CHAPTER-23

CONTRACT MANAGEMENT
Contracts in ONGC:
1.1
In ONGC, majority of the contracts are for buying /hiring of goods and
services. Some contracts are also entered for technology transfer etc (beyond our
scope)
1.2
Contract Management deals with clear understanding of the intricacies of
Indigenous & International procurement methodology & terminology used, right from
receipt of the PR* (Purchase requisition) to receipt of the materials and services &
release of the payment to the supplier / contractor in particular and sound
understand of procurement principles & practices in wider sense. With these
understanding and reverse mentoring, we shall be able to make a significant
contribution to our organizations competitive effectiveness as well as to the wider
environment of society, as a whole.
* An official SAP generated document which communicates the exact nature of
goods / services to be bought for the user, quantity, expected delivery period,
estimated price for buying, inspecting authority, present stock status in ONGC etc.
1.3

Aim of Contract Management is to procure the goods/ services in:

Right quantity


Right Material


Right source


Right price


Right quality.


Ethical practices: The emphasis is on integrity while making procurement of
the materials/ services.
Besides the above, the perceived extended functions of purchase department are:

Reduction of wasteful expenditure of money & materials

Reuse of materials
Recycling of materials
Recovery

2.0 Broad classification of contracts:

.2.1 Indigenous Contracts:
2.1.1 Also called Local purchase, since the procurement is made from the country
from where the tender is invited with compliance of the law of that country.
Preferably the payment is also made in the currency of the originating country.
However, the commercial terms are always adhered to, in line with the international
commercial terms duly stipulated by chamber of commerce of the tender originating
country such as, CII (Confederation of Indian Industries) & FICCI (Federation of
Indian Chambers of Commerce & Industry ).
417

2.2 Foreign contracts:

22.2.1 Also called Import purchase, meaning thereby the materials are procured
from non originating country . The payments are made in convertible currency or in
the currency of the country of seller. Commercial terms are governed by the terms
stipulated by International Chamber of Commerce, however, commercial conditions
are decided by the buyers in line with the law of the land of their country. The
commercial terms in case of Import is called INCOTERMS.

3.0 What is a Contract ?

23.3.1 A set of legally binding and enforceable conditions which are mutually agreed
to between two or more interested entities, usually to carry out a business
transaction

4.0 Type of tendering for contract finalisation:

4.1 Limited Tender : For PR value up to Rs 25.00 lac. (can be local/global). In
these cases, the tender need not be advertised. The purchase officer may send
enquiries to firms known to ONGC. and the detail of the tender is also posted on
ONGC web site for case value above Rs 5.00 lacs
4.2 Open Tender : For PR value greater than Rs.25.00 lac.. Open tenders will be
advertised through the press/ official internet site. In case of imported materials, the
open tenders will additionally be advertised through foreign journals besides
advertising through Indian Trade Journal or Indian Export Service Bulletin.
-LCB : Local competitive bidding
-ICB : International competitive bidding.
4.3 Single tender: Purchase of stand-by equipment and accessories which form
part of the main equipment and are required for ready replacement and which can
not be replaced with other makes on technical grounds may also be purchased on
single tender basis
4.4 Board Purchase : A board of officers from MM, User and Finance is constituted
to visit the market and carry out purchase. Method adopted for meeting urgency
and/or lack of proper specifications.
4.5 Rate Contract : The rate contract mentions item description, rates, delivery
period etc. Used for meeting frequent requirements spread over a period of time.

5.0 Important Conditions of Tender/Contract

5.1 EMD :- Earnest Money Deposit :- The bid security that bidder submits along with
the offer. This ensures that the bidder can not change/withdraw its offer during
validity period of offer. It can be in the form of Draft, Banker cheque, Bank
guarantee etc.
5.2 SD: Security Deposit:- The Security Deposit is submitted by the successful
bidder to whom the contract is awarded. Can be submitted as Draft, Banker cheque,
Bank guarantee etc.
5.3 L.D Clause: This is a sort of penalty on the supplier for delayed supply.
418

5.4 Warranty clause: This clause ensures that warranty as extended by original
manufacturer is available to ONGC also
5.5 Arbitration clause: This clause outlines the mechanism for settling disputes
prior to settlement by courts
5.6 Jurisdiction clause: This clause defines the places where arbitration
proceedings/ court proceedings can be held
5.7 Force majeure clause: Certain conditions beyond the control of both the parties
may render the contract impossible to be completed as per terms of the contract.
The clause can then be evoked for terminating/ modifying the contract.

6.0 FLOW CHART FOR CONTRACT*

1)Examine the PR:
Vendor list, Draft BEC,
Technical specs,
release at all levels
>>>>>>>>>>>>>>>

2)Floating tender: Decide 3)Pre bid

about type of tender,
conference and/ or
freeze techno commercial bid opening
conditions and float RFQ
>>>>>>>>>>>>>>>>
>>>>>>>>>>>>>
6)Award of
5)Financial evaluation:
Preparation of C/S
contract:

4)Evaluation:
Bids are opened and
sent for evaluation.
>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>

>>>>>>>>>>>>>>
7)Follow up actions:
8)Contract Monitoring:
Receipt of SD
Return of SD after
Release of EMD,
completion
Return of un-opened
price bids
>>>>>>>>>>>>>>>>> OOOOOOOOOOOOOO
* Better understanding of this chart only after class room lectures.

419