LESSON 2.7 — Contracts, Tenders and Professional Practice
A. Standard Map
| Topic | Governing Source | Exam Focus |
|---|---|---|
| Architects Act 1972 | Architects Act, 1972 (Parliament of India) | Sections 14, 25, 30, 37; total 45 sections, 1 Schedule; title protection |
| Council of Architecture | Architects Act 1972, Part II | Composition; term (3 years); functions; registration |
| Architect’s fee stages | CoA Schedule of Fees (Model guidelines) | Six stages; cumulative %; largest stage = Working Drawing (30%) |
| Contract types | Indian Contract Act, 1872; standard procurement | Item rate (most common); lump sum; EPC; turnkey |
| Tender types | Government GFR / procurement rules | Open, limited, single/negotiated |
| FIDIC 2017 suite | FIDIC Red/Yellow/Silver books (2017 edition) | Book-type by design responsibility; roles of parties |
| Contract documents | Standard procurement practice | Priority order in case of conflict |
| Financial instruments | Indian Contract Act; CPWD practice | Earnest money, security deposit, retention, liquidated damages |
| Arbitration | Arbitration and Conciliation Act, 1996 (amended 2015, 2019) | Key sections; award timeline (29A) |
| Professional ethics | CoA Code of Professional Conduct | Key obligations; actions prohibited |
B. Mechanism in Words
- A building project requires a legal contract between the owner (employer) and the builder (contractor) — the contract defines scope, price, programme, and remedies.
- Before the contract exists, the employer selects the contractor through a tendering process — publishing the scope, receiving competitive bids, and awarding to the most suitable bidder.
- During execution, the architect administers the contract — certifying payments, issuing instructions, and managing variations.
- Disputes arising from the contract are resolved first through negotiation, then through arbitration — a private dispute resolution mechanism that produces a binding award.
- All of this operates within the framework of the Indian Contract Act, 1872, and the architect’s professional obligations under the Architects Act, 1972.
C. Core Concept Explanations
C1. The Architects Act, 1972 — Dedicated Section
Legislative foundation: The Architects Act, 1972 was enacted by the Parliament of India to regulate the profession of architecture, establish the Council of Architecture, and provide for the registration of persons wishing to practise as architects. It received the assent of the President of India on 1 September 1972.
Structure: 45 sections + 1 Schedule.
Key sections:
| Section | Subject | Content |
|---|---|---|
| Section 2(b) | Definition of “Architect” | A person registered under this Act as an architect |
| Section 3 | Council of Architecture | Establishment of the Council as a body corporate |
| Section 14 + Schedule | Qualifications for registration | Prescribes the minimum educational qualifications required; Bachelor’s degree in Architecture (B.Arch) from a recognised institution listed in the Schedule is the principal route |
| Section 17 | Registers | The Registrar maintains a register of architects; register is the official record of all entitled to practise |
| Section 19 | Registration | Process by which a qualified person is admitted to the register |
| Section 25 | Removal from register | Grounds: misconduct, conviction for an offence involving moral turpitude, obtaining registration by fraud, unsoundness of mind |
| Section 30 | Penalty for misuse of title | Any person who uses the title “Architect” without being registered under this Act shall be liable to a fine or imprisonment or both |
| Section 37 | Cognizance of offences | No court shall take cognizance of any offence under this Act except upon a complaint by the CoA or a person authorised by it |
| Section 45 | Total sections in the Act | The Act contains 45 sections in all |
Exam Anchor: Only a person registered with the Council of Architecture may use the title “Architect” in India. Section 30 criminalises misuse of the title by unregistered persons. This is a direct and frequently tested exam point.
C2. Council of Architecture (CoA)
Established: Under Part II of the Architects Act, 1972.
Nature: A body corporate with perpetual succession and a common seal.
Composition: Members representing key stakeholders in the profession:
| Category | Members |
|---|---|
| Central Government nominees | 5 members |
| Indian Institute of Architects | 5 members |
| AICTE | 2 members |
| Universities/technical institutions | 4 members |
| Institution of Engineers (India) | 1 member |
| Institute of Town Planners | Representation included |
| Total (approx.) | ~17 members |
Term: 3 years.
Key functions:
– Maintain and publish the Register of Architects
– Prescribe the minimum qualifications for registration
– Prescribe standards for architectural education
– Prescribe a Code of Professional Conduct
– Investigate complaints of professional misconduct
– Remove names from the register when warranted
Exam Anchor: CoA term = 3 years. The CoA is a body corporate established under the Architects Act, 1972. Registration with CoA is mandatory before any person may practise or use the title “Architect” in India.
C3. Architect’s Fee Stages (CoA Model Guidelines)
| Stage | Service Delivered | Cumulative Fee | Incremental Fee |
|---|---|---|---|
| Stage 1 — Sketch (a) | Concept design; site analysis; initial spatial organisation | 10% | 10% |
| Stage 2 — Sketch (b) | Design development; refined layout; structural grid; massing | 20% | 10% |
| Stage 3 — Preliminary | Design development drawings; sections; material palette | 35% | 15% |
| Stage 4 — Working Drawing | Complete construction documentation; specifications; schedules | 65% | 30% ← largest |
| Stage 5 — Construction | Periodic site inspection; quality oversight during construction | 80% | 15% |
| Stage 6 — Supervision | Final inspections; snag list; completion certificate | 100% | 20% |
Exam Anchor: Stage 4 (Working Drawing) has the largest incremental fee at 30% — reflecting the volume of construction drawings, specifications, and schedules produced. Mnemonic: SPWCS → Sketch → Preliminary → Working Drawing → Construction → Supervision.
Exam Trap: Questions often ask “what is the fee at the Preliminary stage?” — the answer is the cumulative fee = 35%. The incremental fee for that stage alone = 15%. Identify which the question asks for before answering.
C4. Contract Types
Legal framework: All contracts in India (including building contracts) are governed by the Indian Contract Act, 1872. There is no separate “Indian Building Contract Act.” This is a directly tested trap.
| Contract Type | Payment Mechanism | Risk Allocation | Best Application |
|---|---|---|---|
| Item Rate (Measurement Contract) | Payment per measured unit of work at tendered unit rates | Quantity risk on employer (pays for actual work done); quality risk on contractor | Most common type in India; used where quantities cannot be precisely predicted in advance |
| Lump Sum | Single fixed price for entire scope | Quantity and cost risk largely on contractor; scope must be fully defined | Well-defined scope with predictable quantities; design-complete before tendering |
| Percentage Rate | Contractor quotes a percentage above or below the Schedule of Rates | Simple; no BoQ needed | Government works using published schedule of rates |
| Labour Rate | Contractor provides labour only; owner supplies materials | Owner controls material quality directly | Projects where the owner wants full control of procurement |
| EPC (Engineering, Procurement, Construction) | Contractor designs, procures, and constructs to employer’s output specification | Design and construction risk entirely on contractor | Industrial and infrastructure projects; turnkey |
| Turnkey | Single contractor delivers a fully operational facility | Maximum risk on contractor; employer specifies only performance | Complex projects (power plants, factories, hospitals) where full integration matters |
Source: ch05-part02; Indian Contract Act, 1872.
Exam Anchor: Item Rate is the most common building contract type in India. The legal basis for all contracts is the Indian Contract Act, 1872 — not a separate “Building Contract Act.”
C5. Contract Documents — Priority Order
A complete building contract document has eight sections. In case of conflict between sections, the following precedence order applies (higher on the list prevails):
| Priority | Section |
|---|---|
| 1 (Highest) | Form of Agreement |
| 2 | Special Conditions of Contract |
| 3 | General Conditions of Contract |
| 4 | Technical Specifications |
| 5 | Drawings |
| 6 | Schedule of Quantities and Rates (BoQ) |
| 7 | Appendices |
| 8 (Lowest) | Correspondence |
Exam Anchor: Agreement overrides everything. Drawings override BoQ. Always check the precedence clause in the contract — it may specify a different order, but this is the standard default.
C6. Tender Types
| Tender Type | Selection Basis | Key Feature | Application |
|---|---|---|---|
| Open (Public) Tender | Publicly advertised; any eligible contractor may bid | Maximum competition; full transparency; lowest-cost outcome likely | Public works above threshold value; mandatory for most government contracts |
| Limited (Select/Invited) Tender | Issued only to pre-qualified contractors; no public advertisement | Faster process; known quality; less administrative burden | Mid-value government or private works; specialist work |
| Single (Negotiated) Tender | Issued to one specific contractor; terms negotiated | No competition; potentially higher cost | Emergency works; sole-source specialist; proprietary equipment |
| Two-Envelope Tender | Technical and financial proposals submitted separately; technical evaluated first | Prevents low-quality bid winning purely on price | Complex projects where technical quality matters equally |
L1 system: In Indian government procurement, the contract is normally awarded to the Lowest 1 (L1) tenderer — the lowest acceptable bid. The employer retains the right to reject all tenders.
C7. FIDIC 2017 Contract Suite
FIDIC (Fédération Internationale des Ingénieurs-Conseils) contracts are internationally recognised standard contract forms, used extensively on large infrastructure and international projects in India.
| Book | Common Name | Design Responsibility | Typical Use |
|---|---|---|---|
| Red Book | Conditions of Contract for Construction | Employer designs; contractor builds to employer’s design | Civil engineering works (roads, bridges, dams) where a consulting engineer provides the design |
| Yellow Book | Conditions of Contract for Plant and Design-Build | Contractor designs and builds to employer’s performance specification | Plant installation, design-build contracts |
| Silver Book | Conditions of Contract for EPC / Turnkey Projects | Contractor designs, procures, builds, and hands over a complete facility | Turnkey projects; EPC contracts; high contractor risk allocation |
Key distinction: Red Book = employer-designed; Yellow Book = contractor-designed (design-build); Silver Book = EPC/turnkey. The colour tells you who designs.
C8. Financial Instruments in Building Contracts
| Instrument | Amount | When Required | Purpose | Fate |
|---|---|---|---|---|
| Earnest Money Deposit (EMD) | 1–2% of estimated cost | Submitted with the tender | Ensures bidder is serious; not a bluff bid | Returned to unsuccessful tenderers; forfeited if successful bidder withdraws |
| Security Deposit | Up to 5% of estimated cost | Deducted from running bills after award | Ensures contractor performs faithfully | Returned after expiry of defects liability period |
| Retention Amount | 10% withheld from each interim certificate | Throughout construction | Incentive to complete and rectify defects | 50% released on virtual completion; 50% after defects liability period |
| Performance Bond | ~5% of contract value | At contract signing | Guarantees contractor will complete | Bank guarantee; forfeited if contractor defaults |
| Mobilisation Advance | Varies (typically 10–15% of contract value) | At project start | Enables contractor to mobilise site, equipment | Recovered from interim certificates |
| Liquidated Damages (LD) | Fixed sum per day of delay | Applied when contract is delayed | Compensation to employer for delay — not a penalty | Must be a genuine pre-estimate of actual loss; enforceable under Section 74, Indian Contract Act |
Exam Anchor — Earnest Money vs Security Deposit:
– Earnest Money: submitted WITH the tender → before contract award.
– Security Deposit: deducted FROM running bills → after contract award.
These are the two most confused instruments in examinations.
Quantum Meruit: A claim for payment for work actually done when no price has been agreed — “as much as earned.” Arises when the scope of work changes beyond the contract description.
Payment certificate sequence:
| Certificate | Stage | Content |
|---|---|---|
| Interim (Running Bill) | During construction | Payment for work completed to date; retention withheld |
| Virtual Completion | When work is substantially complete | Remaining bills paid; 50% of retention released |
| Penultimate | Near final; after defect rectification | Adjustments made |
| Final | After defects liability period | Full settlement; 50% of retention released |
C9. Arbitration — Arbitration and Conciliation Act, 1996
Critical exam fact: The current law governing arbitration in India is the Arbitration and Conciliation Act, 1996, amended in 2015 and 2019. The old Arbitration Act, 1940 has been repealed and is no longer in force.
| Term | Definition |
|---|---|
| Arbitration | Private, binding dispute resolution by a neutral third party (arbitrator); faster and less formal than court litigation |
| Arbitrator | Neutral third party appointed by agreement or under the Act to resolve disputes; may be a retired judge, engineer, or lawyer |
| Umpire | An additional arbitrator appointed when two party-appointed arbitrators cannot agree |
| Award | The arbitrator’s binding decision, enforceable as a court decree under the Act |
| Section 29A | Mandates that the arbitration award must be made within 12 months of the tribunal’s constitution; extendable by 6 months by party consent |
| Seat of Arbitration | The legal jurisdiction governing the arbitration proceedings |
Exam Anchor: Arbitration and Conciliation Act = 1996 (NOT 1940). Section 29A award timeline = 12 months (extendable 6 months by consent). The 1940 Act was replaced by the 1996 Act; never cite the 1940 Act in an exam answer.
C10. Professional Ethics — Key Obligations
The CoA Code of Professional Conduct places the following binding obligations on registered architects:
| Obligation | What it means | What is prohibited |
|---|---|---|
| Competence | Accept only work within your ability | Accepting projects beyond your expertise without adequate support |
| No undercutting | Do not compete by slashing fees below CoA guidance | Offering fees lower than scale to poach projects from colleagues |
| No commissions | Do not pay or receive referral fees or kickbacks | Paying contractors, suppliers, or agents for directing work to you |
| Honest claims | Do not exaggerate qualifications or past experience | Misrepresenting project involvement on credentials |
| Client fidelity | Serve the client’s interests within the law and professional ethics | Allowing personal gain to conflict with the client’s interest |
| Supervision | Provide adequate site supervision | Signing drawings for projects you have not adequately supervised |
D. Parameter Table
| Parameter | Value | Source |
|---|---|---|
| Architects Act sections | 45 | Architects Act, 1972 |
| Architects Act schedules | 1 | Architects Act, 1972 |
| CoA term | 3 years | Architects Act, 1972 |
| Working Drawing stage fee (incremental) | 30% | CoA schedule |
| Supervision stage fee (incremental) | 20% | CoA schedule |
| Cumulative fee at Preliminary stage | 35% | CoA schedule |
| Most common contract type | Item Rate | Indian practice |
| Legal basis for contracts | Indian Contract Act, 1872 | Parliament of India |
| Earnest Money | 1–2% of estimated cost | CPWD / GFR practice |
| Security Deposit | Up to 5% | CPWD / GFR practice |
| Retention Amount | 10% per interim bill | CPWD practice |
| LD — legal basis | Section 74, Indian Contract Act, 1872 | Indian Contract Act |
| Arbitration Act | 1996 (amended 2015, 2019) | Parliament of India |
| Section 29A award timeline | 12 months (+ 6 months with consent) | Arbitration Act, 1996 |
E. Common Confusions
| Confusion | Correct Distinction |
|---|---|
| “Indian Building Contract Act, 1872” | No such Act exists. The governing law is the Indian Contract Act, 1872 — it covers all contracts in India. |
| Arbitration Act 1940 is current | The Arbitration Act 1940 was repealed. The current Act is Arbitration and Conciliation Act 1996. |
| Earnest Money = Security Deposit | Earnest Money: submitted WITH the tender (before award). Security Deposit: deducted FROM bills (after award). Different purposes, different timing. |
| Retention Amount = Security Deposit | Retention is withheld 10% per running bill, released in two tranches. Security Deposit is a separate instrument deducted from early bills. Both are held as security but for different mechanisms. |
| Working Drawing = Stage 4 cumulative fee 30% | Stage 4 (Working Drawing) cumulative fee = 65%; incremental fee = 30%. Questions may ask for either. |
| FIDIC Yellow Book = employer designs | Yellow Book = contractor designs and builds. Red Book = employer designs. |
| Single tender is prohibited | Single tender is permitted in exceptional circumstances (emergency, sole supplier, specialist work) — it is not prohibited but requires justification. |
F. Exam Traps
| Trap | Incorrect Assumption | Correct Answer |
|---|---|---|
| T36 | “Indian Contract Act 1872 is only for general commercial contracts; building contracts have a separate Act” | The Indian Contract Act, 1872 governs ALL contracts in India including building contracts. There is no separate “Indian Building Contract Act.” |
| T37 | “Arbitration and Conciliation Act, 1940 governs arbitration in India” | The 1940 Act was repealed. Current Act = 1996 (amended 2015 + 2019). Never cite 1940 in an exam answer. |
| T38 | “Earnest Money is deducted from running bills” | Earnest Money is submitted WITH the tender. Security Deposit is deducted from running bills. |
| T39 | “FIDIC Red Book means the contractor designs” | Red Book = employer designs. Yellow Book = contractor designs (design-build). Silver Book = EPC/turnkey (contractor designs + builds + hands over). |
| T40 | “Liquidated Damages are a penalty” | Liquidated Damages are a genuine pre-estimate of loss — not a penalty. If they were a penalty, they could be challenged in court. Section 74, Indian Contract Act. |
| T41 | “CoA term is 5 years” | CoA term = 3 years. This is a direct factual trap. |
G. Answer-Writing Cues
For professional practice questions:
“The Architects Act, 1972, consisting of 45 sections and 1 Schedule, establishes the Council of Architecture as the regulatory body for the profession. Only persons registered with the Council may use the title ‘Architect’ in India. Section 30 prescribes penalties for misuse of the title by unregistered persons.”
For contract type questions:
“The Item Rate contract is the most common building contract type in India. Under this form, the contractor quotes unit rates for measured items. Payment is made for the actual quantity of work executed at the tendered unit rates, making it suitable for works where final quantities cannot be precisely estimated at tender stage. All building contracts are governed by the Indian Contract Act, 1872.”
For financial instruments:
“Earnest Money Deposit (typically 1–2% of estimated cost) is submitted with the tender to confirm the bidder’s serious intent. Security Deposit (up to 5%) is deducted from running payment certificates after contract award to ensure performance. Retention (10% of each interim certificate) is withheld during construction — 50% released on virtual completion, the balance after the defects liability period.”
H. PYQ Linkage Note
| Topic | Exam Appearance | Pattern |
|---|---|---|
| Architects Act sections count | UPSC-CPWD, state PSC | MCQ: “Architects Act 1972 has ___ sections” |
| CoA term | UPSC-CPWD, GATE | MCQ: direct factual recall |
| Section 30 — title protection | UPSC-CPWD | MCQ: which section prohibits misuse of “Architect” title |
| Working Drawing fee (cumulative vs incremental) | UPSC-CPWD | MCQ: “Fee at Working Drawing stage is __ %” — answer depends on whether cumulative (65%) or incremental (30%) is asked |
| Most common contract type | GATE, UPSC-CPWD | MCQ: “Most commonly used contract in India is…” → Item Rate |
| Earnest Money vs Security Deposit | GATE, UPSC-CPWD | MCQ: when each is submitted; what triggers forfeiture |
| Arbitration Act year | UPSC-CPWD, state PSC | MCQ: “Current arbitration law in India is from year…” → 1996 |
| FIDIC book identification | UPSC-CPWD | MCQ: “Which FIDIC book is used when the contractor designs and builds?” → Yellow |
| Liquidated Damages | UPSC-CPWD | MCQ: “Liquidated damages are a ___ under Section 74, Indian Contract Act” → genuine pre-estimate of loss |
I. Mini-Check — Lesson 2.7 (5 Questions)
Q1 (MCQ): Under the Architects Act, 1972, which section prescribes the penalty for misuse of the title “Architect” by an unregistered person?
(A) Section 14 (B) Section 25 (C) Section 30 (D) Section 37
A1: (C) Section 30. Section 14 + Schedule = qualifications for registration; Section 25 = removal from register; Section 37 = cognizance of offences; Section 30 = penalty for misuse of the title “Architect” by persons not registered under the Act.
Q2 (MCQ): An architect has completed the detailed working drawings, specifications, and schedules for a project. What is the cumulative fee earned at this stage per the CoA model fee schedule?
(A) 30% (B) 50% (C) 65% (D) 80%
A2: (C) 65%. Working Drawing stage = Stage 4. Cumulative fee at this stage = 65% (10% + 10% + 15% + 30%). The incremental fee for Stage 4 alone is 30% — but the question asks for cumulative.
Q3 (MCQ): In a contract dispute between an employer and a contractor, arbitration proceedings are conducted under which current Indian statute?
(A) Arbitration Act, 1940 (B) Arbitration and Conciliation Act, 1996 (C) Indian Contract Act, 1872 (D) Arbitration and Reconciliation Act, 2019
A3: (B) Arbitration and Conciliation Act, 1996 (amended 2015 and 2019). The 1940 Act was repealed. The Indian Contract Act governs the contract itself, not the dispute resolution process. There is no “Arbitration and Reconciliation Act” — the word is “Conciliation.”
Q4 (MCQ): Under FIDIC contract suites, which book applies when the contractor is responsible for both the design and construction of the work to the employer’s performance specification?
(A) Red Book (B) Yellow Book (C) Silver Book (D) Green Book
A4: (B) Yellow Book. Red Book = employer-designed; Yellow Book = contractor design-and-build; Silver Book = EPC/turnkey. The distinction is who bears design responsibility.
Q5 (MSQ): Which of the following statements about financial instruments in building contracts are correct? Select all that apply.
(A) Earnest Money is submitted with the tender before contract award
(B) Security Deposit is deducted from running payment certificates after contract award
(C) Retention Amount is withheld at 10% per interim certificate
(D) Liquidated Damages are a penalty enforceable under Section 74, Indian Contract Act
(E) Performance Bond is typically 5% of contract value
A5: (A), (B), (C), and (E). Earnest Money before award ✓; Security Deposit deducted from bills ✓; Retention 10% per certificate ✓; Performance Bond ~5% ✓. Statement (D) is wrong — Liquidated Damages are a genuine pre-estimate of loss, not a penalty. Section 74 enforces them precisely because they are not a penalty.