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Different Contract Systems

including EPC Contract


System

By
Ghanta Surender,M.Tech.
Former Director(ITC) &
Senior Faculty Member ,
WALAM TARI ,HYDERABAD
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TYPES OF CONTRACTS
• ITEM RATE CONTRACT
• The dept will call for tenders, indicating the details of
items to be executed, their quantities, rates as per
dept estimate.
• The bidder will quote the item wise rates.
• The work will be awarded to the bidder who quotes
the lowest rates, and the agreement is entered.
• The department will furnish all the designs,
drawings, specifications for each item of work to be
executed. The contractor has to execute the work
accordingly.
• The payment will be made, for the work done , as per
the item wise rates quoted by the contractor,.
Lump Sum (L.S) Contract
The tenders are called, indicating the details of
items of works to be executed, their quantities
and rates, and the total cost of the project.
The contractor has to quote a lump sum price, in
the shape of + or - % (excess or less) over the
estimated cost of the project.
Item wise rates are not applicable.
Work is awarded to the lowest bidder.
The dept will furnish all the designs, drawings,
specifications for the works to be executed.
Payment is made for the work done, based on the
estimated rates, plus or minus tender premium.
The work should be completed in all respects within
the time frame fixed by the dept.

E.P.C (Engineering Procurement Construction)
Contract
• The tenders are called by specifying the detailed scope
of work / components of works to be executed.
Quantities, rates, cost of the project etc are NOT
furnished in the tender.
• The contractor himself has to investigate, prepare
designs & drawings, estimates and quote a lump sum
price to complete the work, in all respects.
• The work will be awarded to the lowest bidder.
• The contractor will furnish the designs and drawings
of all components to be executed for approval of the
department
• The contractor will furnish the detailed estimates
showing component wise cost, for the total amount
quoted.
• The contractor will furnish , month wise physical /
financial programme of construction for approval of
the dept.
• Payment is arranged based on the stage wise progress
achieved ( not based on the quantities).
B.O.T( Build Operate Transfer) Contract
• The tenders are called specifying the details of work,
period of operation, the cess / tax leviable etc, terms
and conditions
• The bidder has to construct the project at his cost &
operate it for the specified period and then transfer
the project to Government .
• During the operation period, the bidder can collect the
cess / tax from the beneficiaries of the project, at the
rates fixed / accepted by the govt.
• The work will be awarded to the bidder who offers
lowest cess/taxes chargeable on the user.
• The work is to be executed as per the designs, drawing
and specifications approved by the dept.
• No cost is payable to the contractor,
• Bridges on major rivers, Bypass roads, Highways, mini
hydel projects, commercial shopping complexes etc
AGREEMENT
• On award of the work, an agreement will be entered between the
department and the contractor.
• The bid document signed and filed by the lowest bidder will
become the agreement signed by both the parties.

• The Agreement comprises of:


• Details of items to be executed, their quantities, rates payable
• Drawings showing the details of components to be executed.
• Detailed specifications of all the items to be executed.
• Construction programme, mile stones to be achieved
• Payment schedule in respect of EPC works
• Quality control tests to be conducted on the materials/works
• Rules and regulations to be fallowed during execution of the
project

Payment Schedule (EPC)
• The contractor has to submit month wise
physical / financial programme of execution
of the project for approval of the dept.
• The mile stones will be fixed for completion of
the project, as per the programme submitted
by the contractor.
• The contractor will submit the payment
schedule, indicating the stage wise cost of
each component payable, for approval of the
dept.
• The payment will be arranged, stage wise,
for the works done, as per the approved
payment schedule.
Specifications
• The works are to be executed as per the
specifications laid down in “ A.P. Standard
Specifications” ( APSS ), consisting of detailed
specifications of various items of works to be
executed .
• In respect of Roads and bridges, MORTH, MOST, IRC
specifications have to be fallowed
• Items not covered by any of the above, have to be
executed as per the specifications laid down in the
I.S.Codes.
• The quality control tests on materials / works should
be conducted as specified in the above
specifications, I.S.Codes
Quality Control
• The quality control is the primary
responsibility of the contractor.
• The agency will establish its own quality
control unit/lab, to conduct day to day Q.C
tests as per BIS standards.
• Third party Quality Control agencies, are
engaged to supervise and conduct the Q.C.
tests.
• The departmental Q.C officials ensure that
the Q.C tests are being conducted by the
contractor, third party Q.C agency as per
agreement terms and conditions
Billing in EPC projects
• The Measurement Books, Level Field books,
Q.C. registers etc required for the work will be
issued by the dept to the contractor.
• The contractor will record the measurements,
levels etc required for billing, and get them
checked by the departmental officers.
• The contractor will prepare the bill for the
work done as per approved payment
schedule and present it to the department,
• The department officials will process the bill
as per approved payment schedule and
agreement terms and conditions.

UNIT LENGTHS FOR ARRANGING INTERMEDIATE PAYMENT
• For Structures
• (a) 30% on completion of foundations including earthwork,
• (b) 30% on completion of sub-structure,
• (c) 40% on completion of super-structure, balance items.
• Earth work excavation for canals;
• a) 100 M for canals with discharge more than 10000cusecs,
• b) 250 M for canals with discharge between 1000 to 10000cusecs
• c) 1.0 Km. for canals with discharge between 10 to 1000 cusecs
• B) E.W excavation in Deep Cuts;
• Berm wise, with a bay length of 25 mts, subject to a max of 1 km in a
reach.
• LINING
• 100m for a normal cutting,
• 25m for Deep Cuts.(depth > 12m)
• Lining shall be divided in to bed & sides, and the two sub-components
shall be divided in proportion of quantities duly withholding 1 % towards
completion of joints.
• The payment for lining of bed without sides shall be restricted for a
maximum length of 1 km duly with holding 5 % till the side lining is
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completed.
UNIT LENGTHS FOR ARRANGING INTERMEDIATE PAYMENT
• Tunnels,Draft tubes, Pump House, Surgepool and Cistern:
• Earth work Excavation:
• i. Tunnels, Draft Tubes: The Unit length is 25m bay.
• ii. Pump House & Surge pool: 5m depth of cutting is a unit.
• 2 Civil works other than Earth work
• i. Tunnels, Draft tubes: For lining the Unit length is 25m bay.
• ii. Pump House,Surge pool & Cistern: In stages of every 1m from the
deepest foundation level.
• Delivery main
• a) Material supply & Fabrication – 55%,
• b) Lining / coating, Testing of pipes – 15 %,
• c) Conveyance, Laying and Field jointing – 20 %,
• d) Refilling and Hydro testing –10 %.
• Distribution system @ Rs.16,500/- per acre.
Electro-Mechanical equipment
• 85% of the quoted price for supply of goods at site
• 10% of quoted price on erection, testing and commissioning
• 5% of the quoted price at the time of final bill. 12

Check measurement ( EPC)
In case of Earthwork excavation, embankment the field
staff have to check and record the pre levels 25% of the
pre levels taken by the E.P.C. Agency. In case of cut-off
and foundations the field staff have to check and record
100%.
• Field Engineer (AE/AEE) have to check and record 25%
of pre levels and 100% for final levels,
• Field Engineer (AE/AEE) have to check measure 100%
of final measurements.
• Field Dy.EE have to check the measure 25% of the
levels and measurements spread over the entire work.
• Field EE/SEs have to check measure as per codal
provisions and rules in vogue.
• The department, QC staff have to check 25% of the final
levels.
Check measurement (EPC)
• The construction Engineers have to check the pre
levels of Earth work Excavation, Embankment.
a) 1/3 of the pre levels taken by EPC Agency.
b) 100% levels in case of cut off and foundation
• Construction Engineers (AE/AEE) have check
25% for pre levels and 100% of final levels and
measurements recorded by EPC Agency,
• DEEs have to Test check 25% measurements
spread over the entire work.
• EEs/SES have to check measure as per codal
provisions and rules.
• QC staff shall check 25% of the final
levels/measurements of earth work, revetment,
levelling, concrete, linear dimensions of important
structures, gates etc.
Mobilization Advance:
❑ Mobilization Advance to the extent of 10% of the
contract value is payable against BG in the
fallowing
a) 1 % after concluding Agreement
b) 4 % after completion of investigation
&designs
• c) 5% for purchase of machinery/ equipment at
100% cost for new machinery and 50% for old
machinery brought to site and in working
condition.
• The advance shall bear an interest .
• Recovery of advance with interest shall
commence in the next interim payment following
that in which the total of work done reached 10%
of the contract amount and shall be made at the
rate of 20% of amount of all interim payments.
Liquidated Damages
❑ Time is the essence of any contract. The work
should be completed with in the time frame
fixed.
❑ If the contractor fails to complete the works
within the stipulated periods of individual mile
stones the Superintending Engineer will
deduct one twentieth, of one percent of
respective mile stone value per calendar day
or part of the day for the period of delays
subject to a maximum of 10% of the contract
value.
❑ The maximum amount of liquidated damages
for the whole of the works is ten percent of
final contract price.
Extension of Time
• Extension of time is granted for any
delays on the part of the department
• If it is due to delay attributable to the
contractor, the EOT will be sanctioned
duly levying penality.
• First extension of 6 months is granted
by the Agmt authority, and next by
higher authority.
• In case of EPC works, the first
extension is by the high power
committee, and the next by the govt 17
Price Adjustment
❑ Price adjustment is allowed on cement, steel,
pipes manufacturing materials, Diesel
❑ Escalation is paid if the prices get increased
by more than 5% of base rates.
❑ If the prices fall below 95% of base rates
recovery is made.
❑ The price adjustment is made on monthly
basis based on the rates published by the
dept
❑ Escalation should not be allowed where
liquidated damages are levied and extension
of time granted for reason attributable to
contractor.
Price Adjustment
For Cement / Steel
Vc = R x (Ci – Co )

Vc = Price adjustment to be made for increase /


decrease in the rate of cement / steel during the
month
R = Quantity of Cement / Steel consumed in the
work executed during the month
Co = The base rates for cement / steel as specified
in the agreement + or - 5% as the case may be
C I = The rates of cement / steel as fixed by the
department for the month under consideration

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Price Adjustment for POL
• V= Pf /100 X R X (Fi -Fo) / Fo
• Where
• V = Price adjustment to be made for Increase /
decrease in the cost of POL.
• R = Value of work done during the period under
consideration
• Pf = % of fuel component of the work to be arrived
at as per AP standard data and approved by the
competent authority.
• Fo = retail price of HSD at the pump nearest to the
work spot on the last day of filling bids + 5 %
• Fi = retails price of HSD at the pump nearest to the
work spot during the period under consideration.
• The value of work done R shall exclude Seigniorage
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charges, VAT and all other over head charges.
Changes in the Quantities (EPC)
▪ The Contractor is bound to execute all supplemental
works that are found essential, incidental and
inevitable for overall completion of the work at no
extra cost to the employer, if not mentioned
otherwise
▪ If specific quantities are mentioned in the BOQ of the
agreement, any increase / decrease in the quantities
executed will be paid or deducted, if there is a
clause to that effect in the agreement

▪ Extra Items (EPC)


▪ Additional items not contingent on the main work
and outside the scope of agreement will be paid
extra.
CHANGES IN THE QUANTITIES( L.S)
– The contractor is bound to execute all the
supplemental items that are found essential, during
the execution of work, at the rates to be worked out
as detailed below.
– In respect of items for which the rates can be
deducible from the agreement rates, the same shall
be worked
– For new items, which do not correspond to any
item in the agreement, the rates shall be the
standard schedule of rates plus or minus the
quoted tender percentage
– The term standard schedule of rates used in the
above sub clause means schedule of rates with
which the sanctioned estimate was prepared and
the tenders were compared with. 22
Security Deposit

❑ In addition to the EMD of 2.5% paid at the time of


agreement, 7½% of the value of work done is with
held and retained as security in intermediate
payments.

❑ On completion of the entire work 5% from out of the


7.5% withheld will be released, retaining the 2.5% as
further security which will be released along with
2.5% EMD, after completion of defect liability period
of 24 months.

❑ The retention money is permitted for release to the


contractor against the Bank Guarantee in spells of
25 lakhs
Subletting of Contract:
➢ The value of works awarded on
subletting shall not exceed 50% of
contract value.
➢ The sub contractor should be approved
by the tender accepting authority
• The sub contractor should also satisfy
the qualification criteria specified
• The experience will be credited to the
sub contractor, but not to the main
contractor
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Arbitration
• Claims up to Rs. 10,000/- …….. By SE
• Claims up to Rs. 50,000/- …….. by CE
• Claims above Rs. 50,000/- shall be by the
Civil Court by way of a regular civil suit

• A reference for adjudication under this


clauses shall be made within six months
from the date of intimating the contractor of
the preparation of final bill or his having
accepted payment whichever is earlier.

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Thank you
• Mail your queries if any to
• ak_murty@yahoo.com

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VAT:
– Value added Tax (VAT) during the currency of the contract deduction
towards AP-VAT Act 2005 according to which tax @ 5% on total value
has to be deducted at source, while making payments to the contractor
as per Memo No. 14420/R.I(2)/08-2, Dated: 17.12.2008 of T R&B (R.I)
Department.
– The contractor should produce a valid VAT clearance certificate before
the payment of the final bill, otherwise payment to the contractor will be
withheld.
– The following clause is incorporated as per the Government instructions
given in G.O.Ms. No: 141, T (R&B) Department, Dated: 27-07-2006.
• The total amount towards component of VAT at 5% is shown in PART”B” of
the estimate. This VAT component loaded in the estimate (PART"B") shall
be added in each bill of the contractors who opt for composition scheme
and recovered.
• In respect of those contractors who do not opt for composition scheme, the
VAT component loaded in the estimate shall not be released to them with
their bills. However VAT shall be recovered based on which they have to
claim adjustment through their returns submitted to their respective
assessing authorities.
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Seigniorage charges:
– Seigniorage charges will be recovered as per G.O.Ms.No. 198,
Industries & Commerce (MI) Department, Dated: 13-08-2009 from
the work bills of the contract, based on the theoretical requirement
of materials at the following rates.

• Sand Rs.40.00 / cum.

• Metal Rs.50.00 / cum.

• R.R. stone for masonry. Rs.50.00 / cum.

• Revetment stone Rs.50.00 / cum.


• .
• C.R.S. stone. Rs.50.00 / cum.

• Gravel./Ordinary earth Rs.22.00 / cum.


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LABOUR REGULATIONS ACT

• As per the Contractor’s Labour


Regulations and Abolition Act, 1970, the
contractor has to produce the license
obtained from the licensing officer of the
Labour Department along with tender or at
the time of agreement.

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PERSONNEL


– The minimum number of the technical
personnel to be engaged by the contractor
and their qualifications shall be as per the
Contract Data. The wages of these personnel
will be payable by the contractor as per
minimum wages act/ SSR. If contractor fails to
engage technical personnel as per
agreement, penalty at double the rate payable
will be recovered from contractor’s bill.
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– No contractor shall employ any person who is
under the age of 14 years.
– No contractor shall employ donkeys or other
animals with breaching of string or thin rope.
The breaching must be at least three inches
wide and should be of tape.

– No animal suffering from sores, lameness or
emancipation or which is immature shall be
employed on the work.
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INSURANCE

– The contractor shall obtain insurance policy/ Contractor’s All Risk


policy at his cost, to cover from the start date to the end of the
defect liability period including extended agreement time, for the
amounts stated in the Contract Data for the following events
which are due to the Contractor’s risks;
• Loss of or damage to the Works, Plants & Materials;
• Loss of or damage to Equipment.
• Loss of or damage of property (except the works, Plants, Materials,
• Equipment) in connection with the Contract; and
• Personal injury or death of labour in connection with the contract.
• For occurrences of the above 4 times in a year.

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Liquidated damages

• If the contractor fails to complete whole of the works


or any part thereof or section of the works within the
stipulated periods of individual mile stones
(including any bonafide extensions allowed by the
competent authority without levying liquidated
damages), the Superintending Engineer may without
prejudice to any other method of recovery will
deduct one tenth of one percent of contract value of
each milestone per calendar day or part of the day
for the period of delays subject to a maximum of
10% of the contract value not as a penalty from any
monies in his hands due or which may become due
to the contractor
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OVER HEADS
• This is assumed to include inter alia the following elements:
• Site accommodation, setting up plant, access road, water supply, electricity and
general site arrangements
• Office furniture, equipment and communications
• Expenditure on Corporate office of contractor, Site supervision,. Documentation and
"as built" drawings
• Mobilization / de-mobilization of resources .
• Labour camps with minimum amenities required as per labour laws and transportation
to work sites
• Light vehicles for site supervision including administrative and managerial
requirements
• Setting up of Laboratories for quality control, field and laboratory testing for control of
quality of various items of work and documentation of test results as per requirement
of the Specifications.
• Minor T&P excluding vibrators for concrete work and survey instruments and setting
outworks, including verification of line, dimensions, taking trial pits and bore holes,
where required.
• Watch and ward
• Arrangement for Traffic and Traffic Management during construction.
• Provision towards safeguarding environment
• Sundries, Financing expenditure of the Contractor Work Insurance / compensation.
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• Firms Ineligible to Tender:
• A retired officer of GovtI. of AP or Govt. of India executing works is disqualified from
tendering for a period of two years from the date of retirement without the prior
permission of the Government.
• The Bidder who has employed any retired officer as mentioned above shall be
considered as an ineligible bidder.
• The contractor himself or any of his employees is found to be Gazetted Officer who
retired from Government Service and had not obtained permission from the Government
for accepting the contractor’s employment within a period of 2 years from the date of his
retirement.
• The Contractor or any of his employees is found at any time after award of contract, to
be such a person who had not obtained the permission of the Government as aforesaid
before submission of the tender or engagement in the Contractor’s service.
• v) Contractor shall not be eligible to tender for works in the division / circle where
any of his near relatives are employed in the rank of Assistant Engineer or Assistant
Executive Engineers and above on the Engineering side and Divisional Accounts Officer
and above on the administrative side. The Contractor shall intimate the names of
persons who are working with him in any capacity or are subsequently employed. He
shall also furnish a list of Gazetted /Non-Gazetted, State Government Employees
related to him. Failure to furnish such information bidder is liable to be removed from the
list of approved contractors and his contract is liable for cancellation.
• Note: Near relatives include
• Sons, step sons, daughters, and step daughters. Son-in-law and daughter-in-law.
Brother-in-law and sister-in-law. Brothers and Sisters. Father and Mother.Wife /
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Husband.Father-in-law and Mother-in-lawNephews, nieces, uncle and aunts Cousins
and Any person residing with or dependent on the contractor.
Salient features of some major labour laws applicable to
establishment engaged in buildings and other construction work:


• (a) Workmen compensation Act 1923: The Act provides for compensation in case
if injury by accident arising out of and during the course of employment.
• (b) Payment of Gratuity Act 1972: Gratuity is payable to an employee under the
Act on satisfaction of certain conditions on separation if any employee has completed
5 years service or more, or on death, the rate of 15 days wages for every completed
year of service. The Act is applicable to all establishments, employing 10 or more
employees.

• (c) Employees P.F. and Miscellaneous provision Act 1952: The Act provides for
monthly contributions by the Department plus workers @ 10% or 8.33%. The benefits
payable under the Act are:

• Pension or family pension on retirement or death, as the case may be.
• Deposit linked insurance on the death in harness of the worker.
• Payment of P.F. accumulation on retirement/death etc.,

• (d) Maternity Benefit Act 1951: The Act provides for leave and some other
benefits to women employees in case of confinements or miscarriage etc.

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• (e) Contract Labour (Regulation & Abolition) Act 1970: The Act provides for certain
welfare measures to be provided by the contractor to contract labour and in case the
Contractor fails to provide, the same are required to be provided by the Principal
Department by Law. The Principal Department is required to take certificate of
Registration and the contractor is required to take license from the designated Officer.
The Act is applicable to the establishments or Contractor of Principal Department if
they employ 20 or more contract labour.

• (f) Minimum wages Act 1948: The Department is supposed to pay not less
than the Minimum wages fixed by appropriate Government as per provisions of the
Act if the employment is a scheduled employment construction of Buildings, Roads,
Runways are scheduled employments.

• (g) Payment of wages Act 1936: It lays down as to by what date the wages are to
be paid, when it will be paid and what deductions can be made form the wages of the
workers.

• (h) Equal Remuneration Act 1979: The Act provides for payment of equal wages
for work of equal nature to Male or Female workers and for not making discrimination
against Female employee in the matters of transfers, training and promotions etc.
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• Payment of Bonus Act 1965:The Act Is applicable to all establishments employing 20 or more
employees. The Act provides for payment of annual bonus subject to a minimum of 8.33% of
wages and maximum of 20% of wages to employees drawing Rs. 3500/- per month or less. The
bonus to be paid to employees getting Rs.2500/- per months or above and upto Rs.3500/- per
month shall be worked out by taking wages as Rs.2500/- per monthly only. The Act does not
apply to certain establishments. The newly set-up establishments are exempted for five years in
certain circumstances. Some of the State Governments have reduced the employment size from
20 to 10 for the purpose of applicability of this Act.

• j)Industrial Disputes Act 1947: The Act lays down the machinery and procedure for
resolution of Industrial disputes, in what situations a strike or lock- out becomes illegal and what
are the requirements for laying off or retrenching the employees or closing down the
establishment.

• (k) Industrial Employment (Standing Orders) Act 1946: It is applicable to all establishments
employing 100 or more workmen (employment size reduced by some of the State and Central
Government to 50). The Act provides for laying down rules governing the conditions of
employment by the Department on matters provided in the Act and get the same certified by the
designated Authority.

• (l) Trade Unions Act 1926: The Act lays down the procedure for registration of trade
unions of workmen and Departments. The Trade Unions registered under the act have been given
certain immunities from civil and criminal liabilities.

• (m) Child Labour (Prohibition & Regulation) Act 1986: The Act prohibits employment of
children below 14 years of age in certain occupations and processes and provides for regulation
of employment of children in all other occupations and processes, Employment Child Labour is 41
prohibited in Building and Construction Industry
• (n) Inter-State Migrant workmen’s (Regulation of Employment & Conditions of service) Act
1979: The Act applicable to an establishment, which employs 5 or more inter-state migrant
workmen through an intermediary (who has recruited workmen in one state for employment in the
establishment situated in another State). The inter State migrant workmen, in an establishment to
which this Act becomes applicable, are required to be provided certain facilities such as housing,
medical aid, travelling expenses from home upto the establishment and back, etc.

• (o) The Building and Other Construction workers (regulation of Employment and conditions of
service) Act 1996 and the Cess Act of 1996: All the establishments who carryon any building or
other construction work and employs 10 or more workers are covered under this Act. All such
establishments are required to pay cess at the rate not exceeding 2% of the cost of construction
as may be modified by the Government. The Department of the establishment is required to
provide safety measures at the Building or construction work and other welfare measures, such as
Canteens, First-aid facilities, Ambulance, Housing accommodations for workers near the work
place etc. The Department to whom the Act applies has to obtain a registration certificate from the
Registering Officer appointed by the Government.

• (p) Factories Act 1948: The Act lays down the procedure for approval of plans before
setting up a factory, health and safety provisions, welfare provisions, working hours, annual
earned leave and rendering information regarding accidents or dangerous occurrences to
designated authorities. It is applicable to premises employing 10 person or more with aid of power
or 20 or more persons without the aid of power engaged in manufacturing process.
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CHECKLIST TO ACOMPANY THE TENDER


• 1 Copy of Contractors valid Registration under appropriate Class with Government of
Andhra Pradesh.
• 2 Copy of Permanent Account Number (PAN) Card and copy of Latest Income tax
returns for the year 2012-13 submitted along with proof of receipt.
• 3 Registration copy under AP.VAT Act 2005 i.e., Taxpayer Identification Number
along with VAT clearance certificate in the prescribed proforma
• 4 Details of value of Civil Engineering works executed in the last 10 financial years in
the Bidder’s name in Statement-I with supporting certificates.
• 5 Details of similar works completed as Prime Contractor (in the same name) during
the last ten financial Years in Statement-II with supporting certificates.
• 6 Quantities of work executed as Prime Contractor (in the same name) in the last 10
financial years - in Statement–III with supporting certificates.
• 7 Details of existing commitments i.e., work on hand in Statement-IV with Supporting
Certificates.
• 8 Availability of critical equipment in Statement–V.
• 9 Availability of Key personnel in Statement.VI.
• 10 Litigation history in Statement–VII.
• 11 Proof of liquid assets in the shape of Solvency certificates etc., for the required
amount.
• 12 List of certificates enclosed

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• Insurance:
– The Contractor shall provide, in the joint names of the
Department and the contractor, insurance cover from the Start
Date to the end of the Defects Liability Period i.e., 24 months
after completion for the following events which are due to the
Contractor’s risks.

• loss of or damage to the Works, Plant and Materials;
• loss of or damage to the Equipment;
• loss of or damage of property in connection with the Contract; and
• personal injury or death of persons employed for construction.

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