FAQs for Contracts and Claims Management
GENERAL CONTRACT QUESTIONS
Q1:
What's the difference between a contract and a work order?
A: A work order is typically a
specific instruction to perform particular work within the framework of a
master contract or agreement. The contract establishes the overall terms,
conditions, pricing mechanism, and legal framework, while work orders define specific
scope, quantities, and timelines for individual tasks or phases.
Example: You may have a rate
contract with a developer for ₹8,000 per cubic meter of concrete work. Each
building or phase would then have separate work orders specifying quantities
and deadlines, but all governed by the master contract terms.
Q2:
Can verbal agreements be legally enforced in Indian construction?
A: While verbal agreements can
be legally valid under the Indian Contract Act 1872, they are extremely
difficult to prove and enforce in construction disputes. Most construction
contracts above ₹500 require written agreements as per the Registration Act. For
practical purposes, always insist on written contracts and written
modifications.
Best
Practice:
Follow the "24-hour rule" - confirm any significant verbal discussion
in writing within 24 hours via email or formal letter.
Q3:
How do I handle scope creep in lump sum contracts?
A: Scope creep is when
additional work is requested without formal variation orders. Handle it
through:
- Immediate
Documentation: Record all additional work requests in writing
- Formal Variation
Process: Don't proceed without written approval and agreed pricing
- Progress Tracking: Maintain clear records
of original vs. additional work
- Regular Reviews: Monthly scope review
meetings with all stakeholders
Warning: Performing additional work
without formal approval often leads to payment disputes later.
Q4:
What happens if there's a conflict between contract documents?
A: Most contracts include a
"hierarchy of documents" clause specifying precedence order. Typical
hierarchy in Indian projects:
- Main Agreement/Contract
- Special Conditions of
Contract
- General Conditions of
Contract
- Technical
Specifications
- Drawings
- Bill of Quantities
If
no hierarchy is specified: The document that provides the higher standard or greater
benefit to the project typically prevails, but this requires legal
interpretation.
CONTRACT
ADMINISTRATION QUESTIONS
Q5:
How long should I keep project documentation?
A: In India, maintain project
documents for:
- Legal Limitation
Period:
3 years for most contractual claims (can extend to 6-12 years in some
cases)
- Defect Liability: Minimum 12 months
post-completion
- Tax Requirements: 8 years for GST and
income tax records
- Best Practice: 10 years for all major
project documents
Storage: Use both physical and
digital storage with proper backup systems.
Q6:
Who should sign project correspondence - Site Engineer or Project Manager?
A: This depends on the
authority matrix defined in your contract. Generally:
- Site Engineer: Day-to-day technical
instructions, quality reports, progress updates
- Project Manager: Commercial matters,
variations, claims, dispute correspondence
- Authorized Signatory: Contract
modifications, payments, legal notices
Key
Point:
Ensure whoever signs has the contractual authority to bind your organization.
Q7:
How do I handle instructions from multiple consultants (architect, structural,
MEP)?
A: Establish clear
communication protocols:
- Single Point of
Contact: Designate one lead consultant for overall coordination
- Written Instructions
Only:
Don't accept verbal instructions from any consultant
- Conflict Resolution: Route conflicting
instructions through the lead consultant
- Documentation: Copy all
communications to relevant parties
Common
Issue: When
structural engineer says one thing and architect says another - always seek
written clarification before proceeding.
Q8:
What should I do if the owner doesn't respond to my correspondence within
specified timeframes?
A: Follow this escalation
process:
- Reminder Notice: Send formal reminder
citing original correspondence and timeline
- Deemed Approval: If contract provides
for it, claim deemed approval after specified period
- Work Stoppage Notice: If non-response
affects critical decisions, notify intent to stop work
- Escalation: Escalate to higher
management or dispute resolution mechanism
Important: Continue to perform work
where possible while seeking clarification to avoid being in breach yourself.
CLAIMS
AND DISPUTES
Q9:
What's the difference between a claim and a dispute?
A:
- Claim: A request for
additional time, money, or other remedy based on contract entitlements
- Dispute: A claim that has been
rejected or is contested by the other party
Example: If you request an EOT due
to design delays, that's a claim. If the owner rejects your EOT request, it
becomes a dispute.
Q10:
Can I claim for delays caused by monsoon/weather?
A: It depends on your contract
terms and local conditions:
- Normal Seasonal
Weather: Usually contractor's risk (you should have planned for it)
- Exceptional Weather: May be grounds for EOT
if it exceeds historical averages
- Force Majeure Weather: Cyclones, floods
beyond normal patterns may qualify
Documentation
Required:
Weather data from IMD (Indian Meteorological Department) comparing actual vs.
historical weather patterns.
Q11:
How do I calculate overhead costs in delay claims?
A: Common methods include:
1.
Hudson Formula:
Overhead
= (Head Office Overhead % / 100) × Contract Value × (Delay Period / Contract
Period)
2.
Actual Cost Method:
- Direct recording of
extended overhead costs
- Site office rent,
supervision costs, insurance extensions
3.
Emden Formula:
Overhead
= (Actual Overhead During Delay Period / Total Overhead for Original Period) ×
Original Contract Value
Best
Practice:
Use actual cost method when detailed records are available, formula methods
when records are incomplete.
Q12:
What should I do if the other party doesn't respond to my claim?
A: Follow contractual
timelines:
- Initial Claim
Submission: Allow contractual review period (typically 28-60 days)
- Follow-up Notice: Formal reminder if no
response received
- Deemed Rejection: After reasonable time,
treat non-response as rejection
- Dispute Resolution: Initiate mediation,
arbitration, or other agreed mechanisms
Timeline: Don't wait indefinitely -
most contracts have limitation periods for initiating disputes.
Q13:
Can I stop work if payments are delayed?
A: Generally yes, but follow
proper procedures:
- Review Contract: Check if contract
permits work suspension for non-payment
- Formal Notice: Give written notice of
intent to suspend work
- Grace Period: Allow reasonable time
(typically 7-14 days) for payment
- Gradual Suspension: Wind down work safely,
don't abandon the site
Risk: Improper work stoppage can
be treated as breach of contract, so ensure you follow contractual procedures
exactly.
EXTENSION
OF TIME (EOT) QUESTIONS
Q14:
What's the difference between EOT and prolongation costs?
A:
- EOT (Extension of
Time):
Additional time granted to complete work without penalty
- Prolongation Costs: Compensation for the
financial impact of delays (extended overheads, idle resources)
Key
Point:
Getting EOT doesn't automatically entitle you to prolongation costs - you need
separate entitlement for financial compensation.
Q15:
Can I get EOT for delays I caused myself?
A: No, EOT is only available
for delays beyond your control. However, you may get EOT for:
- Concurrent Delays: When both parties
cause delays simultaneously
- Owner-Caused Delays: Even if you have other
delays, owner-caused delays may still entitle you to EOT
- Mitigation Efforts: If you've taken steps
to reduce the impact of your own delays
Analysis
Required:
Detailed delay analysis to separate owner-caused from contractor-caused delays.
Q16:
How do I prove critical path delay?
A: Use scheduling software and
proper analysis:
- Baseline Schedule: Original approved
project schedule
- Progress Updates: Regular schedule
updates showing actual progress
- Impact Analysis: Show how the delay
event affected the critical path
- What-If Analysis: Compare planned vs.
actual completion dates
Tools: Microsoft Project,
Primavera P6, or similar scheduling software with critical path method (CPM)
capabilities.
Q17:
What if multiple delay events happen simultaneously?
A: This is called
"concurrent delay" and requires careful analysis:
- Owner Risk Events: Delays due to owner
actions or external factors
- Contractor Risk Events: Delays due to
contractor performance issues
- Shared Delays: Events affecting both
parties
Approach: Apportion delays fairly
based on actual impact and responsibility. You may get EOT but not prolongation
costs for periods of concurrent delay.
PAYMENT
AND COMMERCIAL ISSUES
Q18:
What's the maximum retention money that can be deducted?
A: While there's no statutory
limit, industry practice in India is:
- Typical Range: 5-10% of each bill
amount
- Maximum Retention: Usually capped at
5-10% of total contract value
- Release: 50% on completion, 50%
after defect liability period
Negotiation
Tip: You
can often negotiate retention money guarantee instead of cash retention to
improve cash flow.
Q19:
How do I handle TDS (Tax Deducted at Source) issues?
A: Common TDS rates in
construction:
- Individual/HUF
Contractors: 1% u/s 194C
- Company Contractors: 2% u/s 194C
- Sub-contractors: Rate depends on their
status
Process:
- Provide correct PAN and
GST details
- Submit TDS exemption
certificate if applicable
- Reconcile TDS
certificates with actual deductions
- Claim credit in income
tax returns
Issue: Incorrect TDS rates can
significantly impact cash flow.
Q20:
What can I do if the developer becomes financially distressed?
A: Protect yourself through:
- Early Warning Signs: Monitor payment
delays, check financial news, observe other projects
- Secure Payments: Demand advance
payments, reduce credit terms
- Legal Remedies: File recovery suits,
initiate insolvency proceedings under IBC
- Asset Protection: Secure your materials
and equipment on site
RERA
Impact:
Post-RERA, developers can't divert funds between projects, but this also means
project-specific cash flow problems.
Q21:
How does GST affect construction contracts?
A: Key GST implications:
- Rate: 12% on construction
services (5% for affordable housing)
- Input Tax Credit: Available on materials
and services used
- Reverse Charge: Applies in some cases
(e.g., services from unregistered suppliers)
- Place of Supply: Where construction
activity takes place
Contract
Impact:
Ensure your contract clearly states whether prices are inclusive or exclusive
of GST.
RISK
MANAGEMENT QUESTIONS
Q22:
What insurance should I have for construction projects?
A: Essential insurances
include:
- Contractor's All Risk
(CAR):
Covers project works and materials
- Third Party Liability: Covers injury to third
parties or damage to third party property
- Workmen's Compensation: Mandatory under WC Act
for employee injuries
- Professional Indemnity: If you provide design
services
- Performance Guarantee: Bank guarantee for
contract performance
Tip: Ensure insurance coverage
matches your contract requirements and project risks.
Q23:
How do I protect myself from subcontractor defaults?
A: Use these mechanisms:
- Performance Guarantees: Bank guarantees from
subcontractors
- Back-to-back Contracts: Pass through main
contract terms to subcontracts
- Regular Monitoring: Assess subcontractor
performance and financial health
- Payment Security: Withhold payments
until satisfactory performance
- Alternative Suppliers: Maintain backup
options for critical trades
Red
Flags:
Subcontractors asking for large advances, consistently missing deadlines, or
showing financial distress.
Q24:
What happens if I discover unforeseen ground conditions?
A: Steps to take:
- Immediate
Documentation: Photograph and record the conditions
- Formal Notice: Notify
owner/consultant immediately in writing
- Work Stoppage: Stop
excavation/foundation work in affected areas
- Investigation: Joint inspection with
owner's representatives
- Claim Preparation: Prepare EOT and cost
claims for additional work required
Contract
Review:
Check if your contract has specific clauses for unforeseen conditions or if
it's included in force majeure provisions.
LEGAL
AND REGULATORY QUESTIONS
Q25:
What's the limitation period for filing construction disputes?
A: Under the Limitation Act,
1963:
- Breach of Contract: 3 years from the date
of breach
- Arbitration: 3 years from the date
the cause of action arises
- Recovery of Money: 3 years from the date
when payment becomes due
Important: Time starts running from
when you knew or should have known about the breach, not from contract
completion.
Q26:
Can RERA help with contractor payment issues?
A: RERA primarily protects
home buyers, but it indirectly helps contractors by:
- Escrow Accounts: Ensuring project funds
aren't diverted
- Project Monitoring: Regular compliance
requirements
- Financial Discipline: Developers must
maintain proper accounts
Direct
Relief:
RERA doesn't directly resolve contractor-developer disputes - you still need to
use contractual dispute resolution mechanisms.
Q27:
What's the difference between mediation, arbitration, and litigation?
A: Mediation:
- Voluntary process with
neutral mediator
- Parties control the
outcome
- Confidential and
relationship-preserving
- Fastest and cheapest
option
Arbitration:
- Binding decision by
neutral arbitrator
- Private process, faster
than courts
- Arbitrator has
technical expertise
- Governed by Arbitration
& Conciliation Act, 2015
Litigation:
- Court-based legal
process
- Public proceedings with
formal procedures
- Longest and most
expensive option
- Final recourse when
other methods fail
Recommendation: Try mediation first,
arbitration second, litigation as last resort.
Q28:
How do I enforce an arbitration award?
A: Process under Arbitration
Act, 2015:
- File Petition: In competent court
within 3 years
- Service of Notice: Notice to other party
- Limited Grounds for
Challenge: Award can only be set aside on specific grounds
- Execution: Once confirmed by
court, award is executable like a decree
Timeline: Courts must dispose of
applications within 12 months.
PRACTICAL
IMPLEMENTATION QUESTIONS
Q29:
What software do you recommend for small contractors (projects under ₹10
crores)?
A:
- Project Management: Microsoft Project
(₹20,000 annually) or ProjectLibre (free)
- Documentation: Google Workspace
(₹6,000/user/year) or Microsoft 365
- Communication: WhatsApp Business
(free) with email backup
- Accounting: Tally Prime (₹18,000
annually) or Zoho Books
- File Storage: Google Drive or
Dropbox for cloud backup
Budget: Approximately
₹50,000-1,00,000 annually for complete digital setup.
Q30:
How do I build a good relationship with consultants and owners?
A: Follow these principles:
- Professional
Communication: Always formal, timely, and documented
- Proactive Updates: Regular progress
reports, early problem identification
- Quality Focus: Deliver what you
promise when you promise
- Solution-Oriented: Come with solutions,
not just problems
- Long-term Perspective: Today's project is
tomorrow's reference
Remember: The construction industry
is relationship-based - your reputation follows you.
Q31:
What should I include in my project handover documentation?
A: Complete handover package
should include:
Technical
Documents:
- As-built drawings and
specifications
- Material test
certificates and warranties
- Equipment operation
manuals and warranties
- Maintenance schedules
and procedures
Commercial
Documents:
- Final account
settlement
- Variation orders and
approvals
- Payment certificates
and receipts
- Insurance policies and
extensions
Legal
Documents:
- Completion certificates
- Statutory approvals and
NOCs
- Defect liability
guarantees
- Final release and
discharge
Q32:
How do I handle disputes while maintaining ongoing work relationships?
A: Adopt a professional
approach:
- Separate Issues: Handle disputes
separately from ongoing work
- Document Position: Clearly state your
position in writing
- Continue Performance: Keep performing other
contract obligations
- Seek Win-Win: Look for solutions
that benefit both parties
- Use Proper Channels: Follow contractual
dispute resolution procedures
Mindset: Treat disputes as business
issues to resolve, not personal conflicts to win.
EMERGENCY
SITUATIONS
Q33:
What should I do if there's a serious accident on site?
A: Immediate actions:
- Medical Aid: Ensure injured persons
get immediate medical attention
- Site Safety: Secure the accident
area, prevent further incidents
- Notifications: Inform owner,
insurance company, labor department within required timeframes
- Documentation: Preserve accident
scene, take photographs, collect witness statements
- Investigation: Cooperate with
official investigations
Legal
Requirement:
Serious accidents must be reported to authorities within 24 hours.
Q34:
What if I discover illegal activities (like unauthorized construction) by
others on the project?
A: Protect yourself legally:
- Document: Record the illegal
activities with photographs and written records
- Report: Inform
owner/consultant in writing immediately
- Distance Yourself: Ensure your work isn't
associated with illegal activities
- Compliance: Ensure your own work
fully complies with all approvals
- Legal Advice: Consult lawyer if you
might be implicated
Key
Point:
Don't ignore illegal activities - they can affect the entire project's
approvals.
Q35:
How do I handle situations where safety and commercial pressures conflict?
A: Safety always takes
precedence:
- Stop Unsafe Work: You have the right and
obligation to stop unsafe work
- Document Concerns: Record safety issues
and your responses
- Propose Solutions: Suggest alternative
methods to meet both safety and schedule requirements
- Escalate: If owner insists on
unsafe practices, escalate to higher management
- Professional Standards: Follow professional
engineering ethics and legal requirements
Remember: No commercial gain is worth
human life or serious injury.
These
FAQs represent common questions from over 500 Civil Engineers who have attended
our workshops across India. For specific legal or technical advice related to
your particular situation, please consult qualified professionals.
Additional
Resources:
- Indian Contract Act,
1872: [Legislative text]
- Arbitration and
Conciliation Act, 2015: [Legislative text]
- RERA Guidelines:
[State-specific regulations]
- Professional Bodies:
Institution of Engineers (India), Indian Institute of Architects
- Legal Resources:
Construction Law journals, case law databases
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