procurement/contract management

Procurement/Contract Management

Er. Hari Prasad Dhakal

8 August 2021

Public Procurement Act 2063 and Public

Procurement Regulation 2064

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Public Procurement

Public Procurement is acquisition of Goods, Works, Services and other services by the Public Entity using

public funds.

Public Procurement

Public Procurement is a comprehensive process stretching from need

identification, procurement planning, cost estimation, pre-bid preparation, bid invitation, bid evaluation, contract award and its execution, reporting and

auditing.

Principles of Public Procurement

Achieving transparency in the process and decisions

Obtaining value for money

Promoting competition

Providing equal access without discrimination

Accountability of officials

Reduce corruption and leakage of public funds

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Steps in Procurement Management

• Prepare Preliminary Design and Cost Estimate• Prepare Final Design and Cost Estimate• Prepare Pre-qualification Document, if needed• Prepare Bidding Documents• Issue Bidding Documents• Evaluate Bids and Select Lowest Evaluated

Substantially Responsive Bidder• Award Contract• Get Line of Credit• Get Performance Security• Sign Contract

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Need to clearly state •What we want•How we want For fair competition•Requirements to be in the game•Rules of game•How we finalize a deal

We need to get something …..

We have required fund We go out in the market and lookWe compare the available OFFERs

We make a DealWe pay (in some modalities)We get the thing we needWe use that thing

Is it a Procurement ...???

YESSSS… !!!!!(but not a Public Procurement)

For a Public Procurement

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Public Procurement ProcessWorks

Design / Drawing / Estimate /

BoQ / Specs etc

Procurement Act / Regulation

Need to clearly state

• What we want

• How we want

For fair competition

• Requirements to be in the

game

• Rules of game

• How we finalize a deal

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Bidding Document

Invitation

Receive /

Opening

Design / Drawing / Estimate /

BoQ / Specs etc.

Procurement Act / Regulation

(Standard Docs)

Request / Plan / Approval

Bidding

Phase

Pre-Bidding Phase


Document Viewing/ Document

Buying/Filling/Submission

As per issued Bidding

Documents

Substantially responsive,

lowest, qualified

Evaluation Phase

Letter of Intent /

Award / Agreement

Implementation and Contract Management Phase

Progress Monitoring / Payments /

Claims, Disputes / Completion

Bidding

Phase Invitation

Receive /

Opening


Bid Opening

The Bid Opening is a critical event in the bidding process. Experienced staff are to be appointed to

conduct the Bid Opening, as inappropriate procedures at Bid Opening are usually

irreversible and may lead to cancellation of the bidding process with consequent delays and waste

of resources.

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Method Of Procurement (Goods, Works and Other Services)

Open Bid through National Competitive Bidding (NCB)

Open Bid through International Competitive Bidding (ICB)

Two Stage Bidding Sealed Quotation Single Sourcing User’s Committee Or Beneficiary Committee

Approach (Works) Force Account (Works) Lump Sum Rate Catalogue Shopping Limited Tendering Buy-Back Method

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Method of Procurement (Consulting Services)

Quality and Cost Based Selection (QCBS),

Quality Based Selection (QBS),

Fixed Budget Selection (FBS),

Least Cost Selection (LCS),

Consultants Qualification Selection (CQS)

Direct Selection/Single Source Selection

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Donor guidelines e.g., WB, ADB, JICA and other guidelines may be used, if specified in the Financing

Agreement

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Example:Excerpt from Schedule 4 Execution of Project; Financial Matters: Loan Agreement of Urban Water Supply and Sanitation [Sector] Project Loan No. 3711- (NEP)

Contract

• Contract is an business agreement between two parties which is recognized by law i.e. legally enforceable

A contract is an agreement between two parties, one called the contracting party or Owner/Employer and the other the contracted party or the Contractor to perform a previously determined scope of work for a previously determined amount of money.

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Essentials of Valid Contract

• There must be an offer by one party and an acceptance by the other or others,

Each party must contribute something of value: a owner is responsible for making payments and the contractor must complete the construction.

Each party must have the legal capacity to make a contract

The parties must have exercised their own free will, without force or coercion/pressure.

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Contract Management

Contract Management:

• is process that enables parties to a contract to meet their obligations in order to deliver the objectives of the contract.

• involves building a good working relationship between the contracting parties

• continues throughout the life of a contract and involves managing proactively to anticipate and respond to contract needs.

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Contract Management

The Importance of Contract management is to ensure:

• All the stakeholders are well informed regarding their contractual responsibilities and obligations.

• The contract performance is satisfactory and services are provided to the required standard within the agreed time frame and cost

• The Employer’ s interests are protected and its obligations are met;

• The contractual obligations of the Contractor are met;

• The contract milestones are achieved;

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Contract Management

The Importance of Contract management is to ensure:

• Key contract deliverables are received;

• Contract related processes are completed;

• Any variations, claims, issues, disputes, and any additional funding requirements are managed.

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Contract Management

Stage 1: Construction Phase

Stage 2: Defects Liability/Notification Period phase

Construction Phase

Activity-1: Pre-Startup Meeting

Activity 2: Organization & Mobilization, Insurance Policies, Site Possession

Activity 3: Planning and ProgramActivity 4: Survey Check and MaterialActivity 5: Plan for Site OrganizationActivity 6: Construction MethodsActivity 7: Time Control Activity 8: Cost ControlActivity 9: Quality ControlActivity 10: Site Meetings & Record Keeping

Activity 11: Monthly Progress Reports

Activity 12: Claims and Disputes

Activity 13: Completion of Works/ Taking-Over

DLP/DNP Phase

Activity 14: Outstanding Works; Defect Correction

Contract Documents

• There are many standard forms of contract documents which use different principles, terminology and apportionment of risks and obligations

• In general following documents are used for procurement of worksPPMO Direct Purchase; Sealed Quotation

PPMO Procurement of Works, NCB (Single/Two Envelope)

PPMO Procurement of Works ICB (Two Envelope),

EPC Contracts (NCB, ICB)

ADB/World Bank Small Contracts

FIDIC, Multilateral Development Bank Harmonized Edition

FIDIC, Conditions of Contract for Construction

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Contract Document

Documents forming the Contract and their order of Priority: (GCC 2.3)

1. Agreement 2. Letter of Acceptance

3. Contractor’s Bid 4. Special Conditions Of Contract

5. General Conditions of Contract

6. Specifications (Special/Standard)

7. Drawings 8. Bill of Quantities

9. Any other document listed in SCC as part of the Contract

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Contract Document/Agreement

• Establishes risks, obligations/ relationship of the parties for the performance of these elements systematically.

• Establishes the contractor’s scope of work

• Provides means by which performance can be assessed and measured

• Establishes the owner’s means of control

• Provides means by which breaches can be identified

• Provides means by which failure can be established27

Contract Document /Agreement • The Construction Agreement is defined as a contract

by which the Contractor:

Organizes the necessary means,

Runs such business at it’s own risk and

Undertakes to construct specific works against a consideration

• Employer/Project Manager (PM)/Engineer should not cross the line that separates the Contractor in terms of responsibility.

• Serious contractual liabilities can result if interference is made by Employer/PM/Engineer with Contractor’s means and methodology. 28

General Conditions Of Contract (GCC)Special Conditions of Contract (SCC)

Contract Provisions

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Contract Provisions

1.General Condition Of Contract (GCC)

1.1. General Clauses:

• Queries about the SCC

• Contractor to Construct the Work as per Spec & drawings

• Works to be Completed by Intended Completion Date

• Approval by the Project Manager (temporary work)

• Safety & Discoveries

• Possession and Access to the Site

• Instruction (carry PM’s instruction complying to Nepal law)

• Appointment of the Adjudicator/ DRB Members

• Procedures for Disputes

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Contract Provisions


1.2 . Clauses on Time Control:

• Program,

• Extension of Intended Completion Date,

• Acceleration,

• Delays ordered by the PM,

• Management Meetings

• Early Warning

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Contract Provisions


1.3. Clauses on Quality Control:

• Identifying of defects (notify defect, uncover, test)

• Additional tests;

• Correction of defects (up to end of defect liability period)

• Uncorrected defects after completion date

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Contract Provisions


1.4 Clauses on Cost Control:

• Contract Price

• Changes in Contract Price; Variations

• Cash flow forecasts

• Payment certificates and Procedures for payments

• Compensation Events (site, instructions, drawings, orders delay, Sub-contract, ground condition, payment delay, risks

• Tax; Currencies

• Price Adjustment; Retention and pay back procedure

• Liquidated Damages; Bonus; Advance Payments; Performance Security; Day works; Cost of Repairs

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Contract Provisions


1.5 Finishing the Contract:

• Completion; Taking Over by Employer

• Final Account (issue defect liability certificate

• Operating and Maintenance Manuals

• Termination; Payment upon Termination

• Fraud and corruption; Blacklisting

• Release from Performance (war, event beyond control)

• Suspension of Donor Agency Loan/Credit/Grant

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Contract Provisions


1.5 Finishing the Contract: (contd.)

• Project Manager’s Duties and Authority

• Quarries and Spoil Dumps

• Local Taxation; Value Added Tax: Income Taxes on Staff

• Duties, Taxes and Royalties

• Member of Government not Personally Liable

• Use of Explosives; Permission for blasting; Records

• Traffic Diversion

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Contract Provisions

2.Special Condition of Contract (SCC)

Specific contract requirements supplement/modify the requirements included in the related clause in the GCC by:

Specifying the provisions referred in the GCC

Deleting provisions which are inapplicable

Amending the provision of the GCC

Adding further provisions

Specific provision to the related clause of COC

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Contract Management: Conditions of Contract for Works (NCB)

• Performance Security

• Advance Payment Guarantee

• Site Possession

• Start Date

• Mobilization

• Work Schedule/Delivery Schedule

• Insurance

• Progress

• Quality of materials, workmanships, goods

• Variations and Adjustment (New rates)

• Price Adjustment

• Claims (additional Cost and Time)

• Termination

• Settlement of Disputes

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Performance Security

A security for proper performance

Normal Amount: 5%

If the Bid Price is more than 15% below the Employer’s Cost Estimate, the Performance Security Amount = [(0.85 x Cost Estimate –Bid Price) x 0.5] + 5% of Bid Price

Additional Performance Security for unreasonably low/unbalanced/front loaded bid: 8% (Clause 65.3 PPR)

Validity: until 30 days beyond the end of DLP

Unconditional

Counter guarantee (for security issued by foreign bank)

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Advance Payment Guarantee

A guarantee for the recovery of the advance payment

Amount: up to 20% of Contract amount (PS, Day works?????) in two equal installments

Validity: until 30 days beyond the recovery period (recovery period if not mentioned in the contract- Contract completion date+ 30 days)

Deduction @...from each Interim payments

Goods: Advance taken for LC - within 30 days from the received of goods

Call the guarantee if the contractors/consultants fail to deliver the services + @10% interest39

Bank Guarantees• It is an obligation of the Bank to pay a sum of

money in the event of non performance of a contract.

• It is a separate obligation independent of the contractual relationship between the Contractor and the Employer.

• Guarantees should be:• Irrevocable• Unconditional• Payable

• Payable against Documentary evidence• Bank Guarantees are subject to the Laws of the

country of the issuing Bank 40

Site Possession/Start date/ Intended Completion date

Give contractor the possession of the site (Sectional possession, if applicable) before the Start Date

Failure to provide Site Possession is a “Compensation Event”

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InsuranceWorks Contract• Period: Start Date to End of DLP• Loss of or damage to the Works, Plants and

Materials• Loss of or damage to Equipment • Loss of or damage to Property (except the

works, Plant, Materials and Equipment) in connection with the Contract

• Personal Injury or death• For Contractor’s employees is that specified in the

Labour Act of Nepal• For other people with an unlimited number of

occurrenceMinimum insurance amount and maximum deductible to be specified except for Personnel 42

Variations

When contract variation?

• When the scope of work changes to become greater or lesser

• Where there is a change in the resources or facilities required

• When the rates charged under the contract change

• Where there is an extension of the duration of the contract

• Where terms and conditions of the contract change

• Where national laws make a change that impacts on the contract

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Variation and Adjustment (New Rates)

a new rate or price shall be appropriate for an item of work if:

• the measured quantity of the item is changed by more than 25% from the quantity of this item in the Bill of Quantities or other Schedule,

• this change in quantity multiplied by such specified rate for this item exceeds 2% of the Initial Contract Price,

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Changes in Works

A civil works contract without Variation clause

would be very impractical

Variation is inevitable but should be managed judiciously

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Why Price Adjustment?

Better balance of rights or obligations between Employer and Contractor

Invites competitive bidding

Gives a Sense of security

Price Adjustment

• Fluctuation of Prices (Labor/Materials/Equipment, etc.)

• Base and Current Indices

• Factor (fixed and others)

• Sources of Indices

• Review of Sources of Indices

Pn = aLn Mn En

+ ++

E0M0L0

b c d + …

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Price Adjustment

Sum of Non-Adjustable and Adjustable coefficients is one (1)

Non-Adjustable, (a): usually 15%

Adjustable, (b + c + d +…+….): 85%

Sum of coefficients for labor, material, equipment = Adjustable portion (85%)

Base indices: indices on the day 30 days prior to the deadline for bid submission

Current indices: indices on the day 30 days prior to the last day of the period to which a particular IPC is related

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If the contractor fails to complete the Works within the time of completion. Is Price Adjustment applicable?

PA vs Time for Completion

If the Contractor fails to complete the Works within the Time for Completion, adjustment of prices thereafter shall be made using either

(i) each index or price applicable prior to the expiry of the Time for Completion of the Works, or(ii) the current index or price, whichever is more favourable to the Employer.

FIDIC Form of Contract

Time Extension

An extension of time (EOT) in terms of construction projects

concerns the pushing back of the contractual completion date

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Factors for Time Extension

Variation Compensation events Force Majeure Delay

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Delays caused by the Contractor - he gets noextra payment, he does not get an EOT but he has to pay LD to the Employer.

These delays might be caused by problems within his own management or within his domestic Sub-Contractors.

Delays caused by neutral events - the Contractor gets no extra money but he gets an EOT and does not have to pay LD.

Delays caused by force majeure or exceptionally inclement weather come within this category.

Extension of Time

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Delays caused by the Employer or by his agents - the Contractor gets extra payment, he gets an EOT and does not have to pay LD.

Typical examples of such delays include delay in making the site available to the Contractor, delay in issuing instructions and delays caused by the ordering of variations.

Extension of Time

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Termination: Works Contract

Termination for Breach of Contract

Termination for insolvency

Termination for Convenience

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Termination: Works Contract

•Fundamental Breach of Contract by the Contractor• Contractor stops work for more than 30 days (not shown

on the Current program and no consent from PM)

• PM instructs to delay the progress (????), and the instruction is not withdrawn within 30 days

• Non payment for more than 90 days of date of payment certificate

• Contractor fails to correct the defect within a time prescribed by the PM

• Contractor does not maintain security which is required by contract

• Contractor delays the work by no. of days for which max. liquidated damages can be paid

• Contractor involved in Corrupt or fraudulent practices56

Consequence of Termination

Due to Fundamental Breach of Contract PM to issue a Certificate for the value of work done plus materials

ordered less advance payment. If the total amount due to the Employer exceeds any payment due to

the Contractor, the difference shall be a debt payable to the Employer.

the performance security shall be forfeited by the Employer, and

the amount to complete the remaining works as per the Contract shall be recovered from the Contractor as Government dues.

Due to Employer’s Convenience or by Employer’s breach

PM to issue a Certificate for the value of work done, materials ordered, cost of removal of Equipment, repatriation of Contractor’s personnel and Contractor’s cost of protecting and securing works less advance payment

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How Disputes arise in a Contract?

Rights Obligations

Employer

Contractor

To get the project done

(delivered goods) according to

Quality, Cost and Time targets

To pay the Contractor

according to the terms of the

contract

To get paid according to the terms of contract

To build/supply according to Q,

C, T targets

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How Disputes arise in a Contract?

To get a good product at a least price

To make maximum profit

Employer

Contractor

Dispute due to

contrasting objective

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Response to Claims PM/Engineer’s Role

Contractor Project Manager

Identify an event that giving rise to claim and notify PM within….

Record notice and ask Contractor to substantiate within …. days

Substantiate claim withsupporting information

Inspects/ verify records and analyze claim with reference to contract

Contractor Agrees on the PM’s Recommendation

Notify the Contractor of the result of analyses and recommendation

Make payment and/or allow EOTYesNo

DisputeADR Arbitration/

Litigation60

The Contract Documents shouldbe:

• clearly understandable;

• specific;

• complete;

• correct; and

• unambiguous.

In cases of ambiguities the court will interpret the writing against the author (law of contra proferentem)

Meaning of sentences or words in a document are to be understood as how a reader understands AND NOT what is understood or meant by the entity.

In case of ambiguities eachparty will try to interpret the words in his favor

Ambiguity

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THANK YOU !

8/8/2021 63

ANY Further QUERIES ?