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Introduction to contracting out PH engineering

works and contract management


This Technical Brief provides an introduction to contracting out PHE works and the subsequent management
of such contracts for engineers, logisticians and project managers.

Introduction implementation-management phase, but in spite of this,


issues relating to managing large works contracts need to
The objective of the guide is to provide advice on be fully considered in the planning & design phase. In
successful implementation of any large construction other words, Oxfam must carefully consider if, they have
contracts related to public health engineering works. The the capacity to embark on a complex construction project
following key steps must be adhered to, to ensure a on the one hand, and if local conditions allow the
successful outcome to the contract management process: successful achievement of the project activities on the
Planning the full contract document other hand.
Typically Oxfams capacity will be affected by staff
Procurement - Selection of contractors through availability for the entire duration of the project and
tender process those staff having the required capacities to manage the
Implementation - Advice and supervision during the construction contract both technically and
implementation phase administratively.
Typical local conditions undermining the activities are the
Completion Supervising the handover process
absence of experienced construction companies, the
It is essential that the person managing the contract complexity of works, the lack of equipment, the required
process, not only follows the key process steps, but also materials being unavailable and logistics constraints.
liaises closely with the project technical team, the When the conditions are particularly favourable, Oxfam
logistics team, the Oxford logistics team and the Oxford should consider the participation of beneficiaries for
PHE Advisory team. labour intensive activities and may manage the works
through in-house resources; when conditions are
Good Practice - Management adverse, Oxfam will probably hire external consultants,
award international contracts, or even choose alternative
6.1 Considerations
solutions to building.
It is very important that the same person follows up
the contract implementation from start to finish. It is
6.2
always advisable to use a worksite register where all
Keys steps in successful
important decision and remarks are kept throughout contract management
the contract implementation. Lets consider the key steps of a construction activity:

The objective of successful Step 1 Planning


contract management 1. Prior planning, well-defined procedures, and
protocols may prevent poor project performance.
The objective of successful contract management is to
ensure the successful implementation of large Not only does the project process itself need
construction contract for public health engineering works. planning, but also the individual activities forming
part of the process also need planning. Procedures
The contract should be designed so as to contribute to
good management practice and by so doing reduce the and protocols refer to systems in place for dealing
incidence of disputes and improve the overall with recurring issues (like the requisitioning of
administration and management of the contract process. materials). It is not enough to have such systems in
Clear objectives are important in large-scale projects. place, but everyone needs to know that they are
Without clear objectives responses to changed there and how to use them.
circumstances may lead to the project going off in 2. Seasonal factors need to be considered in all
undesirable directions. projects, as there might only be certain activities
Given the project cycle consists of identification, planning that can be undertaken at particular times of the
& design, implementation & management, and year.
evaluation, contract management is part of the

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3. Verify the proposed technical design has been 10. While preparing the conditions of contract, the local
elaborated by the project technical team in prevailing rules and regulations (including tax related
collaboration with local partners such as public works issues) should be considered; both logistics and
departments, water departments and other relevant finance should be consulted before finalising it. It
government actors. may be necessary to consult a lawyer (locally or
4. Analyse the contract model required by the internationally) to ensure the documentation is
Donor, or in vigour in the country where the works legally sound.
are going to be implemented. Verify the proposed 11. A decision will need to be taken on the working
contract is appropriate; if not, propose other more currency, (local currency, USD, Euro or GBP), to be
appropriate formats such as standard contracts used in the contract documents. This decision will be
used by World Bank or the European Development taken in accordance to local practice.
Fund, and adapt to the specific context. 12. Types of financial and performance guarantees
should be specified as a function of the prevailing
norms in the country where the PH works are to be
implemented.
5. The estimate of quantity of different works 13. The contract shall be drafted with the aim of
should be calculated as precisely as possible as this identifying roles and responsibilities of all parties in
will minimise amendments to the contract and each circumstance (ex.: what happens when the
variation orders. The same applies to rate Contractor does not perform? When should Oxfam
analysis. This work should be undertaken in close pay? What responsibility has Oxfam towards the land
collaboration with the project technical team. Owner? Who can legally represent the parties? Who
6. Get a Confidential Cost Estimate to ensure the endorses the technical compliance of works?).
price quoted is within a sensible range. 14. The eventual owner, public works departments,
7. While estimating the project completion time, a water departments and other relevant government
project implementation schedule should be actors, should be closely consulted and involved in
prepared and all factors that could delay the project. preparing the contract documents.
A risk register approach may be considered? This
work should be undertaken in close collaboration Step 2 Procurement - Selection of a
with the project technical team, as they will be Contractor through a tender process:
responsible for the day-to-day supervision of works.
1. Treating all Tenderers equally is a key
component of the tendering process. For example, it
is of paramount importance distributing the same
8. A decision should be taken on whether to use only pieces of information to all Tenderers at the same
national contractors, or a mix of national and local time. Communications in writing must be preferred
contractors, given Oxfams community based over verbal informal approaches.
approach to PH work. Such consultations should be 2. The work should be tendered out with Contract
undertaken in collaboration with all the main actors. Manager advising on the tender process to be
9. followed. Donors, such as the EU, may have their
The contract document, which mainly contains
own tender guidelines, if so, copies of the guidelines
conditions of contract, bank guarantee, bills of
must be obtained.
quantity (BOQ), specifications and drawings
3. The first contact with construction companies is
should be prepared, in close collaboration with the
through an invitation (restricted tender) or a public
project technical team, considering local prevailing
advertisement (open tender) for Tenderers to take
norms and other legal requirements. Clauses will
part respectively in a pre-qualification exercise or
include financial, administrative and technical
an open tender process.
issues. Wherever possible, quality testing, either
4. The tender dossier shall explain the project in detail.
under the responsibility of the Contractor or Oxfam,
If necessary, pre-bid meetings can be organised,
should be scheduled or considered in the overall
ensuring that all interested Tenderers receive exactly
costing.
the same information.
5. The bid should contemplate mechanisms for the
Good Practice Quality Testing purchase of major construction materials if any (e.g.
e.g. for the construction of a tank: concrete large water pipes, generators, submersible pumps,
resistance test (at 7, 14 and 28 days) means taking etc.), especially if international procurement is
special sample of concrete each time a batch of required. The offer shall clearly state whether the
concrete is prepared. Government, or Oxfam, or Third Parties need to
e.g. a pipe pressure test, between 2 valves, may be cooperate in the procurement process (e. g.: for
undertaken each time a section of pipeline is import taxes).
completed 6. A panel shall conduct the selection process using a
e.g. water quality testing may be undertaken when a range of pre-established criteria.
borehole is drilled.

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Good Practice - The Offer (the Bid) Step 3a - Implementation, during
Typically, an offer from a Contractor must include construction phase
details of the following: 1. In the field, if there is a variation from original plans,
- declaration of acceptance of tender conditions a variation order should be prepared explaining the
- power of attorney reasons for this. This then needs to be approved by
- site visit certificate the Contract Manager in collaboration with the
- general information about the company project Technical Team and other key actors. Field
- organisation chart support visits to verify the facts on the ground may
- technical qualification certificates be necessary.
- similar construction experience 2. All conditions of the contract must be fully agreed,
analysed and carefully complied with by both the
- personnel to be employed on the contract
Employer and the Contractor.
- CV of key personnel
- work plan Tips for maintaining a good working
- consortiums ways of working and roles (if relationship with the Contractor.
applicable)
- priced bill of quantities and financial bid - One clear line of communication (dont give order to
- bank details workers, go through the line defined at beginning of
works)
- list of equipment to be made available on the
contract - No surprise or changing decision at last minute
(prior notice with time to adapt)
7. The Contractor shall be carefully selected on the - Always remember that the contractor has to make
basis of the sealed bid it has submitted or any other
money and dont like to feel hes loosing
accountable fact. Relevant considerations that do not - It can be give and take on whats important to
Oxfam and the contractor.
arise from the bid can be acknowledged by the Panel
in the Tender Evaluation Report (e. g.: past - Consider the impact of decisions and changes on
cost, time and quality of the works, as well as the
experience with Oxfam, or with other organizations,
interest of each party (humanitarian project needs,
not mentioned by the Tenderer). Considerations not
reputation, etc.)
mentioned in the tender Evaluation Report cannot
influence the selection. The selection must be based 3. Close coordination among the Contractor, Oxfam GB
on objective, substantiated facts. and the eventual Owner is very important and all
8. The eventual owner, public works departments, attempts should be made to ensure that a good
water departments, other government actors, and/or working relation exists among all these. The Contract
other key stakeholders should be involved in the Manager may also need to liaise with key Donors on
selection process. the contract management process. However it is
important to clearly define the communication
Good Practice Selection criteria channels between actors that are non-signatory to
the contract. In principle external information, or
- Previous similar experience request, or complaint should go through the Contract
- Type and number of equipment (compressors, Manager before reaching the Contractor.
vehicles, etc. need to be verified) and human 4. The person managing the works is strongly
resources. Those at full disposal of the project
recommended use of a worksite register, with
should be distinguished from those to be shared
with other activities of the Contractor numbered and maybe multi-layered pages. The
register should be kept by, where remarks,
- References (name and contacts should be given).
warnings, decisions taken and other information may
- Up to date to any taxes and social obligation within
be recorded while conducting joint monitoring visits
local laws and Oxfam code of conduct
(Manager + Technician + Contractor). Even
- Duration and beginning date of works
contestations may be registered. Those permitted to
write notes in the register should be clearly
9. When the selection process has been completed,
identified, in writing, in the register.
agreements will be made with the Contractor
5. It the event that the Contractor fails to comply with
regarding the best mechanisms for the purchase of
the conditions of contract, the Contract Manager
major construction materials (e.g. large water pipes,
must advise on the necessary steps to be taken to
generators, submersible pumps, etc.) especially if
facilitate the contractors work. The Contract
international procurement is required and such
Manager may be required to offer support to the
materials are not available locally or nationally. The
project technical team or to plan field support visits
eventual owner should be fully involved in the
in this eventuality.
procurement process, as this may avoid import
6. The Contract Manager must coordinate technical,
taxes.
financial and legal aspects of the activities. He shall
be in continuous contact with the Technical Experts

OXFAM Technical Brief introduction to contracting out works 3


in order to ensure that the implementation of the of account, etc.). The Contract Manager shall ensure
works adheres to the technical aspects agreed in the that those are correctly processed.
contract. 4. The eventual Owner of the works can be given the
responsibility to deal with the Contractor on issues
Step 3b - Reacting to problems of poor such as retention money and any repair and
performance maintenance works necessary during the warranty
period. The Contract Manager should advise the
In the eventuality of poor works progress, due to bad
Owner on ways of implementing this strategy.
performance by the Contractor, or due to force majeure,
5. The Contract Manager should advise on the
a number of measures should have been foreseen in the
contract, such as: handover process and issuing the final completion
certificate.
suspending the works,
6. The handover is tripartite: the Contractor handovers
offsetting Contractors claims against those of Oxfam the facilities to Oxfam; Oxfam handovers the
GB,
facilities to the Owner. It is very important to ensure
holding payments, the responsibilities of Oxfam and the Owner with
rejecting the final technical report and demanding a reference to the settlement of last payments,
new report, guarantees and retentions. Maximum efforts must be
enforcing financial penalties, paid to meet Owners satisfaction on the works
enforcing recovery of amounts due, quality (through all contract stages and this starts
awarding the execution of the undone works to third before the contract / definition of works quality) and
parties at Contractors cost, achievement of the expected project goals.
seizing the financial guarantees, 7. It is highly advisable to ask the Owner to state its
full satisfaction of the works done in the handover
terminating the contract.
documents.

Step 4 - Completion The roles and responsibilities of


1. Payments are usually scheduled at the completion of Oxfam Staff
an agreed percentage of works done, or at major
Typically, the following Oxfam staff will be involved in
milestones of the construction. Certificates of
one way or another in the contracting out process and
completion shall be signed before these payments any of them could be the Contract Manager:
are done. That applies to both partial achievements
(i.e.: certificate of provisional acceptance) and
Country Programme Manager
end of works (i. e.: certificate of final Main role Main responsibility
completion). Legally responsible for Legally and financially
OGB in the country. responsible, as well as
Good Practice Scheduling Payments responsible for overseeing all
OGB staff.
It is useful to have sufficient money remaining to be
paid at the end of all works that are dependant on final
Project Manager
quality testing. This remaining % should be enough to
Main role Main responsibility
fund, partially or totally, any corrective works that have
Overseeing the project Budgetary responsibility
to be done on what the Contractor has achieved. Not staff and project
only considering the end of works, but each time management
payments are scheduled; when possible some quality
testing and report should be attached, in particular Public Health Engineer
with pipe networks. Main role Main responsibility
Technical supervision Technical designs and
specifications.
2. Before issuing a final completion certificate, the
Technical reports of works
Contract Manager shall check all works together with achievements
the project Technical Team, the Contractor and the
eventual Owner. Only after the inspection process Logistics Manger/Officer
should the final completion certificate be issued. Main role Main responsibility
Any testing scheduled in the contract should be Technical supervision Tender management
conducted in presence of the above mentioned
parties. They shall sign the test result report(s) and Finance Manager/Officer
attach them to the completion certificate. Main role Main responsibility
3. When the works are completed, some contractual Financial supervision Payments
obligations still remain pending for a certain period
of time (e.g.: retentions, warranties, final statement

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Skills and competences required Legal action?
for a Contract Manager A contract is a legal document, and in the event of
disputes, such disputes will have to be settled according
A suitable qualification in a discipline relating to
to the law.
managing legal, administrative, technical and
financial issues. Contracts usually specify which is the law applicable in
Preferably, at least two years practical experience of case of disputes; most likely it is the one where the
managing large tenders in developing countries. obligation has to be met. That is quite clear where the
Proven practical experience of managing large contract pertains works, but it can be more vague in the
contracts in developing countries. case of a supplies contract. In that case, the law
applicable is usually the one of the country of residence
Good knowledge of Donors procurement rules.
of the part who has to provide the service.
Awareness of community based approaches.
The ability to present concise reports, sometimes at Whether to sue at law or not is a decision to be taken at
short notice, reflecting the problems and possible the highest Oxfam levels. In fact, a legal action may take
solutions for particular situations. a period far longer than the presence of the Oxfam staff
in the country and can require significant efforts. At the
Diplomacy, tact and administrative skills in order to
same time, Oxfam GB devotes its resources to the
work with people at managerial and, on occasions, Beneficiaries and cannot renounce its claims.
senior government levels. The person should also be
at ease in working with local people. Whatever decision is taken in this regard, it is the duty of
Well developed interpersonal and team skills and the Contract Manager to ensure that all facts, in every
proven ability to be flexible in demanding situations. moment, have been properly documented and the
Sympathy with the aims and objectives of Oxfam and documentation itself has been filed.
to Oxfams equal opportunity and gender policies.
Further information
Types of contracts A PRACTICAL GUIDE TO THE ENGINEERING AND
A reminder of the different types of contracts: CONSTRUCTION CONTRACTS, Seminar Notes, London
Business School (2003).
SUPPLIES CONTRACT = covers the purchase, leasing,
rental or hire purchase, with or without the option to buy
the products.
WORKS CONTRACT = covers the execution of buildings
or other such civil engineering structures.
SERVICES CONTRACT = covers technical assistance,
studies and performances that do not include supply of
goods and execution of works.

More details on the different types of contract can be


found in the Logistics Procurement Manual, or by
following the link:

Sizes of contract
For large works contracts, the Oxfam GB lawyer in Oxford
should be consulted as a matter of routine, to ensure
that Oxfam is as fully protected, as possible, from
litigious actions. A large works contract can mean any
works contract that is over GBP 100,000. The Oxfam
GB legal services can be contacted

OXFAM Technical Brief introduction to contracting out works 5


OXFAM - TBN 12 (v1)

Terminology payment of final retention. Payable to


the contracting Authority when the
retention was intended to be released.
Owner Who has a right of property (ex.: on the
100% of final retention
construction land)
retention amount deducted, usually in form of a
Contracting Entity awarding the contract
guarantee, from each interim payment
Authority -
due to the Contractor. Payable to the
Employer
Contracting Authority when the
Contractor Who agreed with the Contracting Contractor does not fulfil its obligations
Authority to undertake an activity in during the maintenance. Usually 10% of
return for a financial consideration each instalment
General Contractor in charge of the execution of certificate of certification on works executed and
Contractor the works as well as the supervision and provisional accepted by the Contracting Authority
overall coordination acceptance
Sub Executes works and/or provides the provisional
Contractor Contractor with services/supplies, as completion
authorized by OGB certificate
Resident represents the Owner's interests during Certificate of Certificate stating that the works are
Engineer the construction phase final completed. At this stage the entire site
Contract manages the contract completion is usually handed over to Contracting
Manager Authority
Project calculates works executed and gives maintenance period of time during which the
Supervisor instructions to the Contractor period Contractor must amend every defect of
Surveyor prepares drawings defining existing site the works. The period starts from the
conditions and site boundaries date of certificate of acceptance of the
Quantity contributes to drawing the confidential pertaining works
surveyor cost estimate and calculating the works worksite document endorsed by the Project
executed register Supervisor; lists all site activities and
Clerk of works inspects works, quality of materials etc. instructions to Contractors in
during the construction. Often resident chronological order. It may also include
on a site additional reports as a Register Of
tender notice public invitation (an advertisement) by Accesses to the site
the Contracting Authority to submit variation changes in work authorised by the
offers for undertaking a certain order change Contracting Authority Representative.
performance Such changes were not foreseen among
tender bank guarantee, bankers draft or the tasks originally assigned to the
guarantee - certified cheque, or irrevocable letter of Contractor. The latter is usually bound
bid bond bid credit issued by a bank or a insurance to execute them at the price fixed into
security company. Payable to the contracting the original bill of quantities, unless they
Authority when the Tenderer withdraws exceed a certain limit (usually 15%).
its offer after the submission deadline. When they exceed the limit, the Parties
Usually small % of confidential estimate. may agree new prices
Released when the contract is signed as built drawing prepared after construction,
and the performance guarantee issued drawing that describe the actual construction
advance bank guarantee, bankers draft or addendum document modifying the terms and
guarantee certified cheque, or irrevocable letter of conditions of a contract
advance bond credit issued by a bank or a insurance final issued some time after the final
company. Payable to the contracting statement of certificate of final completion, this
Authority when the Contractor does not account document certifies the amounts due for
fulfil its obligations after having received the complete settlement of all financial
an advance payment. 100% of advance aspects
payment. Released when job done is Power of declaration stating who can act on
valued 100% of advance attorney behalf of a company
performance bank guarantee, bankers draft or Specifications Technical and performance
guarantee certified cheque, or irrevocable letter of specifications.
performance credit issued by a bank or a insurance Confidential assessment of cost presumably involved
bond company. Payable to the contracting Cost Estimate in the activity. Used as a reference for
Authority when the Contractor does not evaluating the bids
fulfil its obligations after having received Site visit statement of survey performed by the
an advance payment. Usually 10% of certificate Tenderer to the construction site
contract. Released with the final
Priced Bill of list of materials needed for the
statement of account
Quantities construction with individual costs
retention bank guarantee, bankers draft or
guarantee certified cheque, or irrevocable letter of
retention credit issued by a bank or a insurance
bond company when the Contractor requests

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