FEW IMPORTANT TRMINOLOGY AND THEIR MEANING

AGREEMENT AND CONTRACT

Key Differences between Agreement and Contract

The points given below are substantial so far as the difference between agreement and
contract is concerned:

1. Promises and commitments forming consideration for the parties to the same
consent is known as an agreement. The agreement, which is legally enforceable,
is known as a contract.
2. The agreement is defined in section 2 (e) while a Contract is defined in section 2
(h) of the Indian Contract Act, 1872.
3. The major element of an agreement is the offer and its acceptance by the same
person to whom it is made, for adequate consideration. Conversely, the major
elements of an agreement are agreement and its enforceability by law.
4. Every agreement is not a contract, but every contract is an agreement.
5. An agreement needs not to be given in writing, but the contracts are normally
written and registered.
6. The agreement does not legally bound any party for the performance. In the
Contract, the people are legally bound to perform their part.
7. The scope of the agreement is wider than a contract because it covers all types
of agreement as well as contract. On the contrary, the scope of a contract is
relatively narrower than an agreement because it covers only that agreement
which have legal enforceability.

Similarities

 Proposal
 Acceptance
 Consideration
Comparison Chart
BASIS FOR
AGREEMENT CONTRACT
COMPARISON

Meaning When a proposal is accepted by the person to whom When an agreement is

it is made, with requisite consideration, it is an enforceable by law, it becomes a
agreement. contract.

Elements Offer and Acceptance Agreement and Enforceability

Defined in Section 2 (e) Section 2 (h)

In writing Not necessarily Normally written and registered

Legal obligation Does not creates legal obligation Creates legal obligation

One in other Every agreement need not be a contract. All contracts are agreement

Scope Wide Narrow

BILLS AND ACCOUNTS

The payment to the contractors for works or supply or material, road metal and plants
etc. are made on the basis of measurements recorded in the measurement books.
When the work or supply is completed or sufficiently progressed, the detailed
measurements are taken usually by the section officer and recorded in the
measurement book and an abstract of quantities are prepared and the cost is calculated
at the rate of the contract agreement. From the abstract of quantity and the rate, a bill is
prepared for payment.

2. BILL AND VOUCHER

Bill: Bill is the account of work done or supply of materials made and includes the
particulars and quantities of work done or material supplied and amount due.
Reference to the agreement number, order number is also given in the bill.

Voucher: Voucher is a written document with details which is kept in record as a

proof of payment. For any payment, a bill is prepared and payment is made on the bill,
duly checked and acknowledged by the payee, by signature or revenue stamp as
required and after payment is made, bill becomes voucher which is kept in record.
3. Types of Bills

The various standard forms of bills and vouchers are used for payment, according
to the nature of works. White forms are used for running bills and yellow forms are used
for final bills. The following are the different types of bills.

1. First and Final bill

2. Running account Bill – form A
3. Running account Bill – form c
4. Lump sum contract Bill
5. Hand receipt
1. First and Final Bill: This form is used for making payment to the
contractor both for works and suppliers, when a single payment is to be
made on the completion of the whole work or supply as final payment.
This type of bill is generally adopted for petty works or split up works in
projects.
2. Running Account Bill – Form A: This form is used for advance
payment without any measurement. It may be used for running bill
payment for advance for unmeasured work only or combination of
unmeasured work and measured work or if ‘on account’ payment is to be
made but an advance payment already made for the same work is
outstanding.
3. Running Account Bill – Form C: This form is used for contracts
both for works executed on piece work system and for suppliers
received. This form is widely used specially for medium sized works
executed through K2 contract or split up works or projects entrusted on
nomination to a number of contractors.
4. Lump Sum Contract Bill: In the L.S. contract methods, a number of
intermediate payments are made in L.S. contract running account bill
form before final payment is made. Intermediate payment is made for (i)
value of measure up items of work executed forming part of the contract.
(ii) value of authorized extra work done on account of additions or
modifications in the work executed supported by details in either case.
In the final L.S. bill, the full amount as entered in the contract is paid adding the amount
of authorised extras and deducting authorised omission and the intermediate payments
already made.
5. Hand Receipt: Hand receipt is a simple form of voucher intended
to be used for small miscellaneous payments and advances for which
none of the above forms is suitable. The purpose of payment and the
designation of the officer making payment duly supported by
measurement book entry should be furnished on the hand receipt No
agreement is necessary for payments made through Hand receipt form.

4. Types of payment

Payments to contractors are made in a variety of ways, as listed below:

1. First and Final Payment
2. Running on Interim or ‘on account’ payment.
3. Final payment
4. Advance payment
5. Secured Advance payment

First and Final Payment: The term indicates a single payment made for a job or
contract on its completion. In this case the payment finished by one payment after
the completion of the work. This is usually applicable for small work.

Running or interim ‘on account’ payment: This means payment made on a

running account to a contractor for works done or supplies made by him, duly
measured and entered in measurement book. This is effected when only a part of
the whole work or supply has been done and the work or supply is in progress.
During the progress of the work, the contractor is paid from time to time.

Final Payment: This is the last payment made to a contractor on a running

account, on completion of this contract and the full settlement of the account.

Advance Payment: This means the payment made on a running account to a

contractor for work done by him but not measured. Advance payment is not
generally made to the contractor, but may be made under special circumstances
when the work is sufficiently progressed, but measurement cannot be taken for
certain valid reasons. The value of work done shall not be less than the advance
proposed. Detailed measurements shall be taken as soon as possible and advance
payment adjusted in the final bill.

Secured Advance Payment: This payment is made on the security of materials

brought by the contractor to the site of work, when the contract is for the completed
items of work. This type of payment may be allowed by the Executive Engineer in
the interest of work up to an amount not exceeding 75% of imperishable materials.
Lime, sand, paint and varnishes are considered as perishable materials and no
advance is permissible.

5. Preparation, Examination and Payment of Bills

The bills for payment shall be prepared with respect to the measurements recorded in
the measurement book. All entries in the measurement book with regard to the
description and quantities of work or supplies made are checked. Arithmatical
calculations of the contents or area are verified. When, the bill is on running account
then it is compared with the quantities etc. with the previous bill. It is checked whether
deduction in respect of the following have been properly made.

1. Recovery for advance payment

2. Recovery in respect of departmental materials issued to the
contractors.
3. Hire charges for departmental materials issued to the contractors.
4. Amount to be withheld towards security deposit.
5. Recovery towards penalty for slow progress, non return of empty
gunny bags etc.

In case of final bills the field officers should certify about the due fulfillment of contract
and satisfactory completion of work.

The memorandum of payment is then made. The competent officer records a formal
pay order specifying both in words and figures the net amount payable.

However the contractor is required to acknowledge the gross amount payable inclusive
of recoveries proposes in the bill.
When the bill is passed for payment, every page containing the detailed measurement
will be scored out by a diagonal red ink line. The number and date of the voucher for
payment will be entered in the measurement book.

Lease vs rent: Key differences

Particulars Lease Rent
Type of contract Lease Leave and licence
Parties Lessor and lessee Landlord and tenant
Payment Monthly Monthly, quarterly, yearly
Maintenance
Lessee Tenant
responsibility
Expiry Expires at date mentioned Expires at date mentioned
Time period Long term Short term
Ownership Remains with lessor Remains with landlord
No change for the period
Change in contract Changes possible
fixed

Prepared by: Dr. Sarbesh Mishra

Professor and Dean
NICMAR University, Hyderabad – 500 101.
E-mail – [email protected]