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

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.

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”.

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.

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

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).

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

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)

WHAT IS A CONTRACT? (Contd.)

A contract is an agreement, usually between two

parties, that is enforceable by law.

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.

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

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

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

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.

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

STAGES OF CONTRACT MANAGEMENT

A. PRE-REQUISITION OF INVITATION TO BID

B. FORMULATION OF BIDDING DOCUMENTS

C. BIDDING / EVALUATION / AWARD

D. CONTRACT ADMINISTRATION

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

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

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.

Stages of Contract Management (Contd.)

C. BIDDING / EVALUATION

C-1.

Bidding

– Bidding Process

– LCB (Local Competitive Bidding)/ICB

Bidding

Stages of Contract Management (Contd.)

C-2.

Evaluation

– Bid Opening

– Preliminary Evaluation

– Detailed Evaluation

– Procedure for Preference

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

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).

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

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.

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

BID EVALUATION (Contd.)

C-2.2

PRELIMINARY EXAMINATION

OF ALL BIDS

ELIGIBILITY & QUALIFICATION

ARITHMETIC CHECK

CURRENCY PROPORTION

ADJUSTMENT ON ACCOUNT OF FOREIGN

COMPONENT?

BID EVALUATION (Contd.)

GENERAL CONFORMITY OF:

Legal & Contractual Evaluation

Cost & Financial Evaluation

Technical Evaluation

Deviations: Major/Minor

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)

Legal & Contractual Evaluation

– Evaluation for Responsiveness

– Evaluation of legal & Contractual

Aspects

– Comparison with Pre-qualification

Status

Cost & Financial Evaluation

– Correction of Errors

– Adjustment of Foreign Currency Components

– Interest Rate for Delayed Payments

– Price Adjustments

– Evaluated Bid Price

– Balanced Bid

Technical Evaluation

• Program of Work

• Key Personnel

• Mobilization

• Method of Construction

• Equipment

• Dewatering

• Sub-Contractors

• Materials

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

CONTRACT ADMINISTRATION

• Award of Contract

• Signing of Contract

• Mobilization

• Contractual Provisions Enforcement

• Important Contract Clauses

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”).

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.

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

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

IMPORTANT CONTRACT CLAUSES

1. Extensions of time

2. Variation Orders

3. Certificates:

4. Escalation

5. Dispute Resolution

6. Termination of Contract

TYPES OF PROCUREMENT

1. FOR CIVIL ENGINEERING WORKS

SMALL SIZED CONTRACTS

• BID ON PERCENTAGE RATE

BASIS UPTO Rs. 25 M (LCB)

(OPEN TO REGISTERED

CONTRACTORS)

TYPES OF PROCUREMENT(Contd.)

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

TYPES OF PROCUREMENT(Contd.)

2 FOR ELECTRICAL & MECHANICAL WORKS

A GOODS/EQUIPMENT SUPPLY CONTRACTS

• OPEN TO REGISTERED, ENLISTED &

PRE-QUALFIED MANUFACTURES/

SUPPLIERS(LCB/ICB)

EQUIPMENT ERECTION CONTRACTS

• ON PRE-QUALIFICATION BASIS

(LCB/ICB)

EQUIPMENT SUPPLY & ERECTION

CONTRACTS

• ON PRE-QUALIFICATION BASIS

(LCB/ICB)

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

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.”

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)

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)

Thank You

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