NICMAR

ANALYSIS OF LIVE CONTRACT USING FIDIC AND

MOSPI GUIDELINES AND PREPARATION OF RISK
MANAGEMENT FOR THE PROJECT

By

DHEERAJ CHAND (QH15040)

NAVIN CHOURAGADE (QH15033)

HIMANSHU ZODE (QH15059)

PGP QSCM 12th Batch

(2015- 2016)

A Thesis submitted in partial fulfilment of the Academic

requirements for the Post Graduate Programme in Quantity
Survey & Contract Management
(PGP QSCM)

NATIONAL INSTITUTE OF CONSTRUCTION

MANAGEMENT AND RESEARCH
HYDERABAD
 ACKNOWLEDGEMENT

This research thesis is a team work and the satisfaction that accompanies the successful
completion of task would be incomplete without the mention of the people who made it
possible. Though it is possible to thank to them personally, we take this opportunity to
express our gratitude to them.

This pleasure would not have been ours without the firm support extended to us by our
guide Dr. Yamini Varma N. Her lively appreciation, mixed with constructive criticism
and suggestions are foundation on which our project is based earnestly.

We express our deep sense of gratitude to the Prof. B. Ravinder, who gave us inspiration
to pursue the project and guided us in our endeavors. Without his motivation and
support, this project would not have been complete on time.

NAME OF THE STUDENTS

DHEERAJ CHAND (QH15040)

NAVIN CHOURAGADE (QH15033)

HIMANSHU ZODE (QH15059)

 DECLARATION

We declare that the research thesis titled “ANALYSIS OF LIVE CONTRACT

USING FIDIC AND MOSPI GUIDELINES AND PREPARATION OF RISK
MANAGEMENT FOR THE PROJECT” is bonafide work carried out by us, under
the guidance of Dr. Yamini Varma N. Further we declare that this has not previously
formed the basis of award of any degree, diploma, associate-ship or other similar
degrees or diplomas, and has not been submitted anywhere else.

Date-

DHEERAJ CHAND
QH15040

NAVIN CHOURAGADE
QH15033

HIMANSHU ZODE
QH15059

PGP QSCM 12th (2015-2016)

NICMAR - Hyderabad
 CERTIFICATE

This is to certify that the research thesis entitled “ANALYSIS OF LIVE CONTRACT
USING FIDIC AND MOSPI GUIDELINES AND PREPARATION OF RISK
MANAGEMENT FOR THE PROJECT” is bonafide work of Mr. DHEERAJ
CHAND, NAVIN CHOURAGADE, and HIMANSHU ZODE in partial fulfilment of the
academic requirements for the award of Post Graduate Programme in Quantity Survey
and Contract Management (PGP-QSCM). This work is carried out by him/them, under
my guidance and supervision.

Date: Dr. Yamini Varma N

Name of the Guide & Signature

Prof. B. Ravinder

Name of the Head & Signature

 ABSTRACT

Construction Industry is one of the booming industries of today that has a great impact
on the economy of any nation. Large construction projects if delayed can cause increase
in overall cost of the project. The two major reasons for delays in construction projects
are the disagreements between contractor and owner about the scope of contract; and the
delays caused by unaccounted risks which turn into issues during execution. Hence the
study of contract clauses and inherent risks in the contract must be considered for overall
duration of the project.

The purpose of this project is twofold-

 The first purpose is to critically analyze a real time construction contract

document and compare its clauses to those of MOSPI and FIDIC guidelines.
Here analysis also means that according to the nature of the contract, suggestions
would also be made to include certain elements from FIDIC and MOSPI clauses
so that the live contract becomes much more acceptable to both the parties and
the inherent risks are reduced.
 The second purpose of this project is to prepare a Risk Assessment Report based
on the contract details and past experience from the Contractor’s side.

The two contract Document guidelines- MOSPI (Ministry of Statistics and Programme
Implementation) and FIDIC (Federation Internationale Des Ingenieurs-Conseils) - were
chosen because these are the most widely accepted contract guidelines in Indian and
International circles. As the project will be executed in urban India, both the guidelines
would be necessary in analyzing the contract.

The project will shed a light on how much a typical construction project is following the
international and national guidelines. It will also help the Contractor in identifying the
risks involved in the project and prepare a plan to prevent or mitigate the risks.
 CONTENT

CHAPTERS PAGE NO

1. Introduction

1.1 Rationale of Project

1.2 Statement of the Project
1.3 Objectives
1.4 Methology
1.5 Structure of Thesis

2. Literature Review

3. Comparison of the clauses of CPWD/MOSPI and FIDIC

4. Risk Management

4.1 Risk identification

4.2 Risk evaluation
4.3 Risk impact ranking
4.4 Calculation and Allocation
4.5 Risk response strategy

5. Conclusion

6. References
 LIST OF TABLES

TABLE NUMBER PAGE NO.

Table 1- Scales for Likelihood & Impact

Table 2- Assignment of Value scale to the Risks

Table 3- Risk factor calculations

Table 4- Categorization of Risk

Table 5- Risk response strategy

 CHAPTER 1
INTRODUCTION

1.1 Rationale of the project

A Contract is a voluntary agreement between two or more parties. The purpose of a

contract is to set out the rights, responsibilities, and liabilities of the parties. The purpose
of a contract can be described from a different perspective; it is to allocate risk between
the parties. Conditions refer to contract documents used to define no technical
construction contract terminology and procedures necessary for safe, orderly execution
and management of the work. They establish rights, responsibilities, risks, and
requirements of owners and contractors in fulfilling contract obligations and must
provide fair and equitable levels of protection for both parties. Thus, when owners
presenting onerous and poorly written conditions, slanted in their favor; then, they will
find it increasingly difficult to attract qualified bidders.

General conditions are those written to cover conditions that will apply to all of an
owner's construction contracts. Supplemental or special conditions modify existing
conditions or add new ones to address subjects not covered. The legal aspects of the
contract documents are outlined in the general conditions (GC’s). There are several
types of general conditions available for inclusion in contract documents. A standardized
(common) set of GC’ are those prepared by using FIDIC which is widely used across the
world and MOSPI guidelines, which are widely used in India.

The General Conditions are the legal standards that have been established to promote
fair and objective contractual stipulations between all parties involved in construction
projects. A primary benefit of using standardized GC’s is that the document has been
prepared with the advice of legal counsel and experienced professionals. The articles
contained in the general conditions describe the legal rights, responsibilities and
contractual requirements of the owner, contractor, and engineer. Technical information
pertaining to how the project is to be constructed is not part of the GC’s. In order to be
valid, all contracts must meet certain criteria. These criteria include an offer and
acceptance, a meetings of minds, consideration, lawful subject matter, and competent
parties. Most construction agreements are drawn up between two parties for their mutual
benefits.

1.2 Research Importance

The FIDIC contract and MOSPI guidelines is widely used as a unified formal contract
for construction projects. However, local construction industry and local project
performance still face several contractual problems such as, delays, litigation, and
additional costs which are the consequences of disputes. Contract types and general
conditions clauses have a major influence on the likelihood and degree of project
success.

To contribute in mitigation this problem, this research is conducted on the most common
used contract i.e. FIDIC and MOSPI. FIDIC clauses found to have a significant effect on
project performance characteristics according to a primary study conducted by the
researcher, will be analyzed for impacts on six measures of project performance: cost,
schedule, quality, safety, and owner and contractor satisfaction.

At the end of this research, the clauses that impact project performance will be
identified, and the key elements of those clauses that are most crucial to project success
will be discussed as well in detail. Other contract administration concepts such as risk
allocation, claims management, respective views of owners and contractors, and
incentive provisions will be factually and thoroughly discussed.

1.3 Research Justification

Construction contract types and general conditions clauses have a major influence on the
likelihood and degree of project success. Therefore, the existence of a unified,
standardized and fair contract such as FIDIC and MOSPI contract guidelines will
contribute in improvement the construction industry and in creating successful relations
between the contract parties. Usually, there is an adversary relationship between the
owners and contractors (the contract parties). Consequently, disputes and its
consequences arise and cause losses to all parties. The study is to overlook on the range
of FIDIC and MOSPI contract issues to ensure that the contract is satisfactory for its
users. So, it was necessary to analyze the impact of FIDIC and MOSPI contract clauses
on project performance by its users themselves on project performance characteristics.
These characteristics are: cost, schedule, quality, safety and owner and contractor's
satisfaction.
1.4 Research Objectives

The main aim of this research is to study the impact of the FIDIC and MOSPI selected
clauses on the construction project performance.
The research objectives may be summarized as follows:

1. To identify contractual clauses which mostly affect the project performance, according
to FIDIC and MOSPI general conditions clauses
2. To elicit views from contractors, owners and consultants on the identified FIDIC
contract and MOSPI articles concerning its impact on project performance;
3. To identify the major risks associated with the project by studying the contract clauses.
4. Compare the popular form of contract i.e. MOSPI and FIDIC for better risk mitigation
and recommend the suitable contract condition clauses to the Indian construction
industry
5. Preparing Risk Management plan.

1.5 Expected Outputs

Expected outputs of this research will identify the clauses that impact project
performance, and the key elements of those clauses that are most crucial to project
success will be discussed as well in detail. Other contract administration concepts will be
identified, such as risk allocation, respective views of owners and contractors regarding
developing successful contracting relationships. Also a risk management plan will be
developed from the contractor’s side which can take care of the issues arising in the
execution of the project.
 CHAPTER 2

LITERATURE REVIEW

FIDIC Red Book Review

The red book is taken as a reference in the current assignment so that all the important
clauses given in the general conditions and special conditions of the live Contract can be
compared with the similar clauses present in the FIDIC Guidebook. This will first of all
help with comparing how much Indian construction industry is following the international
guidelines when it comes to typical design and build construction contracts which are so
common nowadays. Secondly, this will also help in assigning a certain risk factor to the
important clauses and so will act as a guide in the preparation of risk management system
for the project before it starts.

The most interesting feature of the 1999 Red Book, according to Murdoch and Hughes
(2008), is its division into general conditions and particular conditions. The contract’s
foreword makes clear that these two parts together form the ‘conditions of contract’ that
govern the rights and obligations of the parties. (1) The general conditions contain clauses
of general applicability, and they are complemented by the appendix to tender, to be
found at the end of the contract, in which the parties are to specify the contract specific
data, such as the period of time for completion, the governing law, or the amount of the
liquidated damages. By contrast, the particular conditions allow the parties to change the
general conditions. They need to be drafted for each project.

One of the key aims of the FIDIC organization has been to achieve a degree of balance
between the interests of the contractor and employer. Many felt that this had been
achieved. For example, A. Sandberg, then head of Legal Services at Skanska, said of the
1999 Rainbow Suite that:
“The great benefits of the present Red and Yellow Books are that the balance of risks and
responsibilities as well as allocation of duties and authorities between the parties
generally is accepted by both employers and contractors. The FIDIC Conditions have
therefore become the baseline conditions for a fair international construction contract.”

However, a major drawback of only taking FIDIC guidelines in preparing a contract in

India is that there are a lot of social, political, economic, legal and geological conditions
exclusive to India which just cannot be ignored when drafting a contract which is fair in
allocating the risks to all parties concerned equally. So that’s why MOSPI guide was also
taken along with FIDIC guide in evaluating the clauses of the live contract.

MOSPI Guide Review

MOSPI is taken as a second reference guide apart from the FIDIC red book to compare
the important clauses of the Contract ZXC. MOSPI was chosen because it was prepared
by the Indian government keeping the Indian construction industry specifically in mind.

Whereas FIDIC assumes that construction conditions would be uniform globally, MOSPI
was drafted keeping Indian construction conditions specifically in mind-

In the last 20 years, the Project Management Division of the Ministry of Statistics and
Programme Implementation has monitored a few thousand infrastructure and industrial
projects of the Central/Public sector enterprises and Government agencies. (2)

MOSPI guidelines provide clauses which are fair to both contractor and owner in sharing
of risks of the project. Comparing the clauses of contract ZXC with MOSPI guidelines
will clarify how viable the project is when seen in the Indian context. It will also help in
assigning numerical values to the risks associated with the project, just like the FIDIC
clauses.

MOSPI and FIDIC Clauses Comparison

In this project MOSPI construction contract conditions from the developing country
(India) is selected. In developed countries there are lot of self-governing organizations are
functioning to deal with project management and contract management practices, for
example (NEC, JCT, ICE). The developed countries construction industry has very good
reputation on successfully managing the risks through construction contracts. So, from the
developed countries the popular form of construction contract condition FIDIC is chosen.
By comparing these two contract clauses (i.e., from the developed countries and the
developing country (India)) the risks in the procurement method are mitigated properly.
(3) So this comparative study will help to improve the contract management system in
India.

Another direct result the following study will be the comparison of the clauses of FIDIC
and MOSPI guidelines. This essentially means the comparison of national and
international guidelines when it comes to typical design and builds projects. This type of
comparison will also give an idea of which of the two guidelines are more practical and
relevant when it comes to projects being executed in India.

Live Contract Description and Review

The contract is for the construction of a mall in the Gurgaon region (Near Delhi). The
contract type is a lump sum contract. This means that

The contract is divided in three parts:-

1) Letter of Intent- It states that the award has been awarded by Owner Y to General
Contractor for construction of mall at DLF City. Phase-Gurgaon. IT states that according
to the final quotes received by the owner from the contractor at certain date, the project
has been awarded to the contractor on a lump sum basis.

The agreement also states that the Conclusion of the contractual, technical, logistics,
quality, HSE and procedural matters discussed during meeting held on 9thMay, 2012
shall be within 20 days from the date of this LOI. The contractor is required to mobilize at
site within 10 days of this LOI. Also the contractor is required to submit the project
completion schedule along with proposed deployment of manpower, machinery, plants
and equipment’s for owner’s approval.
2) General Conditions of Contract- These are the general conditions which deal with
issues like:

 The words and expressions used in the contract and the meanings assigned to them
 Duties and general responsibilities of Engineer, Architect, Consultant, and
subcontractors
 Important documents and the order of their importance
 Nature and validity of Performance Bond (Performance Guarantee) to be provided
by the contractor
 Retention money amount and conditions of release
 Reports, Schedules, Inspection and other modes of site management, maintenance
and supervision by the contractor
 The quality of materials and workmanship (According to Indian standards)
 Calculations for liquidated damages due to delay of works,
 Rates and calculations for variations in amount and rates of materials
 Method of billing by the contractor and the timeline of payment
 Other miscellaneous issues like safety, claims, confidentiality, arbitration etc.

3) Special Conditions of Contract- These are the conditions not included in the general
conditions of contract and they include clauses like:

 Priority and order of precedence of all the documents involved in the contract.
 Any corrections or changes made in the clauses of General Conditions of Contract
(Special Conditions document will take precedence over General Conditions
document)
 Additional clauses added to general conditions can also be spelled out in special
conditions of contract.

Note:-

1) All the parts of the contract have to be read as a whole and in case of any discrepancy,
the document given more importance has to take precedence over others.
2) Although the arbitration agreement is considered a different contract document, it is
included in the general conditions of contract.

Evaluating Contract Clauses-

One of the major reasons of disagreement and conflict is inadequate and defective
contract documentation and also inappropriate contract arrangements (4)

These Live clauses will be evaluated and compared with FIDIC and MOSPI clauses so
that the viability of the project can be tested.

Also a risk identification and management plan will be prepared for the project based on
the evaluation of these clauses. The risk is the likelihood of variation in the occurrence of
an event, which may have either positive or negative (5) consequences. This will be done
so future issues can be foreseen beforehand and project may not overrun on resources or
time. Understand the risks observed by the construction professionals in their contract
decision making process. It will help to ensure whether the construction risks are
generated due to the type of procurement method and contract condition adopted in a
project.

To identify the popular form of construction contract and procurement method adopted
from developed countries and Indian construction projects is a complicated issue
(Comparing all forms of procurement method and contract condition available from
developed country and India is not possible). (6) Identify the risks involved with the
standard form of procurement method and prioritize those risks (Managing all the risks in
a construction project will be more expensive and time consuming, so the significant risk
factors associate with the popular form of procurement route will be identified and
prioritized for further data analysis process).Compare the popular form of contract
conditions used in India and developed countries for better risk mitigation and
recommend the suitable contract condition clauses to the Indian construction industry.
Risk Management in Construction Projects

An effective risk management process encourages the construction company to identify

and quantify risks and to consider risk containment and risk reduction policies. (7)
Construction companies that manage risk effectively and efficiently enjoy financial
savings, and greater productivity, improved success rates of new projects and better
decision making. Risk management in the construction project management context is a
comprehensive and systematic way of identifying, analyzing and responding to risks to
achieve the project objectives. The research results show that the Lithuanian construction
company significantly differ from the construction companies in foreign countries in the
adoption of risk management practices. To management the risk effectively and
efficiently, the contractor must understand risk responsibilities, risk event conditions, risk
preference, and risk management capabilities. Risk management is one of the nine
knowledge areas propagated by the Project Management Institute. (8)

Aibinu and Odenyinka (9) investigated and assessed the causes of delays in building
projects in Nigeria. The nine factor categories evaluated include: client-, contractor-,
quantity surveyor-, architect-, structural engineer-, services engineer-, supplier-, and
subcontractor-caused delays, and external factors (i.e. delays not caused by the project
participants). Finally, ten overall delay factors were identified, namely: contractors’
financial difficulties, client’ cash flow problems, architects’ incomplete drawings,
subcontractors’ slow mobilization, equipment break-down and maintenance problems,
suppliers; late delivery of ordered materials, incomplete structural drawings, contractors’
planning and scheduling problems, price escalation, and subcontractors’ financial
difficulties.

There are following steps in risk management system:-

Risk identification- Identify the source and type of risks.

Risk classification- Consider the type of risk and its effect on the person or an
organization.

Risk analysis- Evaluate the consequences associated with the type of risk or combination
of risks by using analytical techniques.
Risk attitude- Any decision about risk will be affected by the attitude of the person or
organization making the decision

Risk response- Consider how the risk should be managed by either transferring it to
another party or retaining it.

Focusing on risk reduction measure it important. Risk identification is an iterative process

because new risks may become known as the project progresses through its life cycle and
previously-identified risks may drop out (10),

It is rightly stated that Construction projects create particular challenges and risks for both
the Employer and the Contractors. Large sums of money must be committed over time
frames that can be years. There are many variables that can be impossible to accurately
predict in advance and this can have a big impact on the ultimate cost and time of a
project. Further the technical designs can be complicated and require careful co-
ordination between several specialist subcontractors and design consultants both before
and during the execution of a project. Therefore, it is no surprise that the construction
industry is full of disputes and insolvencies. Compared with many other industries, the
construction industry is subject to more risks due to the unique features of construction
activities, such as long period, complicated processes, abominable environment, financial
intensity and dynamic organization structures. (11) Hence, effectively identifying and
managing risks is very essential in a construction project as to deal with the risks related
with variable construction activities. It has been becomes an important issue in project
management as to achieve the successful delivery of a project and the objectives in terms
of cost, time, quality, safety and environmental sustainability.

Risk management in the construction project management context is a comprehensive and

systematic way of identifying, analyzing and responding to risks to achieve the project
objectives. The research results show that the Indian construction companies significantly
differ from the construction companies in foreign countries in the adoption of risk
management practices. To management the risk effectively and efficiently, the contractor
must understand risk responsibilities, risk event conditions, risk preference, and risk
management capabilities.
CONSTRUCTION CONTRACT TYPES

Contracts between the owner and the contractor are frequently divided into several
categories. Each of these categories has several variations, usually determined by the type
of fee the contractor is to be paid. These categories are:-

1. Lump sum contract;

2. Unit price contract;
3. Cost plus contract;
4. Design build contract;
5. Management-oriented contract;
6. Two stage selective tendering;
7. Negotiated contracting;
8. Continuity contracting;
9. Serial contract;
10. Turnkey contract.

1. Fixed price (lump sum) contracts

A fixed price contract means that the contractor is to receive a lump sum amount, which
compensates the contractor for the cost of performing the work. A fixed price contracts
quote a single, guaranteed price as compensation for all the labor, materials, equipment’s,
and services stipulated to complete the facility described in the construction contract.
Fixed price contracts provide owners with an exact sum (barring exceptions and changes)
to budget for their construction project. Owners still believe it is the most cost-effective
means to deliver their completed construction projects.

2. Unit price contracts

Unit price contracts are used for those less-complicated projects that are based on readily
identifiable units. Paving for example, can be accurately quantified in units of area and
thickness. Piling can be quantified in linear feet or number of piles, and mass concrete in
cubic yards and pounds of reinforcing materials. Unit price contracts also require careful
preparation to prevent disputes. Well-estimated guide quantities for each unit price item
as well as clear instructions for their measurements are the key to successful unit price
contracts. Actual quantity variances greater than 15% may cause legitimate claims for
added or deductible costs. Clauses are usually included in unit price contracts that address
this issue. They are expected to be fair and equitable to both owners and contractors.
Although unit price contracts do not guarantee the final cost, they may be advantageous
for different reasons. Where the quantity of work may vary, requiring a contractor to bid
on a lump sum basis often results in a contingency within the price to protect against the
risk of a quantity different from that estimated. Thus, under a fixed price contract, the
owner ends up paying a premium.

3. Cost plus contracts

Cost plus agreement usually requires that the contractor be compensated by the owner for
the actual costs of construction, plus a fee that may be fixed or may vary with cost of
construction. Cost plus contracts may be the best choice in emergencies, since ready
owner access to the daily labor, materials, equipment, and services records written into
the contract helps prevent disputes. Also, cost plus contracts may be the best choice when
the additional time and cost to scope and specify a project accurately are unacceptable.
Variations of cost plus contracts may or may not include a fee, which can be negotiated or
fixed, and a "not to exceed price". The intent is to stipulate a fair cost for the contractor's
fees, expenses, and profit. Cost plus contracts, too, require precise wording to prevent
spending overruns and claims. "Fixed" or "percentage" fees, markups, profit, services, and
work limits must be clearly defined in the contract.

4. Design-build contracts
Under a design-build contract, the owner retains a single party to perform both design and
construction services. There is one great advantage to the owner: If anything goes wrong,
the contractor cannot point to any other party as being at fault. One difficulty associated
with design-build contracts is that the owner must determine in advance the design
parameters. The contractor must be given guidelines; otherwise, the owner might end up
with a finished product that does not meet its needs. This is done by specifying the
performance criteria Owners took the next step and assigned one firm the complete
design-build responsibility. Proponents believe that design-build construction eliminates
conflicts among the designer, contractor, and owner over poor design, specifications, and
drawings. Owners with little or no design-build experience should know that the design-
build construction is not a panacea, nor appropriate for every project. Before selecting this
option, owners should discuss design-build results with others who have completed
design-build projects. This method is sometimes, referred to as" competitive bids.

5. Management-oriented contracts
Management contracting is a process whereby an organization, normally construction
based, is appointed to the professional team during the initial stages of a project to
provide construction-management expertise under the direction of the contract
administrator. The management contractor employs and manages works contractors who
carry out the actual construction of the project and he/she is reimbursed by means of a fee
for his/her management services and payment of the actual prime cost of the construction.

6. Two stage selective tendering

In this approach, tenders are invited on the basis of limited project documentation, and the
successful first-stage bidder(s) is/are asked during the second stage to collaborate with the
client to produce a definitive design and agree a final tender figure. Where more than one
tenderer is involved in the second stage, the most appropriate bid is accepted and all of
the involved organizations are usually reimbursed their second-stage costs. Two stage
selective tendering is a process whereby the client can be vulnerable to any change in the
level of the contractor's pricing from that contained within the first-stage tender. In this
process, the overruns are shorter than in any other conventional method. Saving time can
be achieved when using this approach, since the average time overrun incurred is usually
shorter than when using other contracting methods. The client may need to appoint
additional site supervision to ensure achieving the quality standard. The two stages are:
Stage 1: selecting a contractor on a competitive basis,
Stage 2: negotiation to reach a fixed price and program.

7. Negotiated contracting
It is possible when using this approach to appoint a contractor by assessing the
experience, management expertise and competitiveness of a small number of appropriate
organizations. More commonly, an appointment of a single contractor is made on the
basis of past performance and competitiveness on an identical, similar or geographically
adjacent project, preferably carried out for the same client. Negotiated contracting is a
process of contracting whereby the project cost is nearly always higher than other
contracting processes. A cost premium is paid by the client, but saving time can be
achieved. With mutual trust and a commitment to excellence from both parties, this
method is simpler, faster, and builds teamwork. In today's hurried markets, this method is
quickly becoming the most prevalent.

8. Continuity contracting
When using this approach, contractors bidding for a project on the basis of single-stage
selective tendering are advised that the successful tenderer, subject to satisfactory
performance, will be awarded a similar project to follow on from the completion of the
first. The price for this subsequent project will be negotiated using, as a basis, the
tendered rates included in the bill of quantities, or some other form of financial schedule,
for the original project. It is therefore a prerequisite for the use of this system that there
are at least two similar projects available within a defined geographical area that can be
carried out sequentially and that are capable of being able to accommodate flexibility in
the timing of the commencement and completion of the second project.

Opt-out clauses for both the contractor and the client are often included, even if all the
criteria for success are met. Also, the criteria for measuring the success of the first project
must be agreed by both parties to the contract, and procedures for negotiating the second
contract must be established before the initial project is let. Continuity contracting has
advantages, of having time overruns that are shorter than average, cost overruns are more
predictable than average, very competitive rates can be obtained at tender stage, the value
of variations is likely to be low in comparison with other methods and few variations
were needed on the second or succeeding projects.

9. Turnkey
When the contractor is involved in the site selection process, and sometimes even the
financing arrangements, and the owner prefers a design and builds delivery method, the
contract is properly referred to as "turnkey". Literally, the owner is looking to the
contractor to provide all services, down to turning over the key to the building. This
method is the ultimate in trust and commitment; the owner and contractor are pursuing a
common goal of a quality project, taking into account that "design and build" method is
already included in "turnkey" contract.
The turnkey method was pioneered in the USA in the early 1900s, where it has been
extensively used since that time, by the private sector, for the construction of process
plants, oil refineries, power stations and other complex production facilities.

In a fixed price contract, by comparison, the contract sum is adjusted throughout the
contract period. A true turnkey contract, therefore, is more focus is to purchase contract
than to a construction contract. It has the principal that is said to: simply hand over the
cheques, turn the key and commence operation. The cost to the client of using the turnkey
method can be higher than when using other more conventional procurement system.
 CHAPTER 3
COMPARISON OF IMPORTANT LIVE CONTRACT CLAUSES
TO MOSPI AND FIDIC CLAUSES (ANALYSIS OF CLAUSES)

1. PERFORMANCE BOND

According to clause 15.0 of GCC, the contractor has to furnish a Performance Bond
within 15 days of the issue of the LOI. The Performance bond has to be irrevocable
and unconditional bank guarantee from a Scheduled Bank or preapproved bank by
owner. The bond shall be valid until the expiry of 3 (three) months after the
maintenance period or until the issuance of maintenance certificate, whichever is
later. The performance bond must be extended as the case may be at least 30 days
prior to the expiry of the period of validity thereof so that it may remain in full force
and effect throughout the term stipulated above. If the contractor fails to do so, the
bond may be forfeited.

Amount of PBG is 5% of the contract value.

MOSPI

Performance Guarantee should be 5% of Contract amount and should be submitted as

Bank Guarantee, Government Securities, FDR or any other form of deposit stipulated
by the Owner, within 28 days of receipt of letter of acceptance.

5% Performance Guarantee should be refunded within 14 days of the issue of the

defect liability Certificate (taking over Certificate with a list of defect.

FIDIC

The contractor shall deliver performance security to employer within 28 days after
receiving the letter of acceptance, and shall send a copy to the engineer. The
performance security shall be issued by an entity and from within a country approved
by the engineer, and shall be in the form annexed to the particular conditions or in
another form approved by the employer.
The contractor shall ensure that the performance security is valid and enforceable
until the contractor has executed and completed the works and remedied any defects.
If the terms of the performance security specify its expiry date and the contractor has
not become entitled to receive the performance security by the date 28 days prior to
the expiry date. The contractor shall extend the validity of the performance security
until the works have been completed and any defects have been remedied.

The owner has the right to redeem the guarantee from the bank without any legal or
formal intimation to the contractor.

The contractor agrees that he shall increase the value of performance bond
proportionately as and when the value of contract is increased beyond 15%. (Clause
15.4)

Analysis:-

The amount of 5% contract value as PBG is suitable for Indian conditions and
appropriate. However, the time allowed for submitting the PBG should have been
extended to 28 days instead of 15 days as some contractors may find it hard to arrange
for necessary capital in such a short time.

The contract clause is very similar to the MOSPI clause in terms of PBG value and
hence suitable for Indian conditions. FIDIC does not mention the percentage suitable
for PBG and hence it can be concluded that this clause was drawn keeping the MOSPI
clause as guideline.

2. RETENTION MONEY

5% of the works done value shall be retained as retention money according to contract
clause.

In addition to the contractor furnishing the PB, the owner shall deduct an amount
from the gross amount of each on account bill towards retention money. (16.1)

The retention money held shall be released on expiry of maintenance period and after
the engineer has issued a maintenance certificate. (16.2)
After the release of payment against the final bill on the contractors request the
engineer may at his sole discretion allow for the release of a part or full amount of the
retention money, against an unconditional and irrevocable PBG for a sum equivalent
to the amount to be released to the contractor. (16.3)

MOSPI

The Employer shall retain from each payment due to the Contractor the proportion
stated in the Contract Data until Completion of the whole of the Works.

Retention Money shall be deducted at 6% from Running Bills subject to a maximum

of 5 percent of the contract price. Retention money shall be refunded after issue of No
defects certificate. This amount can be substituted by on demand Bank Guarantee.

Retention money should be refunded after issue of No. Defects Certificate. This
balance amount can be substituted by “on demand” Bank Guarantee.

FIDIC

Retention money is any amount to be deducted for retention, calculated by

applying the percentage of retention stated in the Appendix to Tender to the total
of the above amounts, until the amount so retained by the Employer reaches the
limit of Retention Money (if any) stated in the Appendix to Tender.

Analysis:-

Ideally, 5% of bill value is considered appropriate as retention money. Most of

the Indian contractors agree that it is the ideal sum. As there is only a difference
of 1% amount to be deducted as retention money, the live contract is again very
similar to the MOSPI clauses. Again FIDIC is not specific about the percentage
but leaves it to the discretion of the owner to levy the retention amount as he
sees fit.

3. PROGRESS REVIEW OF PROJECT

If at any time it appears to the engineer that the actual progress of the work does not
conform to the existing program, the contractor shall produce a revised program
showing modifications to the earlier program necessary to ensure completion of work
within the time stipulated for completion.

MOSPI

 Within the time stated in the Contract Data the Contractor shall submit to the
Nodal Officer or his nominee for approval a Program showing the general
methods, arrangements, order, and timing for all the activities in the Works
along with monthly cash flow forecast.
 An update of the Program shall be a program showing the actual progress
achieved on each activity and the effect of the progress achieved on the timing
of the remaining work including any changes to the sequence of the activities.
 The Contractor shall submit to the Nodal Officer or his nominee, for approval
an updated Program at intervals no longer than the period stated in the
Contract Data. If the Contractor does not submit an updated Program within
this period, the Nodal Officer or his nominee may withhold the amount stated
in the Con-tract Data from the next payment certificate and continue to
withhold this amount until the next payment after the date on which the
overdue Program has been submitted.
 The Nodal Officer or his nominee’s approval of the Program shall not alter the
Contractor’s obligations. The Contractor may revise the Program and submit it
to the Nodal Officer or his nominee again at any time. A revised Program is to
show the effect of Variations and Compensation Events.

FIDIC

Unless otherwise stated in the particular conditions, monthly progress reports shall be
prepared by the contractor and submitted to the engineer in six copies. The first report
shall cover the period up to the end of the first calendar month following the
Commencement Date. Reports shall be submitted monthly thereafter, each within 7
days after the last day of the period to which it relates.

Reporting shall continue until the Contractor has completed all work which is
known to be outstanding at the completion date stated in the Taking-Over
Certificate for the Works.
If, at any time, the Engineer gives notice to the Contractor that a programme fails
(to the extent stated) to comply with the Contract or to be consistent with actual
progress and the Contractor's stated intentions, the Contractor shall submit a
revised programme to the Engineer in accordance with this Sub-Clause. (Clause
8.3)

Analysis:-

This clause is in accordance with both FIDIC and MOSPI guidelines. It gives the
authority to the engineer to decide if the project progress is going according to the
schedule. If he feels that the project is behind schedule, he can pressurize the
contractor to invest more resources to increase the rate of progress. This could be
unfair to the contractor as the engineer may force him to invest more resources to
the project. An addendum could be added to the clause that the contractor should
be able to appeal to the owner and only increase resources if absolutely necessary.

4. INSURANCE OF WORKS AND CONTRACTORS EQUIPMENT (41.0)

Cost of procuring insurances shall be deemed to have been included in the rates and
prices quoted by the contractor and the contractor shall not be entitled to claim any
additional payments or compensation on account of procuring the same.

The contractor is required to take at his cost all risks insurance policies, in the joint
name of owner, mentioning the owner as the beneficiary/loss payee, against all risk of
loss or damage to the works from whatever cause arising from which he is responsible
under the terms of the contract for any cause such as but not limited to loss or damage
arising from floods, riots, improper workmanship, earthquake etc. The owner and
contractor should be covered for the period up to 3 months after the expiry of the
maintenance period viz:

a) The reinstatement value of the works (as per the estimated current contract value)
plus 10%

b) Constructional plants and other things brought onto the site by the contractor to the
replacement value of such constructional plant and other things.
MOSPI

 The Contractor shall provide in the joint names of the Employer and the Con-
tractor, insurance cover from the Start Date to the end of the Defects Liability
Period, in the amounts and deductibles stated in the Contract Data for the
following events which are due to the Contractors risks.
o loss of or damage to the Works, Plant and Materials
o loss of or damage to Equipment;
o loss of or damage of property (except the Works, Plant, Materials and
Equipment) in connection with the Contract; and
o Personal injury or death.

 Policies and certificates for insurance shall be delivered by the Contractor to

the Nodal Officer or his nominee for the Nodal Officer or his nominee’s
approval before the Start Date. All such insurances shall provide for
compensation to be payable in the types and proportions of currencies required
to rectify the loss or damage incurred.
o If the Contractor does not provide any of the policies and certificates
required, the Employer may affect the insurance which the Contractor
should have pro-vided and recover the premiums the Employer has paid
from payments other-wise due to the Contractor or, if no payment is due,
the payment of the premiums shall be a debt due.
o Alterations to the terms of an insurance shall not be made without the
approval of the Nodal Officer or his nominee.
o Both parties shall comply with all conditions of the insurance policies.

FIDIC

Insurance against Injury to Persons and Damage to Property

The insuring Party shall insure against each Party's liability for any loss, damage,
death or bodily injury which may occur to any physical property (except things
insured under Insurance for Works and Contractor's Equipment]) or to any person
(except persons insured under Sub-Clause Insurance for Contractor's Personnel),
which may arise out of the Contractor's performance of the Contract and occurring
before the issue of the Performance Certificate.
Insurance for Works and Contractor's Equipment

The insuring Party shall insure the Works. Plant, Materials and Contractor's
Documents for not less than the full reinstatement cost including the costs of
demolition, removal of debris and professional fees and profit. This insurance
shall be effective from the date by which the evidence is to be submitted under
Sub-Clause General Requirements for Insurances], until the date of issue of the
Taking-Over Certificate for the Works.

The insuring Party shall maintain this insurance to provide cover until the date of
issue of the Performance Certificate for loss or damage for which the Contractor
is liable arising from a cause occurring prior to the issue of the Taking-Over
Certificate and for loss or damage caused by the Contractor in the course of any
other operations including those under Clause Defects Liability.

The insuring Party shall insure the Contractor's Equipment for not less than the
full replacement value, including delivery to Site. For each item of Contractor's
Equipment the insurance shall be effective while it is being transported to the
Site and until it is no longer required as Contractor's Equipment.

Analysis:-

This clause ensures that all the machinery and equipment will be secured against
damage and it would be the responsibility of the main contractor and in his best
interest to handle it with care. Although it may seem to be a bit partial towards
the owner, this clause will ensure that all the contractor’s and subcontractor’s
personnel will do their best to handle all equipment’s with care.

An extra sub clause could be added which states that negotiations could be
opened if the cost of insurance is exceeding beyond a certain sum.

5. COMMENCEMENT OF WORK

The effective date of commencement of works is 10 days from date of issue of LOI.

MOSPI

Not available
FIDIC

The Engineer shall give the Contractor not less than 7 days' notice of the
Commencement Date. Unless otherwise stated in the Particular Conditions, the
Commencement Date shall be within 42 days after the Contractor receives the
Letter of Acceptance.

The Contractor shall commence the execution of the Works as soon as is

reasonably practicable after the Commencement Date and shall then proceed with
the Works with due expedition and without delay.

Analysis:-

Although FIDIC gives the contractor some leeway in terms of starting work “as soon
as is reasonably practical”, the live contract insists that the contractor start the works
within 10 days from the date of LOI. So the contractor must ensure that most of the
resources are assembled and ready.

6. FORCE MAJEURE

In case of force majeure causing delay the contractor shall immediately give notice to
the engineer stating the cause and reasonable extension of time. In case of continue
delay the contractor shall give his claim for time extension within 28 days .The
engineer shall give his decision within 30 days of contractors receipt.

FIDIC

If a Party is or will be prevented from performing any of its obligations under

the Contract by Force Majeure, then it shall give notice to the other Party of the
event or circumstances constituting the Force Majeure and shall specify the
obligations, the performance of which is or will be prevented. The notice shall be
given within 14 days after the Party became aware, or should have become aware,
of the relevant event or circumstance constituting Force Majeure.

The Party shall, having given notice, be excused performance of such obligations
for so long as such Force Majeure prevents it from performing them.
Notwithstanding any other provision of this Clause. Force Majeure shall not
apply to obligations of either Party to make payments to the other Party under
the Contract.

MOSPI

Not available

Analysis:-

Although the Force Majeure clause is similar to that of FIDIC force majeure
clause, it still leaves it to the judgement of the engineer whether the delay is
justified or not. This may lead to issues between owner and contractor later on if
such conditions crop up during construction. The clause needs more clarity about
the powers of the engineer in case of Force Majeure conditions.

7. OPTIONAL TERMINATION PAYMENT AND RELEASE

FIDIC

If the execution of substantially all the Works in progress is prevented for a

continuous period of 84 days by reason of Force Majeure of which notice has
been given under Sub-Clause Notice of Force Majeure or for multiple periods
which total more than 140 days due to the same notified Force Majeure then either
Party may give to the other Party a notice of termination of the Contract. In this
event, the termination shall take effect 7 days after the notice is given, and the
Contractor shall proceed in accordance with Sub-Clause [Cessation of Work and
Removal of Contractor's Equipment].

MOSPI

Not available

Analysis:-

This option is not provided in the live contract to the contractor. But it should be
added so that the issue does not crop up in the future.
 8. LIQUIDATED DAMAGES

The time allowed for carrying out the works by the date of completion as endorsed in
the contract shall be strictly observed by the contractor and shall be deemed to be the
essence of the contract. The work shall throughout the stipulated period of the
contract be processed with due diligence and as per work schedule reckoned from
effective date of commencement.

LD will be 0.5% of the contract price per week of delay subject to a maximum of 5%
of the contract price.

MOSPI

In case of delay in completion of the contract, liquidated damages (L.D) may be

levied at the rate of half per cent (½%) of the contract price per week of delay, subject
to a maximum of 10 per cent of the contract price.

The owner, if satisfied, that the works can be completed by the contractor within a
reasonable time after the specified time for completion, may allow further extension
of time at its discretion with or without the levy of L.D. In the event of extension
granted being with L.D, the owner will be entitled without prejudice to any other right
or remedy available in that behalf, to recover from the contractor as agreed damages
equivalent to half per cent (½%) of the contract value of the works for each week or
part of the week subject to the ceiling.

The owner, if not satisfied that the works can be completed by the contractor, and in
the event of failure on the part of the contractor to complete work within further
extension of time allowed as aforesaid, shall be entitled, without prejudice to any
other right, or remedy available in that behalf, to rescind the contract.

The owner, if not satisfied with the progress of the contract and in the event of failure
of the contractor to recoup the delays in the mutually agreed time frame, shall be
entitled to terminate the contract.

In the event of such termination of the contract as described in above clauses or both
the clauses, the owner shall be entitled to recover L.D. up to ten per cent (10%) of the
contract value and forfeit the security deposit made by the con-tractor besides getting
the work completed by other means at the risk and cost of the contractor.
The ceiling of LD shall be 10% of the project cost in turnkey contracts. Lower limits
for LDs should be clearly justified while formulating the contract. Each public sector
undertaking/Ministry will take a considered view for adopting any deviations on LDs
with necessary legal advice.

Ministries/Departments/Project Enterprises may adopt a suitable percent of the

contract price as liquidated damages and allowable time-limit depending upon the
nature of turnkey contract.

FIDIC

Not available

Analysis:-

This clause is taken directly from the MOSPI clause and protects the owner from loss
caused by the delay due to the negligence of the contractor. This will also ensure that
the contractor keeps an eye on the schedule of the project and takes necessary steps in
advance to avoid delays.

MOSPI states that the Liquidated Damages can go upto 10% of the contract price. But
the live contract has limited it to 5% of the contract price. This would be easier on the
contractor as some delay is inevitable in Indian conditions.

9. VARIATIONS IN QUANTITY AND SCOPE OF PROJECT

The engineer shall have the power to make an order any variation of the form, quality
or quantity of the works during the progress of work. The contractor shall carryout as
directed any of the following-

a) Increase or decrease the quantity of any work included in the contract

b) Omit any such work partly or entirely
c) Change the character or quality or kind of any such work
d) Change the levels, lines, positions and dimension of any part of work
e) Execute additional work deemed necessary

If the contract does not contain any rates or prices applicable to be altered work the
value shall be worked out in following way
  If the altered work is similar in character to the items specified in the contract
the rates will be derived from rates for a similar class of work as are specified
in contract
 If the rates for the altered work cannot be determined the rate shall be
determined on the basis of the cost to the contractor plus 15% to cover his
profit and overheads.

Overall contract price shall not be varied by more than +/-25% of initial contract sum.
In case of variation it shall be adjusted by such sum as may be agreed beforehand.

MOSPI

 Variation permitted should be ± 25% in quantity of each individual item, and ±

10% of the total contract price. Within 14 days of the date of instruction for
executing varied work, extra work or substitution, and before the
commencement of such work, notice shall be given either (a) by the contractor
to the owner of his intention to claim extra payment or a varied rate or price,
or (b) by the owner to the contractor of his intention to vary a rate or price.
 For items not existing in the Bill of Quantities or substitutions to items in the
Bill of Quantities, rate payable should be determined by methods given below
and in the order given below,

o Rates and prices in Contract, if applicable ;

o Rates and prices in the Schedule of Rates applicable to the Contract ±

tendered percentage, where appropriate;

o Market rates of materials and labor, plus 10% for

overheads and Profits of contractor

o Escalation to be paid as admissible.

 If there is delay in the owner and the contractor coming to an agreement on the
rate of an extra item, provisional rates as proposed by the owner should be
payable till such time as the rates are finally determined.
 For items existing in the Bill of Quantities but where quantities have increased
be-yond the variation limits, the rate payable for quantity in excess of the
quantity in the Bill of Quantity plus the permissible variation should be :
 o Rates and prices in contract, if reasonable, failing which
o Market rates of material and labour, plus 20% for overheads and profits of
contractor.

FIDIC

Variations may be initiated by the Engineer at any time prior to issuing the
Taking-Over Certificate for the Works either by an instruction or by a request for
the Contractor to submit a proposal.

The Contractor shall execute and be bound by each Variation, unless the
Contractor promptly gives notice to the Engineer stating (with supporting
particulars) that the Contractor cannot readily obtain the Goods required for the
Variation. Upon receiving this notice, the Engineer shall cancel confirm or vary
the instruction.

Each Variation may include:

o Changes to the quantities of any item of work included in the Contract

(however, such changes do not necessarily constitute a Variation).
o Changes to the quality and other characteristics of any item of work.
o Changes to the levels, positions and/or dimensions of any part of the
Works.
o Omission of any work unless it is to be carried out by others.
o Any additional work, Plant. Materials or services necessary for the
Permanent Works, including any associated Tests on Completion.
boreholes and other testing and exploratory work, or
o Changes to the sequence or timing of the execution of the Works.
The Contractor shall not make any alteration and/or modification of the Permanent
Works unless and until the Engineer instructs or approves a Variation.

Analysis:-

Although FIDIC is silent as to the exact percentage of variation allowed, MOSPI

clearly states that variation permitted should be ± 25% in quantity of each individual
item, and ± 10% of the total contract price. In this regard, the live contract clause is
partial towards the contractor. A variation of ± 25% allowed means that contractor has
the more freedom in terms of variations, which is a good thing considering Indian
conditions. So this clause needs no alterations.

10. TIME OF ESSENCE

Time being of essence in the contract any variation shall be proceeded

promptly by the contractor

ACCORDING TO INDIAN CONTRACT ACT, 1872 (SECTION 55)

Effect of failure to perform at fixed time, in contract in which time is essential:

In India, the provision relating to “time as the essence of contract” is contained in

Section 55 of the Indian Contract Act, 1872. Stating simply, the Section provides that
if something is promised to be done at a specified time and the same is not performed,
the contract becomes voidable at the option of the promise if it was the intention of
the parties that time should be of the essence of the contract. Further, the section
provides that if it was not the intention of parties to make time of the essence, the
promisee is entitled to claim compensation for any loss caused by the default. Finally,
the section goes on to say that if time is intended to be of the essence by the parties
but performance is accepted on some other time, compensation cannot be claimed by
the promise unless he gives such a notice to the promisor. (12)

MOSPI

Not available

FIDIC

Not available

Analysis:-

Although both FIDIC and MOSPI are silent in terms of “Time of Essence” clause, the
clause itself may not be permissible in the court of law as the other clauses providing
for delay damages may nullify the time of essence clause.

This means that the clause needs more detailed explanations as to what constitutes
time of essence in the Indian context.
 11. MOBILIZATION ADVANCE

The owner agrees to pay an interest free mobilization advance to the contractor
against submission of an unconditional and irrevocable bank guarantee. It shall be
recovered from RA bills on Pro rata basis in such a way that the entire advance is
adjusted by the time 80% of the gross value of work is executed and paid. If
mobilization advance has not been repaid by the date 28 days prior to the expiry of the
bank guarantee, the contractor shall extend the validity of the bank guarantee until the
mobilization advance has been repaid.

Note: Further clarification done in special conditions contract clause.

MOSPI

 Mobilization Advance and Construction Equipment Advance should be given

at 12% interest or free of interest at the discretion of the owner and against
Bank Guarantee for Mobilization Advance and against hypothecation of
Construction Equipment to the Owner for Construction Equipment Advance.
 Mobilization Advance should be given up to 10% of Contract price, payable in
two equal instalments. The first instalment should be paid after mobilization
has started and next instalments should be paid after satisfactory utilization of
earlier advance.
 Recovery of mobilization advance should start when 15% of the work is
executed and recovery of total advance should be complete by the time 80% of
the original Contract price is executed.

FIDIC

The Employer shall make an advance payment, as an interest-free loan for

mobilization. When the Contractor submits a guarantee in accordance with this
Sub-Clause. The total advance payment the number and timing of instalments (if
more than one) and the applicable currencies and proportions, shall be as stated
in the Appendix to Tender Unless and until the Employer receives this guarantee
or if the total advance payment is not stated in the Appendix to tender this Sub-
Clause shall not apply.
The advance payment shall be repaid through percentage deductions in Payment
Certificates. Unless other percentages are stated in the Appendix to Tender:

a) Deductions shall commence in the Payment Certificate in which the total of

all certified interim payments (excluding the advance payment and deductions
and repayments of retention) exceeds ten per cent (10%) of the Accepted
Contract Amount less Provisional Sums: and

b) Deductions shall be made at the amortization rate of one quarter (25%) of

the amount of each Payment Certificate (excluding the advance payment and
deductions and repayments of retention in the currencies and proportions of the
advance payment. until such time as the advance payment has been repaid.

If the advance payment has not been repaid prior to the issue of the Taking-Over
Certificate for the Works or prior to termination under Clause of Termination by
Employer], Clause Suspension and Termination by Contractor or Clause Force
Majeure (as the case may be, the whole of the balance then outstanding shall
immediately become due and payable by the Contractor to the Employer.

Analysis:-

Although the Live clause resemble MOSPI clauses more, they also satisfy most
of the FIDIC clauses. It is better that interest clause from MOSPI was not
included in the live contract as it would have put undue pressure on the
contractor.

There is a risk to the contractor that he may have to extend the bank guarantee if
mobilization advance is not recovered by the end of the recovery period. It is

12. FINAL BILLS-

Not later than 45 days after the Engineer issues the Completion Certificate, the
Contractor shall submit to the Engineer 4(Four) copies of the Final Bill with
supporting documents including the Labour Compliance Certificate, Structural
Quality and Structural Stability Certificates, Waterproofing Performance Guarantee
Certificates, Structural Stability Certificate, Structural Quality Certificate showing in
detail the measurements and value of the work done in accordance with the Contract,
the payments received by him and all other recoveries and deductions to be effected
from the Contractor. Within 90 days of the receipt of the final bill and of all
information reasonably required for the verification of the Final Bill, the Owner's
Representative shall approve and render a certificate to the Owner, that he has
satisfied himself that the work executed is as per the Contract Specifications and to
his satisfaction. In case the Owner's Representative does not approve any part of the
work, he shall indicate whether to order the Contractor to rectify the defects or
alternatively to reappraise the quality of the work done for price adjustments.

On receipt of the said certificate from the Owner's Representative, the Engineer shall
get the dimensions, calculations etc. verified and certify to the Owner the balance
payment due to the Contractor after making adjustments for all the payments made to
the Contractor and recoveries, if any, due from the Contractor, within 60 days of the
receipt of the certificate from the Owner's Representative under Clause. The Owner
shall pay the Final Bill amount to the Contractor within 30 days of the Engineer
rendering his Certificate to the Owner for payment of the Final Bill to the Contractor.

MOSPI

 Contractor should submit final Bill within 60 days of issue of defects liability
certificate. Client’s engineer should check the bill within 60 days after its
receipt and return the bill to Contractor for corrections, if any are needed. 50%
of undisputed amount should be paid to the Contractor at the stage of returning
the bill.
 The contractor should re-submit the bill, with corrections within 30 days of its
return by the Engineer. The re-submitted bill should be checked and paid
within 60 days of its receipt.
 Interest at a pre-specified rate (say 12%) should be paid if the bill is not paid
within the time limit specified above.

FIDIC

Application for final payment certificate: within 56 days after receiving performance
certificate, the contractor shall submit to the engineer six copies of a draft final
statement. After scrutiny by the engineer the contractor shall submit final statement as
agreed.

Analysis:-

This clause is again similar to that of MOSPI clause although the number of days has
been changed and interest has been exempted in favor of the owner. However this
clause gives a lot of power to the engineer and may lead to conflict during the issue of
defects liability certificate.

13. ESCALATION IN THE PRICES OF MATERIALS

The rates and prices specified by the Contractor shall be deemed to cover any
escalation in prices of materials, consumable etc. if any, during the Contract Period
including any extension, and any claims by the Contractor for any
escalation/additional costs shall not be admissible.

FIDIC

Not later than 45 days after the engineer issues the completion certificate, the
contractor shall submit 4 copies of the final bill to the engineer. Within 90 days of its
receipt, the engineer shall approve and render a certificate to the owner that he is
satisfied with the works executed. On receipt of that certificate, the engineer shall get
the dimensions verified. Within 60 days, the owner shall pay the final bill to the
contractor within 30 days of the engineer rendering his certificate to the owner for
payment of final bill.

MOSPI

Not available

Analysis:-

The escalation has not been accounted for in the live contract. This poses an important
risk to the contract as he may have quoted lower rates and they may escalate due to
market conditions in the course of the project completion. Clause needs to be changed
and escalation needs to be taken into consideration to be far to the contractor.
 14. MAINTENANCE PERIOD

The period of maintenance shall mean a period of 12 months reckoned from the
certified date of completion of the Works or in the event of more than one certificate
of completion (in case the Works are to be completed and taken over in sections),
from the respective dates so certified by the Engineer, during which the Engineer shall
notify the Contractor of the defects or damage to the Works. The Contractor would
then be required to rectify the defect or carry out repairs as specified by the Engineer.

MOSPI

The period of maintenance shall mean a period of 12 months reckoned from the
certified date of works completion.

The contract shall not be considered complete until a maintenance certificate is issued
by the engineer stating the works have been completed to satisfaction. This is the
maintenance certificate issued by the engineer.

FIDIC

Not available

Analysis:-

A straightforward clause taken from MOSPI without any alterations. This is suitable
for the current project and needs no alteration.

15. DEFECTS NOTIFICATION PERIOD

Defects Notification Period means the period for notifying defects in the Works or
a Section (as the case may be) under Sub-Clause Completion of Outstanding Work
and Remedying Defects, as stated in the Appendix to Tender (with any extension
under Sub-Clause [Extension of Defects Notification Period]), calculated from the
date on which the Works or Section is completed as certified under Sub-Clause
10.1 Taking Over of the Works and Sections.
MOSPI

The Defects Liability Period is the period named in the Contract Data and calculated
from the Completion Date.

FIDIC

Not available

Analysis:-

As the defects notification period is not specified in the live contract, this may pose
issues later on. The period needs to be specified in the appendix of the contract.

16. ARBITRATION

The arbitration shall be conducted by a sole arbitrator who shall be appointed by the
owner and whose decision is final and binding upon the parties.

The courts in Delhi alone and the high court of Delhi at New Delhi alone shall have
jurisdiction concerning all matters including arbitration.

MOSPI

 The Arbitration shall be conducted in accordance with the Indian Arbitration

and Conciliation Act, 1996. For Contracts costing up to Rs. 10 Crores, a Sole
Arbitrator should be appointed. For Contracts costing over Rs. 10 Crores, a
Committee of Arbitrators should be appointed composed of one Arbitrator to
be nominated by the Contractor, one to be nominated by the Owner and the
third Arbitrator, who will act as a Chairman but not as umpire, to be chosen
jointly by the two nominees. The decision of majority of Arbitrators shall be
final and binding on both parties. If a dispute of any kind whatsoever arises
between the Employer and the Contractor in connection with, or arising out of
the Contract or the execution of the Works, whether during the execution of
the Works or after their completion and whether before or after the repudiation
or other termination of the Contract, including any disagreement by either
party with any action, inaction, opinion, instruction, determination, certificate
 or valuation of the Engineer, the matter in dispute shall, in the first place, be
referred to the Dispute Review Board.

The Board shall be established by signature of the Dispute Review Board Agreement
(“the Board Agreement”) which shall occur at the same time as the signature of the
Contract Agreement.

Membership of the Board in all contracts of value up to Rs. 3.00 crores will consist of
one Member, experienced in the type of construction involved in the Works and in the
interpretation of document, to be appointed by the President, Institution of Engineers
(India) at the request of the employer. In all other cases, membership of the Board
shall comprise three Members similarly experienced. One Member shall be selected
by each of the Employer and the Contractor and approved by the other. If either of
these Members is not so selected and approved within 14 days of the date of the
Contract Agreement, then upon the request of either or both parties such Member
shall be selected within 14 days of such request by the President, Institution of
Engineers (India).

The third Member shall be selected by the other two and approved by the parties. If
the two Members selected by or on behalf the parties fail to select the third Member
within 14 days after the later of their selections, then upon the request of either or
both parties such third Member shall be selected within 14 days by the same
international / national appointment authority as above who shall seek the approval of
the proposed third Member by the parties before selection, but failing such approval
nevertheless shall select the third Member. The third Member shall serve as Chairman
of the Board.

FIDIC

Disputes shall be adjudicated by a DAB in accordance with Sub-Clause 20.4

[Obtaining Dispute Adjudication Board's Decision]. The Parties shall jointly
appoint a DAB by the date stated in the Appendix to Tender.

The DAB shall comprise as stated in the Appendix to Tender, either one or three
suitably qualified persons ("the members"). If the number is not so stated and the
Parties do not agree otherwise, the DAB shall comprise three persons.
If the DAB is to comprise three persons, each Party shall nominate one member
for the approval of the other Party. The Parties shall consult both these members
and shall agree upon the third member who shall be appointed to act as
chairman.

However, if a list of potential members is included in the Contract. The members

shall be selected from those on the list, other than anyone who is unable or
unwilling to accept appointment to the DAB.

The agreement between the Parties and either the sole member ("adjudicator") or
each of the three members shall incorporate by reference the General Conditions
of Dispute Adjudication Agreement contained in the Appendix to these General
Conditions, with such amendments as are agreed between them.

Analysis:-

The method of arbitration or scope and selection of arbitrators is not very clear
and this may pose a serious issue during the course of project. Arbitration should
ideally be done by 3 members and contract needs additional arbitration clauses to
be very clear on the arbitration issue.

FIDIC is ideal guideline to follow in matters of arbitration.

OTHER CLAUSES IMPORTANT IN TERMS OF RISK MANAGEMENT

a) Indemnity

The terms shall include a provision whereby, in the event of any claim in respect of
which the contractor would be entitled to receive indemnity under the policy, being
brought or made against the owner the insurer will indemnify and hold harmless the
owner, the engineer, and all persons who may be associated with or connected with
the owner or the engineer against such claims and any cost, charges and expenses.

b) Workers insurance

That the contractor shall obtain an insurance policy against the accidents or loss of life
with respect of all the personnel’s including those engaged through a subcontractor
providing adequate coverage against any disability or infirmity or death which may be
cause to the personnel as a result of accidents on the site.

c) Defaults Works

In case the contractor defaults in caring out works the owner can pay other persons to
carry out the works and all expenses shall be recoverable from the contractor.

d) Watching and lighting (Contractors Obligations)

The contractor shall provide at his own cost all lights, guards, fencing and watching
when and where necessary all required by engineer or by any duly constituted
authority for the protection of the work, material, plant and equipment including the
property of owner.

e) Rate of Progress

If the engineer is not satisfied with the rate of work he may take steps to expedite the
progress to complete the works without any additional payment to the contractor.
 f) Suspension of works

In case the engineer is not satisfied with any works, he may suspend the works until
necessary corrective action is taken by the contractor. The contractor won’t be liable
for any extra cost or time during suspension.

g) Completion certificate

The Engineer will issue the completion certificate stating the date on which in his
opinion the works were completed in accordance with the contract.

h) Notices and Fees

The contractor shall give all notices and pay all fees required to be given or paid
under any national or state statutes, ordinance, or other law or any regulation or
byelaw of any local or other duly constituted authority in relation to the execution of
the work and by rules and regulations of all public bodies whose property or rights are
affected by the works.
 CHAPTER 4

RISK MANAGEMENT

According to PMBOK (PMI 2004), project risk management is defined as ‘the

process concerted with identifying, analyzing and responding to uncertainty
throughout the project life cycle’.

The researchers aim to present a simple yet useful system for getting a primary
estimation of total risks that a construction project may face in terms of cost and
provides a rational basis to make decisions related to risk response strategies. The
system developed for risk quantification in construction projects is an outcome of
extensive study of Literature and guidelines on risk management .The basic concepts
and principles related to risks and its management are discussed first, followed by the
description of proposed risk qualification system.

4.1 Source of Risks in Construction Projects

Risk source is defined as any factor that has a potential to cause harm to a project
either owing to an adverse change from initial project conditions or an unexpected
situation.

Construction projects are characterized as complex and unique where a risks rise from
a number of different sources. The construction industry has many sources of risk
some of which can be attributed to the complexity of processes, the environment of
construction projects, financial aspects, organizational structures and technology
usage. In the success of construction projects, the importance of identifying and
managing risks is widely acknowledged.

Delays in time and cost overrun have become the most common risks facing the
industry worldwide. However, they are particularly prevalent in developing countries
where adversities such as shortage of materials, lack of management skills, unskilled
 labour as well as socio economic and political problems must be dealt with; all of
which make construction projects more difficult to manage.

The risk factors is categorized for simplifying the research process. Different authors
have developed various types of categorization approaches for risk analysis process.

These20 risk factors are classified into six groups from the various literature reviews,
they are:

 Contractual and legal risks,

 Capability risks,
 Economic risks,
 Physical risks,
 Political and societal risks,
 Third party risks.

a. Contractual and Legal risks

Cost involved with changes in design and scope of work, Estimation errors or design
errors, Changes in quantity, Owner delays (lack of payment, unable to get approvals,
delayed progress payments, Delay in agreeing variations/Delay caused by settling
contractual disputes due to variation

b. Capability risks
Poor quality of work done by the contractor, inadequate specification and
requirements, Time overrun by the contractor, Site access and Site security.

c. Economic risks
Delays in availability of labor, material and equipment’s, Exchange rate fluctuation,
Inflation, Contract termination for economic risks.

d. Physical risks
Exceptionally inclement weather, Force majeure, unforeseen ground condition,
Fossils and antiquities.
 e. Political and societal risks
Delays due to changes in government and statutory regulations/delay due to
government action, Changes in legislation.

f. Third party risks :

Permits and licenses (Environmental agency etc.).

4.2 Risk Identification

Risk identification is the first and perhaps the most important step in the risk
management process, as it attempts to identify the source and type of risks. It includes
the recognition of potential risk event conditions in the construction project and the
clarification of risk responsibilities. Risk identification develops the basis for the next
steps: analysis and control of risk management. Correct risk identification ensures risk
management effectiveness. The identification and mitigation of project risks are
crucial steps in managing successful projects.

Risk identification is an iterative process that involves the project team, stakeholders
and other managers affected by or who affect the project, and finally outside
individuals who can comment on the completeness of the risk identification based on
their similar experiences.

Risk Identification: Level 1 characteristics:

1. There is no defined and documented process for identifying risks.

2. Project team members occasionally suggest potential risks to the project manager.
3. Project teams initiate risk discussions on an as-needed and when-needed basis.

Risk Identification: Level 2 characteristics:

1. There is a defined and documented process for risk identification.

2. The project team examines the WBS, cost, schedule and other relevant aspects of the
project plan to identify the operative risks.
3. Risk identification includes input from clients and stakeholders.
4. Risk discussion includes cost, schedule and scope.
5. The project team may rely on industry lessons to identify risks.

Risk Identification: Level 3 characteristics:

1. There is a documented standardized risk identification process in place that is used by

all projects.
2. There is a historical database of risks that project teams can use as a template.
3. Inter project risks are identified.

Risk Identification: Level 4 characteristics:

1. The risk identification process is fully integrated into other corporate processes and
procedures.
2. Lessons learned and best practices are captured and made available to other projects.

Risk Identification: Level 5 characteristics:

1. A program is in place for the continuous collection and analysis of risk identification
process performance data and used improve the process.
2. Lessons learned and best practices are used to improve the risk identification process.

By identifying risks at an early stage of planning a construction project or a tender

and assessing their relative importance, the project management can be adapted to
reduce the risks and allocate them to the parties best able to control them or absorb
them should they occur. Studies should be carried out early in the life of a project,
well before decisions are made to proceed with the project.

The top 20 risk factors associated with the contract under consideration are identified
from the various literature reviews are given below:

1. Cost involved with changes in design and scope of work.

2. Delays due to changes in government and statutory regulations/delay due to

government action.

3. Estimation errors or design errors.

4. Poor quality of work done by the contractor.

5. Changes in quantity.
6. Exceptionally inclement weather.

7. Owner delays (lack of payment, unable to get approvals, delayed progress

payments).

8. Delays in availability of labor, material and equipment.

9. Force majeure.

10. Exchange rate fluctuation.

11. Inflation

12. Unforeseen ground conditions.

13. Inadequate specification and requirements.

14. Delay in agreeing variations /Delay caused by settling contractual disputes due to
variation.

15. Fossils and antiquities.

16. Time overrun by the contractor.

17. Changes in legislation.

18. Permits and licenses (Environmental agency, etc.).

19. Site access, site security.

20. Contract termination for economic risk.

4.3 Risk impact evaluation

The identified risks which are associated to design and build procurement method
were evaluated by working out a risk level by categorizing the likelihood of the risks
and the impact severity. These risk factors can be further evaluated by plotting them
in the risk exposure matrix. Plotting the risk level in a risk exposure matrix decides
which risk factors are worthy to further attention.

Five point Likert scale for severity and seven point Likert scale for likelihood is
converted into numerical. The model risk matrix table showed in the Table 1 shows
the calculation of risk significance index. The risk factors will be ranked by using this
index score:-

Table1- Scales for Likelihood and Impact

Assessment of Likelihood Assessment of Impact

Value Scale
(P) (C)
1 Rare Nil/Very minor effect
2 considerable Low effect
3 Medium Medium effect
4 Frequent High effect
5 Always Extreme high effect

4.4 Calculation of Risk Factor

The significance of risk is termed as ‘Risk Factor’ and is expressed in terms of its
consequences or impacts on project objectives and the likelihood or occurrences of
those consequences arising. The numerical scores for occurrences and impact for risks
are converted from scale 1 to 5 to scale 0to 1 by using following formula,

Required score = (Responded Score x 2) / 10

To calculate Risk Factor or levels, the descriptive likelihood assessment are converted
to numerical measures, ‘P’. A similar process is followed for the consequence
assessments, to give an average consequence measures, ‘C’. A risk factor RF or
combined risk measures is then calculated for each risk by following equation:

RF= P + C - (P x C)

Where,

RF= Risk factor

P = Probability (Likelihood) measure on a scale 0 to 1

C = Consequences (Severity) measure on a scale 0 to 1

The risk factor RF, from 0 (low) to 1 (high), reflects the probability of a risk arising
and the severity 3of its impact.
Table 2- Assignment of value scale to the risks

Sr.
Types of Risks Likelihood Impact
No.
Cost involved with changes in design and scope of
1 4 5
work.
Delays due to changes in government and statutory 3
2 2
regulations/delay due to government action.
3 Estimation errors or design errors. 5 4
4 Poor quality of work done by the contractor. 4 4
5 Changes in quantity. 4 4
6 Exceptionally inclement weather. 4 4
Owner delays (lack of payment, unable to get
7 4 5
approvals, delayed progress payments).
Delays in availability of labor, material and
8 4 5
equipment.
9 Force majeure. 2 4
10 Exchange rate fluctuation. 2 2
11 Inflation 3 3
12 Unforeseen ground conditions. 4 3
13 Inadequate specification and requirements. 3 3
Delay in agreeing variations /Delay caused by
14 3 3
settling contractual disputes due to variation.
15 Fossils and antiquities. 1 1
16 Time overrun by the contractor. 4 4
17 Changes in legislation. 2 2
18 Permits and licenses (Environmental agency, etc.). 4 5
19 Site access, site security 2 2
20 Contract termination for economic risk. 2 3
The significance of risk is termed as ‘Risk Factor’ and is expressed in terms of its
consequences or impacts on project objectives and the likelihood or occurrences of
those consequences arising. The numerical scores for occurrences and impact for risks
are converted from scale 1 to 5 to scale 0 to 1 by using following formula,

Required score = (Responded Score x 2)/10

To calculate Risk Factor or levels, the descriptive likelihood assessment are converted
to numerical measures, ‘P’. A similar process is followed for the consequence
assessments, to give an average consequence measures, ‘C’. A risk factor RF or
combined risk measures is then calculated for each risk by following equation:-

RF= P + C - (P x C)

Where,

RF= Risk factor

P = Probability (Occurrences) measure on a scale 0 to 1

C = Consequences (Impact) measure on a scale 0 to 1

The risk factor RF, from 0 (low) to 1 (high), reflects the probability of a risk arising
and the severity of its impact

.
Risk Factor for Case Study

Following table 3 shows the Risk Factors which are calculated as stated above for
Case Study:-

Table 3- Risk Factors Calculation

Sr.
Likelihood Impact Risk Factors
No.
Responded Scores Responded Scores
Score (P) Scores (C )
1 4 0.8 5 1 1
2 3 0.6 2 0.4 0.76
3 5 1 4 0.8 1
4 4 0.8 4 0.8 0.96
5 4 0.8 4 0.8 0.96
6 4 0.8 4 0.8 0.96
7 4 0.8 5 1 1
8 4 0.8 5 1 1
9 2 0.4 4 0.8 0.88
10 2 0.4 2 0.4 0.64
11 3 0.6 3 0.6 0.84
12 4 0.8 3 0.6 0.92
13 3 0.6 3 0.6 0.84
14 3 0.6 3 0.6 0.84
15 1 0.2 1 0.2 0.36
16 4 0.8 4 0.8 0.96
17 2 0.4 2 0.4 0.64
18 4 0.8 5 1 1
19 2 0.4 2 0.4 0.64
20 2 0.4 3 0.6 0.76
Risk Profile for Case Study:

The risks are divided into 3 categories based on their Risk Factor:-

1. High Priority Risks

2. Medium Risks
3. Low Risks

The high priority risks are the risks with Risk factor value from 0.9 to 1.0

The medium risks are the risks with Risk factor value from 0.6 to 0.9

The low risks are the risks with Risk factor value from 0.3 to 0.6

Risk Factor
Types of Risks Risk Category
Limits
Delays in availability of labor, material and
equipment.
Time overrun by the contractor.

Poor quality of work done by the contractor.

Unforeseen ground conditions.

Permits and licenses (Environmental agency,
etc.).
High priority
0.9 to 10
Cost involved with changes in design and risk
scope of work.

Changes in quantity.

Owner delays (lack of payment, unable to get

approvals, delayed progress payments).
Exceptionally inclement weather.

Estimation errors or design errors

Delay in agreeing variations /Delay caused by

settling contractual disputes due to variation.
Force Majeure

Inadequate specification and requirements.

Contract termination for economic risk.
Delays due to changes in government and
statutory regulations/delay due to government
action.
0.6 to 0.8 Medium Risk
Exchange rate fluctuation.
Inflation
Changes in legislation.
Site access, site security
Fossils and antiquities. 0.3 to 0.8 Low Risk

Table 4- Categorization of risks

4.5 Risk Response Strategy

Risk responses are options and actions that enhance opportunities or reduce threats.
The PMRT, PRM, PM or project team decide upon the response action to risks listed
in the risk register. The response action is then assigned to one person, the person
responsible for executing and monitoring the risk response that is chosen. Planned
risk responses must be appropriate to the significance of the risk, cost effective in
meeting the challenge, realistic within the project context and agreed upon by all
parties involved, and owned by a single person. Risk responses must also be timely.
 Delays in availability of labor, material and
Risk Description Time overrun by the contractor.
equipment.

Risk Category High Priority Risk High Priority Risk

Risk Factor
1 0.96
The risk mitigation mechanisms adopted by both the contracts
Table 5- Risk response strategy

have an early warning clause; under this clause the contractor

To mitigate this risk, both MOSPI and FIDIC
can give early warning about the event that may affect the
says that the contractor is responsible to arrange
planned completion date. And both the contracts have the
labor, material and equipment to carry out the
clause to get liquidated damages from the contractor, if he
work. Under both the contract conditions the
failed to deliver the project within the time mentioned in the
contractor is entitled to get compensation if the
contract data. Under MOSPI contract liquidated damages shall
Risk Response employer is not provide something which he is
Strategy be fixed between 0.5% and maximum of 10% of the project
to provide by the date for providing it shown on
value for a week of delay until the completion of the work. But
the accepted programme. Both the contract
in FIDIC there is a flexibility provided to do negotiation to
conditions allow the contractor to get
finalize the percentage of delay damages to be fixed. It allows
compensation event, if there is any delay caused
the contractor and the client to talk and think about the
by the employer nominated subcontractors.
situation to finalize the delay damage to be fixed for that
particular project.
 Risk Description Poor quality of work done by the contractor. Unforeseen ground conditions.

Risk Category High Priority Risk High Priority Risk

Risk Factor
0.96 0.92

MOSPI clearly indicates that it is contractor’s

In FIDIC contract it is mentioned that the contractor responsibility for any inaccuracies in the
shall institute a Quality assurance system to topographical data provided by the contractor and the
demonstrate compliance with the requirements of contractor is encouraged to ascertain the ground

Risk Response Strategy contract. But in MOSPI, if the contractor fails to
correct the defects before end of the defects correction
period, the employer may correct that defects and
the amount will be collected from the contractor.
condition at his own risk and cost before entering into
the contract. However the contractor is entitled to
have compensation, if the ground condition is
substantially more adverse than could reasonably have
been assumed with the ground investigation report.
 Permits and licenses (Environmental
Risk Description Cost involved with changes in design and scope of work.
agency, etc.).

Risk Category High Priority Risk High Priority Risk

Risk Factor 1
1

In MOSPI there is flexibility provided to the employer to make

variation up to ±25% in quantity of each individual item, and
±10%of the total contract. For the extra work the contractor can
Both the contract MOSPI and FIDIC says
claim the current market rate for material and labor, plus 10% for
that the contractor can issue an early
overheads and profit for that item of work. In MOPSI the profit
warning to the employer about the event and
percentage for the extra work carried out by the contractor is fixed
Risk Response Strategy process which may affect the estimated
by 10% it may not sufficient to the contractor, since the extra work
project completion date. The full risks
may require additional effort to complete that work. Such variation
related to obtaining permits and license
limits are not observed in FIDIC and moreover in FIDIC contract
might be transferred to the contractor.
variations may be initiated by the Engineer at any time prior to
issuing the Taking over Certificate for the works, either by an
instruction or by a request for the contractor to submit a proposal.

Risk Description Changes in quantity.
Risk Category High Priority Risk
Risk Factor
0.96
In MOSPI there is flexibility provided to allow for the
changes if the Bill of Quantities for the particular item
by more than ± 25% provided the change exceeds ±
10% of initial contract price. The changes in quantities
cannot be adjusted if the rates changes in quantities are
Risk Response Strategy the initial contract price is exceeded by more than 15%.
Such variation limits are not observed in FIDIC and
moreover in FIDIC contract variations may be initiated
by the Engineer at any time prior to issuing the Taking
over Certificate for the works, either by an instruction
or by a request for the contractor to submit a proposal.
Owner delays (lack of payment, unable to get
approvals, delayed progress payments).
High Priority Risk
1
In FIDIC contract, if the Contractor does not receive
payment, he shall be entitled to receive financing
charges compounded monthly on the amount unpaid
during the period of delay. But in MOSPI, Bills should
be prepared and submitted by the Contractor. 75% of
bill amount should be paid within 14 days of
submission of the bill. Balance amount of the verified
bill should be paid within 28 days of the submission of
the bill.
 Risk Description Exceptionally inclement weather. Estimation errors or design errors

Risk Category High Priority Risk High Priority Risk

Risk Factor
0.96 1

MOSPI completely transfers this risk to the contractor,

making contractor liable for all the risks that arise from
Both the contract clearly mentioned that the contractor
any design errors or inaccuracies in the design irrespective
should make insurance against the loss or damage to the
of design inputs given by the client. But FIDIC saves the
Risk Response Strategy works, plant, materials and also the contractor is liable
contractor from any of defects in the works due to his
to do insurance against death or bodily injury to
design so far he proves that he used reasonable skill and
employees of the contractor.
care to ensure his design is compiled with the works
information.
 CONCLUSION & RECOMMENDATIONS

Following were the results achieved from the study carried out-

 Important contractual clauses were identified and analyzed which mostly

affect the project performance. These were analyzed using FIDIC and MOSPI
general conditions clauses so that better clarity could be had. To make the
comparative study more effective, this research has identified the popular form
of contract condition and procurement method adopted from Developed
Countries and India, i.e., FIDIC contract in Developed Countries and MOSPI
contract in India along with design and build procurement method are most
popularly adopted.

 This research output will help to improve the Indian construction industry’s
contractual risk management practice. There are many different forms of
contract types are adopted in the developed countries and the Indian
construction industry. Hence, it is not possible to do such an extensive
comparative study; so it was decided to identify the popular form of
construction contract and analyze it according to the guidelines adopted from
developed countries (FIDIC) and Indian construction industry (MOSPI). The
risk mitigation mechanisms will help in better preparing the contractors in the
future to manage the risks inherent in the contract better.

 The Clauses were interpreted so that the inherent risks in the project could be
identified.

 The top risks were prioritized through a comprehensive assessment of their

impact severity, likelihood of occurrence established through the research
survey.
 The contractual risk mitigation mechanism for the top risk factors was
identified through the data analysis process.
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