Contract Services

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 checkscheck 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 CONTRACT

COST PLUS CONTRACT

UNIT PRICE CONTRACT

MODIFIED COST PLUS 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

CONTRACTOR

Working cost

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 COST + UPPER LIMIT

Shared by owner and contractor

Working capital upto limit by owner

CONTRACTOR

Compiled by Rahul Navet Aashish Gupta Special thanks to: Mrs. Sunita Bharihoke Akshay Chawla