TENDERING BIDDING AND CONTRACTING Contract:

An agreement enforceable by law is contract. (Section 2 (h) of Indian Contract Act) Contract means a written undertaking for execution of works or supply of materials or for the performance of any service connected therewith duly accepted and registered by the competent authority The contract invariably follows a proposal from one party and its acceptance by the other In absence of any of the above elements of a contract it becomes void, i.e., without a legal effect or voidable An agreement not enforceable by law is said to be void Contractors and their qualifications Contractors mean Private individuals, Partnership firm, Public or Private Limited concerns who have made such an undertaking for the execution of works, supply of materials, or for services concerned They should have an engineering organization to deal with works entrusted to them They must possess valid licenses in the respective fields Expected to have the machinery and equipment required for the job the professional ability to understand and implement the contractual obligations and subsidiary instructions given by the engineer-in-charge of the department their financial resources their capacity to control labour, particularly by way of regular payment of fair wages and observance of Labour Regulations their zeal for maintaining reputation and integrity Essentials of Contracts That the contract shall be made by parties competent to contract That the contract shall be made by free consent of the parties That there shall be a definite proposal and its acceptance That the contract shall be made so that the considerations and objects are lawful That the meaning shall be certain Contract Documents A typical contract may include the following documents 1. Tender notice 2. General instructions and directions for the use of contractors 3. Form of contract 4. Conditions of contract 5. List of materials, if any, agreed to be supplied to the contractor by the owner, and the conditions of supply 6. Bill of quantities 7. Specifications- General and Particular 8. Drawings

Types of Contract Basically building and engineering contracts can be divided into the following groups 1. Contract between an owner and a contractor 2. Contract between a contractor and a sub-contractor 3. Engineers or Architectures contract (with the owner) for engineering and architecture services Types of Engineering Contracts A) Traditional contracts 1. Item rate contract 2. Percentage rate contract 3. Lump-sum contract 4. Labour contract 5. Materials supply contract 6. Piece work agreement 7. Cost plus percentage rate contract 8. Cost plus fixed fee contract 9. Cost plus sliding or fluctuating-fee scale contract 10. Target contract 11. Measured contract or Schedule contract 12. Negotiated contract 13. Rate contract B) Non-Traditional contracts 1. Turn-key or combined Engineering and Construction contracts 2. Concession contracts (BOOT projects) Lesson 1: Tender as a basis for creating contract, contents detailing complexity of work, quality, technical and commercial conditions. Tender: Calling for proposals from prospective tenderers in the specified tender form. The process involves: Deciding scope, details of work, preparation and issue of tender notice Detailing complexity of work: Schedule of work, Bill of quantities Instructions to tenderers, Notes General Conditions Special conditions, Commercial terms Technical specifications Drawings Technology and equipment Arrangements for import licenses, foreign exchange and other assistance for land acquisition Lesson 2: Tender structure for different types of contracts item rate lump sum, plant design build EPC turn key Types of contracts:

Lump sum contracts Measurable Item rate contracts Cost plus percentage contracts Cost plus fixed fee contracts Maximum price contracts Incentive contracts Design and build contracts EPC turn key contracts Partnering

Traditional lump sum: Client appoints architect, contracts builder Architect as project team leader for design management, documentation and appointment of consultants Open, selective or negotiated tendering, schedule of quantities or cost plus In a lump sum contract, the owner has essentially assigned all the risk to the contractor, who in turn can be expected to ask for a higher markup in order to take care of unforeseen contingencies. Beside the fixed lump sum price, other commitments are often made by the contractor in the form of submittals such as a specific schedule, the management reporting system or a quality control program. If the actual cost of the project is underestimated, the underestimated cost will reduce the contractor's profit by that amount. An overestimate has an opposite effect, but may reduce the chance of being a low bidder for the project. Traditional lump sum: Advantages: Client involvement in design process limited Standard forms are time tested for disputes/ arbitration Drawings/ specifications basis for tendering Provision for variations, can be controlled if designed properly initially Cost control through priced bill of quantities Disadvantages: Significant risk with client Ignores benefits of integration of contractors expertise Design and construction are end on Due to time pressure errors/ omissions possible Not suitable for large/ complex projects Precludes innovation, tendency to accept lowest bids Nontraditional Design and build: Builder is project leader for project delivery Client and builder in direct contract relationship All risks with contractor Builder appoints and manages consultants Selective or negotiated based on performance brief Single point of responsibility Builder accepts major portion of risk Builder can control design process and accelerate to be more cost effective Nontraditional Design and build- Disadvantages: Cost pressures on builders side can lead to shortcuts in design Promotes cheapest capital cost options which could have ramifications on cost and durability Client may need to retain independent consultant to monitor the design

To change contractors in the event of non performance difficult

Nontraditional Turnkey: Builder is lead for project delivery Client contracts builder for funding, site procurement and construction Builder appoints and manages consultants to deliver within terms of project brief Selective or negotiated contract Builder subcontracts to principal participants and assign the risks to the party best suitable to control the risks Nontraditional BOT Builder is the lead for project delivery Client contracts builder for funding, site procurement , construction and operation of facility for a contracted period of time Builder appoints SPV to deliver the project Selective in single/ two stage tender Contract price strategies: Cost plus: Client pays the contractor the cost incurred plus a fees. It lacks competition. This is better suited for strategic alliances Public private partnerships: Private sector construction of infrastructure owned and operated by Government Private sector design and construction of infrastructure with maintenance obligation Equity joint venture between private sector and Government for the delivery of infrastructure. The government contributes the land as its equity. The private sector arranges the finance and constructs. After completion the profit is split in proportion of the equities Unit Price Contract In a unit price contract, the risk of inaccurate estimation of uncertain quantities for some key tasks has been removed from the contractor. However, some contractors may submit an "unbalanced bid" when it discovers large discrepancies between its estimates and the owner's estimates of these quantities. Depending on the confidence of the contractor on its own estimates and its propensity on risk, a contractor can slightly raise the unit prices on the underestimated tasks while lowering the unit prices on other tasks. If the contractor is correct in its assessment, it can increase its profit substantially since the payment is made on the actual quantities of tasks; and if the reverse is true, it can lose on this basis. Furthermore, the owner may disqualify a contractor if the bid appears to be heavily unbalanced. To the extent that an underestimate or overestimate is caused by changes in the quantities of work, neither error will effect the contractor's profit beyond the markup in the unit prices.