Chapter 5: Contract Management

5.0 Introduction to the construction contracts: Definition

A contract intends to formalize an agreement between two or more parties, in relation to a particular subject

“A contract is a promise or a set of promises for the breach of which the law recognizes duty“. This amounts to saying that acontract is a legally enforceable promise (Jackson 1973).

A contract is a legally binding agreement. It is a bargain and each side, or party to the contract, must contribute something to it for it to be valid (Gahlot et al, 1996)

A Contract is ―an agreement concluded between two or more parties for performing or not performing any act which could be executed according to law.‖ (Nepal Contract Act,1999, Section-2)

Introduction to the construction

contracts: Definition

Construction is a services activity with business side as one of its dimension

The construction industry is almost unique amongst commercial endeavors where the “Project is sold before it is made”

Construction Contract

A construction contract is a mutual agreement negotiated between two (or more) parties for the purpose of undertaking, on a commercial basis, certain clearly specified Construction work.

ELEMENTS OF CONTRACT

OFFER

ACCEPTANCE

INTENTION OF LEGAL CONSEQUENCES

CONSIDERATION

MUTUALITY

LEGAL CAPACITY

WRITING REQUIREMENT

ELEMENTS OF CONTRACT

OFFER

There must be a definite, clearly stated offer to do something. For example: A quotation by sub-contractor to the main contractor and an offer to lease.

An offer does not include ball park estimates, requests for proposals, expressions of interest, or letters of intent.

An offer will lapse:

when the time for acceptance expires;

if the offer is withdrawn before it is accepted; or

after a reasonable time in the circumstances (generally the greater the value of the contract, the longer the life of the offer)

ELEMENTS OF CONTRACT

ACCEPTANCE

Only what is offered can be accepted. This means that the offer must be accepted exactly as offered without conditions. If any new terms are suggested this is regarded as a counter offer which can be accepted or rejected.

There can be many offers and counter offers before there is an agreement. It is not important who makes the final offer, it is the acceptance of that offer that brings the negotiations to an end by establishing the terms and conditions of the contract.

Acceptance can be given verbally, in writing, or inferred by action which clearly indicates acceptance (performance of the contract). In any case, the acceptance must conform with the method prescribed by the offerer for it to be effective.

ELEMENTS OF CONTRACT

INTENTION OF LEGAL CONSEQUENCES

A contract requires that the parties intend to enter into a legally binding agreement. That is, the parties entering into the contract must intend to create legal relations and must understand that the agreement can be enforced by law.

The intention to create legal relations is presumed, so the contract doesn’t have to expressly state that you understand and intend legal consequences to follow.

If the parties to a contract decide not to be legally bound, this must be clearly stated in the contract for it not to be legally enforceable.

. ₇

ELEMENTS OF CONTRACT

CONSIDERATION

In order for a contract to be binding it must be supported by valuable consideration. That is to say, one party promises to do something in return for a promise from the other party to provide a benefit of value (the consideration)

Consideration is what each party gives to the other as the agreed price for the other’s promises. Usually the consideration is the payment of money but it need not be; it can be anything of value including the promise not to do something, or to refrain from exercising some right.

The payment doesn’t need to be a fair payment. The courts will not intervene where one party has made a hard bargain unless

fraud, duress or unconscionable conduct is involved.

ELEMENTS OF CONTRACT

MUTUALITY

The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

When the complaining party provides proof that all of these elements occurred, that party meets its burden of making a

prima facie case (the establishment of a legally required rebuttable presumption. It is generally understood as a flexible evidentiary standard that measures the effect of evidence as meeting, or tending to meet, the proponent’s burden of proof on a given issue )that a contract existed. For a

defending party to challenge the existence of the contract, that party must provide evidence undermining one or more elements.

ELEMENTS OF CONTRACT

LEGAL CAPACITY

Not all people are completely free to enter into a valid contract. The contracts of the groups of people listed below involve problematic consent, and are dealt with separately, as follows:

– people who have a mental impairment;

– young people (minors);

– bankrupt;

– corporations (people acting on behalf of a company); and

– prisoners.

ELEMENTS OF CONTRACT

WRITING REQUIREMENT

Not every contract need be in writing to be valid and binding on both parties.

But nearly every state legislature has enacted a body of law that identifies certain types of contracts that must be in writing to be enforceable.

In legal parlance this body of law is called the statute of frauds.

CONTRACT

VALID CONTRACT

– If all the elements of contract are present, the contract is valid.

VOIDABLE CONTRACT

– Forceful contract

– Entered due to undue influence

– Contract involving fraud or misstatement

CONTRACT

VOID CONTRACT

– Made by incompetent parties (e.g., under the age of consent, incapacitated)

– Has a material bilateral mistake

– Has unlawful consideration (e.g., promise of sex)

– Concerns an unlawful object (e.g., heroin)

– Has no consideration on one side

– Restricts a person from marrying or remarrying

– Restricts trade

– Restricts legal proceedings

– Has material uncertain terms

– Incorporates a wager, gamble, or bet

– Contingent upon the happening of an impossible event

– Requires the performance of impossible acts

Introduction:

Importance of Construction Contract

Any one requires by law to sign a legal contract with other party.

Construction contract like any other contract contains details of whole deal and comes to rescue you in case of any dispute.

To protect your interest fully and avoid endless vicious cycle of alterations to the original design, a legal contract is a mandatory requirement.

From contracting party’s point of view the legal contract is equally important. As they can take the legal route, whenever they feel the actual work is not according to the terms decided.

It can be said, that construction contract is important for all the stakeholders involved in a construction deal.

Introduction:

Importance of Construction Contract

Contract can be read as many times as you want, but once signed there is no way back, So make sure you understand the contract fully.

Make sure that no such clause gets inserted in the contract that can come back and haunt you later on.

Most important thing in any construction contract is the amount that is finalized to do the certain task. Amount must be as per the mutual consent and also make sure there are no hidden charges and no additional cost is written to be paid by you, later on.

Drafting, understanding and comprehending a construction contract is not easy, especially if you are new comer to the field and not so expert with legal matters

Introduction:

Requirements for construction contract

If you ask a layman what is the most important aspect of a construction work you will get replies like engineers, labour, machinery, architecture, material etc.

but the domain experts will tell you the single most important thing of all is a construction contract.

Yes, the boring piece of documents that contains a lot of technical terms is unarguably the most important document for all the parties involved in the construction work.

Although the people involved especially the technical staff knows about the importance of the construction contract, still the awareness and ability to identify the loop holes is quite uncommon.

Construction contracts are very important especially in the

scenario whenever there is a conflict among the parties on any

matter

Introduction: Contract Management

Contract management the process of ensuring that the supplier honours their negotiated contract terms.

Construction contracts management is the process of negotiating and managing all contract agreements involved in a construction project or company, such as those involving vendors or clients.

Contract managers must monitor cost, scope, quality, and time frame and must ensure that all contract conditions are met.

This important job affects both the financial and the actual success of the project or company.

When managing client contracts, a manager is mainly responsible for ensuring that all deliverables are provided to the client on time and ensuring that the client meets each payment date with the correct payment amount.

Introduction: Contract Management

Effective contract management involves daily activity tracking, performance management, and follow-up with the supplier.

Administration of a contract can include many specific duties, depending on the nature of the engagement.

The contract manager is responsible for communication between the parties, including status updates that track progress towards goals.

In many instances, he may act as the chief compliance officer for the contract, making site visits and doing spot checks to ensure nothing unusual is going on.

Most often, the contract manager is responsible for the expense budget, tracking expenditures, collecting receipts and liaising with the finance department to create financial reports.

5.1 Method of Work Execution

No.	Procurement Method	Contract Size	Contractor

1	Sealed Bidding

i.	ICB	Not mentioned	International, International
			Nepali JV, Nepali JV

ii.	NCB/LCB	More than 2	All
		million

2.	Sealed quotation	up to 2 million	All

3.	Direct Procurement	up to 5,00,000	All

4.	Force Account	up to 1,00,000	None

5.	Procurement under	Emergency /	Depends on contract amount
	special	Special
	circumstances	Circumstances

6.	Users’ Committee	up to 6 million	Contractor cannot be used.

5.1 Method of Work Execution

Sealed Competitive Bidding
National Competitive Bidding (NCB)
Local competitive bidding

Tender notice is published in national newspaper with a period of at least 30 days shall be given.

International Competitive Bidding (ICB)

Tender notice shall be published in national newspaper in English language providing a period of at least 45 days.

5.1 Method of Work Execution

Sealed Quotation:

Before inviting a sealed quotation, a form of sealed quotation stating clearly therein the specifications, quality, quantity terms and conditions of supply and time and other necessary matters of goods, construction work.

Notice shall be published in a national or local level news paper by giving a period at least of 15 days.

Sealed quotation once submitted cannot be withdrawn or amended.

Lowest evaluated sealed quotation falling within the cost estimate after fulfilling the terms and conditions shall have to be approved.

5.1 Method of Work Execution

Direct Procurement:

Section cannot be directly procured from the same individual firm more than 1 time in a fiscal year.

If only one company has the technical efficiency to fulfillment the procurement requirement.

If unique qualification is immediately needed for the concerned work.

5.1 Method of Work Execution

Users Committee:

The main objective of the project is to create employment and to have the beneficiary community involved.

Force account:
Construction work to be carried out by a Public Entity Itself.

Size, nature and location of the work being unsuitable for competitive bidding.

No contractor is interested in carrying out the works.

Emergencies.

5.1 Method of Work Execution

Special circumstances:
Emergency/ Special circumstances

depends on contract amount.

5.2 Contract Types

Construction Contract Types

A construction contract is the warranty that the executed job will receive the specific amount of compensation or how the compensation will be distributed.

Construction contract types are usually defined; by the way, the disbursement is going to be made and specifies other specific terms, like duration, quality, specifications and several other items.

There are a several types of construction contracts used in the industry

Classifications by the method of payment for the work

Lump sum or fixed price contracts

Schedule of rates or unit-price contracts

Cost plus contracts

cost + percent of cost

cost + fixed fee

cost + fixed fee + Profit sharing

cost + sliding fee

Sometimes, Part Lump sum and part Unit-Price Contract is also adopted in a single

project as a fourth type

Construction Contract Types

Lump sum or fixed price contracts

Contractor based on the available complete set of plans and specifications quotes one single price which covers all works and services required by the contract plans and specifications

The lump sum price includes all direct costs of the contractor for labor, machines, materials and indirect costs such as field and front office supervision, secretarial support and equipment maintenance and support costs and also includes profit of the contractor

In “fixed price” contract, the contractor accepts responsibility for all fluctuations in costs and charges due to escalation, delays and other reasons and no additional payment will be made to cover such costs

Commonly used where the nature and extent of the work can be accurately defined

Advantages and disadvantages

Construction Contract Types

Schedule of Rates or Unit-Price Contracts
The project is broken down into the work items that can be

characterized by units such as Cum, Sqm, Rm, and Nos etc.

the contractor quotes the price by units rather than as a single total contract price.

The total price is computed by multiplying the unit price by guided quantity and summing up the cost of whole the items.

The lowest reasonable bidder is determined and the contract is awarded. In this type of contract, it is important that the items in the Schedule of rates or the Priced Bill of Quantities cover the whole of the work and the method of measurement of quantities is clearly defined.

Generally used where the nature and extent of the work can be accurately defined but the quantities are subject to variation within reasonable limits

In unit price contractors, the progress payments for the contractors are based on precise measurement of the field quantities placed.

Advantages and disadvantages

Construction Contract Types

Cost plus contract

In a cost plus contract, the contractor is reimbursed

the actual costs incurred in carrying out the work under the contract plus a fixed or variable fee to cover overhead costs and profit.

Four types of fee structure are common. They lead to the following cost plus types of reimbursement schemes:

cost + percent of cost

cost + fixed fee

cost + fixed fee + Profit sharing

cost + sliding fee

Construction Contract Types

Cost + percent of cost

very lucrative for the contractor but is subject to abuse.

There is little incentive to be efficient and economical in the constriction of the project.

Just to the contrary, the larger cost of the job, the higher the amount of fee that is paid the owner.

If the cost of the job is, $ 40 million and fee is 2%, then the contractor’s fee is $ 800,000. If the cost increases to $ 42 million, the the contractor’s fee increases by $40,000.

Advantages and disadvantages

Construction Contract Types

Cost + fixed fee

In order to offset the abuse of cost plus percent approach, the fixed fee formula was developed.

in this form of contract, a fixed amount of fee is paid regardless of the fluctuation of the reimbursable cost component.

This is usually established as a percent of an originally estimated total cost figure.

The contractor’s fee is fixed and does not change due to variation of the project cost from the original estimated cost.

This form gives the contractor an incentive to get the job done as quickly as possible in order to recover his fee over the shortest time frame.

Advantages and disadvantages

Construction Contract Types

Cost + fixed fee+ Profit sharing
The fixed fee plus profit sharing formula provides a

reward to the contractor who controls costs, keeping them at a minimum.

In this formula, it is common to specify a target price for the total contract. if the contractor brings the job in under the target, the savings are divided or shared between owner and contractor. a common sharing formula provides that the contractor shares by getting 25% of this under run of the target. If for instance, the target is $10 million and the contractor completes the job in $9.5 million, he receives a bonus of $125,000.

Advantages and disadvantages

Construction Contract Types

Cost + sliding fee
A variation of the profit sharing approach is the sliding fee,

which not only provides a bonus for under run but also penalizes the contractor for overrunning the target value.

The amount of fee increases as the contractor fails below the target and decreases as he overruns the target value.

One formula for calculating the contractor’s fee based on sliding scale is,

Fee = R (2T-A)
Where,

• T= target price, R= Base percent value, A= Actual cost of the construction.

• Advantages and disadvantages

Construction Contract Types

Based on selecting the Contractor

Completely Tendered Contracts

The owner invites a quote for the works to be performed following a formal competitive tendering procedure.

Negotiated Contracts with the selected contractors

Negotiate directly with a contractor

– Level and amount of fee in additional to the charge schedule

– Quality of the works to be performed.

– Projected time for completion.

Based on Technical and Admin responsibility

The traditional approach:

Design–Bid–Build

has been the primary contracting method for the construction industry for quite some time

design is carried out independently of the construction process.

Once the owner agency approves the design, the project proceeds to the actual construction phase.

construction projects are awarded to the qualified bidder with the lowest total price

pay items are established on a unit-price basis

specifications are strictly focused on materials and method

the role of the owner or agent is to inspect and maintain

The traditional approach: Design–Bid–Build

Contractor

The traditional approach:

Design–Bid–Build

This process involves

– using detailed plans from the design phase,

– providing specifications and estimates for the work involved,

– soliciting of bids through public advertisement, and

– awarding the contract to the lowest responsible responsive bidder.

Authority to construct the project is obtained by the agency from

appropriate public entities prior to bid advertisement.

All necessary right-of-way and construction easements are determined and acquired prior to contract advertisement by the public agency.

The traditional approach:

Design–Bid–Build

Advantages

Familiar delivery method

Simpler process to manage

Fully defined project scope for both design and construction

Both design team and contractor accountable to Owner

Lowest price proposed and accepted; pricing, including contractor fee and overhead, developed competitively: ―best price‖

Creates most the bidding opportunities for general contractors and subcontractors

BEST SUITED FOR: less complicated projects that are budget sensitive, but are not schedule sensitive and not subject to change.

Owner can completely control the design

The traditional approach:

Design–Bid–Build

Disadvantages

Linear process means longer schedule duration than other methods

Price not established until bids are received; may require redesign and rebid if bids exceed budget

Quality of contractors and subcontractors not assured

Cost estimates change during design process

No design phase input from contractor on project planning, budget or estimates

Not optimal for projects that are sequential, schedule or change sensitive

Change orders and claims may increase final project cost

Need for Alternative contracting Approach

– Reducing Construction Time

– Reducing Construction Cost

– Applying Improved Technology and Techniques

– Deploying Contractor Innovation

– Reducing Impacts on the Public

Alternative approaches: Design-Build

Contractor

Alternative approaches:

Design-Build

Design–build is sometimes compared to the “master builder” approach, one of the oldest forms of construction procedure unique type of project delivery system used in construction and renovation projects

from a historical perspective the so-called traditional approach is actually a very recent concept, only being in use approximately 150 years (“Design-build Contracting Handbook” )

the owner awards the entire project to a single company

It is a method to deliver a project in which the design and construction services are contracted by a single entity known as the design–builder or design–build contractor

Alternative approaches:

Design-Build

The owner is still given the right to approve or reject design options, but is no longer responsible for coordinating or managing the design team.

Once the owner approves the design, the same contractor then oversees the construction process, hiring subcontractors as needed.

Most design-build contracts are awarded through negotiation rather than through a bid process

In the US, D&B was used on more than 40 percent of non-residential construction projects in 2010, a ten percent increase since 2005.(A 2011 study analyzing the design–build project delivery method)

In Nepal –

– Residential Buildings/ Colonies in Private sectors

– Bridge Construction in Department of Roads

Design-Build : Advantages

Single point of responsibility for design and construction

Selection of contractor based upon qualifications, experience and team

Contractor provides design phase assistance in budget and planning

Faster project delivery than traditional bid, slightly faster than CMAR; fast track construction possible

Guaranteed price possible earlier in process

Price tends to match quality (also a disadvantage!)

No change orders written for this Consultant errors and omissions-covered through allowance in GMP. Owner still responsible for other types of changes.

BEST SUITED FOR: new construction projects that are highly time sensitive, projects with smaller user groups or reduced needfor user reviews and mid-course design changes.

Design-Build : Research Findings

D-B projects are delivered 33.5% faster than projects that are D&B under separate contracts (D-B-B)- Victor Sanvido and Mark Konchar of Pennsylvania State University

D&B projects are constructed 12% faster and have a unit cost that is 6.1% lower than D-B-B projects- Sanvido and Konchar

“Design-build delivery has been steadily increasing in the U.S. public building sector for more than 10 years, but it is still termed experimental in transportation- A study from the US Department of Transportation

A benchmarking and claims study by Victor O. Schinnerer, one of the world’s largest firms underwriting professional liability and specialty insurance programs, found that, from 1995–2004,

only 1.3% of claims against A/E firms were made by design–

build contractors.

Design-Build : Disadvantages

It limits the clients’ involvements in the design and contractors often make on design decisions outside their area of expertise

a designer—rather than a construction professional—is a better advocate for the client or project owner and/or that by representing different perspectives and remaining in their separate spheres, designers and builders ultimately create better buildings

the contractor is deciding on design issues as well as issues related to cost, profits and time exigencies

No check and balance between contractor and engineer/arch

Difficult for Owner to determine whether the best price has been achieved

Design-Build : Disadvantages

Considered ―sophisticated‖: Owner must have a clear idea of scope and concept before selection

Owner has no input on selection of proposed design team

Over-emphasis on price may compromise quality

Increased speed and fewer reviews increase potential for mistakes, missed items, etc.

Staff and users required to make quick decisions and have reduced time for reviews and input

Changes difficult and expensive to make once construction begins,

Alternative approaches:

Construction Management

The construction management framework is similar in many respects to a traditional construction contract.

The difference comes by way of the introduction of the construction manager, who takes the place of the general contractor and has a modified role.

In a ―pure‖ construction management structure, the owner again contracts with a consultant to prepare a design and contract documents

The CM/Contractor competitively bids the various Bid Packages representing the Construction Work required to complete the Project. The Contract requires the CM/Contractor to comply with the competitive bidding requirements

Construction Management approach

Process

– CM is hired by owner

– Architect is hired for construction documents

– The CM oversees design (cost, schedule and constructability)

– Construction documents are to bid or negotiate the work

– Contractor is selected

– CM is on board through construction

Construction Management approach

Construction manager added to team to oversee the project

Used for public and private projects that are more complex

Four players: owner, CM, architect, contractor

Four phases

2 types / Roles of CM

^vCM as advisor

^vCM as constructor

Construction Management approach

Advantages

Selection of contractor based upon qualifications, experience and team

Contractor provides design phase assistance in budget and planning

Continuous budget control possible

Screening of subcontractors allows Owner and contractor quality screening

Faster schedule than traditional bid; fast track construction possible

Construction Management approach

Advantages

More teamwork between design firm and contractor

Provides more ability to handle change in design and scope

Reduced changes and claims once in construction

BEST SUITED FOR: large new or renovation projects that are schedule sensitive, difficult to define or subject topotential changes; also for projects requiring a high level of construction management due to multiple phases, technical complexity or multi-disciplinary coordination.

Used by owners that don’t have the time or in-house expertise to oversee the process

Construction Management approach

Disadvantages

Additional cost for CM

Confusion of traditional roles

Relatively lengthy process

More complex relationships

No direct communication between owner/architect, owner/contractor

Construction Delivery methods

BOOT Definition

Popular financing method for infrastructure

Build-operate-transfer (BOT) requires the private sector to finance, design, build, operate and manage the facility and then transfer the asset free of charge to the government after a specified concession period.

BOT is defined as the granting of a concession by the government to a private promoter, known as concessionaire, who is responsible for financing, constructing, operating, and maintaining the facility over the concession period before finally transferring the fully operational facility to the government at no cost.

BOT Basic Forms

BOT is a general term and has 3 basic forms and dozen

of variant forms

The 3 basic forms:

BOT (Build-Operate-Transfer): no ownership

BOOT (Build-Own-Operate-Transfer): the Project Company has the ownership & BOT right -> lower price/tariff & longer concession period

BOO (Build-Own-Operate): no transfer, lowest price/tariff & longest concession period

BOT Variant Forms

BT (Build-Transfer)

BOOST (Build-Own-Operate-Subsidy-Transfer)

ROT (Rehabilitate-Operate-Transfer)

BLT (Build-Lease-Transfer)

ROMT (Rehabilitate-Operate-Maintain-Transfer)

ROO (Rehabilitate-Own-Operate)

BOT Variant Forms

TOT (Transfer-Operate-Transfer)

SOT (Supply-Operate-Transfer)

DBOT (Design-Build-Operate-Transfer)

DOT (Develop-Operate-Transfer)

OT (Operate-Transfer)

OMT (Operate-Manage-Transfer)

DBFO (Design-Build-Finance-Operate)

DCMF (Design-Construct-Manage-Finance)

BOT: Advantages

1. Private firms are more efficient; hence project or service can be delivered at lower cost.

Private firms are more innovative in selection of design and operation phases of a project or service.

Private sector invests directly in the development of infrastructure, thereby reducing public debt, balancing the budget deficit, and reduced role of public sector.

BOT projects create business opportunities for the local private sector, create employment avenues as well as attract substantial foreign direct investment.

BOT projects help in facilitating transfer of technology by introducing international contractors in the host countries.

BOT: Disadvantages

1. High transaction costs (5 – 10% of total costs).

Not suitable for smaller projects.

Success depends upon successful raising finance.

Projects are successful only when substantial revenues are generated during the operation phase.

Need for Government Oversight:

Price and fees (tariff)

Quality of service

Adequacy of service

Common Risks in a BOOT Project

Political risk: especially in the developing countries becauseof the possibility of dramatic overnight political change.

Technical risk: construction difficulties, for exampleunforeseen soil conditions, breakdown of equipment

Financing risk: foreign exchange rate risk and interest ratefluctuation, market risk (change in the price of raw materials), income risk (over-optimistic cash-flow forecasts), cost overrun risk.

Comparison of Traditional & BOT

Traditional Financing

Contract awarded based on cost

Contractor’s main risks include completion, political and performance risks

Financing risk and revenue risk are allocated to government

Financing is eventually covered by government bonds

Project Financing (BOT)

Contract is awarded base on lowest cost & shortest time of transfer to government

Contractor/developer’s main risks includes financing, revenue and political risks + operational cost

Contractor would gain benefit of an additional project that would have not been forthcoming under traditional financing

user-based fee that is more equitable

Helps govt. undertake more projects

Best Suit BOT Projects

Any projects but best suitable for natural resource exploring, infrastructure projects, e.g. (in order of easy financing):

Mining/oil/gas/petrochemicals (product for export)

Power, water, waste treatment (government off-takes)

Telecommunications (high profit & int’l income)

Road, tunnel, bridge (separate facilities)

Mass transit e.g. rail, subway (relative stable)

Airport, seaport (affected by int’l politics/economics)

Mass manufacture, e.g. big ship, airplane……

BOOT Projects Experience in Nepal

No infrastructure projects except few Hydro Powers,

Policy and acts are in place but not so conducive,

obstructions

Small internal economy and market,

Political instability,

Lack of experience of BOOT concept in infrastructure projects,

Unclear regulatory provisions,

Lengthy Procedure etc.

TENDERING PROCESS

A tender is a submission made by a prospective supplier in response to an invitation to tender. It makes an offer for the supply of goods or services.

In construction, the main tender process is generally for the selection of the contractor that will construct the works.

DETAIL INFORMATION IN TENDER NOTICE

Name of the Authority publishing the notice.

First date of publication

Brief description of the job.

Date, time and place where the tender document is available and to be submitted.

Cost of tender document.

Cost estimate (optional)

Earnest money and security deposit amount.

Date, time and place where the tender will open.

EARNEST MONEY OR BID SECURITY

It is the amount of money deposited while bidding as a guarantee of the party’s willingness of carrying out the work if awarded to him.

2-3% of the Project cost is demanded as earnest money.

This fund is refunded to unsuccessful bidder.

If a successful bidder fails to carry on (sign) the contract, this amount is forfeited.

PERFOMANCE GUARANTEE

It is the amount deposited by successful bidder as a security for satisfactory performance.

In Nepal, it is 5% of bid amount for Nepalese firm & 10% for foreign party.

It is refunded after defect liability period.

If contractor fails to carry on his duty, this amount is forfeited.

TENDER DOCUMENTS CONTAINS

Tender Notice

Form of Contract agreement

Conditions of Contract

Drawing

Specifications

Special Provision ( if any.)

BIDDING PROCESS

The Competitive Bidding process includes six main phases:

Advertisement,

Preparation and Issuing of the Bidding Document,

Bid Preparation and Submission,

Bid Opening,

Bid Evaluation, and

Contract Award

PREPARATION BEFORE TENDER

Complete and receive the project design.

Get final project estimate.

Get the estimate approved by the approving authority

Prepare tender documents and approved by approving authority.

Prepare tender documents to be sold.

Equip the project office to handle all the quarries of prospective bidders.

Ensure availability of fund for the project.

Employ supervisory manpower.

CONDITIONS OF CONTRACT

Contract being the legal agreement all the terms are clearly spelled out for easy functioning and minimize the dispute.

Condition of Contract documents are

General Condition of Contract.

Special conditions of contract.

CONDITION OF CONTRACT

General

Definition of terms

Project manager decision

Language and law

Employer risk

Contractor risk

Type of contract

Access to the site

Procedure for dispute settlement and so on.

B. Time Control

Management meeting

Early Warning

Extension of intended completion date

Penalty

C. Quality Control

Test

Correction of defect

D. Cost Control	E. Finishing the contract
1. Mode of Payement	1.	Termination
2.	Payment for variation	2.	Payement on
3.	Currencies		termination
4.	Security deposit	3.	Release from
5.	Advance payement		performance

CONTRACTOR’S PREQUALIFICATION

Prequalification

Post qualification

Prequalification

It is a kind of short listing of eligible contractor & avoids crowding of bidders taking account of their;

Experience of contractor

Financial capability

Equipment Capability

Litigation history ( legal dispute)

Objective of Pre-Q

List the experienced and interested contractor.

Avoid rejection of bids.

Time as:

30 days for NCB

60 days for ICB

2. POST QUALIFICATION

No Pre- qualification is done.

All participants are given chance for bidding

May be selected by

single envelop system or

double envelop system

According to their Financial & Technical Proposals.

TENDER EVALUATION

Opening of Bid:

A Public Entity shall have to open a bid in the presence of the bidder or its representative.
Preliminary Examination of Bid:
The purpose is to identify and reject the bids.

verification of signature

registration

J/V agreement

Eligibility

Bid security

Completeness

Qualification

TENDER EVALUATION

The purpose is the determine the lowest evaluated bid in accordance with the terms and conditions of the bidding documents.

If any arithmetical error is found in a bid, the Public Entity may correct such an error.

Where there is a discrepancy between figures and words in a bid submitted by a bidder, the amount in words shall prevail.

The qualification of the bidder of the bid having the lowest bid price is in conformity with the qualification evaluation criteria set forth in the bidding documents, such bid shall be the lowest evaluated substantively responsible bid.

Within 7 days of the selection of the bid, the Public Entity shall serve a notice of the intent of acceptance of bid to the concerned bidder.

TENDER EVALUATION

COMMERCIAL REASONS FOR REJECTING BIDS:

Bid security or bid validity period not in accordance with bidding document.

Inability to meet critical schedule.

Failure to comply with minimum experience or financial capability.

Conditional bids.

TECHNICAL REASONS FOR REJECTING BIDS ARE

Failure to bid for the required scope of work.

Failure to quote for each item in BOQ.

Failure to satisfy major requirement in the specifications.

TENDER EVALUATION

BID EVALUATION REPORT:

The bid evaluation committee shall prepare a Bid evaluation report within 15 days of staring of bid evaluation.

If there is no donor involvement or the donor does not require no objection, the Project manager of competent authority may enter into negotiation or agreement process.

AWARD OF CONTRACT

Within 7 days of the approval of the recommendations the Bid Evaluation Committee, the employer may issue the letter of intent to accept the lowest evaluated responsive bidder.

the information is to given to all bidders through public notice in newspaper.

If no any persons submitted any complain about the selection, the contract is awarded to the selected bidder and called for agreement with required performance bond within 15 days.

Construction Management

SELECTION OF APPROPRIATE EQUIPMENT

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Construction Management

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