bookseller sells a book on cash payment, an executed contract occurs.

b. Executory Contract

An Execution contract is one where both parties are yet to fulfil their respective obligations. For Instance: ‘A’ and ‘B’ are two parties, Party A sells his car to Y in Rs 1,00,000. Party B has made the payment but Party A doesn’t fulfil the requirements of the contract.

4. On the basis of Obligation

a. Bilateral Contract

A Bilateral contract is a contract that requires both parties to perform their obligations at the time the contract is formed. For Instance: X promises Y to give Rs. 1200 for his cycle. Neither of them has fulfilled their obligations.

b. Unilateral Contract

A Unilateral contract is a contract when one party has performed its obligations and the performance of the obligation is owed on the part of another party. For Instance: X buys a railway ticket to travel from Amritsar to Delhi. X fulfilled his obligation by paying the ticket fare. But, the railways still have to do their work, taking X from Amritsar to Delhi.

ALSO READ: SPECIFICATION IN ARCHITECTURE

Types of Contract Document:

There are different types of Contract Document for various purposes. Some of them are as follows:

  • Labour Contract
  • Negotiated Contract
  • Scheduled of Price Contract
  • Package Deal Contract
  • Demolition Contractor
CONTRACT DOCUMENT
Types of Contract Document

Forms of Contract Document:

There are three different Forms of Contract. They are as follows:

1. Lump-Sum Contract Document

In the Lump-Sum Contract, the total amount is fixed for all the construction activities. This is also known as ‘Fixed Contract’. These contracts also include incentives or benefits for easy termination or punitive damages for a delayed termination.

Advantages

  • Low risk to the owner, high risk to the contractor
  • Contractor selection is easy
  • The contractor will assign the best personnel
  • Cost is known at the outset

Disadvantages

  • Changes is diificult and costly
  • A contractor is free to use low quality materials, equipments in construction
  • The contractor carries high risks at the time of tender filling
  • Due to incertainities, there is chance of increasing cost of work

2. Unit Price or Item Rate Contract Document

This contract is also known as Measure and Value Contracts or Simply Measured Contracts. In Unit Price Contracts, payment of Contractor is based on the measures or units of work. The total amount is not fixed for any construction activities. The quotations rates or prices are observed in Units. Owner is at high risk for quantities as well as the Contractor is for fixed unit prices.

Advantages

  • Easy for Contract Selection
  • Low risk for Contractor, on the construction related activities
  • Fair basis for Competition
  • Changes is easy on Contract Documents

Disadvantages

  • Final Cost of the project is unknown from the beginning
  • Unbalanced bid in contract, because of Unit prices method
  • Demages due to the changes in specification of materials and drawings

3. Cost Plus or Percentage Contract Document

In this form of contract, the contractor agrees to complete the structure for his services at a fixed fee. This form of contract is useful if the quality and quantity of the material are unknown at the beginning of manufacture. Cost Plus Contract is also known as the Cost Reimbursement Contract. In the Cost Reimbursement Contract, a contractor is paid for all his permissible expenses and also pay for the profits.

Different Methods of Reimbursement

  • The Cost + Percentage
  • Cost + Fixed Rate/Fee
  • Cost + Fixed Rate/Fee + Profit Sharing Clause

Advantages

  • No conflicting interest
  • Extra Work will be totally eliminated
  • Early starting and Completion of work

Disadvantages

  • Final Cost of the project is undivine
  • Inferior Works- increases the final cost of the project
  • This form of Contract is Illegal for Public Bodies
  • Contractor’s Accounts- it contains Accounts of materials, labours, miscellaneous expenditures, etc.

Types of Contractor:

During construction, the size of the company or contracting firms is a very important aspect to tie or identify or select a legal contract document.

Basic Selection Criteria for Contractors are:

  • Ownership of Equipment’s
  • Supervisory Capacity
  • Access to Capital
  • Background of the Company

1. Petty Contractors

  • Petty Contractors are ‘One- Man Contractors’ or ‘Sub-Contractors’.
  • Organised Local Community Groups like Farmers Associations and Village Welfare Groups.
  • They are formally unregistered and do not possess any capital, equipment and lack of means of transport.
  • These Contractors are for Road Construction, Maintainance Works, etc.
  • Petty Contractors only have basic skills of maintenance works, etc.

2. Small-Scale Contractors

  • Small-scale Contractors works in the building industry and in the transport sectors.
  • They are formally registered companies.
  • They possess basic equipment and also having a certain technical and managerial skill.
  • Small-scale contractors are often underfinanced.
  • They also have an entrepreneurial skill, that shows in their works.

3. Large-Scale Contractors

  • Large Scale Contractors are often subsidiaries of large MNC’s, they have good access to the capital, equipment and skilled labours.
  • These contractors also participate in international bidings.
  • They also travel from one country to the other for completing the contract with their equipment and skilled personnel.
  • These Contractors having a very skill knowledge of technologies and construction methods. Moreover, they also charges very highly.

Contract Document pdf

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Frequently Asked Questions

What is ‘CONTRACT’?

A Contract Document is a binding legal agreement which is enforced by law between the two or more parties. The term ‘Contract’ is derived from the Latin word ‘Contractum’ which means ‘drawn together’. Furthermore, it is a voluntary agreement between the parties to avoid conflicts or disputes. In 1872, according to the Indian Contract Act, a contract document is an agreement which is enforced by law.

Types of Contract Document:

Labour Contract
Negotiated Contract
Scheduled of Price Contract
Package Deal Contract
Demolition Contractor

Forms of Contract Document

1. Lump-Sum Contract Document
2. Unit Price or Item Rate Contract Document
3. Cost Plus or Percentage Contract Document

Types of Contractor:

1. Petty Contractors
2. Small-Scale Contractors
3. Large-Scale Contractors

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