Chapter-5

Contract Management
5.1 Method of Work execution
5.2 Types of Contract
5.3 Tendering Process-Preparation
before Tendering; Tender
Notice; Tender Document;
Conditions of Contract;
Prequalification; Tender;
Evaluation; Selection and
Award
5.1 Method of Work execution

Broadly any construction work can be executed through two methods:

1.Through amanat
2.Through contract
1.Through amanat: When the works are executed by the owner itself,
by hiring workers and supplying materials and equipment, it is
known as execution of work through Amanat.
The record of labor employed each day and the part on which
materials and equipment if any employed is maintained in book
keeping. The record will also indicate the progress of work also.
It is useful when the work is small and necessary to do
immediately, and the expertise are available within the
organization. It saves the cost required for making profit by the
contractor and VAT also. It also keeps the staff busy in the work.
2.Through contract: Contract is an agreement between two or
more parties to do or not to do any work. It is legal and time
bound. Offer and acceptance must be there.
Work Execution through Contract
a)sealed competitive bidding
i)International competitive bidding(ICB)
ii)National/local competitive bidding(NCB/LCB)
b)sealed Quotation
c)Direct procurement
d)users’ committee
e)procurement under special circumstances
 a)sealed competitive bidding
i) International competitive bidding(ICB):
 An international competitive bidding shall be invited
on any of the following conditions :
• Where the goods or construction works as
requisitioned by a public entity are not available
under competitive price from more than one
construction entrepreneur or supplier within
country.
• In making invitation to national tender for the
procurement of goods, construction works or other
services, no tender is submitted and same has to be
procured aboard.
• Where foreign goods or construction works have
to be procured from foreign assistance under an
agreement enter into with a donor party.
• Where the public entity certifies the goods or
construction works, being of complex and special
type, have to be procured by means of an
international tender.
• Notice on invitation to tender shall be published
in English language an all tender or
prequalification documents shall be published in
English.
• In publishing a notice a period of at least 45
days shall be given
• Notice shall be published in daily newspaper
of national circulation and it may also be
published in any international communication
media.
• Notice shall be placed in website of concerned
entity or that of the Public procurement
Monitoring Office (PPMO)
ii)National/local competitive bidding(NCB/LCB):
Contractors are invited from within the nation or local.
 For any procurement having cost estimate more than
10 Lakh for goods and other services, and more than
20 Lakh for works for which ICB is not required, NCB
shall be preferred.
• In publishing a notice a period of at least 30 days shall
be given
• Notice shall be published in daily newspaper of
national circulation and it may also be published in any
international communication media.
• Notice shall be placed in website of concerned entity
or that of the Public procurement Monitoring Office
(PPMO)
b)sealed Quotation: Procurement of works up to
20 lakh and Procurement of goods and other
services up to 10 lakh can be carried out
adopting sealed quotation.
c)Direct procurement:Goods or Consultancy
Services or Other services or construction work
may be procured by means of direct
procurement in the following circumstances:
• The value of miscellaneous procurement does
not exceed the prescribed threshold.
 Goods or consultancy service or other
service : Up to 3 Lakh
 Construction work : Up to 5 Lakh
d)users’ committee:
 This method is used for executing small labor
intensive works where the objective is to:
• Provide employment and income directly to persons
living in the project area.
• Increase the utilization of local know how,
appropriate technologies and materials
• Hand over the completed works for operation and
maintenance directly by persons living in the project
area.
• When objective of project is to create employment
which enhances the economy, quality or
substantiality of beneficiary community then this
method is used.
 Works up to 60 lakh may be carried out by
community participation.
e)procurement under special circumstances:
• Emergency/ special circumstances.
• Depends on contract amount
5.2 Types of Contract
Types of Construction Contracts
Two broad categories:
• Price based - lump sum or unite rate contracts -
price or rates are submitted by the contractor in
his tender
• Cost based - cost-reimbursable and target cost
contract - actual cost incurred by the contractors
is reimbursed(To compensate with payment ;
especially, to repay money spent on one’s behalf),
together with a fee for overheads and profit.
 Types of Contracts
1. Lump sum contract
• A lump sum contract may be entered into for
procuring a construction work such as ground
water pipeline installation, the quantities of
which are difficult to measure or a construction
work such as superstructure of a bridge, the
quantities of which can be measured.
• Such contract shall specify that the
construction entrepreneur shall be responsible
for all types of risks and liabilities associated
with the construction work
• Provided that if the financial liabilities of the
construction entrepreneur increases as a
consequence of an order issued by the public
entity that involves any change in the
construction work after the commencement
of work upon making the contract, the public
entity shall bear the liabilities.
• Sometimes called Drawings and Specifications
Contract
 Advantages of Lump Sum Contract
• The final price is known, by the owner, before
the work commences.
• The contractor has more incentive to reduce
his cost to increase the profit.
• The contractor hopes to complete the job
as quickly as possible, to minimize
overhead, to maximize profit and to move to
the next Job.
 Disadvantages of Lump Sum Contract
• Changes in drawings and specifications can
be very expensive and source of trouble. In
other words the contract has very limited
flexibility for design changes.
• The contractor carries much of the risks. The
tendered price may include high risk
contingency.
• Competent contractors may decide not to
bid to avoid a high-risk lump sum contract.
2. Unit Price (BOQ) contract
• Unit price contract may be entered into where the
quantity of a construction work is difficult to be
ascertained or where construction work is to be
procured on the basis of unit price set forth in the
bill of quantity.
• The bidder has to include in such unit price the
materials, labor and the other matters required to
complete the proposed construction work.
• In making payment for work done under this
contract, the public entity shall make such
payment on the basis of the unit of work actually
done and measured in the field.
Advantages of unit price contract
• Fair basis for competition.
• In comparing with lump-sum contract,
 Changes in contract documents can be made easily by
the owner.
 Lower risk for contractor.
Disadvantages of Unit Price Contract
• The exact final price of the project is not known
to the owner until the completion of the project.
• Upto date account and record keeping is
necessary
• Possibility of submitting unbalanced bid
3.Cost Reimbursable Contract
• A cost reimbursable contract may be entered
into for procuring a construction work involving
high risk and unpredictable conditions, when it
is likely that a construction entrepreneur would
refuse to, or be unable to, perform the work
under a unit price contract.
• While making payment to construction
entrepreneur for the construction work
procured under this contract, such payment may
include the costs actually incurred by that
entrepreneur, overheads of that work plus profit
set forth in the approved cost estimate.
 Advantages of Cost Reimbursement Contract
• Start construction without waiting for the whole
set of drawings and specifications.
• More flexibility for the owner to make changes
as work progresses.
• Draw the contractor expertise during design.
Disadvantages of Cost Reimbursement
Contract
• It is difficult to predict the final cost and the
distribution of it, which may cause financial
problems to the owner.
• Contractor pays less attention to cost control.
4.Design and build contract(turn key contract):
• A design and build contract may be entered for
procuring the design and build of any construction from
the same entrepreneur.
• The work set forth in this contract shall commence only
after the public entity has through its technician or
group of technicians examined and approved the design
of construction work.
• In a design/build contract, the owner enters into a
single agreement by which the design and build
contractor agrees to perform both the design and
construction of the project.
• As well as being responsible for faulty workmanship in
construction, the contractor is also liable for any
deficiencies in design under this arrangement.
• A Design build contract is usually the preferred
contracting method under tight schedule
circumstances, and it is intended to save time.
– Advantages
• In conventional type of contract, incase of
damage/failure of structure, it is often difficult to
determine whether such damage/failure is due to
design fault or construction (quality) fault; which
arises disputes between owner and contractor Such
situation is reduced in design/build contract as both
responsibility is of contract.
• Because the owner warrants the sufficiency of the
plans in a conventional construction contract, he is
liable for any increased costs because of defective or
inadequate plans. But in a design/build contract, the
contractor is then unable to look to the owner for
additional compensation.
• In design/build contract the project can often be
completed within a shorter period of time than with
the traditional three-party arrangement.
• Since a design/build project can be designed and
constructed in phases, the contractor is able to
order necessary materials for subsequent phases
ahead of time perhaps at a reduced cost.
• Contractor’s control over design details allows the
contractor to use familiar construction methods and
processes in building the structure, with the result
of much more efficient construction. These savings
ultimately benefit the owner.
– Disadvantages
• For owner it is often difficult to effectively compare the various
preliminary design proposals submitted by design/build
contractors. The designs will probably not be uniform because
there are usually many different methods of satisfying the owner’s
general needs and performance specifications.
• The owner’s input on the detailed design of the structure will be
limited because the contractor, rather than the owner, is
responsible for furnishing the design work. As a result, the
finished structure may not be exactly as the owner envisioned.
This can lead to later disputes.
• The owner may not obtain the lowest cost for the project since
the design/build contract is usually entered into by negotiation
rather than competitive bidding.
• There is only limited scope for the client to make changes to his
requirements once the client's requirements (i.e. Inflexibility) and
contractor's proposals have been agreed otherwise the cost
consequences may be prohibitive.
• The client has less control and influence over design matters due
to which quality may be impaired.
 BOOT, BOT Contract
• BOOT (build, own, operate, transfer) is a public-
private partnership (PPP) project model in which a
private organization conducts a large development
project under contract to a public-sector partner, such
as a government agency. A BOOT project is often seen
as a way to develop a large public infrastructure
project with private funding.
BOOT model
• The public-sector partner contracts with a private
developer - typically a large corporation or
consortium of businesses with specific expertise - to
design and implement a large project.
• The public-sector partner may provide limited
funding or some other benefit (such as tax
exempt status) but the private-sector partner
assumes the risks associated with planning,
constructing, operating and maintaining the
project for a specified time period.
• The private partner builds a facility to the
specification agreed by the public agency.
• Government retains strategic control over the
project.
• During the specified period called concession
period, the developer charges customers who
use the infrastructure that's been built to realize
a profit.
• At the end of concession period, the private-
sector partner transfers ownership to the
funding organization, either freely or for an
amount stipulated in the original contract
(generally to fulfill viability gap). Such contracts
are typically long-term; usually 20-30 years.
• BOOT is sometimes known as BOT (build, own,
transfer).
• Variations on the BOOT model include BOO
(build, own, operate), BLT (build, lease, transfer)
and BLOT (build, lease, operate, transfer), BTO
(Build, transfer, operate), LOT (Lease, operate,
transfer), DOT (develop, operate, transfer) etc.
 Advantages
• The majority of construction and long-term
operating risk can be transferred onto the BOOT
provider.
• The scheme is not constrained through a lack of
funding, a lack or expertise or project
management capability. Also, there are strong
financial incentives for the BOOT operator to
complete the construction and get the scheme
operational as soon as possible.
• Project completes on time.
• BOOT operators are experienced with
management and operation of infrastructure
assets and bring these skills to the scheme.
• Accountability for the asset design,
construction and service delivery is very high
given that if the performance targets are not
met, the operator stands to lose a portion of
capital expenditure, capital profit, operating
expenditure and operating profit.
• Corporate structuring issues and costs are
minimal within a BOOT model, as project
funding, ownership and operation are the
responsibility of the BOOT operator. These
costs will however be built into the BOOT
project pricing.
 Disadvantages
• BOOT is likely to result in a higher cost to end users.
Because the private investor is interested to profit.
• Not useful for projects which has low economic
return.
• Community users may have a negative reaction to
private sector involvement in the scheme, particularly
if the private sector is an overseas owned company.
• Management and monitoring of the service level can
be time consuming and resource hungry. Procedures
need to be in place to allow users to assess service
performance and penalize the BOOT operator where
necessary.
5.3 Tendering Process-Preparation
before Tendering; Tender
Notice; Tender Document;
Conditions of Contract;
Prequalification; Tender;
Evaluation; Selection and
Award
 What is Tender?
-Tender is a written offer/proposal by the
tenderer (the person who offer the tender) to
perform the work or to supply some specified
goods at a certain rate/amount within a fixed
time frame under certain agreement.
-It is the first step in the formulation of
contract
 What is tender notice?
-Tender notice is the information inviting bids
from competent contractors.
-It should be widely published in important daily
newspaper
 Preparation before Tendering
-Desk study
-Survey
-Design, Drawing , and Specification
-Rate analysis and cost estimation
-Approval of budget
-Tender document/Bid document preparation
-Tender notice publication
 Tender notice
• Tender notice is the information inviting bids from
competent contractors.
Essentials of Tender notice
 Implementing Agency
 Project Name
 Notice No
 First date of publication
 Contract No
 Description of work and location of work
 Bid security/Earnest money deposit
 Fee for Bid document
 Office for buying bidding document and submit tender
 Last date of submission of bid
Continue…………..
Bid opening date
Cost estimate of the project
Maximum no of partner in joint venture(JV)
Pre bid meeting
Date place and time for opening of the tender
 Tender Document
Tender document/Bidding document is a
document prepared by the owner for
submission by bidders by filling up the price or
rate. tender document includes instruction to
bidders, specifications, drawing, design, terms
of reference, schedule of works, evaluation
criteria, bill of quantities, condition of contract
and similar other document.
 Matters to be stated in bidding
documents:
 Instruction to bidders(ITB)
 Tender notice
 Bid data sheet
 Plan, Drawing of the proposed work
 Bill of quantities(BOQ)
 Quantity of goods
 Work to be done by the bidder
 Time of supplying goods, completing construction
work
 Provision regarding warrantee and repair and
maintenance
Type and quantity of necessary Training and
supervision to be provided by the bidder
Provision that the goods or spare parts to be
supplied must be new and original
Source of financing required for proposed
procurement
 Conditions of Contract
-Terms and conditions agreed by client and
contractor
-2 types
• General- Internationally accepted
• Special –specific to country/project
 Prequalification
• Prequalification is carried out in advance of bidding to
establish a list of capable firms to be invited to tender while
ensuring that a proper level of competition is safeguard.
• In order to procure such construction work as determined
to be large and complex by the PPMO from time to time or
procure goods of high value such as industrial plants or
identify qualified bidders, a public entity shall, prior to
making invitation to tender, prepare prequalification
documents and public invite to proposals for determination
of prequalification.
• According to PPMO Prequalification is done for the
construction works greater than 2 crore.
 Evaluation of bid
Substantially Responsive Bid: If all the relevant
Documents are present in the proposal/bid,
that is called Substantially responsive bid
-Clause 25 0f PPA 2063
A. Cost based selection: Lowest evaluated
substantially responsive bid is awarded the
contract in CBS
B. Quality and cost based selection
-Quality upto 90% and cost upto 10%
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