(i) Breaches affecting the performance of the contract, which nevertheless proceeds to completion;
(ii) Breaches resulting in termination or recision of the contract before completion;
(ii) Breaches of employer's payment obligations.
(2) Additional Payment due under one or the other of contract provision, sub-divided
into:-(i) Sums due to variations (referred to as 'Deviations' in India).
(ii) Sums due to measurement in unit-price contract.
(ii) sums due to miscellaneous provisions in contract under changed physical conditions, variation in prices or other compensatory clauses in the contract.
Mr. G.A.N. Rajan in his book Law of Engineering Contracts -Construction disputes and Remedies - analyses the relevant provisions of a claim for damages as arising when:
a) A contract must have been broken by the other party.
b) The other party should have suffered a loss or damage on this account. (if not, only nominal loss may be granted).
c) The losses and damages must have occurred in the usual course of events from such a breach.
d) The parties knew at the time of the signing of the contract, that in such a kind of breach, they would have to pay losses and damages to the other party, who has suffered by the said breach.
e) No loss or damage is to be paid for any remote or indirect consequences.
f) The party claiming losses and damages should have taken steps to minimise it in the given circumstances.
g) In case of termination or recision of contract by employer, the contractor has to prove that this was unjustified.
Let us now refer to the categories given above and briefly illustrate the possible basis of preparing the claim:
Breach Likely causes Possible Scope of claim
1. Breach occurs, - Delay in handing - Increased costs
but work pro- over of site or arising out of
ceeds to completion change in site or the cause incl.
site conditions losses or damages
- Delay in fixing claimed by
sub-orientation or
contractor/sub-change in orientation supplier (if any) - Late supply of design, - Idling of labour/
drawing of essential equipment - Delay in clearances
- Delay by other contractors
- Unreasonable rejection of work
- Defects or shortage of employer's supply materials
- Suspension of work for causes not attri-butable to contractor - Excessive quantity
variations - Delay in payment
2. Breach occurs - Non-availability - Loss of profit
before the commen- of site which the
contract-cement and work - Non-payment of or would have
cannot be advance earned from the
commenced - Failure of employer contract
to obtain sanction to start work, or necessary funds
3. Breach occurs - stoppage of work - Fair and reasonable
during the work due to causes not value of work
and the contract attributable to executed plus loss
is terminated contractor suffered on account
of termination/
- unjustified recession
termination of contract - continuing
suspension or force majeure
2.6 SPECIAL CONTRACTUAL FEATURES Engineering contracts are of several types, such as (i) civil construction contract;
(ii) supply contract;
(iii) erection contract;
(iv) mechanical/instrumentation contract like contract for testing and commissioning a plant or machinery;
(v) maintenance contract, etc.
These contracts have several special features. Some of these features are discussed below:
(a) Time is of essence to the contract : In engineering contracts time of performance plays a very important role. Generally speaking the stipulation is provided in the ‘tender papers’.
According to Sec.55 of the Contract Act if time is of essence to the contract and the executing party does not fulfil his part of the contract within the stipulated time, the balance of the work not performed becomes voidable at the option of the other party. In case, promisee accepts the
performance after the stipulated time, he is said to have waived his condition and is not entitled to any other compensation. But if the time is not essential according to the intention of the parties to the contract, the promisee is entitled to some compensation but cannot repudiate the contract in case the contract is not executed in full within the stipulated time. The standard form contract in government departments, like Railway, CPWD, MES etc.
time is mentioned in the respective rules as essence of contract with a proviso that authority may extend the time in appropriate cases.
In Hind Construction Contractors v. State of Maharashtra [AIR 1979 SC 720] the contract was for the construction of an aquduct. The work was to commence on 5.7.55 and completed on 4.7.56. Terms and conditions, inter alia, included that (i) time shall be deemed to be of the essence of the contract (ii) In case of failure to commence or complete the work in time the contractor shall have to pay compensation per diem. (iii) in case of compensation payable by the contractors amounting to the full amount of security deposit, or in case of abandonment of the work by the contractor, the Executive Engineering shall be entitled to rescind the contract. (iv) in pursuance of an application by the contractor the time for performance could be extended at the discretion of the Executive Engineer. The contractor failed to complete the work within 4.7.56. The Executive Engineer in a letter dated 27.8.56 rescinded the contract w.e.f. 16.8.56 when the per diem compensation for delay accumulated and exceeded the security deposit. In this case, Court held that all the stipulations read together, and regard being had to the provision for penalty course per deim and the extension clause, the time was not intended to be of the essence of the contract. The Court further held that there was a case for extension due to onset of monsoon, absence of proper road at the site and other reasons as pleaded. A notice should have been given fixing a stipulated time for completion of the work failing which the contract could be rescinded. In the absence of the notice, the action was arbitrary and illegal. In English law unless 'the time as an essense of contract is clearly stipulated by the parties in the contract, time is rarely held as essence in a building and engineering contract. One may compare the position of the above Supreme Court decision with another Supreme Court decision in State of Maharastra v. Digambar Balwant Kulkarni [AIR 1979 SC 1339].
(b) Banker’s status report is not guarantee : A banker’s certificate of status report about a contractor is not to be treated as a bank guarantee. According to Sec. 12 of the Contract Act a contract of guarantee is one in which a party,
called the surety, undertakes to perform the promise of or discharge the liability of the principal debtor to the promisee.
A bank guarantee is obtained against either a margin money deposit kept with the bank or against an overdraft facility with a limit. Sometimes bank also asks for counter-guarantee.
On the other hand, a status report is one in which bank certifies the financial standing of the contractor with the bank on a particular date. It contains no guarantee.
(c) Fair practice in acceptance :A contract is a method of establishing private relationship through offer and acceptance. An acceptor is free to accept any proposal he has received against his offer notice. He is not accountable generally to any one, far less the proposer, to explain why he has accepted the particular proposal, but in a representative status where an official takes the decision of acceptance he is accountable to explain why he has accepted a proposal to the institution or person whose representative he is. It is therefore, understandable that a public official having the responsibility of accepting a proposal is accountable to the public to justify his stand on certain objective criteria in order to show that his acceptance is for the best bargain. This is quite understandable but in govt. contract the public official accepting the proposal is required to have a fair play while accepting the proposal and he is bound to the proposer to explain absence of arbitrariness and favouritism. In several writ applications, courts have taken a position that there has to be a fair practice on objective criteria in accepting a proposal.
Therefore govt departments, statutory undertakings, and even big industrial houses lay down stringent rules and procedures to ensure that there is a fair practice. In case of deviations specially in the situations of not accepting the lowest tender the bonafide of the decision has to be established according to the procedure established by law.
d) Rules of Interpretations: Odger’s construction of deeds and statutes provided rules of construction of contracts, specially engineering contracts. Supreme Court in Delhi Development Authority v. Durga Chand recognised Odger's rules of constructions listed below :
Rule 1 : Meaning of a document or of a particular part of it is to be sought from the document itself.
Rule 2 : Intention of the parties shall be understood from the document itself, unless otherwise clear.
Rule 3 : Words must be given literal meaning.
Rule 4 : Literal meaning depends on the circumstances of the parties.
Rule 5 : The contract has to be construed as a whole.
Rule 6 : Technical terms will have technical meaning.