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CONSTRUCTION CONTRACT MANAGEMENT

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Title: CONSTRUCTION CONTRACT MANAGEMENT


1
  • CONSTRUCTION CONTRACT MANAGEMENT
  • BY
  • MUMTAZ HUSSAIN
  • PROJECT DIRECTOR
  • CAPITAL DEVELOPMENT AUTHORITHY

2
Todays reality
  • Construction is complex and challenging.
  • Delays, changes, disputes, accidents cost more
    than ever.
  • Construction contracts are among the most complex
    forms of contract around because determinations
    of satisfactory performance of the obligation is
    difficult to determine.

3
INTRODUCTION
  • A contract is a formalized means of communication
    between two parties.
  • This facility is used very commonly by the
    project manager and owner to control the delivery
    of their projects.
  • A contract has the added advantage of forcing
    owners to define their, requirements, organize
    and arrange their thinking, and make a commitment
    to their project.

4
BASIC REASONS FOR A CONTRACT
  • BASIC REASONS
  • It defines the work and the owners delegation of
    responsibilities to the various parties to
    complete the work
  • It inherently defines the nature and extent of
    risk to various parties.
  • It defines the transfer of financial incentives
    to complete the work.

5
CONTRACT
  • THE WORD CONTRACT IS DERIVED FROM LATIN WORD
    CONTRACTUM WHICH MEANS DRAWN TOGETHER

6
WHAT IS A CONTRACT?
  • A contract may be defined as a voluntary
    agreement enforceable at law, made between two or
    more parties, whereby rights are acquired by one
    party to act or forbearances by the other.
  • According to the Construction Specification
    Institute (CSI) Manual of Practice, a contract is
    a promise or a set of promises for the breach of
    which the law gives a remedy of the performance
    of which the law recognizes a duty (CSI 2008).
  • The agreement is reached by the acceptance of an
    offer made by one party to do something for other
    for a stipulated consideration.

7
ELEMENTS OF A CONTRACT
  • These are the five basic elements of a contract
  • OFFER
  • CONSIDERATION
  • ACCEPTANCE
  • LEGAL PURPOSE
  • LEGAL CAPACITY

8
CONTRACT AGREEMENT
  • The agreement is designed to formalize the
    contract. It brings together all the other
    contract documents by reference to them and is
    legal instrument verifying the contract.

9
CONTRACT MANAGEMENT
  • That function of a project which is responsible
    for conformation of performance within the
    stipulations of contract.
  • CONSTRUCTION CONTRACT
  • A contract under which one party promises to
    furnish service materials to build a structure
    for another party who promises to pay for the
    work performed. There are two basic types of
    construction contracts
  • Fixed price (or lump sum)
  • Cost type

10
CONSTRUCTION CONTRACT (Contd.)
  • The success of a project is often judged on the
    construction performance because this activity is
    highly visible. The success of a project is also
    influenced by
  • The accuracy and details of its documentation
  • The understanding between parties and acceptance
    of their particular responsibilities
  • How professionally and accurately the day to day
    administration is handled
  • How conflict or contractual problems are resolved.

11
Construction Project Development Phases
  • Typical construction project development phases
    includes
  • Preliminary planning and feasibility studies
  • Preliminary engineering and design
  • Detailed Engineering design
  • Procurement
  • Construction
  • Operation
  • Demolition

12
  • Contracts are used during all phases of
    construction projects.
  • In the first phase , which is the feasibility
    phase, contracts are formed between an owner and
    a consultant, an engineering firm, or an
    architectural firm to perform a feasibility and
    site selection study.
  • In the construction phase contract are formed
    between an owner and a Contractor firm.

13
Construction Contract Documents
  • Characteristics of a good contract document
  • Carefully considered
  • Expressed clearly
  • Time-tested
  • Comprehensive
  • Fair
  • Balanced
  • Applicable to the elements of a construction
    projects

14
PEC BIDDING DOCUMENTS
  • Standard Form of Bidding Documents (Civil Works)
  • (to be used for estimated value of more than
    Rs. 25 Millions)
  •  
  • Standard Form of Bidding Documents for
    Procurement of Works (EM)
  • (to be used for estimated value of more than
    Rs. 25 Millions)
  • Standard Form of Bidding Documents for
    Procurement of Works
  • (For Smaller Contracts)
  • (to be used for all type of procurement for
    estimated value of not more than Rs. 25 Millions)
  •  
  • Standard Form of Contract for Engineering
    Consultancy Services
  • (For Large Projects) Time Based Assignments
  • (to be used for consultancy fee over Rs. 2
    Millions)
  •  
  • Standard Form of Contract for Engineering
    Consultancy Services
  • (For Large Projects) Lump Sum Assignments
  • (to be used for consultancy fee over Rs. 2
    Millions)
  •  
  • Standard Form of Contract For Engineering
    Consultancy Services

15
A NORMAL SET OF TENDER DOCUMENTS
  • INSTRUCTIONS TO BIDDERS
  • CONDITIONS OF CONTRACT (GENERAL PART-I
    PARTICULAR PART-II)
  • FORMS OF TENDER CONTRACT SECURITIES
  • SPECIFICATIONS SPECIAL PROVISIONS
  • BILLS OF QUANTITIES OR SCHEDULES OF PRICES
  • DRAWINGS
  • SUPPLEMENTARY DATA

16
STAGES OF CONTRACT MANAGEMENT
  1. PRE-REQUISITION OF INVITATION TO TENDER
  2. FORMULATION OF TENDER DOCUMENTS
  3. TENDERING/EVALUATION/AWARD
  4. CONTRACT ADMINISTRATION

17
STAGES OF CONTRACT MANAGEMENT (Contd.)
  • A - PRE-REQUISITION FOR INVITATION TO TENDER
  • A-1. COMPLETION OF FEASIBILITY STUDIES
  • TECHNICAL FEASIBILITY
  • ECONOMIC VIABILITY
  • ENVIRONMENTAL IMPACT ASSESSMENT(EIA)
  • A-2. DETAILED ENGINEERING DESIGN
  • DESIGN OF PROJECT COMPONENTS
  • FINALIZATION OF TECHNICAL REPORTS
  • SPECIFICATIONS
  • COMPUTATION OF QUANTITIES
  • FORMULATION OF ENGINEERS ESTIMATE

18
STAGES OF CONTRACT MANAGEMENT (Contd.)
  • A-3. ADMINISTRATIVE APPROVAL
  • PREPARATION OF PC-1 PROFORMA
  • APPROVAL BY THE GOVERNMENT
  • A-4. ARRANGEMENT OF FINANCES
  • LOCAL FOREIGN EXCHANG COMPONENTS
  • A-5. LAND ACQUISTION
  • A-6. PREQUALIFICATION OF CONTRACTORS

19
STAGES OF CONTRACT MANAGEMENT (Contd.)
  • B. FORMULATION OF TENDER DOCUMENTS
  • Specifications
  • Detailed Design
  • Tender Drawings
  • Estimation of Quantities
  • Decision About Specific Provisions
  • Decision About format-ADB/IDA
  • Conditions of Contract - Part 1 II.

20
TENDER DOCUMENTS
  • General Conditions of Contract
  • These define the legal rights and obligations of
    the parties and may be described as the
    regulations under which the contract will be
    performed.
  • Nominates an independent third person called the
    Engineer who is responsible for administering
    the contract
  • General conditions vary from country to country
    and organization to organization
  • Conditions of Contract internationally
  • Federation Internationale des Ingenieurs-
    Counseils (FIDIC), Switzerland, 1992.
  • Pakistan Engineering Council

21
Tender Documents (Contd.)
  • Special Conditions of Contract
  • These are additions to, deletions from or
    amendments to the General Conditions to make them
    project or party specific.
  • Specifications
  • Give full description of work to be carried out
  • Detail the materials and workmanship that the
    Contractor is to utilize in the project
  • Define the quality and standards of workmanship
    required
  • Act as a legal evidence in the event of
    litigation

22
Tender Documents (Contd.)
  • Drawings
  • Bill of Quantities
  • Quantities are estimates only and should have
    limits of accuracy
  • Tender
  • Formal offer to undertake the project. Price,
    conditions and method statements are detailed. It
    should be noted that all documents submitted with
    a tender form part of the tender
  • Letter of Acceptance
  • Relevant Correspondence
  • This often include points of clarification of
    either the Tender Documents or a tender.

23
INSTRUCTIONS TO BIDDERS
  • This Contains Information's And Instructions
    Which A Prospective Contractor Is Required To
    Know Or Abide By For Participation In Tendering-
  • Name Of Work To Be Constructed
  • Source Of Funds For The Works
  • Eligibility Qualification Requirement
  • Firms And Persons Authorized To Submit Tender
  • Cost On Tendering Not Reimbursable
  • What Makes A Tender Non-responsive
  • Holding Of Pre-tender Conference, If Required

24
Stages of Contract Management (Contd.)
  • TENDERING/EVALUATION
  • C-1. Tendering
  • Tendering Process
  • Packaging
  • LCB/ICB Tendering
  • Types of Tender

25
Stages of Contract Management (Contd.)
  • C-2. Evaluation
  • Tender Opening
  • Preliminary Evaluation
  • Detailed Evaluation
  • Procedure for Preference

26
C-2 TENDER EVALUATION
  • C-2.1 AT TENDER OPENING
  • IS TENDER SECURITY ACCOMPANIED WITH TENDER?
  • IS TENDER SIGNED, STAMPED ACCOMPANIED BY?
  • POWER OF ATTORNEY
  • JOINT VENTURE AGREEMENT
  • DISCOUNT (IF ANY)?

27
TENDER EVALUATION (Contd.)
  • GENERAL CONFORMITY OF
  • Legal Contractual Evaluation
  • Cost Financial Evaluation
  • Technical Evaluation
  • Deviations
  • Major
  • Minor

28
TENDER EVALUATION (Contd.)
  • C-2.2 PRELIMINARY EXAMINATION OF ALL TENDERS
  • ELIGIBILITY QUALIFICATION
  • ARITHMETIC CHECK
  • CURRENCY PROPORTION
  • ADJUSTMENT ON ACCOUNT OF FOREIGN COMPONENT?

29
TENDER EVALUATION (Contd.)
  • C-3. Detailed Evaluation Of Substantially
    Responsive Tenders Only
  • Detailed Scrutiny Of Minor Deviations
  • LEGAL CONTRACTUAL ASPECTS
  • TECHNICAL ASPECTS
  • COST FINANCIAL EVALUATION
  • Clarifications (If Required)
  • Loadings Of Tenders For Minor Deviations

30
Legal Contractual Evaluation
  • Evaluation for Responsiveness
  • Evaluation of legal Contractual Aspects
  • Comparison with Pre-qualification Status

31
Cost Financial Evaluation
  • Correction of Errors
  • Adjustment of Foreign Currency Components
  • Interest Rate for Delayed Payments
  • Price Adjustments
  • Evaluated Tender Price
  • Balanced Tender

32
Technical Evaluation
  • Program of Work
  • Key Personnel
  • Mobilization
  • Method of Construction
  • Equipment
  • Dewatering
  • Sub-Contractors
  • Materials

33
TENDER EVALUATION (Contd.)
  • RANKING OF SUBSTANTIALLY RESPONSIVE TENDERS
  • COMPARISON OF TENDERS AFTER ALLOWING DOMESTIC
    PREFERENCE
  • ISSUANCE OF LOA
  • PERFORMANCE SECURITY

34
  • Design phase
  • Preparation of Pre-qualification Documents
  • Advertisement
  • Pre-qualification Criteria
  • Pre-qualification Finalization
  • List of pre-qualified Contractors
  • Invitation to Pre-qualified Bidders
  • Instructions to Bidders
  • Bid submission Process
  • Pre-bid meeting
  • Evaluation of bids
  • Lowest Evaluated Bid
  • Letter of Acceptance
  • Submission of Performance Bond
  • Signing of Contract Agreement
  • Letter of Commencement/ Notice to proceed
  • Financial Assistance in form of Mobilization
    Advance

35
Bidder Conferences/Pre-Bid Meetings
  • Bidder conferences (sometimes called contractor
    conferences, vendor conferences, and pre-bid
    conferences) are meetings with all prospective
    sellers and buyers prior to submittal of a bid
    or proposal) are meetings with all prospective
    sellers have a clear and common understanding of
    the procurement (both technical and contractual
    requirements), and that no bidder receive
    preferential treatment.
  • Responses to questions can be incorporated in to
    the procurement documents as amendments.
  • To be fair, buyers must take great care to ensure
    that all prospective sellers hear every question
    from any individual prospective seller and every
    answer from the buyer.

36
TENDER SECURITY/BID BOND
  • Bid Bonds are used to protect owners when the
    contractor that is lowest, responsible ,
    responsive bidder on a competitively bid project
    refuses to enter into the contract for the
    project.
  • Amount of security shall be in form of Cash
    Deposit, Certified Cheque, Bank Draft, Letter of
    Credit, Guarantee from a Scheduled Bank in
    Pakistan or Foreign Bank Acceptable to Employer.
  • If Tender is not accompanied by an acceptable
    Tender Security (1-3 of Est. Cost, whereas 3
    for smaller Contracts). It will be rejected being
    non-responsive and having major deviation.

37
CONTRACT ADMINISTRATION
  • Performance Bond
  • Financial Assistance/Mobilization Advance
  • Appointment of the Engineer and Authority
  • Priority of Contract Documents
  • Retention Money
  • Insurances and risk management
  • Clause 14 Work Program
  • Liquidated Damages
  • Bonus
  • Variation Orders
  • Claims
  • Dispute Resolution
  • Price adjustment Clause
  • Taking over Certificate
  • Defect Liability Certificate

38
  • Performance Bonds
  • Performance bonds are guarantees by the surety
    that a contractor will perform the work as
    required by all of the conditions and terms of
    the contract
  • The Performance Security shall be of an amount
    equal to 10 of the Contract Price stated in the
    Letter of Acceptance. Such Security shall, at the
    option of the bidder, be in the form of either
    (a) bank guarantee from any Scheduled Bank in
    Pakistan or (b) bank guarantee from a bank
    located outside Pakistan duly counter-guaranteed
    by a Scheduled Bank in Pakistan or (c) an
    insurance company having at least AA rating from
    PACRA/JCR.
  • "Commencement Date" means the date upon which the
    Contractor receives the notice to commence issued
    by the Engineer pursuant to Clause 41.

39
  • The Engineer" means the person appointed by the
    Employer to act as Engineer for the purposes of
    the Contract. The Engineer shall obtain the
    specific approval of the Employer before carrying
    out his duties in accordance with the Clauses
    mentioned in document e.g.
  •  
  • Consenting to the sub-letting of any part of the
    Works under Sub-Clause 4.1 Subcontracting.
  • "Letter of Acceptance" means the formal
    acceptance by the Employer of the Tender.

40
5.2 Priority of Contract Documents
  •  
  • The documents listed at (1) to (6) of the
    Sub-Clause are deleted and substituted with the
    following
  •  
  • (1) The Contract Agreement (if completed)
  • (2) The Letter of Acceptance
  • (3) The completed Form of Bid
  • (4) Special Stipulations (Appendix-A to Bid)
  • (5) The Particular Conditions of Contract Part
    II
  • (6) The General Conditions Part I
  • (7) The priced Bill of Quantities (Appendix-D to
    Bid)
  • (8) The completed Appendices to Bid (B, C, E to
    L)
  • (9) The Drawings
  • (10) The Specifications and
  • (11)______ (any other).

41
  • Liquidated Damages
  • Rather Than have a contractor be in breach of
    contract if he or she is not able to complete a
    project as scheduled, liquidated damages provides
    compensation to owners when this situation occurs
    at the end of a construction project.
  • Fixed per day maximum amount 10 of contract
    price

42
  • BONUS
  • The Contractor shall in case of earlier
    completion be paid bonus up-to a limit and at a
    rate equivalent to 50 of the relevant limit and
    rate o f liquidated damages prescribed in the
    Contract.

43
  • Insurance of Works and Contractor's Equipment
  • Damage to Persons and Property
  •   Insurance Against Accident to Workmen
  • The Contractor shall, except if and so far as
    the Contract provides otherwise, indemnify the
    Employer against all losses and claims in respect
    of
  •  
  • (a) death of or injury to any person, or
  •  
  • (b) loss of or damage to any property (other
    than the Works),
  • Third Party Insurance (including Employer's
    Property)

44
  • Changes in plans and specs
  • clarification, correction, modifications prior to
    bid are referred to as addenda
  • owner must maintain a system of distributing and
    acknowledging receipt of addendum
  • plan and spec changes after award are referred to
    as revisions, and generally require issuance of
    a Variation order(s)

45
51.1 Variations
  • The Engineer shall make any variation of the
    form, qualify or quantity of the Works or any
    part thereof that may, in his opinion, be
    necessary and for that purpose, or if for any
    other reason it shall, in his opinion, be
    appropriate, he shall have the authority to
    instruct the Contractor to do and the Contractor
    shall do any of the following
  • (a) increase or decrease the quantity of any
    work included in the Contract,
  • (b) omit any such work (but not if the omitted
    work is to be carried out by the Employer or by
    another contractor),
  • (c) change the character or quality or kind of
    any such work,
  • (d) change the levels, lines, position and
    dimensions of any part of the Works,
  • (e) execute additional work of any kind
    necessary for the completion of the Works, or
  • (f) change any specified sequence or timing of
    construction of any part of the Works.

46
  • Variations Orders
  • a written order issued by the owner to the
    contractor for a change to the contract within
    the scope of work
  • change orders are written for
  • extra work
  • increasing or decreasing the contract quantities
  • alterations
  • change orders state the basis and amount of
    payment and time extensions

47
Ability to influence cost over time
  • Greatest potential to influence cost is during
    the pre-construction design phase
  • Claims avoidance begins during pre-construction
  • Design phase
  • Intensive preparation and review of contract
    documents
  • Careful consideration of methods and equipment
    consider overall constructability

48
Extension of Time for Completion
  • In the event of
  • (a) the amount or nature of extra or additional
    work,
  • (b) any cause of delay referred to in these
    Conditions,
  • (c) exceptionally adverse climatic conditions,
  • (d) any delay, impediment or prevention by the
    Employer, or
  • (e) other special circumstances which may occur,
    other than through a default of or breach of
    contract by the Contractor or for which he is
    responsible,

49
Taking-Over Certificate
  •   When the whole of the Works have been
    substantially completed and have satisfactorily
    passed any Tests on Completion prescribed by the
    Contract, the Contractor may give a notice to
    that effect to the Engineer with a copy to the
    Employer, accompanied by a written undertaking to
    finish with due expedition any outstanding work
    during the Defects Liability Period.

50
Defects Liability Certificate
  •   The Contract shall not be considered as
    completed until a Defects Liability Certificate
    shall have been signed by the Engineer and
    delivered to the Employer, with a copy to the
    Contractor, stating the date on which the
    Contractor shall have completed his obligations
    to execute and complete the Works and remedy any
    defects therein to the Engineer's satisfaction.
  • The Defects Liability Certificate shall be given
    by the Engineer within 28 days after the
    expiration of the Defects Liability Period, or,
    if different defects liability periods shall
    become applicable to different Sections or parts
    of the Permanent Works, the expiration of the
    latest such period, or as soon thereafter as any
    works instructed, pursuant to Clause 49 and 50,
    have been completed to the satisfaction of the
    Engineer. Provided that the issue of the Defects
    Liability Certificate shall not be a condition
    precedent to payment to the Contractor of the
    second portion of the Retention Money in
    accordance with the conditions set out in
    Sub-Clause 60.3.

51
ADMINISTER PROCUREMENT
  • Claims Administration
  • Contested changes and potential constructive
    changes are those requested changes where the
    buyer and seller cannot reach an agreement on
    compensation for the change, or cannot agree that
    a change has occurred.
  • These contested changes are variously called
    claims, disputes, or appeals.
  • Claims are documented, processed, monitored, and
    managed throughout the contract life cycle,
    usually in accordance with the terms of the
    contract.
  • If the parties themselves do not resolve a
    claim, it may have to be handled in accordance
    with alternative dispute resolution (ADR)
    typically following procedures established in the
    Contract.
  • Settlement of all claims and dispute through
    negotiation is the preferred method.

52
CONTRACT CLAIMS
  • Contract Claims could occur at any stage in the
    execution of a project.
  • Typical causes of claims include
  • Differing site conditions
  • Delays
  • Design error or changes
  • Interpretation differences
  • Acceleration or suspension of work
  • Additional work
  • Deleted work
  • Construction failures

53
  • Claims Avoidance
  • producing comprehensive, accurate, contract
    documents
  • constructability review
  • clear understanding of contract requirements
    prior to bidding
  • having good administrative procedures in place
  • open and honest communication
  • timely troubleshooting
  • Claims avoidance begins in the pre-construction
    phase

54
Procedure for Claims
  •  
  • 53.1 Notice of Claims
  •  
  • Notwithstanding any other provision of the
    Contract, if the Contractor intends to claim any
    additional payment pursuant to any Clause of
    these Conditions or otherwise, he shall give
    notice of his intention to the Engineer with a
    copy to the Employer, within 28 days after the
    event giving rise to the claim has first arisen.
  •  
  • 53.2 Contemporary Records
  •  
  • Upon the happening of the event referred to in
    Sub-Clause 53.1, the Contractor shall keep such
    contemporary records as may reasonably be
    necessary to support any claim he may
    subsequently wish to make. Without necessarily
    admitting the Employer's liability, the Engineer
    shall, on receipt of a notice under Sub-Clause
    53.1, inspect such contemporary records and may
    instruct the Contractor to keep any further
    contemporary records as are reasonable and may be
    material to the claim of which notice has been
    given. The Contractor shall permit the Engineer
    to inspect all records kept pursuant to this
    Sub-Clause and shall supply him with copies
    thereof as and when the Engineer so instructs.
  •  
  • 53.3 Substantiation of Claims
  • Within 28 days, or such other reasonable time as
    may be agreed by the Engineer, of giving notice
    under Sub-Clause 53.1, the Contractor shall send
    to the Engineer an account giving detailed
    particulars of the amount claimed and the grounds
    upon which the claim is based. Where the event
    giving rise to the claim has a continuing effect,
    such account shall be considered to be an interim
    account and the Contractor shall, at such
    intervals as the Engineer may reasonably require,
    send further interim accounts giving the
    accumulated amount of the claim and any further
    grounds upon which it is based. In cases where
    interim accounts are sent to the Engineer, the
    Contractor shall send a final account within 28
    days of the end of the effects resulting from
    the event. The Contractor shall, if required by
    the Engineer so to do, copy to the Employer all
    accounts sent to the Engineer pursuant to this
    Sub-Clause.

55
Disputes
Under ConstructionProblems Disputes
56
Settlement of Disputes
  •  
  • 67.1 Engineer's Decision
  • If a dispute of any kind whatsoever arises
    between the Employer and the Contractor in
    connection with, or arising out of, the Contract
    or the execution of the Works, whether during the
    execution of the Works or after their completion
    and whether before or after repudiation or other
    termination of the Contract, including any
    dispute as to any opinion, instruction,
    determination, certificate or valuation of the
    Engineer, the matter in dispute shall, in the
    first place, be referred in writing to the
    Engineer, with a copy to the other party. Such
    reference shall state that it is made pursuant to
    this Clause. No later than the eighty-fourth day
    after the day on which he received such reference
    the Engineer shall give notice of his decision to
    the Employer and the Contractor. Such decision
    shall state that it is made pursuant to this
    Clause.
  •  
  • Unless the Contract has already been repudiated
    or terminated, the Contractor shall, in every
    case, continue to proceed with the Works with all
    due diligence and the Contractor and the Employer
    shall give effect forthwith to every such
    decision of the Engineer unless and until the
    same shall be revised, as hereinafter provided,
    in an amicable settlement or an arbitral award.
  • Amicable Settlement
  •  
  • Where notice of intention to commence
    arbitration as to a dispute has been given in
    accordance with Sub-Clause 67.1, the parties
    shall attempt to settle such dispute amicably
    before the commencement of arbitration. Provided
    that, unless the parties otherwise agree,
    arbitration may be commenced on or after the
    fifty-sixth day after the day on which notice of
    intention to commence arbitration of such dispute
    was given, even if no attempt at amicable
    settlement thereof has been made

57
PRICE ADJUSTMENT IN CONSTRUCTION CONTRACTS
58
INCREASE OR DECREASE OF COST
  • It is not in the best interest of the Employer to
    ask tenderers to quote firm prices with no
    provision of adjustments, especially for
    long-term contracts.
  • In bidding documents having provisions for price
    adjustment, the Employer is expected to receive
    more competitive offers from reputable parties
    and will have to meet the net variations in cost
    as may actually occur.

59
S. No. MATERIAL MARKET PRICE MARKET PRICE Difference
    Dec-07/ Jan 08 31st May-08
1 Cement 240 300 25.00
2 Reinforcement 47000 84000 78.72
3 Diesel 37.8 50.21 32.83
4 Bitumen 36395 48195 32.42
5 Labour (unskilled) 250 300 20.00
60
PRICE INCREASE PRICE INCREASE
DEC 07/Jan 08 to 31st May 2008 March 2008 to 31st May 2008
39.40 21.29
61
Why a formula?
  • Make price adjustment (as a reasonable
    compensation against variation in prices of the
    selected materials and inputs) as close as
    possible to the actual
  • Set out a simple procedure
  • Minimize ambiguities and
  • Make the contract more equitable.

62
  • 1. COMPLETION PERIOD OF THE CONTRACT
  • Only contracts having duration of six months or
    more should be liable to price adjustment.
  • 2. COST OF THE CONTRACT
  • The Price Adjustment shall be applicable only
    for the contracts having contract price exceeding
    financial limit of PEC Contractors Registration
    Category C-5 (Rs. 30 Million).

63
  • Particular Conditions of Contract Part-II
  • Clause 70- Increase or Decrease of Cost
  • Adjustment Formula
  • Pn A bLn/Lo cFn/Fo dCn/Co eSn/So
    fEn/Eo gMn/Mo ..

64
APPENDIX-C
Cost Element Description Base Cost Weightages Applicable index
(i) Fixed Portion - 0.35
(ii) Labour Government of Pakistan (GP) Federal Bureau of Statistics (FBS) Monthly Statistical Bulletin.
(iii) Cement- in bag FBS
(iv) Reinforcement Steel Pakistan Steel Mills/ FBS
(v) HSD PSO
(vi) Bricks FBS
(vii) Bitumen Attock/National Refinery
Total 1.0
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  • 3. DECISION ABOUT ELEMENTS TO BE COVERED
  • 4. WEIGHTAGE OF EACH COST ELEMENT
  • 5. SELECTION OF SOURCE
  • In case the price adjustable elements are not
    covered in the Federal Bureau of Statistics, the
    Base price and the source thereof shall be
    mentioned by the Employer.

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  • 6. BASE COST PRICES
  • The base cost prices shall be those applying 28
    days prior to the latest day for submission of
    bids.

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Thank You
68
Methods of Procurement Consultancy Services
  • Quality and Cost Based Selection (QCBS)
  • Least Cost Selection (LCS)
  • Fixed Budget Selection (FBS)
  • Quality Based Selection (QBS)
  • Single Source Selection (SSS)
  •  

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What is a Major Difference Between a Partnership
and a Joint Venture?
  • A partnership is a voluntary association of two
    or more individuals to carry on a business for
    profit, usually on a permanent basis. A limited
    partnership provides for limited liability of one
    or more of the partners.
  • A joint venture, consists of two or more
    companies combining their resources to form a new
    company, as a separate entity from the existing
    companies, for the purpose of performing a
    contract. Once the contract is completed, the
    joint venture is dissolved along with the new
    company that was formed to perform the contract.

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Executing Project Procurement Management
Plan Contracting
  • Procurement documents
  • Request for Proposal (RFP) - requests a detailed
    proposal on how the work will be done, who will
    do it, . . . , basically a Project Execution Plan
    from the contractor
  • Invitation for Bid (IFB, or RFB) - requests one
    price to do all the work.
  • Request for Quotation (RFQ) - Requests a price
    quote per item, per hour charges, etc.

Test yourself
Procurement Document
Contract Type
Scope of Work
RFP
Cost Reimb. (CR) Fixed Price (FP) Time/Matl (TM)
Performance Design Any
IFB
RFQ
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Contract Types Versus Risk
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  • Employer
  • Contractor
  • Consultant
  • The Engineer
  • Engineers Representative

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Methods of Procurement Consultancy Services
  • Quality and Cost Based Selection (QCBS)
  • Least Cost Selection (LCS)
  • Selection Based on Consultants Qualifications
    (SBCQ)
  • Single Source Selection (SSS)
  • Fixed Budget Selection (FBS)
  • Quality Based Selection (QBS)
  • Individual Consultants
  •  
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