You are on page 1of 43

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.

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 ones 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.
Contractors 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
owners general needs and performance specifications.
The owners 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 publicprivate partnership (PPP) project model in which
a private organization conducts a large
development project under contract to a publicsector 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 privatesector 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 ProcessPreparation 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%

THANK YOU