Amogh N P
✦ In loving memory of Amogh N P — Architect · Designer · Visionary ✦
A construction contract document with a pen, a hard hat and rolled blueprints — the bundle of agreement, conditions, drawings and BOQ that governs the parties and allocates the risk.
Unit IIIProject Cost & Contract Management

Construction Contracts

Contract types by who bears the risk — and the standard forms.

≈ 45 min + studio task

A contract is an agreement enforceable by law (Indian Contract Act 1872) — offer, acceptance, consideration, free consent, competence, lawful object. Learn the main construction contract TYPES and who bears the risk (lump-sum, item-rate, percentage-rate, cost-plus, EPC/turnkey); the contract documents and their precedence; the key clauses; the standard forms — international FIDIC (Red/Yellow/Silver) and Indian (CPWD GCC, State PWD, NITI Aayog model); and the Engineer/Architect's dual role as an impartial certifier. Try the contract-type explorer.

Learning objectives

By the end of this lesson, you will be able to — mapped to the course outcomes for Project Cost & Contract Management:

1
CO3 · Understand

State the essentials of a contract under the Indian Contract Act 1872.

2
CO3 · Analyse

Distinguish the contract types by who bears the quantity/cost risk.

3
CO3 · Understand

Identify the contract documents, key clauses, and FIDIC / Indian standard forms.

4
CO6 · Evaluate

Explain the Engineer/Architect's impartial duty when certifying.

Who bears the risk

Contracts, types & standard forms

A contract needs offer, acceptance and consideration; contract types differ by who bears the risk; and the standard forms (FIDIC, CPWD GCC) differ by who designs and who bears risk.[1, 2, 3]

Contract types — who bears the risk risk on OWNER risk on CONTRACTOR Cost-plusowner: cost risk Item-rateowner: qty risk % rateshared Lump-sumcontractor EPCmax risk Item-rate pays on ACTUAL measured quantities (owner's risk); lump-sum is one price (contractor's risk). Don't confuse them.
DiagramContract types on a spectrum of who bears the risk — cost-plus and item-rate (owner) to lump-sum and EPC (contractor)

Indian Contract Act 1872

A contract is an agreement enforceable by law (s.2(h)): an OFFER (the contractor's tender) and its ACCEPTANCE (the owner's Letter of Acceptance) producing consensus ad idem, with lawful CONSIDERATION (price for promise), free CONSENT, parties COMPETENT to contract, a lawful object and intention to create legal relations. In construction the contract often exists at the LOA — before the formal agreement is even signed.[1]

FIDIC forms — by who designs & bears risk RED Bookemployer-designedre-measured worksadministered bythe Engineer YELLOW Bookplant & design-buildthe CONTRACTORdesigns SILVER BookEPC / turnkeylump sum, max riskno Engineer They differ by who designs and who bears risk — NOT just by cover colour. Indian forms: CPWD GCC, NITI Aayog model.
DiagramThe FIDIC Rainbow Suite — Red (employer-design), Yellow (contractor-design), Silver (EPC turnkey)
Interactive

Explore the contract types

Pick a contract type and read its basis, who bears the risk, and when it is best used.

Contract types · pick one

Lump-sum / fixed-price

Basis: One fixed price for a defined scope.

Who bears the risk: Contractor bears quantity AND price risk.

Best for: Well-defined scope, complete design; gives the owner cost certainty (priced at a premium for the risk).

Choosing a contract type IS choosing who carries the risk — price it to whoever can best manage it.

A quasi-judicial duty

The impartial certifier

The architect/engineer, though paid by the employer, must certify fairly and impartially between both parties — partial certification can void the certificate and breach ethics.[2, 5]

The impartial certifier Employer Contractor Architect / Engineer impartial certifier paid by the employer — but certifies for BOTH, fairly Certifying in the payer's favour breaches professional ethics, can void the certificate, and invites liability.
DiagramThe architect or engineer sits impartially between employer and contractor when certifying

Employer, contractor, Engineer

The EMPLOYER (owner) commissions and pays; the CONTRACTOR executes; and the ENGINEER/ARCHITECT administers the contract — issuing instructions, measuring and certifying, valuing variations, granting EOT and determining claims. Under traditional and FIDIC Red Book contracts this administrator is appointed by the employer but holds a special dual role.[2]

Lump-sum vs item-rate vs cost-plus

At a glance

AspectLump-sumItem-rate / cost-plus
Who bears quantity riskLump-sum: contractorItem-rate: owner
Cost certainty for ownerLump-sum: highItem-rate: medium; cost-plus: low
Design completeness neededLump-sum: fullCost-plus: can be partial
Payment basisLump-sum: fixed sumItem-rate: measured qty × rate
FIDIC formRed: employer-design (Engineer)Silver: EPC/turnkey (no Engineer)
Vocabulary

Key terms

Consideration

The lawful 'price' of a promise — something each party gives or receives.

Letter of Acceptance (LOA)

The employer's acceptance forming the contract, often before the formal agreement.

General Conditions of Contract (GCC)

Standard clauses governing the parties' rights and duties.

Precedence of documents

The clause ranking which contract document prevails on conflict.

Item-rate contract

Payment on actual measured quantities at quoted rates; the owner bears quantity risk.

The Engineer (FIDIC)

The contract administrator/certifier, appointed by the employer but bound to act impartially.

Apply it

Studio task

For three scenarios — a well-defined villa, a fast-track project with uncertain quantities, and a privately financed power plant — choose a contract type and state who bears the risk and why. Name the FIDIC or Indian standard form you'd use for each, and write two sentences on the architect's impartial duty when certifying payments on any of them.

Check your understanding

Self-assessment

1. In an ITEM-RATE contract, who bears the risk of quantities differing from estimate?

2. The FIDIC Silver Book is used for —

3. When CERTIFYING an interim payment, the Architect/Engineer must —

In a nutshell

Recap

A contract needs offer, acceptance, consideration, consent, competence and a lawful object (ICA 1872).
Contract types differ by risk: lump-sum (contractor), item-rate (owner), cost-plus (owner), EPC (contractor).
The contract is a bundle (agreement + conditions + drawings + specs + BOQ + schedules) with a precedence clause.
FIDIC Red/Yellow/Silver and Indian CPWD GCC / NITI Aayog forms differ by who designs and who bears risk.
The architect/engineer must certify impartially — partiality can void the certificate and breach ethics.
The evidence

References & further reading

  1. [1]The Indian Contract Act, 1872 (bare act) — formation, consideration, competence, free consent.
  2. [2]B.S. Patil, Building and Engineering Contracts (CRC Press / LexisNexis) — the standard Indian contract-law text.
  3. [3]FIDIC, Conditions of Contract — Red, Yellow & Silver Books (2017 2nd eds.) + FIDIC Contracts Guide.
  4. [4]CPWD General Conditions of Contract & CPWD Works Manual; NITI Aayog Model EPC / Concession Agreements.
  5. [5]Council of Architecture, Architects (Professional Conduct) Regulations — impartial certification (with Sutcliffe v Thackrah line).

Further reading

  • B.S. Patil — Building and Engineering Contracts.
  • FIDIC — Conditions of Contract (Red / Yellow / Silver, 2017).
  • The Indian Contract Act, 1872 (bare act with commentary).

Sources gathered and fact-checked June 2026. Published values vary by source, sample and method — treat as indicative and confirm against the cited standard before structural use.