GENERAL OVERVIEW OF CONTRACTS MANAGEMENT

A Presentation by: Reeta Bandopadhyay GM(CS/P&S)

CHANGING BUSINESS ENVIRONMENT

REGULATOR IS IN PLACE

Employers liberties curtailed Tariff must reflect real cost Closure in specified time frame Competitive environment resulting due to coming of private sector

May 23, 2012

CHANGING BUSINESS ENVIRONMENT

MORE STRINGENT TIMEFRAME

Completion schedule reduced from 60524436

CHANGING TAXATION STRUCTURE Creating uncertainty (VAT, Service Tax, Entry Tax etc.) Increasing risks

May 23, 2012

CHANGING BUSINESS ENVIRONMENT

INCREASED BUSINESS OPPORTUNITIES FOR SUPPLIERS Able to make choice Business at preferred terms

May 23, 2012

CHANGING BUSINESS ENVIRONMENT

INCREASED DEMAND FOR TRANSPARENCY Right of Information Act 2005 Clauses relating to fraud and corruption, ineligibility, integrity pacts Publication of contract award details Debriefing

May 23, 2012

CHANGING BUSINESS ENVIRONMENT

INCREASED ENVIRONMENTAL AND SOCIAL IMPACTS

Need for improved technology Concern for natural resources limitation.

May 23, 2012

PUBLIC PROCUREMENT IN INDIA

OBJECTIVES

ECONOMY EFFICIENCY TRANSPARENCY ACCOUNTABILITY

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PUBLIC PROCUREMENT IN INDIA

Total value Rs. 4500 billion 13% of national budget 20% of GDP No regulatory framework

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PUBLIC PROCUREMENT IN INDIA

The Govt. is the same, the procurement objectives are the same, even the specific works/goods can be the same, the bidding community is the same but the procedures and policies practiced by each agency are different. There are about more than 150 different contract formats are in use by Govt. deptts. and PSEs.

May 23, 2012

PUBLIC PROCUREMENT IN INDIA

What can be done Introduce a public procurement law which should, as a minimum, cover the objectives, substantive procedural requirements to achieve them, debriefing of unsuccessful bidders and publication of contract awards. The law may also cover post award issues in contract implementation such as securities, timely payment, penalties & damages, dispute resolution and termination for default or conveniences.
May 23, 2012

PUBLIC PROCUREMENT IN INDIA

Law to be complemented by set of regulations to replace multiplicity of rules & orders issued by different agencies of govt.

Regulations to enshrine five fundamental principles of open tendering viz.- Effective advertisement, non discriminatory tender conditions and technical specifications, public tender opening,

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PUBLIC PROCUREMENT IN INDIA

Evaluation only in accordance with pre-disclosed criteria and methodology and award to the lowest evaluated qualified tenderer without any negotiations on price or other terms.

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CONTRACT MANAGEMENT An Overview

I. PRE-AWARD CONTRACT MANAGEMENT

II. POST-AWARD CONTRACT MANAGEMENT III. CONTRACT CLOSING

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DIVISION OF RESPONSIBILITIES
Complexity in construction of large projects may necessitate sharing of responsibilities amongst various specialised functions of an organisation

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PRE-AWARD CONTRACT MANAGEMENT

I.
II.

CONTRACT PACKAGING
TENDERING

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CONTRACT PACKAGING

WHY PAGKAGING?

To optimize number of contracts to be handled for better planning, coordination and timely execution of whole project at optimum cost to the Employer.

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CONTRACT PACKAGING CRITERIA

Content of Contract Package Competitive Aspects Timing of Delivery

CONTRACT PACKAGE

Location Institutional Capability

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Market Practices

CONTRACT PACKAGING CRITERIA

1.

CONTENT OF CONTRACT PACKAGE

Allow manufacturers to bid directly Bid packages should comprise equipment of similar type that can be procured by one manufacturer to obtain best price. Combine equipment, supplies, and works of similar nature in one contract for economy of scale, if possible Check the market on available sources of goods of similar type and size to obtain best price.

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CONTRACT PACKAGING CRITERIA

2. COMPETITIVE ASPECT

Select the right size of the package to allow maximum competition. Include only equipment of the same or of related nature. Allow bids for one, or a combination, or for all bid packages Select the least cost combination of bid packages.

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Example for least cost combination

Bidder Package Discount (For combined award) II 150 155 BID C (80) BID A (150) (100+150) 10% = 225 Award

I A B C
Lowest Bid for Package-I Lowest Bid for Package-II Lowest Combination Bid A

100 85 80

10% NO NO

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CONTRACT PACKAGING CRITERIA

3. MARKET PRACTICES Determine the procurement of supplies according to established marketing practices such as the procurement of commodities and package the supplies accordingly.

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CONTRACT PACKAGING CRITERIA

4. INSTITUTIONAL CAPABILITY

Determine the capability of Employer to supervise and administer contracts. Use Design-Build and Turnkey Contracts if the Employer does not have the capability to administer contracts simultaneously

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CONTRACT PACKAGING CRITERIA

5. LOCATION

Consider separate contract packages for civil works to be carried out in different locations, even if they are of similar nature.

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CONTRACT PACKAGING CRITERIA

6. TIMING OF DELIVERY

Combine supplies or works according to the requirement of the equipment or the works in view of the overall project implementation schedule Combine equipment in one package with the same lead for delivery

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CONTRACT PACKAGING
FACTORS TO BE CONSIDERED Availability of prospective bidders Project execution schedule Combination/ clubbing of equipment/ services that can be advantageously engineered Independence with regard to its work content and clear cut terminal points for interfacing Project financing

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CONTRACT PACKAGING
BASE DOCUMENTS FOR CONTRACT PACKAGING PROJECT FEASIBILITY REPORT (FR) DESIGN INTENT MEMORANDA (DIM)

PROJECT SCHEMATICS
CASE STUDY

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TENDERING

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Mode of Tendering Qualifying Requirements for Bidders Bidding Documents Invitation for Bids Submission, Receipt And Opening of Bids Evaluation of Bids Contract Award

TENDERING
- Mode of Tendering

SINGLE STAGE SINGLE ENVELOPE

Ideal for all clearly specified goods Technical and price bids in one envelope most common tendering procedure.

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TENDERING
- Mode of Tendering

SINGLE STAGE TWO ENVELOPE

Employed for complex equipment Technical and price bids in separate envelopes Varying practices for opening of price bids
1.

2.

Price bids opened after completion of technical evaluation without permitting any adjustment in quoted price. Adjustment in price on account of technical features considered in technical evaluation to make bids responsive

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TENDERING
- Mode of Tendering

TWO STAGE BIDDING

Price bid sought only after technical evaluation.
Suitable for turnkey contracts for large complex projects where alternative technical processes are a possibility. Works of special nature where the problem of unequal technical bids is likely to be encountered.

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TENDERING
- Qualifying Requirements (QR) for Bidders

QUALIFYING REQUIREMENTS (QR) FOR BIDDERS

No bidder to be awarded a contract unless the Employer is satisfied that the bidder is qualified to meet his obligations under proposed contract.

May 23, 2012

TENDERING
- Qualifying Requirements (QR) for Bidders

FACTORS FOR FRAMING OF QR

Past performance in similar type of job Financial status Technical capability Organizational capacity QR to be written in an unambiguous manner to avoid different interpretation during evaluation

May 23, 2012

TENDERING
- Qualifying Requirements (QR) for Bidders

METHODS FOR DETERMINING QUALIFICATION

PRE-QUALIFICATION Normally followed in case of contracts for civil works and large turnkey contracts POST-QUALIFICATION Followed in case of equipment supply/ supply-cuminstallation contracts

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TENDERING
- Bidding Documents

BIDDING DOCUMENTS
The most important ingredient of contract management function as it lays the basis for contract award and its execution thereafter.

Terms and conditions to be based on principles of `fairness and `equity

In case of contracts funded through external assistance, SBDs of the concerned funding agency to be followed.

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TENDERING
- Bidding Documents

CONTENT OF BIDDING DOCUMENTS

INVITATION FOR BIDS (IFB)

Standard format with package Specific details required to be filled in

INSTRUCTIONS TO BIDDERS (ITB)

Standard Section not required to be changed on Package to Package basis

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TENDERING
- Bidding Documents

CONTENT OF BIDDING DOCUMENTS

BID DATA SHEET (BDS)

Provides package specific corresponding clauses in ITB

details

to

GENERAL CONDITIONS OF CONTRACT (GCC)

Standard conditions which shall govern the execution of contract

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TENDERING
- Bidding Documents

CONTENT OF BIDDING DOCUMENTS

SPECIAL CONDITIONS OF CONTRACT (SCC) Supplements/ amends the standard conditions in GCC for each specific package TECHNICAL SPECIFICATIONS Should normally be fully descriptive and give complete requirement in respect of Plant & Equipment/Services to be procured

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TENDERING
- Bidding Documents

CONTENT OF BIDDING DOCUMENTS

FORMS AND PROCEDURES (FP)

Provides formats to be filled in by the bidders to complete their bids

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TENDERING
- Bidding Documents

COST OF BIDDING DOCUMENTS

Not to be kept very high so that interested bidders do not find it prohibitive. For standardization purpose, organisation may fix the cost of bidding documents in slabs depending on estimated cost of works.

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TENDERING
- Invitation for Bids

INVITATION FOR BIDS

Ensure adequate publicity by publishing in leading national /regional newspapers In case of ICB under WB & ADB, compliance to requirements of funding agencies such as publishing in development business of UN. Copies may also be sent to high commissions/ embassies of member countries of funding agencies located in the country.

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TENDERING
- Submission, Receipt and Opening of Bids

SUBMISSION, RECEIPT AND OPENING OF BIDS

Bidding period to be decided depending upon complexity of work involved. Generally, a period of 6 weeks from IFB is considered adequate. For large and complex contracts this may be extended to 10-12 weeks. Bids to be opened in the presence of bidders representatives who choose to attend and minutes of bid opening to be prepared

May 23, 2012

TENDERING
- Evaluation of Bids

EVALUATION OF BIDS
Bids to be evaluated for determining the lowest evaluated bid in terms of specified evaluation criteria Preliminary examination of bids to determine Bidders eligibility Acceptability of bid security Completeness of bid

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TENDERING
- Evaluation of Bids

EVALUATION OF BIDS
Preliminary examination of bids to determine

Acceptability of Joint Venture Agreement / Joint Deed Of Undertaking (if envisaged) Computational errors in bid prices Stated deviations from bidding conditions

May 23, 2012

TENDERING
- Evaluation of Bids

EVALUATION OF BIDS
Detailed evaluation for substantially responsive bids only. Evaluation to consider bid price and other factors such as cost compensation for deviations, differential price for guaranteed parameters etc. In case of ICB, bid prices to be converted into a single currency at the specified exchange rate.

May 23, 2012

TENDERING
- Evaluation of Bids

EVALUATION OF BIDS
Domestic price preference/ purchase preference to be considered wherever applicable

In absence of pre-qualification, determine whether the lowest evaluated bidder meets the specified qr.
Post bid clarifications, if any, should not call for material alterations in the bid.

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TENDERING
- Contract Award

CONTRACT AWARD
Contract to be awarded to the lowest evaluated technically and commercially responsive bid. Process of evaluation and approval of award recommendation including concurrence of funding agency (wherever applicable) and post-bid discussions with successful bidder to be completed within bid validity period.

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AREAS OF CONCERN

Lack of unified system/multiplicity of practices Lack of comprehensive and well articulated public procurement policies Lack of comprehensive legal regime Weak capacity of procurement staff

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AREAS OF CONCERN

Lack of accountability Loose institutional and organizational arrangements for processing procurement and for collective decision making in awarding of contracts Absence of independent appeals body Lack of independent procurement auditing function

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POST AWARD CONTRACT MANAGEMENT

MAJOR POST AWARD ACTIVITIES

Signing of contract agreement Obtaining performance and advance securities

Approval of manufacturing / construction drawings

Finalisation and approval of quality plans

Amendments / modifications to contract as may be necessitated during contract execution

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POST AWARD CONTRACT MANAGEMENT

MAJOR POST AWARD ACTIVITIES

Inspection and testing of equipment at manufacturers works
Entire co-ordination of work at project site including monitoring of receipt of material, identifying space for contractors site office establishment, ensuring timely receipt of contractorss erection/ construction equipment, review of manpower deployment of contractor, providing site fronts and other inputs/owner issue material etc., Supervision/ monitoring of erection/ construction work, start-up activities, trial operation/ commissioning, performance and guarantee tests.

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POST AWARD CONTRACT MANAGEMENT

POST-AWARD CONTRACT PLANNING & MONITORING Periodic contract review meetings (CRMs) between employer and contractor Submission of monthly progress reports by contractor indicating progress achieved and work on hand

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POST AWARD CONTRACT MANAGEMENT

POST-AWARD CONTRACT PLANNING & MONITORING Project review team (PRT) meetings of the project authority on monthly basis Preparation of exception reports indicating hold ups/bottle necks for close monitoring of critical areas

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POST AWARD CONTRACT MANAGEMENT

COST CONTROL SYSTEM

Contract price may vary due to : Addition/ deletions in items of work

Change in quantity of work

Change in technical parameters resulting in changed design features, materials etc.

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POST AWARD CONTRACT MANAGEMENT

Due care is to be taken while finalising technical specifications to avoid post award changes in ordered quantities. Changes during detailed engineering to be closely monitored while releasing construction drawings with respect to quantities reflected in drawings vis--vis BOQ Engineering progress of each contract to be essentially monitored at identified intervals

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POST AWARD CONTRACT MANAGEMENT

CONTRACT BUDGETING SYSTEM

Contract budgeting is essential for proper forecasting and planning of funds on monthly/quarterly/annual basis. Yearly budget for a contract to be prepared based on detailed payment schedule tied-up with the contractor Budgeted expenditure (be) for a financial year to be finalised much before the start of financial year.

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POST AWARD CONTRACT MANAGEMENT

CONTRACT BUDGETING SYSTEM

(contd.)

Review the budgeted expenditure during middle of financial year and prepare revised expenditure taking into account the physical progress of work.

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CONTRACT CLOSING
All concerned departments/ functions of project authority involved in contract execution to issue certificates certifying fulfillment of respective obligations by the contractor. Contractor to furnish no claim certificate to the employer Contractor to be discharged of its obligations under the contract after completion of defect liability period.

May 23, 2012

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