Tender :

Tender is an offer which incorporates the sum of money, time and other conditions required to carry
out the contract obligations in order to complete a project or a part of it consisting of specified works.
OR
The Tender is an offer in writing to execute some specified work or to supply the materials rates within
fixed time under certain conditions of agreement between the contractor and the department or owner
or any party
Necessity of Tender
• Lower bids that may be obtained due to competition among the contractors.
• Selection of contractors can be made based upon their experience in their line.
• Personal interests, prejudices, preferences, Partiality can be avoided by calling for tenders.

Processing of works
• Following are the stages in planning, sanctioning and execution of work.
(a) Inclusion in Procurement Plans
(b) Preparation of Preliminary Project Report (PPR)
(c) Administrative Approval
(d) Preparation of Detailed Project Report (DPR) & Detailed Estimates
(e) Technical Sanction
(f) Appropriation of funds
(g) Preparation of Tender documents
(h) Call of Tenders and Award of Work
(i) Execution of works
(j) Monitoring of works and Quality Assurance

Inclusion in Procurement Plans :

• Each Ministry/Department shall prepare a perspective plan for 5 years for undertaking
different types of works. There shall also be a provision for annual review of the plan for
making modifications, if any.
• For execution of any work, whether departmentally or through a Public Works
Organisation, the Ministry / Department shall constitute a “Works Committee”, comprising
of representatives of administrative wing and Finance wing and an officer possessing
technical skills and experience for framing estimates and execution of works
• The Works Committee shall ensure observance of due process in the planning and
execution of works, check the reasonability of the estimates and other technical details and
monitor the execution of the works.
Preparation of Preliminary Project Report (PPR) :
• On requisition from Ministry/Department for procurement of works, a preliminary project
report shall be prepared by Public Works Organization to whom work is entrusted for
execution and shall be submitted to the requiring Department/ Ministry for obtaining
sanctions of the project.
The PPR consists of

• Background of the work/ project justifying the need for the work
• Details of scope of the project
• Availability of auxiliary services like roads, power, water, solid & liquid waste disposal
system, street lighting and other civic services shall be ensured.
• Preliminary estimated cost
• Time of the completion
• Environmental impact assessment (EIA)
• Cash flow : This will show year-wise requirement.

Administrative Approval
• For every work, it is necessary to obtain, in the first instances the concurrence of the
competent authority of the administrative department requiring the work. The formal
acceptance of the proposals by the authority is termed as Administrative Approval of the
work.

• It is duty of the engineering department requiring the work by the administration to obtain
the requisite approval to it.

• An approximate estimate and such preliminary plans are necessary to explain the proposals
are submitted by an engineering department to the administration to obtain administrative
approval to take up the work within the sanctioned amount.

• After receiving the administrative approval, detailed drawings, design and the estimated
cost etc. are prepared by the engineering department and submitted to the administrative
department for sanction.

Preparation of Detailed Project Report (DPR) & Detailed Estimates

• On receipt of sanction of the project, based on submission of PPR and assurance of funds,
the procuring entity shall finalize the Detailed Project Report giving reference to the
following documents:
o Site Plan, Architectural Drawings etc. as required.
o Detailed soil investigation.
o Detailed architectural drawings.
o Detailed structural drawings.
o Detailed Cost Estimates based on specifications and schedule of rates prepared by
CPWD or any other Public Works Organization.
o Annual plan and five-year plan allocation and cash flow.
o Works accounting system
 o Quality assurance system/mechanism.

Technical Sanction
Technical sanction to detailed cost estimates shall be accorded by the Works Committee so as to ensure
that proposals are structurally sound and that the estimates are accurately calculated based on
adequatedata.

Appropriation of funds
Before taking up the execution of work it shall be ensured that proper funds are available to meet out
the expenditure on the work.

Preparation of Revised Project Report

During preparation of DPR or at tender processing stage or during execution of work or after the
completion of work if it is felt that the project cost has or is likely to vary more than 10% of sanctioned
cost, then a Revised Project Report taking into account various possible reasons for variation like
change in scope, design of work, material/labour cost, time over run etc. shall be prepared and sanction
of competent authority shall be obtained.

Preparation of tender documents

Before Inviting the tenders the tender documents have prepared and issued to interested tenderers,
this document consists of

• Detailed Specification of the Work and materials should be used.

• A complete set of drawings with details of various parts.
• General Conditions of contract and any Special Conditions.
• Schedule of quantities of the various items of the work and approximate quantity of work
under each item of work.
• The location of the work.
• The Name of the division in which the work is situated.
• The period of completion of work and the time and completion of each stages of work.
• The Amount of EMD.
• The name of authority that is accepting and rejecting tender.
• Conditions of penalty of slow progress and non fulfilment of the conditions of the contract.

Earnest Money Deposit

 Earnest Money Deposit: When the contractor submits the tender for work, he has to deposit
usually at about 2% of the estimated cost to the departments guarantee or assurance of the
tender.
 If the contractor refuses to take up the work when his tender accepted, his earnest money is
forfeited.
 The earnest money of all other contractors whose tender have not been accepted will be return
to the respective contactors.
 Earnest money given by all the contractors except the lowest tenderers should be return within
week from the date of receipt of tenders.
  Earnest money of second and third lowest tenderers should be returned within 15 days of the
acceptance of tender.
 The Earnest money of the lowest tenderer whose tender is normally accepted is retained by the
department as a part of SD for due performance of the contract.
 The earnest money may be in form of DD,Cash or Cheque or FD or Bank guarantee like saving
Certificate.
 To ensure that a Bidder does not submit a Dummy Bid or back out at time of tender opening,
Department collects a small refundable fee from each bidder, which is called EMD.

Security Deposit (SD)

▪ Once the tender is accepted ,the selected contractors should deposit 10% of the total cost of
work as SD with the department.
▪ This amount is includes EMD of already deposited.
▪ The contractor may deposit the Entire amount at the beginning of work or it my be deducted
from the running bill of contractor.
▪ The Contractor should fulfill all the conditions of contract and carry out the work satisfactory
according to specification and complete the work in time, If the contractor fail to satisfy the
terms of agreement, then the part or complete amount forfeited.
▪ If he completes the work the as per the conditions of the contractor with in the specified time,
the SD will be refunded to the contractor.
▪ This amount Will be refunded six month after the completion of work or rainy season.
▪ Any defects noticed during this observation period is to be rectified by the contractor at his
cost.
▪ For e.g. If a Bidders gets Rs.10 Cr contract to construct a Bridge with in 12 months , than he
has to deposit a Security deposit of 10% i.e. 1 Cr with Buyers. Now if he does not complete the
bridge on time or leaves it incomplete, the Department can forfeit his 1 Cr as penalty

CALL OF TENDERS AND AWARD OF WORK

Registration of contractors :
• Defined by competent authority based on technical capability, financial status.
✓ Class I : No limits ( Proper labour, workforce, experienced workers)
✓ Class II : Up to 3 Cr.
✓ Class III : Up to 1 Cr.
✓ Class IV : Up to 50 Lakhs
✓ Class V : 15 Lakhs
✓ Class VI : 5 Lakhs
✓ Class VII : 2 Lakhs( municipal works)
Open tendering :
✓ Open tendering allows anyone to submit a tender to supply the goods or services that are
required. Generally, an advert will be placed giving notice that the contract is being tendered,
offering an equal opportunity to any organisation to submit a tender.
✓ On larger projects, there may then be a pre-qualification process that produces a short-list of
suitable suppliers who will be invited to prepare tenders
Selective tendering :
✓ Selective tendering only allows suppliers to submit tenders by invitation.
✓ A pre-selected list of possible suppliers is prepared that are known by their track record to be
suitable for a contract of the size, nature and complexity required.
✓ They might then be asked if they would be interested in tendering for the contract, and then
based on the responses received, a number of them invited to tender (generally no more than
6).
✓ From the tenders received, a preferred tenderer is selected based on criteria such as price and
quality and negotiations entered into.
Negotiated tendering
✓ Negotiated tendering occurs when the client approaches a single supplier based on their track-
record or a previous relationship and the terms of the contract are then negotiated.

Prequalification of Contractors :
 Registration of contractors:- The contractor must get himself registered in the departments (
Government - govt. Contractor) for which he is interested to take up works.
 Government contractors are entitled to do govt. jobs if awarded.
 Contractors are classified according to the registration and registration fees and depending on
this they can undertake works up to certain amount.
 Sometimes works are awarded on the basis of quotations invited from a group of ‘selected
tenderer’ (a group of known reputed contractors) who are considered suitable for that job. This
method is known as ‘pre-qualification’ and saves a lot of time.
 In the advertisement itself it must be mentioned that only contractors having experience in the
particular work should submit the tender.
 To get a contractor to be registered under certain class, he has to apply to the competent
authority.
 The application should contain the following documents:
1. Current income tax certificate
2. Work certificates for all the works performed during the
last three years and those in progress
3. Solvency certificate for an appropriate amount
4. Attested copy of deed of partnership and power of attorney on stamp paper if needed
5. Application in duplicate with all documents
6. Attested photos of all the partners if any
 ▪ In relation to the public works, following catogories of contractors are generally enlisted or
building and roads
o For sanitary installations and water supply
o For electrical and air conditioning
o For furniture.
▪ Contractors at B and C must process valid plumbing and electrical licence
▪ Each of them is expected to have machinery and equipment required for the job
▪ Their qualifications are further adjudged from
o Professional ability to understand and implement the contractual obligations and
subsidiary instructions given by the engineer in charge of the department.
o Their financial resources
o Capacity to control labour, especially by a way of regular payment of fair wages and
observance of labour regulations
o Their zeal for maintaining reputation and integrity

Publicity of Tenders :
▪ Wide publicity shall be given to the Notice Inviting Tender.
▪ Tenders must be invited in the most open and public manner possible, by advertisement in the
Press and by notice in English/Hindi and regional language of the concerned District.
▪ The Notice Inviting Tender shall also be placed on the website of the Ministry/Department
Format of an ideal Tender Notice :
▪ Name of the Project.
▪ Name & Address of the Company floating the tender.
▪ Name of work, materials or services.
▪ Place of work location.
▪ Approximate estimated cost of work.
▪ Earnest Money.
▪ Period of completion.
▪ Date on which the Tender Document sale commences
▪ Date and time up to which tender documents can be obtained.
▪ The cost of tender documents.
▪ The date and time up to which the tenders to be submitted and are to be opened.
▪ Specification.
▪ Eligibility Criterion.
▪ The designation of the officer who accept the tender
 Sample Copy of Tender Notice(PWD) :

Issue of Tender Document

• Before Inviting the tenders the tender documents have prepared and issued to interested
tenderers, this document consists of
✓ Detailed Specification of the Work and materials should be used.
✓ A complete set of drawings with details of various parts.
✓ General Conditions of contract and any Special Conditions.
✓ Schedule of quantities of the various items of the work and approximate quantity of
work under each item of work.
✓ The location of the work.
✓ The Name of the division in which the work is situated.
 ✓ The period of completion of work and the time and completion of each stages of work.
✓ The Amount of EMD.
✓ The name of authority that is accepting and rejecting tender.
✓ Condtions of penalty of slow progress and non fulfilment of the conditions of the
contract.

Pre-bid conference
• A supplier or contractor may request a clarification of the tender documents from the procuring
entity within a reasonable time prior to the deadline for the submission of tender. The procuring
entity shall respond within a reasonable time, so as to enable the supplier or contractor to make
a timely submission of its tender.
• At any time prior to the deadline for submission of tenders, the procuring entity may for any
reason, whether on its own initiative or as a result of a request for clarification by a supplier or
contractor, modify the tender documents by issuing addendum

Submission and opening of bids

• The procuring entity shall fix a place and a specific date and time as the deadline for the
submission of tenders.
• If the procuring entity issues a clarification/modification of the tender documents or if a meeting
of suppliers or contractors is held; it shall, prior to the deadline for the submission of tenders;
• extend the deadline, if necessary to afford suppliers or contractors reasonable time to take the
clarification or modification of the minutes of meeting into account in their tender; after
adequately publicising such modifications.
• The procuring entity may, in its absolute discretion, prior to the deadline for the submission of
tenders extend the deadline, if it is not possible for one or more suppliers or contractors to
submit their tenders by deadline owing to any circumstance beyond their control.
• Notice of any extension of the deadline shall be given promptly to each supplier or contractor
to which the procuring entity provided the tender documents
• The tender shall be submitted in writing, signed and in a sealed envelope.
• The procuring entity shall, on request, provide to the suppliers or contractors a receipt showing
the date and time when its tender was received.
• The tender received by the procuring entity after the deadline for the submission of tender, shall
not be opened and shall be returned to the suppliers or contractors that submitted it.
• On the due date and appointed time, as mentioned in the bid document, the procuring entity
will open the bids in the presence of the intending bidders or their representative. The bidder’s
name, the bid prices and discount, if any will be announced by the procuring entity during
opening of bids. A record of opening of bids will be maintained.

Evaluation of bids
• The procuring entity may ask suppliers or contractors for clarifications of their tenders in order
to assist in the examination, evaluation and comparison of tenders.
 • No change in a matter of substance in the tender, including changes in price and changes aimed
at making an unresponsive tender as responsive shall be sought, offered or permitted.
• The procuring entity shall correct purely arithmetical errors that are discovered during the
scrutiny of tender. The errors will be corrected by the procuring entity as follows.
(a) If rates in words does not tally with rates in figure then the rate which correspond to the
amount in words shall be taken as correct.
(b) If the amount of an item is not worked out by the contractor or it does not correspond with
the rates written either in figure or in words then the rate quoted by the contractor in words
shall be taken as correct.
▪ After the correction of the error as above, the procuring entity shall give prompt notice of any
such correction to the supplier or contractor that submitted the tender.
▪ If the bidder does not accept the corrected amount, the bid will be rejected and the earnest
money may be forfeited
▪ The procuring entity may regard a tender as responsive only if it conforms to all requirements
set forth in the tender documents.
▪ The procuring entity shall not accept a tender if the supplier or contractor that submitted the
tender, is not qualified and if the tender is not responsive.
▪ The procuring entity shall evaluate, prepare comparative statement of tenders and compare the
tenders that have been accepted in order to ascertain the successful tender in accordance with
the procedures and criteria set forth in the tender documents. No criteria shall be used that has
not been set forth in the tender document. The successful tender shall be the tender with the
lowest price
▪ Information relating to the examination, clarification, evaluation and comparison of tenders
shall not be disclosed to suppliers or contractors or to any other person not officially involved
in the examination, evaluation or comparison of tenders except to the extent required under law.
Letter of intent
▪ Client identifies the agency to whom the work is to be awarded and issues a letter of intent
asking the bidder
o To deposit the performance guarantee say ( 5% of award value)
o Mobilise and commence work. ( date of commencement is mentioned in LOI)
▪ Performance guarantee is released after the issue of completion certificate by the client ( if the
performance , time etc during the execution is found satisfactory.

Acceptance of Bids and Award of Work

▪ The tender rates should be reasonable considering the justified amount of the work which shall
be worked out based on market conditions and other factors pertaining to particular works.
▪ The tender that has been ascertained to be successful tender, shall be accepted. Notice of award
of work shall be given promptly to the supplier or contractor submitting the tender.
▪ The tender document may require the supplier or contractor whose tender has been accepted,
to sign the written procurement contract conforming to tender. In such cases, procuring entity
or the supplier or contractor shall sign the procurement contract within a reasonable period of
time after the letter of award is dispatched to the supplier or contractor.
 ▪ Where the tender documents stipulate that the procurement contract is subject to approval by
higher authority, the procurement contract shall not enter into force before the approval is given.
▪ A procurement contract in accordance with the terms & conditions of the accepted tender comes
into force when the notice of acceptance of tender is dispatched to the supplier or contractor
that submitted the tender.
Types of contracts
1. Lumpsum contract :
▪ In this contract, the contractor agrees to execute complete work in all respects for a specified
amount within a specified time
▪ The plan, specification and drawings are provided to the contractor but details of quantities and
schedule of items will not be given and the contractor will have to complete the work as per
plan and specification within contract period
▪ On completion of work, no measurements will be taken by the dept.
▪ The contractor is paid for the fixed amount as agreed by checking the whole work in comparing
the plan, drawing and specification
Merits :
1. Reduction in cost of construction due to competition of contractors
2. The amount to be spent is accurately known in advance
3. Contractor tries to complete the work early as it is advantageous for him
Demerits :
Difficult to make changes in plan and drawings during construction
2. Target contract :
▪ This type of contract where the contractor is paid on a cost plus percentage basis for work
performed under this contract, and in addition he receives a percentage plus or minus on savings
or excess effected against either a prior agreed estimate of total cost or target value arrived at
by measuring the work on completion and valuing at prior agreed rates
Advantage : the contractor is encouraged to use his skill and experience in keeping the cost as low as
possible. This type of contract is profitable to both contractor as well as owner.
Disadvantage : The contractor may show higher cost of construction and thus he gains more amount
even covering the penalty for excess expenditure.
3. Item rate or unit price contract :
▪ Contractor undertakes execution of work at the unit rates agreed at the time of tender.
▪ The payment is made by the detailed measurement of the work actually executed by the
contractor
Merits :
▪ Since the work is distributed as an item wise, no disputes between owner and contractor
▪ Drawings and specifications can be changes at any instant of time
▪ Finalization of bill is made by taking measurement of work done by the contractor. Hence it is
economical
Demerits :
▪ Final cost cannot be determined before completion of work
 ▪ Comprehensive and intelligent scrutiny is required
4. Cost plus percentage contract :
▪ In this contract, the contractor is paid the actual cost of building plus the fixed percentage as
his overhead expenses, service and profit
▪ The contractor procures the materials and arranges labours at his own cost keeping the proper
account and he is paid be the department or the owner the whole cost together with certain %.
Normally 10 % as his profit
Merits :
▪ No chance of dispute for carrying out any extra item required
▪ No major difference of opinion with contractor and the owner
Demerits :
▪ Final cost cannot be determined before completion of work
▪ Quality of work may be poor
▪ It is difficult to calculate actual cost incurred by the contractor. The owner has to keep a check
over labour, material cost and quality of work.
5. Labour contract
▪ Contractor undertakes only the labour portion of the work
▪ All the necessary materials are supplied to the site by department or owner and contractor
arranges his own labours and get the work dine as per the specifications
▪ The contractors is only paid for the labours only on the actual quantities of work done measured
under item rate basis
Merits :
▪ Since the materials are supplied by the department, better progress and standard quality can be
maintained
Demerits :
▪ Sometimes there may be delay in obtaining materials by the departments.
▪ Large storage area is required to store different kinds of materisla a constant guarding etc are
essential
▪ Theft from the store, shortage of materials, accounting all the materials are constant worries for
a department.
6. Negotiated contract :
• When work is awarded on contract by manual negotiation between parties without call of
tenders, it is said to be negotiated contract. In PWD, the contractors are negotiated only in
special circumstances such as
✓ To obtain reasonable rates
✓ To meet the situation arising out of emergency viz. construction of shelterss for disabled
persons, strengthening of runways for national defence in short notice etc.
7. subcontracting
▪ Subcontracting is the practice of assigning part of the obligations and tasks under a contract
to another party known as a subcontractor.
 ▪ Subcontracting is especially prevalent in areas where complex projects are the norm
▪ Subcontractors are hired by the project's general contractor, who continues to have overall
responsibility for project completion and execution within its stipulated parameters and
deadlines
▪ A subcontractor is a type of contractor who works in a specialized area and could be a
freelancer, independent contractor.
▪ While the contractor maintains relationships with clients (e.g., corporation or government),
the subcontractor works with a contractor, providing his or her specialized skill set in
exchange for a contractual fee.
▪ The subcontracting individual or company reports to the primary contractor, who is
responsible for managing the contracted work from initiation to completion.
Why subcontract?
▪ There are several reasons why subcontracting is carried out. Subcontracting is very useful
in situations where the range of required capabilities for a project is too diverse to be carried
out by a single general contractor.
▪ In such cases, subcontracting parts of the project that do not form the general contractor's
core competencies may assist in keeping costs under control and mitigate overall project
risk.
▪ self-employed individual or company who wants to run a subcontracting business must be
properly licensed in his or her home state as a limited liability company or corporation.
Performance guarantee :
• The contractor shall submit an irrevocable Performance Guarantee of 5% (Five percent) of the
tendered amount in addition to other deposits mentioned elsewhere in the contract for his proper
performance of the contract agreement, (not withstanding and/or without prejudice to any other
provisions in the contract) within period specified in Schedule ‘F’ from the date of issue of
letter of acceptance.
• This guarantee shall be in the form of Cash (in case guarantee amount is less than Rs. 10,000/-
) or Deposit /Demand Draft of any scheduled bank/.
• The Performance Guarantee shall be initially valid up to the stipulated date of completion plus
60 days beyond that.
• In case the time for completion of work gets enlarged, the contractor shall get the validity of
Performance Guarantee extended to cover such enlarged time for completion of work.
• After recording of the completion certificate for the work by the competent authority, the
performance guarantee shall be returned to the contractor , without any interest.
• However, in case of contracts involving maintenance of building and services/any other work
after construction of same building and services/other work, then 50% of Performance
Guarantee shall be retained as Security Deposit.
• The same shall be returned yearwise proportionately

Mobilization advance
• In respect of certain specialized and capital intensive works, mobilization advance normally
limited to a maximum of 10% of estimated cost of work may be allowed to contractor at the
specified rate of interest.
• The advance shall be against a Bank Guarantee of a scheduled Bank for full amount of advance.
• Recovery of such advances shall be made by deduction from contractor’s bills as specified in
the contract.
• First Installment of fifty percent of total mobilization advance shall be paid after the agreement
is signed and upon submission of performance guarantee for full amount as specified.
• 2nd installment of twenty five percent of total mobilization advance will be paid after the setting
up of site office and site laboratory, complete mobilization of plant and machinery, scaffolding
& shuttering materials etc.
• The Balance twenty five percent of total mobilization advance shall be paid on completion of
10% of work in terms of cost and after the contractor has fully mobilized the work at site.
SECURED ADVANCE
• The contractor, on signing an indenture in the form to be specified by the Engineer-in- Charge,
shall be entitled to be paid during the progress of the execution of the work up to 90% of the
assessed value of any materials which are in the opinion of the Engineer-in-Charge non-
perishable, non-fragile and non-combustible and are in accordance with the contract and are
adequately stored and/or protected against damage by weather or other causes.
• When materials on account of which an advance has been made under this sub-clause are
incorporated in the work, the amount of such advance shall be recovered/deducted from the
next payment made under any of the clause or clauses of this contract.
 • The contractor shall construct suitable go-down at the site of work for safe storage of the
materials against any possible damages due to sun, rain, dampness, fire, theft etc. at his own
cost.
• The decision of the Engineer- in-Charge shall be final and binding on the contractor in this
matter.
• No secured advance, shall however, be paid on high-risk materials such as ordinary glass, sand,
petrol, diesel etc.

Suspension of works
• The contractor shall, on receipt of the order in writing of the Engineer-incharge, suspend the
progress of the works or any part thereof for such time and in such manner as the Engineer-in-
charge may consider necessary for any of the following reasons.
i) On account of any default on part of the contractor, or
ii) For proper execution of the works or part thereof for reason other than the default of the
contractor, or
iii) For safety of the works or part thereof.
• The contractor shall, during such suspension, properly protect and secure the works to the extent
necessary and carry out the instructions given in that behalf by the Engineer-in-charge.
• If the suspension is ordered for reasons (ii) and (iii) as above.
1. The contractor shall be entitled to an extension of the time equal to the period of every such
suspension plus 25% for completion period. No adjustment in contract price will be allowed
for reasons of such suspension.
2. In the event of the Contractor treating the suspension as an abandonment of the Contract, he
shall have no claim to payment of any compensation on account of any profit or advantage
which he may have derived from the execution of the work in full.

Time for completion

• Immediately after the contract is concluded i.e. LOA / Work Order is issued, the Engineer-in-
Charge and the contractor shall agree upon a detailed time and progress chart prepared based
on BAR CHART on the basis of a construction schedule submitted by the contractor at the time
of executing contract showing the order in which the work is proposed to be carried out within
the time specified in the LOA /work order
• For the purpose of this detailed time and progress chart, the work shall be deemed to have
commenced on the expiry of 10* (ten) days from the issue of Letter of Acceptance of Tender
or 7(seven) days after handing over the site of work or handing over reasonable number of
working drawings to the contractor or the period of mobilization allowed in the work order for
starting the work in special circumstances, whichever is later.
• For Specialized Works/ High Value Works (above Rs. 5 crores), the period shall be 30
days
• If the contractor, without reasonable cause or valid reasons, commits default in
commencing the work within the aforesaid time limit, the company, without prejudice
to any other right or remedy by giving 15 day’s notice in writing to the contractor to
commence the work, failing which to forfeit the Earnest Money deposited by him and
 to rescind the Letter of Acceptance of Tender/Work Order and also to debar the
contractor to take part in the future re-tender ( debar for 12 months).
• If the contractor fails to complete the work and clear the site on or before the date of
completion or extended date of completion, he shall without prejudice to any other right
or remedy available under the law to the company on account of such breach, pay as
compensation (Liquidated Damages):
i. @ half percent (½ %) of the contract amount/Revised Contract amount
whichever is less, per week of delay.
• The aggregate of such compensation/ compensations shall not exceed:
i)10% (ten) percent of the total amount of the contract/ Revised contract
amount, whichever is less.

Bonus
• A bonus clause is a clause in a contract that rewards the contractor for doing more than
the letter of the contract; particularly, to finish the job early.
• It is in apposition to a penalty clause where the contractor loses by providing less than
the letter of the contract, or providing it later than agreed.
• The aim of a bonus clause whereby the contractor wins by getting more money for
finishing early.
• Normally, tenders shall be invited with reference to a pre-determined period of
completion of works. Provision of incentives for completion of work before schedule
should be sparingly made after careful assessment of tangible benefits therefrom and
disclosed in the tender documents in clear monetary terms

Liquidated damages
• Generally liquidated damages are agreed upon sum of money to which government or
owner entitled in the event the contractor fails to perform as directed in the contract.
• This provision explicitly states that for each calendar day the work remains
uncompleted after the final completion date stated in the contract, the contractor shall
pay certain amount to the owner.
• In case of delay in completion of the contract, liquidated damages should be levied at
a specified rate of the contract value, subject to a maximum of 10% of the contract
value.
• The penalties proposed for identified lapses must be disclosed in the tender
documents in clear monetary terms.
• Bonus:
1% of the contract value per month subject to a maximum of 5% of contract value.
• Liquidated Damages:
 For repair works costing up to Rs. 10 Lakh - 1% of the contract value per week and
for all other works 0.5% of the contract value per week of delay subject to a
maximum of 10% of contract value
Measurement and payment
• Measurement of work done shall be taken in accordance with the relevant standard method of
measurement published by the Bureau of Indian Standards (BIS) and if not covered by the
above, other relevant Standards/practices shall be followed as per instructions of the
Engineer-in-Charge.
• Measurements of all items having financial value shall be recorded in Measurement books
and/or level field books so that a complete record is obtained of all works performed under
the contract.
• Measurements shall be taken jointly by the official designated for the purpose and the
contractor.
• In case the contractor or his authorized representative does not attend to the joint
measurements at the prefixed date and time after due notice, the measurements taken by the
Engineer-in-Charge or his representative shall be final and binding on the contractor.
• If the contractor objects to any measurements, a note to that effect shall be made in the
Measurement Book / Log Book and signed and dated by both the parties.
• No work shall be covered up or put out of view without the approval by the Engineer-in-
Charge and recording of measurements and check measurement thereof duly accepted by the
contractor.
• The contractor shall provide full opportunity to the Engineer-in-Charge or his representative
to examine and measure all works to be covered up.

Payments
• Intermediate bill shall be submitted by the contractor every month for the work executed on
basis of recorded measurements.
• Running on account bill/bills for the work executed/ materials supplied in accordance with the
work order/ contract shall be prepared on the basis of detailed measurements recorded as
described and processed for payments.
• The work executed as covered by the bill/bills after deducting the amount already paid, the
security deposit and such other amounts as may be deductible or recoverable in terms of the
work order/ contract.
• Extra items of work executed will be paid on specific written authorization of GM of the
company or Staff Officer (Civil) of the Area provided that the value of such extra items of
work when added together is not more than 10% of the contract value.
• Balance amount on account of excess quantity and extra items of work executed shall be paid
after the deviation estimate / revised estimate regularizing the extra items and excess
quantities of work is sanctioned by the competent authority of the company with the
concurrence of the Finance Department of the company.
 • The payments shall be released against the final bill subject to all deductions which may be
made on account of materials supplied, water supply for construction, supply of electricity
and any other dues payable by the contractor to the company.

Variation or deviations in quantities and pricing

• Company through its Engineer-in-Charge or his representative shall, without radically
changing the original scope and nature of the work, under contract, have power to make any
alterations in or additions to or substitution of the original specifications, drawings, designs
and instructions that may appear to be necessary or advisable during the progress of the work.
• Such altered or additional or substituted work, which shall form part of the original contract,
shall be carried out by the contractor on the same terms and conditions in all respects on
which they agreed to do the main work and at the same rate/rates as are specified in the
contract/ work-order.
• If the additional, altered or substituted work includes any class of work for which rate/rates
is/are not specified in the contract/work order, rates for such items shall be determined by the
Engineer-in-Charge as follows:
a. In the case of percentage tenders, if the rate for the extra item of work executed is
available in the company's approved SOR, it will be paid at the schedule rate plus or
minus the accepted percentage as per contract. However, if the extra item is not available
in company’s approved SOR, then the rate for such extra item(s) shall be dealt as at (c)
below.
b. In case of item rate tenders, the rate for extra item shall be derived from the rate for
similar item or near similar item / class of work available in the agreement schedule of
work or by analysis of rates and the lower rate out of the above two shall be considered.
c. In the case of extra item(s) that are completely new, and are in addition to the items
contained in the contract, the contractor may within 15 days of receipt of order or
occurrence of the item(s) claim rates, supported by proper analysis. The Engineer-in-
Charge shall determine the rate(s) by analysis based on prevalent market rate of material
and labour and on standard norms of analysis of rate of CPWD / NBO.

Breach of contract
Contracts are made for being performed. But there are certain circumstances when one of the parties
does not perform his part of the contract. Non performance is called breach of contract
Types of breaches :
1. Actual breach
2. Anticipatory breach
1. Actual breach :
• On due date either of the party refuses the performance of the contract.
• Refused party is liable to pay damages to the other party.
Example : Suppose ‘A’ agrees to supply 1000 units of materials to ‘B’ at 100 Rs each. On due
date A refused to supply goods. Now ‘A’ is liable to pay damages to B. Suppose on due date
market value of the materials raises to 120 Rs/unit, ‘A’ has to pay extra 20 Rs/ unit to ‘B’. i.e.
1000X20=20000 Rs
2. Anticipated breach :
 • When a promisor refuses to perform his promise leading to an anticipatory breach of
contract he can either:
Treat the contract as canceled and file a suit against the other party for damages arising from
the breach. This suit can be filed immediately without waiting until the date of performance
specified in the contract.
OR
Choose not to cancel the contract but treat it as operative and wait until the time of
performance has passed before holding the other party responsible for the damages caused
due to non-performance. However, he will need to keep the contract alive for the benefit of all
parties involved.
Example for anticipatory breach :
Suppose ‘A’ is supposed to supply 1000 units of materials to ‘B’ at 100 RS/unit om 30th Nov.
Now on 10th oct. A refused to supply materials to B (before due date), B has two options:
1. To terminate the contract immediately : suppose on 10th oct the price of materials is 125 Rs
/ unit, A is liable to pay extra 25 Rs/unit (i.e. 25x1000=25000 Rs) to B.
2. To keep contract alive :
Case i : On 30th Nov (On due date) if price of material increases to 140 Rs/ unit, then A is liable to
pay extra 40 Rs/ unit (1000x40=40000 Rs) to B.
Case ii : On 30th Nov ( on due date) if the price of material reduces to 80 Rs/unit, the B is bound to
accept goods at 100 Rs/ unit from A.

Settlement of account or final payment :

• The final bill shall be submitted by the contractor in the same manner as specified in interim
bills within three months of physical completion of the work or within one month of the date
of the final certificate of completion furnished by the Engineer-in-Charge whichever is earlier
• No further claims shall be made by the contractor after submission of the final bill and these
shall be deemed to have been waived and extinguished.
• Payments of those items of the bill in respect of which there is no dispute and of items in
dispute, for quantities and rates as approved by Engineer-in-Charge, will be made within the
period specified, the period being reckoned from the date of receipt of the bill by the
Engineer-in-Charge or his authorized Asstt. Engineer, complete with account of materials
issued by the Department and dismantled materials.
• If the Tendered value of work is up to Rs. 45 lac : 2 months
• If the Tendered value of work is more than Rs.45 lac and up to Rs. 2.5 Crore : 3 months
• If the Tendered value of work exceeds Rs. 2.5 Crore : 6 months
• In case of delay in payment of final bills after prescribed time limit, a simple interest @ 7.5%
per annum shall be paid to the contractor from the date of expiry of prescribed time limit
which will be compounded on yearly basis, provided the final bill submitted by the contractor
found to be in order.
Escalation
• The completion period for the big project is usually long and the cost of materials and labour
becomes more day by day
• It is therefore difficult for a contractor to predict the future cost of materials at the time of
submission of his tender
• To overcome this drawback, many department provide the price escalation clause in the
tender
• Escalation clause includes basic price of the important materials such as cement, steel, wood
etc. which directly affect the cost of construction and excess amount to be paid by the owner
if the cost of materials is increased above basic price.

Delay’s and compensation

• When the work allotted for the contractor remains uncommenced or unfinished beyond the
time allowed for carrying out the work or if the progress of the work is not proportionate to
the time escaped, then contractor shall pay compensation to the owner or government an
amount equal to one percent of tender amount or such similar amount the competent authority
may decide
• The limit of compensation may be upto the full amount of security deposit (10%)

Disputes and its resolution

• Sometimes the measurement recorded by sub assistant engineer or junior engineer is not
accepted by contractor and does not countersign the measurement book, the engineer taking
the measurement should report this fact within 72 hrs to his next superior engineer in writing
• Superior engineer shall take action under clause 8A of condition of contract in writing
• Under this clause, if the contractor fails to countersign or to record the difference within a
week from the date of measurements, then measurement taken by engineer incharge shall be
final.
• It is incumbent upon the contractor to avoid litigation and disputes during execution
• If however such disputes takes place between department and owner, effort shall be first made
to settle the disputes at company level.
Effort shall be made to resolve the dispute in following stages:

• In first stage dispute shall be referred to Area GM or GM/HoD. If difference still persist
the dispute shall be referred to a committee constituted by the owner. The committee
shall have one member of the rank of Director of the company who shall be chairman of
the committee.
• If differences still persist, the settlement of the dispute shall be resolved in the following
manner:
✓ Disputes relating to the commercial contracts with Central Public Sector Enterprises /
Govt. Departments / State Public Sector Enterprises shall be referred by either party
for Arbitration to the PMA ( Permanent Machinery of Arbitration ) in the department
of Public Enterprises.
✓ In case of parties other than Govt. Agencies, the redressal of the dispute may be
sought in the Court of Law.
Contract management
✓ Contract management or contract administration is the management of contracts made
with customers, vendors, partners, or employees.
✓ The personnel involved in contract administration required to negotiate, support and manage
effective contracts are often expensive to train and retain.
✓ Contract management includes negotiating the terms and conditions in contracts and ensuring
compliance with the terms and conditions, as well as documenting and agreeing on any
changes or amendments that may arise during its implementation or execution
✓ It can be summarized as the process of systematically and efficiently managing contract
creation, execution, and analysis for the purpose of maximizing financial and operational
performance and minimizing risk.
VALUATION
Valuation is the technique of estimating or determining the current fair price or value of a property
such a building, a factory or other engineering structures of various types, land etc.

Purpose:

Definitions
• Gross income : total income or reciept from all sources without deducing outgoings
necessary for taxes, maintenance, collections charges.
• Net income : this is the saving or amount left after all outgoings, operational and
collection expenses from the gross income
net income = gross income – outgoings
• Outgoings : outgoings are the expenses which are required to be incurred to maintain
revenue of the building.
The various outgoings are :
1. taxes: municipal tax, property tax, wealth tax etc
2. Repairs:
3. Management and collection charges : An agent collects rent for big buildings . Charges
varies from 4 to 5 %. This include investigation of petty complaints and supervising
petty repairs. Does not include liftman charges, sweeper, pump attendant, electric
charges for common lights etc
 4. Sinking fund : it’s amount which has to be kept aside at fixed intervals of time (say
annually) out of gross in come so that at the end of useful life of building or property,
fund should accumulate to the initial cost of property
5. Loss of rent : the property may not be kept fully occupied in such a case, a suitable
amount from gross rent should be deducted under outgoings
6. Miscellaneous : electric charges for running lift, pump, for lighting etc.
• Scrap value : it is the value of dismantled materials. For a building when its life is over,
dismantled materials such as steel, brick, timber etc will fetch certain amount which is
scrap value of building. On rare occasions, scrap value may be zero or sometimes
negative when the cost of dismantling becomes more than scrap value.
• Salvage value : value at the end of its useful life without being dismantled. This is
generally accounted by deducting the depreciation from new cost.
• Depreciation : decrease or loss in the value of property due to structural deterioration,
use, life wear and tear, decay and obsolescence.
Comparison of scrap value and salvage value :

Scrap value Salvage value

1. Dismantled sale value of materials of 1. Estimated value of an property as a whole

property at the end of its useful life. without dismantling at the end of its useful life

2. Scrap value is counted in the calculation of 2. Ordinarily the salvage value factor in the
depreciation of property at the end of useful calculation of depreciation is omitted.
life.

3. Scrap value of an asset is merely sale of 3. Salvage value deposition may take the form
scrap. of a sale of the asset to a purchaser who will
continue to use it for the function for which it
was originally designed

• Market value : amount which can be obtained at any particular time from the open
market if property is put for sale. The market value differ from time to time depending
on the demand and supply
• Book value : Amount shown in account book after allowing necessary depreciations.
The book value of a property at a particular year is the original cost minus amount of
depreciation up to the previous year. The book value will go on reducing year to year
and at the end of utility period of the property, the book value will be only scrap value.
Comparison of book value and market value:

Market value Book value

1. The value is fixed by purchaser 1. The value is fixed by rate of depreciation

2. The value may be higher during 2. The value cannot be higher during
subsequent years due to increase in price subsequent years due to increase in price
index index

3. The value may be constant for a period 3. The value cannot be constant, rather there
is a gradual fall

4. Applicable to any type of property 4. Not applicable incase of land or metals

like steel, copper, gold etc

5. Market value is considered 5. Book value is considered for account

book of company

6.Depends on demand and supply, 6. Not variable due to its demand and
development of area supply, development of area

• obsolescence : the value of the property or structures become less by becoming out of
date in style, in structure, in design etc and this is termed as obsolescence.
• An outdated building with massive walls, arrangement of rooms not suited in
present days and for similar reasons, become obsolete even if it is maintained
very good condition and its value becomes less.
• An obsolescence may be due to as such progress in arts, changes in fashion,
changes in planning ideas etc
• Obsolescence may be
1. internal obsolescence due to
✓ Poor , odd or eccentric original design
✓ Change in kind of construction
✓ Change in utility demand
2. External obsolescence :
✓ poor original location
✓ Change in the character of district
✓ Specific detrimental influences such as due to construction of factories, stock
yard, traffic locations and noises etc
 ✓ Zoning laws.
• Annuity : is the annual periodic payments for repayments of capital amount invested
by a party.
• Capital cost : it is the total cost of construction including land, the original total
amount required to posses a property. It is the original cost and does not change
• Capitalized value : It is the sum or amount, the interest on which at highest prevailing
rate would be equal to net income of the property. To know the capitalized value of
property, it is required to know the net income from the property and the highest
prevailing rate of interest.
• Year’s purchase: it is the capital sum required to be invested iorder to get annuity of
Rs. 1 at certain rate of interest.
100 100
Year’s purchase = 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑖

• Sinking fund : the fund which is gradually accumulated by a way of periodic or

annual deposit for the replacement of building or structure at the end of its useful life
is termed as sinking fund.
Sinking fund : sinking fund is the amount that has to be set aside at fixed intervals of time (
say annually) out of the gross income so that at the end of its useful life of the building or
property, the fund should accumulate to the initial cost of the property. A building, machine,
vehicle becomes useless after certain years i.e. at the end of its useful life. Hence it is necessary
to make some provisions where by the owner can accumulate to sum a required for rebuilding
the premises or can replace the article.
The amount of annual instalment of the sinking fund may be found out by the formula :

Where
S = total amount of sinking fund to be accumulated
n = No. of years required to accumulate sinking fund
i = rate of interest in decimal (ex : 7% = 0.07)
I = annual instalment required
Depreciation :
Depreciation may be defined as the decrease or the loss in the value of a property due to
structural deterioration, use, life wear and tear, decay and obsolescence. the value of a property
or a building is gradually reduced due to its use, life, wear and tear etc and a certain percentage
of total cost may be allowed as depreciation to determine the present value.
The value of a property can be calculated after deducing the total amount of depreciation from
the original cost.
Types of depreciation:
1. Physical depreciation :
i. Wear and tear from operation
ii. Decrepitude i.e. action of time and elements.
2. Functional depreciation :
i. Inadequacy or suppression
ii. Obsolescence
3. Contingent depreciation:
i. Accidents due to negligence, elements and structural defects
ii. Diseases (parasites, pollution of water etc)
iii. Diminution of supply (natural gas, water etc)
Methods of calculating depreciation:
1. Straight line method:
In this method the property is assumed to lose value by a constant amount every year
and thus fixed amount of original cost is deducted every year, so that at the end of utility
period, only the scrap value is left.
𝐶−𝑆𝑐
Annual depreciation =
𝑛
where C = original cost
Sc = scrap value
n= life of property in years
2. Constant % method:
In this method, the property is assumed to lose its value annually at constant percentage
of its value (or book value)
𝑆𝑐
The percentage rate of annual depreciation, P =( )1/𝑛
𝐶
Where C is the original cost
Sc = scrap value
n=life of property in years
By constant percentage method, at the end of first year, the value of the property = C
(1-P), at the end of the second year = C(1-P)2 and so on
The above formula does not hold good when Scrap value Sc= 0
3. Sinking fund method:
In this method, the depreciation of the property is assumed to be equal to annual sinking
fund plus + interest on the fund that year.
𝑖
Annual sinking fund to provide for Re 1/- in ‘n’ years = (1+𝑖)𝑛−1 = x say
(1+𝑖 𝑛 )−1
An amount of Rs 1/- per annum in years = = 𝑦 𝑠𝑎𝑦
𝑖
Therefore rate of depreciation in years in “n” years = x+y %
I = rate of interest expressed in decimal.
4. Quantity survey method :
In this method, the property is studied in detail and loss of value (1 + 𝑖)due to life ,
wear and tear and decay, obsolescence etc worked out. Only experienced valuer can
workout amount of depreciation and present value of a property by this method.
 Difference between depreciation and obsolescence :

Valuation of building :
• Valuation of building depends on type of building its structure, durability, size,
shape, width, width of roadways, quality of materials used in construction etc.
• A building located in market area will have higher value than similar building
in residential area.
• The building area having sewer, water supply and electricity will have high
valuation
• The valuation of building is determined by working out its cost of construction
at present day rate and allowing suitable depreciation.
• Before valuation, the age of building should be obtained from record or by
enquiries from visual inspection and its future life should be ascertained.
The following are the methods of valuation :
1. Rental method valuation
2. Direct comparison with capital value
3. Valuation based on profit
4. Valuation based on cost
5. Development method of valuation
Factors which affect value of property:
1. forces of demand and supply : few buyers as compared to a number of number of
properties available in a locality will result in lowprices for the property and vice versa
2. rise in population : rise in population due to growth of new industries will result in
heavy demand for land, building and properties
3. cost of construction : the present cost of construction affects the value due to rapid
change of price index in comparison with rate of depreciation
4. rent control act : the value of a property is calculated from its probable income through
rent. But rental value of a tenanted property in areas subjected to rent control act may
not reflect the value of similar property unencumbered by rents as rents are artificially
freezed while price of land, labour and building materials have been increasing
continuously, this may cause slump in property values.
5. the imposition of control of prices of building materials : this will cause violent
fluctuations in prices of building materials and the values of buildings may vary by an
appreciable amount from time to time
6. improvement of public schemes: the taking up of any public service scheme, like sewer
line, waterlines, means of transport etc to an area lacking in modern amenities will tend
to make the area more attractive and will be closely followed by an increase in land
values
7. interest on schedule banks or government securities : by lowering the schedule bank
interest or the government security, higher may be money available for investment in
property and vise-versa
 8. abnormal condition: due to increase in conditions like riots, war trend etc. value may
drop and remain so for a considerable period.
Mortgage :

Fixation of standard rent :

Cost :
• Cost means the original cost of construction and can be known after accounting all day
to day expenditure from the very planning stage till the construction is completed
• The cost of an old building becomes less due to its age and changes in fashion
• For valuation, cost of old building is worked out from the present cost of construction
of such a new building less the calculated amount of loss of building due to wear and
tear.
• But infact the cost may not be the actual cost of construction for such type of new
building.
• This is an estimate prepared by calculating quantities of various items from the
measurement of existing old building and multiplied by the present unit cost of item
concerned.
• From the estimated cost, a calculated amount is deducted according to the age of
building.
Difference between cost and value:

Freehold and lease hold properties:

Free hold property:
• A freehold property is an absolute possession of its owner or freeholder for a period of
infinite duration who has right to use the property at his free will subject to the law of
land
• The freeholder independently the owner of the property, he holds it without any
payment in the nature of rent.
• He may sell the property, divide it, develop it, donate it or grant it on lease at his sweet
will.
• Being a “legal estate”, a freehold can only be transferred on the execution of deed.
• The freeholder instead of occupying the property himself, grants or lets the exclusive
possession of the premises to another for a certain period, in the consideration of
payment of rent under a “lease” or “tenancy”.
• Like freehold conveyance, a lease must be granted by deed, that is a payment bearing
seal as well as a signature.
• The owner or freeholder who grants lease is called “lessor” and the tenant or the lease
holder is known as “lesse”
• The duration of letting lesse may be for a quite short period, yearly or 3 years. But
occupation leases for terms like 15 years, 21, 25 or 50 years are common in practice
• When a lease is granted for a period of 99 years, its called, long term lease and when it
is 999 years it is said to be perpetuity or for endless duration.
• At the expiry of the lease, the lessor gets back absolute possession of the property.
A lease hold property:
• The leaseholder is known as lessee and holds physical possession of the property for a
definite period under terms and conditions specified in the lease document.
• The lessee pays the annual rent to the lessor and observes the content in the lease.
• The different types of lease are:
o Building lease
o Occupation lease
o Sub-lease
o Life lease
o Perpetual lease
 o Building lease :

o Occupational lease :

o Sublease :
A leaseholder may render subbase of his leasehold property to the persons subject to terms
and conditions in the original lease and allowed by the local regulations or court of law. In
this case, the original leaseholder is named as “assignment of lease” and the sublease holder
is called “sublease”
o Life lease :
when the duration of the property is given until death of a person or persons this is called
life lease
o Perpetual lease:
when the lease of a property is given for number of years providing the condition that lease
is renewed time to time ( renewed after the agreement period is over), even for endless time
according to the desire of the lease holder such type of lease is called perpetual lease.
Valuation of land:
Valuation of open land may be done by any of the three methods as and where applicable.
a. Comparative method
b. Belting method
c. Hypothetical building schemes
a. Comparative method : the simplest and most direct method of valuation is direct
comparison. The method is based on instances of other sales with dates of open
comparative like lands in the neighbourhood. So there are two main factors based on
which this method is based
• Sale prices : sale prices should be recent so that there is no rise in value of land during
intervening period of comparison
• This method is based on based on comparison of like to like. Properties may be similar
but each property is unique so that they can never be like. However the value of
particular plot by analysing the following factors:
i. Situation : value of land which is situated in the business and commercial locality
will be higher than lands which can be only used for residential purposes. Land near
closeness to schools will have higher value than slum areas due to existence of
bustees, factories, burning ghat etc.. The comparative value of land may be adjusted
by comparing expected rent per sq m for such variation of locations
b. Belting method of valuation :
c. Hypothetical building schemes :