The document discusses various aspects of construction project contracts and tendering processes. It describes earnest money deposits (EMD) and security deposits contractors must provide, as well as retention amounts deducted from payments. It outlines different methods for selecting contractors, including public tender, prequalification, post-qualification, limited tender, and nomination. Key clauses like liquidated damages, defect liability periods, and arbitration are also summarized.

1. Contract Documents & Byelaws
Tender

2. Earnest money deposit (EMD)
• Earnest money deposited by each tenderer to enable the
owner to ensure that a tenderer does not refuse to execute
the work if it is awarded him. It is a guarantee for due
performance of the contract.
• Rate of EMD deposit varies from one organization to
another. It also varies with value of work.
• Normally EMD is 2% or 2.5% of estimated cost put to
tender.
• The earnest money of successful tender can be adjusted
against the security deposit required to be furnished by him.
• The earnest money of all the unsuccessful tenderers should
be returned as early as possible after the expiry of validity
period or after award of contract whichever is earlier.

3. Security deposit
• It is a check or safeguard for the owner to ensure that
contractor fulfills all terms & condition of contract, carries out
the work to his satisfaction , maintains desired progrss and
complete the work as envisaged in the contract agreement.
• Security deposit is refunded on
- Completion of work after expiry of defect liability period.
- On obtaining labour labour clearance certificate
- On finalization of final bill and work account.
Retention amount
- On award of contract , the contractor is required to deposit
specific amount as security deposit with the owner. Since there
may be financial constraint for the contractor to deposit such
amount at one time , an alternative method of deduction from
running bill is given to contractor . The amount of deduction made
from running bill towards security deposit is known as retention
amount.

4. - Thus retention amount is also a security deposit recovered
from running bills.
Method to select contractors
Method to select contractor
Post-qualificationPre-qualificationPublic tender Limited tender
Nomination

5. Public tender
The objective of inviting public tender are
- To give wide publicity
- To obtain competitive bids
- To provide equal opportunity to all contractors eligible to
tender.
Prequalification of contractor
- For major works, complex work , specified work and for works
of multidisciplinary involvement, contractors are prequalified to
ensure that competition is only among bidders who are capable
of executing work.
-The basic requirement of prequalification is not the selection of
the best contractor , but to eliminate incompetent and insincere
contractor.

6. - Prequalification notice is published in newspapers with wide
circulation. Relevant details such as nature of work ,
estimated cost , period allowed for completion and eligibility
criteria of contractors are described in the press notice.
Post qualification
- In this system two cover system is followed.
- It has inherent advantages , technical & commercial bids
and price bids are submitted in separate sealed cover.
- The technical & commercial bid containing all particulars
required to evaluate contractor’s suitability except for price
is opened first and a critical evaluation of contractor’s
capabilities is done.
- If some of the contractors are eliminated on the basis of
their technical & commercial bid, their price bid are not
opened and retained or returned to the tenderers.

7. Two cover system
In this system tenderers are required to submit tenders in
two covers
-The first cover contains
(i) One envelop contain EMD
(ii) Another envelop contains qualification relating to
- Work done during five year.
- Existing commitment & details of on-going works
- Works for which tenders already submitted
- Equipment details owned by the tenderer.
The second cover contains priced bill of quantities. All
duties, taxes and other levies payable by the contractor
under the contract or for any other cause shall be
included in the rates, prices and total price submitted by
the tenderers.

8. Limited tender
• In this method tender notice is sent to selected contractors
of repute & no press tender notice is issued.
• The lowest tenderer may be called for negotiations
• This method of selection of contractor is adopted in private
sector as an alternative to other methods.
Nomination
• Selection of a contractor by nomination is adopted for works
of small magnitude or for emergency works.
• This contract is awarded based on prevailing market rates in
respect of government work.
• In private sector the rates are negotiated with nominated
contractor keeping in view the trend of market rates.

9. Liquidated damage
• It is fixed stipulated sum payable by the contractor on
account of penalty for delays and does not bear any
relationship with the real damage to the owner.
• It is generally high & fixed per day for the excess period
over the specified period in the tender.
Defect liability period
• The contractor shall make good at his own cost and to the
satisfaction of the architect; all defects, shrinkages or small
faults , arising in the opinion of Architect from work or
materials not being in accordance with drawings or
specifications or schedule of quantities or instructions of
architect, which may be appear within.

10. Mobilisation advance
• Admissible for woks whose estimated cost put to tender is 2
crores & above.
• Maximum advance is 10% of the tendered value of work.
• Advance is paid two or three instalments.
• Proof of utilisation of first instalment is necessary before
obtaining second instalment and so on.
• Advance is given against bank guarantee bond.

11. A r b i t r a t i o n

12. Advantages of Arbitration
There are several advantages of arbitration over a court
decision
Cost
Arbitration is less expansive than court action.
Speed
Dispute are settled much faster through arbitration as
compared to law suit in the courts.
Convenience
Arbitration hearing are fixed considering the convenience of the

13. Both parties.
Technical knowledge
Both the parties have the distinct advantage of appointing
Arbitrator having technical knowledge & expertise which
facilitates satisfactory judgement.
Informality
Arbitration is conducted in a relatively informal atmosphere
observing certain minimum prescribed legal formalities.
Proceedings in the private premises
Arbitration proceeding are held in the private premises ,
consequently business activity of the parties do not suffer.

14. Termination of contract
The contract may be terminated in the following conditions
Completion of work
When the work is completed according to the contract
agreements and the owner is satisfied , the security money is
released and the contract is terminated.
By agreement
If due to some unavoidable circumstances , it is not possible to
complete the work, the contract is terminated by mutual
agreement.

15. By breach of conditions
If any party does not follow the conditions of contract, the party
has the right to terminate the contract due to such breach.
By impossibility to complete
When the site does not belong to the owner , or the land is
acquired by the government or it is flooded or damaged due to
natural calamities , the construction of work is impossible and
the contract is terminated.
By bankruptcy
If either party becomes bankrupt , the contract may be
terminated.