What is contract ? How many types, advantages and disadvantages

What is the meaning of the contract?

The contract is an understanding by a person or firm, for the execution of any type of work for supply for laborers for any service to complete the work in that connection under certain terms and conditions is known as a contract. Contracts are of the following types are given below.

Main different types of contract

(A) Item rate contract, including

1. Percentage rate contract
2. Schedule rate contract
3. Labour rate basis
4. Through rate basis

(B) Lump-sum Contract
(C) Combination of both item rate and lump sum contract.   

(A) Item Rate Contract

In this type of contract in construction for contractors, the contractors have to quote the rate of each item of the work without reference to any schedule of rates. This method is adopted when a reasonably complete schedule of rates is not available for the place where the work is to be carried out or when the number of non-schedule items in the work is more. 

1. Percentage rate contract - In this type of contract, the rates for various items are fixed by the department and the contractor agrees to do the works at a percentage above or below the fixed rates. This method is adopted for works at places where a reasonable and complete schedule of rates is available.

2. Schedule rate contract - In this type of contract, the work is allotted at fixed rates for different items and the payment depends upon the quantity and kind of work done or supply made.

3. Labour rate basis - In some cases, the contractor quotes the labor rate at some percentage above or below the rates prevailing in the area for Various items of works.

4. Through rate basis - In some cases, the contractor quotes the. for doing work some percentage above or below the through rates

(B) Lump-sum Contract - In this type of contract, the contractors have to quote a lump sum for completing the work according to the given specification, drawing, etc. This type of contract is given only in exceptional cases. The con must include necessary conditions to safeguard and protect the interest of the government. 

(C) Combination of both - In this contract, a fixed sum is agreed upon for the completion of particular work by the contractor. In case of any addition or alterations that payment is made or deducted on the basis of the schedule of rates.

Advantages and Disadvantages Item rate contract

Advantages

1. This form of contract ensures a more detailed analysis of cost by the contractor and is more scientific.
2. The contractor is required to quote rates for individual items of work and hence it is not easy to form a ring during submission of tender and to allot work to one of the contractors without competition.
3. This form of the contract helps in smooth progress and timely completion of work because the unworkable rated tender may be avoided.
4. Intermediate payment to contractors for the completed item is easier.

Disadvantages

1. In this type of contract, there is always a loophole for a contractor to correct a rate in order to be the lowest tenderer.
2. This type of contract is not always advantageous when the quantities of certain items are to be increased or decreased. If by anticipation or by some other source a contractor comes to known the items whose quantities are likely to be increased may quote a high price for these items and similarly can quote low prices for items likely to be decreased. In that case, the department would stand to lose heavily due to unbalanced tender.
3. Preparation to the comparative statement of this type of tender requires more time and through scrutiny required for this type of tenders.
4. Chances of rejection of such type of tenders are more because of human error like overwriting and cutting and not doing the initial to there overwriting and cutting in the quoted rates of items by the contractor.
5. It requires accurate measurements of all the items of work.