6

CONTRACT MANAGEMENT
ACTIVITIES
CONTENT:
1. Procedures and Templates for Award of Contracts
2. Template for Informing Successful bidders
3. Template for Informing the World Bank
4. Contract Management Definitions/Legal Framework
5. Contract Management Staffing
6. Contract Management Systems
7. Contract Management Procedure-Goods/Services and
Consulting Services

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 1

6.1 PROCEDURES FOR AWARD OF CONTRACTS

6.1.1 Procedures for ICBs
Following the technical and financial evaluation process, a Bid Evaluation Report (BER) is
prepared and drafted by the evaluators.
The BER includes recommendations for Award of Contract(s).
The BER is then submitted to the Evaluation Committee of DoHS for approval. On approval, the
BER is returned to LMD for onward transmission to the WB for NOL. Once the NOL is received
from the Bank, all the requirements are in place for the Award of Contract(s).
(During a workshop held on 20 August 2013, the WB representative was asked if the WB would
approve a seven day grace period between the decision to award contracts and the start of the
clock for the 14 days period for the Supplier to sign the contract. This was agreed by the WB on
that day.)
Thus, LMD may now issue a Letter of Intent to all bidders of the intention to award the contract
and to whom LMD plans to award it to. Unsuccessful bidders then have a grace period of seven
days with which to raise any objections.
Because seven days is a very short period, LMD will have to ensure a good procedure for
informing bidders and ensuring that they have actually received the LoI.
To achieve this, it is recommended that all LMD staff cease to use their own Hotmail/Yahoo/
Gmail email accounts and use the government one that has already been allocated to them.
When this has been achieved, the LMD staff should then use Microsoft Outlook. Microsoft
Outlook has a facility whereby one can Request a Delivery Receipt. This is achieved after opening
an email in Outlook, clicking on Options and selecting the first option Request a Delivery
Receipt. When the email has been delivered, a return email will be received stating that the
message has been delivered. This should be sufficient to prove delivery to the recipients.
Immediately following the end of the seven day grace period if there are no objections from
losing bidders, the winning bidder will be sent a Letter of Award as per the attached template. In
that letter s/he will be invited to attend LMD within 14 days accompanied by a Performance
Security in the form of a Bank Guarantee supplied by a Class A Commercial Bank in Nepal in the
format laid down in the Bidding Documents and in the amount as specified in the Letter of
Award.
Immediately following the award of contract (and within 14 days of the NOL from WB to the
award of contract), LMD shall publish the result on dgMarket and UNDB Online in accordance
with the attached template. Additionally, for the sake of increased transparency, these same
details should be published on LMDs website.
6.1.2 Procedures for NCBs

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 2

The procedure for NCBs is the same as that for ICBs with the exception that there is no
requirement for an NOL from the WB.

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 3

6.2 Template for informing the successful bidder

Government of Nepal
Ministry of Health & Population

Tel: 4261768
Fax: 4261413

DEPARTMENT OF HEALTH SERVICES

Logistics Management Division
Pachali, Teku
Kathmandu, Nepal
Date: ---------------

Ref No.
(Awardee)
Dear Sirs,

Subject:
Contract for supply and delivery of ------------------------------------- for Fiscal Year 2011-2012),
IFB No: NHSP-II/G/2011-12/ICB----.
With reference to your sealed Bid No. ---, dated -------------- submitted against our publication of Bid Notice on -----------------------------2012 in the national daily newspaper "The Rising Nepal" for the supply and delivery of ------------------------------------------------- (IFB No. NHSP-II/G/2011-12/ICB----------).
In this context, we are glad to inform you that as per the decision taken by the Ministry of Health and Population,
Department of Health Services, you have been awarded the contract to fulfill the supply of ---------------------------------------------- under ------------------------------------------- Division program as mentioned below:
Slice
No.

Particular

Quantity

Unit

CIP Rate

Total Inland
Transpiration

Total Price (without

customs duty and
VAT)

Total

Accordingly, you are requested to present your authorized signatory at this office at the earliest possible opportunity
but in any event no later than 14 (fourteen) days after receipt of this letter to enter into a contract of total order value
----------------------------------------. Your signatory is required to bring a Performance Security in the form of the
Performance Bond (as prescribed in the Bid Document) valid from Contract date up to and including the end of the
warranty period. The Performance Bond is to be made out in favour of Logistics Management Division in an amount
equal to 5% of total contract value that is (in figures) (in words).
Failure to comply with these requirements will result in withdrawal of this Letter of Intent and forfeiture of your Bid
Security.
The contract shall be subject to the laws of Nepal and IBRD Loans and IDA Credits and Grants by World Bank
Borrowers (May 2004, revised October 1, 2006) and the Jurisdiction of the courts of Nepal. All terms and conditions
mentioned in Bid Documents shall remain unchanged and shall be enforceable.
Yours faithfully,

........
Dr Tinkara
Director
:

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 4

6.3 Template for Contracts Awarded

Drafted by:_______________________, LMD

Date: ______________________________

Template for Contracts Awarded

(in case of Direct Procurement, please delete the last two tables)
Name of Project (include project country):

Project ID:

Bid/Contract Description:

Scope of Contract:

Duration:

Contract Signature Date:

Awarded Bidder
Name & Address* of awarded bidder

Bid price at bid opening

Final Contract Price

*At least the city & country

Evaluated Bidder(s)**
Name & Address* of evaluated bidder(s)

Bid price at bid opening

Total Comparison Price

(NPR)

* At least the city & country

** This shall include the awarded bidder

Rejected Bidder(s)
Name & Address* of rejected bidder(s)

Bid price at bid opening

Total Comparison Price

(NPR)

Reason(s) for rejection

*At least the city & country

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 5

6.4
CONTRACT
FRAMEWORK

MANAGEMENT

DEFINITIONS/LEGAL

The contract management phase is the period, which follows the signing of contract or purchase
order.
The Chapter 7 in the Public Procurement Act, 2007, deals with the contract management phase,
but without detailed describing what it should include in regard to organisational issues such as
file management and staff/supplier obligations. The chapters 11 and 12 in the Public
Procurement Regulations, 2007, provide also guidance in regard to contract management.
The World Bank guidelines and other documents deal briefly with the contract management
phase, partly as the mandatory requirements from the Bank to the purchaser and supplier is
decided upon in the process of development of the bidding document such as the payment,
delivery dates, advanced payment, etc., partly as the Banks in unchangeable General Conditions
of Contract (GCC) clarify most of the operational issues, which will come up during the contract
management phase.
The contract management procedures are to a large extent determined by the terms and
conditions of the individual contract. Effective contract management is critical to successful
contract implementation and meeting the objectives of the procurement requirement. The
procedures described in this chapter are designed to ensure that:
the supplier performs the contract in accordance with the terms and conditions specified in
the contract;
the procuring entity fulfills its obligations and duties under the contract; and
swift remedial or preventative action can be taken, when problems arise or are foreseen.
6.4.1 Legal Framework on Contract Management (GoN)
The Public Procurement Act, 2007, includes in Chapter 7 the following relevant information:
Section 52: The contract content
Section 53: Contract amendment procedures
Section 54: Variations in the order
Section 55: Price adjustments during the period of the contract
Section 56: Extension of contract
Section 57: Payment
Section 58: Dispute settlements
Section 59: Contract termination.
The Public Procurement Regulations, 2007, provides guidance in regard to how the contract
management should be organised and obligations of staff and suppliers. The main issues are

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 6

found in Chapter 11, Provision relating to procurement contract, and Chapter 12, Provision
relating to Dispute resolution. The main sections for daily contract management are:
Section 110: Performance security
Section 111: Execution of contract
Section 112: Insurance
Section 113: Advanced payment
Section 114: Pre-shipment
Section 115: Inspection and acceptance of goods
Section 116: Action of goods
Section 117: Work acceptance report
Section 118: Variation in order
Section 119: Price adjustment
Section 120: Extension of contract
Section 121: Liquidated damage
Section 122: Bill of invoice
Section 123-127: Payment and reports
Section 128: Breach of contract

6.5 Contract Management Staffing

6.5.1 Procedures on Contract Management (GoN)
The Nepal procurement legislation leaves it to the LMD Director to set responsibility and tasks for
the LMD contract management team.
6.5.2 Contract Management Teams Main Responsibilities and Tasks
1. The Director of LMD, or whoever is delegated the task, select the most appropriate person
to head the contract management team, as well as the staff in the team. The Director of
LMD makes sure that the staff members have the necessary skills and tools to fulfill their
obligations, as well as he/she ensures that the required information from the procurement
team are provided to the contract management team in time for them to conduct their
work. It should be noted that under the present LMD organizational structure, the
procurement and contract functions have been merged under the procurement section
and hence there are no separate procurement and contract management sections. In
practice however, while procurement and contract management are all in the one section
there is still a division in that procurement is done by procurement specialists and contract
management by contract managers. The procurement team shall ensure that:
a. Any contract is prepared jointly with the contract management team. Preparation in
this way brings together the procurement people who are familiar with the lead up
process leading to the contract and the contract people who will be responsible for
administrating the contract. Knowledge and expertise are changed between the two
LMD sections.
b. a signed copy of the contract or confirmed purchase order is received from the supplier
and provided to the Contract Team as soon as it has been signed. A contract is signed
Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 7

in five original copies and the five copies are (from 2011-12) filed/provided as follows:
the supplier, the World Bank, Finance Department, Storage and LMD.
c. any required performance security is received from the supplier and that LMD has
taken steps to meets any immediate obligations, such as advanced payment and
eventually opening of a letter of credit. The last will, however, normally not happen
until the goods are ready for shipment, which leaves it to be a task of the contract
management team.
2. The contract management team shall:
a. carry out a review of the contract to assimilate the details of the requirements and the
program for fulfilling them. It is optimal to do this after the contract award, not waiting
to the signing of contract.
b. enter the signed contract into a Contracts Register. Such a register shall have the
reference number of the contract, date of the contract signing, amount of the contract,
and brief description of what is being procured and the name of the supplier,
contractor, service provider or consultant. This register is now a part of the CMS
system
c. prepare a contract implementation plan, showing key milestones, such as dates for
mobilisation, deliveries or completion of certain deliverables or sections of work, and
the procuring entitys obligations, such as providing access to a works site, payment or
approval of reports.
d. monitor the performance of both parties against the contract implementation plan.
Take action as required to address any problems or delays, whether actual or
anticipated.
e. ensure that all deliveries, targets or deliverables are completed by the supplier.
Maintain a Contracts Implementation plan to control and monitor the contracts
deliverables
f. check all payment documentation and authorise payments, using the procuring entitys
normal accounting and disbursement systems. Maintain a Contracts Payment record.
g. identify and process any claims that may arise from the contract and take action to
resolve all outstanding issues.
h. Maintain a suppliers performance register that keeps a record of how a supplier has
performed and whether the supplier is suitable for future work.

6.6 Contract Management Systems

The following shows a contract management system outline for LMD. Some of the activities
mentioned has been also detailed in other segments of this chapter under different headings
however, the following summarises a system that should be followed for best practice. It
should be noted that many contract management records are now held in a computerised
contract management system (called CMS) that operates on a Microsoft Access platform.

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 8

1. Prepare the Contract- in LMD the contract should be prepared jointly by the Contract
Management and Procurement Sections. This joint preparation has the advantages of
procurement people involvement who were associated with bid document preparationincluding the segments involved with the conditions of contract- and bid evaluation and
contract management people who will be responsible for managing and administering
the contract.;
2. File the original contract in a secure location.
3. Record the contract in a Contract Register
4. Appoint a dedicated contract manager for the contract.
5. Dedicated contract manager reads the contract and records milestones and other points
of interest for attention during the contract implementation.
6. Kick off meeting is arranged between contractor and LMD, this is particularly the need
with consultancy services.
7. Contract is managed by the responsible contract manager who ensures that the various
time and performance milestones are met.
8. Contract completion is correctly recorded after goods/works/services or consultancy
services have been delivered and accepted.
9. Performance bonds are returned to the contractor except where a bond is still required
for warranty purposes
10. Record of the suppliers performance is made in the CMS.

6.7 Contract Management Procedure-Goods/Services and

Consulting Services
6.7.1 Contract Management for Goods
Contract management for goods focuses on ensuring that goods are delivered on time, that the
goods are acceptable to the procuring entity, in terms of quantity, quality and supporting
documentation, and that the procuring entity meets its obligations to pay for the goods
delivered.
For goods contracts, the Contract Team is typically responsible for:
ensuring that the actual dates when deliveries are due are agreed with the supplier, based
on the date of contract effectiveness;
expediting during the delivery period, to ensure that manufacturing, freight-forwarding and
deliveries are proceeding on schedule;
witnessing tests or approving samples, where required;
arranging collection, freight-forwarding, customs clearance or delivery, where the
procuring entity is responsible for any of these tasks;
arranging for receipt and inspection of the goods with stores officials;
checking all documentation relating to the goods, such as delivery notes, and ensure that
documentation is correct before signing;
Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 9

 recording any missing, damaged or incorrect items and initiating claims against insurance
policies or the supplier;
reporting any contractual problems or requests for contract amendments to the
Procurement Unit;
checking that invoices for goods and supporting documentation for payment are correct
and arranging payment;
managing any securities, such as performance or payment securities, by ensuring that they
are kept securely, ensuring that extensions to their validity are obtained in good time,
when required, reducing their value, when required and releasing them promptly, when all
obligations have been fulfilled;
ensuring all documentation and information relating to warranties and warranty claims are
in good order;
ensuring that assets are registered and labelled, where required; and
ensuring all user guides, manuals, licences etc. are kept with the goods or in an appropriate
place.
Reporting on the suppliers performance by recording in the Contract Master Register
(CMS) in the Supplier Performance column. In cases where the supplier performance is
graded unsatisfactory such entry should be approved by the Assistant Director, LMS (or
higher LMD rank).
Goods should be recorded in the procuring entitys asset records and issued to the end user in
accordance with applicable stores and supply management procedures.
From the Contract Implementation Plan, deliveries can be forecasted with a degree of accuracy
that will enable necessary arrangements to be put into place locally to receive the goods, services
or works planned. It is important that a record of the deliveries is kept to be able to determine,
when the Supplier obligations have been completed. This is especially important for large value
multi item contracts such as annual supply of medical consumables, vehicle spare parts, supply of
school textbooks, newly equipping school laboratories, language training studios.
CLAIM PROCEDURES
For a majority of contracts for the supply and delivery of goods the most common types of claims
made are:
1.1.1 Discrepancies between Statement for Delivery and Actual Delivery

Discrepancies between the statement for delivery and what is found in the consignment on
arrival at the customers warehouse occur both in case of less and more supply than stated in the
delivery document. Examples of this are:
Delivery documentation states 100 boxes containing 10 bottles each box
Received 98 boxes containing 100 bottles each (Shipment made in sealed 20 ft. container)
Delivery documentation states 50 boxes containing 200 packs of syringes each
Received 50 boxes containing 100 packs of syringes each. (Part of consignment made in
sealed 20 ft. container)
1.1.2 Warranty Claims

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 10

Warranty Claims are dependent on the provisions of the warranty or guarantee clause of the
General Conditions of Contract. Generally the warranty clause seeks to protect against faulty
materials and/or workmanship and such defects typically become apparent during the use of the
goods only. Warranty claims are therefore made against the supplier/manufacturer. Examples of
possible warranty claims:
Failure of medical drugs following use, despite valid shelf life and delivery and storage
within temperature tolerances.
Insurance claims are claims against the insurance policy for the loss of or damage to items
received. Examples of probable claims would be:
Shipment made of 44 heavy duty wooded crates of drugs packed in cartoon as general
cargo (i.e. not shipped in 20 ft containers), 3 crates found damaged on arrival probable
damage during unloading. 1 of the 3 damaged crates shows evidence of pilferage of crate
contents.
1.1.3

General Procedures for Claims

Action for a claim will need to be considered based on the individual merits, but need in general
to undertake the following:
Identification of a cause for a claim: Upon receipt of all deficiency/discrepancy reports, the
Procurement Unit will need to identify whether there is a claim to be made. The claim will
need to be categorised (as insurance, or short supply as it is unlikely that these reports will
reveal any warranty defects) The reports will need to be further examined and reviewed or
discussed with the end user prior to a claim being made to the party involved.
Lodging of a claim Where the claim is felt to be an insurance claim, suitable action will need
to be taken with the local insurance agent providing details of the claim and facts supporting
the claim.
Where the claim is felt to be a under or over supply by the supplier, a communication will
need to be sent to the supplier providing the facts relating to the under or over supply and
requesting their suggested remedies.
Where the claim is felt to be a warranty claim a communication will need to be sent to the
supplier providing the facts relating to the alleged warranty claim requesting their suggested
remedies.
Resolution of claim A majority of suppliers will respond to claims made where clearly the
error is theirs. The resolution of each claim will depend upon the accuracy and strength of
the facts and the completeness of the technical specification detailed in the contract.
Settlement of claims may be the result of negotiation depending on the reason or origin for
the discrepancy or deficiency. Suppliers will usually make good attributable errors on their
part and the expectation would be the procuring entity will in certain cases need to recognise
their own failings. Settlements therefore may represent a loss of funding to a procuring
entity and officials need to appreciate the importance of comprehensive specifications when
approving and authorising requisitions and documents.
The approval of the appropriate approvals authority is required for any contract amendments.
Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 11

Payments must be approved in accordance with the procuring entitys normal finance and
accounting
6.7.2 Contract Management for Services
Contract management for services focuses on ensuring that the services are available on time,
that the services are acceptable to the procuring entity, in terms of quantity, quality and
supporting documentation, and that the procuring entity meets its obligations to pay for the
services delivered. Examples of services are transport, accommodation, vehicle maintenance etc.
For service contracts, the Contract Team is typically responsible for:
ensuring that the actual dates when services re due are agreed with the supplier, based on
the date of contract effectiveness;
checking all documentation relating to the services such as delivery notes, and ensure that
documentation is correct before signing;
reporting any contractual problems or requests for contract amendments to the
Procurement Unit;
checking that invoices and supporting documentation for payment are correct and
arranging payment;
managing any securities, such as performance or payment securities, by ensuring that they
are kept securely, ensuring that extensions to their validity are obtained in good time,
when required, reducing their value, when required and releasing them promptly, when all
obligations have been fulfilled;
ensuring all documentation and information relating to warranties and warranty claims are
in good order;

6.7.3 Contract Management for Consultancy Services

Contracts management for services focuses on ensuring that services are delivered on time and
to an acceptable quality. This can be difficult, as the quality of services, particularly consultancy
services, can be subjective and difficult to measure. A good working relationship with the
consultant and ongoing monitoring of services is therefore important, to ensure successful
contract performance.
The procuring entity must also ensure that it meets its obligations, particularly where the
performance of consultancy services is dependent on certain inputs or information from the
procuring entity or where staff must be made available to benefit from capacity building
initiatives.
For services contracts, the contract team typically has the responsibility to:
ensure that the actual dates for mobilisation, key milestones or deliverables and
completion are agreed with the supplier, based on the date of contract effectiveness;
Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 12

 monitor contract performance to ensure that levels of service are maintained and that
deliverables are submitted or completed on time;
ensure that all required reports are submitted on time;
ensure that, where required, the procuring entity provides written comments or approvals
to deliverables or reports in a timely manner;
ensure that any resources, assistance or counterpart staff to be provided by the procuring
entity are made available at the appropriate time;
check invoices and supporting documentation for payment are correct and arranging
payment;
manage any securities, such as performance or payment securities, by ensuring that they
are kept secure, ensure that extensions to their validity are obtained in good time, when
required, reducing their value, when required and releasing them promptly, when all
obligations have been fulfilled;
notify the service provider in writing of any failings in performance or failure to meet
targets; and
ensure all reports or deliverables are kept in an appropriate place and circulated or
implemented as required.

Chapter 6, Contract Management Activities, version 2.0 - 28/02/2015

Page 13