Introduction to Contract Management - Pakistan Engineering Council

IN THE NAME OF ALLAH, THE
BENEFICENT, THE MERCIFUL

INTRODUCTION TO CONTRACT
MANAGEMENT
A/Prof. Dr. Rafiq Muhammad Choudhry
BSc(Civil-Honor), MSc(CEM), PhD(CEM), Post-Doctorate(CEM), MIE(Pak), PE
Email: rafiq.choudhry-scee@nust.edu.pk or choudhry03@gmail.com Cell: 03345180723
Head, Department of Construction Engineering and Management
School of Civil and Environmental Engineering (SCEE)
National University of Sciences and Technology (NUST)
Sector H-12, Islamabad
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INTRODUCTION
A contract is a formalized means of communication
between parties.
Is used very commonly by owner and the contractor
to control the delivery of their projects.
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INTRODUCTION
In law a ‘contract’ can be defined:
“A valid contract is an agreement made between two
or more parties whereby legal rights and obligations
are created which the law will enforce”.
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NAME GIVEN TO A CONTRACT
The name given to a contract may be some indication of
what the contract is about. Sometimes contracts are named
after the nature of the work, for example:
residential building
civil engineering
air-conditioning
maintenance
management
design and construct.
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NAME GIVEN TO A CONTRACT
Sometimes contracts are named after the nature of the
payment, for example:
lump sum
schedule of rates
cost-plus fixed fee
cost-plus percentage fee
Cost-plus fluchating fee
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NAME GIVEN TO A CONTRACT
Sometimes contracts are named after the nature of the
contractual relationship, for example:
Consultant agreement
Supply contract
Leasing contract
Subcontract
Concession contract (BOT — build, operate and transfer).
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NAME GIVEN TO A CONTRACT
Sometimes the name itself conveys about the work, the
contractual relationship or the general conditions, for
example:
guaranteed maximum price contract
negotiated contract
management contract
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NAME GIVEN TO A CONTRACT
Sometimes contracts are given the name used by the
publisher of the standard form of general conditions
incorporated in the contract, for example:
ICE Conditions (published by the Institution of Civil Engineers,
UK)
AIA (published by the American Institute of Architects).
AGC (published by The Associated General Contractors)
EJCDC (Engineers Joint Contract Documents Committee)
FIDIC (Federation Internationale Des Ingenieurs-Conseils or the
International Federation of Consulting Engineers)
PEC (Pakistan Engineering Council)
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WHAT IS A CONTRACT? (Contd.)
A contract is an agreement, usually between two
parties, that is enforceable by law.
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ELEMENTS OF A CONTRACT
In order to be valid, all contracts must meet certain
criteria, which include:
1. OFFER
2. ACCEPTANCE
3. MEETING OF MINDS
4. CONSIDERATION
5. LAWFUL SUBJECT MATTERSHIP
6. COMPETENT PARTIES/LEGAL RELATIONSHIP
1. OFFER- (must be definite)
An offer may be defined as a clear and unambiguous
statement of the terms upon which the offered is willing to
contract should the party to whom the offer is addressed
decide to accept.
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ELEMENTS OF A CONTRACT (Contd.)
2. ACCEPTANCE- (must be unconditional)
Acceptance may be defined as a final and clear
expression of agreement to the terms of an offer.
To bind the offered the acceptance must be
communicated
3. MEETING OF MINDS
Agree on basic meaning and legal implications
Misrepresentation of facts
No Fraud
No Duress
Should not be one-sided
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ELEMENTS OF A CONTRACT (Contd.)
4. CONSIDERATION
Primary reason or main cause to enter a contract
Something of Value received in exchange for another
item or action that is of value
5. LAWFUL SUBJECT MATTER
Subject matter cannot violate any fundamental dictates of
common law
Cannot be contrary to public policy
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ELEMENTS OF A CONTRACT (Contd.)
6. COMPETENT PARTIES/LEGAL
RELATIONSHIP
Parties must have legal capacity to contract
Excluded are: infant, minor, not mentally competent
Signed by incompetent, the contract can be nullified
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CONTRACT AGREEMENT
A construction contract agreement is designed
to formalize the contract. It brings together all
the other contract documents by reference to
them and is legal instrument verifying the
contract.
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A NORMAL SET OF BIDDING DOCUMENTS
1. INSTRUCTIONS TO BIDDERS
2. BIDDING DATA
3. CONDITIONS OF CONTRACT (GENERAL PART-I
& PARTICULAR PART-II)
4. FORMS OF BID & APPENDICES
5. SPECIFICATIONS ( SPECIAL & TECHNICAL
PROVISIONS
6. BILLS OF QUANTITIES OR SCHEDULES OF
PRICES
7. FORM OF BID SECURITY, CONTRACT
AGREEMENT, PERFORMANCE SECURITY
8. DRAWINGS
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STAGES OF CONTRACT MANAGEMENT
A. PRE-REQUISITION OF INVITATION TO BID
B. FORMULATION OF BIDDING DOCUMENTS
C. BIDDING / EVALUATION / AWARD
D. CONTRACT ADMINISTRATION
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STAGES OF CONTRACT MANAGEMENT (Contd.)
A - PRE-REQUISITION FOR INVITATION TO BID
A-1. COMPLETION OF FEASIBILITY STUDIES
TECHNICAL FEASIBILITY
ECONOMIC VIABILITY
ENVIRONMENTAL IMPACT ASSESSMENT(EIA)
A-2. DETAILED ENGINEERING DESIGN
DESIGN OF PROJECT COMPONENTS
FINALIZATION OF TECHNICAL REPORTS
SPECIFICATIONS
COMPUTATION OF QUANTITIES
FORMULATION OF ENGINEER’S ESTIMATE
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STAGES OF CONTRACT MANAGEMENT
(Contd.)
A-3. ADMINISTRATIVE APPROVAL
PREPARATION OF PC-1 PROFORMA
APPROVAL BY THE GOVERNMENT
A-4. ARRANGEMENT OF FINANCES
LOCAL & FOREIGN EXCHANG COMPONENTS
A-5. LAND ACQUISTION
A-6. PREQUALIFICATION OF CONTRACTORS
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STAGES OF CONTRACT MANAGEMENT (Contd.)
B. FORMULATION OF BIDDING DOCUMENTS
a. Specifications
b. Design Calculation and Analysis (Design)
c. Tender Drawings
d. Estimation of Quantities
e. Decision About Specific Provisions
f. Decision About format-e.g. ADB/IDA
(International Donor Agency)
g. Conditions of Contract - Part 1 & II.
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Stages of Contract Management (Contd.)
C. BIDDING / EVALUATION
C-1.
Bidding
– Bidding Process
– LCB (Local Competitive Bidding)/ICB
Bidding
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Stages of Contract Management (Contd.)
C-2.
Evaluation
– Bid Opening
– Preliminary Evaluation
– Detailed Evaluation
– Procedure for Preference
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C-1. Why Bidding?
Bidding provides
Straight forward purchasing or hiring procedure
• Objectives of works clear at the time of beginning
• Needs are established and clear
• Time and cost saving may be taken
• Every one offering his optimum price
• Healthy competition
• Quality assurance
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Bidding Process
• Type of Bid (Public Bid/Public Bid with
Pre-qualification / Bid by Invitation)
• Advertisement
• Pre-qualification documents
• Invitation to Bidders
• Purchase of Bid Documents
• Pre-bid meetings and joint site visits
• Amendments to Bid Documents through Bid
questions (Addenda).
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Bidding Process (Contd.)
• Bid Bond/Bid Security
• Bid Opening
• Bid Evaluation
• Award of Contract (by invitation to contract
negotiations)
• Performance Bond
• Signing of Contract Agreement
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BID SECURITY
• Amount of security shall be in form of Cash
Deposit, Certified Cheque, Bank Draft, Letter of
Credit, Guarantee from a Scheduled Bank in
Pakistan or Foreign Bank Acceptable to the Client.
• If Bid is not accompanied by an acceptable Bid bond
(1-3% of Estimated Cost, whereas 3% for smaller
Contracts). It will be rejected being non-responsive
and having major deviation.
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C-2 BID EVALUATION
C-2.1
AT BID OPENING
– IS BID SECURITY ACCOMPANIED WITH
THE BID?
– IS BID SIGNED, STAMPED &
ACCOMPANIED BY?
• POWER OF ATTORNEY
• JOINT VENTURE AGREEMENT
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BID EVALUATION (Contd.)
C-2.2
PRELIMINARY EXAMINATION
OF ALL BIDS
ELIGIBILITY & QUALIFICATION
ARITHMETIC CHECK
CURRENCY PROPORTION
ADJUSTMENT ON ACCOUNT OF FOREIGN
COMPONENT?
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BID EVALUATION (Contd.)
GENERAL CONFORMITY OF:
Legal & Contractual Evaluation
Cost & Financial Evaluation
Technical Evaluation
Deviations: Major/Minor
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BID EVALUATION (Contd.)
C-3. Detailed Evaluation of Substantially
Responsive Bid only
Detailed Scrutiny of Minor Deviations:
LEGAL & CONTRACTUAL ASPECTS
TECHNICAL ASPECTS
COST & FINANCIAL EVALUATION
Clarifications (If Required)
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Legal & Contractual Evaluation
– Evaluation for Responsiveness
– Evaluation of legal & Contractual
Aspects
– Comparison with Pre-qualification
Status
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Cost & Financial Evaluation
– Correction of Errors
– Adjustment of Foreign Currency Components
– Interest Rate for Delayed Payments
– Price Adjustments
– Evaluated Bid Price
– Balanced Bid
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Technical Evaluation
• Program of Work
• Key Personnel
• Mobilization
• Method of Construction
• Equipment
• Dewatering
• Sub-Contractors
• Materials
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BID EVALUATION (Contd.)
CONFORMING TO ALL BID CONDITIONS & NO
MAJOR DEVIATION OF:
PRICE, SCOPE, QUALITY & PERFORMANCE
DO NOT LIMITS CLIENT’S RIGHT OR
BIDDER’S OBLIGATIONS
ISSUANCE OF LETTER OF ACCEPTANCE (LOA)
PERFORMANCE SECURITY
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D
CONTRACT ADMINISTRATION
• Award of Contract
• Signing of Contract
• Mobilization
• Contractual Provisions Enforcement
• Important Contract Clauses
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NOTIFICATION OF AWARD AND
SIGNING OF AGREEMENT
The Bidder whose bid has been accepted shall be
notified of the award by the Employer prior to
expiration of the Bid validity period in writing.
This letter (hereinafter called the “Letter of
Acceptance”) shall state the sum that the
Employer shall pay the Contractor in
consideration of the execution, completion, and
maintenance of the Works by the Contractor as
prescribed by the Contract (called the “Contract
Price”).
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NOTIFICATION OF AWARD AND
SIGNING OF AGREEMENT (Contd.)
Letter of Acceptance shall constitute the
formation of the Contract, subject to
furnishing the Performance Security and
signing of the Agreement by the Bidder.
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CONTRACTUAL PROVISIONS
ENFORCEMENT
• Programme to be Submitted (Clause 14)
Within 42 Days
Revised after every Three Months
• Performance Security (Clause 10)
Within 28 Days after the Receipt of LOA
10 % of Contract Price
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CONTRACTUAL PROVISIONS
ENFORCEMENT (Contd.)
Priority of Contract Documents
1. The Contract Agreement
2. The Letter of Acceptance
3. The completed Form of Bid
4. Special Stipulations (Appendix A to Bid)
5. The Conditions of Contract Part II
6. The Conditions of Contract Part I
7. The Bill of Quantities (Appendix D to Bid)
8. The Appendices to Bid (B-Foreign Currency, C-Price Adjustment, E-
Schedule, F-Method, G-Equipment, H-Camp, I-Subcontractor, J-
Payments, K-Organization, L-Integrity)
9. The Drawings
10. The Specifications
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IMPORTANT CONTRACT CLAUSES
1. Extensions of time
2. Variation Orders
3. Certificates:
4. Escalation
5. Dispute Resolution
6. Termination of Contract
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TYPES OF PROCUREMENT
1. FOR CIVIL ENGINEERING WORKS
A
SMALL SIZED CONTRACTS
• BID ON PERCENTAGE RATE
BASIS UPTO Rs. 25 M (LCB)
(OPEN TO REGISTERED
CONTRACTORS)
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TYPES OF PROCUREMENT(Contd.)
B
C
LARGE SIZED CONTRACTS
• BIDDING ON ITEM RATE BASIS Rs. 25-400 M
(ICB)
(OPEN TO PRE-QUALIFIED CONTRACTORS)
EXTRA LARGE/COMPLEX CONTRACTS
• MORE THAN Rs. 400 M (ICB)
• SPECIFICALLY DRAFTED ON WORK TO WORK
BASIS OPEN TO PRE-QUALIFIED CONTRACTORS
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TYPES OF PROCUREMENT(Contd.)
2 FOR ELECTRICAL & MECHANICAL WORKS
A GOODS/EQUIPMENT SUPPLY CONTRACTS
• OPEN TO REGISTERED, ENLISTED &
PRE-QUALFIED MANUFACTURES/
SUPPLIERS(LCB/ICB)
B
EQUIPMENT ERECTION CONTRACTS
• ON PRE-QUALIFICATION BASIS
(LCB/ICB)
C
EQUIPMENT SUPPLY & ERECTION
CONTRACTS
• ON PRE-QUALIFICATION BASIS
(LCB/ICB)
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TYPES OF PROCUREMENT(Contd.)
3. TURN-KEY CONTRACTS (LCB/ICB)
Engineering, Procurement and Construction (EPC);
SURVEY, DESIGN, MANUFACTURE,
SUPPLY, ERECTION, TESTING &
COMMISSIONING CONTRACTS
(ON PRE-QUALIFICATION BASIS)
4. CONSULTANCY SERVICES
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Use of PEC’s Bidding Documents
Standard Form of Bidding Documents has been
approved by ECNEC in its meeting on 12
November 2007. The document has been notified
by Planning Commission, Government of Pakistan
vide Notification No. 8(60)WR/PC/2008 dated 12 th
February 2008.
“It is mandatory for all engineering organizations
and departments at Federal and Provincial level
and district government to use the document for
procurement of civil works funded locally and/or
through donor agencies.”
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PEC Bidding Documents
• Standard Form of Bidding Documents (Civil Works)
(to be used for estimated value of more than Rs. 25 Millions)
• Standard Form of Bidding Documents for Procurement of
Works (E&M)
(to be used for estimated value of more than Rs. 25 Millions)
• Standard Form of Bidding Documents for Procurement of
Works
(For Smaller Contracts)
(to be used for all type of procurement for estimated value of not more
than Rs. 25 Millions)
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PEC Bidding Documents
• Standard Form of Contract for Engineering Consultancy
Services
(For Large Projects) – Time Based Assignments
(to be used for consultancy fee over Rs. 2 Millions)
• Standard Form of Contract for Engineering Consultancy
Services
(For Large Projects) – Lump Sum Assignments
(to be used for consultancy fee over Rs. 2 Millions)
• Standard Form of Contract For Engineering Consultancy
Services
(For Smaller Projects)
(to be used for consultancy fee not more than Rs. 2 Millions)
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Thank You