CONTRACT SERVICES

CONTRACT

“It is a binding
agreement between
two or more persons
that is enforceable by
law”

In its more confined sense, it is an

agreement between two or more persons,
concerning something to be, done, whereby
both parties are bound to each other, or one
is bound to the other.
AGREEMENT
An agreement between two or more competent
parties in which an offer is made and accepted,
and each party benefits.

(1)The agreement can be

• formal
• informal
• written
• oral or
• mutual understanding
Some contracts are required to be in writing in
order to be enforced.

(2) An agreement creates obligations to do or not

to do the specific things that are the subject of
that agreement.
ESSENTIALS of a contract…..
 ESSENTIALS of a VALID Contract
• Meeting of mind of two parties, promiser and promisee, to the
same thing and in the same sense. Thus the offer, when accepted,
becomes a promise. It leads to an agreement between the two
parties.
• Free consent of the parties. It is important that the consent of the
two paries should be without any
– coercion
– Undue influence
– Fraud
– Misrepresentation
– Mistake between two parties
• For a lawful consideration. For a valid contract the existence of
due consideration is an essential element.
ESSENTIALS of a VALID Contract
• Competency of the parties. It is essential that the two parties
agreeing on the basis of their free consent should be competent to
enter into contract. The parties will be considered competent if
they are:
– of the age of maturity
– of sound mind
– not disqualified by law to which they are subject
• With a lawful object. The object of an agreement should be
lawful. An object will be lawful if it is not against law, if it is not
forbidden by law, or it is not fraudlent, or immoral or opposed to
public policy
• Not declared void expressly by law. Such agreements should not
be declared void by various provisions of the Indian Contract Act.
 CHECKLIST BEFORE
HIRING A CONTRACTOR
 BEFORE DECIDING for contracts
• Prepare a detailed specifications indicating
– exact number of working hours,
– areas,
– processes used,
– frequency,
– time factors and
– any special projects
• Put out tender to atleast to atleast three contractors and
compare quotes.
• Ask to see other contracts being carried out by the
contractor –make sure you talk to the contractor as well
as the client.
 BEFORE DECIDING for contracts
• Consider the length of the contract –and the notice of
the termination of the contract
• Look carefully at the type and the method of the
contract
• Contract should be carefully worded with the help of a
solicitor.
• Check on type and amount of supervision –names of the
people to contract (supervisors and managers)
• Check on security arrangements and identity passes
• Once the contract has been signed, make spot checks-
check that the specification is being adhered to.
Method used to access the cost of
contracts
• 1) Fixed periodic cost may be either as a total
cost or cost per unit of work and is available
in two forms
– Uncontrolled inputs
– Controlled inputs
• 2) Management fees – consultancy basis
• 3) Cost plus percentage profit basis
• 4) Cost plus fixed fee basis
 TYPES OF CONTRACTS
LUMP SUM COST PLUS
CONTRACT CONTRACT

UNIT MODIFIED
PRICE COST PLUS
CONTRACT CONTRACT
 ADVANTAGES
1) Budget can be worked
out more accurately i.e.
price known for a given
period
• 2) The contractor is
responsible for recruiting,
training, paying and
dismissing staff. So,
managers are relieved of
these duties.
• 3) Reduces the need of
capital investment in
specialised equipment
• 4) Risk and hazard to direct
labour is reduced
• 5) The contract cleaning
company may be able to offer
higher rates of pay than firms
employing direct labour and
therefore attract more highly
qualified and competent staff.
• 6) Extra work may be
undertaken without increase
in permanent staff.
• 7) Emergency cleaning
services may be provided at
short notice.
 DISADVANTAGES
• 1) As the setting up of a
contract cleaning and
maintenance firm is not subject
to any regulations, some
contractors may not be
specialists.
• 2) Some elements of contract
are removed from management.
• 3) The lowest tendered contract
price is often accepted and this
may lead to a deterioration of
standards.
• 4) Minimal effect may be used
to achieve the maximum profit
• 5) There is a natural tendency
of contractors to use poorer –
quality producty which could
cause damage to the buildings
and its contracts
• 6) There may be security
problems
• 7) Interdepartmental liasion
within the clients organisation
may be reduced
• 8) A contract may limit
flexibility and so not
frequently changing
conditions.
 LUMP SUM CONTRACT
The owner agrees to pay a definite stated
sum upon completion of the agreed contract
(work). The validity of this type of contract is
apt in the long run, to operate against the
benefits of the owner.
+ives
Plans do not necessarily have to be completed
Bids can be determined quickly
-ives
Unbalanced bids may result readily
Total cost not known
LUMP SUM CONTRACT

DEFINITE SUM
UPON
COMPLETION
OF CONTRACT CONTRACTOR
 UNIT PRICE CONTRACT
Such contracts exists between the general
contrator and his sub-contractors. Its field is
mostly in such work as has to be done in large
quantities, each small division of which is a
replace of every other division.
+ives
Work is properly distributed
Better standard of work
-ives
Too much money for early part of the contract
The contractor may withdraw from the contract thereafter
 UNIT PRICE CONTRACT

Sub
contractor

Sub
contractor

Sub
contractor

CONTRACTOR
 COST PLUS CONTRACT
This type of contract provides for a payment to the
contractor of the actual cost of the building plus an
additional payment of an agreed percentage.
It operates best under two general conditions:
Where plans are not complete
Where prices are not stable
+ives
Owner has full control of work
Extremely fair
-ives
Cost is not known or may be higher
o Many decisions are made by owner who is not competent to handle them
COST PLUS CONTRACT

+ Agreed
percentage

Working cost
CONTRACTOR
 MODIFIED COST PLUS
CONTRACT
To circumvent some of the disadvantages of the
CP Contract, modifications are made as new sub
plans:
Cost + Fee: contractor is employed for a set fee to complete the work
where working cost is beared by the owner.
Cost + Contract with upper limit: contractor agrees that the total
working cost wont go above a predetermined cost, but shall share in
any additional of the cost

+ives
Planned according to the needs and the
applicability of the contract
MODIFIED COST PLUS
CONTRACT
Working
cost by
owner
COST
+
FEE
+
Contract
fees
CONTRACTOR
 MODIFIED COST PLUS
CONTRACT
Shared by owner
COST and contractor

+
UPPER
LIMIT
Working
capital
upto
limit by
owner CONTRACTOR
 Compiled by
Rahul Navet
Aashish Gupta

Special thanks to:

Mrs. Sunita Bharihoke
Akshay Chawla