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Procurement/Contract Management Er. Hari Prasad Dhakal 8 August 2021

Procurement/Contract Management

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Text of Procurement/Contract Management

LeadershipProcurement Regulation 2064
Public Procurement
Public Procurement is acquisition of Goods, Works, Services and other services by the Public Entity using
public funds.
Public Procurement
identification, procurement planning, cost estimation, pre-bid preparation, bid invitation, bid evaluation, contract award and its execution, reporting and
Obtaining value for money
Accountability of officials
• 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
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 look We compare the available OFFERs
We make a Deal We pay (in some modalities) We get the thing we need We use that thing
Is it a Procurement ...???
For a Public Procurement
Ph a se
Progress Monitoring / Payments /
Claims, Disputes / Completion
Ph a se Invitation
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.
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
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
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 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.
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.
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.
• 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;
• Key contract deliverables are received;
• Contract related processes are completed;
• Any variations, claims, issues, disputes, and any additional funding requirements are managed.
Construction Phase
Activity 2: Organization & Mobilization, Insurance Policies, Site Possession
Activity 3: Planning and Program Activity 4: Survey Check and Material Activity 5: Plan for Site Organization Activity 6: Construction Methods Activity 7: Time Control Activity 8: Cost Control Activity 9: Quality Control Activity 10: Site Meetings & Record Keeping
Activity 11: Monthly Progress Reports
Activity 12: Claims and Disputes
Activity 13: Completion of Works/ Taking-Over
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 works PPMO 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
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
• 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,
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
1.1. General Clauses:
• Works to be Completed by Intended Completion Date
• Approval by the Project Manager (temporary work)
• Safety & Discoveries
• Instruction (carry PM’s instruction complying to Nepal law)
• Appointment of the Adjudicator/ DRB Members
• Procedures for Disputes
• Program,
• Acceleration,
• Management Meetings
• Early Warning
• Identifying of defects (notify defect, uncover, test)
• Additional tests;
• Correction of defects (up to end of defect liability period)
• Uncorrected defects after completion date
• Contract Price
• Cash flow forecasts
• Compensation Events (site, instructions, drawings, orders delay, Sub-contract, ground condition, payment delay, risks
• Tax; Currencies
• Liquidated Damages; Bonus; Advance Payments; Performance Security; Day works; Cost of Repairs
1.5 Finishing the Contract:
• Final Account (issue defect liability certificate
• Operating and Maintenance Manuals
• Termination; Payment upon Termination
• Fraud and corruption; Blacklisting
• Suspension of Donor Agency Loan/Credit/Grant
• Project Manager’s Duties and Authority
• Quarries and Spoil Dumps
• Duties, Taxes and Royalties
• Use of Explosives; Permission for blasting; Records
• Traffic Diversion
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
• Performance Security
• Price Adjustment
• Termination
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
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”
Insurance Works 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
occurrence Minimum insurance amount and maximum deductible to be specified except for Personnel 42
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
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,
would be very impractical
Better balance of rights or obligations between Employer and Contractor
Invites competitive bidding
Price Adjustment
• Base and Current Indices
• Factor (fixed and others)
+ ++
Non-Adjustable, (a): usually 15%
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
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
An extension of time (EOT) in terms of construction projects
concerns the pushing back of the contractual completion date
Delays caused by the Contractor - he gets no extra 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
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
Termination for insolvency
Termination for Convenience
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 practices 56
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
Rights Obligations
(delivered goods) according to
To pay the Contractor
To build/supply according to Q,
C, T targets
To get a good product at a least price
To make maximum profit
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 with supporting 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
Dispute ADR Arbitration/
• clearly understandable;
• 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 each party will try to interpret the words in his favor