Engineering Contracts

Procurement & Construction

Techno Legal Concepts &
Issues

By B.J. VASAVADA
Techno-Legal Consultant,
Advocate & Arbitrator

Essential inputs for project

construction
Planning
Direction
Coordination
Monitoring
Completion

and Commissioning

Evaluation
Operation

& Maintenance

Need for Efficient Project

Management
Control

of Project Time

Control

of Project Cost

Reasonable
Establishing

Profits
Organizational

Efficiency & Effectiveness

Project
Name

Quality

and Fame

Project Implementation
Schedule
Perfect

match of fund flow with project

time
Procurement

of Materials well in time

but at the same time no stock piling.

Time

cost analysis

Task

analysis

Pert

and Critical method

Cash

flow planning and Analysis

Why Contracts ?
Contracts

are required for

project implementation at a cost

and in a predetermined time.
Contracts

aim at allocation of

obligations, risks and

responsibilities.

What is a Contract ?
Meeting
Mutual
The

of Minds

understanding

Indian Contract Act 1862 specifically defines

contract as those agreements between parties

which are:
Enforceable
Are

made after free consent of parties

Are

between persons competent to contract

There

is lawful consideration and lawful object

Which

are not expressly declared to be void by

any statue

Valid & Binding Contract

A

valid

and

legally

binding

contract

always originates from an offer given by

one party which is properly accepted by
the other party. Such offer is also termed
as

proposal

wherein

one

person

signifies to other person his willingness to

do or not to do anything with a view to
obtain the consent of that other person.

Classification of Engineering
Contracts Purpose based
Full

Contracts

Labour

Contracts

Turnkey

Contracts

Material

Supply or Procurement Contract

Transport
Erection

Contract

Contract

Consultancy

Contract

Classification of Engineering
Contracts Economy based

Fixed

Price Contract

Fixed

Price with Escalation Contracts

Cost
Build

Plus type of Contracts

Own Operate & Transfer (BOOT)

Contracts

Essentials of a Public
Contract

A well defined and transparent

procedure

Equity

Justice

Fair play

Principle of Equality in Awarding

Contracts

The principle of equality does not lead to an

interpretation that every law will have universal
application

for

all

who

are

not

by

nature,

attainment or circumstances in the same position,

as the varying needs, of different classes of
persons often requires separate treatment.

The principle does not take away from the State,

the power of classifying persons for legitimate
purposes.

Every classification to some extent will lead to

some kind of inequality and mere production of
inequality is not an excuse.

Principle of Equality in Awarding

Contracts

If a law deals equally with members of a well

defined class, it is not illegal and it is not open to
charge of denial of equal protection on the grounds
that it has no applications to other persons.

Though, the constitutional interpretation is that

reasonable

classification

is

permissible,

such

classification has to be based upon some real and

substantial distinction bearing a reasonable and
just relation to the subject sought to the attain.
This enunciates a principle that such classification
should not be arbitrarily done and should not be
without any substantial basis.

Principles to be adopted by the

Government while awarding
contracts

The criteria and conditions for deciding reasonable

classification

based

on

technical

competence

&

experience should be properly prescribed in the notice

inviting tender.

Once eligibility standards are prescribed in the NIT, the

same should be scrupulously followed. while issuing
tender books or evaluation of tenders as the case may be.

Equal opportunity should be provided to all equally placed

contractors to participate in bidding.

Decisions should not be vitiated by arbitrariness and

unfairness, illegality and irrationality.

Landmark Judgment of Supreme Court

relating to Government Contracts
Tata Cellular Case

The modern trend points to judicial restraint in administrative

action.

The court does not sit as a court of appeal but merely reviews
the manner in which the decision was made.

The court does not have the expertise to correct the

administrative decision. If a review of the administrative
decision is permitted it will be substituting its own decision,
without the necessary expertise which itself may be fallible.

The terms of the invitation to tender cannot be open to

judicial scrutiny because the invitation to tender is in the
realm of contract. Normally speaking, the decision to accept
the tender or award, the contract is reached by process of
negotiations through several tiers. More often than not, such
decisions are made qualitatively by experts.

Landmark Judgment of Supreme Court

relating to Government Contracts
Tata Cellular Case
The

Government must have freedom to contract. In

other words, a fair play in the joints is a necessary

concomitant for an administrative body functioning
in an administrative sphere or quasi-administrative
sphere. However, the decision must not only be
tested by application of Wedenesbury principle of
reasonableness (including its other facts pointed
out above) but must be free from arbitrariness not
affected by bias or actuated by mala fides.
Quashing

decisions

may

impose

heavy

administrative burden on the administration and

lead to increased and unbudgeted expenditure

The Basic Principles in Public

Contracts
The basic principle is that the
procedure adopted for selection of
contractor should conform to the
principles

of

providing

equal

opportunity and there should not

be any arbitrary discrimination

Bid Documents
The bid document normally consists of following vital
sections.

Notice inviting the tender. (NIT)

General conditions of contract. (GC)

Special conditions of contract. (SC)

Bill of quantities.

Schedule of materials.

Engineering specifications form materials as well

as labour items.

Contract drawings.

Structure of the Bid Document

Face sheet giving name of the work and the estimated cost.

Short press notice for inviting the tender. (NIT)

Detailed notice inviting the tenders. This in brief spells out the type,
nature, scope and nature of the work.

Detailed instructions to the tenderer regarding filling of the tender,

proposed mode of evaluation and criteria for selection of contractor
etc.

General conditions of contract.

Special conditions of contract if any. This may be necessary in case of

large specialized works.

Schedules and bill of quantities.

Detailed technical specifications.

Time and performance schedule.

Form of agreement.

Formats and statements.

Bill of Quantities

They indicate with some precision to tendering contractors the

amount and nature of the works they will have to carry out;

They indicate to persons examining the tender on behalf of the

owner a more detailed make up of the overall contract sum for
tender comparison purposes;

In measured, as opposed to lump sum, contracts they are a

precise measure of the quantity of work undertaken for the
contract price, which will be adjusted once the work is
complete and the actual quantity known, whether or not any
variations have been ordered;

They form the contractual basis of valuing variations in the

work (as opposed to the discrepancies between billed and
actual quantities, arising from errors or inaccurate estimates of
the quantities, which it is the purpose of a measured contract,
but not a lump sum contract, to correct);

Essential Conditions for a legally

valid contract

The contract must be between at least two persons - the

person under an obligation and another entitled to enforce
the obligation;

The persons making the contract ought to be of sound

mind when contracting. A juristic person too can enter into
an agreement;

Parties must be ad idem about the subject-matter of the

contract and must have understood it in the same sense
while entering into the same;

There must be a lawful consideration for doing the act; and

There

must

relationship.

exist

an

intention

of

creating

legal

Notice Inviting Tender

A tender notice means only an invitation
extended to the contractors for making
offers. It does not amount to an offer or
proposal and the quotation of rates offered
by

the

contractor

does

not

amount

to

acceptance of an offer or proposal and

thereby creating any promise or agreement.
It is by the acceptance of any of those offers
or proposals by the person calling for tenders
that it becomes a promise or an agreement.

Notice Inviting Tender

The advertisement calling for tenders is not
a proposal within the meaning of the
Contract Act, but invites a proposal. The
submission of a tender being in the nature
of a proposal or offer unless the highest bid
of a tenderer is accepted by the competent
authority

and

the

said

acceptance

is

communicated to the tenderer, the contract

cannot be said to be concluded between the
parties.

Absolute Acceptance
A Legal Requirement
If a party accepts a proposal of purchase with
conditions,

it

cannot

be

said

that

the

acceptance was absolute and unqualified and

hence

there

existence.

was

When

no
an

valid

order

contract
for

goods

in
is

accepted 'subject to confirmation by mail' the

acceptance is a conditional acceptance and
the contract cannot be said to have been
complete on the date of such acceptance

Withdrawal of Offer
it is expressly withdrawn; or
it is rejected; or
it is revoked by the counter
offer; or
it lapses by efflux of time,

Pre-requisite of a Valid Tender

It must be unconditional.

Must be made at the proper place.

Must conform to the terms of the obligation.

Must be made at the proper time.

Must be made in the proper form.

The person by whom the tender is made must be

able to willing to perform his obligation.

There

must

be

reasonable

opportunity

expression.

Tender must be made to the proper person.

It must be of full amount.

for

Whether lowest Tender must be

Accepted
In

normal

circumstances

the

purpose

of

an

invitation to tender is to obtain from the builder a

firm offer capable of acceptance and hence of a
conversion into a binding contract. It follows that in
the usual case there is no obligation on the
employer to accept the lowest or any tender. Many
tenders

contain

an

express

exclusion

of

the

obligation to accept the lowest or any tender could

be so necessary. On the other hand, an invitation to
tender could be so expressed as to impose such an
obligation

and

consideration.

would

be

supported

by

In significant deviation in
Tender
As a matter of general proposition it cannot be held that an
authority inviting tenders is bound to give effect to every
term mentioned in the notice in meticulous details and is
not entitled to waive even a technical irregularity of little or
no significance. The requirements in a tender notice can be
classified into two categories, those which lay down the
essential conditions of eligibility and the other which are
merely ancillary or subsidiary with the main object to be
achieved by condition. In the first case the authority
issuing the tender may be required to enforce them rigidly.
In the other case, it must be open to the authority to
deviate from and not to insist upon the strict legal
compliance of the condition in appropriate cases

Can lowest Tender be

Rejected ?
The right to refuse the lowest or any other tender is
always

available

to

the

Government.

But,

the

principles laid down in Article 14 of the Constitution

have to be kept in view while accepting or refusing a
tender. There can be no question of infringement of
Article 14 if the Government tries to get the best
person or the best quotation. The right to choose
cannot be considered to be an arbitrary power. Of
course, if the said power is exercised for any collateral
purpose the exercise of that power will be struck
down.

Is price only the

Consideration?
Price

may not always be the sole criteria for

awarding a contract
The

expert evaluation committee has the

power to play a decisive role in deciding

which is the best offer
Past

record of the tenderers

Quality

of

goods

or

services,

market

reputation and past performance always plays

an important role in selecting a contractor
To be supported by recording reasons.

Power to reject the lowest

tender
The appropriate authority has power to
reject even the lowest rate and there is
no criteria that the lowest rate should be
accepted. Where the authority has gone
into the aspects of efficiency, financial
capacity, manpower and past history of
the contractors in previous 6works, it
cannot be said that the exclusion of the
lowest tender is arbitrary.

Power to reject the lowest

tender

When the Government calls for tenders for construction

work, the rejection of the lowest tender on comparative
merit and acceptance in consequence of the second
lowest would not amount to blacklisting of the party
whose lowest tender was rejected. The acceptance of the
second

lowest

on

comparative

considerations

and

suitability of the performance does not violate the

principles of natural justice and, therefore,-no notice and
opportunity of the party, whose lowest tender was
rejected, is necessitated. What all has to be examined in
such circumstances in accepting any tender other than
the lowest is whether the lowest tender has been treated
fairly and honestly in rejecting the same.

Right of hearing before the

cancellation of Tender
A

tenderer

cannot

claim

any

hearing

before

cancellation of his tender where the acceptance or

rejection of a tender is not based on any, statute or
statutory rule. Mere submission of tender does not
create any right to property in favour of the tenderer.
The fact that the tenderer has quoted the lowest rate
also does not entitle him to a hearing especially when
one of the terms specified in the tender form is "the
Railway Administration reserved the right to reject
any tenderer without assigning any reason and does
not bind itself to accept the lowest or any tender or to
assign any reason for doing so.

Refusal to Issue tender whether

justified?
Refusal stand justified if :
The

applicant

does

not

possess

minimum qualifications set out in the

notice inviting tender.
Applicant

does not possess the desired

experience set out in the tender notice.

The

tenderer

employer.

is

blacklisted

by

the

Credentials of Bidders - Important

criteria for awarding contracts

the price at which the other side is willing to do the work;

whether the goods or services offered are of the requisite specifications;

whether the person tendering has the ability to deliver the goods or
services as per specifications. When large works contracts involving
engagement of substantial manpower or requiring specific skills are to
be offered, the financial ability of the tenderer to fulfill the requirements
of the job is also important;

the ability of the tenderer to deliver goods or services or to do the work

of the requisite standard and quality;

past experience of the tenderer and whether he has successfully

completed similar works earlier;

time which will be taken to deliver the goods or services; and often

the ability of the tenderer to take follow-up action, rectify defects or to

give post contract service.

Negotiations
CVC

guidelines does not encourage

negotiations on price.
Funding

agencies also discourage

negotiations.
Negotiations

responsive
permitted.

with the first lowest

bidders

is

only

Obligations of the Contractor

Obligation to complete work;

To complete work within stipulated time;

To complete work within reasonable time when not

specified;

Implied Condition as to workmanship;

Obligation as to fitness of materials;

Suitability of materials and design;

To complete work as per drawings;

To acquaint himself of site conditions;

Difficulty in execution no excuse;

Not to execute useless work;

Indemnities and Insurance;

Obligations of the Contractor

Substantial performance;
Substantial compliance with contract;
Right to do whole work;
Entire contract - What is
Work contingently necessary to achieve
completion;
To carry out preparatory work;
Work expressly or impliedly included;
Satisfaction of employer;
Duty to Forewarn;
Duty of care towards employer.

Engineers Duty & Authority

Duties

and Authorities of an Engineer

Duties

and Authorities of the Engineer's

Representative
Authority

of the Engineer to delegate his functions

Engineer's

power and authority to appoint

assistance
Duty

of the Engineer to issue clear and

unambiguous instructions in writing.

The

fundamental responsibility of acting impartially

Engineers Duty & Authority

To advise and consult with the employer (not as a lawyer) as to

any limitation which may exist as to the use of the land to be
built on, ether (inter alia) by restrictive covenants or by the
rights of adjoining owners or the public over the land, or by
statutes and bye-laws affecting the works to be executed.

To examine the site, sub soil and surroundings.

To consult with and advise the employer as to the proposed

work.

To prepare sketch plans and specification having regard to all

the conditions which exist and to submit them to the employer
for approval, with an estimate of the probable cost, if requested.

To elaborate and, if necessary, modify or amend the sketch

plans as he may be instructed and prepare working drawings
and a specifications or specifications.

Engineers Duty & Authority

To consult with and advise the employer as to obtaining tenders,

whether by invitation or by advertisement, and as to the necessity
or otherwise of employing a quantity surveyor. (Engineers do not so
often employ a quantity surveyor).

To supply the builder with copies of the contract drawings and

specification,

supply

such

further

drawings

and

give

such

instructions as may be necessary, supervise the work, and see that

the contractor performs the contract, and advise the employer if he
commits any serious breach thereof.

To perform his duties to his employer as defined by any contract

with his employer or by the contract with the builder, and generally
to act as the employer's agent in all matters connected with the
work and the contract, except where otherwise prescribed by the
contract with the builder, as, for instance, in cases where he can
under the contract to act as arbitrator or quasi-arbitrator. .

Authorities of the Engineer

Authority to sign and execute a contract on behalf of an owner.

Authority to waive conditions contained in the contract with the

consent of the owner or his employer.

Give directions to the contractor within the scope of the contract.

To order extras and variations that may be required, within the

framework of the contract and subject to the consent and
approval of the owner or the employer.

To frame bills of quantities.

Measure and value the works.

To supervise works.

To exercise administrative control.

To direct manner of execution.

To exercise check on estimates.

To certify the works and the bills.

Sub Contracting
Clause

4 of the FIDIC general conditions of

contract

deal

with

the

subject

of

sub

contracting
prohibits

the sub contracting of the whole or

any part of the works unless the contract

expressly permits it
Regardless

of owner's consent, the contractor

shall be fully liable for the defaults of the sub

contractor in the same manner as if they
were the defaults of the contractor himself

Sub Contracting
In

major projects which require culmination of

various activities and use of different kinds of

materials sub contracting becomes essentials
The

contractor has therefore to sub contract

procurement of these materials and equipments

to the manufacturers
Construction

contracts do provide, in most of the

cases that the contractor shall procure materials

and equipments from the vendors who are on the
approved list of the owner. Some contracts give a
vendor list in the contract itself

Sub Contracting
Some construction contracts also put a
rider

as

conditions

a
or

part

of

special

the

general

conditions

of

contract that the contractor will not be

permitted to sub contract for more
than 40% of the works, this percentage
barrier has to be tailor made and
depends on the type and nature of the
work and the contract.

Obligations of the Employer

To

make available site and land

To

give statutory permissions

To

make payments in time to the

contractor
To

approve extras & variations

To

take decisions with regard to time

extensions
To

prepare, approve and pay final bills

Extras & Variations

The Engineer shall make any variation of the form, quality or quantity of the
Works or any part thereof that may, in his opinion, be necessary and for
that purpose, or if for any other reason it shall, in his opinion, be
appropriate, he shall have the authority to instruct the contractor to do and
the contractor shall do any of the following:
Increase or decrease the quantity of any work included in the
contract,
Omit any such work (but not if the omitted work is to be carried out by
the Employer or by another contractor),
Change the character or quality or kind of any such work,
Change the levels, lines, position and dimensions of any part of the
works,
Execute additional work of any kind necessary for the completion of
the works,
Change any specified sequence or timing of construction of any part
of the works.

Extras & Variations

No such variation shall in any way vitiate or
invalidate the contract, but the effect, if
any, of all such variations shall be valued in
accordance with clause 52. Provided that
where the issue of an instruction to vary
the works is necessitated by some default
of or breach of contract by the contractor
or

for

which

he

is

responsible,

any

additional cost attributable to such default

shall be borne by the contractor.

Extras & Variations

The Contract shall not make any such
variation

without

an

instruction

of

the

engineer. Provided that no instruction shall

be required for increase or decrease in the
quantity of any work where such increase or
decrease is not the result of an instruction
given under this clause, but is the result of
the quantities exceeding or being less than
those stated in the bill of quantities.

Extras & Variations

Where a building or engineering contract does
not

contain

provisions

that

alterations

in,

additions to, or omissions from the contract may

be made, the builder is under no obligation to
make them; and if he does so, the liability of the
employer to pay for them depends upon various
considerations.

Building

and

Engineering

contracts in most cases impose some conditions

precedent upon payment of extras. The usual
conditions are the following; one or more of
them may find a place in a particular contract

Extras & Variations

The contractor must obtain in writing orders to carry out

extras;

The orders must be signed and, in some cases, countersigned;

The orders must have been given before the construction of

the work ordered;

The orders must have been given before completion of the

works under the contract;

The orders so given must be produced;

Weekly account must be delivered;

A previous contract must be made for any extra work; and

In case of dispute the price of the extras must be settled

by the architect, or arbitration, before any claim can be
made.

Extras & Variations

Variation clauses are inserted into nearly all construction contracts at the
present day for two principal reasons. In the first place, they give the owner the
power to require a variation of the work unilaterally and as of right, as opposed
to relying on the willingness of the contractor to agree to the variation which
would otherwise enable the contractor to exert unacceptable pricing or other
pressures on the owner in return for his agreement to carry out the variation.

In the second place, an architect has no implied authority to contract on behalf

of his employer. In the absence of such a provision, therefore, the contractor
will not be able to recover payment for any additional or varied work which he
has done on the A/E's instruction, unless he can show a separate contract with
the owner that he should do it and be paid for it (as for example, where the
owner knows of the architect's instruction and does not countermand it,
provided that it is realized or ought to be realized by the owner that a change
of price is intended or probable as a consequence of the instruction). With such
a provision, the contractor, provided he complies with any requirements of
form is protected from any denial by the owner of the A/E's authority to order
the variation. A third and subsidiary reason for variation clauses is that they
enable the parties to agree in advance on the basis for valuing and pricing the
varied work.

Extras & Variations Payment to

Contractor

The

general principles for entitling a contractor for receiving payment for

a change or variation have been summarized in a leading case as

follows:
That

the work should be outside the narrower agreed scope of the

contract, that is outside the contractors express or implied obligations in

regard to the work described in the original contract;
That

it should have been ordered by or on behalf of the owner;

That

the owner should, either by words or conduct, have agreed to pay

for it;
That

any extra work has not been furnished voluntarily by the contractor;

That

the work should not have been rendered necessary by the fault of

the contractor; and

Where

applicable that any failure of the contractor to comply with

contract requirements as to procedure or form should have been waived

by the owner

Valuation of Variations

The valuation of variations at the rates and

prices set out in the contract;

Valuation based upon the rates and prices

Forming an opinion as to the applicability of

rates and prices

Agreement of suitable rates and prices

Fixing of appropriate rates and prices and

The

determination

valuation.

of

the

provisional

Certificate & Payments

Submission of Monthly Statements of valuation of the work done

including on site materials, fluctuations and claims.

Engineer to certify the Statement and the sums due within 28 days.

The contractor to submit a statement, which is a valuation of a all the

works and claims upto substantial completion within 12 weeks of the
taking over certificate.

Contractor to produce his final draft statement showing his final

valuation accompanied by supporting documentation.

The contractor to produce a written discharge stating that once the

sums set out in the final statement has been paid and the performance
security returned, he will have been paid in full and final settlement.

Within four weeks of the submission of the final statement and

discharge the engineer issues a final certificates.

The employer will not be liable to the contractor for any claim which
was not referred to in the final statement and, unless the claim arose
after the date of substantial completion, the statement at completion.

Final Payments
Statement

of completion

Application

for final payment

certificate
Discharge
Issue

of final payment certificate

Cessation

of Employers liability

Time of Completion Clause

This

clause provides the basic obligation upon

the Contractor to complete the works on time.

He

must substantially complete the whole of

the works within the given period subject to

any extensions granted.
If

the project has been divided up into

Sections, then he must complete each Section

within the specified period, again subject to
any extensions

Time of Completion
The Indian Contract Act under Section 55 deals with
the subject of the time of completion as under:

Effect of failure to perform at fixed time, in contract

in which time is essential. When a party to a
contract promises to do a certain thing at or before a
specified time, or certain things at or before specified
times, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has
not been performed, becomes voidable at the option
of the promise, if the intention of the parties was that
time should be of the essence of the contract.

Time of Completion
Effect of such failure when time is not
essential if it was not the intention of
the parties that time should be of the
essence of the contract, the contract
does not become voidable by the failure
to do such thing at or before the specified
time; but the promise is entitled to
compensation from the promisor for any
loss occasioned to him by such failure.

Time of Completion
Effect of acceptance of performance at time other
than that agreed upon If, in case of a contract
voidable on account of the promisor's failure to
perform his promise at the time agreed, the
promise accepts performance of such promise at
any time other than that agreed, the promisee can
not claim compensation for any loss occasioned by
the non-performance of the promise at the time
agreed, unless, at the time of such acceptance, he
give notice to the promisor of his intention to do so.

Time of Completion
This section 55 of the Indian Contract Act deals with
two different situations.
Time

is the essential requirement or the essence

of the contract and if the party fails to complete

the work in specified time the contract becomes
voidable at the option of the promisee party.
If

time has not been made an essence of contract

and if the contractor doesn't complete the work

within the specified time, the employer is entitled
to compensation from the contractor for any loss
occasion to him by such failure.

Time when Essence of

Contract

Time is always considered of the essence

of contract in the following cases:

Where the parties have expressly agreed

to treat it as of the essence of contract,

Where delay operates as an injury; and

Where the nature and necessity of the

contract require it to be so construed

Extension in Time

Extension of time for completion of work is an

essential
extension

requirement
becomes

under

necessary

contract.
in

the

Such

following

situations.

Extra or additional work not provided for in the scope

of the contract

Exceptionally adverse climatic conditions

Any

delay,

impediment

or

prevention

by

the

employer

Special circumstances which may occur, other than

through a default of or breach of contract by the
contractor

Contractors Responsibility to
Request Extension
The

Contractor must apply to the Engineer in

Charge in writing for extension of time.

Such

application must state the grounds which

hindered the contractor in the execution of the

work within the stipulated time.
Such

application must be made within 30 days

of the date on which such hindrance arose.

The

Engineer in Charge must be of the opinion

that the grounds shown for the extension of

time are reasonable.

Liquidated Damages for

Delay
"Section 74 of the Indian Contract Act is clearly an attempt to eliminate
the somewhat elaborate refinements made under the English common
law, in distinguishing between stipulations providing for payment of
liquidated damages and stipulation in the nature of penalty.

Under the common law a genuine pre-estimate of damages by mutual

agreement is regarded as a stipulation naming liquidated damages and
binding between the parties: a stipulation in a contract in terrorem is a
penalty and the Court refuses to enforce it, awarding to the aggrieved
party only reasonable compensation.

The Indian Legislature has sought to cut across the web of rules and
presumptions under the English common law, by enacting a uniform
principle applicable to all stipulations naming amounts to be paid in
case of breach, and stipulations by way of penalty.

Force Majeure
The force majeure is taken as a valid excuse
for not performing contractual obligations or
for postponing or delaying performance of
construction contracts.

Force Majeure leads to frustration of

contract.

The principles and practice of frustration of

contract are covered under section 56 of the
Indian Contract Act

Force Majeure
56 An agreement to do an act impossible
in itself void.
Contract
to
do
act A contract to do an act which, after
afterwards
becoming the contract is made, becomes
impossible or unlawful
impossible, or, by reason of some
event which the promisor could not
prevent, unlawful becomes void when
the act becomes impossible or
unlawful
Compensation for loss Where one person has promised to do
through
non- something which he knew, or, with
performance
of
act reasonable diligence, might have
known to be impossible known, and which the promise did not
or unlawful
know to be impossible or unlawful,
such
promisor
must
make
compensation to such promise for any
loss which such promise sustains
through the non-performance of the
promise.

Principle of Force Majeure

leading to Frustration
in

certain

case

where

an

event

making performance impossible is

of such a character that it cannot
reasonably

be

supposed

to

have

been in the contemplation of the

contracting

parties

when

the

contract was made performance or

further performance of the promise
as the case may be, is excused

Subsequent Impossibility

On account of destruction of anything essential to

the performance of the contract;

On account of a change of law which subsequently

prohibits the performance;

On account of the state of things, the existence of

which was the basis of the contract, has since
ceased to exist;

On account of some circumstances performance

within time in the way contemplated has become
impossible;

On account of death or illness of party particularly

in case of contracts of service.

Commercial Hardship Not

Frustration
A commercial hardship, which
may

make

the

performance

unprofitable or more expensive

is

not

sufficient

to

excuse

performance and such a case

may not fall within the purview
of the section 56

Principles of Arbitration

Arbitration is a process for resolution of disputes through a

tribunal appointed by both the parties to a contract.

A valid arbitration clause is an essential requirement.

Code of civil procedure and law of evidence does not apply to

arbitration

Arbitration tribunal to decide its own procedure.

Contractor to file claim statement with evidences.

Respondent to file defense statement

Oral witnesses permitted

Arbitration is largely based on documentary evidences and

hence

contractors

claims

should

be

supported

through

vouchers, expenditure proofs, books of account etc.

Arbitration tribunal can appoint an expert to advise.

Arbitrators to decide on the references within the framework of

contract and based on interpretation of contract

Principles of Arbitration
Advocates

can be appointed or even advisors roped in.

Arbitration

as per Indian Arbitration & Conciliation Act,

1996.
Each
Two
If

party to appoint arbitrator on his side.

arbitrators decide the presiding arbitrator.

parties do not appoint arbitrator within the

prescribed time, Chief Justice of the High Court in his

administrative jurisdiction can be approached.
Speaking
Award

award mandatory under the new Act.

can be challenged on the ground of misconduct,

jurisdiction, fault in procedures etc.

Documentation for
Arbitration

Contractor to maintain complete and authentic account of idle labour,

Machinery etc. with evidences.

Authentic vouchers for extra expenditure, price hike in procurement of

materials due to extension of time on employers account to be
maintained.

Vouchers and evidences to prove financial loss accruing to the

contractor.

Contractors own measurement of extra work which is not admitted by

the employer as an extra work.

Detail consumption account for materials consumed for extra and out of
scope work.

Documentation relating to bank charges paid, margin money for bank

guarantees, interest on borrowings etc.

Details of orders placed for procurement of materials with evidences etc.

Authenticated copies of contractual correspondence with the owner.

k
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