[4]Cost&Contract

Table of Contents

SECTION-I.........................................................................................1

Contract Management............................................................1

Procurement..........................................................................1

Procedures of open competitive bidding & Alternative methods of procurements.....................................................................6

SECTION-II.......................................................................15

Procurement of Works......................................................15

Pre-Qualification of Bidders..............................................15

PEC Bidding Documents for Procurement of Works...........31

Bid Evaluation and Award of Contract...............................44

The Role of the Employer & the Contractor.......................54

Risk Allocation & Management in Construction Contracts. 58

Construction Claims Management.....................................63

Price Adjustment in Construction Contract.......................81

SECTION-III......................................................................88

Procurement of Goods......................................................88

INCOTERMS....................................................................108

Documentary Credits in International Business Transactions113

International Trade.........................................................113

Dispute Settlement Provisions in Goods’ Contracts.........124

SECTION-IV....................................................................135

Procurement of Consulting Services...............................135

Estimating Cost and Budget for Consulting Services.......163

SECTION-V.....................................................................173

Engineering Cost Management.......................................173

Project Management......................................................173

Budget for Construction Projects....................................182

SECTION-VI....................................................................194

FIDIC Conditions of Contracts......................................................194

Guide Book – Cost and Contracts

ii Table of Contents


SECTION-I 1

SECTION-I Contract Management

Procurement In order to describe how procurement should be planned and implemented by the Employer, it is appropriate to establish at the outset why this topic is worthy of attention. This inquiry can be fruitfully addressed by approaching it from following three linked perspectives:

(a) The constituents of proficient public procurement and its distinguishing characteristics;

(b) Its’ importance; and

(c) Priority of its achievement and maintenance.

Proficient procurementThe principal distinctive characteristics of proficient public procurement are:

• Economy;

• Efficiency;

• Fairness;

• Reliability;

• Transparency; and

• Accountability and Ethical Standards.

Economy: Procurement is a purchasing activity whose purpose is to give the purchaser best value for money. For complex purchases, value may imply more than just price, for example, since quality issues also need to be addressed. Moreover, lowest initial price may not equate to lowest cost over the operating life of the item procured. But the basic point is the same: the ultimate purpose of sound procurement is to obtain maximum value for money.

Efficiency:

The best public procurement is simple and swift, producing positive results without pro-tracted delays. In addition, efficiency implies practicality, especially in terms of compatibil-ity with the administrative resources and professional capabilities of the purchasing entity and its procurement personnel.

Fairness:Good procurement is impartial, consistent, and therefore reliable. It offers all interested con-tractors, suppliers and consultants a level playing field on which to compete and thereby, di-rectly expands the purchaser’s options and opportunities.

Transparency:Good procurement establishes and then maintains rules and procedures that are accessible and unambiguous. It is not only fair, but should be seen to be fair.

Accountability and Ethical Standards:Good procurement holds its practitioners responsible for enforcing and obeying the rules. It makes them subject to challenge and to sanction, if appropriate, for neglecting or bending those rules. Accountability is at once a key inducement to individual and institutional probity, a key deterrent to collusion and corruption, and a key prerequisite for procurement credibility. A sound procurement system is one that combines all the above elements. This


SECTION-I 2

directly and concretely benefits the Employers, the Purchasing entities, responsive Contractors and Suppliers, and the donor agencies providing the project finance.

The Employer should establish fundamental rules for the use of its funds and for supervising the execution of projects. Four considerations guide these rules:

(a) Ensuring economy and efficiency in project implementation including the procurement of goods, works and services;

(b) Giving eligible bidders from member countries a fair opportunity to compete in procurement;

(c) Encouraging the development of domestic industries and consulting services; and

(d) Providing for transparency in the procurement process.

PROCUREMENT LIFE CYCLE PHASE• Procurement Life Cycle commences from the procurement planning phase to post con-

tract review phase.

• Throughout this period consideration is being given to the requirements of how the con-tract will be managed based on consideration of the value, complexity, strategic impor-tance, risk, the general market maturity and the selected supplier capability.

Contract ManagementContract management is the process that enables both parties to a contract to meet their obli-gations in order to deliver the objectives required from the contract. It also involves building a good working relationship between the parties. It continues throughout the life of a contract and involves managing proactively to anticipate future needs as well as reacting to situations

that arise. Contract Management is:

• Process enabling both parties to meet obligation• Involves building good working relationship• Enables & assists in anticipating future needs


SECTION-I 3

• Implemented through the Contract Management Plan

Importance of contract management

The importance of contract management is to ensure that services / works are provided:

To the required standard;

Within the agreed timeframe; and

Achieving value for money.

The key point is that the foundations for contract management are laid in the stages before contract is awarded, including the procurement process. The terms of the contract should include an agreed level of service, pricing mechanisms, incentives, contract timetable, means to measure performance, communication routes, escalation procedures, change control procedures, agreed exit strategy and agreed break options, and all the other formal mechanisms that enable a contract to function. These formal contract aspects form the framework around which a good relationship can grow. If the contract was poorly constructed, it will be much more difficult to make the relationship a success.

CONTRACT MANAGEMENT PHASE

In planning for contract management it is often broken down into three broad areas:

Service delivery management;

Relationship management; and

Contract administration.

All the three areas must be managed for successful completion of contract.

Service Delivery Management

Service delivery management is concerned with ensuring the service is being fully delivered: As agreed;

To the required level of performance; and

Quality.

The contract should define the service levels and terms under which a service is provided. Service level management is about assessing and managing the performance of the service provider to ensure value for money. Considering service quality against cost leads to an assessment of the value for money that a contract is providing. Thus Managing service delivery means ensuring that what has been agreed is delivered, to appropriate quality standards.

Relationship Management

As well as the contractual and commercial aspects, the relationship between the parties is vi-tal to making a success of the arrangement. Relationships should be managed in a profes-sional manner and be based on cooperation and mutual understanding taking into account the need for probity and ethical behaviour. Maintaining a good relationship does not mean that the terms of the contract are not enforced where this is warranted. It is about enforcing the terms of the contract in a professional manner based on evidence of contractual performance. This requires the establishment and maintenance of an appropriate record trail. What is nec-essary in the circumstances will vary but the importance of the maintenance of accurate, con-temporaneous records to successful contract management cannot be underemphasized. The


4 SECTION-I

approach to relationship development will vary depending on the contract, but it is important that the specific responsibilities are not neglected, even though there may not be a nominated individual assigned to the role of relationship manager.

Relationship management is focused on keeping the relationship between the two parties:

Open and constructive;

Resolving or easing tensions; and

Identifying problems early.

In long term contracts, where interdependency between the parties is inevitable, it is in the interests for the success full contracts to make the relationship work. The three key factors for success are trust, communication, and recognition of mutual aims. A structured approach to managing relationships should be adopted, comprising of informal, day to day discussions and interactions and formal meetings at pre-determined intervals with nominated personnel from both the parties.

Contract Administration

Contract administration covers the formal governance of the contract. These may include:

Contract maintenance;

Change control;

Cost monitoring;

Ordering procedures;

Payment procedures; and

Management reporting.

The importance of contract administration to the success of the contract, and to the relationship between the parties, should not be underestimated. Clear administrative procedures ensure that all parties to the contract understand who does what, when, and how. The contract documentation itself must continue to accurately reflect the arrangement, and changes to it (required by changes to services or procedures) carefully controlled.

These procedures are normally documented in the contract management plan.

The Contract Management plan

The written contract is a record of each party’s obligations. The contract management plan might include:

o A summary by date of milestones and deliverables,

o Key individuals and their responsibilities e.g. the contract manager, governance board.

o A schedule of risks that have been identified and are being monitored and managed.

o Reporting.

o Meeting schedules and any standard agenda items.

o Processes around how the contractual obligations are to be achieved.

o Procedures for the management of any specific activities in the contract.

o Contract variations. Details of the approval process and approval authorities.

o Details of any ordering procedures.

o Payment procedures


SECTION-I 5

Construction projects are becoming more and more complex due to new standards, advanced technologies, and owner-desired additions and changes. While the successful completion of projects has been thought to depend mainly on cooperation between the contractor, consul-tant, and owner, problems and disputes have always erupted due to conflicting opinions as to the various aspects of design and construction. However these may be averted with the appli-cation of greater sense of responsibility, lies on parties to contract for successful completion of works.

Contract Management solution is a must in your organization if;

You want compliance with contract prices as well as terms and conditions,

You want structured contract metadata to enable such things as risk analysis and plan-ning; better supplier performance measurement and management; better opportunity dis-covery for strategic sourcing, and compliance measurement and management,

You want more discipline, greater efficiency, and more speed in your process for con-tract authoring,

You want all contracts with suppliers to consistently reflect enterprise financial and legal standard terms, language, and priorities,

You want to be able to give more people access to contract data and documents without sacrificing security,

You want to make it easier for people to comply by making it easy for them to search for contracts and to extract the information they need from within contracts, and

You want audit trails and version controls around contract authoring and negotiation.

Successful Contract Management

A Successful contract management is defined as when:

The arrangements for service delivery continue to be satisfactory to employer / client / customer and contractor / supplier / provider,

Expected business benefits and value for money are being realised,

The contractor / supplier / provider is co-operative and responsive,

The employer / client / customer knows its obligations under the contract,

Disputes are minimum,

There are no surprises for either party.


6 SECTION-I

Procedures of open competitive bidding and Alternative methods of procurements

Procurement Planning Guidelines

General Considerations for implementation of work

• Scope of work

• Financing

• Eligibility

• Joint Ventures

• Misprocurement

• Fraud and Corruption

• Procurement Plan

• Type and Size of Contracts

• Type of Bidding

• Notification and Advertising

• Prequalification of Bidders

• Bidding Documents

• General

• Validity of Bids and Bid Security

• Language

• Clarity of Bidding Documents

• Standards

• Use of Brand Names

• Pricing

• Price Adjustment

• Transportation and Insurance

• Currency Provisions

• Currency of Bid

• Currency Conversion for Bid Comparison

• Currency of Payment

• Terms and Methods of Payment

• Alternative Bids

• Conditions of Contract

• Performance Security

• Liquidated Damages and Bonus Clauses

• Force Majeure

• Applicable Law and Settlement of Disputes


SECTION-I 7

Bid Opening, Evaluation, and Award of Contract' Time for Preparation of Bids

' Bid Opening Procedures

' Clarifications or Alterations of Bids

' Confidentiality

' Examination of Bids

' Evaluation and Comparison of Bids

' Domestic Preferences

' Extension of Validity of Bids

' Post-qualification of Bidders

' Award of Contract

' Publication of the Award of Contract

' Rejection of All Bids

Invitation for Bids (Important Public Procurement Rules are summarised below)

PPR-12 Methods of advertisement

(1) Procurements for Govt. Departments; over hundred thousand rupees and up to the limit of two million rupees shall be advertised on the PPRA’s website in the manner and format specified by regulation by the PPRA from time to time. These procure-ment opportunities may also be advertised in print media, if deemed necessary by the procuring agency. Procurements for Autonomous Bodies; this limit is for more than five hundred thousand rupees.

(2) All procurement opportunities for Govt. Departments; over two million rupees should be advertised on the PPRA’s website as well as in other print media or news-papers having wide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu.

PPRA require minimum information:1. Name of procuring agency.

2. Tender number (for identification)

3. Procurement Title (indicating type and quantity).

4. Contact person (for seeking bidding documents).

5. Last date for obtaining bidding documents and its price (if any).

6. Closing time and date as well as place for receiving bids.

7. Time and Place of public opening of bids (Bids must be opened on the closing date).

8. Amount of bid security (%age of bid price or lump sum).

9. Time period for performance of contract.

PPR-13 Response time

The response time shall not be less than fifteen working days for national competitive bidding and thirty working days for international competitive bidding from the date of publication of advertisement or notice.


8 SECTION-I

(PEC - preparation and submission of bids may take 42 to 154 days depending on the size of the Works, Civil and E&M)

PPR-15 Pre-qualification

A procuring agency, prior to the floating of tenders, invitation to proposals or offers in procurement proceedings, may engage in pre-qualification of bidders.

PPR-20 Principal method of procurement

The procuring agencies shall use open competitive bidding as the principal method of procurement for the procurement of goods, services and works.

PPR-21 Open competitive biddingThe procuring agencies shall engage in open competitive bidding if the cost of the object to be procured is more than one hundred thousand rupees in case of Govt. Departments and five hundred thousand rupees in case of Autonomous bodies, except provisions given under PPR-42, Alternative methods of procurements.

PPR-25 Bid security

The procuring agency may require the bidders to furnish a bid security not exceeding five per cent of the bid price.

(PEC - a lump sum figure ranging from 1% to 3% of the likely cost of the Works or a percentage ranging from 1 % to 3 % of the Bid Price for Civil and E&M works)

PPR-26 Bid validity

A procuring agency, keeping in view the nature of the procurement, shall subject the bid to a bid validity period. However under exceptional circumstances, if an extension is considered necessary, all those who have submitted their bids shall be asked to extend their respective bid validity period. Such extension shall be for not more than the period equal to the period of the original bid validity.

The Bidders who agree to the procuring agency’s request for extension of bid validity period shall not be permitted to change the substance of their bids; and if do not agree to the exten-sion shall be allowed to withdraw their bids without forfeiture of their bid bonds or securities

(PEC - the period of bid validity may range from 56 to 182 days depending upon the size and nature of the Works, Civil and E&M)

Bids Opening

PPR-28 Opening of bids

The bids shall be opened at least thirty minutes after the deadline for submission of bids on the same day.

PPR-31 Clarification of bids

No bidder shall be allowed to alter or modify his bid after the bids have been opened. How-ever the procuring agency may seek and accept clarifications to the bid that do not change the substance of the bid. The clarification and the response shall be in writing.

PPR-33 Rejection of bids

The procuring agency may reject all bids or proposals at any time prior to the acceptance of a bid or proposal. The procuring agency shall communicate, the grounds for its rejection of bids or proposals, but not required to justify those grounds.

PPR-34 Re-bidding


SECTION-I 9

The procuring agency before invitation for re-bidding may revise specifications, evaluation criteria or any other condition for bidders as it may deem necessary.

[As per PPRA, if all the bids prices substantially exceed the cost estimated/market value, the procuring agency is allowed to cancel all the bids prior to acceptance as provided under Rule-33 and invoke Rule 34 for re-bidding.]

PPR-35 Announcement of evaluation reports

Procuring agencies shall announce the results of bid evaluation in the form of a report giving justification for acceptance or rejection of bids at least ten days prior to the award of procurement contract.

PROCEDURES OF OPEN COMPETITIVE BIDDING

PPR-36 Procedures of open competitive biddingThe following procedures shall be permissible for open competitive bidding:

1. Single stage – one envelope procedure

2. Single stage – two envelope procedure

3. Two stage

4. Two stage – two envelope procedure

1. Single stage – one envelope procedure

• Each bid shall comprise one single envelope.

• The envelope shall contain, financial proposal and technical proposal.

• All bids received shall be opened and evaluated in the manner prescribed in the bid-ding document.

• The bid found to be the lowest evaluated responsive bid shall be accepted.

Note: This procedure is ordinarily the main open competitive bidding procedure used for most of the procurement.

Example:

Bidder Responsive BidCorrected Bid

PriceLowest Responsive

Bidder

Name Pre-Qualification Status Rs in million Award

A Qualified Responsive 1000 A

B Qualified Responsive 1100 -

C Not Qualified Not invited - -

D Qualified Non Responsive 900 -

E Not Qualified Not invited - -

F Qualified Responsive 1200 -

2. Single stage – two envelope procedure


10 SECTION-I

• The bid shall comprise a single package containing two separate envelopes. Each en-velope shall contain separately the financial proposal and the technical proposal;

• The envelopes shall be marked as “FINANCIAL PROPOSAL” and “TECHNICAL PROPOSAL”;

• Initially, only the envelope marked “TECHNICAL PROPOSAL” shall be opened;

• The envelope marked as “FINANCIAL PROPOSAL” shall be retained with the procuring agency without being opened;

• The procuring agency shall evaluate the technical proposal without reference to the price and reject any proposal which does not conform to the specified requirements;

• During the technical evaluation no amendments in the technical proposal shall be per-mitted;

• After the evaluation and approval of the technical proposal the procuring agency, shall at a time, date and venue within the bid validity period, publicly open the finan-cial proposals of the technically accepted bids only;

• For the opening of financial proposals of bids all the bidders who have participated will be invited.

• The financial proposal of bids found technically non-responsive shall be returned un-opened to the respective bidders;

• The bid found to be the lowest evaluated bid shall be accepted.

Example:

Bidder Technical Proposal Financial ProposalLowest Responsive

Bidder

Status Status Rs in million Award

A Qualified Responsive 1000 A

B Qualified Responsive 1100 -

C Not Qualified Not opened - -

D Qualified Non Responsive 900 -

E Not Qualified Not opened - -

F Qualified Responsive 1200 -

Note:

This procedure may be termed as the modified form of Post-Qualification.

Single stage two envelope bidding procedure shall be used where the bids are to be evaluated on technical and financial grounds and price is taken into account after technical evaluation.

In this Bidding method, the Employer is well aware of the work in hand, its’ design and speciations.

3. Two stage procedure

First stage


SECTION-I 11

• The bidders shall first submit, according to the required specifications, a technical proposal without price;

• The technical proposal shall be evaluated in accordance with the specified evaluation criteria and may be discussed with the bidders regarding any deficiencies and unsatis-factory technical features;

• After such discussions, all the bidders shall be permitted to revise their respective technical proposals to meet the requirements of the procuring agency;

• The procuring agency may revise, delete, modify or add any aspect of the technical requirements or evaluation criteria, or it may add new requirements;

• Those bidders not willing to conform their respective bids to the procuring agency’s technical requirements may be allowed to withdraw from the bidding without forfei-ture of their bid security;

Note: Such revisions, deletions, modifications or additions are communicated to all the bidders equally at the time of invitation to submit final bids, and that sufficient time is allowed to the bidders to prepare their revised bids.

Second stage

• The bidders, whose technical proposals or bids have not been rejected and who are willing to conform their bids to the revised technical requirements of the procuring agency, shall be invited to submit a revised technical proposal along with the finan-cial proposal;

• The revised technical proposal and the financial proposal shall be opened at a time, date and venue announced and communicated to the bidders in advance;

• The revised technical proposal and the financial proposal shall be evaluated in the manner prescribed above.

• The bid found to be the lowest evaluated shall be accepted.

Note: For the submission of the revised technical proposal and financial proposal the procuring agency shall allow sufficient time to the bidders to incorporate the agreed upon changes in the technical proposal and prepare their financial proposals accordingly.

Two stage bidding procedure shall be adopted in large and complex contracts where technically unequal proposals are likely to be encountered or where the procuring agency is aware of its options in the market but, for a given set of performance re-quirements, there are two or more equally acceptable technical solutions available to the procuring agency.

4. Two stage - two envelope procedure

First stage

• The bid shall comprise a single package containing two separate envelopes. Each en-velope shall contain separately the financial proposal and the technical proposal;

• The envelopes shall be marked as “FINANCIAL PROPOSAL” and “TECHNICAL PROPOSAL”;

• Initially, only the envelope marked “TECHNICAL PROPOSAL” shall be opened;


12 SECTION-I

• The envelope marked as “FINANCIAL PROPOSAL” shall be retained in the custody of the procuring agency without being opened;

• The technical proposal shall be discussed with the bidders with reference to the procuring agency’s technical requirements;

• Those bidders willing to meet the requirements of the procuring agency shall be al-lowed to revise their technical proposals following these discussions;

• Bidders not willing to conform their technical proposal to the revised requirements of the procuring agency shall be allowed to withdraw their respective bids without for-feiture of their bid security;

Second stage

• After agreement between the procuring agency and the bidders on the technical re-quirements, bidders who are willing to conform to the revised technical specifications and whose bids have not already been rejected shall submit a revised technical pro-posal and supplementary financial proposal, according to the technical requirement;

• The revised technical proposal along with the original financial proposal and supple-mentary financial proposal shall be opened at a date, time and venue announced in advance by the procuring agency;

• The procuring agency shall evaluate the whole proposal in accordance with the evalu-ation criteria and the bid found to be the lowest evaluated bid shall be accepted.

Note: For the submission of the revised technical proposal and supplementary price proposal a procuring agency shall allow sufficient time to the bidders to incorporate the agreed upon changes in the technical proposal and to prepare the required supplementary financial proposal.

Two stage two envelope bidding method shall be used for procurement where alter-native technical proposals are possible, such as certain type of machinery or equip-ment or manufacturing plant.

Acceptance of bids and award of contracts

PPR-38 Acceptance of bids

The bidder with the lowest evaluated responsive bid shall be awarded the contract, within the original or extended period of bid validity.

[Public Procurement Rules, 2004 don't put any limit on number of tenders/ bids received in response to tender notices provided that the procurement opportunity has been advertised in the prescribed manner. The single bid may be considered if it meets the evaluation criteria expressed in tender notice and is not in conflict with any other rules, regulations or policy of the Federal Government.]

PPR-39 Performance guarantee

The procuring agency shall require the successful bidder to furnish a performance guarantee which shall not exceed ten per cent of the contract amount.

(PEC - an amount equal to 10 percent of the Contract Price is commonly specified for bank guarantees)


SECTION-I 13

PPR-40 Limitation on negotiations

There shall be no negotiations with the bidder having submitted the lowest evaluated bid or with any other bidder.

PPR-41 Confidentiality

The procuring agency shall keep all information regarding the bid evaluation confidential until the time of the announcement of the evaluation report.

ALTERNATIVE METHODS OF PROCUREMENTSPPR - 42

a) Petty purchases

The object of the procurement is below the financial limit of Rs 25,000 (twenty five thousand rupees). Such procurement shall be exempt from the requirements of bidding or quotation of prices:

b) Request for quotations

(i) The cost of object of procurement is below the prescribed limit of Rs 100,000 (Rupees one hundred thousand) for Govt. Departments and Rs 500,000 (Ru-pees five hundred thousand) for Autonomous bodies;

(ii) The object of the procurement has standard specifications;

(iii) Minimum of three quotations have been obtained; and

(iv) The object of the procurement is purchased from the supplier offering the lowest price:

c) Direct contracting

(i) The procurement concerns the acquisition of spare parts or supplementary ser-vices from original manufacturer or supplier:

(ii) only one manufacturer or supplier exists for the required procurement:

(iii) Where a change of supplier would oblige to acquire material having different technical specifications or characteristics and would result in incompatibility or disproportionate technical difficulties in operation and maintenance:

(iv) The contract(s) do not exceed three years in duration;

(v) Repeat orders not exceeding fifteen per cent of the original procurement;

(vi) In case of an emergency:

(vii) When the price of goods, services or works is fixed by the government or any other authority, agency or body duly authorized by the Government, on its be-half, and

(viii) For purchase of motor vehicle from local original manufacturers or their au-thorized agents at manufacturer’s price.

d) Negotiated tendering


14 SECTION-I

(ix) For the supplies involved are manufactured purely for the purpose of support-ing a specific piece of research or an experiment, a study or a particular devel-opment;

(x) For technical or artistic reasons, or for reasons connected with protection of exclusive rights or intellectual property, the supplies may be manufactured or delivered only by a particular supplier;

(xi) For reasons of extreme urgency brought about by events unforeseeable by the procuring agency, the time limits laid down for open and limited bidding methods cannot be met. The circumstances invoked to justify extreme ur-gency must not be attributable to the procuring agency:

Note: For complete set of PPRA Rules, refer S.R.O. 432(I)/2004, dated 09-06-2004, Amended upto vide Cabinet Division No. 5/37/2005-M-III/Admin (PPRA), dated 23-09-2008.


SECTION-I 15

SECTION-II Procurement of Works

Pre-Qualification of Bidders

Introduction:The successful execution of contracts for large civil engineering works, supply and installation, turnkey, and design & and build projects requires that contracts be awarded only to firms, or combinations of firms, that are suitably experienced in the type of work and construction technology involved, that are financially and managerially sound, and that can provide all the equipment required in a timely manner. The assessment by an implementing agency of the suitability of firms to carry out a particular contract prior to being invited to submit a bid is a process called pre-qualification.

WB, ADB and most multilateral financing institutions require pre-qualification of firms for the construction of large or complex Works contracts.

PPR-15: A procuring agency, may engage in pre-qualification of bidders in case of services, civil works, turnkey projects and in case of procurement of expensive and technically complex equipment.

PEC Works bye-laws-4(4): A license granted by the Council shall entitle a licensee to perform an engineering work for the Client or Employer. However, the Client or Em-ployer may prescribe his own requirements over and above the requirements for li-cense prescribed by the Council.

WAPDA

For works worth more than Rs 250 million, pre-qualification of bidders is mandatory.

For works of Special nature valuing less than Rs 250 million, pre-qualification of bidders may be carried out.

Pre-qualification of bidders to be decided by the authority next above the authority competent to accept the Bid, upto Members/Managing Directors.

Advantage of Pre-qualification: Early elimination of non-conforming bidders.

Selection of homogenous bidders.

Encouraging genuine competitors to avoid unrealistic competitors.

Reduce bid evaluation efforts.

Allows adjustment/modifications in the bidding documents from the trend of appli-cants.

Facilitates Joint Venture formulation of pre-qualified bidders.

Reduce problems of low priced bids.

Help the non-qualified bidders from bidding efforts.

Enables the Employer to access bidders’ eligibility for domestic bidder price prefer-ence where this is applicable.

Where a project is divided into separate contracts, applicants may be pre-qualified through a single pre-qualification exercise.


16 SECTION-II

Disadvantage of Pre-qualification:o Loss of time and efforts before bidding

o For normal projects, duplicity against PEC licensing (possibility of price-rigging is easier among a limited number of identified bidders)

o Employer is required to review all prequalification applications, whereas post-qualifi-cation requires review of the qualifications of, the bidder who have quoted the lowest price, however if it fails then the qualifications of 2nd lowest proposer is evaluated and so on.

o Time gap between pre-qualification and bidding may nullify effect and/or loss of left over bidders

Areas for Pre-Qualification:Section 4(4) & 7(3) of PEC W/bye-laws and PPRs-15(2) envisage following areas for Pre-qualification:

Financial Soundness

Plant, Equipment and Personnel Capabilities

Previous experience (how a new contractor can work?)

Business Management Capabilities

Specific Expertise

Current PEC License

Any other area required relevant to work

The Pre-qualification ProcessThe pre-qualification process includes four main phases:

i. Advertising

ii. Preparation and Issuing of the Pre-qualification Document

iii. Application Preparation and Submission

iv. Application Evaluation, and Pre-qualification of Applicants

Pre-qualification of Bidders(Based on PEC Standard Procedure for Pre-Qualification of Constructors)

Invitation for Pre-qualification

Pre-qualification Documents :

Invitation for Pre-qualification

Instructions to Applicants

Evaluation Criteria

Letter of Application to be filled in Applicants

Various forms according to the work

Evaluation of the bidders

Communication of the evaluation result on pass/fail basis

Preparing Invitation:


SECTION-II 17

1. Name of the Executing Agency and Name of Project

2. Name of Executing Agency and General Project descriptions with location, nature and complexity of works

3. Expected date of issue of Invitation to Bid

4. Specify PEC construction license category

5. Address of Employer and Applicant

6. Amount of non refundable fee towards documents and Cost of mailing

7. Minimum essential requirements: may be number of projects completed, referred to Instructions to Application documents.

8. Delivery address, Last date of delivery, and project /Contact number

9. Name of Employer

Instructions to Applicants:All blank spaces to be filled in and instructions within parenthesis to be deleted.

• Original plus No of copies of submission

• Time period for Application submission

• Name of the Project

• Location, Time and Date for clarification, if provided

Qualification Criteria

Sr. No. Category Weightage/Marks

1. Financial Soundness 30

2. Experience Record 35

3. Personnel Capabilities 15

4. Equipment Capabilities 20

Total: 100

Prequalification status shall be decided on Pass/Fail basis. The applicant must score at least 50% score in each category.

Qualification Sub-Criteria

1. Financial Position:

Sr. Nr. Description Maximum Marks

1.1 Available Bank Credit Line 5

1.2 Working Capital during last 3 years 5

1.3 Registration with Income Tax Department 5

1.4Litigation History where decision went against the Firm

5

1.5 Blacklisting from any Agency 5

1.6 Valid License for other related items of Work 5

Sub-total: 30

2. General Experience:

Sr. Nr. Description Maximum Points


18 SECTION-II

2.1Projects of similar nature and complexity completed during latest 10 years

15

2.2 Projects of similar nature and complexity in hand 10

2.3Experience of Works related to project but not basic part (general experience)

5

2.4Status of enlistment with Government Organizations and other agencies

5

Sub-total: 35

3. Personnel Capabilities:

Sr. Nr. Description Maximum Points

3.1 Graduate Engineers Registered with PEC

a) Number of Engineers

b) Experience of Engineers in number of years

6

3

3.2 Number of Diploma Engineers in Employment of the Firm

a) Number of Engineers

b) Experience of Engineers in number of years.

4

2

Sub-total: 15

4. Equipment Capabilities (List relevant equipment and Assign Marks):

Sr. Nr. Equipment Type and Characteristics Maximum Marks

4.1 [e.g. Concrete Static mixer 0.4 cum capacity 2

4.2 Dumper 10 Ton Capacity 2

4.3 Mobile Crane 10 Ton etc.] 3

4.4

Sub-total: 20

Letter of Application: Employer to fill-in for their part

Some of the instructions and spaces attributable to Applicant shall be retained

Applicant must sign the Application in order to avoid disqualification

Forms;Forms are annexed for obtaining information of applicants as General Experience Record, Joint Venture Summary, Particular Experience Record, Details of Contracts of Similar Nature and Complexity, Current Contract Commitments/ Works in Progress, Personnel Capabilities, Candidate Summary, Equipment Capabilities, Financial Capability and Litigation History.

Evaluation Criteria:


SECTION-II 19

Applicants meeting the minimum requirements mentioned above besides other factors shall be considered for pre-qualification. No compromise shall be made on minimum requirements of 50% score in each category.

Evaluation Result (Passing/Maximum):

BidderFinancial Experience Personnel

Tool & Plant

Total Marks

PEC Category

Status

15/30 17.5/35 7.5/15 10/20 50/100 A/B Q/CQ/NQ

A 18 23 14 13 68 A Q

B 0 2 4 18 24 B NQ

C 0 3 0 13 16 B NQ

D 30 24 15 19 88 A Q

E 12 27 12 16 67 B CQ

F 12 25 5 17 59 B CQ

Q=Qualified, CQ=Conditional Qualified, NQ=Not Qualified

PEC Evaluation Criteria for Qualification; An example merely as guideline is given in detail in PEC Procedure for pre-qualification of constructors.

PEC Pre-qualification documents based on Engineering Works bye-Laws: Pre-qualification is an assessment made by the Employer, of the appropriate level of

experience and capacity of firms before inviting a constructor to bid.

“Bidder/Constructor” means any person, partnership, corporate body or other legal entity registered or licensed as such by the PEC (works/bye-laws 2(f)).

“Sub-contractor” means the constructor who has been sublet work by the prime con-tractor (w/bye-laws 2(n)).

Construction Contract” means the contract under which the contractor promises to complete the project undertaken by him through prime contract, sub-contract or in any other form of contract regardless of the appellation thereof, and the other party promises to duly effect the payment for such project executed by the said contractor (w/bye-laws 2(e)).

“Construction” of an engineering work shall also mean to include surveys, sub-soil and other investigations, erection, installation, testing and commissioning and execu-tion of any other activities required to achieve the desired final shape of an engineer-ing work, and shall also include extension remodeling, rebuilding and repair works (w/bye-laws 2(d)).

Registration of Constructors by some organization is not a substitute of Pre-qualifica-tion.

Organization blacklisting constructors shall inform PEC reasons for such action (w/bye-laws 8(11)).

Consulting engineer shall monitor constructor’s license status and inform PEC (w/bye-laws 8(12)).

Priority of Documents:


20 SECTION-II

Provisions stated in the Pre-qualification Documents.

In absence – relevant provision in PEC Act, bye-laws, procedure.

Pre-qualification Documents can not be prepared in contradiction to statute laws & relevant PEC Procedure and bye-laws.

Priority of PEC Documents:

Act

Relevant Bye-laws

Procedure (Guidelines)

PPRA Rules are assimilated in June 11, 2007 PEC documents.

PEC Licensed Contractors:

Engineering works to be assigned only to PEC licensed constructors

20% of work of other discipline can be executed by a licensee, in a particular field or disciplined, in which he is entitled (w/bye-laws 4(3)).

Foreign contractor’s license in two stages

Foreign contractors shall work with maximum 70% share of work in J/V with Pak-istani contractors with minimum 30% share of work (w/bye-laws 7(2)).

No separate license of J/V required (w/bye-laws 4(10))

J/V can work for value more than their individual entitlement (w/bye-laws 4(10)).

Can a licensed non-pre-qualified constructor bid in J/V with a pre-qualified bidder?

Yes; provided non-pre-qualified constructor subsequently found within pass limit.

Foreign constructor’s Enlistment Certificate can be treated as domestic con-structor’s license.

Pre-qualification must be as J/V (w/bye-laws 4(10))

License to foreign constructor is issued for project to project basis; therefore, license is possible only for winning bid (w/bye-laws 7(2)).

Two or more firms of common individual can not bid separately but in J/V (w/bye-laws 7(4)).

PEC license not required for only supply contracts, since, it is not engineering works (Act.2(k))

PEC licensed in appropriate category

Note :PEC Standard Procedure for Pre-Qualification of Constructors contains instructions to users to use the document and to evaluate the pre-qualification application. In the Invitation for Pre-qualification of Constructors, Instruction to Applicants and Letter of Application, the ‘User’ may make changes in the text only under some special circumstances.

Pre-qualification Documents :(Based on WB/ADB Standard Forms)


SECTION-II 21

The Employer is responsible for the preparation and issuance of the Prequalification Doc-ument (PQD).

The Employer shall prepare the PQD using the published version of the WB/ADB Standard Documents without suppressing or adding text in Section I, Instructions to Applicants (ITA), which does not allow modifications for works which are funded by the Bank.

The Employer and the Applicant should keep in mind that all information and data specific to an individual prequalification process must be provided by the Employer in the following sections:

Section I, Instructions to Applicants (ITA)

Section II. Prequalification Data Sheet (PDS)/ Applicants Data Sheet (ADS)

Section III. Qualification Criteria

Section IV. Application Forms

Section V. Eligible Countries

Section VI. Scope of Works

Section VII. Evaluation of Applications

The Applicant is responsible for the preparation and submission of its application. During this stage, the Employer shall promptly respond to requests for clarifications from Applicants and amend, as needed, the PQD.

The Employer shall appoint experienced staff to conduct the evaluation of applications.

Section I. Instructions to Applicants

• The Instructions to Applicants (ITA) specify the procedures that regulate the prequalifi-cation process.

• The ITA contains standard provisions that have been designed to remain unchanged, their wording should not be modified.

• The ITA refers those clauses that need to be complemented to suit the conditions of a particular pre-qualification process to the Prequalification Data Sheet (PDS); the PDS provides such additional information.

Sample:A. General

1. Scope of Application

1.1 In connection with the Invitation for Prequalification indicated in Section-II, Prequalification Data Sheet (PDS), the Employer, as defined in the PDS, issues this Prequalification Document (PQD) to applicants interested in bidding for the works described in Section-VI, Scope of Works. The name and identification of contract corresponding to this prequalification, are provided in the PDS.

2. Source of Funds

2.1 The Employer will arrange the finance towards the cost of the project named in the PDS. The Employer intends to apply a portion of the funds to eligible payments under the contract resulting from the bidding for which this prequalification is conducted.

………………………………………………………………………………………………

Sample:

Section II. Prequalification Data Sheet (PDS)


22 SECTION-II

A. General

ITA 1.1 The Employer is: : [ insert full name, including name of Project Officer, and address]

ITA 1.1 The list of contracts is: [insert number, names and identification numbers]

ITA 2.1 The name of the Project is: [insert name of Project]

ITA 4.1 (i) The parties in a JV [insert “shall” or “shall not”] be jointly and sev-erally liable

(ii) Maximum number of partners in the JV shall be: [insert a number or insert “not limited”]

B. Contents of the Prequalification Document

ITA 7.1 For clarification purposes, the Employer's address is:

[insert information _or state “same as in 1.1 above”]

Attention: [insert name of Project Officer]

Address: [insert full contact/address]

……………………………………………………………………………………………

Note: Provisions may be tailored;

• Slice and Package of Similar Contracts (ITA 1.1 and 25.3)

• Domestic Bidders Preference (ITA 22.1)

If the Loan/Credit Agreement allow a margin of preference for domestic contractors, and the Employer wishes to use the preference for the award of contract(s) subject to this prequalification, the PQD (and subsequent Bidding Documents) should include basic information on the preference

PEC Bidding Documents does not provide Domestic Bidders Preference for works contracts because of WTO regulation.

• Nominated Subcontractors (ITA 24.2)

Section III. Qualification Criteria

The purpose of Section-III, Qualification Criteria and Requirements is to specify the criteria and corresponding requirements that the Employer shall use to evaluate the applications and pre-qualify the Applicants. The Employer shall specify the “Qualification Criteria and Requirements” as per following table. The four main qualification criteria are:

1. Eligibility

2. Historical Contract Non-Performance

3. Financial Situation

4. Experience

Sample:

Eligibility and Qualification Criteria Compliance Requirements Documentation


SECTION-II 23

No. Subject Requirement Single Entity

Joint VentureSubmission

RequirementsAll Parties Combined

Each PartnerOne

Partner

1. Eligibility

1.1 Nationality Nationality in accordance with ITA Sub-Clause 4.2

Must meet requirement

Existing or intended JV must meet requirement


N/A Forms ELI – 1.1and 1.2,with attachments

1.2 Conflict of Interest

No conflicts of interest in ITA Sub- Clause 4.4

Must meet Requirement

Existing or intended JV must meet Requirement


N/A Application Submission Form

1.3 Employer’s Ineligibility

Not having been declared ineligible by the Bank, as described in ITA Sub- Clause 4.7


Existing JV must meet Requirement


N/A Application Submission Form

………………………………………………………………………………………………Note: The above provision may be amended as per specific requirements. A couple of

sample Forms are given at the end.

2. Historical Contract Non-Performance

2.1 History of Non-Performing Contracts

2.2 Failure to Sign Contract

2.3 Pending Litigation

3. Financial Situation

3.1 Financial Performance

3.2 Average Annual Construction Turnover

4. Experience

4.1 General Construction Experience

4.2 Specific Construction Experience

Section IV. Application Forms

The Employer shall include in the PQD all application forms that Applicants must complete and submit together with their applications. These forms are as specified in Section IV of the prequalification document:

a. Application Submission Form

b. Applicant Information Form

c. Applicant's Party Information Form

d. Historical Contract Non-Performance

e. Financial Situation

f. Average Annual Construction Turnover

g. General Construction Experience


24 SECTION-II

h. Similar Construction Experience

i. Construction Experience in Key Activities

Example: Financial Soundness of the Bidders;

Audited balance sheet for last 5 years to demonstrate:

Sr.# Financial Information Actual: previous five years (US $ million)

5 4 3 2 11. Total assets 18.5 19.0 20.0 23.0 25.0

2. Current assets 12.0 13.0 14.5 14.0 15.0

3. Total liabilities 9.0 10.5 10.0 11.0 11.5

4. Current liabilities 7.0 6.5 7.0 7.5 7.8

5. Profits before taxes 1.4 1.3 1.3 1.4 1.8

6. Profits after taxes 1.0 0.9 0.9 1.0 1.3

7. Net worth (1) - (3) 9.5 8.5 10.0 12.0 13.5

8. Current ratio (2)/(4) 1.7 2.0 2.1 1.9 1.9

9. Return on equity % (5)/(7 of prior year)

13.7 15.3 14.0 15.0

1. Current soundness of applicants and long term profitability;

Curent ratio = Curent assets / Curent liabilities

Average over last 5 years = (1.7+2.0+2.1+1.9+1.9)/5 = 1.9

If <1.5, then risk of potential financial problem exists for last 5 years.

Return on Equity = Profits before taxes / Net worth of prior year %

Average over last 5 years = (13.7+15.3+14.0+15.0)/4 = 14.5

If <10, then it is not consistent with net worth record for specified period.

2. Capacity to cash flow;

Contract Description: Building Construction

Estimated Cost (Including contingencies): US$ 528 million

Duration: 2 years

Cash flow = 528/24 = US$ 22 million per month

For four months = 22x4 = US$ 88 million

WB & ADB requires cash flow for about four months

3. Average annual construction turn over

Turn over = 528/2 = $ 264 million per year

Average annual turnover = 264x1.5* = US$ 396 million

*Factor = 2 if contract price is less than US$ 200 million


This Section states the country eligibility policy of the Employer’s Country, and provides lists of ineligible countries.


SECTION-II 25

Section VI. Scope of Work/Contract

WB Based;The Scope of Works should provide sufficient information for an Applicant to decide whether or not to compete for that type of works, and whether it will need to use subcontractors for specific parts of the Works, and/or form a Joint Venture. It should provide information on the three following aspects:

1. Description of the Works

Describe the Works in sufficient detail to identify location, nature, and complexity. Esti-mated quantities of major components of the works should be indicated in the bill of quan-tities.

2. Construction Period

State expected construction period and time in weeks or months; if alternative time schedules are permitted, give the range of acceptable construction periods. Additional construction time may be permitted for a combination of contracts if prequalification is for multiple contracts. The evaluation shall then take into account the benefits foregone for the longer times of completion.

3. Site and Other Data

Provide general information on the climate, hydrology, topography, geology, access to site, transportation and communications facilities, medical facilities, project layout, facilities, services provided by the Employer, and other relevant data.

ADB Based;The Scope of Contract should be complete, precise and clear in order to avoid unnecessary requests for clarification from Applicants that may cause delays in the prequalification process. Depending on the nature of clarifications, the Employer may need to amend the Pre-qualification Document and eventually extend the deadline for submission of Applications.

A. Requirements

1. Brief Description of the Scope

2. Major Contract Components

3. Estimated Quantities of Major Components

4. Methods Required

5. Contract Implementation Period

B. Supplementary Information

1. Project Country

2. Contract Site

C. Facilities to be Provided by the Employer


26 SECTION-II

Sample:Application Submission Form

Date: ____________ IFP No.: ___________

Title: _________________________

To: General Manager (C&M) Water, WAPDA,530, WAPDA House, Lahore

We, the undersigned, apply to be prequalified for the referenced Bid and declare that:

(a) we have examined and have no reservations to the Prequalification Documents, including Addendum(s) issued in accordance with Instructions to Applicants (ITA) Clause 8;

(b) we, including any subcontractors or suppliers for any part of the contract resulting from this prequalification process, have nationalities from eligible countries, in accordance with ITA Sub-Clause 4.3;

(c) we, including any subcontractors or suppliers for any part of the contract resulting from this prequalification, do not have any conflict of interest, in accordance with ITA Sub-Clause 4.4;

(d) we, including any subcontractors or suppliers for any part of the contract resulting from this prequalification, have not been declared ineligible by the Employer's country laws, official regulations, or under execution of a Bid Securing Declaration in the Employer's Country or having submitted Bid Security did not sign the contract after receipt of Letter of Acceptance as a successful Bidder, in accordance with ITA Sub-Clauses 4.6 and 4.8;

(e) we are not a Government owned entity and if we are, we meet the requirements of ITA Sub-Clause 4.7;

(f) we, in accordance with ITA Sub-Clause 24.1, plan to subcontract the following key activities and/or parts of the works:

______________________________

______________________________

(g) we declare that the following commissions, gratuities, or fees have been paid or are to be paid with respect to the prequalification process, the corresponding bidding process or execution of the Contract:

Name of Recipient Address Reason Amount

________________________________________________

________________________________________________

________________________________________________

________________________________________________

(h) We understand that you may cancel the prequalification process at any time and that you are neither bound to accept any application that you may receive nor to invite the prequalified applicants to bid for the contract subject of this prequalification, without incurring any liability to the Applicants, in accordance with ITA Clause 26.

Signed _____________________________

Name _______________________________ in the Capacity of ____________________________


SECTION-II 27

Duly authorized to sign the application for and on behalf of:

Applicant’s Name _________________________________________________________________

Address _________________________________________________________________________

Dated on ________ day of ______________, __________

Sample:Form ELI -1.1

Applicant Information Form

Date: _______________ IFP No.: _______________

Page _____of _____ pages

Applicant's/ Joint Venture applicant legal name:

In case of Joint Venture (JV), legal name of each partner:

Applicant's Actual or Intended country of constitution:

Applicant's actual or Intended year of constitution:

Applicant's legal address in country of constitution:

Applicant's authorized representative information

Name:

Address:

Telephone/Fax numbers:

E-mail address:

Attached are copies of original documents of

Articles of Incorporation or Documents of Constitution, and documents of registration of the legal entity named above, in accordance with ITA 4.3.

In case of JV, letter of intent to form JV or JV agreement, in accordance with ITA 4.1.

In case of Government owned entity, documents establishing legal and financial autonomy and compliance with commercial law, in accordance with ITA 4.7.


28 SECTION-II

Section VII. Evaluation of Applications Yes / No basis

The following flow chart indicates the successive steps of the evaluation process as a Guide during the evaluation, concurrently with Section-III. This Section is the part of user’s guide only.

Prequalification Evaluation Flow Chart

Post-qualification :


NO

Submission of Applications

Preliminary Examination: Completeness of documentation Eligibility Joint. Venture requirements

Request clarification and/or substantiation of information from

Applicant

Does Applicant substantiallycomply with preliminary

examination ?

Reject the Application.

Prepare reasons for rejection

Qualification Assessment History of Non-Performing Contracts Pending Litigation Financial Performance Average Construction Turnover General Construction Experience Similar Construction ?/?Experience

Experience

Are

the Applicant’s deficiencies

material?

NO YES

YES

NO

YES

Are theApplicant’s

deficiencies material?

Request clarification and/or substantiation of Information from

Applicant

Does the Applicant meet

allthe qualification

criteria ?

Does clarification and/or substantiation of information

substantially meet the qualification criteria

Qualify the Applicant

Prepare report and notification and seek Employer’s approval/Bank’s no

objection as necessary

Conditionally qualify the Applicant

NO

YES

YES

NO

SECTION-II 29

World Bank

An assessment made by the Employer after the evaluation of bids and immediately prior to award of contract, to ensure that the lowest-evaluated, responsive, eligible Bidder is qualified to perform the contract in accordance with previously specified prequalification requirements.

The Standard Bidding Documents prepared for use for the procurement of works for “smaller” contracts—valued at generally less than US$10 million, may be used under post-qualification of the bidders.

Does not prefer Post-qualification for large and complex works.

PPRA

Does not prefer Post-qualification.

ADB

Does have Post-qualification Bidding Documents, as SBD for Procurement of Works without Following Prequalification.

The Post-qualification process may be used for contracts of simple nature to be pro-cured through National Competitive Bidding valuing generally less than US$ 01 million.

The prequalification shall be used for National Competitive Bidding for the contracts for sophisticated works like fabrication of technically complex plant and equipment.

PEC

PEC Bidding Documents may be used for Post-qualification.

Note: The Single Stage-Two Envelop bidding procedure may be termed as the refined form of Post-Qualification, therefore being a well recognized transparent bidding procedure, Single Stage-Two Envelop should be used instead of Post-qualification.

Complete sets of Prequalification Documents are available on the following web sites:www.pec.org.pk

www.picc.org.pk

www.worldbank.org/procure

www.adb.org/Procurement

www.ppra.org.pk


http://www.worldbank.org/procure

http://www.picc.org.pk/

http://www.pec.org.pk/

SECTION-I 31

PEC Bidding Documents for Procurement of Works (Works worth more than Rs 25 million)

Bidding and Contracting Requirements

o Bidding documents are the fundamental documents and the basis for the execution of contracts.

o Well prepared bidding documents are essential for the success of projects. Ambigu-ous, incomplete or inconsistent bidding documents not only cause confusions and misunderstandings, errors and are the source of delay and construction errors, result-ing in costly disputes or litigation.

o It is thus vital to establish uniform procedures and standards for preparing bidding documents to minimize confusions, errors, delays and disputes.

Basis of the Documents

FIDIC GCC PART-I: 1987 (4th Edition) reprinted in 1988 and 1992 with further amendments

Pakistan Standard Conditions of Contract (Civil), 1st Edition reprinted in July 1993

Standard Bidding Documents finalized by WAPDA in 1987 for use on medium sized contracts

National Highway Authority Contract No.1, Indus Highway Project (N-55)

Asian Development Bank-Sample Bidding Documents

World Bank Standard Bidding Documents-Procurement of Works May 2005 (based on FIDIC 99 Second Edition)

Public Procurement Rules, 2004

Nature of the Documents

For Civil Works (may also include related works)

Finalized by PEC Act & bye-laws Committee

Reviewed by stakeholders – employers, consultants, constructors, Govt. organizations

Approved and Notified by P&D GoP and ECNEC in 2002 and 2004 respectively

Revised on June 11, 2007 and Notified by ECNEC on Feb 12, 2008

Law of the land – for all private/public sector projects over Rs. 25 million

Under P&D 2004 Notification – non use of the document will attract suspension of PSDP funds

Revised on March 2006 & June 2007

Relevant PPRA rules included

Integrity Pact added under PM’s directive

Combined COPA I & II as PCC

Reduced large work value from Rs. 50 million to Rs. 25 million

Changed the word ‘Tender’ to ‘Bid’

Harmonized the Documents with PPRA


SECTION-I 32

Insurance bonds at the option of Contractor

Payment period increased to 28 days

Delayed payment compensation revised as KIBOR+2% for local and LIBOR+1% for foreign currencies.

Purpose of the Documents

Increasing uniformity and productivity

Equitability among the contracting parties

Ensuring quality construction

Minimizing malpractices in award and execution

Timely completion of the projects

Avoidance of cost overruns

Growth of construction and consultancy sectors

Compliance of international standards and WTO provisions

Structure of the Documents

Instructions to Users of the Documents

Invitation for Bids

Instructions to Bidders

Bidding Data

General Conditions of Contract, Part I – (GCC)

Particular Conditions of Contract, Part II - (PCC)

Specifications - Special Provisions

Specifications - Technical Provisions

Form of Bid & Appendices to Bid

Sample Bill of Quantities

Form of Bid Security

Form of Agreement

Form of Performance Security/Bond & Mobilization Advance Guarantee/Bond

Drawings

Salient Instructions

Read the Instructions as check list

Part – I of GCC to remain unchanged

Amendments in Part – II, PCC are guided or as per requirement.

Any amendment in Part – II, PCC shall not alter the spirit of the documents

All the spaces to be filled in and instructions within parenthesis to be deleted appro-priately

Instructions to Bidders and Bidding Data may not form part of the contract

Invitation for Bids

Normally remains part of the Bidding Documents


SECTION-II 33

Calls for PEC license and pre-qualification / enlisting requirement (IB-3)

Blank spaces for the following to be filled by Employer:

Name of employer, funding detail, name of project and brief project descriptions

Employer’s mailing address

Cost of Bidding Documents

Bid Security amount; delivery address; hours and date; time for bid opening on same date

Instructions to Bidders (IB)

No change required in Instructions to Bidders

Notes on Bidding Data will be deleted

Instructions in parenthesis only will be deleted

In case of conflict , the information in Bidding Data will supersede those of the In-structions to Bidders

Documents comprising the bid are listed in IB-7

IB, GCC, PCC, Forms and all other items in IB-7 to be prepared/reviewed by the em-ployer

Bidding Data (BD)

Instructions to fill Bidding Data are as under:

1.1 Name and address of the Employer:

[Name of the Employer and his representative complete with address tele, fax, etc.]

1.1 Name of the Project & Summary of the Works:

[Insert brief summary, including relationship to other contracts under the Project. If the Works are to be tendered in separate contracts, describe all the contracts.]

2.1 Name of the Borrower/Source of Financing/ Funding Agency:

[Insert name of Borrower and statement of relationship with the Employer, if different from the Borrower]

2.1 Amount and type of financing:

[Loan/credit in various currencies towards the cost of the project]

8.1 Time limit for clarification:

[Minimum number of days to seek clarification by the prospective bidder may be inserted as 28 days.]

10.1 Bid language:

[The same language in which the Bidding Documents are written. English, should be used in National/ International Competitive Bidding.]

11.1(b) Prequalification Information to be updated:

[Indicate what items of information submitted with application for prequalification is to be updated. It may include: Evidence of access to financial resources, works awarded during the interim period, availability of essential critical equipment etc.]

11.1(c) Furnish Technical Proposal:Guide Book – Cost and Contracts

34 SECTION-II

[The bidder to submit a technical proposal in sufficient detail to demonstrate the adequacy of the bid in meeting requirements for timely completion of the Works.]

13.1 Currencies of Bid and Payment:

[Bidders to quote entirely in Pak. rupees but specify the percentages of foreign currency they require]

14.1 Period of Bid validity:

[Insert number of days after the deadline for Bid submission. Normally the validity period should not exceed 182 days.]

15.1 Amount of Bid Security:

[This amount should be the same as also quoted in the Invitation for Bids. A fixed sum is advisable with 1 to 3 % of engineers estimate]

17.1 Venue, time, and date of the Pre-Bid meeting:

[Insert address of venue, or indicate that the meeting will not take place. The meeting should take place not later than four weeks before the deadline for Bid submission. It should take place concurrently with the Site visit, if any (see Sub-Clause IB-6).]

18.4 Number of copies of the Bid to be completed and returned:

[Usually one original and two copies]

19.2(a) Employer's address for the purpose of Bid submission:

[Should match the receiving address provided in the Invitation for Bids.]

19.2(b) Name and Number of the Contract:

[Insert and number of Contract.]

20.1(a) Deadline for submission of bids:

[The time and date should be the same as that given in the Invitation for Bids]

23.1 Venue, time, and date of Bid opening:

[Date should be the same as that given for the deadline in Invitation for Bids but time for opening of bids shall be at least thirty minutes after the time for the deadline for submission of bids].

32.1 Standard form and amount of Performance Security acceptable to the Employer:

[Select the kind of Performance Security (bank guarantee and / or insurance bond), and indicate the amount.

An amount equal to 10 percent of the Contract Price is commonly specified for bank guarantees, which %age should match with that stipulated in Appendix-A to Bid.

WAPDA requires bank guarantee]

Bid and Appendices


SECTION-II 35

1. Form of Bid - only Bid Reference to be provided by Employer

2. All other blank spaces shall be filled by the Bidder

3. Bidder must sign and stamp Form of Bid appropriately

Appendix – A: Special Stipulations

1. Engineer’s Authority to issue Variation GC 2.1

[up to 2 % of the Contract Price]

2. Amount of Performance Security GC 10.1

[10 % of the Contract Price]

The cost of complying with requirements of this Sub-Clause shall be borne by the Contractor (PEC).

If in compliance with requirements, the charges to be incurred, is made part of BoQ under Bill Nr. 1: General Items;

The Contractor will arrange the Security, 10% of Contract Price from the bank, and in this connection bank charges incurred by the Contractor will be paid to him through BoQ item, generally known as prime cost/LS item.

Example: Engineer’s Estimate is Rs 1000 million with one year completion and one year defect liability (maintenance) period.

Bank Charges;

Performance Security (PS) @ 10% of EE = Rs 100 million

a) Bank Alfalah will charge @ 3.22 % of PS per year

=> Rs 6.44 million for 2 years

b) H B L @ 1.72 % of PS per year


c) A B L @ 1.43 % of PS per year


d) N B P @ 2.03 % of PS per year


It may be 2% to 3% for estimation purpose;

However normally charges are used.

3. Time for Furnishing Programme GC 14.1

[Within 42 days from the date of receipt of Letter of Acceptance]

4. Min. amount of third party insurance GC 23.2

[Rs 12.00 million]

Example: Insurance Coverages, Clause GC - 21, 23 & 24;


N B P

36 SECTION-II

Section – I;

Material Damage: Sum Insured (Contract Sum plus 15%)

Say Rs 1,000,000,000

Act of God including rain Rs 1,800,000

All other perils Rs 900,000

Equipment: Repair/replacement value

Section – II;

Third Party Liability: Limit of indemnity in respect of one or series of accidents arising out of one event i.e. Rs 12,000,000 Deductible for one occurrence Rs 120,000

Bodily Injury:

Property damage:

Section – III;

Workman Compensation: The Insured/Contractor’s liability to em-ployees (Workman) of the Contractor.

Compensation according to Workmen's Compensation Act, 1923 - Schedule I to IV.

The Costs of arranging such insurances shall be borne by the Contrac-tor (PEC).

If these Costs/Premiums are made part of BoQ under Bill Nr. 1: Gen-eral Items;

The Costs of arranging such insurances/Premiums, incurred by the Contractor will be paid to him through BoQ items, generally known as LS items.


i) Contractor All Risk Policy (CAR);

Premium @ 5‰ of value of work.

=> (5/1000 x 1000) = Rs 5.00 million

ii) Contractor Plant & Machinery (CPM);

Premium @12.5% on CAR Premium per year;

=> (12.5/100 x 5 x 2) = Rs 1.25 million for 2 years.

Total Premium for CAR & CPM = Rs 6.25 million for 2 years

iii) Third Party Liability (TPL);

Premium @10% on CAR Premium, per year;

=> (10/100 x 5 x 2) = Rs 1.00 million for 2 years

iv) Workman Compensation (WC);

Premium 5% on total salary component;

Total salary component for 2 years assumed = 18% of value of work


SECTION-II 37

Salary component for 2 year = 18/100 x 1000 = Rs 180 million

WC Premium @ 5% on total salary component.

=> (5/100 x 180) = Rs 9.00 million

Note: These premiums based on are generally considered for estimation purpose.

The value of premium is on lower side for higher value of work.

5. Time for Commencement GC 41.1

[Within 14 days from the date of receipt of Engineer’s Notice to Commence]

6. Time for completion GC 43.1 & 48.2

[364 days]

7(a) Amount of Liquidated Damages GC 47.1

[Rs 27,397/- per day]


LD per day = ½ % to 1% x V/P, where ½ % to 1% depends on size and period of work, ‘V’ is value of work (Engineer’s Estimate) say Rs 1000 millions and ‘P’, completion period in days, e.g. (one year) 365 days.

Considering 1% of Engineer’s Estimate per day;

LD = 1/100 x 1000,000,000/365 = Rs 27,397/- per day up to the limit 10% of the Contract Price.

As per WB and ADB, usually liquidated damages are set between 0.05 percent and 0.10 percent per day. If Sectional Completion and Damages per Section have been provided, the latter should be specified.

As per PEC, it shall be a sum equal to 10 % of the likely cost of the Works divided by one-fourth of the number of days specified as completion time.

Mere calculation based on percentage basis, which is common in practice, should be avoided!

7(b). Amount of Bonus GC 47.3

[If applicable half of the LDs per day subject to a maximum of 5% of Contract price]

8. Defects Liability Period GC 49.1

[364 days]

9. Percentage of Retention Money GC 60.2

[10 % of the amount of Interim Payment Certificate.]



N I C L

38 SECTION-II

The amount of an IPC/Running Bill is Rs 83 million. (Rs.1000/12)

Retained Money = 10/100 x 83 = Rs 8.3 million per IPC

10. Limit of Retention Money GC 60.2

[5 % of Contract Price]


Limit of Retention = 5/100 x 1000 = Rs 50 million.

Deduction at the rate of 10% of IPCs up to Rs 50 million.

(50% is released upon issuance of TOC and the remaining 50% i.e. Rs 25 million after DLP)

11. Min. amounting Running Bills GC 60.2

[Rs 50 Million]


The minimum amount of Interim Payment Certificate should be deter-mined by the Employer depending upon the size and duration of the Works.

Average amount of Running Bills = 1/1.5 x 1000/12 = Rs 55.33, say Rs 50 million

12. Time of Payment of Interim Payment Certificate GC 60.10

[28 days in case of local currency or 42 days in case of foreign currency].

In the event of the failure of the Employer to make payment within the times stated, the Employer shall pay to the Contractor compensation at the 28 days rate of KIBOR+2% per annum for local currency and LIBOR+1% for foreign currency, upon all sums unpaid from the date by which the same should have been paid.

The provisions of this Sub-Clause are without prejudice to the Contrac-tor’s entitlement under Clause 69, Default of Employer.

13. Mobilization Advance PCC 60.12 Select one of the following

a) Mobilization Advance; 15 % of the Contract Price (Interest Free)

• In two Equal Parts, Ist Part within 14 days after singing the agreement or date of receipt of Engineer’s Notice to Commence, whichever is earlier, and Second part within 42 days from the date of payment of the first part.

• The Advance shall be recovered in equal installments; first installment at the ex-piry of third month after the date of payment of first part of Advance and the last installment two months before the date of completion of the Works.

(WAPDA allows: 10% to 15% of the Contract Price)

b) Mobilization/ Demobilization Cost; 15% of the Contract Price

80 % of the Mobilization Cost shall be paid for mobilization at Site and 20 % of Mobilization Cost shall be paid for operation and maintenance of the constructed facilities and for demobilization as per schedule of payment.


SECTION-II 39

c) Materials Supplied by Employer;

The Employer shall supply to the Contractor materials, like cement, steel, bitumen or any other material whichever deemed necessary to complete the project; and the cost thereof shall be recovered from the Contractor through monthly statements on the basis of actual consumption.

Appendix – B: F/C. Requirements

Stamp “Not Used” if no foreign currency payment foreseen.

If F.C payment foreseen, blanks spaces in Appendix-B to be filled in by Bidder (IB-13.1).

Exchange Rate TT&OD Selling Rates published or authorized by SBP 28 days prior to Bid (IB-13.2).

Percentage and type of F.C without Provisional Sums.

Equivalent Rupees on the Exchange Rate.

Data to be filled in accordingly.

Modify Sub-Clauses 72.2 & 72.3 of GCC in PCC accordingly if, exchange rate for payment is different and payment of Provisional sums in F.C.

Appendix – C: Price Adjustment

To be filled in by Employer.

Employer may add/delete/modify elements according to project need.

Federal Bureau of Statistics indices apply where, available.

Appendix-C should be read with Formula under Sub-Clause 70.1 PCC.

Weightages or coefficients to be prepared on rate analysis for project to project.

Price Adjustment apply for contract duration six months or more.

Contractor can submit weightages and source of indices if he differs with Appen-dix-C; subject to approval by Engineer [70.1(c) PCC].

Appendix – D: Bill of Quantities

Given bills are examples only.

Employer should prepare various bills leaving blank spaces for rates and totals.

Reasonable accuracy in quantity estimate required to avoid cost overruns, Price Ad-justment accuracy etc.

Appendix – E: Construction Schedule

Construction Schedule to be provided by the bidder in prescribed manner.

Completion by parts/section shall be distinctly identified by separate Schedule.

Sheets to be attached as necessary.

Sub-clauses 43.1 & 48 of GCC to be referred.

Clause 43.1: completion part or whole of the works within scheduled time (Clause-48) or extended time (Clause-44).


40 SECTION-II

Appendix – F: Method of Work

Bidder to submit this information.

Organization chart of personnel for various activities.

Mobilization Plan/Facilities be provided.

Method of executing the work etc.

Appendix – G: Major Equipment

To be filled in by Bidder in three categories;- owned

- To be purchased

- To be arranged on Lease

Appendix – H: Camp & Housing

To be submitted by Bidder.

Sub-clause 34 (labour, staff, camp by Contractor at his own cost and responsibility) GCC apply.

Site Preparation.

Provision of services.

Construction facilities.

Construction equipment assembly.

Security Services etc.

Appendix – I: List of Sub-Contractors

To be submitted by the bidder.

Name of sub-contractors for each part of the work.

Profile of the sub-contractors to be submitted.

PEC license for the sub-contractors to be provided where applicable.

Appendix – J: Estimated Progress Payments

To be submitted by the bidder

Quarterly estimates based on his- Programme of works- Rates in BoQs- In Pakistani Rupees

Appendix – K: Organization Chart

To be submitted by bidder for

- Supervisory staff

- Labour

Appendix – L: Integrity Pact

To be signed and stamped by the bidder


SECTION-II 41

Name of the bidder is to be filled

Mandatory under Prime Minister’s directive and PPRA Rules

Punitive action against non-compliance stipulated under Sub-Clause 74.1 PCC

Forms

Bid Security IB-15

Form of Performance Security

Form of Contract Agreement

Mobilization Advance Guarantee

General Conditions of Contract (GCC)

FIDIC 1987, Fourth edition as GCC PART-I, no change is required in the GCC.

Particular Conditions of Contract (PCC)

Change in GCC Guided in “Instructions to User of the Documents” and space /in-structions provided in PCC PART-II

In the PCC following are the spaces/instructions:

1.1(a)(i) Name and address of Employer

1.1(a)(iv) Name and address of the Engineer

2.1(b) Employer may further vary Engineer’s duties and authorities requiring employer’s approval.

5.2(k) “any other” document in priority of Contract Documents

14.1 Employer to select appropriate (Bar chart)

21.1 Employer may vary Insurance sub-clause 21.1(b)

53.4 Failure to Comply - This Sub-Clause is deleted in its entirety

60.12 Financial Assistance to Contractor – Employer to select one of the three alternatives and delete the other two

67.3 Arbitration – place of arbitration to be provided

68.2 Notice to Employer and Engineer – Names and addresses of Employer and the Engineer to be provided

70.1(b) Price adjustment formula – Actual formula to be prepared

73.2 Customs Duty & Taxes – Employer may incorporate the provisions

Salient Amendments in June, 2007 Documents

Only one Particular Conditions of Contract instead of two (Part-I & II). Bid preparation time 42 to 154 days. No conditions of contract in special provisions. Technical specifications Guide included environmental, safety and seismic condi-

tions. Bank Guarantee from schedule bank/ insurance companies in Pakistan.


42 SECTION-II

J/V condition added in Invitation for Bids. Post qualification for reasons even for Pre-qualified bidder (IB 29.2). Announcement of bid evaluation report at least 10 days prior to issue of LoA. No negotiations for award, clarification meetings only to clarify outstanding matters

in bid evaluation reports (IB-31.2). Integrity Pact added with text at Appendix-L (IB-35). Price Adjustment: Appendix-C and Formula changed. Engineer's duties and authorities requiring approval of items added (2.1 PCC). Provisions for replacement of the Engineer revised (2.8 PCC). Mandatory requirement for insurance from NIC relaxed (25.5 PCC). Time for payment harmonized with PPRA (60.10 PCC). Complete formula for Price Adjustment built-in (70.1 PCC).

Debatable Issues

Invitation for Bids – Part of the Bidding Documents. Instructions to Bidders not part of the contract. Foreign contractors and funding agencies intend to avoid PEC licensing and J/V re-

quirements. Document signed by participants to be part of the bid evaluation report. Lowest evaluated responsive bidder to be awarded. IB.30 does not permit the Employer from escaping award to the lowest. Employer seeks negotiation but legally not tenable. Bid and Performance Securities from Insurance Company. Deletion of Sub Clause-53.4, Failure to Comply. Price Adjustment for 6 months or more duration contract. Determination of co-effi-

cient often incorrect. Employer reluctant to include delayed payment compensation provision. Contractors want Insurance Guarantee at their option.

Specifications: Special Provisions

It can include information specific to the project, about: Location of project

Site of works

Datum levels

Climate / Data

Utilities

Geology, Hydrology

Extent of work

Description of Works

Shop drawings

Right to change

Contractor’s responsibility

Quality of Materials


SECTION-II 43

Use of Standards / Specifications

Quality Control (QC) and Quality Assurance (QA)

Contract close-up

Inspection / Tests

Contract Schedule

Layout of works / surveys

Access to site

Facilities by contractors

Facilities by employer

Environmental protection

Lump Sum price breakdown

Measurement / payment

Specifications: Technical Provisions

General items

Care and handling of water including dewatering

Earthwork

Sand and aggregates

Cement

Concrete in general

Blinding concrete

Reinforced concrete

Reinforcement

Stone pitching

Canal lining

Bored cast-in-situ RC piles

Brickwork in general

Gate equipment

Miscellaneous works

Reinforced cement concrete railing

Drainage under concrete lining of canal

Note;

Complete form of PEC Bidding Documents is available on the following web sites:

www.ppra.org.pk,

www.pec.org.pk &

www.picc.org.pk



http://www.pec.org.pk/Download.axps

http://www.ppra.org.pk/

44 SECTION-II

Bid Evaluation and Award of Contract

Introduction

• Evaluation and Award are most important but often controversial matters.

• Bid is an offer or proposal of a specified price.

• Bid Price refers to the amount of money needed to acquire something.

• Type of bidding – ICB, LCB, SSB (Single Source).

• Tender and bid are used in the same meaning.

• Procedures of biddings:

Single Stage-single envelope

Single Stage – two envelopes

Two Stage – single envelope

Two Stage – two envelopes

• Evaluation is the process to determine whether a bid meets specified criteria.

• Generally according to provisions in the bid.

• Agreement = Bid + Acceptance

• A contract is the agreement enforceable by law.

• Principles to conform Contract Act 1872.

• Essentials of a valid contract: (a) competent to contract (b) free consent (c) lawful considerations (d) lawful object.

Parameters

Limited to procurement of goods and works.

Process commences upon receipt of bids.

Process ends after Award.

Based on Single Stage – Single Envelope method.

Based on the following PEC documents:

Standard Procedure for Evaluation

Instructions to Bidders for Civil Works Documents

Instructions to Bidders for E&M Works Documents

Instructions to Bidders for Smaller Works Documents

PPRA Rules 2004

Construction Engineering Works bye-laws

Planning Commission Guidelines

Priority of Documents for Evaluation

Provisions stated in the Bidding Documents.

In absence – relevant provision in PEC Act, bye-laws, procedure.

Bidding Documents can not be prepared in contradiction to statute laws & relevant PEC framework bidding documents and bye-laws.

Priority of PEC Documents:


SECTION-II 45

Act

Relevant Bye-laws

Procedure (Guidelines)

PPRA Rules are incorporated in June, 2007 PEC documents

General Principles

Evaluation shall be based on explicit provisions in the Bidding Documents.

In case deficient, ambiguous provisions; PEC documents and International Practices to follow.

Three bids requirement is a convention and an inference from Rule # 42 of PPRA Rules 2004.

Members of Committee for adjudication of evaluation must be engineers.

Instructions to Users of PEC documents are of legal value as rules.

Besides required knowledge, evaluators must have moral integrity, impartiality and should work on good faith.

Non-transparent evaluation and awards results:

Lack of interest by bidders at large.

Foreign bidders hesitate to invest.

Less competition increased cost, more time for project completion.

Area of Dispute

Substantial responsiveness.

Arithmetic corrections.

Price Adjustments of acceptable deviations (Loadings).

Long list of unresolved issues.

Pre-award negotiations/clarifications.

Domestic Preference.

Conditional acceptance Award to lowest bidder.

Getting Ready for Evaluation

Evaluation team comprising relevant professionals.

Preferably team members should be from among those preparing Bidding Docu-ments.

Necessary checklists, formats specific to the Bidding Documents are ready.

Bid opening materials received:

Copies of bids verified with originals.

Signed statements of the bid opening committee members.

Instructions to proceed with evaluation with schedule.

ISO-9001Process and Quality Plan for evaluation.

Bid OpeningGuide Book – Cost and Contracts

46 SECTION-II

• The committee publicly announce and sign tabulated sheet for:

– Name of bidder, single or a J/V of firms

– Quoted Price (read out)

– Discounts, if any

– Withdrawal of bids, if any

– Late receipt of bids, if any

– Submission of bid security & amount or otherwise

– Alternative bids, if any

– Minutes of the meeting prepared by the Committee

Read-Out Total Bid Prices and Discount

Sr. Nr.

Bidder's Name

Read-Out Tender Price

Discount

Offered

Tender Security Provide

d Yes/No

Discounted Tender Price

FCC *LCC FCC LCC

EURO USD PKREUR

OUSD PKR

1 Bidder A - 1,478,779 43,584,814 Nil Yes - - -

2 Bidder B 2,806,511 - 65,908,443 Nil Yes - - -

3 Bidder C - 2,431,072 68,760,570 Nil Yes - - -

* Includes Provisional Sum of PKR 15,000,000

Preliminary Examination

Pertains to Eligibility, Qualification, Bid Security and Completeness of Bid;

Eligibility of Bidders:

Have valid PEC License.

Pre-qualification/enlisted with Employer.

From eligible countries.

Qualification of Bidders:

Capacity to work & minimum years of work experience.

From eligible source country.

Average Annual turn over during last five years equal to or more than the Bid price.

Adequate funding facility/line of credit.

If foreign bidder; represented local by agent having maintenance, repair and spare parts facilities.

Written power of Attorney for the signatory.

Availability of critical construction equipment.

Joint Venture Agreement, in case the bidder is a J/V. At least one of the J/V partners shall satisfy experience requirement.


SECTION-II 47

Properly signed by the authorized person(s) and the authorization is bona-fide and available.

Any other items, provided in the Bidding Documents due to its peculiarity.

Documents comprising the Bid are accompanied, duly signed and stamped.

Accompanied Bid Securities:

Amount and validity period are adequate.

In the prescribed form.

From Scheduled Bank/ Insurance in Pakistan.[WAPDA does not allow Bid Securities from any Insurance Company]

For the specified period.

Original Security.

In the name of J/V in case bidder is a J/V.

Segregation of Bid Security in special circumstances.

Clarification of Bids – IB.23 & IB.25:

To assist in examination, evaluation and comparison.

Query to bidder is at the discretion of Employer.

Bid-Queries and their responses shall be in writing.

Not to change the substance of the bid.

Requirements for clarifications may also include confirmation and to provide sup-porting documents.

Substantial Responsiveness (IB.24 & IB.26):

A substantially responsive bid is one which (i) meets the eligibility criteria; (ii) has been properly signed; (iii) is accompanied by the required Bid Security; and (iv) conforms to all the terms, conditions and specifications of the Bidding Documents, without material deviation or reservation.

The details and implications of any deviations which are not explicit should be clarified by the Engineer/Employer with respective bidders without change in the substance or price of the bids. Bids with minor deviations may be considered substantially responsive if their further consideration assigns a monetary cost or adjustment to the bid for the purpose of bid comparison only.

Bids, not be considered responsive, if:

• Not accompanied with bid security.

• The bidder/JV Partner participated in more than one bid.

• Bid received after deadline for submission.

• Bid submitted through fax, telex, telegram or e-mail.

• Prices quoted are not firm, in case of firm price contract.

• Bidder/JV refuses to accept arithmetic corrections.

• Bid is materially different.

• Any other conditions of rejection stated in a particular Bidding Documents.


48 SECTION-II

Arithmetic Corrections – IB.27:

Check for the discount calculations.

The amount in words will govern instead of amount in figure.

Unit rates govern to correct line total.

Exception to the general rule, if the Employer is of the opinion that “gross mis-placement of the decimal point in the unit rate”.

Correction thus made is binding upon bidder; non-acceptance will entail forfei-ture of Bid Security.

Material deviation or reservation:

Which affects in any substantial way the scope, quality, or performance of the works?

Which limits in any substantial way, inconsistent with the Bidding Documents, Em-ployer’s rights or bidder’s obligations?

Whose rectification/adoption will affect competitive position of bidders?

Minor informality, non-conformity or irregularity will not constitute reasons for rejec-tion, which can be waived-off.

Detailed evaluation to be carried out only for the substantially responsive bids.

Detailed Evaluation of Bids

Correction for Prices:

Read-out total bid prices excluding provisional sums and discounts.

Corrected total bid price (discount + arithmetic corrections).

Corrected price converted to single currency.

Evaluated Bid Price after Price Adjustment.

Corrected Total Bid Prices Converted to Single Currency

Sr.Nr.

Bidder’s Name

Corrected Total Tender Price Corrected Total Tender Price Excluding Provisional Sums

Eq.PKRFCC LCC

PKREURO USD

(1) (2) (3) (4) 5={(3)x**}+{(4)-15,000,000*}

1 Bidder A - 1,468,814 43,557,284 146,062,403

2 Bidder B 2,806,511 - 65,908,452 387,689,172

3 Bidder C 2,431,072 68,760,570 248,246,330

*Provisional Sum of PKR 15,000,000 ** Exchange Rate; US$=Pak. Rs 80/-, Euro€=Pak. Rs 120/-Bank is State Bank of Pakistan

Computations & rates to be part of Bid Evaluation Report:

Exchange Rate used on the date of Bid Date for evaluation Price Adjustments for Technical Compliance Price Adjustments for Commercial Compliance Domestic Preference, if applicable

Price adjustments (Loading):


SECTION-II 49

For evaluation purpose only

Only against stated provisions

Completeness – included in other items

Missing items – competitor’s average price

Technical compliance – highest price of bidders

Payment terms – highest Bank Rate/annum

Completion Schedule – 0.05% of total bid price per day

Commercial Compliance – cost of doing the deficiencies

Other deviations – Prima Facie situation

Domestic Preference – IB.27(E&M):

For Civil Works – no preference

Preference for use of indigenous products as per SRO 827, dated: 03-12-2001

All Bidders; domestic, J/V, foreign entitled to Price Preference for minimum total of 20% value addition

Preference 15%, 20% & 25% are allowed

Preference is calculated on a prescribed formula by reducing corresponding ex-factory bid price

ADDITIONS, ADJUSTMENTS AND PRICED DEVIATIONS

Bidder Corrected/

Discounted

Bid Price

Additions Adjustments Priced

Deviations

Total Price

(b) + (c) + (d) + (e)

(a) (b) (c) (d) (e) (f)

Each insertion in columns c, d, or e should be explained in adequate detail, accompanied by calculations.

Summary of Evaluation Procedure

Minor Material deviations

Deviations from the bidding requirements which do not appear at first sight so serious as to provide immediate grounds for bid rejection maybe considered further in the evaluation process. The following are examples of such deviations:

i. An amount of advance payment and other payment terms (including retention money, guarantees, the details of price adjustment provision) differing from the prescribed conditions;

ii. Non-compliance with local regulations relating to labour, imports taxes, duties, no-tarization, etc.;


50 SECTION-II

iii. Changes in specified methods of construction or execution (temporary works, shift work by labour, etc.);

iv. Subcontractors slightly meeting pre-specified requirements;

v. Omission (deliberate or unintentional) of minor works or items included in the scope of work;

vi. Non-acceptance of full liabilities (e.g. risks to third parties, nearby structures, etc.);

vii. Modification of, or a limit to the amount specified for liquidated damages; and

viii. Proposed changes in standards or codes relating to materials, workmanship or design.

After clarification from Bidder, the implication of a deviation may be such as to justify rejection of the bid as non-responsive. A bid is likely not to be considered if;i. It is submitted by a Bidder who has participated in more than one Bid.

ii. It is received after the time and date fixed for its receipt.

iii. It is submitted through fax, telex, telegram or e-mail.

iv. It is not accompanied with Bid Security.

v. It is unsigned

vi. Its validity is less than specified.

vii. It is submitted for incomplete Scope of Work.

viii. It indicates completion date later than specified.

ix. It indicates that prices quoted are not firm during currency of the contract except those prices where escalation/adjustments are permitted in the Conditions of Contracts.

x. It indicates that material to be supplied does not meet the eligibility require-ments.

xi. It indicates that Bid Prices do not include the amount of taxes & duties.

xii. If Bidder refuses to accept the arithmetic corrections.

xiii. It is materially and substantially different from the Conditions/Specifications of Bidding Documents.

xiv. It provides Sub-contracting, contrary to conditions specified in the Bidding Doc-uments.

xv. It fails to comply Mile-Stones/critical dates specified in Bidding Documents.

xvi. The bidder is not valid license holder of the PEC

Major Material deviations

i. Stipulating price adjustment when fixed price bids were called for.

ii. Failing to respond to specifications.

iii. Failing to comply with Mile-stones/critical dates provided in Bidding Documents.

iv. Subcontracting contrary to the Conditions of Contract specified in Bidding Docu-ments.


SECTION-II 51

v. Refusing to bear important responsibilities and liabilities allocated in the Bidding Docu-ments, such as performance guarantees and insurance coverage.

vi. Taking exception to critical provisions such as applicable law, taxes and duties and dis-pute resolution procedures.

vii. Those deviations that are specified in the IB requiring rejection of the bid (such as, in the case of works, participating in the submission of other bids other than as a subcontrac-tor).

Example: Conformance to Bidder Requirements (Commercial)

Sr. Nr.

Clause Nr. of IB

Description Specified Requirement Bidder A Bidder B Bidder C

1 2.1 Prequalification of Bidders

Whether the Bidder is pre-qualified

C C C

2 2.1 Eligibility of Bidders

Registered with PEC C1 C1 NC1

3 2.1 Eligibility of Plant and Services

(a) Covering Letter C C C

4 9.1 Documents comprising the Bid

(b) Form of Bid /Letter of Offer (duly filled-in, signed and stamped)

C2 C C

C: Conformance NC: Non Conformance S: Submitted NS: Not Submitted NA: Not Applicable

Example of notes

Bidder A

C1:As required under the provisions of Sub-Clause 2.1 of Instructions to Bidders (IB), PEC license valid for the year 2005 has been provided for Siemens Pakistan only, whereas, Bidder has not provided Enlistment Certificate for Siemens AG, Germany.

C2:Bid – Schedule A Price Schedule is initialed by a person for whom no Power of Attorney is available with the Bid. In response to post bid query, Bidder provided Power of Attorney of required person.

C3:Bid – Schedule ‘E’ Specific Plant Data is not initialed as per Sub-Clause 9.1 of IB.

C4:The amount of Bid Security shown is incorrect. This matter has further been discussed in the Report.

Evaluation Process

Process to be confidential until Announcement of evaluation result.

Announcement to be made at least 10 days prior to award.

Announcement text has been simplified under IB.24.

Any effort to influence Employer in processing bid or in award may result in rejection of such bid.

Aggrieved bidder may lodge written complaint within 15 days of An-nouncement.

Mere lodging complaint should not suspend procurement process.

Employer’s Evaluation or Grievance Redressal Committee will dispose off the grievances.


52 SECTION-II

Bid Evaluation will not contain too many unresolved matters requiring res-olution prior to award.

Award of Contract

• Employer’s Right to Accept or Reject - PPR-38

Prior to contract award: Accept or reject any bid, annual bidding process and re-ject all bids at any time.

No liability of Employer for affected bidders.

Grounds for rejection (without justification) will be communicated to requesting bidder(s).

Rejection of all bids shall be notified to all bidders promptly.

IB 29.1 when read in conjunction with PPR-38; lowest evaluated responsive bid-der can not be avoided.

• Employer shall not award to a bidder black listed by PEC (IB.24).

• Employer’s right to post qualification;

Even the bidders were pre-qualified, for a reason or prima facie evidence.

If pre-qualified, post qualification is for only lowest evaluated responsive bidder.

Minimum post qualification review items are; (a) completed at least one such project and value of the project is equal or higher than the Bid Price in last five years.

• No negotiations but clarifications on outstanding items in Bid Evaluation Report (IB 31.2).

• Conditional Acceptance of bid is not tenable under Section 7 of Contract Act 1872.

• Letter of Acceptance to be issued prior to expiration of Bid validity period.

• Upon receipt of Performance Security, the Employer will notify others and return their bid securities.

• Failure to furnish Performance Security within 28 days of LOA may annul the award of contract and forfeit the bid security.

Section 7 of Contract Act 1872

Acceptance must be absolute. In order to convert a proposal into a promise, the acceptance must:

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

Evaluation Report

The Bid Evaluation Summary Checklist shall consist:

* Explanation of any inconsistencies between prices and modifications to prices read out at bid opening and recorded.


SECTION-II 53

* Details about eliminating of any bids during preliminary examination. Attached selected pages showing objectionable features.

* Explanation of any substantial corrections for computational errors that may affect the ranking of bidders.

* The additions, adjustments, and priced deviations shall require detailed explanations where they may affect the ranking of bidders.

* Eligibility for domestic preference if any must be verified and its details shall be attached.

* Explanation of any cross-discount not read out and recorded at bid opening. In addition, copies of any evaluation reports for the other related contracts awarded to the same bidder may be attached.

* Detailed reasons for refusing to award a contract to a party other than the lowest evaluated bidder.

* If an alternative bid is accepted, provide a detailed explanation of the reasons for its acceptance, addressing issues of timeliness, performance, and cost implications.

* An attachment explaining adjustments to the price. Also explanation of any changes to scope of bid and contract conditions.

* Provide evidence of alternative insurance.

* Attach copies of any correspondence from bidders that raise objections to the bidding and evaluation process, together with detailed responses.

* Attach copies of any letters to bidders requesting clarifications. Provide copies of responses.

It should be noted that evaluation and the resulting report need not necessarily be lengthy. Procurement of goods without domestic preference can usually be quickly and easily evaluated. In general, the complexity of evaluation lies with larger works and with the supply and installation of industrial plants and equipments.

The report should include a number of attachments to explain details of bid evaluation or to show specific controversial wording or numbers in a bid. Cross-referencing should be used extensively, as well as references to pertinent clauses in the bidding documents.

Note:

The evaluation forms and guide providing step-by-step procedures for the evaluation of bids are available on the following web sites;

www.pec.org.pk

www.picc.org.pk


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54 SECTION-II

The Role of the Employer & the Contractor

The role of the Employer and the Contract are almost same in the FIDIC 1987 and 1999, except the provisions of the Employer’s Personnel and the Employer’s Claims provided in FIDIC 1999, beside some other minor differences in relation to the above mention subject. In FIDIC 1987 the Employer can not invoke his right to claim in a manner given in FIDIC 1999. Nonetheless under FIDIC 1987, the Employer may deduct money from the Contractor’s due payments, only against proven and determined fault of the Contractor and that often occurs on termination of contracts by the Employer.

The role of the Employer and the Contractor discussed below, are based on FIDIC 1999.

The Role of the Employer

The FIDIC standard form for the Contract Agreement includes the statement that the Em-ployer covenants to pay the Contractor the Contract Price in consideration of the execu-tion of the Works and the remedying of defects therein. However, this does not mean that the Employer is only required to appoint an Engineer to administer the project and then sign the payment certificates.

Even though the Engineer is classed as ‘Employer’s Personnel’ there are some tasks which are allocated to the Employer.

The Employer could delegate the paperwork to the Engineer, but the actual tasks require the Employer to be involved.

It is important that the Employer designates a staff member, separate from the Engineer to represent him whenever the Contract requires notice to, or action by the Employer.

Right of Access to the Site

The Employer shall give the Contractor right of access to, and possession of all parts of the Site within the time stated in the Appendix to Tender.

The Employer may withhold such site/right of possession until the Performance Security has been received.

If no such time is stated in the Appendix to Tender, the Employer shall give the Contrac-tor right of access to, and possession of the Site within such times as may be required to enable the Contractor to proceed in accordance with the programme submitted.

If the Contractor suffers any delay as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give notice to the Engi-neer and shall be entitled to:

Extension of time for any delay if completion is or will be delayed, and

Payment of any such Cost plus reasonable overhead, which shall be included in the Contract Price.

After receiving this notice the Engineer shall proceed in accordance with the clause on ‘determinations’ to determine these matters. However, if the Employer’s failure was caused by an error or delay by the Contractor including an error in, or delay in the sub-mission of any of the Contractor’s Documents, the Contractor shall not be entitled of time and Cost.


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The possession does not necessarily mean exclusive possession, but shared possession needs clarification in the Particular Conditions.

When the Contractor takes possession of the Site, he is responsible for safety, security and insurance. If the Contractor does not have full control of the Site and the activities on the Site, or the site will be shared, then the extent of the Contractor’s responsibilities must be clearly stated.

If the Employer fails to give right of access to and possession of the Site within the stated period then the Contractor will be entitled to an extension of time plus its associated costs with reasonable overhead.

Permits, Licenses or Approvals

The Employer shall provide reasonable assistance to the Contractor at the request of the Contractor:

By obtaining copies of the Laws of the Country which are relevant to the Contract:

For the Contractor’s applications for any permits, licenses or approvals required by the Laws of the Country

Employer’s personnel

The Employer shall be responsible for ensuring that the Employer’s Personnel and the Employer’s other Contractors on the Site:

Cooperate with the Contractor’s efforts, and

Take actions similar to those which the Contractor is required to take in rela-tion to the clauses relevant for ‘Safety Procedures’ and ‘Protection of the Environ-ment’.

Employer’ s Personnel includes:

The Engineer and his assistants.

All staff, labour and employees of the Employer and the Engineer.

Any other person who the Employer or the Engineer has decided to designate as Employer’s Personnel.

When two or more Contractors are working on the same Site the possibilities of delays and costs from failures of cooperation can lead to serious problems.

The FIDIC Clauses may be adequate when one Contractor is carrying out a high percentage of the total work on the Site.

If the work is more evenly divided between two or more Contractors, the pro-visions of the Contract need to be reviewed.

Employer’s Claims

If the Employer considers himself entitled to any payment the Employer or the Engineer shall give notice and particulars to the Contractor.

The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim.

The particulars shall specify the Clause or other basis of the claim, and shall include sub-stantiation of the amount and/or extension to which the Employer considers himself to be entitled for the claim.


56 SECTION-II

The Engineer shall then proceed in accordance with the ‘Determination’ clause to agree or determine:

The amount that the employer shall be paid by the Contractor.

This amount can be deducted from the Contract Price and Pay-ment Certificates.

If the Employer deducts money from the Contractor which he (the Employer) is not entitled to do, will enable the Contractor to claim for ‘all con-sequences of the deductions’.

This could involve a substantial claim by the Contractor. In such case, the Employer would be advised to reserve his rights but not to deduct any money until the final resolution of this matter.

The Role of the Contractor

In accordance with the FIDIC form, the Contractor will ‘execute and complete the Works and remedy any defects therein, in conformity with the provisions of the Con-tract’.

In order to achieve this, the Contractor accepts a large number of secondary obligations.

The Contractor shall design (to the extent specified in the Contract), execute and com-plete the Works in accordance with the Contract and with the Engineer’s instructions and shall remedy any defects in the Works.

The Contractor shall provide the Plant and Contractor’s Documents specified in the Contract, and all Contractor’s personnel, Goods, consumables and other things and ser-vices required to carry out the Works.

The Contractor shall be responsible for the:

· Adequacy,

· Stability, and

· Safety of all site operations and methods of construction.

The Contractor shall whenever required by the Engineer, submit details of the arrange-ments and methods which the Contractor proposes to use.

No significant alteration to these arrangements and methods shall be made without hav-ing been notified to the Engineer.

The FIDIC Conditions of Contract for Construction are intended to be used for projects with the design provided by the Employer.

The phrase ‘execute and complete’ is important in the Contract. The requirement to exe-cute and complete can also give an obligation to complete any item of work which is nec-essary for total completion of the Works, but may not have been shown in detail on the Drawings.

This is an obligation to carry out and complete the Works and the question of whether payment is included in the Accepted Amount is a separate issue.

Performance Security

The Contractor shall obtain a Performance Security for proper performance, in the amount and currency stated in the Appendix to Tender.

The Contractor shall deliver the Performance Security to the Employer within 28 days after receiving the letter of Acceptance, and shall send a copy to the Engineer.


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The Contractor shall ensure that the Performance Security is valid and enforceable until the Contractor has executed and completed the Works and remedied any defects.

If the Performance Security has an expiry date and the Contractor has not become enti-tled to receive the Performance Certificate by the date 28 days prior the expiry date, the Contractor shall extend the validity of the Performance Security until the completion of the Works and any defects have been remedied.

Contractor’s Representative

The Contractor’s Representative is the Contractor’s equivalent to the Engineer.

Some Tender Documents specify:

· The required qualifications.

· The required experience and

· That the Contractor’s Representative must be named in the tender.

The Contractor’s Representative must:

· Have received the consent (approval) of the Engineer.

· Not be removed or replaced without the prior consent of the Engineer.

· Have the authority to act on the Contractor’s behalf under the Contract.

· Be on site whenever work is in progress.

· Be fluent in the language for communication stated in the Contract.

Subcontractors

The Contractor shall be responsible for the acts or defaults of any Subcontractor and his employees.

Cooperation

The Contractor shall allow the following to carry out work on or near the site:

· The Employer’s Personnel.

· Any other contractors employed by the Employer.

· The personnel of any legally constituted public authorities (government bod-ies) that carry out work not included in the Contract.

However, the Contractor may make a claim for Unforeseeable Cost and get paid as a Variation.

Any delays would qualify for an extension of time.

Setting out

The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify (correct) any error in the positions, levels, dimensions or alignment of the Works.


58 SECTION-II

Risk Allocation & Management in Construction Contracts

Project risk is an uncertain event or condition that, if it occurs, has a positive or a negative effect on at least one project objective. A risk may have one or more causes and, if it occurs, there may be one or more impacts.

All contracts contain risks. The prime objective under a contract is to allocate risks between parties to the contract. An ideally successful contract is one which got completed in stipulated time and within the reasonable cost meeting the requisite specifications.

Sources of Construction Contract Risk

Construction Contracts will generally need to identify and assign risks in the following areas:

O Project Execution

• Quality

• Schedule

• Cost

O Financial Factors

• Escalation

• Foreign exchange

• Cost of money

O “Market” Factors

• Supply – demand in local and global pricing as distinct from escalation

O Regulatory Factors

• Change in legislation and regulation

Contract Risk Allocation is Critical

Allocate the risk factor to the party best able to manage the risk

• Excessive contractor risk will result in un-economic levels of contingency and risk costs

• Excessive owner risk may make the project un-finance-able

Balance risk allocation to ensure alignment between the Owner and Contractor on project objectives.

Reflect the reality of the regulatory environment and associated impact on project scope and schedule.

Terminology

• Hazard; a particular event which has the potential if it occurs of an adverse effect.

• Risk; the probability of occurrence of a defined hazard and the magnitude of the con-sequences.

• Risk Assessment; the estimation and evaluation of the risk; the magnitude of the con-sequences together with the probability of the consequences.

• Risk Identification; an awareness of those risks which could adversely affect the out-come of the project.


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• Risk Management; the identification, measurement and economic control of risks.

Risk Allocation

The main objective of any contract is to allocate risks between the contracting parties. Risks of likely events and occurrences affecting the performance of contract are allocated between the Contractor and the Employer through various provisions of the contract.

The understanding of contractual allocation of risks is fundamentally necessary to identify claims arising from these risks.

The Contractual Risks

There are two types of contractual risks:

• Those that have been expressly stated in the contract to be allocated to a particular party; and

• Those risks that are deemed to be included in the contract by the operation of the law governing the contract.

PEC Form of Contract Document based on FIDIC, 4th Edition, Red Book (Conditions of Contract for Civil Works) makes the Employer expressly responsible for the risks connected with certain events and occurrences.

Examples of Risks in Construction

• Inclement weather;

• Unforeseen ground conditions;

• Industrial action;

• Deficiencies in design;

• Insolvency or non-performance by a subcontractor;

• Unavailability of materials;

• Cost overruns in labour and materials; and

• Occupational health and safety.

Dealing with Risk Allocation

• Normally in construction industry people deal with risk by burying their head in the sand.

• If the risks are not ignored, they are dealt with simply by adding contingencies to es-timated costs and time.

• If the risks are actually allocated it is in a lopsided and inappropriate manner.

• Rarely is there a structured and logical approach to risk identification, allocation and management.

Controlling

• It can be assumed – i.e. risk taking;

• It can be priced – i.e. built into the tender price;

• It can be laid off – i.e. insured or passed on to another entity e.g. subcontractor;

• It can be refused – i.e. decline the job; or

• It can be shared – i.e. in alternative contractual arrangements such as alliance and partnering.


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• But it should never be ignored!

Types of Risks in Construction

Acts Of God

Physical

Financial & Economic

Political & Environmental

Design

Construction Related

Acts Of God

Flood

Earthquake

Landslide

Fire

Wind damage

Physical

Damage to structure

Damage to equipment

Labour injuries

Fire

Theft

Financial & Economic

Inflation

Availability of funds

Exchange rate fluctuations

Financial default

Political & Environmental

Changes in laws and regulations

Requirement for permits

Law & order

Pollution and safety rules

Design

Incomplete design scope

Defective design

Errors & omissions

Inadequate specifications

Construction Related

Labour disputes

Labour productivity

Different site conditions

Design changes


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Equipment failure

Risk Management

A systematic approach to control the level of risk to mitigate its effects, is known as “Risk management”. It refers to the art of identifying, analyzing, responding to and controlling project risk factors in a manner which best achieves the objectives of all participants.

Contractual risk transfer is a form of risk management which has been employed for many years in the construction industry. It involves the allocation or distribution of the risks inherent to a construction project between or among contracting parties. If done effectively, risk transfer does not grossly or inequitably allocate all risk to one party, but instead places risk upon parties according to their ability to control and insure against risk. Additionally, effective risk management typically generates positive results on a project by improving project performance, increasing cost effectiveness and creating a good working relationship between contracting parties.

Risk Management System1. The contract serves as the principal risk management vehicle, parties must begin

managing and minimizing risks long before the contract is signed. To avoid in-equities, all parties should come to the negotiating table with some idea of their risk management goals. Unfortunately, most contractors pay insufficient attention to the risk management process (e.g., compare budget of estimating department versus in-vestment allocated to training and maintaining cadre of risk management profession-als).

2. Contractual risk transfer in the construction industry is seen most frequently in con-tract provisions regarding indemnity, consequential damages, differing site condi-tions and delay.

3. Risk management requires a systematic and practical method of dealing with both the predictable and unpredictable risks inherent in the construction industry. Con-tract administrators must acquaint themselves with the risks they are to manage and develop specific risk minimization strategies. Risk management typically involves the following functions:

Risk Analysis

Estimating the potential impacts of risk to decide what risks to retain and what risks to transfer to other parties which include:.

Risk Identification

Risk Estimation

Risk Evaluation

Risk MonitoringThe risk manager must evaluate risk factors or characteristics of a risk such as the risk event, its probability of occurrence, and the amount of potential loss or gain. The impact of possible risks can be controlled to the extent the risks are effectively identified and managed.

Risk Response

I. Elimination, II. Transfer, III. Retention & IV. Reduction


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Elimination

Tendering a very high bid

Placing conditions on the bid

Pre-contract negotiations as to which party takes certain risks

Not biding on the high risk portion of the contract

Transfer

The activity responsible for the risk may be transferred, i.e. hire a subcontractor to work on a hazardous process

The activity may be retained, but the financial risk transferred, i.e. methods such as insurance.

Retention

Handling risks by the company who is undertaking the project.

Two retention methods, active and passive.

Active retention is a deliberate management strategy after a conscious evalua-tion of the possible losses and costs of alternative ways of handling risks.

Passive retention occurs through negligence, ignorance or absence of decision.

Reduction

Continuous effort.

Related with improvements of a company’s physical, procedural, educational, and training devices.

Improving housekeeping, maintenance, first aid procedures and security.

Education and training within every department.

Model of Risk AllocationA party to a contract should bear a risk where:-

• The risk is within the party’s control;

• The party can transfer the risk, e.g. through insurance, and it is most economically beneficial to deal with the risk in this fashion;

• The preponderant economic benefit of controlling the risk lies with the party in ques-tion;

• To place the risk upon the party in question is in the interests of efficiency, including planning, incentive and innovation; and

• If the risk eventuates, the loss falls on that party in the first instance.

• The Principal should not ask a Contractor to price an unquantifiable risk that is within the control of the Principal e.g. ground conditions.

• The Principal, may ask the Contractor to manage and control a neutral risk e.g. weather.

• The Contractor should carry the risk for the safety of its own workers.


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Construction Claims Management

The management of construction claims is the greatest challenge that is being faced in today’s competitive business environment. Construction projects are becoming increasingly susceptible to a variety of factors that give rise to time extensions and cost recovery. Although the construction business environment has moved toward partnering arrangements in recent years, the number of contractual difficulties continues to rise. Thus the construction industry needs to develop methodologies for construction claim management to better manage the ongoing trend.

In order to understand the nature of claims before dealing with them, the clauses that trigger claims in a contract are investigated, and to avert conflicts, it is necessary that, the contract should prescribe:

• The respective obligations of contracting parties in clear terms.

• Specifies as to when, or the time period within which, the obligations undertaken in the contract are to be performed.

• The events and circumstances whose risk of occurrence is allocated to one party or the other.

• The mechanism to resolve the controversies/disputes connected with or arising from the Contract.

A well-drafted contract states

• The obligations (duties) of each party.

• The timings of discharge of obligations (duties)

• The consequences, if the party fails to do its duty at the prescribed time (breach).

• The completion period of the entire contract.

• The risk allocation of the specified unforeseen event or circumstances (causation)?

• How and to what extent would the party resultantly suffering from such unpredictable occurrence be compensated (claim/damages)?

• How would the party proceed to get compensation?

Mobilization & Performance Schedule

In view of the contractual duties/obligations and the prescribed completion period the contractor mobilizes his resources and prepares his performance schedule to meet the completion deadline so fixed.

The Contractor shall commence the Works on Site within the period specified in Ap-pendix-A to Bid from the date of receipt by him from the Engineer of a written Notice to Commence (Sub Clause-41.1, CoC)

An Ideal Contract

If every thing goes well in accordance with what had been foreseen by the parties at the time of signing the contract then the contractor usually succeeds in completing the contract in the scheduled time.

The record of construction industry


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Completion of any project on time is not so good.

Usually public sector construction projects overrun their completion schedule by more than 40 percent and some of them overrun their original time targets by more than 80 percent.

Delay in the timely completion of construction projects is the major reason for contrac-tual disputes and claims.

There are other causes of claims also.

Events Intervening Performance

Some events and occurrences may intervene during the performance which do not allow the contractor to complete his performance within the given completion period.

Contractor’s performance is impeded /hampered not necessarily due to his own default.

Events Adversely Affect Performance

Events within the contractor’s control or beyond his control may adversely affect his performance for which the contract may or may not compensate the contractor for loss of time or/and extra costs incurred during the impeding occurrences.

Slow Progress

A good ‘Claims Manager’ develops the necessary insight to identify the cause that leads to slow progress or disruption of an on-going construction activity and then find out as to whether or not the said cause leads to a claim in his favour under the provisions of the contract.

Successful management of claims gives an edge to the contractor because through such claims he can make good the loss of time and money occasioned by the claim events.

Compensatory Provisions

Provisions of the contract may allow compensation to the contractor if he himself has not caused the impeding event and the other party (Employer) has undertaken the risk of such happening upon him under the terms of the contract. The demand for such compensations in terms of time and money is called ‘Claim’. Successful management of claims gives an edge to the contractor because through such claims he can make good the loss of time and money occasioned by the claim events

The duty/obligation undertaken by the contractor under the terms of the contract

° Independent; the contractor’s performance exclusively, nothing to do with the perfor-mance of other parties in the contract; or,

° Dependant upon the performance; of Employer or the Engineer or any other contractor /third person; or,

° Dependant upon circumstances; and situations that were supposed to remain unchanged during the execution of the contract.

Primary Source of Claim and Contractual Scheme of Risk Allocation

Claims may not end up as disputes if the parties clearly understand the risk allocation established by their contract or its governing law.

Claims Provisions under Changed Conditions Clauses in a Contract

The Differing Site/Physical Conditions Clause;


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The Changes Clause (Character/Scope of work);

The Suspension of Work Clause.

Cost & Time Claims for Compensable / Excusable DelaysDemand for compensations in terms of time and money is called ‘Claim’. Successful management of claims gives an edge to the contractor because through such claims he can make good the loss of time and money occasioned by the claim events. Understanding the contractual allocation of risks is necessary to identify claims arising from risks.

PEC Form of Contract Document based on FIDIC, 4th Edition, Red Book makes the Employer expressly responsible for the risks connected with certain events and occurrences.

Delayed Drawings / Engineer’s Instructions

º Work Program submitted by the contractor is an indicator to the Engineer as to when the drawings or instructions should reach the contractor without affecting his performance adversely. (Sub Clause-14.1, CoC)

º Failure or inability of the Engineer to issue any drawing or instruction, for which the Contractor has given prior notice, is a claim-able event. (Sub Clause-6.4, CoC)

Obstructions or Adverse Conditions encountered during Performance of Contract

º Ordinarily, the contractor is not expected to encounter any physical obstruction or decel-erating physical condition during the execution of the Works.

º Adverse effect on the performance of the contract caused by climatic condition on Site is not recognized as a physical condition that would entitle the contractor to relief under this provision in so far as the cost compensation is concerned. Time compensation is al-lowed. (Sub Clauses-12.2 & 44.1, CoC)

Halting Progress of Execution when Confronted with Antiques etc.

º The contract requires the contractor to be watchful in case he finds fossils, coins and an-tiques of geological or archeological interest on site during execution of the contract.

º Upon discovery of these or such like articles on work site he is required to halt further progress of work and inform the Engineer immediately. (Sub Cluse-27.1, CoC)

Instructed Suspension of Contract Execution

The Engineer has authority under the contract to suspend the execution of the Works or hold back the contractor from performing any part of the contract if he thinks that the same is necessary.

The contractor is duty bound to comply with such an instructed suspension. During sus-pension the contractor is required to protect and secure the works already executed (Sub Cluse-40.1, CoC).

Reasons for Suspension entailing no compensation

The contractor is not compensated for suspension ordered for following reasons:


66 SECTION-II

• Due to some default of the contractor, or,

• In view of foreseen climatic conditions on site, or,

• It is necessary for proper execution of works or their safety, or,

• When the instructed suspension is already provided for in the contract.

Opted Suspension of Contract Execution requiring compensation

Whenever payment of a certified amount is delayed by the Employer the contractor, among other remedies such as interest and termination of contract, is also entitled to suspend execution of whole of the contracted Works or any part of such works (Sub Cluse-40.2, 40.3, 69.1 & 69.4 CoC).

Possession of Site and its Access

° Immediately upon the issuance of ‘Notice to Commence’, the Employer is duty bound to make appropriate proportion of the work site available to the contractor for work.

° In addition the Employer is also duty bound to give proper access to the work site so that the contractor can mobilize his construction resources and commence work on the avail-able site (Sub Cluse-42.1 & 42.2, CoC).

Prescribed Risks of the Employer

War:

Revolt:

Ionizing Radiation:

Pressure Waves:

Unrest:

Employer’s Occupation of Works:

Design Failure:

Forces of Nature/Act of God: (Sub Cluse-20.4, CoC).

Variations

• The Engineer has vast powers to vary the contracted Works but usually he is deprived of any power or limited power to vary the contract. (Sub Cluse-2.1, CoC).

• Contractor is to comply with the instruction to vary the quantity, quality, form, character, kind, position and dimension of the Works. (Sub Cluse-51.1, CoC).

Additional Tests

• The Contract always prescribes the tests that are to be performed before, during or after the execution of the Contract.

• These prescribed tests being part of work to be carried out under the Contract they are deemed to have been accounted for, both in terms of cost & time, by the Contractor in his bid. (Sub Cluse-36.3, CoC).

• If any test required by the Engineer is not intended by or provided for, or not so particu-larized in the contract then the cost of such test shall be borne by the Employer. (Sub Cluse-36.5, CoC).

Delay Claims


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• The term ‘delay’ in construction activity is used to represent the ‘time’ during which some part of the construction project has been extended beyond what had been originally planned.

• This extended time may have been caused due to some unforeseen or unexpected circum-stance.

Delaying incidents

• An incident that affects the performance of a particular activity without affecting the completion deadline is also called ‘delay’.

• It is not necessary that delay in execution should necessarily disturb the planned comple-tion deadline.

• A delaying incident may originate from within the Contractor’s organization or from any other factor interacting with the construction project.

Delaying incidents within the Contractor’s Organization

The delaying incidents originating within the Contractor’s organization are those which have been caused by the Contractor or his representatives.

Mismanagement and absence of planned execution by the Contractor may be respon-sible for the delay that results. Contractor is responsible to make good the time lost due to such delays.

Delaying incidents outside the Contractor’s Organization

Delaying incidents outside the Contractor’s organization may be caused by:

Employer, or,

Designer, or,

Other prime contractors, or,

Subcontractors, or,

Suppliers, or,

Labour Unions, or,

Nature, or,

Other organizations and entities which participate in the construction process.

Events entitling for Extension of Time

• the amount or nature of extra or additional work, or

• exceptionally adverse climatic conditions, or

• any delay, impediment or prevention by the Employer, or

• any cause of delay referred to in the Conditions of Contract, or

• 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,

EOT submission requirements

A description of the cause of the delay and the contractual provision which is being re-lied upon for the extension;

The date when the delay commenced and the period for the delay;


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The date of notice of delay, specifying the reference and relevant documents;

A summary of records and particulars;

A narrative of the events and effect on progress;

A diagrammatic illustration showing the status of the programme progress and current completion date prior to the commencement of the delay;

A diagrammatic illustration showing the effects of the delay on the progress and the com-pletion date;

A statement requesting an EOT for the period shown in the illustration.

Procedure for Claiming Extension of Time for Completion Sub Clause-44.2, CoC:

Provided that the Engineer is not bound to make any determination unless the Contractor has;

• within 28 days after such event has first arisen notified the Engineer with a copy to the Employer, and

• within 28 days, or such other reasonable time as may be agreed by the Engineer, after such notification submitted to the Engineer detailed particulars of any extension of time to which he may consider himself entitled in order that such submission may be investigated at the time.

Interim Extension of Time Sub Clause-44.3, CoC:

Where an event has a continuing effect such that it is not practicable for the Contractor to submit detailed particulars within the period of 28 days referred to in Sub-Clause 44.2(b), CoC, he shall nevertheless be entitled to an extension of time provided that he has submitted to the Engineer interim particulars at intervals of not more than 28 days and final particulars within 28 days of the end of the effects resulting from the event.

Valuation of Variation

• BoQ Rates: "varied work" shall be valued at the rates and prices set out in the Contract or as basis of valuation. (Sub Clause-52.1, CoC)

• Rates derived from BoQ Rates: the rates and prices in the Contract shall be used as the basis for valuation. (Sub Clause-52.1, CoC)

• New Rates: the rate or price contained in the Contract is, by reason of varied work, ren-dered inappropriate or inapplicable, then, a suitable rate or price shall be agreed. (Sub Clause-52.2, CoC)

Variations Exceeding 15 per cent (Sub Clause-52.3, CoC)

If, on the issue of the Taking-Over Certificate for the whole of the Works, it is found that as a result of:(a) all varied work valued under Sub-Clauses 52.1 and 52.2, and(b) all adjustments upon measurement of the estimated quantities set out in the Bill of

Quantities, excluding Provisional Sums, dayworks and adjustment of price made un-der Clause 70.

but not from any other cause, there have been additions to or deductions from the Con-tract Price which taken together are in excess of 15 per cent of the "Effective Contract Price" then in such event (subject to any action already taken under this Clause-52), there shall be added to or deducted from the Contract Price such further sums determined


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by the Engineer having regard to the Contractor's Site and general overhead costs of the Contract.

Daywork (Sub Clause-52.4, CoC)

The Engineer may, if in his opinion it is necessary or desirable, issue an instruction that any varied work shall be executed on a daywork basis.

Indicators of Claim

Performance difficulty is the first indicator of a likely claim; whenever some occurrence, condition or event on site creates obvious performance difficulties such difficulty should immediately be seen against the background of the happening of a likely claim event.

Causes impeding ProgressIt is to be seen as to whether the causes impeding the progress of performance of the contractor are the one:

• Whose risk has been undertaken by the Employer or the Engineer/Architect under the terms of the contract or it is caused by some one else;

• Whose risk is attributable to one party or the other under the governing law of the con-tract.

Management of ClaimsClaim management is an important aspect of the overall ‘contract management’ which is a salient attribute of the Project Managing. Good project management is based on managing the contract and the claims properly.

Important Steps in Claims Management

The Claim Index: It is prepared as a checklist and contains clearly defined various occurrence or course of events or causes that could possibly result in performance difficulty.

' The Occurrence Report:

' Preparation of Claims:

' Substantiation of Claims:

' Submission of Claims:

Types of Claims There are mainly three types of claims that arise from any contract:

* ‘Time Claim’ (Extension of time for completion of contract);

* ‘Cost of Time Claim’ (Prolongation Costs), and

* ‘Cost Claim’ (Compensation for extra expense incurred due to an event whose risk is upon the Employer).

Excusable Delays Excusable delays are compensated by mere grant of extension of time for completion

without any monetary compensation (additional costs).

Such delays are usually caused by events covered by the force majuere clause of the contract.

Both the Employer and the Contractor suffer loss, the Employer in terms of late com-pletion of project and the Contractor for the expense incurred during the delay period.


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Instances of Excusable Delays - I Acts of God or of the public enemy;

Acts of the Government;

Acts of another contractor in performance of his contract with the Government;

Fires;

Floods; and

Epidemics.

Instances of Excusable Delays - II

Quarantine restrictions;

Strikes;

Freight embargoes;

Unusually severe weather; and

Delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the contrac-tor and the subcontractors or suppliers

Compensable Delays

Compensable delays are compensated by grant of extension of time as well as additional cost incurred due to such delays.

Procedure for Claiming Costs

Step I - Notice of Claims (Sub-Clause 53.1, CoC)

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.

Step II - Contemporary Records (Sub-Clause 53.2, CoC)

Upon the happening of the event referred to in Sub-Clause 53.1, CoC, 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, CoC, 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.

Step III - Substantiation of Claims (Sub-Clause 53.3, CoC)

Within 28 days, or such other reasonable time as may be agreed by the Engineer, of giving notice under Sub-Clause 53.1, CoC, 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


SECTION-II 71

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.

Step IV - Failure to Comply (Sub-Clause 53.4, CoC)

If the Contractor fails to comply with any of the provisions of Sub-Clause 53.1, 53.2 & 53.3 in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as assessed by the Engineer or any arbitrator or arbitrators ap-pointed pursuant to Sub-Clause 67.3.

Note: The Sub-Clause 53.4 has been deleted in its entirety under Particular Condition of Contract (PCC) of PEC Bidding Documents.

Payment of Claims (Sub-Clause 60.1, 60.5, 60.6 & 60.8, CoC)

The Contractor shall be entitled to have included in any interim payment certified by the Engineer pursuant to Clause 60 such amount in respect of any claim as the Engineer, after due consultation with the Employer and the Contractor, may consider due to the Contractor provided that the Contractor has supplied sufficient particulars to enable the Engineer to determine the amount due. If such particulars are insufficient to substantiate the whole of the claim, the Contractor shall be entitled to payment in respect of such part of the claim as such particulars may substantiate to the satisfaction of the Engineer.

General Cost Claims

Prolongation

Acceleration

Disruption

Idling

Change in Cost (Escalation)

Subsequent Legislation

Prolongation Cost Claim

The prolongation costs are only paid for such extended periods which are granted on the basis of delaying events whose risks have been assumed by the Employer expressly given in the contract or for which the Employer is held liable to compensate under the governing law by implication.

Acceleration Cost Claim

° The contractor was slow as per Clause-14, Program, CoC, and then he accelerate the pace of work under notice (Sub Clause-46.1, Rate of Progress). The contractor gets no cost compensation.


72 SECTION-II

° The contractor accelerate the work pace at his own, he gets no compensation other than reduced Liquidated Damages (LDs) for other section of work (Sub Clause-47.2, Reduc-tion of LDs) or the bonus (Sub Clause-47.3, Bonus for Early Completion of Works)

° As per requirement of the Employer if the contractor completes the contract before the original or extended completion time then the contractor will be compensated. (additional resources plus fixed cost i.e. overhead)

Disruption Cost Claim

° Sub Clause-6.3, Disruption of Progress and Sub Clause-6.4, Delay and Cost of Delay of Drawings, allows cost and time compensation for disruption caused by non availability of drawings or any instruction with out which the work could not be continued.

° Sub Clause-12.2, Not Foreseeable Physical Obstructions or Conditions, if in the opinion of the Engineer, the obstructions or conditions could not have been reasonably foreseen by an experienced contractor, then after due consultation with the Employer and the Con-tractor, determine the Delay and Cost of Delay.

Idling Cost Claim

There may be occasions where the contractor goes under:

1. Instructed suspension or,

2. Forced suspension or,

3. Self-suspension.

Owing to these three causes, the resources of the contractor deployed for execution of contract go into an idling state. All additional costs connected with suspension are compensated.

Change in Cost Claim (Escalation)

Owing to increase in the cost of construction inputs during execution of work w.r.t. the rates and prices prevailed at the time of bidding, then pursuant to Sub Clause-70.1, Increase or Decrease of Cost, the contractor is compensated for only the specified inputs as mentioned in the Appendix-C to Bid.

Subsequent Legislation Cost Claim

Changes in existing or introduction of new State Statute, Ordinance, Law, Regulation or Bye-Laws, would make the contractor entitle to the increased cost for the legislative items w.r.t. the cost prevailed at the time of bidding, pursuant to Sub Clause-70.2, Subsequent Legislation

Principle of law

It is mentioned in Section-67 of Contract Act, 1872 that every promise must extend reasonable facilities to the party obliged to perform so that his performance is completed unhindered.

Consequence of prevention is compensation to the party provided under, Section-53 & 54 of Contract Act, 1872, as under;

Liability of party preventing event on which the contract is to take effect (Section-53):

When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party


SECTION-II 73

so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.

Illustration;

A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance.

Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises (Section-54):

When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promiser of the promise last mentioned fails to perform it, such promiser cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.

Illustration;

(a) A hires B's ship to take in and convey from Karachi to the Mauritius a car got to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B's promise, and must make compensation to B for the loss which B sustains by the non-per-formance of the contract.

(b) A contracts with B to execute certain builders' work for a fixed price, B. supply-ing the scaffolding and timber necessary for the work, B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss Caused to him by the non-performance of the contract.

(c) A contracts with B to deliver to him, at a specified price, certain merchandise or board a ship which cannot arrive for a month, and B engages to pay for the mer-chandise within a week from the date of the contract. B does not pay within a week. A's promise to deliver need not be performed, and B must make compensa-tion.

(d) A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver ac-cording to his promise. B's promise to pay need not be performed, and A must make compensation.


74 SECTION-II

Dispute Resolution in Construction Contracts

Grievances during Procurement Process

PPR-48, Redressal of grievances by the procuring agency;

o The procuring agency shall constitute a committee comprising of odd number of persons, with proper powers and authorizations, to address the complaints of bidders that may oc-cur prior to the entry into force of the procurement contract.

o Any bidder feeling aggrieved by any act of the procuring agency after the submission of his bid may lodge a written complaint concerning his grievances not later than fifteen days after the announcement of the bid evaluation report.

o Any bidder not satisfied with the decision of the committee of the procuring agency may lodge an appeal in the relevant court of jurisdiction.

INTRODUCTION TO CONSTRUCTION ARBITRATION

Typical Features of Construction Disputes (1)

* Technically complex, fact intensive, require technical experts as well as lawyers.

* Often more than two parties, even in turnkey projects (involvement of subcontractors, suppliers, lenders, consultants, other contractors etc).

* Often more than one relevant contract (subcontracts, supply contracts, construction of other facilities on same project, off take contracts, operation and maintenance etc).

* Parties of (some times many) different nationalities on the same job.

* Site may be in another administrative areas altogether.

Typical Features of Construction Disputes (2)

* Large sums in dispute, at least in absolute terms.

* Project usually of long duration, with disputes emerging throughout.

* English law often applies, or at least contracts often inspired by English law. PEC Bid-ding Documents consists of PEC bye laws.

* Use of standard form contracts (e.g. FIDIC contracts).

Issues that Causes Construction Disputes

* Alleged interference by or deficiencies of the Employer:

Lack of site possession

Late approvals or instructions

Changes in design/materials/specification

Non payment

* Alleged deficiencies of Contractor:

Contractor’s design omissions and deficiencies

Defective manufacture and construction

Delayed performance (various causes attributable to contractor)

Excessive cost, when contract price not fixed

* Third party events:


SECTION-II 75

Adverse site conditions

Adverse weather

Material escalation

Hostilities/strikes

Changes in law

Typical Construction Claims

Contractor usually claims one or more of the following:

Compensation for extra work performed

Compensation and/or schedule relief for acceleration, delay and/or disruption

Payment and interest

Blocking draw of performance bond

Employer usually claims one or more of the following:

Damages (usually liquidated) for delay, or for poor perfor-mance (plant not at specification)

Correction or compensation for defective work (under war-ranties)

Draw on performance bond

Mechanism for Resolving Construction Disputes

PEC Binding Dispute Resolution Forms

• Engineer’s Decision

• Arbitration

• Court Litigation

PEC Rules of Reconciliation and Arbitration – Not Notified

FIDIC and ICC have their own Dispute Board procedures

Dispute Resolution Process

The Engineer’s Decision (ED) pursuant to Sub Clause-67.1 marks the opening of the dis-pute resolution mechanism provided in the contract. This Clause is the stepping stone to eventual reference of dispute to arbitration. In case the Engineer gives a decision accept-able to both the parties (Employer/Contractor) then the ED finally settles the dispute at the initial stage.

No notice is required to be given when the Contractor intends to seek Engineer’s Deci-sion under Sub Clause-67.1

The matter in dispute/disagreement can be referred to the Engineer any time. There is no express time limit for the same.


76 SECTION-II

Step-1 (Engineer’s Decision (ED))

The reference of dispute for ED is required in writing.

An oral request is not valid.

The reference has to clearly state that the decision is sought under Sub Clause-67.1, CoC.

The Engineer upon receiving the request for ED, has 84 days to give his decision.

The time limit starts from the day the Engineer receives the reference.

The Engineer is required to notify his decision to both, the Contractor and the Employer.

The Decision given beyound 84 days is invalid.

The Notice of intention to commence arbitration on the matter in the dispute is to be given within 70 days when:

Either the Engineer fails to give his “Decision” within 84 days.

Or the Engineer gives the “Decision” but any party (Employer/Contractor) is dissatis-fied with the ED.

The time limit starts from the day the parties in dispute receive the ED.

In case neither the Employer nor the Contractor serves upon the other party the required notice of “intention to commence arbitration” then upon the expiry of 70 days, the ED becomes final and binding for both parties.

Step-2 (Amicable Settlement)

Pursuant to Sub Clause-67.2 the parties are encouraged to settle their dispute amicably within 56 days.

The parties may shorten or extend this time period mutually.

If no mutual agreement, then they have to wait for 56 days even if no attempt is made to settlement.

The time limit start from the date when one party receives the “notice to commence arbi-tration” given by the party having dissatisfied with the ED.

Arbitration may commence any time after the expiry of 56 days, but not before unless agreed by the parties.

Pursuant to Sub Clause-67.3, when the ED has not become final and binding under Sub Clause-67.1, and amicable settlement has not been reached under Sub Clause-67.2, the dispute shall be finally settled under the provisions of the Arbitration Act 1940.

Pursuant to Sub Clause-67.4, the reference to arbitration is made without complying with the requirements stated in Sub Clause-67.1 and Sub Clause-67.2.


SECTION-II 77

Step-3 (Arbitration Act 1940)

Under an arbitration agreement, the reference shall be to a sole arbitrator.

If the reference is to an even number of arbitrators, the arbitrators shall appoint an um-pire not later than one month from the latest date of their respective appointments.

The arbitrators shall make their award within four months after entering on the reference.

The arbitrator(s) unanimously make their award.

The award is made rule of court.

If the arbitrators have not made an award or have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they can not agree, or there is a split award then the umpire shall forthwith enter on the reference in lieu of the arbitra-tors.

The umpire shall make his award within two months of entering on the reference.

The award of the umpire shall be final and binding on the parties.

The award is then made rule of court.

Step-4 (The Court of Law)

If any of the party is not satisfied with the award given by the arbitrators/umpire, he may file appeal in the court of law.

The case will then be decided in the court.

The decision of the court shall be final and binding.

The provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings be-fore the court, and to all appeals.

All the provisions of the Limitation Act, 1908 shall apply to arbitrations as they apply to proceedings in the Court.

Note:

The Court may appoint one or several arbitrators.

The Court may modify or set aside the award of arbitrator(s) or umpire.

The Court may remove an arbitrator or umpire

Amicable settlement is open all the time.

Normally arbitration is initiated after completion of work.

Maximum time for the appointment of arbitrator(s) under Limitation Act, 1908 on reference to arbitration is one year.

If one party fails to appoint an arbitrator, either originally or by way of substitution, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent.


78 SECTION-II

FIDIC and its Dispute Resolution Provisions

In November 1992 FIDIC, introduced the procedure of Dispute Reso-lution in Clause 67 of its Red Book, 1987, through ED to Rules of Conciliation and Arbitration of the International Chamber of Commerce (Arbitration Act 1940 used by PEC).

FIDIC introduced the concept of Dispute Board into its Orange Book (Design & Build) contract in 1995.

In 1999, FIDIC revised its Forms of Contract:

• FIDIC Dispute Resolution provision is set out in Clause 20 of the New Red (Conditions of Contract for Construction for Building and Engineering Works), Yellow (Conditions of Contract for Plant and Design-Build for Elec-trical and Mechanical Plant and for Building and Engineering Works) and Sil-ver (Conditions of Contract for EPC/Turnkey Projects) Books.

• Approach used by FIDIC is the Dispute Adjudication Board (DAB) which is-sues a decision.

• The FIDIC DAB provisions apply whenever a FIDIC contract is used unless parties delete the provision.

• The FIDIC DAB decisions are immediately binding and parties are obliged to comply with the decision pending other stages of the dispute resolution proce-dure, e.g. revised by amicable settlement or arbitral award.

• New Red (Construction Contract) and Yellow (Plant and Design-Build Con-tract) Books provide the Engineer to act as adjudicator and DAB. Silver Book (EPC Contract) and Gold Book (DBO) have no Engineer, so disputes here handled by DAB.

• FIDIC Clause 20 (“Claims, Disputes and Arbitration”) provides for a combi-nation of a “Dispute Adjudication Board” (20.4), amicable settlement (20.5), and ICC arbitration (20.6).

Dispute Adjudication Board

Rules set out in New Red and Yellow books

Rules apply to the resolution of a referred dispute only

They may offer decisions or advice & opinion in the matter

Formation:

One or three person in the Board

The members are Independent & Impartial

Each party nominates one member

Parties consult members and agree a chairman

List of potential members in tender

If no agreement;

FIDIC President will nominate

Due consultation with parties


SECTION-II 79

Functions:

Become Familiar

Visit the site

Keep up to date

Encourage resolution of issues

When a dispute is referred:

Act Fairly & Impartially

Convene a hearing

Deliberate

Prepare a Decision

Avoid unnecessary delay or expense

Advantages of the DAB Resolves disputes in 84 days

Lower costs than Arbitration or Litigation

Impartiality

Real time assessment

Improves standards

Provides clarity

Diffuses problems

Encourages competitiveness in tenders

FIDIC Procedure for Contractor’s Claims (1999)


28 day Notice of Claim to Engineer

42 day “Fully Detailed Claim”

to Engineer

“Final Claim” 28 days after end of effects

42 days after receipt of claim Engineer’s Response

Sub Clause 20.1Contractor’s Claims

Sub Clause 3.5Determinations

28 day Notice of Claim to Employer

42 day “Fully Detailed Claim”to Employer

“Final Claim” 28 days after end of effects

42 days after receipt of claim Employer’s Response

Given effect unlessContractor’s Notice of Dissatisfaction

14 days of receipt

New Red/Yellow Books Silver Book

Agreement/ Determination given effect unless revised under Clause 20

Employer to “Agree or Determine”

Employer to “Agree or Determine”

80 SECTION-II

International Arbitration

No institutions specialised in construction cases. Instead, the usual top international arbitration institutions are recommended, such as:

¤ International Chamber of Commerce (ICC)

¤ London Court of International Arbitration (LCIA)

¤ Singapore International Arbitration Centre (SIAC)

¤ Hong Kong International Arbitration Centre (HKIAC)

¤ China International Economic and Trade Arbitration Commission (CI-ETAC)

¤ Beijing Arbitration Commission (BAC)

¤ International Centre for Settlement of Investment Disputes (ICSID)

(Note: In leading institutions arbitration rules are largely similar. For further details, visit:www.iccwbo.org, www.lcia.org, www.siac.org.sg, www.hkiac.org, www.cietac.org, www.bjac.org.cn/en & www.icsid.worldbank.org)


A Typical ICC Arbitration Procedure

Application forInterim Relief

Request forArbitration

Answer to Requestand Filing of

Counter claims

HearingsPost-HearingSubmissions

Exchange of Written

Submissions

Constitution ofArbitral Tribunal

Terms of Referenceand Procedural

Timetable

Limited Discovery(Exchange ofDocuments)

Final Award & Costs Typical duration: 15-24 months

Reference to Dispute Adjudication Board (DAB) (1 or 3 Member)

Sub Clause-20.5

Sub Clause-20.5

http://www.bjac.org.cn/en

http://www.cietac.org/

http://www.hkiac.org/

http://www.siac.org.sg/

http://www.lcia.org/

http://www.iccwbo.org/

SECTION-II 81

Price Adjustment in Construction Contract

Increase or decrease in costs of goods and services is a common phenomena world over. In order to cater rise or fall of costs, provisions of Price Adjustment in construction contracts are practiced to have more realistic competitive bids and execution of contracts on equitable and just basis.

Importance;

Bidders quote price on prevailing market rates.

Cost of basic construction materials fluctuate unpredictably in Pakistan.

Unlimited cost increase not foreseeable and cannot be built in competitive bidding process.

Contractors can execute work only at reasonable costs.

Legally and logically contracts are not executable without an equitable mechanism acceptable to the parties.

Results of non-adjustments: Project delay, disputes, termination of contracts – result-ing more cost for the Employer.

Introduction;

Terms – Escalation/De-Escalation, Rise/Fall and Increase / Decrease in cost.

Meaning – Adjustment of Contract Price for increase or decrease of prices of ad-justable materials / services.

It is compensation and not extra benefit to Contractor.

Adjusted on monthly IPCs/Running Bills during contract period.

Basic formula: Price Adjustment = Quantity x (current rate – base rate).

FIDIC formula:

If a price adjustment factor is applied to payments made in a currency other than the currency of the source of the index for a particular indexed input, a correction factor Zo/Zn will be applied to the respective component factor of pn for the formula of the relevant currency. Zo is the number of units of currency of the country of the index, equivalent to one unit of the currency of payment on the date of the base index, and Zn is the corresponding number of such currency units on the date of the current in-dex. However the correct procedure for price adjustment is to use an index relating to the country of supply for a particular input and to make payment in the currency of that country.

Provision in Contract Documents

Bidding Documents for Civil Works: Sub Clause - 70.1 (PEC & FIDIC -1987).

Bidding Documents for E&M Works: Sub Clause - 47.1 (PEC & FIDIC -1987).

Bidding Documents for Building and Engineering Works: Sub Clause - 13.8 (FIDIC -1999)

Bidding Documents for EPC Turnkey Projects: Sub Clause -13.8 (FIDIC -1999)

Bidding Documents for Building and Engineering Works: Sub Clause - 13.8 (FIDIC-MDB 2005)


82 SECTION-II

Calculation of Price Adjustment using Formula;

Nonadjustable factor B = Adjustable factor

A + b + c + d +……… = 1Engineer’s Estimate or Effective Contract Price = 1

Pn = A + BPn = A + {(Coef.)i x (Current/Base Price)i}

Pa = Pn x Po Pa is Price adjusted amount.

Pn is Price Adjustment Factor.

Po is effective contract price/workdone amount.

A is constant, nonadjustable factor, representing the nonadjustable portion.

b, c, d, etc. are coefficients / weightings representing portion of each cost element.

Ln, Mn, En, etc. are the current cost indices of cost elements for month “n”

Lo, Mo, Eo, etc. are base cost indices corresponding to above cost elements.

Ln/Lo is known as Price Relative Factor or Cost Relative Factor.

The source of indices and the weightages/coefficients for use in the adjustment formula un-der Sub Clause-70.1, CoC, shall be as follows:

Appendix – C to Bid (PEC)

Cost Element

Description Weightings Unit Base Rates RsApplicable

Index

A Fixed Portion 0.350 - - -

b Labour Day-hour FBS

c Cement Bag FBS

d Reinforcing Steel Ton FBS

e High Speed Diesel (HSD) Ltr. FBS

f Bricks 1000 No FBS

g Bitumen Kg FBS

h

Total 1.000

Notes on Appendix – C (PEC) Employers using this price adjustment provisions may add or delete any elements as

deemed appropriate to the project.

Indices are taken from FBS or Source of indices shall be those listed in Appendix-C as approved by Engineer.

The base cost indices or prices shall be those applying 28 days prior to the latest day for submission of bids.


.etcEo

End

Mo

Mnc

Lo

LnbApn

SECTION-II 83

[The base cost indices or prices shall be for the month falling on the date 28 days prior to the latest day for submission of bids. The unit of time shall be a calendar month.]

Current indices or prices shall be those applying 28 days prior to the last day of the billing period.

[The current cost indices or prices shall be for the month falling on the date 28 days prior to the latest day of the billing period or for the month/period of exe-cution to which a particular monthly statement is related. The unit of time shall be a calendar month.]

Any fluctuation in the indices or prices of materials other than those given above shall not be subject to adjustment of the Contract Price.

Fixed portion shown here is for typical road project, Employer to determine the weighting of Fixed Portion considering only those cost elements having cost impact of five (5) percent or more on specific project.

Supporting Guidelines If at any time, current indices are not available, provisional indices are determined by

the Engineer will be used subject to subsequent adjustments.

As the basis of Price adjustment, Contractor may submit the tabulation of Weightings & Source of Indices different from Appendix–C, subject to mutual agreement be-tween the parties.

Price adjustments admissible even for the sanctioned extended completion period.

If extension due to Contractor's fault, Price adjustments will be done using indices before or after the completion time, favorable to the Employer.

Determination of Weightings (Based on PEC Guidelines)

The Procuring agency at the time of preparation of bidding documents, works out the Weightages/ Coefficients from the Rate Analysis of the related Engineer’s Estimate/ BoQ.

Each of the cost elements, having cost impact of five (05) percent or higher can be selected for adjustment. Cost elements of HSD and Labour shall be included in the Price Adjustment formula irrespective of their percentage determined for a particular project, if these are applicable for that project.

In determining the weightages, the following procedure shall be adopted:

(a) Base Price alone of an element based on market rate shall be considered ex-cluding cost of construction / installation, overheads and profit.

(b) Appropriate Rate Analysis of the Engineer’s Estimate shall be made to deter-mine costs of the basic elements.

(c) For elements having different characters, individual cost of such family of the elements shall be determined and added to work out as a single element cost. For example, in a particular project various types of steel such as sheet steel, hydraulic structure steel and Grade-40 & Grade-60 steel are used. In such a case, respective prices of all three types of steel are to be considered and added up to come out with the single steel cost component. Similar case may be for different types of cement used, etc.

(d) Each cost element determined as above, shall be divided by the total amount of Engineer’s Estimate to determine various weightages.


84 SECTION-II

(e) It is clarified that while computing Price Adjustment, base and current prices of the representative elements have to be used in the same way as they are mentioned in the PEC bidding documents. For example Grade-40 half inch dia Steel is the representative cost element for all types of steel; similarly un-skilled labour is the representative cost element for all types of labour etc.

Weightage of fixed portion (Non-adjustable portion of the estimated cost of the contract), “A” shall be determined as under:

(i) First the weightages of all the cost elements having value of 5 percent or more (HSD and Labour to be included irrespective of their weightages) to be added up to a level when the total is 65 percent or less. In that case the total is to be subtracted from 100 percent to determine the weightage of the fixed portion,“A”

(ii) In case total weightage of the cost elements including HSD and Labour ex-ceeds 65 percent, the element(s) having lowest weightage(s) other than HSD and labour, shall be excluded in considering the adjustable costs elements.

(iii) Fixed portion shall never be less than 35 percent and the adjustable portion shall never be more than 65 percent of the Engineer’s Estimate.

(iv) Sum of fixed portion, “A” and weightages a, b, c, d, ….etc., of the adjustable portion shall always be one (01).

Example for determination of weightingsAn Engineer's Estimate prepared during June, 2006 for the construction of a building amounts to Rs 196,880,500. Thereafter in order to prepare Appendix-C of Bidding Documents, particularly for the determination of weightages i.e. percentage of construction inputs in the Engineer's Estimate worked out with the help of Rate Analysis in accordance with above mention guidelines.

The South African Federation of Civil Engineering Contractors


SECTION-II 85

The coefficients provided below are issued as a basic guideline only and are subject to amendment, depending on the specific requirements and variations contained in differing types of contracts.

No. Work Category Labour Plant Materials Fuel

1 Bulk Earthworks 0.10 0.65 0.05 0.20

2 Earthworks (with culverts and drainage) 0.15 0.50 0.20 0.15

33.1

(a)(b)

3.2(a)(b)

New Road Construction:National Provincial Roads:Including bitumenExcluding bitumenUrban Roads:Including bitumenExcluding bitumen

0.150.20

0.250.30

0.350.40

0.150.30

0.350.25

0.550.35

0.150.15

0.050.05

4 (a)(b)

Township Roads and ServicesIncluding bitumenExcluding bitumen

0.200.21

0.250.27

0.450.42

0.100.10

5(a)(b)

Rehabilitation/Resurfacing WorksIncluding bitumenExcluding bitumen

0.150.20

0.250.35

0.500.35

0.100.10

6(a)(b)

Routine Maintenance WorksIncluding bitumenExcluding bitumen

0.450.48

0.300.37

0.150.05

0.100.10

7 Water and Sewer Reticulation 0.15 0.20 0.55 0.10

8 Concrete Works (reservoirs and other general civil engineering works)

0.25

0.15

0.55

0.05

9 Concrete Works (major structures) 0.15 0.20 0.55 0.10

Note; Overhead and minor elements of construction input are included in above components.

Determination of Price AdjustmentPrice Adjustment in term of 65 % Foreign and 35 % Local Component of the Contract Price;Foreign Portion (Rs) for IPC # 2, Amounting; Rs 26,862,316.00

Element CoefficientBase

IndicesCurrent Indices

Factor (5/4)

Adj. Factor (6x3)

(1) (2) (3) (4) (5) (6) (7)a Fixed Portion 0.15 - - - 0.1500b Labour - Exp. (E) 0.07 18.63 22.17 1.1900 0.0833c Equipment 0.27 151.50 187.60 1.2383 0.3343d Misc. 0.16 151.70 212.20 1.3988 0.2238 Sub Total 0.65 0.7914Portion not Adj. (Local) 0.35 0.3500Total 1.00 1.1414

IPC Rs 26,862,316.00 30,661,934.52

Net Increase (Rs) 3,799,618.52


86 SECTION-II

Local Portion (Rs) for IPC # 2 Amounting; Rs 26,862,316.00

Element CoefficientBase

IndicesCurrent Indices

Factor (5/4)

Adj. Factor (6x3)

(1) (2) (3) (4) (5) (6) (7)a Fixed Portion 0.05 - - - 0.0500b Labour - Local (L) 0.06 2,500.00 6,000.00 2.4000 0.1440c Fuel 0.07 134.26 422.36 3.1458 0.2202d Cement 0.06 245.00 375.00 1.5306 0.0918e Reinforcing Steel 0.06 18,600.00 61,500.00 3.3065 0.1984f Misc. 0.05 106.74 192.08 1.7995 0.0900 Sub Total 0.35 0.7944Portion not Adj. (Foreign) 0.65 0.6500Total 1.00 1.4444

IPC Rs 26,862,316.00 38,800,144.77Net Increase (Rs) 11,937,828.77

Local + Foreign (Rs) 15,737,447.29

Change or adjustment of Weightings:

World Bank; Sub Clause-70.7

The weightings for each of the factors of cost given in the Appendix to Bid shall be adjusted if, in the opinion of the Engineer, they have been rendered unreasonable, un-balanced, or inapplicable as a result of varied or additional work already executed or instructed under Clause 51 or for any other reason.

PEC; Sub Clause-70.1 (f)

The weightages for each of the factors of cost given in Appendix-C to Bid shall be adjusted if, in the opinion of the Engineer, they have been rendered unreasonable, un-balanced, or inapplicable as a result of varied or additional work executed or in-structed under Clause 51. Such adjustment(s) shall have to be agreed in the variation order.

Abrupt or sudden changes in price of materials and labours do not put any impact on Weightings.

Note;

Non Adjustable Portion includes: Minor Construction Inputs [less than 5% (PEC) / 3-5% (WB) of the total

estimated cost of work]

Contractor’s Overhead and profit.

If any of the specified material is not used for a certain period, then impact of in-crease or decrease, relative cost indices should be a unit i.e. one (1).


SECTION-II 87

If any of the specified material is stored at site by the Contractor, then for adjustment, the current rate pertaining to that material would be taken for the month falling on the date that material was purchased by the Contractor, and similarly a weighted average rate shall be used for the material purchased once but used during different months.

Sample:

SOUTH SANGHAR DISPOSAL CHANNELS, CONTRACT NR. S15.AB8

Calculation of Mean Price

Material Ordinary Portland Cement Unit Metric Ton

Basic Price Rs.2600.00

Material Used Calculation of Mean Price

According to Quantity Invoice Delivery Delivered Schedule Unit Schedule Total

IPCs Nr. Date Quantity Price(Rs) Price(Rs)

(1) (2) (3) (4) (5) (6) (7)

IPC-3(June94) 2.040 235 09-05-94 3.000 2737.00 8211.00

IPC-4(July94) 2.270 301 07-07-94 5.000 3197.00 15985.00

IPC-5(Aug-Sep94) 2.350 6325 12-09-94 5.000 3197.00 15985.00

IPC-6(Oct94) 1.710 128 01-02-95 4.000 3151.00 12604.00

IPC-7(Nov94) 1.170 112 06-04-95 2.000 3151.00 6302.00

IPC-8(Dec94) 1.180 1436 08-05-95 3.000 3151.00 9453.00

IPC-9(Jan95) 1.580

IPC-10(Feb95) 3.030

IPC-11(Mar95) 1.850

IPC-12(Apr95) 2.190

IPC-13(May95) 0.130

IPC-14(Aug95) 0.060

IPC-15(Sep95) 1.800

IPC-16(Oct95) 0.380

IPC-17(Nov95) 0.000

TOTAL 21.740 22.000 68540.00 Mean = ∑ (7) / ∑ (5) 3115.45

Example

Weighted Average Rate per Running Bill

IPC # Effective Period

Cement

Period DaysRate/bag

per monthd x e

Ave. Rate [∑(dxe)i/∑di]

a b c d e f g

1 05/11/2007 - 19/12/2007 Nov.,2007 25 215.00 5375.00

Dec.,2007 19 215.00 4085.00

Total 44 9460.00 215.00

2 20/12/2007 - 15/01/2008 Dec.,2007 13 215.00 2795.00

Jan.,2008 15 235.00 3525.00

Total 28 6320.00 225.71


SECTION-III 88

SECTION-IIIProcurement of Goods

Introduction The Bidding Documents for Procurement of Goods generally used, are based on docu-

ments prepared by the World Bank 1997, 2001 and 2004, revised upto 2010.

These Bidding Documents for Procurement of Goods, assumes that no prequalification has taken place before bidding.

Background for best practices

Purchasing process

Market/Procurement analysis

A. Planning of the purchase B. Chosing the right method for the purchase

C. Drafting the Invitation to Bids D. Planning the award criteria

E. Sending procurement notice and / or invitation to bids

F. Receipt of the bids

G. Qualification of the bidder. H. Evaluating the bids

I. Decision making J. Informing

K. Remedies L. Contract and/or order

M. Monitoring the contract N. Closing the contract

Formation of Bidding Documents for Procurement of Goods (WB Based)Guide Book – Cost and Contracts

SECTION-I1I 89

PART 1 – Bidding ProceduresSection I. Instructions to Bidders (ITB)Section II. Bidding Data Sheet (BDS)Section III. Evaluation and Qualification CriteriaSection IV. Bidding FormsSection V. Eligible Countries

PART 2 – Supply RequirementsSection VI. Schedule of Requirements

PART 3 - ContractSection VII. General Conditions of Contract (GCC)Section VIII. Special Conditions of Contract (SCC)Section IX. Contract Forms

Sample:Invitation for Bids (IFB)

[ insert: name of Project ]

[ insert: IFB Title ]

[ insert: IFB Number ]

1. The [insert name of Purchaser] [has received/has arranged from its’ recourses] a [loan/credit/found] toward the cost of [insert name of Project], and it intends to apply part of the proceeds of this [loan/credit/found] to payments under the Contract for [insert name/no. of Contract].

2. The [insert name of Implementing Agency] now invites sealed bids from eligible and quali-fied bidders for [insert brief description of the Goods to be procured].

3. Interested eligible bidders may obtain further information from and inspect the bidding documents during [insert office hours] at the office of [name of appropriate purchasing unit] [mailing address of appropriate office for inquiry and issuance of bidding docu-ments and cable, telex, and/or facsimile numbers].

4. Qualifications requirements include: [insert a list of technical, financial, legal and other requirements]. A margin of preference for certain goods manufactured domestically [insert “shall” or “shall not”, as appropriate] be applied. Additional details are provided in the Bidding Documents.

5. A complete set of Bidding Documents in [insert name of language] may be purchased by interested bidders on the submission of a written Application to the above address and upon payment of a non refundable fee [insert amount in local currency].

6. Bids must be delivered to the above address at or before [insert time and date]. Late bids will be rejected. Bids will be opened in the presence of the bidders’ representatives who choose to attend in. All bids must be accompanied by a “Bid Security” of [insert amount in local currency or minimum percentage of bid price].

7. The bidders are requested to give their best and final prices as no negotiations are ex-pected.

PART 1 – BIDDING PROCEDURES

Section I. Instructions to Bidders (ITB)


90 SECTION-III

This Section provides information to help Bidders prepare their bids.

Information is also provided on the submission, opening, and evaluation of bids and on the award of Contracts.

Section I contains provisions that are to be used without modification. However if it is not Bank finance procurement, then certain clauses may be tailored/ changed to suit the procuring agency.

Section I contains about 42 Clauses.

Sample

Section I. Instructions to Bidders (ITB)

A. General

1. Scope of Bid 1.1 The Procuring agency/Purchaser indicated in the Bidding Data Sheet (BDS), issues these Bidding Documents for the supply of Goods and Related Services incidental thereto as specified in Section VI, Schedule of Requirements. The name and identification number of this procurement are specified in the BDS. The name, identification, and number of lots of are provided in the BDS.

2. Source of Funds

2.1 The Purchaser or Recipient specified in the BDS has applied for or received financing (hereinafter called “funds”) from the Government of Pakistan or the Financial Institution or has arranged from its own resources toward the cost of the project named in the BDS. The Purchaser intends to apply a portion of the funds to eligible payments under the contract for which these Bidding Documents are issued.

……………………………………………………………………………………………

Section II. Bidding Data Sheet (BDS) This Section includes provisions that are specific to each procurement and that sup-

plement Section I, Instructions to Bidders.

Whenever there is a conflict, the provisions herein shall prevail over those in ITB.

[Instructions for completing the Bid Data Sheet are provided, as needed, in the notes in italics mentioned for the relevant ITB Clauses.]

Sample

Section II. Bidding Data Sheet (BDS)

ITB Clause Ref. A. General

ITB 1.1 The Purchaser is: [insert complete name]

ITB 1.1 The name and identification number of the Bidding are: [insert name and identification number]

ITB 2.1 The Procuring agency is: [insert the name]

ITB 2.1 The name of the Project is: [insert the name of the Project]

ITB 4.3 A list of firms debarred from participating is available at PPRA and World Bank web sites.


SECTION-I1I 91

B. Contents of Bidding Documents

ITB 7.1 For Clarification of bid purposes only, the Purchaser’s address is:

Attention: [insert name of Project Officer]

Address: [insert street name and number and room number, if applicable]

City: [insert name of city or town]

ZIP Code: [insert postal (ZIP) code, if applicable]

Country: [insert name of country]]

Telephone: [insert telephone number including country and city codes]

Facsimile number: [insert fax number including country and city codes]

Electronic mail address: [insert e-mail address of Project Officer]

C. Preparation of Bids

ITB 10.1 The language of the bid is: [Insert “English”].

ITB 11.1 (h) The Bidder shall submit the following additional documents in its bid: [insert list of documents, if any]

ITB 13.1 Alternative Bids [insert “shall not be”] considered.

ITB 14.5 The Incoterms edition is: [insert year of edition i.e. “Incoterms 1990” or “Incoterms 2000”].

ITB 15.1 The Bidder [insert “is” or “is not”’] required to quote in the currency of the Purchaser’s Country the portion of the bid price that corresponds to expenditures incurred in that currency.

ITB 18.3 Period of time the Goods are expected to be functioning (for the purpose of spare parts): [insert duration ]

ITB 19.1 (a) Manufacturer’s authorization is: [insert “required” or “not required”]

ITB 19.1 (b) After sales service is: [insert “required” or “not required”]

ITB 20.1 The bid validity period shall be [insert number] days.

ITB 21.1 The bid shall include a Bid Security (issued by a bank)

ITB 21.2 The amount of the Bid Security shall be: [insert amount]

ITB 22.1 In addition to the original of the bid, the number of copies is: [insert number]

D. Submission and Opening of Bids

ITB 24.1 For bid submission purposes, the Purchaser’s address is:

Attention: [insert full name of person, if applicable, or insert


92 SECTION-III

name of the Project Officer]

Address: [insert street name and number and floor and room number, if applicable] [important to avoid delays or misplacement of bids]


ZIP Code: [insert postal (ZIP) code, if applicable]

Country: [insert name of country]

The deadline for the submission of bids is:

Date: [insert day, month, and year, i.e. 15 June, 2010]

Time: [insert time, and identify if a.m. or p.m., i.e. 10:30 a.m.]

ITB 27.1 The bid opening shall take place at:

Street Address: [insert street address and number and floor and room number, if applicable]



Date: [insert day, month, and year, i.e. 15 June, 2010]

Time: [insert time, and identify if a.m. or p.m. i.e. 11:00 a.m.]

E. Evaluation and Comparison of Bids

ITB 35.1 Domestic preference [insert “shall” or “shall not”] be a bid evaluation factor.

[If domestic preference shall be a bid-evaluation factor, the methodology for calculating the margin of preference and the criteria for its application shall be as specified in Section III, Evaluation and Qualification Criteria.]

ITB 36.3(d) The adjustments shall be determined using the following criteria, set out in Section III, Evaluation and Qualification Criteria: [refer to Schedule III, Evaluation and Qualification Criteria; insert complementary details if necessary]

a) Deviation in Delivery schedule: [insert Yes or No. If yes in-sert the adjustment factor]

b) Deviation in payment schedule: [insert Yes or No. If yes in-sert the adjustment factor]

c) The cost of major replacement components, mandatory spare parts, and service: [insert Yes or No. If yes, insert the Methodology and criteria] the availability in the Purchaser’s Country of spare parts and after-sales services for the equip-ment offered in the bid [insert Yes or No, If yes, insert the Methodology and criteria]

d) the projected operating and maintenance costs during the life of the equipment [insert Yes or No, If yes, insert the Methodology and criteria]

e) the performance and productivity of the equipment offered;


SECTION-I1I 93

[Insert Yes or No. If yes, insert the Methodology and crite-ria]

f) [insert any other specific criteria]

F. Award of Contract

ITB 41.1 The maximum percentage by which quantities may be increased is: [insert percentage]

The maximum percentage by which quantities may be decreased is: [insert percentage]

Section III. Evaluation and Qualification Criteria

• This Section specifies the criteria to be used to determine the lowest evaluated bid, and the Bidder’s qualification requirements to perform the contract.

• Contents;

1. Domestic Preference (ITB 35.1)2. Evaluation Criteria (ITB 36.3 {d})3. Multiple Contracts (ITB 36.6)4. Postqualification Requirements (ITB 38.2)

1. Domestic Preference (ITB 35.1)

If the Bidding Data Sheet so specifies, the Purchaser will grant a margin of preference to goods manufactured in the Purchaser’s country for the purpose of bid comparison, in accordance with the procedures outlined in subsequent paragraphs.

Bids will be classified in one of three groups, as follows:

Group A: Bids offering goods manufactured in the Purchaser’s Country, for which (i) labour, raw materials, and components from within the Purchaser’s Country account for more than 30 percent of the EXW price; and (ii) the production facility in which they will be manufactured or assembled has been engaged in manufacturing or assembling such goods at least since the date of bid submission.

Group B: All other bids offering Goods manufactured in the Purchaser’s Country.

Group C: Bids offering Goods manufactured outside the Purchaser’s Country that have been already imported or that will be imported.

PEC guidelines may be used for Domestic Preference.

2. Evaluation Criteria (ITB 36.3 {d})

The Purchaser’s evaluation of a bid may take into account, in addition to the Bid Price quoted in accordance with ITB Sub-Clause 14.6, one or more of the following factors as specified in ITB Sub-Clause 36.3(d) and in BDS referring to ITB 36.3(d), using the following criteria and methodologies. (a) Delivery schedule. (as per Incoterms specified in the BDS)

The Goods specified in the List of Goods are required to be delivered within the acceptable time range.

No credit will be given to deliveries before the earliest date, and bids offering de-livery after the final date shall be treated as non responsive.


94 SECTION-III

Within this acceptable period, an adjustment, as specified in BDS Sub-Clause 36.3(d), will be added, for evaluation purposes only, to the bid price of bids offer-ing deliveries later than the “Earliest Delivery Date”

(b) Deviation in payment schedule. [insert one of the following ] Bidders shall state their bid price for the payment schedule outlined in the SCC.

Bids shall be evaluated on the basis of this base price. Bidders are, however, per-mitted to state an alternative payment schedule and indicate the reduction in bid price they wish to offer for such alternative payment schedule.

Or If a bid deviates from the schedule and if such deviation is considered acceptable

to the Purchaser, the bid will be evaluated by calculating interest earned for any earlier payments involved in the terms outlined in the bid as compared with those stipulated in the SCC, at the rate per annum specified in BDS Sub-Clause 36.3(d).

(c) Cost of major replacement components, mandatory spare parts, and service. [insert the following]

The Purchaser will draw up the list of items and quantities of major assemblies, com-ponents, and selected spare parts, to be required or likely to be required, during the initial period of operation specified in the BDS Sub-Clause 18.3, is in the List of Goods. An adjustment equal to the total cost of these items, at the unit prices quoted in each bid, shall be added to the bid price, for evaluation purposes only.

(d) Availability in the Purchaser’s Country of spare parts and after sales services for equipment offered in the bid.An adjustment equal to the cost to the Purchaser of establishing the minimum service facilities and parts inventories, as outlined in BDS Sub-Clause 36.3(d), if quoted sepa-rately, shall be added to the bid price, for evaluation purposes only.

(e) Projected operating and maintenance costs.Operating and maintenance costs. An adjustment to take into account the operating and maintenance costs of the Goods will be added to the bid price, for evaluation purposes only, if specified in BDS Sub-Clause 36.3(d).

(f) Performance and productivity of the equipment.An adjustment to take into account the productivity of the goods offered in the bid will be added to the bid price, for evaluation purposes only, if specified in BDS Sub-Clause 36.3(d). The adjustment will be evaluated based on the cost per unit of the actual pro-ductivity of goods offered in the bid with respect to minimum required values.

(g) Specific additional criteria. Other specific additional criteria to be considered in the evaluation and the evaluation method shall be detailed in BDS Sub-Clause 36.3(d).

3. Multiple Contracts (ITB 36.6)

The Purchaser shall award multiple contracts to the Bidder that offers the lowest evaluated combination of bids (one contract per bid);

The Purchaser shall:


SECTION-I1I 95

(a) evaluate only lots or contracts that include at least the percentages of items per lot and quantity per item as specified in ITB Sub Clause 14.8

(b) take into account:

– the lowest-evaluated bid for each lot and

– the price reduction per lot and the methodology for its application as of-fered by the Bidder in its bid”

4. Postqualification Requirements (ITB 38.2)

After determining the lowest-evaluated bid in accordance with ITB Sub-Clause 37.1, the Purchaser shall carry out the postqualification of the Bidder in accordance with ITB Clause 38, using only the requirements specified.

a) Financial Capability

The Bidder shall furnish documentary evidence that it meets the following financial requirement(s):

b) Experience and Technical Capacity

The Bidder shall furnish documentary evidence to demonstrate that it meets the following experience requirement(s):

c) The Bidder shall furnish documentary evidence to demonstrate that the Goods it offers meet the following usage requirement:

d) [list the requirement(s)]

Section IV. Bidding Forms

This Section includes the forms for the Bid Submission, Price Schedules, Bid Security, and the Manufacturer’s Authorization to be submitted with the Bid.

• Bidder Information Form

• Joint Venture Partner Information Form

• Bid Submission Form

• Price Schedule: Goods Manufactured outside the Purchaser’s Country, to be imported.

• Price Schedule: Goods Manufactured outside the Purchaser’s Country, already imported.

• Price Schedule: Goods Manufactured in the Purchaser’s Country

• Price and Completion Schedule - Related Services.

• Bid Security (Bank Guarantee)

• Bid-Securing Declaration

• Manufacturer’s Authorization


This Section contains information regarding eligible countries.

If the Procuring agency does not permit firms and individuals from countries to offer goods, works and services for the projects in the country, those countries excluded from the list of Eligible Countries.


96 SECTION-III

PART 2 – SUPPLY REQUIREMENTS

Section VI. Schedule of Requirements

This Section includes the List of Goods and Related Services, the Delivery and Completion Schedules, the Technical Specifications and the Drawings that describe the Goods and Related Services to be procured.

1. List of Goods and Delivery Schedule2. List of Related Services and Completion Schedule3. Technical Specifications4. Drawings5. Inspections and Tests

Notes for Preparing the Schedule of Requirements

• The Schedule of Requirements shall be included in the bidding documents by the Purchaser, and shall cover, at a minimum, a description of the goods and services to be supplied and the delivery schedule.

• The objective of the Schedule of Requirements is to enable bidders to prepare their bids efficiently and accurately, in particular, the Price Schedule. In addition, the Schedule of Requirements, together with the Price Schedule, should serve as a basis in the event of quantity variation at the time of award of contract pursuant to ITB Clause 41.

• The date or period for delivery should be carefully specified, taking into account (a) the implications of delivery terms stipulated in the ITBs pursuant to the In-coterms rules (i.e., EXW, or CIF, CIP, FOB, FCA terms—that “delivery” takes place when goods are delivered to the carriers), and (b) the date prescribed herein from which the Purchaser’s delivery obligations start (i.e., notice of award, contract signature, opening or confirmation of the letter of credit).

• The Schedule of Requirements containing Technical Specifications is to define the technical characteristics of the Goods and Related Services required by the Purchaser. [If a summary of the Technical Specifications has to be provided, the Purchaser shall insert information in the form of table. The Bidder shall prepare a similar table to justify compliance with the requirements as under.]

Item NoName of Goods or

Related ServiceTechnical Specifications and Standards

[insert item No] [insert name] [insert TS and Standards]

PART 3 – CONTRACT

Section VII. General Conditions of Contract (GCC)

This Section includes the general clauses to be applied in all contracts. The text of the clauses in this Section shall not be modified.


1. Defini-tions

2. Contract Documents

3. Fraud and Corruption

4. Interpreta-tion

5. Language6. Joint Ven-

ture, Consortium or Associ-ation

7. Eligibility

8. Notices

9. Governing Law

10. Settlement of Disputes

11. Scope of Supply

12. Delivery and Documents

13. Supplier’s Responsibilities

14. Contract Price

15. Terms of Payment

16. Taxes and Duties

17. Perfor-mance Security

18. Copyright

19. Confidential Information20. Subcontracting21. Specifications and Standards22. Packing and Documents23. Insurance24. Transportation25. Inspections and Tests26. Liquidated Damages27. Warranty28. Patent Indemnity29. Limitation of Liability30. Change in Laws and Regulations31. Force Majeure32. Change Orders and Contract

Amendments33. Extensions of Time34. Termination35. Assignment

SECTION-I1I 97

Section VIII. Special Conditions of Contract (SCC)

This Section includes clauses specific to the contract that modify or supplement Section VII, General Conditions of contract.

Sample:

Section VIII. Special Conditions of Contract

The following Special Conditions of Contract (SCC) shall supplement and / or amend the General Conditions of Contract (GCC). Whenever there is a conflict, the provisions herein shall prevail over those in the GCC.

GCC 1.1(j) The Purchaser’s country is: [insert name of the Purchaser’s Country]

GCC 1.1(k) The Purchaser is: [Insert complete legal name of the Purchaser]

GCC 1.1 (q) The Project Site(s)/Final Destination(s) is/are: [Insert name(s) and detailed information on the location(s) of the site(s)]

GCC 4.2 (a) The meaning of the trade terms shall be as prescribed by Incoterms. If the meaning of any trade term and the rights and obligations of the parties thereunder shall not be as prescribed by Incoterms, they shall be as prescribed by: [exceptional; refer to other internationally accepted trade terms ]

GCC 4.2 (b) The version edition of Incoterms shall be [insert date of current edition]

GCC 5.1 The language shall be: [insert the name of the language]


98 SECTION-III

GCC 8.1 For notices, the Purchaser’s address shall be:

Attention: [ insert full name of person, if applicable]

Street Address: [insert street address and number]

Floor/ Room number: [insert floor and room number, if applicable]


ZIP Code: [insert postal ZIP code, if applicable]


Telephone: [include telephone number, including country and city codes]

Facsimile number: [insert facsimile number, including country and city codes]

Electronic mail address: [insert e-mail address, if applicable]

GCC 9.1 The governing law shall be the law of: [insert name of the country or state]

GCC 10.2 The rules of procedure for arbitration proceedings pursuant to GCC Sub Clause 10.2 shall be as follows:

(a) Contracts with Supplier national other than the Purchaser’s country:

All disputes arising in connection with the present Contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules.

Or

(b) Contracts with Supplier national of the Purchaser’s country:

In the case of a dispute between the Purchaser and a Supplier who is a national of the Purchaser’s country, the dispute shall be referred to adjudication or arbitration in accordance with the laws of the Purchaser’s country.

GCC 12.1 Details of Shipping and other Documents to be furnished by the Supplier are [insert shipping details and other documents].

The above documents shall be received by the Purchaser before arrival of the Goods and, if not received, the Supplier will be responsible for any consequent expenses.

GCC 14.2 The prices charged for the Goods supplied and the related Services performed [insert “shall” or “shall not,” as appropriate] be adjustable.

[If prices are adjustable, the following method shall be used to calculate the price adjustment [see attachment to these SCC for a sample Price Adjustment Formula]

GCC 15.1 Sample provision


SECTION-I1I 99

The method and conditions of payment to be made to the Supplier under this Contract shall be as follows:

Payment for Goods supplied from abroad:

Payment of foreign currency portion shall be made in (___) [currency of the Contract Price] in the following manner:

(i) Advance Payment: Ten (10) percent of the Contract Price shall be paid within thirty (30) days of signing of the Contract, and upon submission of claim and a bank guarantee for equivalent amount valid until the Goods are delivered and in the form provided in the bidding documents or another form acceptable to the Purchaser.

(ii) On Shipment: Eighty (80) percent of the Contract Price of the Goods shipped shall be paid within thirty (30) days upon submission of documents specified in GCC Clause 12.

Or

(ii) On Shipment: Eighty (80) percent of the Contract Price of the Goods shipped shall be paid through irrevocable confirmed letter of credit opened in favor of the Supplier/Supplier’s Principal(s) in a bank in its country, upon submission of documents specified in GCC Clause 12.

(iii) On Acceptance: Ten (10) percent of the Contract Price of Goods received shall be paid within thirty (30) days of receipt of the Goods upon submission of claim supported by the acceptance certificate issued by the Purchaser.

Payment of local currency portion shall be made in Pak Rs__ within thirty (30) days of presentation of claim supported by a certificate from the Purchaser declaring that the Goods have been delivered and that all other contracted Services have been performed.

Payment for Goods and Services supplied within the country:

Payment for Goods and Services supplied from within the Purchaser’s country shall be made in _________ [currency], as follows:

(i) Advance Payment: Ten (10) percent of the Contract Price shall be paid within thirty (30) days of signing of the Contract against a simple receipt and a bank guarantee for the equivalent amount and in the form provided in the bidding documents or another form acceptable to the Purchaser.

(ii) On Delivery: Eighty (80) percent of the Contract Price shall be paid on receipt of the Goods and upon submission of the documents specified in GCC Clause 12.

(iii) On Acceptance: The remaining ten (10) percent of the Contract Price shall be paid to the Supplier within thirty (30) days after the date of the acceptance certificate for the respective delivery issued by the Purchaser.

GCC 15.5 The payment-delay period after which the Purchaser shall pay interest to the supplier shall be [insert number] days.

The interest rate that shall be applied is [insert number] %

GCC 17.1 A Performance Security [ insert “shall” or “shall not” be required]

[If a Performance Security is required, insert “the amount of the


100 SECTION-III

Performance Security shall be: [insert amount]

[The amount of the Performance Security is usually expressed as a percentage of the Contract Price. The percentage varies according to the Purchaser’s perceived risk and impact of non performance by the Supplier. A 10% percentage is used under normal circumstances]

GCC 17.3 The Performance Security shall be in the form of: [insert “a Bank Guarantee”]

GCC 17.4 Discharge of the Performance Security shall take place: [ insert date if different from the one indicated in sub clause GCC 17.4]

GCC 22.2 The packing, marking and documentation within and outside the packages shall be: [insert in detail the type of packing required, the markings in the packing and all documentation required]

GCC 23.1 The insurance coverage shall be as specified in the Incoterms.

If not in accordance with Incoterms, insurance shall be as follows:

[insert specific insurance provisions agreed upon, including coverage, currency an amount]

GCC 24.1 Responsibility for transportation of the Goods shall be as specified in the Incoterms.

If not in accordance with Incoterms, responsibility for transportations shall be as follows: [insert “The Supplier is required under the Contract to transport the Goods to a specified place of final destination within the Purchaser’s country, defined as the Project Site, transport to such place of destination in the Purchaser’s country, including insurance and storage, as shall be specified in the Contract, shall be arranged by the Supplier, and related costs shall be included in the Contract Price.]

GCC 25.1 The inspections and tests shall be: [insert nature, frequency, procedures for carrying out the inspections and tests]

GCC 25.2 The Inspections and tests shall be conducted at: [insert name(s) of location(s)]

GCC 26.1 The liquidated damage shall be: [insert number]% per week

GCC 26.1 The maximum amount of liquidated damages shall be: [insert number]%

GCC 27.3 The period of validity of the Warranty shall be: [insert number] days

For purposes of the Warranty, the place(s) of final destination(s) shall be:

[insert name(s) of location(s)]

GCC 27.5 The period for repair or replacement shall be: [insert number(s)] days.

Attachment: Price Adjustment Formula


SECTION-I1I 101

If in accordance with GCC 14.2, prices shall be adjustable, the following method shall be used to calculate the price adjustment:

Prices payable to the Supplier, as stated in the Contract, shall be subject to adjustment during performance of the Contract to reflect changes in the cost of labor and material components in accordance with the formula:

P1 = P0 [a + bL1 + c

M1 ] - P0L0 M0

a + b + c = 1 in which:

P1 = adjustment amount payable to the Supplier.

P0 = Contract Price (base price).

a = fixed element representing profits and overheads included in the Contract Price and generally in the range of five (5) to fifteen (15) percent.

b = estimated percentage of labour component in the Contract Price.

c = estimated percentage of material component in the Contract Price.

L0, L1 = labour indices applicable to the appropriate industry in the country of origin on the base date and date for adjustment, respectively.

M0, M1 = material indices for the major raw material on the base date and date for adjustment, respectively, in the country of origin.

The coefficients a, b, and c as specified by the Purchaser are as follows:a = [insert value of coefficient] b = [insert value of coefficient]c = [insert value of coefficient]

The Bidder shall indicate the source of the indices and the base date indices in its bid.

Base date = thirty (30) days prior to the deadline for submission of the bids.

Date of adjustment = [insert number of weeks] weeks prior to date of shipment (representing the mid-point of the period of manufacture).

The above price adjustment formula shall be invoked by either party subject to the following further conditions:

(a) No price adjustment shall be allowed beyond the original delivery dates unless specifically stated in the extension letter. As a rule, no price adjustment shall be allowed for periods of delay for which the Supplier is entirely responsible. The Purchaser will, however, be entitled to any decrease in the prices of the Goods and Services subject to adjustment.

(b) If the currency in which the Contract Price P0 is expressed is different from the currency of origin of the labor and material indices, a correction factor will be applied to avoid incorrect adjustments of the Contract Price. The correction factor shall correspond to the ratio of exchange rates between the two currencies on the base date and the date for adjustment as defined above.

(c) No price adjustment shall be payable on the portion of the Contract Price paid to the Supplier as advance payment.

Section IX: Contract Forms


102 SECTION-III

This Section includes the form for the Agreement, which, once completed, incorporates corrections or modifications to the accepted bid that are permitted under the Instructions to Bidders, the General Conditions of Contract, and the Special Conditions of Contract.

The forms for Performance Security and Advance Payment Security, when required, shall only be completed by the successful Bidder after contract award.

1. Contract Agreement

2. Performance Security

3. Bank Guarantee for Advance Payment

4. An “Invitation for Bids” form is provided at the end of the Bidding Documents for information

The Contract;

After issuance of the Purchaser’s Notification of Award and acceptance of it by the Supplier, the following documents shall constitute the Contract between the Purchaser and the Supplier, and each shall be read and construed as an integral part of the Contract:

a) Contract Agreement

b) Section I. General Conditions of Contract (GCC)

c) Section II. Special Conditions of Contract (SCC)

d) Section III. Technical Specifications

e) Section IV. Schedule of Requirements

f) The Supplier’s Bid and original Price Schedules

g) The Purchaser’s Notification of Award

h) [Add here any other document(s)]

(Note: Standard Documents are available on www.worldbank.org/procure)

Purchase Order:

For small value contracts, after invitation for bids/quotations and evaluation of bids/quo-tations, “Purchase Order” is issued to the lowest responsive bid/quotation.

The confirmation of the award would be in the form of a Purchase Order, prepared by the Procuring Agency, attached to which will be the Conditions of Purchase. The Purchase Order will be signed by both the Procuring Agency and the Supplier; the original will be kept by the Procuring Agency and a copy given to the Supplier. Signing of a separate contract is not usually required; however, if the Procuring Agency wishes to sign a formal contract, it may exceptionally do so, after issuing the Purchase Order.

The Procuring Agency may require a bid/quotation security; and, because of the small value and nature of the procurement method, there may be no requirement for a Perform-ance Security.

Shopping (W B Guidelines)



SECTION-I1I 103

• Shopping is a procurement method based on comparing price quotations obtained from several suppliers, with a minimum of three;

• It is an appropriate method for procuring readily available goods or standard specifi-cation commodities of small value;

• Requests for quotations shall indicate the description and quantity of the goods or specifications of works, as well as desired delivery time and place;

• Quotations may be submitted by letter;

• The evaluation of quotations shall follow the same principles as of open bidding; and

• The terms of the accepted offer shall be incorporated in a purchase order or brief con-tract.

PPR Rule - 42 (b) The cost of object of procurement is below the prescribed limit of rupees five

hundred thousand for Autonomous bodies;

The object of the procurement has standard specifications;

Minimum of three quotations have been obtained; and

The object of the procurement is purchased from the supplier offering the lowest price:

Note; the above PPRA Rule does not necessarily require “Purchase Order”

Sample: Request for Quotation (RFQ)

[Purchaser to use normal Letter Headed format]Request for Quotation for the Supply of

[brief description of Goods and Contract Package number]

To: [name and address of the Supplier]

Date: [date of issue of the RFQ]

1. The [name of the Procuring Agency] has a budget allocation for the purchase of Goods and wishes to apply some of that allocation for the purchase of Goods for which this Re-quest for Quotation is issued.

2. Payments made against any Purchase Order arising from this Request for Quotation will only be made in Pak Rs. The Unit Rate(s) offered by the Supplier, if accepted, shall re-main fixed for the duration of the Purchase Order.

3. Your quotation, in duplicate, must be delivered to the office of the undersigned on or be-fore [state time and date]. Any quotation received later than the scheduled time will be rejected and returned unopened. The envelope containing the quotation must be clearly marked “Quotation for [state nature of goods].

4. All quotations must be valid for a period of thirty (30) days from the closing date of the Request for Quotations.

5. The quotation shall be completed and signed by an authorised representative of the Sup-plier. In the case of a Supplier offering to supply goods that the Supplier itself does not manufacture or otherwise produce, the Supplier must show that they have been duly au-thorised by the goods’ manufacturer to supply the goods in Pakistan.


104 SECTION-III

6. In the case of any arithmetical discrepancy between the Unit Rate and the Total Amount quoted, then the Unit Rate shall prevail both for the evaluation of quotations and for the subsequent Purchase Order.

7. Depending on the final requirement, the quantities shown may increase or decrease and this shall be reflected in the Purchase Order.

8. There will be no public opening of quotations; the Purchaser is not bound to accept the lowest quotation and reserves the right to accept or reject any or all the quotations as per PPR Rules.

Signature of official authorised to receive to RFQ

Print name and designation of official

Schedule of Items and Priced Quotation

Sr. Nr.

Item Nr.Description

&Details

Unit QtyUnitRateRs

Total Amount

Rs

[The Supplier should attach copies of relevant brochures/catalogue for the equipment to be supplied, which will give sufficient data to permit effective evaluation of the quotation].

Technical Specification of the Goods Required

Sr.Nr

Item Nr. Specification

Documentation Required with the Submission of the Quotation;

Terms and Conditions for the Supply of Goods and Payment;

Sample of Purchase Order:

[Purchaser to use normal Letter Headed format]

PURCHASE ORDER FOR THE SUPPLY OF GOODS

Purchase Order No: Purchase Order Date:

From:

[name and address of Purchaser]

[Contact person, Telephone Number, Fax Number & e-mail address]

To:

[name and address of the Supplier]

[Contact person, Telephone Number, Fax Number, e-mail address & supplier reference]

Delivery date: Order Value:

Delivery terms:

The Purchaser has accepted your Quotation dated [insert date] for the supply of Goods as listed below and requests that you provide the goods within the delivery date stated above, in the quantities and units and on the Terms and Conditions as stipulated below. For convenience a copy of your signed quotation is attached.


SECTION-I1I 105

1. Description

ORDER ITEMS

Item

Nr.Description

Supplier

Ref

Unit

PriceQty

Total

Price

In acceptance of this Purchase Order you are requested to sign below, at which time the Contract shall become legally binding upon both parties. You are also requested to confirm that you will be supplying the goods within the Delivery date mentioned above.

2. Specification

As mentioned with item description.

3. Terms and Conditions for the Supply of Goods.

The Terms and Conditions hereinafter may only be varied with the written agreement of the Purchaser and no terms and conditions put forward at any time by the Supplier shall form any part of the Contract.

(a) the Supplier shall not be required to submit a performance security;

(b) the supply of the goods shall be completed within [state number] days from the date of issue of the Purchase Order, or the signing of the contract (if applicable);

(c) after completion of the supply of the goods, the Supplier shall submit an ori-ginal Invoice, and two (2) copies, to the Purchaser. The invoice shall show the cost of the goods and Duties & Taxes separately;

(d) payment of the Invoice shall be arranged by the Purchaser, within [thirty (30)] days, but only against the actual supplied quantities of goods as listed in the Purchase Order;

(e) payments against Duties/Taxes and other impositions shown in the Sup-plier’s invoice shall be made as prevailing rules and regulations.

(f) if the Supplier fail to deliver the stores or any consignment within the speci-fied delivery period, the Purchaser shall be entitled at his option to recover from the Supplier liquidated damages levied at the rate of 0.05% per day or part thereof up to 10% (The liquidated damages shall be recovered only for the stores supplied late): Or

the Purchaser may, by written notice sent to the Supplier, terminate the Purchase Order (or Contract if applicable) in whole or in part at any time for its convenience:

(i) if the Supplier fails to deliver any or all the goods within the time period(s) specified in the Purchase Order, or

(ii) if the Supplier fails to perform any other obligation(s) under the Purchase Or-der, or

(iii) if the Supplier, in either of the above circumstances does not cure its failure within a period of (3) three calendar days after receipt of a notice of default from the Purchaser specifying the nature of the default(s), or


106 SECTION-III

(iv) if the Supplier, in the judgment of the Purchaser, has engaged in any corrupt or fraudulent practices in competing for or in executing the tasks under this Purchase Order;

(g) the Supplier shall provide the warranty, as stipulated in the Quotation doc-ument, for the goods to be supplied and confirm that if any faults are detected within the warranty period in the supplied/installed goods, the Supplier shall be bound to rectify the fault or replace the goods as the case may be.

(h) in case the Supplier subsequently quoted less prices for the items men-tioned under this Contract to any other organization, during the currency of this Contract, the amount in excess shall be refundable to Purchasing agency.

(i) the rates approved are on the basis of FCS (Free delivery to consignee’s store) through reliable Transport Company and as such material should be dis-patched at the Supplier’s risk. All losses during transit will be replaced at the Sup-plier cost against the claim preferred on the Supplier within fifteen days of the re-ceipt of consignment by consignee. The consignee will hand over the number of items damaged during dispatch for replacement.

(j) the Supplier will, not be absolved of the responsibility to meet the demands of the Purchaser if the quantities exceed the estimated requirement. The Purchaser, however, reserves the right to obtain the same from any source the items covered by this Contract to meet in an emergency.

(k) the Supplier will be responsible for packing the stores suitable for transit so as to ensure their being free from loss or damage on arrival at destination.

(l) the Supplier shall observe all applicable regulations regarding safety of work, equipment, third party injury and damage to property.

4. Inspection

All reasonable facilities provided in the specification are allowed by the industry or trade in general shall have to be afforded to the Inspecting Officers by the Supplier. The Company may send its representative to be present at the time of unpacking;

i) the Inspection team may reject a part or the whole of the consignment offered for inspection, if after inspection such portion thereof as it may decide in its discretion, it is satisfied that the consignment is below the requirements of the particulars governing the supply given in the purchase order;

ii) the decision of the Inspection team shall be binding.

iii) if the stores are rejected as aforesaid then without prejudice to the right, the purchaser shall have the following rights:

a) to purchase the stores in place of rejected goods at the Supplier cost and expense.

b) to terminate the contract and recover from the Supplier the loss, the Purchaser thereby incurs.

5. Test CertificateManufacturer’s test certificate in triplicate, conforming that the goods offered conform to specification laid down in the Contract will be enclosed in each consignment.

6. Warranty


SECTION-I1I 107

The Supplier will furnish a full comprehensive warranty certificate, certifying that the goods supplied conform exactly to the specifications laid down in the contract and are brand new and that in the event of the material being found defective at the time of delivery and for a period of warranty from the date of supply/installation, you will be held responsible for all losses and that the un-acceptable goods shall be substituted with acceptable goods at your expense and cost.

The warranty period i.e ( ____ ) days will commence from the date of joint certification both by the Supplier and the purchaser regarding installation / commissioning and receipt of accessories / spares parts according to specifications.

7. Arbitration

This contract shall be governed by the existing Laws of Pakistan as amended from time to time. The parties shall comply with the Arbitration Act 1940. Arbitration place will be [Lahore].

For the Purchaser:

Signature

For the Supplier:

Signature

Print Name Print name

Designation Designation

Date Date

Note: Guidelines and documents are available on following websites;

www.pec.org.pk

www.picc.org.pk


www.adb.org/Procurement

www.ppra.org.pk

INCOTERMS





108 SECTION-III

International Commercial Terms

The INCOTERMS is a set of definitions of International Trade Terms,

First published by the International Chamber of Commerce (ICC) In 1936,

Amendments & additions were later made during 1953, 1967, 1976, 1980, 1990, 2000 and 2010.

Purpose of INCOTERMS

To provide a set of international rules for the interpretation of most commonly used trade terms in foreign trade.

Scope of INCOTERMS is limited to matters relating to the rights & obligations of parties to a contract of sale with respect to delivery of good sold.

INCOTERMS are primarily intended for use, where goods are sold for delivery across national boundaries.

In practice INCOTERMS are also incorporated in contracts for sale of goods within purely domestic markets.

Misconceptions about INCOTERMS

First, INCOTERMS are frequently misunderstood as applying to contract of carriage rather than the contract of sale.

Second, they are wrongly assumed to provide for all the duties which parties may wish to include in a contract of sale.

Application of INCOTERMS

INCOTERMS apply to the sale of tangible goods.

INCOTERMS do not apply to sale of intangible goods such as computer software.

INCOTERMS deal with

the relation between sellers & buyers under the contract of sale, and

only to do so in some very distinct respects.

Contracts performed by Importers & Exporters

Contract of sale

Contract of carriage

Insurance contract

Contract of financing

INCOTERMS relate only to contract of sale & none others

Obligations of the parties under INCOTERMS

seller’s obligation to place the goods at the disposal of the buyer, or

hand over the goods for carriage, or

deliver the goods at destination

distribution of risks between the parties in the above situations

obligation to clear the goods for export & import

packing of the goods


SECTION-I1I 109

buyer’s obligation to take delivery of goods

obligation to provide proof of having fulfilled respective obligations

Costs Involved in Sale

Packaging, Marking,

Loading at Point of Origin,

Inland Transit Costs at Origin,

Inland Transit Insurance at Origin,

Export Permit Costs,

Export Duties,

Wharf Expenses at Origin,

Loading at Origin,

Main Freight,

Insurance,

Wharf Expenses at Destination,

Import Permit Expenses,

Customs Clearance Costs at Destination,

Inland Transit Costs at Destination,

Inland Transit Insurances,

Unloading at Place of Discharge.

INCOTERMS - GROUPS

Group ‘E’ - Departure

Group ‘F’ - Main Carriage Unpaid

Group ‘C’ - Main Carriage Paid

Group ‘D’ - Arrival

INCOTERMS GROUP ‘E’

EXW – EX WORKS (Named Place)

Ex means from. Works means factory, mill or warehouse, which are the seller’s premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.

In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.

In the quotation, indicate the named place (seller's premises) after EXW, for example EXW Kobe and EXW San Antonio.

INCOTERMS GROUP ‘F’


110 SECTION-III

FCA – FREE CARRIER (Named Place of Departure)

The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.

In the export quotation, indicate the point of departure (loading) after the FCA, for example FCA Hong Kong and FCA Seattle.

FAS – FREE ALONGSIDE SHIP (Named Port of Shipment)

Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.

In the export quotation, indicate the port of origin (loading) after FAS, for example FAS New York and FAS Bremen.

FOB – FREE ON BOARD (Named Port of Shipment)

The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.

In the export quotation, indicate the port of origin (loading) after FOB, for example FOB Vancouver and FOB Shanghai.

INCOTERMS GROUP ‘C’

CFR – COST & FREIGHT (Named Port of Destination)

The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F.

In the export quotation, indicate the port of destination (discharge) after CFR, for example CFR Karachi and CFR Alexandria.

CIF – COST, INSURANCE & FREIGHT (Named Port of Destination)

The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after CIF, for example CIF Pusan and CIF Singapore.

CPT – CARRIAGE PAID TO (Named Place of Destination)

The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks.

In the export quotation, indicate the place of destination (discharge) after CPT, for example CPT Los Angeles and CPT Osaka.

CIP – CARRIAGE AND INSURANCE PAID TO (Named Place of Destination)


SECTION-I1I 111

The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.

In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens.

INCOTERMS GROUP ‘D’

DAF – DELIVERED AT FRONTEIR (Named Place)

The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks.

In the export quotation, indicate the point at frontier (discharge) after DAF, for example DAF Buffalo and DAF Welland.

DES – DELIVERED EX SHIP (Named Port of Destination)

The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after DES, for example DES Helsinki and DES Stockholm.

DEQ – DELIVERED EX QUAY (Named Port of Destination)

The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after DEQ, for example DEQ Libreville and DEQ Maputo.

DDU - DELIVERED DUTY UNPAID (Named Place of Destination)

The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.

In the export quotation, indicate the point of destination (discharge) after DDU, for example DDU La Paz and DDU Ndjamena

DDP – DELIVERED DUTY PAID (Named Place of Destination)

The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks.

In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane.


112 SECTION-III

Incoterms® 2010Main features of the Incoterms® 2010 rules

Two new Incoterms rules – DAT and DAP – have replaced the Incoterms 2000 rules DAF, DES, DEQ and DDU

The number of Incoterms® rules has been reduced from 13 to 11. This has been achieved by substituting two new rules that may be used irrespective of the agreed mode of transport – DAT, Delivered at Terminal, and DAP, Delivered at Place – for the Incoterms® 2000 rules DAF, DES, DEQ and DDU.

Under both new rules, delivery occurs at a named destination: in DAT, at the buyer’s dis-posal unloaded from the arriving vehicle (as under the former DEQ rule); in DAP, likewise at the buyer’s disposal, but ready for unloading (as under the former DAF, DES and DDU rules).

Rules for any Mode or Modes of Transport

EXW EX WORKS

FCA FREE CARRIER

CPT CARRIAGE PAID TO

CIP CARRIAGE AND INSURANCE PAID TO

DAT DELIVERED AT TERMINAL

DAP DELIVERED AT PLACE

DDP DELIVERED DUTY PAID

Rules for Sea and Inland Waterway Transport

FAS FREE ALONGSIDE SHIP

FOB FREE ON BOARD

CFR COST AND FREIGHT

CIF COST INSURANCE AND FREIGHT

Note: For more information and for ordering Incoterms® 2010 Rules, visit following sites;www.iccwbo.org/Incotermswww.iccbooks.com/Product


http://www.iccwbo.org/Incoterms

SECTION-I1I 113

Documentary Credits in International Business Transactions

International Trade

In an international trade transaction involving goods or services, the buyer and the seller negotiate details about the method and timing of both payments and delivery.

• These negotiations require attention to complex details concerning credit arrangements, transaction structuring, legal issues, and political and cross-border risks.

• Buyers and sellers, involved in an international trade transaction rely on the expertise of a global bank for advice and assistance regarding these complex details.

Objectives° Understand the System of international trade transaction

° Identify five payment options for settling trade transactions

° Recognize the risks and advantages of the five payment options to buyers and sellers

° Distinguish between commercial letters of credit and standby letters of credit

° Understand the application of different types of letters of credit to international trade transactions

° Recognize the commercial and financial documents needed for a typical international trade transaction

Establishing Terms between Buyers and Sellers

Buyer’s Goals

The buyer’s goals during the negotiations are to:

º Minimize the total cost of the goods which, in addition to the agreed-upon price, may in-clude:

- Cost of financing the goods between the time they are purchased and the time they are converted into cash upon subsequent resale

- Lost opportunity cost of not being able to invest funds in the event available cash is used to pay for the goods

- Foreign exchange costs if the deal is denominated in a currency other than the buyer’s

° Assure receipt of specified goods as per contract

° Maintain good relationships with sellers

Seller’s Goals

The seller’s goals are to establish terms that:

• Increase the attractiveness of the product by offering lenient trade terms to the buyer; it increases the likelihood that the buyer can afford the product.

• Maximize the price of the goods without losing the sale

– Both through borrowing or through available cash, the seller must cover the cost between the time the sale is contracted and the final payment is received.

– The seller may try to build this cost into the price of the product, but runs the risk of making the goods less attractive


114 SECTION-III

• Assure payment from the buyer.

The seller will examine all the risks associated with the trade transaction to ensure that

· The buyer is able to pay

· Funds can be converted to the currency of the seller’s country

· Funds can be transferred to the seller’s country

Leverage

› The party with the most business influence during the negotiations will be more success-ful in dictating terms that meet the desired objectives.

› In other words, the amount of leverage each party has determines how many goals the seller and buyer will achieve.

For example; a buyer who regularly purchases 90% of a seller’s product may be able to ne-gotiate very favorable payment terms with that seller.

Payment Options

º After establishing the terms of the deal, the two parties draw up a contract.

º The buyer and seller arrange one of five major payment options to settle the transaction:

1. Cash in advance2. Open account3. On consignment4. Documentary collections5. Letters of credit

1. Cash in advance

• Means - Payment before shipment

• Cash in advance is the most basic payment method for goods.

• The seller receives cash from the buyer before goods are shipped.

• Disadvantages for Buyer;

There are no advantages to the buyer in this transaction and there are several risks to consider.

Buyer’s risks

º Lack of control over the goods

º Loss of the use of the funds paid to the seller

º Refusal or inability of the seller to ship the goods

º Political (sovereign) risk in the seller’s country until the goods are shipped. Politi-cal (sovereign) risk, a component of country risk, is the possibility that the actions of a sovereign government (e.g. nationalization) or independent events (e.g., wars, riots, civil disturbances) affect the ability of the seller in that country to meet its obligations to the buyer.

º Commercial or credit risk of the seller as a result of funds misuse, bankruptcy, or any other improper business activity


SECTION-I1I 115

Seller’s advantages and risks

The seller has all of the advantages in the cash-in-advance transaction and almost none of the risks. The seller can ship the goods whenever convenient and, in the meantime, enjoy the use of the buyer’s funds.

Bank’s role

Bank has minimal involvement in a cash-in-advance transaction. However, it can derive fee income from transactions associated with funds transfer, foreign exchange (if re-quired), and cash management.

Note; Cash in advance transactions are arranged only in situations where the seller may have significant leverage and is able to dictate the terms of the deal — for example, when several buyers are competing for a limited product.

2. Open account

Means Shipment before payment:

The seller ships the goods, accompanied by the title documents (legal documents, e.g. insurance and transport documents, indicating proof of an individual’s own-ership of the goods), before receiving payment or a written promise to pay (i.e. promissory note or draft).

The shipper does not retain control of the goods.

Buyer’s advantages and risks

The buyer has all of the advantages and minimal risk in an open account transac-tion.

The buyer:

· Retains control of the goods.

· Has time to generate cash from the sale of the goods before paying the seller to cover the period between the purchase and resale of the goods. Neverthe-less, lack of timely payments may cause the facility to be discontinued.

The length of time between the shipment of goods by the seller and the payment by the buyer depends on the credit terms previously negotiated.

The purchase order issued by the buyer or the contract of sale represents the terms and conditions of the negotiation.

The buyer may not have to borrow and can use available cash on receipt of the merchandise

The buyer may incur foreign exchange risk if the imported goods are priced in the seller’s currency. The buyer may be unable to pay if its currency weakens sharply against the seller’s currency

Seller’s Advantages and Risks

• The seller has none of the advantages and all of the risks in an open account transaction.

• The seller has no control over the goods and the buyer’s willingness to pay for them.

• The seller incurs cross-border risk which may prevent an otherwise reputable buyer from sending payment. (Cross-border risk, a component of country risk, is


116 SECTION-III

the risk that, due to economic problems, political disturbances, or sovereign ac-tions within the buyer’s country, it may become impossible to get money out of a country or to convert the buyer’s currency into a foreign currency).

• The seller may incur foreign exchange risk if the exported goods are priced in the buyer’s currency.

• The seller may need to borrow to cover the period between shipment of the goods and receipt of funds. If the seller borrows at a floating rate, the seller may incur interest rate risk (the interest rate at which the seller borrows may rise to the point in which the transaction may become unprofitable for the seller).

Bank’s Role

• Bank has minimal involvement in an open account transaction. However, it can derive fee income from transactions associated with funds transfer, foreign ex-change (if required), and cash management.

• Documentation for the shipment of the merchandise is handled outside banking channels.

Note; The typical situations in which a seller would be willing to assume the above risks are when the contract is:

– Between parent companies and subsidiaries to facilitate intra-company trade

– Between buyers and sellers with excellent long-term relationships

– Between sellers and buyers, when sellers feel strong competitive pressures, especially in domestic markets

3. On Consignment

• Means Seller ships goods but retains ownership

• In an “on consignment” sale,

· The seller ships the goods to the importer while retaining ownership of the goods.

· The importer is referred to as the consignee who is actually an agent responsi-ble for paying for the goods if and when the goods are sold.

Consignee’s Advantages and Risks

• The prime advantage for the consignee is that the consignee pays only as the im-ported goods are sold.

• The consignee receives a fee for brokering the sale.

• There are no risks for the consignee.

Seller’s Advantages and Risks

• The key advantages for the seller are that;

– the seller retains ownership of the goods until sold and

– uses the services of the consignee to intermediate the sale of the goods to the buyer.

• In terms of risks, the seller:

– Has limited control over the goods


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– Has no control over the consignee’s willingness to pay for goods

– Receives payment only upon sale of goods

– May incur cross-border risk of the consignee’s country

– May incur foreign exchange risk

– May incur commercial or credit risk

Bank’s Role

Bank has minimal involvement in an “on consignment” transaction. However, it can de-rive fee income from transactions associated with funds transfer, foreign exchange (if re-quired), and cash management.

Note; Seller should only grant on consignment terms to a:

– Reputable consignee with good credit ratings

– Consignee with whom the seller has a good credit history

– Consignee whose country enjoys economic and political stability

4. Documentary Collections

• A documentary collection is a method by which a seller is able to collect payment from an overseas buyer through an intermediary bank.

• Banks act as intermediaries in facilitating the flow of the title documents and in the payment of the transaction.

• Banks act upon instructions received

Parties and Process

• There are four major parties involved: the seller, remitting bank (seller’s bank), buyer, and collecting / presenting bank (buyer’s bank).

• There are four major steps in a documentary collection:

Step 1. The seller, after effecting shipment, forwards to the remitting bank (seller’s bank) the following documents covering the shipment —

– Written collection instructions

– Draft (financial document which is a demand for payment), and/or

– Commercial documents (e.g. commercial invoice, transport docu-ment, and any other document applicable to the collection transac-tion)

Step 2. The remitting bank (seller’s bank), acting as an intermediary, transcribes the sellers’ collection instructions and forwards it to the collecting / presenting bank (buyer’s bank) along with the draft and/or commercial documents.

Step 3. The collecting / presenting bank, acting as an intermediary, makes the draft and/or commercial documents available to the buyer for inspection and only delivers the original commercial documents in accordance with the remitting bank’s collection instruction.

Step 4. The buyer, after inspecting the commercial documents, has three options:

(i) to pay,


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(ii) to obligate itself to pay at a future date, or

(iii) to refuse either to pay or to obligate itself to pay the accompanying draft.

Buyer’s advantages and risks

In a documentary collection transaction, the buyer’s advantage is that the buyer may refuse to:

– Pay for drafts and/or documents

– Accept a time draft

In terms of risks, the goods may not meet the buyer’s specifications after pay-ment and/or acceptance.

Seller’s advantages and risks

• For the seller, the advantage is that;

– The seller knows that the commercial and/or financial documents are con-trolled by the banks, acting as intermediaries, and are not delivered to the buyer until payment is made or a time draft is accepted by the buyer.

• A bank’s control of the documents reduces the seller’s risk in relation to the documents only;

• The seller may be exposed to following risks:

- Cross-border risk

- Foreign exchange risk

- Interest rate risk

- Commercial or credit risk

- Costs resulting from the buyer’s refusal to pay. In this instance, the seller incurs the expense of storing goods in a foreign country while finding an-other buyer in that country (or in another country), or arranging for their return to the country of origin.

- Loss of goods resulting from a time limit for holding goods in public stor-age. Regulations in many countries may restrict the number of days in which goods may be held in public storage. After that time, the goods may be sold at auction.

5. Letters Of Credit (L/C)

• A letter of credit is an instrument issued by a bank to a named party which substi-tutes the bank’s creditworthiness for that of its customer.

• The letter of credit states the bank’s willingness to guarantee its customer’s credit and the bank’s conditional obligation to pay the party named in the letter of credit.

• Bank assumes obligation to pay.

Parties to a Letter of Credit


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• Several participants are involved in a letter of credit transaction:

– The applicant is the party that arranges for the letter of credit to be issued.

– The beneficiary is the party named in the letter of credit in whose favor the letter of credit is issued.

– The issuing or opening bank is the applicant’s bank that issues or opens the letter of credit in favor of the beneficiary and substitutes its creditworthiness for that of the applicant.

• An advising bank may be named in the letter of credit to advise the beneficiary that the letter of credit was issued.

• The paying bank is the bank nominated in the letter of credit that makes payment to the beneficiary without recourse, after determining that documents conform, and upon receipt of funds from the issuing bank or another intermediary bank nominated by the issuing bank.

• The confirming bank is the bank which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the issuing bank’s commitment to pay.

Bank’s role

• A bank may take on more than one role in a single letter of credit transaction.

• At least two banks are involved in most transactions — the bank in the appli-cant’s country and the bank in the beneficiary’s country. However, it is not un-usual to find three, and sometimes four, different banks participating in one trans-action.

• As a result of Bank’s global network, Bank can assume many roles in a single transaction.

• In a letter of credit transaction, banks deal only with documents; they have noth-ing to do with the goods.

Types of Letters of Credit

o Letters of credit are issued either as “revocable” or “irrevocable.”

o Unless clearly designated revocable, a letter of credit is considered irrevo-cable

• A revocable letter of credit is one that can be amended or cancelled by the issu-ing or opening bank at any time without prior notice to, or agreement of, the beneficiary. It is seldom used.

• An irrevocable letter of credit is one that is a definite commitment by the issuing bank to pay, provided the beneficiary complies with the terms and conditions of the letter of credit. It cannot be amended or cancelled without the consent of the issuing bank, confirming bank (if the L/C is confirmed), and the beneficiary.

Categories of letters of credit

• There are two major categories of letters of credit –

– commercial letter of credit and

– standby letter of credit.


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• A commercial letter of credit is used as a payment method in conjunction with the movement of goods.

• A standby letter of credit is used as a monetary indemnification in relation to the performance of the Bank’s customer in an underlying contractual obligation with another party.

COMMERCIAL LETTER OF CREDIT

• When the beneficiary (seller or exporter) is in a position to dictate terms that minimize risk, and the applicant (buyer or importer) wishes to purchase goods without paying for them in advance, the beneficiary will require the applicant to provide a commercial letter of credit.

• A commercial letter of credit is an instrument that states the bank’s obligation to pay the beneficiary upon presentation of conforming documents evidencing that goods have been shipped.

• Bank only pays the beneficiary if the required documents presented are in ac-cordance with the terms and conditions of the letter of credit.

Transaction flow

The typical transaction flow of a commercial letter of credit is as follows:

(a) The applicant (buyer or importer) initiates the request for a letter of credit.

(b) The issuing bank (opening) issues the letter of credit and forwards it to the beneficiary directly or transmits it to the advising bank.

(c) The advising bank authenticates and presents the letter of credit to the beneficiary. If the issuing bank nominates the advising bank to be its paying agent, the advising bank may also become the paying bank. The issuing bank may also request that the advising bank add its confirmation to the letter of credit.

(d) The beneficiary ships the goods.

(e) The beneficiary forwards the documents required under the terms and conditions of the letter of credit to the paying (confirming) bank.

(f) The paying (confirming) bank examines the documents to ensure compliance with the terms and conditions of the letter of credit. If the documents comply, the paying bank receives funds from the issuing bank before releasing payment to the beneficiary.

(g) The paying (confirming) bank forwards the documents to the issuing bank. Upon receipt, the issuing bank reexamines the documents to ensure compliance with the terms and conditions of the letter of credit.

(h) The issuing bank debits the applicant’s account.

Types of Irrevocable Commercial Letters of Credit

1. Straight letter of credit

A straight letter of credit usually involves three parties: an applicant, the issuing bank, and the beneficiary. The commitment of the issuing bank extends to the named beneficiary; the beneficiary presents the documents directly to the issuing bank or nominated paying bank for payment.


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2. Negotiable letter of credit

In a negotiable letter of credit, the issuing bank assures anyone who “negotiates” against conforming documents that it will be reimbursed under the terms and conditions of the letter of credit. The negotiating bank becomes a legal party to the letter of credit.

3. Confirmed letter of credit

• A confirmed letter of credit is typically used when a beneficiary may not be willing to rely on the credit standing (creditworthiness) of an issuing bank and/or on the political risk of the issuing bank’s country.

• The risks associated with the issuing bank’s country may affect the ability of the issuing bank to honor its obligations.

• The confirming bank guarantees payment and assumes the credit and country risks of the issuing bank.

• A confirmed, irrevocable letter of credit provides the best protection to the ben-eficiary in mitigating the cross-border and commercial risks of the transaction.

STANDBY LETTERS OF CREDIT

• The second major category of letter of credit, standby letter of credit, is an in-strument that secures the beneficiary against loss resulting from the failure of the bank’s customer to perform a contractual obligation, financial or nonfinan-cial, that the customer has with the beneficiary.

• This means that the bank promises to make a monetary payment under certain conditions specified in the letter of credit.

• While a commercial letter of credit is usually payable against the presentation of specified documents evidencing the shipment of goods, documents required in a standby letter of credit may consist simply of the beneficiary’s statement that the bank’s customer has defaulted in certain obligations that the customer has with the beneficiary.

• The bank does not investigate the underlying facts of the transaction and it pays against documents only.

• Standby letters of credit typically do not require the submission of shipping documents and are rarely used as a payment mechanism for the movement of goods.

• There are two basic types of standby letters of credit issued either as revocable or irrevocable: guarantee and payment.

• The guarantee type standby letter of credit, issued only as irrevocable, may be used as a form of protection to cover performance, financial or non financial obligation, under a contract. This instrument protects the beneficiary finan-cially in the event that the bank’s customer fails to perform under the contract mentioned in the letter of credit. Otherwise, the beneficiary may draw those funds available under the letter of credit. It is referred to as a “standby” letter of credit because it provides financial protection to the beneficiary if the appli-cant defaults on the terms of the contract or agreement.

• The guarantee type can be used in just about any business transaction that requires a financial indemnification such as:


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• In lieu of bid, performance, and surety bonds

• In lieu of bank guarantees

• To support another bank’s guarantee or undertaking

• To provide security for advance payments

CONCLUSION

• In international trade, buyers and sellers have different objectives:

The buyer wants to ensure the receipt and quality of the goods while structuring a favorable payment schedule. As such, buyers prefer the “open account” payment op-tion

The seller wants to deliver the goods and receive payment as quickly as possible. As such, sellers prefer cash in advance.

Bank has minimal involvement in those trade transactions associated with the first three payment options i.e. “cash in advance,” “open account,” and “on consign-ment.”

• A letter of credit is an instrument that substitutes a bank’s creditworthiness for that of its customer. It also provides the bank’s conditional obligation to pay the party named in the letter of credit (the beneficiary). The letter of credit offers a certain degree of pro-tection to both parties, applicant and beneficiary; hence, it is the preferred payment mechanism in trade.

• A letter of credit may be issued either in revocable or irrevocable form and will be con-sidered irrevocable if it is not clearly designated as one or the other.

• A revocable letter of credit may be altered or canceled by the issuing bank at any time, whereas an irrevocable letter of credit cannot be amended or canceled without the ex-press permission of the parties involved – beneficiary and intermediary banks.

• A letter of credit assures the applicant that the beneficiary will only be paid if the docu-ments presented by the beneficiary comply with the terms and conditions of the letter of credit.

• If the beneficiary complies exactly with the terms and conditions of the letter of credit, and if the letter of credit is confirmed, the beneficiary will be protected against the ap-plicant’s credit risk and the issuing bank’s country and credit risks.

• When the letter of credit is issued in the currency of the beneficiary’s country, the bene-ficiary is protected against foreign exchange and cross-border (transfer and convertibil-ity) risk.

• A bank incurs operational risks and any other risk depending on the role(s) played in a letter of credit transaction.

• As the issuing bank, it faces the applicant’s credit risk; as the advising / negotiating / paying bank, it faces operational risks; and as the confirming bank, it faces the issuing bank’s credit and country risks.


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• The applicant of a letter of credit has the advantage of not always needing to commit funds to collateralise the transaction and enjoying the use of an instrument which is widely accepted in the market place and less costly than other indemnification instru-ments. However, the applicant runs the risk that the beneficiary may draw prematurely or present fraudulent documents.

• In terms of the beneficiary’s advantages, when the beneficiary submits documents in ac-cordance with the terms and conditions of the letter of credit, the bank becomes obli-gated to pay. The beneficiary can mitigate the issuing bank’s country risk by requiring that the letter of credit be confirmed by a bank in its own country.

• If the letter of credit is issued in the currency of the beneficiary’s country, the benefi-ciary also eliminates its foreign exchange risk.

• A commercial letter of credit is used to facilitate the payment of goods in a trade transaction. It is essentially an agreement whereby a bank assumes a conditional obliga-tion, in behalf of the applicant (buyer or importer), to make payment to a beneficiary (seller or exporter) against the presentation of specified documents by the beneficiary evidencing the shipment of goods.

• A standby letter of credit is used as a monetary indemnification associated with the performance of the bank’s customer in relation to an underlying contractual obligation with a third party. It protects a third party, the beneficiary, from loss resulting from the failure of a bank’s customer, the applicant, in performing some contractual obligation.


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Dispute Settlement Provisions in Goods’ Contracts

Essential elements of good contract management

The right contract with right specifications and terms.

• Understanding of objectives.

• Effective monitoring system.

• Relationship management.

• Knowing the system and each other.

• Flexibility in management.

• Change Management awareness.

• Pro-activity to handle difficult situations.

• Willingness to resolve disputes amicably.

Causses of disputes • Poorly drafted contracts.

• Contracts not understood or interpreted properly.

• Failure to check Contractor’s assumptions.

• Lack of performance measurement.

• Inadequate resources with supplier.

• Incompatibility in skills/experience.

• Unclear authorities or responsibilities.

• Failure to monitor and manage retained risks.

• Personality clashes.

Dispute Resolution

The process of performance of contracts may lead to certain disputes which if not resolved at fast track may prove fatal to the existence of the contract. Disputes may also confront a situation which may lead to a serious dispute

It is always desirable and prudent on the part of parties to the contracts to incorporate in the contracts a formal clause governing the mode of resolving the dispute if at all one arises at any stage of performance of the contract.

The parties to the contract have to choose:

whether they would go to the courts to settle the issue in accordance with the formal mechanism provided by the state i.e. litigation or

Would they prefer to look to other methods of Alternate Dispute Resolution (ADR) such as negotiation, facilitation, arbitration and mediation etc.

The decision to choose either of the dispute resolution methods, of course, would be dependant on various factors like advantages and disadvantages of different methods. It would also depend on the suitability for the particular business relationship, and the legal, economic and commercial backgrounds of the parties to the dispute.


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If the dispute settlement system of formal courts is based on well set legal rules, principles and is supported by sufficient case law, it could be a preferred choice of the parties. The parties must include in the contract their agreed choice of jurisdiction and choice of applicable law.

Then take the dispute if it occurs to that forum for resolution. Even in this case there could be certain surprises, e.g. the problem of recognition and enforcement of judgments and arbitral awards.

It is possible that the selected court may not entertain the case on the plea that they are not the appropriate forum for the case or

The court may refuse to apply the law chosen by the parties as the law applicable to the case.

This may happen due to any state’s public policy or any other reason.

Another problem could be that even if a party succeeds in getting a favorable judgment after a long litigation process in a foreign country, the decree holder might not succeed in getting the decree enforced in the country of the judgment debtor due to uncertainty in the laws followed in various jurisdictions on recognition and enforcement of foreign judgments. Such like difficulties created by the court system adversely affecting confi-dentiality of case and the relationship of the parties may compel the parties not to choose litigation as a method of dispute resolution.

The legal problems faced due to variation in procedural rules and substantive laws of different nations also pose serious problems and discourage the parties from adopting litigation as a preferred method of dispute resolution in the contracts.

In order to have an understanding of the system of litigation, it is necessary to know the international laws related to litigation and the laws related to recognition and enforce-ment of foreign judgments with special reference to Pakistani Law on the subject.

Lots of efforts have been made to reduce possibility of disputes in International trade and other transactions by unification of related international laws through international conventions. The examples are Vienna convention, the Hague-Visby Rules, International Rules for the Interpretation of Trade Terms (INCOTERMS) the Uniform Customs and Practice for Documentary credits 500 (UCP) and International Centre for Settlement of Investment Disputes (ICSID) which have been developed by specialist organizations to standardize the trade terms to avoid disputes and to resolve the disputes if at all they arise.

Despite all the abovementioned efforts the disputes still arise and will continue to be a part of the business. However due to uncertainties associated with the choice of litigation, the parties to the contracts are attracted to choosing other forms of dispute resolution. These methods of dispute resolution, commonly called Alternate Dispute Resolution or ADR, offers greater advantages to the parties e.g. confidentiality, and better control over the procedural rules and legal principles.

METHODS OF DISPUTE RESOLUTION

Litigation; Courts Jurisdictions - No choice of parties, Standard fixed Law/procedure - Time consuming / Slow and Costly.

Litigation- Procedure

º Plaint by aggrieved party - PlaintiffGuide Book – Cost and Contracts

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º Jurisdiction of the court

º Applicable procedure – CPC

º Issues framing by the court

º Witnesses – Qanoon e Shahadat ?

º Evidence of documents

º Reply by defendant

º Judgment and decree of the court

º Appeals as per procedure

º Last appeal

º Execution through court

Alternate Dispute Resolution Methods

Arbitration; Arbitration is a method of private dispute resolution which arises from the agreement of the parties in dispute. Arbitration is conducted in a judicial manner and the decision of the arbitral tribunal is binding upon the parties and is recognized and enforced by courts. In arbitration, the parties are the sole source of the arbitral tribunal’s power and they have much more control of the arbitral process than litigants have of judicial proceedings in the courts.

* An "arbitration" clause in a contract states that all disputes will be handled by arbitra-tion rather than litigation.

* With growing court congestion, prolonged process, and increased cost of litigation, arbitration has become an increasingly popular form of alternative dispute resolu-tion.

* Arbitration allows an independent arbitrator to settle a dispute rather than putting it before court in a lawsuit.

* In the absence of an agreement to do so, parties are not required to submit disputes to arbitration.

* Advantages of Arbitration

• Arbitration can be faster than litigation

• Arbitration can be cheaper than litigation

• Arbitration is less formal

• Arbitrators tend to be more sophisticated and knowledgeable than juries.

* Disadvantages of Arbitration

• May have a bad decision from the arbitrator, there usually is nothing you can do about it (no appeals as are allowed in litigation).

• Stuck up with a bad arbitrator.

• Less chance to really investigate your case through discovery, which is typically broader in litigation.

Arbitration Proceeding

° Commencement of Arbitration


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° The preliminary meeting

° Filing of reference or statement of claim

° Written reply by other party – defendant

° Rejoinder by claimant

° Framing of issues in consultation with the parties

° Documental submittal

° Written submittal about all the issues

° Arguments by parties

° Arbitration closed

° Pronouncement of award and signing of award

° Notifying parties about the award

° Filing of award in the court to make it rule of the court

° Execution of award through court

Dispute Resolution in Pakistani Law

The law related to recognition and enforcement of foreign arbitral awards, con-tained in Arbitration Protocol and Convention, Act 1937 (APC)

The domestic arbitration law is governed by Arbitration Act 1940.

The APC was repealed through an Ordinance in 2005 to implement New York Convention 1958 (NYC), related to recognition and enforcement of foreign arbi-tral awards.

Pakistan was a signatory to NYC-1958 but had not ratified and implemented it.

The ordinance could not become Act of the Parliament and expired after 120 days when only one judgment had come from Sindh High court as per NYC-1958.

The Ordinance has been repeatedly issued to give effect to the NYC-1958. It is still to become an Act through parliament.

Recognition and enforcement of Foreign Judgments in Pakistan

Civil Procedure Code (CPC), 1908;

Judgment Sec 2(9) means statement given by the judge of the grounds of a decree or or-der.

Foreign Judgment Sec-2(6) means the judgment of a foreign court.

Foreign court Sec-2(5) means a court situated beyond the limits of Pakistan which has no authority in Pakistan and is not established or continued by the Federal Government.

Decree Sec-2(2) means a formal expression and adjudication which conclusively deter-mines the rights of the parties in controversy in the suit.

A foreign judgment or decree is not capable of automatic execution by the Pakistani courts.

A decree of a foreign court in Pakistan is enforced by separate proceedings; a foreign judgment is enforceable through a separate suit or by an application for execution.

The procedural rules include:-


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Satisfaction of the court on principles of municipal law under section 13 of CPC.

Direct execution of a decree of reciprocating territory under section 44a of CPC.

Execution Procedure under Pakistan Law;

A foreign judgment is not enforceable in Pakistan or in any country unless it is given an additional force by embodying it in a decree of a court where it is intended to be enforced.

Article 96 of the Qanun-e-Shahadat 1984 (the law of evidence in Pakistan) explains the mode in which the foreign judicial records – which include foreign judgments and decrees - become admissible in evidence in Pakistan. Firstly, it has to be certified from a representative of the Federal Govt. of Pakistan in that country.

That representative must certify that the judgment or decree of a foreign court has been certified as it is commonly in use in that country. The certification in compliance with this provision raises a presumption which can be rebutted, in favour of the judicial record – section 14 of the CPC. The article therefore, does not relate to the admissibility or inadmissibility of the foreign judgment. It only helps the court to raise a presumption of genuineness and accuracy of the foreign judgment or decree if it bears the certificate.

Remedies for Breach of Contract

When a party to a contract breaks the contract by refusing to perform his promise the breach of contract takes place.

Following remedies are available to the aggrieved party against the guilty party in the court of law.

• Suit for Rescission

• Suit for Damages

• Suit upon Quantum Meruits; ( payment in proportion to the work done or reasonable value of work done)

• Suit for Specific Performance

• Suit for Injunction

1 - Suit for Rescission

Rescission means cancellation of a contract. When one of the parties breaks the contract, the other party is released from his obligation under the contract. If the aggrieved party wants to sue the guilty party for damages for breach of the contract, he must sue for rescission of the contract. When the court grants rescission, the aggrieved party is free from his obligations and becomes entitled to compensation. (Sec.75, Party rightfully rescinding contract, entitled to compensation, Contract Act-1872 ).

Example

(a) A contracts to supply cement to B on 15 April. B agrees to pay the price on receipt of goods. A does not supply on due date. B is discharged from liability to pay. B can rescind and claim damages.

(b) A pledges ornaments to B and gets a loan. A does not return the loan to B. B may rescind the contract and refuse to return the ornaments on payment.

2 - Suit for damages


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The aggrieved party may sue for damages. Damages are a monetary compensation allowed to the injured party for the loss suffered by him as a result of the breach of contract. In case of breach of contract, the aggrieved party can claim the following damages (Sec.74, Compensation for loss or damage caused by breach of contract, Contract Act-1872).

Kinds of Damages; the damages may be of the following five kinds:

(a) Ordinary Damages, (b) Special Damages,

(c) Exemplary Damages, (d) Liquidated Damages and (e) Nominal Damages

(a) Ordinary Damages

These are also called general damages. When a contract is broken, the aggrieved party can recover ordinary damages from the guilty party. Ordinary damages are usually assessed on the basis of actual loss. In a contract of sale of goods, the damages payable are the difference between the contract price and the market price at the date of breach. (Sec. 73, Contract Act-1872)

Example

A contracts to pay Rs.1 million to B on 1st Jan. A does not pay on that day. B, as a result is totally ruined. A is liable to pay B only principal sum and interest on it.

(b) Special Damages

These damages arise under some special circumstances. These damages include indirect loss which may arise due to breach of contract. The parties must be aware of the loss which may arise from the breach of contract. The notice to this effect must have been given to the other party: otherwise he is not responsible for special damages. Subsequent knowledge of special circumstances will not create special liability on guilty party. (Sec. 21, Contract Act-1872).

Example

A contracts C to buy 1 ton of iron for Rs. 80,000. A also contracts to sell B, 1 ton iron for Rs. 1 lac. A informs C about the purpose of contract. C fails to supply, As a result, A cannot supply to B. C is liable for loss of profit which A would have earned form B.

(c) Exemplary Damages

These damages are awarded to punish the guilty party for the breach of contract. The breach of contract results in monetary loss to the aggrieved party and causes disappointment. Exemplary damages have no place in law of contract and are not recoverable. These are awarded in the following cases;

a. In case of breach of a contract to marry, the amount of damages will depend upon the extent of injury to the feelings of the party.

b. In case of dishonour of a cheque by a banker when there are sufficient funds to the credit of the customer. The rule is, the smaller the cheque dishonored, the greater the damage.

(d) Liquidated Damages

When parties to a contract fix the amount of damages for the breach of contract at the time of formation of contract, such damages are called liquidated damages.


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Where a sum is agreed in the contract to be paid by the defaulting party, in case of breach of contract, the court will allow the reasonable damages, not exceeding the amount already agreed. If the actual loss is more than the agreed amount, damages will be payable to the agreed amount. (Sec. 74, Contract Act-1872).

Example

A contracts to pay Rs. 500,000 as damages to B @ Rs. 25,000 per day, if he fails to pay him Rs. 5 million on a given day. A fails to pay on that day. B can recover damages not exceeding Rs. 500,000 even after 20th day.

(e) Nominal Damages

These are neither awarded to compensate the aggrieved party nor to punish the guilty party. When the aggrieved party suffers no loss, the court may award nominal damages in recognition of his right. The court has discretion in this case. The court may refuse to award damages.

Example

A promises to sell cement to B for Rs. 250 per bag. A did not supply. At the time of breach, the market rate of cement was the same. B is entitled to nominal damages.

3 - Suit upon Quantum Meruit

The term quantum meruit means payment in proportion to the work done or reasonable value of work done. Where a person has done some work under a contract and the other party cancels the contract or an event happens, which makes the performance of the contract impossible; such party can claim remuneration for the work already done.

Example

B contracts to build a 3 storey house for A. When one story is complete, A stops B’s work. B can get compensation for work done.

4 - Suit for Specific Performance

Specific performance means the actual carrying out of the contract by a party. In some cases where the damages are not an adequate remedy the court may direct the guilty party to fulfill the contract. The aggrieved party can sue for specific performance in the following cases:

(a) Where compensation in money is not an adequate remedy.

(b) Where it is difficult to calculate the actual damages.

(c) Where compensation in money cannot be obtained.

Specific performance is not granted in the followings cases:-

(i) Where damages are an adequate remedy.

(ii) Where the court cannot supervise the execution of the contract, e.g, a construction contract.

(iii) Where one of the parties is a minor.

Example

A agrees to sell his plot to B, who agrees to buy to erect a mill. A commits breach. On the suit of B, A is directed by the court to perform the contract.


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5 - Suit for Injunction

Injunction is an order of a court restraining a person from doing something which he promised not to do. It is a preventive relief. It is a discretionary remedy of the court. It is appropriate in cases of anticipatory breach of contract.

Example

X agreed to take the supply of electricity only from Y company. X was, restrained by an injunction from buying electricity from any other company.

Dispute Resolution Clauses (Chartered Institute of Arbitrators)

The parties shall attempt to resolve any dispute arising out of or relating to the contract through negotiations between senior executives of the parties, who have authority to settle the same.

If the matter is not resolved by negotiation within 30 days of receipt of a written 'invitation to negotiate', the parties will attempt to resolve the dispute in good faith through an agreed Alternative Dispute Resolution (ADR) procedure, or in default of agreement, through an ADR procedure as recommended to the parties by the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators.

If the matter has not been resolved by an ADR procedure within 60 days of the initiation of that procedure, or if any party will not participate in an ADR procedure, the dispute may be referred to arbitration by any party. The seat of the arbitration shall be England and Wales.

The arbitration shall be governed by both the Arbitration Act 1996 and Rules as agreed between the parties. Should the parties be unable to agree on an arbitrator or arbitrators, or be unable to agree on the Rules for Arbitration, any party may, upon giving written notice to other parties, apply to the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators for the appointment of an Arbitrator or Arbitrators and for any decision on rules that may be necessary.

Nothing in this clause shall be construed as prohibiting a party or it's affiliate from applying to a court for interim injunctive relief."

1. Arbitration Clause

“Any dispute or difference arising out of or in connection with the contract shall be determined by the appointment of a single arbitrator to be agreed between the parties, or failing agreement within fourteen days, after either party has given to the other a written request to concur in the appointment of an arbitrator, to an arbitrator to be appointed by the President or a Vice President of the Chartered Institute of Arbitrators."

2. Arbitration & Mediation Clause

Any dispute arising out of or in connection with this contract shall, at first instance, be referred to a mediator for resolution. The parties shall attempt to agree upon the appointment of a mediator, upon receipt, by either of them, of a written notice to concur in such appointment. Should the parties fail to agree within fourteen days,


132 SECTION-III

either party, upon giving written notice, may apply to the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators, for the appointment of a mediator.

Should the mediation fail, in whole or in part, either party may, upon giving written notice, and within twenty eight days thereof, apply to the President or the Vice President, for the time being, of the Chartered Institute of Arbitrators, for the appointment of a single arbitrator, for final resolution. The arbitrator shall have no connection with the mediator or the mediation proceedings, unless both parties have consented in writing.

The arbitration shall be governed by both the Arbitration Act 1996 and the Controlled Cost Rules of the Chartered Institute of Arbitrators (2000 Edition), or any amendments thereof, which Rules are deemed to be incorporated by reference into this clause.

The seat of the arbitration shall be England and Wales.

3. Adjudication Clause

A party to this contract ("the Referring Party") may at any time give notice ("the Notice") in writing to the other party of its intention to refer a dispute arising under the contract to adjudication.

The parties may agree the identity of the adjudicator.

Where an adjudicator is not agreed within 2 days of the Notice being given the Referring Party shall immediately apply to the Chartered Institute of Arbitrators for the nomination of an adjudicator, which nomination shall be communicated to the parties within 5 days of receipt of the application.

Within 7 days of the Notice the Referring Party shall refer the dispute to the adjudicator.

The adjudicator shall reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred.

The adjudicator may extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred.

The adjudicator shall act impartially.

The adjudicator may take the initiative in ascertaining the facts and the law.

The decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.

The adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith and any employee or agent of the adjudicator is similarly protected from liability.

ICC Standard Arbitration Clause

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules


SECTION-I1I 133

• 26.1.Parties shall make their attempt to settle all disputes arising under this contract through friendly discussions in good faith. In the event that either party shall per-ceive such friendly discussion to be making insufficient progress at any time, then such party may be written notice to the other party remove the dispute (such final and binding arbitration as provided above.

• 26.2.All matters of dispute or difference regarding rejection of stores by the Inspector or cancellation of the contract by the Purchaser, arising out of this agreement between the parties thereto, the settlement of which is not otherwise specially provided for in this agreement, shall be referred to arbitration as under:-

(a) The dispute shall be referred for adjudication to two arbitrators one to be nomin-ated by each party, who before entering upon the reference shall appoint an um-pire by mutual agreement, and if they do not agree a judge of the Superior Court will be requested to appoint the umpire. The arbitration proceedings shall be held in Pakistan under Pakistan Law.

(b) The venue of arbitration shall be the place from which the contract is issued or such other places as the Purchaser at his discretion may determine.

(c) The arbitration award will be firm and final.

(d) During the course of arbitration, the contract shall be continuously executed except that part which is under arbitration.

(e) All proceedings under this clause shall be conducted in English language and in writing.

Note: If the firm does not agree to the above clause then the desk officer should approach the competent authority on the subject. However, any other clause framed / agreed through negotiation must ensure the interest of the procurement agency. An alternate clause is as fallows:-

(a) The parties shall attempt to settle all disputes arising under this contract through friendly discussion and in good faith, if in the event, either party perceives that such discussion may not make sufficient progress then such party at any time may give notice to the other party may opt for final and binding arbitration as provided below.

(b) All disputes, controversies or differences which may arise between the parties out of or in relation to or in connection with the contract or for the breach thereof shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce (ICC) by one or more arbitrators appointed in accordance with the rules. The award rendered by the three arbitrators shall be final and binding upon both parties concerned. The amount of the cost of any such arbitration and by whom they shall be paid will be determined as part of the arbitration.

(c) Arbitration under this clause shall be held at a place mutually agreed between the Purchaser and Supplier.

(d) During the course of arbitration, the contract shall be continuously executed except the part under arbitration.

(e) All proceedings under this clause shall be conducted in English language.


134 SECTION-III

Note: For further information;

www.iccwbo.org,

www.jurisint.org,

www. icsid.worldbank.org,

www.pakistanlaw.net,

www.counselpakistan.com,

www.uncitral.org,

www.ciarb.org,

www.adr.org,

www.gasandoil.com &

www.ila_hg.org www.pakistanconstitution-law.org


http://www.ila_hg.org/

http://www.gasandoil.com/

http://www.adr.org/

http://www.ciarb.org/

http://www.uncitral.org/

http://www.counselpakistan.com/

http://www.pakistanlaw.net/

http://www.jurisint.org/

http://www.iccwbo.org/

SECTION-IV 135

SECTION-IVProcurement of Consulting Services

Introduction:

Consulting service is defined as intellectual and advisory services provided by consultants using their professional skills to study, design and organize specific projects, advise clients, conduct training, and transfer knowledge. The Consultants provide;

an efficient allocation of services (time and cost)

specific expertise

transfer of skills & knowledge to the client staff

independent advice

Examples of Consultants Used

Project preparation

sector studies

master plans

feasibility studies

design studies

Project implementation

tender documents

procurement assistance

construction supervision

project managers

Commissioning

Advisory services

policy & strategy

commercialization and privatization

institutional building

training

management advice

technical advice

Types of Consultants

consulting firms

individual consultants

departmental consultants

Note:

PEC, is not specific for consultancy services for small works but considers for large works costing more than Rs 25 million.

WAPDA, may consider consultancy for works costing more than Rs 40 million.


136 SECTION-IV

WB;Requires consultancy services as per its own recommendations.The use of RFP is mandatory for contracts estimated to cost more than US$200,000.

ADB;Full Technical Proposal (FTP) is normally used for contract budgets over US$1,000,000.Simplified Technical Proposal (STP) is normally used for contract amounts be-tween US$600,000 and US$1,000,000.

PPRA, does not specify any monetary limit for hiring of consultancy services.

Consultant Selection Principles

consultants are selected on a competitive basis

process must be fair and well defined

selection must be conducted in a transparent manner

Selection Methods Recruitment of Firms

1. Quality and Cost Based Selection (QCBS)

2. Quality Based Selection (QBS)

3. Fixed Budget Selection (FBS)

4. Least-Cost Selection (LCS)

5. Consultants’ Qualifications Selection (CQS)

6. Single-Source Selection (SSS)/direct selection (used only in exceptional circum-stances)

F QCBS is the preferred selection method.

F FIDIC believes clients should use QBS QCBS is a competitive process among short-listed firms that takes into account the

quality of the proposal and the cost of the services in the selection of the successful firm.

QBS is appropriate for the complex or highly specialized assignments for which it is difficult to define precise TOR and the required input from the consultants, and for which the client expects the consultants to demonstrate innovation in their proposals

FBS Selection under a Fixed Budget is an appropriate method used only when the as-signment is simple and can be precisely defined and when the budget is fixed.

LCS Least-Cost Selection is the only appropriate method for selecting consultants for assignments of a standard or routine nature (audits, engineering design of noncom-plex works, and so forth) where well-established practices and standards exist.

CQS Selection Based on the Consultants’ Qualifications is the method which may be used for small assignments for which the need for preparing and evaluating competi-tive proposals is not justified.

SSS Single-Source Selection may be appropriate only if it presents a clear advantage over competition: (a) for tasks that represent a continuation of previous work carried


SECTION-IV 137

out by the firm, (b) in emergency cases, such as in response to disasters and immedi-ately following the emergency, (c) for very small assignments, or (d) when only one firm has experience of exceptional worth for the assignment.

Client’s Requirement

The scope of services/work must be well defined and clear to the client.

Later on this scope of services/work will be converted into Terms of Reference (TOR) for the consultants to be hired.

Terms of Reference (TOR)

background information

detailed tasks

objectives and outputs

TOR is the document to be prepared by the client for:

scope of services for the consultants

estimation of consultant’s inputs

proposed costs of services

methods of selection of the consultants

standard forms of conditions of consultancy contract

various forms for making proposals and contracts

appropriate analysis of TOR by the consultants will facilitate consultants to avoid post proposal disadvantages and loss of projects.

TOR should be prepared and proposals thereon to be made by the experienced staff.

TOR and proposal making should involve both contractual and management staffs having requisite knowledge of the relevant projects

client may hire consultants for preparation of TOR, but such consultants are re-stricted for making proposals for such project

Contents of TOR

Project Background:

It’s role in the project

History and location

Issues to be resolved

Source of financing

Objectives

Determination of project feasibility

Design of structures

Procurement documentation

Construction and completion of projects

Training programme

Scope of services

Phasing of tasks


138 SECTION-IV

Data collection

Environmental Impact Assessment (EIA)

Survey & investigation

Design

Procurement

Supervision

Requirement of Expertise

Qualification and Experience for technical proposals

Team responsibilities requirements

Association/joint venture issues

Technological or institutional experience

Training and skills transfer

Training of personnel (Implementing Agency)

Training of counterpart personnel

Training through job

Training through institutions

Institutional Arrangements

Project management organization

Consultants resident engineer

Status of client’s personnel

Consultant’s responsibilities for project completion

Selection of staff and handling of unsuitable staff

Reporting Requirements

Periodic Progress Report

Inception Report

Interim Report

Final Report

The Inputs & Budget

The cost estimate of a consulting assignment is prepared by adding the remuneration of consultant staff and the direct expenses to be incurred by consultants for the execution of that assignment. The costs are based on an estimate of staff time (expert per unit of time, hour, month) required to carry out the services and an estimate of each of their related cost components. Because the estimate of the required staff time is derived from the TOR, the more exhaustive and accurate the TOR, the more precise the estimate.

Estimation of Time Input

Activity Schedule

Staffing Schedule

Estimation of Cost Input

Salary costGuide Book – Cost and Contracts

SECTION-IV 139

Social charges

Overhead costs

Fee

Direct Cost (Non-Salary)

Contingencies

Example: Billing Rate:

Sr.Nr. Items Description Rs (million)

a. Salary cost (including Social costs) 100.00

b. Overhead (say 95% of ‘a’) 95.00

c. Salary cost + overhead cost 195.00

d. Fee (say @ 10% of ‘c’) 19.50

e. Billing rate (c+d) 214.50

Short listing / Prequalification of Consultants

Expressions of Interest (EOI)The consultant selection process is based on obtaining a few proposals from a short list prepared by the Client. Because it is time-consuming and expensive for the Client to invite and evaluate proposals from all consultants who want to compete, selection is based on limited competition among qualified firms that, in the Client’s view or experience, the firms are capable and can be trusted to deliver the required services at the desired level of quality. Therefore short listing / prequalification process for selection of Consultants, is initiated through advertising a request for expressions of interest (EOI). The EOI generally contains the following short listing criteria;

• eligibility

• experience in similar projects

• experience in specific projects

• qualifications

• experience in the country/ region

• language

After receipt of EOI, review and evaluation, short listing is finialised and then after its approval from competent authority, the Request For Proposal (RFP) to the firms short listed is issued.

Note; Number of firms to be short listed;5 to 7 firms (ADB/WAPDA)4 to 6 firms (WB)Minimum 3 firms (PPRA)4 to 7 firms (PEC)3 to 6 firms (FIDIC)

PEC, PPRA & WB

Pre-qualification of consultants is not mandatory, however, recommended spe-cially for major projects.


140 SECTION-IV

“PEC Procedure for Pre-qualification of Consultants” may be followed for pre-qualifying the consultants.

Following documents are relevant for evaluation and award:

– Conduct & Practice of Consulting Engineers Bye-laws 1986

– PEC Standard Procedure for Evaluation of Proposal for Procurement of Engineering Services

– PPRA Rules, 2004 and PPRA Consultancy Services Regulations, 2010.

PPRA rules deficient to address evaluation and award of consultant’s propos-als.

PPRA: Whether short-listing is done or not, the procuring agency may engage in prequalification of Consultants in case of complex assignments.

WB does not require formal pre-qualification.

Example;The weightage of the components of short listing evaluation criteria is given as under:

Sr.# Item Weightage (Points)

1. Firms Experience 30

1.1 Specific Projects 20

1.2 General Projects 10

2. Personnel Qualification 70

2.1 Team Leader 30

2.2 Other Experts 40

Total (1+2) 100

Minimum qualifying marks is 70% of the total weightage (100 points)

Request for Expression of Interest (EOI)

The Client seeks Expression of Interest (EOI) for Consultancy Services from Firms/Joint Ventures of Firms, normally through prescribed Forms which contains;(a) Invitation/Notice,(b) Letter for Application of EOI; may briefly describe;

i. Introductionii. Project Locationiii. Project Objectivesiv. Scope of Workv. Implementation of the Projectvi. Implementation Schedulevii. Submissions Required from Consultantsviii. Evaluation Criteriaix. Instructions to the Applicants

(c) Attachment:

Form-1 Information Submission Form

Form-2 Experience Form

Form-3 Curriculum Vitae of Proposed Experts Form


SECTION-IV 141

The Applications to be submitted should be restricted to the essential information only and there shall be no need to make the application cumbersome.

On the basis of information received through the Applications, from Applicants, a short list of Consultants is finalized and invited for submission of Proposals through Request for Proposals (RFP).

Request for Proposal (RFP)

The Request for Proposals (RFP) provides all the instructions and information necessary for the short listed consultants to prepare their proposals. The RFP also includes the assignment Terms of Reference (TOR) and the draft contract. The RFP includes the following documents:

o Section 1 - Letter of Invitation

o Section 2 - Instructions to Consultants (including Data Sheet)

o Section 3 - Technical Proposal - Standard Forms

o Section 4 - Financial Proposal - Standard Forms

o Section 5 - Terms of Reference

o Section 6 - Standard Forms of Contract

o Section 7 - List of eligible Countries

Invitation of Proposal (RFP)The Letter of Invitation (LOI) states the intention of the Client to enter into a contract for a given assignment and informs the short-listed consultants that they are invited to submit a proposal for the assignment. It provides the following basic information:

– Name of the Client and the sources of funds to finance the consulting ser-vices.

– Names of the short-listed consultants.

– Name of the consulting services assignment.

– Method of selection.

Instructions to Consultants The Instructions to Consultants (ITC) section contains all the information and instructions that consultants need to prepare responsive proposals. Among other things, it informs consultants about not only the type of technical proposal to be submitted but also the evaluation process (including the evaluation criteria and subcriteria, their respective weights, and the minimum qualifying mark) to provide for a fair and transparent selection process.

Instructions to Consultants shall not be modified. Any necessary changes, to address specific region and project issues, shall be introduced only through the Data Sheet (e.g., by adding new reference paragraphs).

Sample;

Instructions to Consultants


142 SECTION-IV

1. Introduction 1.1 The Client named in the Data Sheet will select a consulting firm/organization (the Consultant) from those listed in the Letter of Invitation, in accordance with the method of se-lection specified in the Data Sheet.

1.2 The shortlisted Consultants are invited to submit a Techni-cal Proposal and a Financial Proposal, or a Technical Pro-posal only, as specified in the Data Sheet, for consulting services required for the assignment named in the Data Sheet. The Proposal will be the basis for contract negotia-tions and ultimately for a signed Contract with the selected Consultant.


SECTION-IV 143

1.3 Consultants should familiarize themselves with local conditions and take them into account in preparing their Proposals. To obtain first-hand information on the assign-ment and local conditions, Consultants are encouraged to visit the Client before submitting a proposal and to attend a pre-proposal conference if one is specified in the Data Sheet. Attending the pre-proposal conference is optional. Consultants should contact the Client’s representative named in the Data Sheet to arrange for their visit or to ob-tain additional information on the pre-proposal conference.

1.4 The Client will timely provide at no cost to the Consultants the inputs and facilities specified in the Data Sheet, assist the firm in obtaining licenses and permits needed to carry out the services, and make available relevant project data and reports.

1.5 Consultants shall bear all costs associated with the prepara-tion and submission of their proposals and contract negotia-tion. The Client is not bound to accept any proposal, and reserves the right to annul the selection process at any time prior to Contract award, without thereby incurring any lia-bility to the Consultants.

1.6 The Employer considers a conflict of interest to be a situa-tion in which a party has interests that could improperly in-fluence that party’s performance of official duties or re-sponsibilities, contractual obligations, or compliance with applicable laws and regulations and that such conflict of in-terest may contribute to or constitute a prohibited practice under Country’s Anticorruption Policy. In pursuance of such Policy’s requirement the Employer will take appropri-ate actions to manage such conflicts of interest including withdrawal of this RFP, and/or any shortlisting of a partic-ular firm or firms in relation thereto or termination of a re-sulting Contract if it determines that a conflict of interest has flawed the integrity of the consultant selection or en-gagement or in the performance of the Services.

…………………………………………………………….

Data Sheet

The Data Sheet is the part of the ITC that contains specific information relating to the Client and the assignment. The column marked “Paragraph Reference” refers to the paragraph of the ITC under which the Client provides assignment-specific information to the consultants. The Data Sheet can be modified for specific country or project conditions that are not addressed by the ITC standard text.

Sample;

ParagraphReference


144 SECTION-IV

1.1 Name of the Client:

Method of selection:

1.2 Financial Proposal to be submitted together with Technical Proposal:Yes No

Name of the assignment is:

1.3 A pre-proposal conference will be held: Yes No [If yes, indicate date, time, and venue]

The Client’s representative is: Address: Telephone: Facsimile: E-mail:

1.4 The Client will provide the following inputs and facilities:

1.6.1 (a) The Client envisages the need for continuity for downstream work: Yes No [If yes, outline in the TOR the scope, nature, and timing of future work]

………………………………………………………………………………………

Technical Proposal (T P) Submission Forms

Form TECH-1: Technical Proposal Submission Form

Form TECH-2: Consultant’s Organization and Experience

A - Consultant’s Organization

B - Consultant’s Experience

Form TECH-3: Comments and Suggestions on the ToR and on Counterpart Staff and Facilities to be provided by the Client.

• A - On the Terms of Reference

• B - On Counterpart Staff and Facilities

Form TECH-4: Description of Approach, Methodology and Work Plan for Perform-ing the Assignment

Form TECH-5: Team Composition and Task Assignments

Form TECH-6: CV for Proposed Professional Staff

Form TECH-7: Staffing Schedule

Form TECH-8: Work Schedule

Sample; Form TECH-1: Technical Proposal Submission Form

[Location, Date]


SECTION-IV 145

To: [Name and address of Client]

Dear Sirs:We, the undersigned, offer to provide the consulting services for [Insert title of

assignment] in accordance with your Request for Proposal dated [Insert Date] and our Proposal. We are hereby submitting our Proposal, which includes this Technical Proposal, and a Financial Proposal sealed under a separate envelope1.

We are submitting our Proposal in association with: [Insert a list with full name and address of each associated Consultant]2

We hereby declare that all the information and statements made in this Proposal are true and accept that any misinterpretation contained in it may lead to our disqualification.

If negotiations are held during the period of validity of the Proposal, i.e., before the date indicated in Paragraph Reference 1.12 of the Data Sheet, we undertake to negotiate on the basis of the proposed staff. Our Proposal is binding upon us and subject to the modifications resulting from Contract negotiations.

We undertake, if our Proposal is accepted, to initiate the consulting services related to the assignment not later than the date indicated in Paragraph Reference 7.2 of the Data Sheet.

We understand you are not bound to accept any Proposal you receive.

Yours sincerely,

Authorized Signature [In full and initials]: Name and Title of Signatory: Name of Firm: Address:

1 [In case Paragraph Reference 1.2 of the Data Sheet requires to submit a Technical Proposal only, replace this sentence with: “We are hereby submitting our Proposal, which includes this Technical Proposal only.”]

2 [Delete in case no association is foreseen.]

Sample; Form TECH-2: Consultant’s Experience

FIRM’S REFERENCERelevant services carried out in the last ten years which best illustrate

Qualifications/Experience

[Using the format below, provide information on each assignment for which your firm, and each associate for this assignment, was legally contracted either individually as a corporate entity or as one of the major companies within an association, for carrying out consulting services similar to the ones requested under this assignment. Use 20 pages.]

Assignment name: Approx. value of the contract (in current US$ or Euro or Pak. Rs):

Country:

Location within country:

Duration of assignment (months):

Name of Client: Total Number of staff-months of the assignment:


146 SECTION-IV

Address: Approx. value of the services provided by your firm under the contract (in current Pak. Rs. or US$ or Euro):

Start date (month/year):

Completion date (month/year):

Number of professional staff-months provided by associated Consultants:

Name of associated Consultants, if any: Name of senior professional staff of your firm involved and functions performed (indicate most significant profiles such as Project Director/Coordinator, Team Leader):

Narrative description of Project:

Description of actual services provided by your staff within the assignment:

Firm’s Name:

Firm’s Share: ____________

Sample; Form TECH-3: Comments and Suggestions on the ToR and on Counterpart Staff and Facilities to be provided by the Client.

A - On the Terms of Reference

[Present and justify here any modifications or improvement to the Terms of Reference you are proposing to improve performance in carrying out the assignment (such as deleting some activity you consider unnecessary, or adding another, or proposing a different phasing of the activities). Such suggestions should be concise and to the point, and incorporated in your Proposal.]

B - On Counterpart Staff and Facilities

[Comment here on counterpart staff and facilities to be provided by the Client according to Reference given in the Data Sheet including: administrative support, office space, local transportation, equipment, data, etc.]

Sample; Form TECH-4: Description of Approach, Methodology and Work Plan for Performing the Assignment.


SECTION-IV 147

[Technical approach, methodology and work plan are key components of the Technical Proposal. You are suggested to present your Technical Proposal (50 pages, inclusive of charts and diagrams) divided into the following three chapters:

a) Technical Approach and Methodology. In this chapter the applicant should explain his understanding of the objectives of the assignment, approach to the services, methodology for carrying out the activities and obtaining the expected output, and the degree of detail of such output. The applicant should highlight the problems being addressed and their importance, and explain the technical approach that would adopt to address them. The applicant should also explain the methodologies to adopt and highlight the compatibility of those methodologies with the proposed approach.

b) Work Plan. In this chapter the applicant should propose the main activities of the as-signment, their content and duration, phasing and interrelations, milestones (including interim approvals by the Client), and delivery dates of the reports. The proposed work plan should be consistent with the technical approach and methodology, showing under-standing of the TOR and ability to translate them into a feasible working plan. A list of the final documents, including reports, drawings, and tables to be delivered as final out-put, should be included here. The work plan should be consistent with the Work Sched-ule.

c) Organization and Staffing. In this chapter the applicant should propose the structure and composition of team. The applicant should list the main disciplines of the assign-ment, the key expert responsible, and proposed technical and support staff.]

Sample; Form TECH-5: Team Composition and Task Assignments.

Professional Staff

Name of Staff Firm Area of Expertise Position Assigned Task Assigned

Sample; Form TECH-6: CV for Proposed Professional Staff

Curriculum Vitae (CV) for Proposed Professional Staff

1. Proposed Position [only one candidate shall be nominated for each position]:

2. Name of Firm [Insert name of firm proposing the staff]:

3. Name of Staff [Insert full name]:

4. Date of Birth: Nationality:

5. Education [Indicate college/university and other specialized education of staff member, giving names of institutions, degrees obtained, and dates of obtainment]:

6. Membership of Professional Associations:


148 SECTION-IV

7. Other Training [Indicate significant training since degrees under 5 - Education were obtained]:

8. Countries of Work Experience: [List countries where staff has worked in the last ten years]:

9. Languages [For each language indicate proficiency: good, fair, or poor in speaking, reading, and writing]:

10. Employment Record [Starting with present position, list in reverse order every employment held by staff member since graduation, giving for each employment (see format here below): dates of employment, name of employing organization, positions held.]:

From [Year]: To [Year]:

Employer:

Positions held:

11. Detailed Tasks Assigned

[List all tasks to be performed under this assignment]

12. Work Undertaken that Best Illustrates Capability to Handle the Tasks Assigned[Among the assignments in which the staff has been involved, indicate the following information for those assignments that best illustrate staff capability to handle the tasks listed under point 11.]

Name of assignment or project:

Year:

Location:

Client:

Main project features:

Positions held:

Activities performed:

13. Certification:

I, the undersigned, certify that to the best of my knowledge and belief, this CV correctly describes myself, my qualifications, and my experience. I understand that any wilful misstatement described herein may lead to my disqualification or dismissal, if engaged.

Date:

[Signature of staff member or authorized representative of the staff] Day/Month/Year

Full name of authorized representative:

Financial Proposal (FP) Submission Forms

• Form FIN-1: Financial Proposal Submission Form

• Form FIN-2: Summary of Costs

• Form FIN-3: Breakdown of Costs by Activity

• Form FIN-4: Breakdown of Remuneration (Time-Based)


SECTION-IV 149

• Form FIN-4: Breakdown of Remuneration (Lump-Sum)

• Form FIN-5: Breakdown of Reimbursable Expenses (Time-Based)

• Form FIN-5: Breakdown of Reimbursable Expenses (Lump-Sum)

• Appendix: Financial Negotiations - Breakdown of Remuneration Rates

SELECTION METHODS

The choice of the appropriate method of selection of consultants will depend on the nature, size, and complexity of the assignment; the likely downstream impact of the assignment; and technical and financial considerations.

The QCBS Selection

The Quality- and Cost-Based Selection (QCBS) is a method based on the quality of the proposals and the cost of the services offered. It is the method most frequently used to select consultants. Because under QCBS the cost of the proposed services is a factor of selection, this method is appropriate when;

• the type of service required is common and not too complex;

• the scope of work of the assignment can be precisely defined and the TOR are clear and well specified;

• the Client and the consultants can estimate with reasonable precision the staff time, the assignment duration, and the other inputs and costs required of the con-sultants;

• the risk of undesired downstream impacts is quantifiable and manageable; and

• the capacity-building program is not too ambitious and easy to estimate in dura-tion and staff time effort.

The QCBS Proposal

Two components: both submitted at the same time.

Technical ProposalFinancial Proposal(in sealed envelope)

Technical Proposals evaluated first.

Technical Proposal must receive 75% minimum score as per WB and ADB (WAPDA & PEC require 70%) from 100% maximum.

Next, Financial Proposals of technically qualified consultants opened pub-licly.

Financial Proposals evaluated.

Then, final ranking of Proposals.

QCBS Ranking

technical score 80 %


150 SECTION-IV

financial score 20 %

these percentages are fixed.

contract negotiations held with 1st ranked firm.

Benefits of using QCBS

O no financial negotiations (negotiations are held to finalize technical issues).

O consultants must provide quality experts at a competitive price.

O provides for clearer transparency as financial proposals are opened publicly.

The QBS Selection

Quality-Based Selection (QBS) is based on the evaluation of the proposal quality without any initial consideration for cost. The consultant that submits the highest-ranked technical proposal is then invited to negotiate its financial proposal and the contract.

QBS is appropriate when;

• the downstream impact of the assignment can be so large that the quality of the services is of overriding importance for the success of the project as a whole;

• the scope of work, the duration of the assignment, and the TOR require a degree of flexibility because of the novelty or complexity of the assignment, the need to select among innovative solutions, or the particular physical, environmental, social, or political circumstances of the project and of the Client;

• the assignment itself can be carried out in substantially different ways such that cost proposals may not be easily or necessarily comparable;

• the introduction of cost as a factor of selection makes competition unfair; or

• the need exists for an extensive and complex capacity building program.

The QBS proposal

Two components: submitted separately

Technical Proposal(1st Submission)

Financial Proposal(2nd Submission)

Technical Proposals evaluated and ranked (100 points max.)

Next, first ranked firm submits a Financial Proposal

Then, contract negotiations held with the firm

Benefits of using QBS

When scope of work is difficult to define in detail because of:

the complexity of assignment

the need for an innovative solution


SECTION-IV 151

alternative methodologies possible, therefore difficult to compare Financial Proposals

QCBS vs QBS

Sr.# QCBS QBS

1. Technical & Financial Proposals submitted

Technical Proposal only

2. technical evaluation technical evaluation3. public opening of Financial

Proposals-

4. evaluation of Financial Proposals

-

5. final ranking 80%technical + 20% financial

final ranking 100% technical

6. contract negotiations contract negotiations

Other & Direct Selection Methodo Similar selection procedure is used for other methods except used for Direct Selection. o Direct Selection is used only in very exceptional cases, must be strongly justified.

Individual Consultant Selection Selection criteria (Percentage/Points)

Description WB/ADB WAPDA

academic qualification 20 20

project related experience 70 70

country/region experience 10 05

employment status with firm - 05

Note;3-5 candidates ranked (WB/ABD/WAPDA)Minimum 3 candidates ranked (PPRA)

Evaluation of ProposalThe formula for determining the financial scores is the following:Sf = 100 x Fm / F, in which Sf is the financial score, Fm is the lowest price and F the price of the proposal under consideration or any other inversely proportional formula acceptable to the procuring agencies.

Sr.# PROPOSAL QCBS QBS

i. Technical 80 100

ii. Financial 20 -

Total 100 100

The Form of Technical and Financial Proposals under QCBS or QBS and for other selection methods are almost same.

Technical Proposal Evaluation Criteria (Percentage/Points)


152 SECTION-IV

Sr.# Description WB ADB PEC WAPDA

I Qualifications of firm 05-10 10-20 05-10 10-15

II Approach & Work Methodology 20-50 20-40 10-30 20-25

III Key Personnel 30-60 50-70 30-60 50-70

Total 100 100 100 100

Technical Proposal Evaluation Sub Criteria

Sr.# Description WB/ADB PEC WAPDA

I Qualifications of firm

• Experience in similar projects

• Experience in specific projects

5/10-10/20

5-10

5-10

5-10 10-15

5-5

5-10

II Approach & Methodology

• Understanding of the project

• Quality of methodology

• Work program

• Comments on TOR/Innovativeness

• Personnel schedule

• Proposal presentation

• Counterpart facilities required

• Association arrangement

20/20-50/40

2-3

7-12

2.5-4

2-3.5

2.5-3.5

2-3.5

2-3

-

10-30 20-25

5-6

5-6

2.5-3.5

2

2

1.5-2.5

1-2

1

Evaluation Sub-criteria of Key Personnel

Sr.# Description WB ADB PEC WAPDA

III Sub-criteria of key staff:

Academic qualifications

Total experience

Related project experience

Specialized Training

Working as Team/Deputy Team Leader

Knowledge of language & Experi-ence in region

Duration with firm

30-60

20-30

-

50-60

-

-

10-20

-

50-70

10-20

-

60-70

-

-

10-20

-

30-60

20-30

-

50-60

-

-

0-05

0-05

50-70

20-25

15-20

30-35

0-5

05-10

-

-

Total Points (I+II+III) = 100

PEC Evaluation of Proposals


SECTION-IV 153

PEC Procedure for Evaluation of Proposals provides as under:

Two methods – QBS or QCBS

For QBS Technical Weightage is 100%

For QCBS Technical Weightage is 80-100% & Financial Weightage is 0-20%

Sample:


154 SECTION-IV


SECTION-IV 155


156 SECTION-IV

SUMMARY OF EVALUATION OF TECH. PRPOSALRE-DESIGN OF LBOD STAGE-I, BADIN AREA DRAINAGE SYSTEM

Sr #

Description Max Weightage

Points

Points Scored By

A B C D

1 Qualification of Proposer

150 112.00 80.00 68.00 74.00

2 Approach and Methodology

250 183.00 177.00 175.00 176.00

3 Key Personnel 600 537.30 509.30 491.90 465.42

TOTAL 1000 832.30 766.30 734.90 715.42

%age 100% 83.23% 76.63% 73.49% 71.54%

Ranking Ist 2nd 3rd 4th

SUMMARY OF EVALUATION OF FINANCIAL PROPOSAL

RE-DESIGN OF LBOD STAGE-I, BADIN AREA DRAINAGE SYSTEM

Sr #

Description A B C D

1 Salary Cost/Remuneration

23,217,925 20,644,416 25,655,216 19,356,238

2 Direct (Non-salary) Cost

9,539,040 10,340,000 12,306,043 8,362,265

3 Contingencies @ 3% of (1+2)

982,709 929,532 1,138,838 831,555

4 Grand Total: 32,756,965 30,984,416 37,961,259 27,718,503

Evaluation of Proposals – QCBS

Consultants

TechnicalScore(TS)

(TS)x

80%

Price Pak Rs. in

Million

LPx100P

Fin. Score (FS)

(FS)x

20%

Weighting80+20

A

B

C

D

83.23

76.63

73.49

71.54

66.58

61.30

58.79

57.23

32.757

30.984

37.961

27.719

84.72

89.46

73.02

100.00

16.94

17.89

14.60

20.00

83.52

79.19

73.39

77.23

Evaluation of Proposals – QBS

The Consultants Scoring highest points stand First rank.

WAPDA Notes;


SECTION-IV 157

i. The lead firm should have at least 50% of Key staff nominated to work on assign-ment.

ii. The Key Person should be regular employee of the firm having a minimum of two years of services with the firm.

iii. The Joint Venture should not comprise more than four firms where only Local exper-tise is required.

iv. The Joint Venture should not comprise more than five firms where foreign input is considered necessary.

v. All the Key staff of the consultants/JV should be nominated by name along with CV.

vi. For TBN (To be Nominated) for the above mention position, 5% marks will be de-ducted.

vii. Age limit of the consultant staff required to work in the field should be 70 years and for desk job, 75 years.

viii. The technical ranking of firms/JVs shall be determined on the average of scores awarded by each member of the Evaluation Committee.

WAPDA Evaluation Committee

Standing Committee for Evaluation of Technical Proposals

General Manager (P&D) Convener

General Manager, concerned Member

CE/PD/Director, concerned Member

CE (Dams), P&D Member

CE (CDO), Water Member

CE/Director, C&M Member

Task

o Evaluation of Technical Proposals of QBS and QCBS.

o Determination of ranking of Consultants/ JVs.

o Obtaining approval of the Authority for ranking of Consultants/JVs.

Standing Committee for Evaluation of Financial Proposals

General Manager (P&D) Convener

General Manager (Finance), Water Member

General Manager, concerned Member

Task

o Opening of Financial Proposals of technically qualified Consultants/ JVs.

o Determination of ranking of Consultants/JVs in case of QCBS and obtaining its approval from the Authority.

o Obtaining approval of the Authority for Consultants/JV in case of QCB.

Note;


158 SECTION-IV

The Standing Committee for Financial Proposals would involve GM (CCC) for processing during financial negotiations with top ranked consultant/JV on the following;

Adequacy with justification for the scope of services proposed to be as-signed to the Consultants.

Period of involvement of Consultants for the Project.

Adequacy with justification for man-months proposed by the Consultants.

Direct cost proposed by the Consultants.

Justification for the %-age of overheads and fee.

Need for Foreign Consultants.

Status of PC-I/PC-II and allocation under PSDP.

Form of Contract Agreement

For Consultancy Contracts fee over Rupees two (2.0) Million.

PEC Standard Form of Contract for Engineering Services (Time Based)

PEC Standard Form of Contract for Engineering Services (Lump Sump Fee)

For Consultancy Contracts fee less than Rupees two (2.0) Million.

PEC Standard Form of Contract for Engineering Consultancy Services for Small Works"

Time-Based Contract:o This type of contract is appropriate when it is difficult to define the scope and

the duration of services. This type of contract is widely used for complex studies, su-pervision of construction, advisory services, and most training assignments.

o Payments are based on agreed monthly rates for staff (who are normally named in the contract) and on reimbursable items using actual expenses and/or agreed unit prices.

o The rates for staff include salary, social costs, overhead, fee (or profit), and, where appropriate, special allowances.

o This ceiling amount should include a contingency allowance for unforeseen work and duration, and provision for price adjustments.

o Time-based contracts need to be closely monitored and administered by the client to ensure that the assignment is progressing satisfactorily and that payments claimed by the consultants are appropriate.

Lump Sum Contract:

o These types of contracts are used mainly for assignments in which the content and the duration of the services and the required output of the consultants are clearly defined.

o They are widely used for simple planning and feasibility studies, environmental stud-ies, detailed design of standard or common structures, preparation of data processing systems, and so forth.

o Payments are linked to outputs (deliverables), such as reports, drawings, bills of quantities, bidding documents, and software programs. Lump sum contracts are easy to administer because payments are due on clearly specified outputs.


SECTION-IV 159

Time-Based Contract, General Conditions Comparison between PEC and WB Documents

Clause PEC Documents WB Documents

1.1 to 1.10

Same (with minor difference) Same

1.11 - Fraud and Corruption

2.1 to 2.4 Same Same

2.5 Modification

Modification of the terms and conditions of this Contract, including any modification of the scope of the Services or of the Contract Price, may only be made in writing, which shall be mutually agreed and signed by both the Parties.

Entire Agreement

This Contract contains all covenants, stipulations and provisions agreed by the Parties. No agent or representative of either Party has authority to make, and the Parties shall not be bound by or be liable for, any statement, representation, promise or agreement not set forth herein.

2.6 Extension of Time for Completion;

If the scope or duration of the Services is increased:

(a) the Consultants shall inform the Client of the circumstances and probable effects;

(b) the increase shall be regarded as Additional Services; and

(c) the Client shall extend the time for completion of the Services accordingly.

Modifications or Variations

(a) Any modification or variation of the terms and conditions of this Contract, including any modification or variation of the scope of the Services, may only be made by written agreement between the Parties. Pursuant to Clause GC 7.2 here of, however, each Party shall give due consideration to any proposals for modification or variation made by the other Party.

(b) In cases of substantial modifications or variations, the prior written consent of the Bank is required.


3.4 Liability of the Consultant;

[PEC Engineering Bye Laws]

Liability of the Consultant;

Subject to additional provisions, if any, set forth in the SC, the Consultants’ liability under this Contract shall be provided by the Applicable Law.

3.5 to 3.10

Contents are same but Sub Clause Numbering is different.

3.5 Other Insurances to be Taken out by the Consultants

Insurance to be Taken out by the Consultant

3.6 Consultants' Actions Requiring Client's Prior Approval

Accounting, Inspection and Auditing

3.7 Reporting Obligations Consultant’s Actions Requiring Client’s Prior Approval


160 SECTION-IV

3.8 Documents Prepared by the Consultants to be the Property of the Client

Reporting Obligations

3.9 Equipment and Materials Furnished by the Client

Documents Prepared by the Consultants to be the Property of the Client

3.10 Accounting, Inspection and Auditing

Equipment and Materials Furnished by the Client

3.11 - Equipment and Materials Provided by the Consultants


4.5 Removal and/or Replacement of Personnel

(a) Except as the Client may other-wise agree, no changes shall be made in the Key Personnel. If, for any reason beyond the rea-sonable control of the Consul-tants, it becomes necessary to re-place any of the Key Personnel, the Consultants shall provide as a replacement a person of equiv-alent or better qualifications.

Removal and/or Replacement of Personnel

(a) Except as the Client may otherwise agree, no changes shall be made in the Personnel. If, for any reason beyond the reasonable control of the Consultant, such as retirement, death, medical incapacity, among others, it becomes necessary to replace any of the Personnel, the Consultant shall forthwith provide as a replacement a person of equivalent or better qualifications.

4.5 (b) & (c)

Same Same

4.6 Same Same

5.1 Assistance, Coordination and Approvals

Assistance and Exemptions

Text are different but themes are same



6.4 Mode of Billing and Payment Mode of Billing and Payment

Text are different but themes are same

6.5 Delayed Payments -

6.6 Additional Services -

6.7 Consultants' Entitlement to Suspend Services

-

7.1 & 7.2 Same Same

8.1 & 8.2 Same Same

9.1 Integrity Pact -

Time-Based Contract, Special Conditions


SECTION-IV 161

Clause No. of GC PEC Documents

1.1 Definitions (p) "Project" means .....................................

1.6 Authorised Representatives

The Authorised Representatives are the following:

For the Client: ……………………………………..

For the Consultants: ………………………………

1.7 Taxes [Note: To be included in this Clause as agreed with the Client.]

1.8 Leader of Joint Venture

The leader of the Joint Venture is .................................... (name of the Member of the Joint Venture).

[Note: If the Consultants do not consist of more than one entity, the Sub-Clause 1.8 should be deleted.]

2.1 Effectiveness of Contract

The date on which this Contract shall come into effect is the date when the Contract is signed by both the Parties and revolving fund is established in accordance with Sub-Clause 6.4.

[Note: The Sub Clause may be amended if revolving fund is not envisaged]

2.2 Termination of Contract for Failure to Become Effective

The time period shall be ........... days or such other period as the Parties may agree in writing.

[Note: Fill in the time period e.g. one hundred twenty (120) days]

2.3 Commencement of Services

The Consultants shall commence the Services within twenty-one (21) days after the date of signing of Contract Agreement, or such other time period as the Parties may agree in writing.

2.4 Expiration of Contract

The period of completion of Services shall be ----------- days from the Commencement Date of the Services or such other period as the Parties may agree in writing. The Services are estimated to be completed before.......................

"Completion of Services" means ...............................................

[Note: In the blank space, the last activity (such as submission of As Built Drawings, Completion Report etc.) which declares the Contract to be completed in all respect, may be stated]

3.5 Insurance to be Taken out by the Consultants

The risks and the coverages shall be as follows:

[(a) Third Party motor vehicle liability insurance;

(b) Insurance against loss of or damage to equipment purchased;

(c) Third Party liability insurance;]

3.6 Consultants' Actions Requiring Client's Prior Approval

[(c) The Consultants shall also clear with the Client, before commitments on any action they propose to take]

3.8 Documents Prepared by the Consultants to be the Property

The Client and the Consultants shall not use these documents for purposes unrelated to this Contract without the prior written approval of the other Party.


162 SECTION-IV

of the Client

4.6 Resident Engineer

[Note: Name and address of the Consultants’ Resident Engineer, if applicable will be provider here]

5.1.1 Assistance (a) The Client shall make available within ...... days from the Commencement Date, the documents namely ................................................................................................

[Other assistance and exemptions to be provided by the Client]

5.1.2 Coordination (a) The departments and agencies include …………………….

5.1.3 Approvals The Client shall accord approval of the documents immediately but not later than fourteen (14) days from the date of their submission by the Consultants.

6.2 Remuneration and Reimbursable Direct Costs (Non-Salary Costs

[(a)Payments for remuneration shall made in accordance with Appendix-D and shall be adjusted after every 12 months in case of foreign currency, and Remuneration paid in accordance with Appendix-E, in local currency pursuant to the billing rates agreed for each person shall be adjusted in July of every year ;

(b) The rates for foreign Personnel set forth in Appendix-D, and the rates for local Personnel set forth in Appendix-E, after adjustments, if any, pursuant to Sub-Clause 6.2(a) hereof shall be used for billing purposes;

(c) Reimbursable Direct Costs (Non Salary Costs);]

6.3 Currency of Payment

[(b) Remuneration for foreign personnel & reimbursable direct cost expenditures as stated in Appendix-D shall be paid in foreign currency and remuneration for local personnel & reimbursable direct cost expenditures as stated in Appendix-E shall be paid in local currency.]

6.5 Delayed Payments The compensation on delayed payments for local and foreign currency shall be as follows:

(i) foreign currency = ------- percent (...%) per annum.

(ii)local currency = eight percent (8%) per annum.


SECTION-IV 163

Appendices to PEC Contract

Appendix A Description of the Services

Appendix B Reporting Requirements

Appendix C Key Personnel and Subconsultants

Appendix D Breakdown of Contract Price in Foreign Currency

Appendix E Breakdown of Contract Price in Local Currency

Appendix F Services and Facilities to be Provided by the Client and Counterpart Personnel to be Made Available to the Consultants by the Client

Appendix-G Integrity Pact

PEC Clarifications on Time Based Assignments;

Vide Letter # PEC/CPD/WAPDA/10, Dated: 19-04-2010

Any documentation in support of consultants’ given man-month cost against various type of consultants’ personnel could be sought by the Client during evaluation of Pro-posal and/ or at time of finalization of contract.

Once the man-month rate is established following Appendix-A of contract and Prac-tice of Consulting Engineering Bye-Laws, payment is to made accordingly.

Client has prerogative to approve or disapprove the consultants’ personnel against a specific rate.

The agreed billing rates shall remain fixed for one year and subject to upward revi-sion in next July, 2010 following Sub Clause 6.2 of Special Conditions of Contract.

During the currency of contract, the rate can be reviewed only, if a particular person is changed by mutual agreement of the parties or if an equivalent or better person is not available within the rank of the consultant.

Client has the right to check whether a particular input is provided and may seek cer-tification thereof from relevant quarter during regular payments.

Reimbursement, as envisaged under Appendix-A of above said Bye-Laws, of actual cost means the costs which have been already in the consultancy agreement and ac-cording to the Salary Slip of the personnel of the consultants.

Note:

For details refer World Bank’s Consulting Services Manual 2006 (www.worldbank.org) and ADB’s Consulting Services Operations Manual published in 2008 (www.adb.org)


http://www.worldbank.org/

164 SECTION-IV

Estimating Cost and Budget for Consulting Services

Introduction• The Terms of Reference (TOR) is the key document in the selection of Consultants. It

explains the objectives, scope of work, activities, and tasks to be performed, respective responsibilities of the Client and the consultant, and expected results and deliverables of the assignment.

• The cost estimate of an assignment is prepared by adding the remuneration of consultant staff and the direct expenses to be incurred by consultants during the execution of their duties.

• Those figures are based on an estimate of the staff time (man-month) required to carry out the services and an estimate of each of the related cost components.

• Since the estimate of the needed staff time is derived from the TOR, the more exhaustive and detailed the TOR, the more precise the estimate.

• A mismatch between the cost estimate and the TOR is likely to mislead consultants on the desired scope and detail of the proposed assignment.

• In general, a cost estimate includes expenses relating to;- consultant staff remuneration; - travel and transport; - mobilization and demobilization; - staff allowances; - communications; - office rent, supplies, equipment, shipping, and insurance; - surveys and training programs; - report translation and printing; - taxes and duties; and - contingencies.

• When preparing cost estimates, it is useful to draft bar charts indicating the time needed to carry out each main activity (activity schedule) and the time to be spent by the consul-tant staff (staffing schedule).

• When part or all of the consultant services are to be carried out by expatriates, the cost estimate should identify those portions to be paid in foreign currency such as monthly rates for professional staff, imported equipment and international travel.

• The Client can require consultants to accept reimbursement of local expenses in local currency.

• Staff remuneration is generally broken down into foreign and local staff, which may be further subdivided into professional or high-level specialists and support staff.

• Foreign personnel may be split into field and home office personnel.• Remuneration rates for staff vary according to sector and depend on the experience, qual-

ifications, and nationality of the consultants.• The estimated staff months should not be priced on the basis of the highest international

rates, but rather using rates that allow for quality work at reasonable prices.• Specifically estimation of Consultants Cost is done under following heads;

Numeration/Salary Cost Direct Cost (Non-Salary)


SECTION-IV 165

Contingencies

Consultant Staff Remuneration

o In general, staff remuneration rates include different proportions of the following compo-nents, depending on company and industry-specific factors and country laws: basic salary; social charges; overhead; fees or profit; and allowances.

o Knowledge of the breakdown of staff remuneration rates is relevant during the evaluation of financial proposals and during negotiations of time-based contracts, if proposed con-sultant rates appear to differ substantially from those of the market.

Reimbursable expenses/ Out-of-pocket expenses/ Direct Cost These costs may include, but are not restricted to, cost of surveys, equipment, office rent, supplies, international and local travel, computer rental, mobilization and demobilization, insurance, and printing.These costs may be either unit rates or reimbursable on the presentation of invoices, in foreign or local currency.Should the assignment include surveys (as may be the case in most sectors such as health, education, rural development, and privatization), their cost would need to be assessed separately.

ContingenciesThe contingency amount, which completes the cost estimate, should cover physical and price items.

Physical contingencies provide for unforeseen work that is needed. Physical contin-gencies usually consist of 5 to 10 percent of the estimated cost of the assignment.

Price contingencies account for monetary inflation. Price contingencies for foreign and local costs should be considered only when the impact of inflation is expected to be substantial or because of the duration of the assignment (say, beyond 18 months).

The Firm’s ResponsibilityThe firm shall disclose such audited financial statements for the last three years, to substanti-ate its rates, and accept that its proposed rates and other financial matters are subject to scru-tiny.

Breakdown of Remuneration RatesThe remuneration rates for staff are made up of salary, social costs, overheads, fee that is profit, and any premium or allowance paid for assignments. Rate details are discussed here-under:

o Salary; This is the gross regular cash salary paid to the individual in the firm’s home office.

o Bonus; Bonuses are normally paid out of profits. However staff bonuses shall not normally be included in the rates.


166 SECTION-IV

o Social Costs; are the costs to the firm, include, social security including pension, medical and life insurance costs, and the cost of a staff member being sick or on va-cation.

o Cost of Leave; The principles of calculating the cost of total days leave per annum as a percentage of basic salary shall normally be as follows:

Leave cost as percentage of salary =

Where w = weekends, ph = public holidays, v = vacation, and s = sick leave.

o Overheads; Overhead expenses are the firm’s business costs that are not directly re-lated to the execution of the assignment. Typical items are home office costs (part-ner’s time, non-billable time, time of senior staff monitoring the project, rent, sup-port staff, research, staff training, marketing, etc.).

An audited financial statements, is required certifying value of overheads of the firm.

o Fee or Profit; The fee or profit is based on the sum of the salary, social costs, and overhead. The firm shall note that payments shall be made against an agreed estim-ated payment schedule.

o Away from Headquarters Allowance or Premium; Some Consultants pay allow-ances to staff working away from headquarters. Such allowances are calculated as a percentage of salary and shall not draw overheads or profit.

Consultant’s Representations Regarding Costs and Charges (WB based)

Personnel 1 2 3 4 5 6 7 8

Name PositionBasic Salary per

Working Month/Day/Year

Social Charges1 Overhead1 Subtotal Fee2

Away from Headquarters Allowance

Proposed Fixed Rate

per Working

Month/Day/Hour

Proposed Fixed Rate

per Working Month/Day/

Hour1

Home Office

Field

1. Expressed as percentage of 1 2. Expressed as percentage of 4

Note: When the assignment to be entrusted to consultants is new or very unfamiliar to the Client and to the consultants themselves, the best advice is to let consultants prepare a cost estimate based on their experience and the conditions of the assignment. In such cases, the Client should invite proposals from consultants with a high reputation of capacity and integrity and conduct the selection based on quality only (QBS), followed by financial negotiations with the first-ranked consultant.


SECTION-IV 167

Sample of Consultant Staff Remuneration (PEC based):

Breakdown of Reimbursable/ Out-of-pocket / Direct Cost

Travel and Transporto To estimate travel and transportation expenses, assume that all foreign personnel will

originate from the farthest eligible country.o For assignments expected to last more than six months, a good rule is to assume that two-

thirds of the team members have dependents, and to allow three round-trip economy class airfares per year for each of the families and one such trip for the remaining one-third of team members.

o Local travel and transport costs should be based on local tariffs.o Number and type of vehicles and their operation and maintenance costs should also be

estimated.o Other means of transport if supposed to be used, should also be considered.

Mobilization and Demobilization

o Each staff member is allowed reasonable travel time; a medical checkup, hotel costs, local transportation, and miscellaneous items.

o Costs for shipping personal effects should also be estimated.

o Expatriate staff normally receive overseas and subsistence allowances.


168 SECTION-IV

The overseas allowance is part of the monthly rate and is meant to represent an incentive for consultant personnel to accept work overseas.

The subsistence allowance is paid separately and generally in local currency to cover out-of-pocket expenses such as hotel and living expenses.

o Staff allowances also cover the costs of children’s education and are normally paid on a monthly basis.

Communications

o Reasonable monthly allocations for international and local telecommunications should be included.

o Modern telecommunications such as teleconferencing and the Internet may represent a cost-effective substitute for travel.

Office Rent, Supplies, Equipment, Shipping, and Insurance

o Depending on the assignment, local costs for office rent and supply of local equipment should be estimated separately according to local rates.

o Foreign costs for supplies and equipment (including specific software) should also be es-timated, together with related shipping and insurance costs.

Surveys and Training Programs

o The cost of surveys (such as topography, cartography, subsurface investigations, and satellite imaging) and training programs related to the assignment

o Any other services to be subcontracted should be estimated.

Report Translation and Printing

The cost of printing or translating reports is substantial and should be included in the cost es-timate.

Taxes and Duties

The Consultants submit their cost proposals excluding local taxes, which shall be estimated and shown as separate amounts.

Such local taxes generally include the following:

duties on imported equipment and supplies later exported by the consultants, for ex-ample, personal computers, scientific equipment;

duties and levies on equipment imported or locally acquired by the consultants that is treated as property of the client, for example, cars, office equipment; and

local income taxes on the remuneration of services rendered locally.

Assignment costs must be estimated net of local, indirect taxes; never-theless, for budgeting purposes, the Client should also make adequate provision for the tax amount payable under the contract.

Note:To establish a cost estimate, costs are normally estimated using unit rates (staff remuneration rates, reimbursable expenses) and quantities; exceptionally, some items may be estimated on a lump-sum basis. The method used to establish the cost estimate bears no relation to the type of contract that will be used and the method of remuneration of the consultant (time-based or lump-sum remuneration).


SECTION-IV 169

Consultants Reimbursable/ Out-of-pocket / Direct Cost (WB based)

Nr. Description1 Unit Unit Cost2

Per diem allowances Day

International flights3 Trip

Miscellaneous travel expenses Trip

Communication costs

Drafting, reproduction of reports

Equipment, materials, supplies, etc.

Shipment of personal effects Trip

Use of computers, software

Laboratory tests.

Local transportation costs

Office rent, clerical assistance

Training of the Client’s personnel 4

1Delete items that are not applicable or add other items accordingly.2 Indicate unit cost and currency.3 Indicate route of each flight, and if the trip is one- or two-ways.4 Only if the training is a major component of the assignment, defined as such in the TOR.

Sample of Consultants Reimbursable/ Out-of-pocket / Direct Cost (PEC based)


170 SECTION-IV

Note:

The financial negotiations shall also focus on items of out-of-pocket expenses and other reimbursable expenses. These costs may include, but are not restricted to, cost of surveys, equipment, office rent, supplies, international and local travel, computer rental, mobilization and demobilization, insurance, and printing. These costs may be either unit rates or reimbursable on the presentation of invoices, in foreign or local currency.

Payments to the firm, including payment of any advance based on cash flow projections, shall be made according to an agreed estimated schedule ensuring the firm regular payments in local and foreign currency, as long as the services proceed as planned.


SECTION-IV 171

Price Adjustment in Consultancy Contract

IntroductionIn order to adjust the remuneration for foreign and/or local inflation, a price adjustment provision should be included in the Contract.

PEC: Applicable to Time Based assignment Contract only.

Generally increase in cost for services.

Exclusions:

Cost of Additional work

Subsequent Legislation for other provisions

Modification of Contract under Sub Clause 2.5 SC

Payment to be adjusted under Sub Clause 6.2(a) SC.

Applicable for both Foreign & Local currency adjustments.

Local Currency Adjustment

Following are two options, any of these two may be consider for adjustments in Local salary remuneration:

Option – 1

Billing rates for each person shall be adjusted in each July.

For the first time, with effect from the remuneration earned in July following submis-sion of financial proposal.

Revision Elements:

Annual increment

Increase due to promotion

Salary revision to Sub Clause 5.3 SC or otherwise

Or

Option – 2

Using the formula:

RI = RIo xII

IIo

Where:

RI is the adjusted billing rate

RIo is the billing rate payable

II is the Consumer Price Index (CPI) General

IIo is CPI in July of the year Consultant submitted its proposal

Indices belongs to FBS (www.statpak.gov.pk)


172 SECTION-IV

Foreign Currency Adjustment

Billing rates for each person to be adjusted every 12 months.

For the first time, with effect from the remuneration earned in the 13th calen-dar month after the date of signing the Contract) by applying the following formula:

Rf = Rfo xIf

Ifo

Where:

Rf is adjusted remuneration

Rfo is the remuneration payable

If is the official salary index in foreign country for the 13th month for which adjustment is suppose to have effect.

Ifo is the official salary index in foreign country for the month w.r.t date of signing of contract.

World Bank:

The adjustment should be made for the contract having duration of more than 18 months or if the foreign or local inflation is expected to exceed 5% per annum,

The adjustment should be made every 12 months after the date of the contract for remuneration in foreign currency,

If there is very high inflation in the Client’s country, in which case more frequent adjustments should be provided for – at the same intervals for remuneration in local currency,

Remuneration in foreign currency should be adjusted by using the relevant index for salaries in the country of the respective foreign currency (which normally is the country of the Consultant), and

Remuneration in local currency by using the corresponding index for the Client’s country.

A sample provision is provided below for guidance:

Local Currency Adjustment:

Remuneration paid in local currency pursuant to the rates set forth in Appendix-E shall be adjusted every [insert number] months (and, for the first time, with effect for the remuneration earned in the [insert number]th calendar month after the date of the Contract) by applying the following formula:

or


SECTION-IV 173

where Rl is the adjusted remuneration, Rlo is the remuneration payable on the basis of the rates set forth in Appendix E for remuneration payable in local currency, Il is the official index for salaries in the Client’s country for the first month for which the adjustment is to have effect and, Ilo is the official index for salaries in the Client’s country for the month of the date of the Contract.

Foreign Currency Adjustment

Remuneration paid in foreign currency pursuant to the rates set forth in Appendix-D shall be adjusted every 12 months (and, the first time, with effect for the remuneration earned in the 13th calendar month after the date of the Contract) by applying the following formula:

or

where Rf is the adjusted remuneration, Rfo is the remuneration payable on the basis of the rates set forth in Appendix F for remuneration payable in foreign currency, If is the official index for salaries in the country of the foreign currency for the first month for which the adjustment is supposed to have effect, and Ifo is the official index for salaries in the country of the foreign currency for the month of the date of the Contract

Note:The 2nd Formula is used when price is not an evaluation criterion in the selection of Consultants.

For further details refer World Bank’s Consulting Services Manual 2006 (www.worldbank.org) and ADB’s Consulting Services Operations Manual published in 2008 (www.adb.org)


http://www.worldbank.org/

SECTION-V 174

SECTION-VEngineering Cost Management

Project Management

Government of Pakistan Planning & Development Division

Introduction

In managing and controlling the construction projects, there are two basic features which go hand in hand ‘project management’ and ‘project finance’.

In general, most of the people especially engineers are aware of the project management aspects while they do not pay much attention to the project financing. As a result, most of the project failures and project delays arise due to the lack of the reliable financing which is the main blood stream in developing the infrastructure projects.

The Project Management Life Cycle

The Project Management Life Cycle has five distinct phases:

1. Identification & Formulation;

2. Appraisal & Approval;

3. Project Implementation;

4. Project Completion/Closure; and

5. Ex-post Evaluation.

1. Project Identification & Preparation

Project identification and its formulation is the most important segment in a project cycle in which the sectoral priorities must be followed;

In Pakistan projects are normally identified by the line Ministries/Divisions, public sector corporations, NGOs, pressure groups and public representatives;

Development projects are prepared on the approved format i.e. PC-I Proforma. Plan-ning Commission has devised three Proformae in 2005, one each for Infrastructure Sector, Production Sector and Social Sector;

It is mandatory that the projects of Infrastructure Sector and Production Sector cost-ing Rs.300.00 million and above should undertake proper feasibility studies before the submission of PC-I;

Separate provision has been made in the PSDP, under P&D Division for financing of the cost of feasibility studies of development projects;

For mega projects, where huge amount for feasibility studies is involved, a separate proposal on PC-II Proforma is to be submitted for approval;

In case of more complex concepts one of the donors could be required for TA Grant;

For other low cost projects, in-house feasibility is carried out;


SECTION-V 175

At the project preparation stage, various indicators such as input, base-line data, outputs and outcome, are determined over the life of project;

In addition, viability of the project in terms of financial and economic indicators is also determined;

The sustainability aspect after completion;

After preparation of PC-I/PC-II, the Principal Accounting Officer has to sign the PC-I/ PC-II; and

Thereafter, PC-I/PC-II is to be submitted to the relevant forum for ap-proval/authorization.

2. Project Appraisal & Approval

Appraisal involves a careful checking of the basic data, assumptions and methodol-ogy used in project preparation;

In-depth review of the work plan, cost estimates and proposed financing plan;

An assessment of the projects organizational and management aspects;

Finally the validity of the financial, economic and social benefits expected from the project;

A comprehensive project appraisal is carried out in the Planning Commission at ap-proval stage;

The parameters including Benefit Cost Ratio, Net Present Worth and Internal Rate of Return etc are worked out from financial and economic standpoints for productive and infrastructure projects;

While in case of social sector projects viability is worked out on least cost approach and by calculating the unit cost of output and services;

If the project is found technically sound, financially & economically viable and so-cially desirable only then the project is approved;

However, sometimes projects are also approved on political considerations and social uplift of certain areas/target groups.

Development projects are approved by the different fora depending upon the cost of the project. The approving limits of each forum in vogue are as under:-

Approving Authority Cost Limit

Departmental Development Working Party (DDWP) Up to Rs. 60 million

Central Development Working Party (CDWP) Up to Rs. 1000 million

Executive Committee of National Economic Council ECNEC) More than Rs. 1000 million

Provincial Development Working Party (PDWP) Rs. 5000 million

Corporations and Autonomous Bodies/CDA No Limit *

*with 100% self-financing and with no government guarantee and involving less than 25% foreign exchange/foreign assistance.- A Project (Federal or Provincial) in which foreign exchange is more than 25% of the cost of project will be considered by CDWP.


176 SECTION-V

The autonomous organizations whether commercial or non-commercial having Board by whatever name called, are competent to sanction their development schemes with 100% self-financing with no government guarantee and involving less than 25% foreign exchange/foreign assistance, subject to fulfillment of certain condi-tions (to be approved by DDWP).

Once the project is approved by CDWP and ECNEC, the sanction is is-sued by the Public Investment Authorization Section of P & D Division, while Pro-vincial P & D Departments issue sanction for the projects approved by the PDWP. In case of DDWP level projects, the sanction is issued by the concerned Ministry/Divi-sion.

After issuance of sanction letter by the approving authority, the Ministry concerned issues administrative approval of the project;

The next step involved as per ECNEC decision is appointment of an inde-pendent (full time) Project Director for the project costing Rs.100 million and above;

According to ECNEC decision, the Project Director should be delegated with full administrative and financial powers and be made accountable for any lapses.

o Project Authorization

Once the project is approved by the DDWP/CDWP/ECNEC as the case may be, the sanction is issued by the Public Investment Authorization Section of P&D Division in case of projects approved by CDWP and ECNEC;

Provincial P & D Departments issue sanction for the projects approved by the PDWP;

In case of DDWP level projects, the sanction is issued by the concerned Ministry/Division

o Allocation of Funds

As a general policy no new project shall be included in the PSDP during currency of the financial year, could be considered in case of only very high priority projects;

Funds for the successive years should be provided in PSDP through Priority Committee and Annual Plan Coordination Committee (APCC) meetings;

The final authority in the approval of funds is the National Economic Council (NEC).

o Opening of Accounts

Assignment Account is opened and maintained in the banks with the approval of Controller General of Accounts. This kind of account is normally opened for for-eign aided projects and non-lapsable funds;

The pre-audit accounts are opened and maintained by AGPR for all the develop-ment projects which are lapsable;

3. Project Implementation

The physical activities like procurement of civil work, services, machinery & equip-ment, etc., may be undertaken in accordance with the approved Work Plan/Activity Chart;

The PPRA Rules - 2004 as amended is used for procurement;


SECTION-V 177

Monthly reconciliation of accounts with AGPR should be made and submitted to the respective Ministries for record;

Project Director should submit a quarterly progress report of on-going project on pro-forma PC-III.

The Fund release order is issued by the Ministry after the approval of work-plan /cash-plan of the approved PC-I by the Technical Section of the P & D Division.

4. Project Completion/Closure

The project is considered to be completed / closed when all the funds have been utilized and objectives achieved, or abandoned due to various reasons;

At this stage the project has to be closed formally, and reports to be prepared on a proforma PC-IV;

Project closure involves handing over the deliverables to the concerned au-thorities, closing of contracts, and closure of bank account, releasing security money;

For regular operation and maintenance of projects after completion stage, it should be handed over to the agency responsible for maintenance and operation;

If any of the project staff has to be retained on the project, a case for the shifting of the post in revenue budget may be initiated and got approved from the Finance Divi-sion;

An annual operation reports have to be submitted to the P & D Division over a period of five years on PC-V proforma.

5. Project Monitoring & Evaluation

Monitoring and Evaluation activities provide timely and useful information to the project management/implementation agencies and also a feed-back to the policy makers;

Produces new approaches/ideas, improving the planning, implementation and supervision process of future projects;

This makes the “Project Cycle” self-renewing.

The Project Management Life Cycle


178 SECTION-V

Financial Management

The Principal Accounting Officer is responsible for the efficient and economical con-duct of the Ministry /Division/Department etc;

He is also personally answerable before Public Accounts Committee;

There are two main principles to be observed are;

economy; (getting full value of money); and

regularity; (spending money for the purpose and in the manner prescribed by Law & Rules).

Re-appropriation within project cost

Funds are released to the project in accordance with the approved Cash/Work Plan to which every Project Director has to stick;

However in some cases, re-appropriation within the project allocation is per-missible with the approval of Principal Accounting Officer;

Re-appropriation within projects

Re-appropriation of funds from one development project to another project is not allowed;

In exceptional cases, however, re-appropriation of such funds may be al-lowed, where necessary, by the Financial Advisor on the recommendation of P & D Division;

Normally, in the Mid Year Review Meetings, Planning Commission allows re-appropriation of funds from slow moving projects to fast.

ECNEC’s Decisions

The Central Development Working Party (CDWP) and Executive Committee of National Economic Council (ECNEC) issue instructions and guidelines from time to time regard-ing various issues involved in the implementation of Development Projects.

The ECNEC is chaired by Prime Minister.


SECTION-V 179

The CDWP is chaired by Deputy Chairman, Planning Commission/Secretary P & D Division.

There is no need for revision of PC-1 if completion cost is within the permissible limit of 15% of the approved cost of the PC-I;

During the implementation of project, if it is felt that there will be major change in the scope of work or increase in the approved cost by more than 15%, then the project has to be revised and submitted for approval by the competent authority;

The revised PC-I should provide reasons and justifications for revision in cost/scope of work;

The Principal Accounting Officer of the Ministries /Divisions is competent to accord extension in the implementation period but within the approved cost of the project;

The concerned Ministries should keep a vigilant eye on their projects and take timely corrective measures during execution;

Quarterly progress reports on the monitoring of development projects should con-tinue to be submitted on a regular basis;

The PC-Is, must contain the quantifiable performance indicators showing the visible impact on the economy after completion of project;

In the PC-Is, it should be made mandatory on the part of executing agencies to certify that discussions have been held with all the stake holders of the project;

No project under directive of any authority is started without proper preparation of PC-I/PC-II and approval of the relevant competent forum;

The proposals for approval of individual projects should clearly indicate the phasing of their financing in the subsequent years reflecting impact on each year’s PSDP allo-cations.

Special CDWP meeting should be arranged after every quarter to review major projects on which serious implementation/problems have arisen;

CDWP/ECNEC should be authorized to fix the responsibility on the defaulters of the procedures, rules and regulations while implementing the projects;

The Project Director should be delegated full administrative and financial powers and be made accountable for any lapses;

In case an adequately qualified person is not available within the department, the per-son could be hired (on contract) and designated as Project Director;

Effective Monitoring and Reporting is essential to determine the progress, the status and the achievements of the projects;

Quarterly progress report of on-going project on PC-III, completion report of the project on PC-IV, and post completion review of project on PC-V;

The quarterly report should be submitted to the ECNEC on the monitoring/evaluation of projects by the Projects Wing;

Within six months of project approval, detailed design and costing should be final-ized and submitted to the competent authority. Implementation of such project com-ponents which require detailed designing should be started only when those have been finalized;

A strong check should be exercised on time over-runs and cost over-runs. For this purpose frequent revisions of scope and design of the projects should be avoided;


180 SECTION-V

Acquisition of land where required should be completed in the minimum time;

It is important that Planning and implementation capacity of the Federal Ministries as well as the Provincial Governments be increased or strengthening of existing capacity through training;

Only the projects under the long/medium term /annual plans and the policies of the Government should be sponsored for foreign assistance and that, too, only after ap-proval of their PC-I;

Development projects should be identified by the sponsoring agencies strictly on need basis and the donors should not be allowed to determine the priorities of the country;

In case of a project where there is delay in the preparation/ approval of PC-I and there is extreme urgency for exploring foreign assistance, concept clearance may be accorded by the Concept Clearance Committee of the P & D Division;

It may be noted that concept clearance is accorded only to explore the foreign assis-tance and on the basis of concept clearance, any kind of MOU/Agreement etc. can not be signed by Sponsoring Agency with the Donor Country/Agency;

Such agreements etc. can only be signed after approval of PC-I/PC-II by the compe-tent forum and completing other procedural requirements;

The projects should not be initiated / negotiated by any Federal/Provincial Agency without the approval of P & D Department of Provinces and P & D Division as the case may be.

Consultants Role;

o It has been noted that a high consultancy fee was paid on the consultancies even in those projects which were based on simple technology and did not require for-eign consultants (NDP etc.);

o The total consultancy cost should not in any case exceed 10% of the total project cost for infrastructure project involving construction etc.;

o This condition is however, not applicable to purely consultancy projects or in-volving major part of consultancy;

o The donors are informed that consultancy oriented grant/loan will not be accept-able in any case.

o Local consultants should be associated with foreign consultants and encouraged to take up the consultancy work with or without the participation of foreign con-sultants;

o It would be mandatory on foreign consultants to engage at least 30% local consul-tants;

All Technical Assistance proposals (both concept clearance proposals and PC-II will be accompanied by a certificate from the Secretary of the Federal Min-istry/Division in case of federal projects;

Due to depreciation of Rupee, a large amount of savings is being accrued in case of on-going aided projects and in some cases donor agencies/lenders allow the executing agencies to utilize these savings either on existing project by increasing its scope or on new projects;


SECTION-V 181

No such savings should be allowed to be utilized unless approved by the com-petent forum;

All agreements for T.A., grants, loans or guarantees should be signed with donors after obtaining approval from the competent authority (i.e. Cabinet/ECC/CDWP /ECNEC);

For self financing projects, if foreign aid or government’s guarantees are in-volved, then those should come to the forum of CDWP/ECNEC.

SUMMARY

Project Planning & Management of Public Sector Development Projects

Preparation Stage:

The projects of Infrastructure and Production Sectors costing more than Rs 300 million should be based on proper feasibility study.

The Mega projects of Social Sector should also be based on proper feasibility study.

In case of projects costing less than Rs 300 million should be based on in house feasibil-ity studies.

The indicators i.e. input, output, outcome and impact are clearly indicated in PC-Is.

Costing of the project should be on market prices indicating quantities and unit values.

Escalation @ 6.5% p.a. of base cost may be provided from 2nd year of project till com-pletion.

Contingencies are provided @ 3% of base cost.

Sustainability aspect of the project be discussed in the PC-I.

The objectives of the project be clearly indicated preferably in quantitative terms.

Detailed designing of civil work may be ensured in the PC-I.

Location analysis may be carried out scientifically.

Financial Plan should be clearly indicated in the PC-I.

In case of revised projects, work already done with quantities must be given clearly. The work to be done must be clearly indicated giving quantities and unit cost over extended period. Reasons for revision may also be given along with justification.

Never provide lump sum provisions in PC-I.

Never indicate objectives in ambiguous form.

Never prepare PC-I without detailed designing of civil work.

Implementation Stage:

Get the financial and administrative Prowers delegated from Principal Accounting Offi-cer.

Get funds allocated in the Priorities Committee.

Prepare and get approved from Planning Commission workable Work/Cash Plan as early as possible.

Plan physical activities to be carried out during the year on bar chart on monthly basis.

Plan for the monthly activities in advance.

Get the monthly expenditure reconciled with AGPR/Banks as the case may be.

Assign specific duties to the team members un-ambiguously.


182 SECTION-V

Always discuss about the project activities with your team on regular basis for sharing project information.

At the time of award of contract if it is found that cost of the project would exceed the approval limits by 15% get the project revised and approved by the competent forum be-fore implementation.

If there is a major change in the scope of the project (15%) get the project revised imme-diately and approved from competent forum.

If the project cannot be completed within approved time frame, get the desired extension from the Principal Accounting Officer.

Every activity should be time based and chased rigorously.

If there are several projects under implementation in an organization separate accounts of each project should be opened. Similarly, separate accounts books are maintained for each project.

If expenditure in one head is expected to exceed the allocated amount get the re-appropri-ation of funds approved by the Principal Accounting Officer before incurring the excess expenditure.

Proper coordination among different stakeholders must be ensured in case of implemen-tation of national programs.

No revision of PC-I is required if the cost increase is due to depreciation of Pak rupee in foreign exchange cost.

Don’t incur expenditure in excess of 15% of approved cost before revising the project.

Don’t spend expenditure beyond approved limits.

Never incur expenditure in excess of allocation from any other sources except approved by the competent authority.

Never violate Government rules.

Monitoring Stage:

• Ensure completion of the project within approved cost and time.

• Chase the targets of the year.

• Monitor project activities on monthly basis.

• Prepare quarterly reports of the project for quarterly review meetings to be held in Plan-ning Commission.

• Share problems/issues hindering the successful Implementation of projects with Monitor-ing Officer of Projects Wing.

Completion Stage:

If the project is to be maintained after completion by another agency then coordinate in advance for the transfer of the project along with assets/ liabilities.

If some staff of the project is to be retained for the operation of the project, then the case for the creation of posts under revenue budget may be initiated at least six months ahead of the planned closing date.

Make a list of assets and entire record of the project and handover to the relevant agency.

Close the bank accounts and cash/accounts ledgers.


SECTION-V 183

Prepare completion report of the project on PC-IV Proforma and send to the concerned Ministry and the Projects Wing of Planning Commission.

The sponsoring Ministry/Division is required to submit the annual report on operation of the project for five years after completion of the project to the Projects Wing of Planning Commission.

Note: For further information refer following websites;www.planningcommission.gov.pkwww.pndpunjab.gov.pk www.sindhpnd.gov.pk www.balochistan.gov.pkwww.khyberpakhtunkhwa.gov.pk


http://www.khyberpakhtunkhwa.gov.pk/

http://www.balochistan.gov.pk/

http://www.sindhpnd.gov.pk/

http://www.pndpunjab.gov.pk/

http://www.planningcommission.gov.pk/

184 SECTION-V

Budget for Construction Projects

In all organizations, a construction project is a capital investment project. Budgeting for the project will, therefore, be different from annual budgets for the organization.

Construction project budgets are, ideally based on estimates of costs of construction re-sources. However, most budgets are set before design is finalized. It thus means that there will be much reliance on historical costs. In practice, typical approaches that may be used are;

1. Setting a fixed amount to which design should conform.

2. Using updated historical unit cost records to generate overall costs which is then distributed to parts. The overall cost will have professional fees added together with other expenses.

3. If the development of the design permits it, resource costs may be calculated and even project plans may be used for this purpose to make the budget time- related.

Cost Management

Includes processes required to ensure that the project is completed within the ap-proved budget and in allocated time.

Processes involved are:

1- Resource Planning

2- Cost Estimating

3- Cost Budgeting

4- Cost Control

1- Resource Planning

Involves determining what physical resources (people, equipment, materials etc) and what quantities of each should be used to perform project activities.

Inputs to Resource Planning

i). Work Breakdown Structure: A deliverable-oriented grouping of project elements that organizes and defines the total scope of the project. It identifies the project elements that will need resources.

ii). Historical Information:Historical information and feed back data.

iii). Scope Statement:It contains the project justification and the project objectives.

iv). Resource Pool Description:Knowledge of what resources are potentially available.

v). Organizational Policies:The policies of the performing organization regarding staffing and the rental or purchase of supplies and equipment.

Tools and Techniques to Resource Planning;

i). Expert JudgmentWell experience knowledge for judgment in prerequisite.

ii). Alternative identifications:Guide Book – Cost and Contracts

SECTION-V 185

To adopt different approaches for the same problem.

Outputs from Resource Planning (Resource Requirements)

Description of what types of resources are required and in what quantities for each element of the work break down structure.

2- Cost Estimating

Developing an approximation (estimates) of the costs of the resources needed to complete project activities.

Includes identifying and considering various costing alternatives.

Cost Estimating and Pricing

Cost Estimating involves developing an assessment of the likely quantitative result-how much will it cost the performing organization to provide the product or service involved.

Pricing is a business decision-how much will the performing organization charge for the product or service

Inputs to Cost Estimating

Work Breakdown Structure

Resource Requirement

Resource Rates: scheduled or non-scheduled

Activity Duration Estimates

Historical Information

Chart of Accounts:

Describes the coding structure used by the performing organization to report financial information in its general ledger.

Tools and Techniques for Cost Estimating

Analogous Estimating / Top-down Estimating:

Using the actual cost of a previous, similar project as the basis for estimating the cost of the current project. It is less costly but less accurate. (Rough - cost Estimate)

Parametric Modeling:

Using project characteristics (parameters) in a mathematical model to predict project costs.

Bottom-up Estimating:

Estimating the cost of individual work items, then summarizing or rolling up the individual estimates to get a project title. (Detailed Estimate)

Computerized Tools:

Use of computerized tools such as project management software and spreadsheets to assist with cost estimating.

Outputs from Cost Estimating


186 SECTION-V

Cost Estimates

Supporting Details like Scope of work, Calculation sheet, Assumptions made, Possible range of results, etc.

Cost Management Plan describing how cost variances will be managed.

3- Cost Budgeting

Allocation of overall cost estimates to individual work items in order to establish a cost baseline for measuring project performances.

Inputs to Cost Budgeting

Cost Estimates

Work Breakdown Structure

Project Schedule

Tools and Techniques for Cost Budgeting

Tools and Techniques for developing project Cost Estimates are used to develop budgets for work items as well.

Outputs from Cost Budgeting

Cost Baseline;

A time-phased budget that will be used to measure and monitor cost performance on the project. It is developed by summing estimated costs by period and is usually displayed in the form of an S - curve.

4-Cost Control

Cost Control is concerned with;

(a) Influencing the factors which create changes to the cost baseline to ensure that changes are beneficial.

(b) Determining that the cost baseline has changed.

(c) Managing the actual changes when and as they occur.

Cost Control includes:

Monitoring cost performances to detect variances from plan.

Ensuring that all appropriate changes are recorded accurately in the cost base-line.

Preventing incorrect, inappropriate, or unauthorized changes from being in-cluded in the cost baseline.

Informing appropriate stakeholders of authorized changes.

Inputs to Cost Control

Cost Baseline

Performance Reports

Provide information about cost performance such as which budgets have been met and which have not. It also alerts the project team to issues which may cause problems in the future.

Change Requests


SECTION-V 187

These may occur in many forms-oral or written, direct or indirect, externally or internally initiated, and legally mandated or optional. These may require increasing the budget or may allow decreasing it.

Tools and Techniques for Cost Control

Cost Change Control System

It defines the procedures by which the cost baseline may be changed. It includes the paperwork, tracking systems, and approval levels necessary for authorizing changes.

Performance Measurement

It helps to assess the magnitude of any variations which do occur.

Additional Planning

Perspective changes may require new or revised cost estimates or analysis of alternate approaches.

Computerized Tools

Outputs from Cost Control

Revised Cost Estimates

Budget Updates

Corrective Action

Estimate at CompletionIt is a forecast of total project costs based on project performance.

Lessons Learned

Objects of Cost Control

i) To have a knowledge of the profit and loss of the project throughout the duration of the project.

Project Profits

1) Client payments.

2) Sale of surplus or scrap material and plant

3) Payments for plants or labor by others, where, this plant or labour is, from time to time not required for the project.

Project Losses

1) Labour and site office costs

2) Plant costs

3) Site overheads i.e. site facilities, access roads and office etc

4) Cost of tendering including bonds, insurance, etc.

5) Material costs.

6) Head office overheads proportioned over all current projects.

ii). To have a comparison between the actual project performance and that conceived in the original project plan.

Comparison is basically done according to the following bases:

1) According to units of production


188 SECTION-V

2) According to line items; e.g., labour, material, equipment, overheads, ---

iii).Provides feedback data on actual project performance to future project planning

Important notes;

• A budget depends on estimates. Budgets are good to the extent that estimates are good.

• Estimates are made by qualified Engineers.

• Budgets made early can be used to control the design process.

• Proper Contract Administration and Management require controlling the Bud-get.

Bidding and Contracts

Contract strategies

Choice of contractor;

Method of selecting contractor;

Organization structure to control design, construction and interfacing of the both;

Selection of the content and sequencing of work package;

Tender documents, including contract condition, risk allocation.

The tendering procedure

Open tendering

Selective tendering (Direct Contracting)

Serial tendering (Repeat orders)

Negotiation tendering

PPRA:

Open Competitive Bidding is the Principal method of Procurement

Budgeting in organization

The usual approach in most organizations is to base next year's budget on this year's budget and expenses. A percentage is then added based on anticipated cost increases, thus;

Next year's budget = This year's budget + X.

The value X may be based on

1. Get feelings,

2. Inflation forecasts,

3. Additional plans made.

Major approaches

Top-down budgeting

Management has been said to be better at judging overall project costs than the cost of individual parts. Top down budgeting may vary from an assessment of probable cost by individuals, costs generated through consensus of experts' is then broken down to individual parts. The broken down may use factors generated from experience. This approach leaves the setting of overall budget to the top management


SECTION-V 189

while lower level managers have to distribute budget allocated to them to parts under them. Using this approach, overall budgets may be accurate while errors are infighting between lower level managers.

Bottom-up budgeting

In this approach, costs are calculated for individual parts and then summed up for the whole project. There is thus the need to ensure that all parts are included. A major failing is that individuals may tend to "overstate" budgetary requirements in the knowledge that top management will reduce the budget. However, the approach leads to participative management making the lower levels not to feel that budgets are imposed.

Mixed approaches

Top management may call for budget requests and then use suggestions to make a budget that is distributed down the organization.

Bid estimating process

The following steps describe the process of producing a cost estimate by the contractor as a basis for tender submittal:

Decision to tender,

Programming the estimate,

Collection and calculation of cost information

• Labour,

• Plant,

• Materials,

• Sub-contractors,

Project study

o Drawings,

o Site visit,

* Description of site,

* Position of existing services,

* Description of ground conditions,

* Any problem related to the security of the site,

* A description of the access to the site,

* Topographic details of the site,

* A description of the facilities available for the disposal of soil,

* A description of any demolition works of temporary works to adjoining building,

o Method statement

Preparing the estimate

Operational estimating,

Unit rate estimating,

Combined method, operational and unit rate estimating,


190 SECTION-V

Site overheads

Site staff,

Cleaning site and clearing rubbish,

Site transport facilities,

Mechanical plant which is not included in item rates,

Scaffolding and gantries,

Site accommodation,

Small plant,

Temporary services,

Welfare, first aid and safety provisions,

Final clearance and handover,

Defects liability,

Transport of workers to site,

Abnormal overtime,

Risk

Estimator's report

¤ A brief description of the project,

¤ A description of the method of construction,

¤ Unusual risks which is not covered in contract documents,

¤ Unresolved or contractual problems,

¤ Design assessment and financial consequences,

¤ Assumptions in estimated,

¤ Assessment of the profitability of the project,

¤ Other market and industrial information,

Top Five Cost Overrun Factors

Sr.# Factor Description

1. Fluctuation in prices of raw materials

2. Unstable cost of manufactured materials

3. High cost of machineries

4.

Lowest bidding procurement method

Poor project (site) management/ Poor cost control

Long period between design and time of bidding/ tendering

Wrong method of cost estimation

5.Additional work

Improper planning


SECTION-V 191

Bills of Quantities and Schedule of Rates

Bills of Quantities (BoQ) A quantified and completed list of works describing the full requirements in the drawings and specifications. The rates are quoted by the contractors.

Importance of BoQs

o Avoid unnecessary effort from multiple contractors to prepare the tender

o Provide a standard basis for the tender purpose

o Provide Quality control

o Assist the tender evaluation

o Provide rates for valuation of variations

o Provide the basis for the payment purpose

o Provide basis for financial reporting/cash flow

Schedule of Rates (SoR)A schedule listing the works with the rates to provide a list of rates for the valuation purposes in conformance to the standard specifications.

Importance of Schedule of Rates Cost Estimation Precision Uniformity Transparency Quick

Differences between BoQ & SoR

BoQ o Quantities form part of the Contract.

o Buildup the tender/contract sum.

o Provide a list of rates for the valuation of a set purposed work.

o Take longer preparation time for all consultants

SoRo The Quantities do not form part of the contract.

o Provide a list of rates for the valuation of works or component of a work.

o Buildup the Engineer’s Estimate/tender sum.

o Usually based on standard specifications and drawings not fully detailed.

o The time required is usually shorter.

Steps involved in Preparing SoR * Specification and Drawing;

* Rates of Materials, Labour & Rental charges of Plant/Equipment;

* Standard Inputs / Drafting Standards;

* Rate Analysis, Fixation of Composite Item Rates;

Specification and Drawing;Guide Book – Cost and Contracts

192 SECTION-V

Specifications:

Specifications are written descriptions of materials and construction processes in relation to performance, characteristics, installation and quality of work requirements.

Specifications are used (1) to convey information concerning desired products, (2) as a basis for competitive bidding for the delivery of products, and (3) to measure compliance to contracts.

Typically, there are four types of specifications; proprietary product, method, end-result and performance specifications; generally recognised in the construction industry.

o Proprietary Product Specifications;

A proprietary product specification is used when a generic description of a desired product or process cannot be easily formulated. It usually contains an "or equivalent" clause to allow for some measure of competition in providing the product.

In general such a specification severely limits competition, increases cost, provides little latitude for innovation, and puts substantial risk on the owner for product performance. Most agencies avoid this type of specification whenever possible.

o Method Specifications;

Method specification outlines a specific materials selection and construction operation process to be followed in providing a product.

In the past, many construction specifications were written in this manner. A contractor would be told what type of material to produce, what equipment to use and in what manner, it was to be used in construction. In its strictest sense, only the final form of the structure can be stipulated (for instance, the thickness of the pavement layers). This type of specification allows for a greater degree of competition than the proprietary product specification, but as long as the structure is built according to the materials and methods stipulated, the owner bears the responsibility for the performance.

o End-Result Specifications;

An end-result specification is one in which the final characteristics of the product are stipulated, and the contractor is given considerable freedom in achieving those characteristics.

In their roughest form, they specify minimum, maximum or a range of values for any given characteristic and base acceptance on conformance to these specifications. For instance, they may state a minimum layer thickness or a range of thickness. Since it is impractical to measure every square foot of constructed pavement, end-result specifications use statistical methods to estimate overall material quality based on a limited number of random samples.

o Performance Specifications;

Performance specifications are those in which the product payment is directly dependent upon its actual performance.

Typical of these specifications are warranty, limited warranty and design-build-operate contracts. Contractors are held responsible for the product performance within the context of what they have control over. The contractor is given a great


SECTION-V 193

deal of freedom in providing the product, as long as it performs according to established guidelines. In this case, the contractor assumes considerable risk for the level of service the product provides by paying for or providing any necessary maintenance or repair within the warranty period.

Specifications Writing

Standard Specifications - are specifications that are applicable to all construction projects within the country.

Supplemental Specifications - are specifications that are not included in the stan-dard specifications or specifications rewritten after the publication of the standard specifications.

Special Provisions - are specifications that are revisions to the standard specifica-tions and supplemental specifications. They contain special instructions, provisions, and requirements specific to an individual project. All projects require special provi-sions.

Drawings:

Drawings are the graphic means of showing work to be done, as they depict shape, dimension, location, measurement of material and relationship between building components.

Rates of Materials, Labour & Rental charges of Plant/Equipment;

• Rates collection; directly from markets, manufacturers, suppliers, vendors and form dif-ferent sources in a district or city.

• Rate determination; by applying transportation charges to Ex-factory/Ex-source rates.

• Identification of materials and their sources in a particular district or city.

• Labour rates are different in different areas, mostly obtained from Revenue Department.

• Plant/Equipments rental charges are almost same at all places.

• The rates are derived at district head quarter /city level.

Processing of Collected Rates;

At least from three Sources, Verification of these Rates and then Comparison for their suitability of use is carried out.

Standard Inputs / Drafting Standards;

• Quantities of different materials in a unit quantity of work item, worked out based on specifications, experiences, proven facts and references.

• Wastage of material in a unit quantity of work is considered as 2% to 7% depending upon construction activity and execution technique.

• Labour inputs are different from place to place depending upon socio-economical condi-tions.

• The efficiencies of equipments or machines remain all most unchanged at all places.

Rate Analysis, Fixation of Composite Item Rates;


194 SECTION-V

• Basic Rates and Standard Inputs of a work item are used in the Rate Analysis to arrive at the Composite Rate of that work item,

• Rate Analysis is a worksheet having description of item of work, quantities of different inputs of work, respective rates, unit of Composite Items and reference to the specifica-tions. It contains:

Material Component

Labour Component

Equipment/Machinery Usage

Overhead & Profit

PREPARATION OF ENGINEER’S ESTIMATE

In order to prepare a detailed estimate the estimator must have with him the following data:

1. Plans, sections and other relevant details of the work.

2. Specifications indicating the exact nature and class of materials to be used.

3. The rates at which the different items of work are carried out.

To enable an estimator to take out the quantities accurately, the drawings must themselves be clear, true to the fact and scale, complete, and fully dimensioned. The estimator has also to bear in mind certain principles of taking out quantities.

Steps in Preparation of an Estimate:

There are three clearly defined steps in the preparation of an estimate.

1. Taking out quantities

In the first step of taking out quantities, the measurements are taken off from the drawings and entered on measurement sheet or dimension paper. The measurements to be taken out would depend upon the unit of measurement. For example, in the case of stone masonry in superstructure, length, thickness and height of the walls above plinth level would be taken out from the drawings and entered on the measurement sheet, whereas, in the case of plastering only the lengths and heights of the walls would be entered. Obviously, the unit of measurement in the first case is cubic meter and that in the second case is square meter

2. Squaring out

The second step consists of working out volumes, areas, etc. and casting up their total in recognized units.

3. Abstracting

In the third step all the items along with the net results obtained in the second step are transferred from measurement sheets to specially ruled sheets having rate column ready for pricing.

The second and third steps above are known as working up. All calculations in these stages and every entry transferred should be checked by another person to ensure that no mathematical or copying error occurs.

Standard Method of Measurement of Works:


SECTION-V 195

The different methods of measuring used by various departments and by construction agencies were found to be a serious difficulty to estimators and a standing cause of disputes. For this reason a unification of the various systems at the technical level had been accepted as very desirable and wanting.Although the standard has no legal sanction and as such need not be adopted unless it is referred to in the contracts.

Principles of Deciding Unit of Measurement:

A beginner may find it difficult to remember the units of measurement of different items. Memorising of units of measurement would be greatly simplified if he knows the principles kept in view while selecting the units of measurements. Following are the most important principles of selection of unit of measurement:

i. The unit of measurement should be simple and convenient to measure, record and understand.

ii. It should be one, which provides for fair payment for the work involved.

iii. In the result it should yield quantities, which are neither too minute nor too large.

iv. The price per unit should not be a very small figure or a very large one, that is, generally costlier items will be measured in smaller units, cheaper ones in larger units.

v. The unit of measurement may sometimes depend upon the unit for the raw material and/or labor and/or important dimensions. For example, stone masonry is measured in cubic meters because raw materials are measured in cubic meters plastering or pointing is measured in square meters, as the labor is considerable.

WCSR – 2008

Sr.# Rate Analysis Component %-age

1. Material Component 58.00

2. Labour Component 24.00

3. Plant/Equip. Rental Component 08.00

4. Over-Head & Profit 20.00

Total 100.00


SECTION-VI 194

SECTION-VIFIDIC Conditions of Contracts

Introduction

The founding of FIDIC;

FIDIC was founded in July 1913 as the result of an invitation by Belgian and French engineers to attend “le Premier Congress International des Ingénieurs-conseils et Ingénieurs-experts”. The UK did not join until 1949.

Participants to the 1913 Congress in Ghent, Belgium

Expanded in 1945 to include 40 national associations.

Today has 80 member associations.

Headquarters in Switzerland.

Web Site : www.fidic.org

Published first Conditions of Contract in 1957.

Pre 1957 – no internationally recognised contract conditions.

First “Red book” based on UK Institution of Civil Engineers (ICE) condi-tions.

The Traditional FIDIC Forms of Contract

FIDIC - 1987 (Red Book)

• Conditions of Contract for Works of Civil Engineering Construction (Red Book) was compiled in 1957, and later its second, third, and fourth edition were issued in 1963, 1977, and 1987 respectively.


http://www.fidic.org/

SECTION-VI 197

• The Only difficulty with the first FIDIC contracts was that they were based on the de-tailed design being provided to the contractor by the employer or his engineer. It was therefore best suited for civil engineering and infrastructure projects such as roads, bridges, dams, tunnels and water and sewage facilities. It was not so suitable for contracts where major items of plant were manufactured away from site.

• A key feature of the 4th edition was the introduction of an express term which required the engineer to act impartially when giving a decision or taking any action which might affect the rights and obligations of the parties.

FIDIC - 1987 (Yellow Book)

• This first edition of the “Yellow Book” being published in 1963 by FIDIC for mechani-cal and electrical works. This had an emphasis on testing and commissioning and was more suitable for the manufacture and installation of plant. The second edition was pub-lished in 1980. The book was revised to include erection on Site and published as third edition in 1987.

• This book was suitable for use in contracts between an employer (owner) and contractor for the supply and erection of plant and machinery.

FIDIC - 1995 (Orange Book)

• In 1995 a further contract was published known as the “Orange Book”. This was for use on projects procured on a design and build or turnkey basis, dispensing with the engineer entirely and providing for an “Employer’s Representative” who, when determining value, costs or extensions of times had to: “determine the matter fairly, reasonably and in ac-cordance with the Contract”.

The New FIDIC Forms – 1999

In 1994 FIDIC established a task force to update both the Red and the Yellow Books in the light of developments in the international construction industry, including the development of the Orange Book. The key considerations included:

(i) The role of the engineer and, in particular, the requirement to act impartially in the cir-cumstances of being employed and paid by the employer;

(ii) The desirability for the standardisation of within the FIDIC forms;

(iii) The simplification of the FIDIC forms in light of the fact that the FIDIC conditions were issued in English but in very many instances were being utilised by those whose language background was other than in English; and


EngineerEmployer

Contractor

Engineer’s Dual Role:Employer’s agent in some casesDuty to act impartially between

Employer and Contractor in other cases

198 SECTION-VI

(iv) That the new books would be suitable for use in both common law and civil law jurisdictions.

During updating the Red and Yellow Books, FIDIC has noted that certain projects have fallen outside the scope of the existing Books. Accordingly FIDIC has not only updated the Standard forms but has expanded the range, and has in September 1999, published a suite of four new Standard Forms of Contract which are suitable for the great majority of construction and plant Installation projects around the world.

The Books in the new suite are all marked "First Edition 1999" and are not regarded as direct Updates of the existing Books. The existing Books are still available as long as there is a demand, but it is expected that the new suite will supersede and expand the range of the existing Books.

This new suite is also known as FIDIC new models of contracts of 1999:

(i) Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer: The Construction Contract (the new Red Book);

(ii) Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works, Designed by the Contractor The Plant and Design/Build Contract (the new Yellow Book);

(iii) Conditions of Contract for EPC/Turnkey Projects: the EPC Turnkey Contract (the Silver Book);

(iv) A short form of contract (the Green Book).

Characteristics of FIDIC Conditions of Contract

Contents of the Books

In keeping with the desire for standardisation, each of the new books includes General Conditions, together with guidance for the preparation of the Particular Conditions, and a Letter of Tender, Contract Agreement and Dispute Adjudication Agreements.

Unification of Terms and Clause

The new edition was drafted as the “New Red Book”, the “New Yellow Book” and the “Silver Book” by a workgroup under the leadership of the FIDIC Contract Committee. The contract form was not influenced by the former ICE framework, which was included in all 20 clauses. So if the clauses content could be unified, it would be under the same titles and expressions. In these three books, more than 80% of the content was consistent, and 85% of the definitions and expressions were the same. It is of great help for the users to understand them completely, saving study time.


SECTION-VI 199

Wider Application

When these new Conditions of Contract were drafted, FIDIC tried its best so the Conditions could be applied under not only the Customary Law (i.e. Anglo-American Law System), but also Civil Law. To pursue this, the contract working group had an attorney present to review the clauses, so that they could be applied under the two laws noted above. The new edition also shows more flexibility and adaptability. For example, in the old edition, the conditional performance guarantee was necessary, for which the World Bank had different opinions, while in the new edition, the guarantee forms were set by Particular Conditions which can be applied giving the employers better flexibility.

Applicability under Various Project Delivery and Contracting System

1. The “New Red Book” can be used in any kind of Engineering Construction Contract.

2. The “New Yellow Book” applies to the lump sum contract project where the Contractor takes participation in the design work.

3. The “Silver Book” applies to the turnkey projects of infrastructures or large-scale facto-ries, where the Contractor takes on more work and risk while the Employer’s participa-tion is small (private financing or government financing), but it is strictly defined upon the investment and construction period.

4. The “Green Book” can be used in all kinds of small-scale projects.

5. Altogether, these four Contract Conditions can be applied to nearly every kind of project, expect for that of managing contracting or simply consulting or designing

High-quality Provisions and Logical Clause Sequencing

Compared with the original “Red Book”, the “New Red Book” has 163 clauses, nearly 40% being freshly compiled. An additional 40% were modified and given supplements. Only 20% were kept intact. The old edition adopted ICE’s disorderly style clause sequence, while in the new edition; the related sub-clauses are put into one clause when possible, and convenient to the users.

More Specific Provisions concerning the Rights and Obligations of the Contract Parties

Considering the clause of Employer’s default as an example, we can see that in contrast to the “Red Book”,” three points are added into the “New Red Book”: two of them are concerned with payment. The above shows the strict requirements for the Employer. However, the Contractor shall institute a quality assurance system and submit to the Engineer to audit any aspect of the system before execution. Monthly progress reports shall be prepared by the Contractor to submit to the Engineer every month, otherwise, the payment will not be released. Any kind of bribe can result in Contractor’s default. All of the above are high requirements for the Contractor.

Changes in the Preparing Style

General Conditions in the former edition were fairly concise; some recommendable clauses were given Particular Conditions. While in the new edition, there is a way around the regulations being that the General Conditions are relatively comprehensive and detailed. An example would be advanced payment and adjustment formula. The new edition writers


200 SECTION-VI

believe that it is more convenient for the users to delete the clauses they do not need than to write them in the “Particular Conditions” by themselves.

Concise Language

The language and sentence structures in the new edition are rather easy to understand, and a great help to the people whose native language is not English.

The Current (1999) Red Book – Basic Features

1. Suitable for all civil works projects where main responsibility for design lies with Employer (or his Engineer).

2. Some design may, of course, be carried out by Contractor.

3. Administration of Contract and supervision by Engineer.

4. Approval of work, payment and claims certified by Engineer.

5. Work done is measured, payment according to Bill of Quantities.

6. Option for payment on lump sum basis.

7. Balanced / fair risk-sharing.

The Current (1999) Yellow Book – Basic Features

1. Suitable for all types of projects where main responsibility for design lies with Contractor.

2. Recommended for the provision of electrical and/or mechanical plant, and for the design and execution of building or engineering works.

3. Some design may be carried out by Employer or his Engineer.

4. Employer provides “Employer’s Requirements” to which Contractor designs.

5. Administration of Contract and supervision by Engineer.

6. Approval of work, payment and claims certified by Engineer.

7. Lump sum “Contract Price” with payment usually based on schedule of payments.

8. More extensive testing procedures than for “New Red Book”, including “Tests after Completion”.

9. Balanced / fair risk-sharing.

The Silver (EPC / Turnkey) Book – Basic Features

1. Responsibility for design lies solely with Contractor.

2. Employer provides “Employer’s Requirements” to which Contractor designs Employer’s Requirements usually “performance specification” type.

3. Contractor carries out all engineering, procurement, construction providing a fully equipped facility, ready for operation at “the turn of a key”

4. No Engineer, instead it is the Employer who may appoint an Employer’s Representative.

5. Lump sum “Contract Price” with payment usually based on schedule of payments. (But adjustments in limited specified cases)

6. Extensive testing procedures, including “Tests after Completion”.

7. Contractor takes majority of risks; Employer pays more to cover such risks.


SECTION-VI 201

8. Final price and time of completion are intended to be more certain.

Reasons for a New (1999) Contract for EPC Turnkey Projects

o Increased use of two-party approach, without Engineer.

o Increased sophistication, improved education and experience in developing countries, hence reduced need for an intermediary like an Engineer.

o Increase in privately-financed projects, like BOT, where customary for design and construction to be governed by an EPC Contract.

o As a result of increase in privately-financed projects, increased emphasis on risk allocation.

o In privately financed projects, desire of lenders to place majority of risk on Contractor.

The Conditions for EPC Turnkey Projects are not suitable in the following circumstances:

if time or information is insufficient before Contract signature

if considerable work underground or difficult to inspect

if Employer intends to supervise closely or control or review

if an intermediary certifies interim payments

where part of the Works is designed by Employer

for public bidding without negotiations

Note; for such circumstances P&DB should be used instead

The Green (Short Form) Book – Basic Features

Many small scale and large scale projects can use simple techniques such as in residential areas, also need a contract. So we shall compile a short form of contract in reference to FIDIC “Green Book”. It is necessary to be fairly flexible in the mode and requirements of management.

Recommended for projects without problems

Small Capital Value <$0.5M

Simple or repetitive works

No specialist subcontractors

Short duration – 6 months

No Impartial Engineer

Named Adjudicator

Increased responsibility on Employer;

Priority of documents – undefined

No “ruling language”

Risk & Claims; lists all Employers Liabilities, No bad weather claim, EoT to avoid “time at large” & Early Warning

Taking Over – no sectional handover

No defined Defects period – 12months


202 SECTION-VI

Employer may vary on the basis of Lump sum, BoQ Rates & Daywork etc.

Contract price; Lump Sum, LS with schedule of rates, LS with BoQ, Remeasurement with BoQ, Cost reimbursable.

Consider valuation methods

Dispute resolution; Amicable settlement, Adjudication, Dissatisfaction – 28 days and Arbitration.

FIDIC-MDB Harmonised Edition; First Published May 2005

While using the FIDIC Conditions it has been the regular practice of the Multilateral Development Banks (MDBs) to introduce additional Clauses in the Conditions of Particular Application (or “Particular Conditions”) in order to amend provisions contained in the FIDIC General Conditions. These additional clauses in many cases have standard wording which has to be repeated whenever procurement documents are being prepared for a new project. Furthermore, the provisions in bid documents, including the additional clauses contained in the Particular Conditions, varied between the MDBs, and this created inefficiencies and uncertainties amongst the users of the documents, and increased the possibilities for disputes

These problems were recognised by FIDIC and the MDBs as significant. Therefore to harmonise the documents on an international basis, the FIDIC Conditions of Contract for Construction, 1st Edition 1999 has been modified, in which the General Conditions contain the standard wording which previously has been incorporated by MDBs in the Particular Conditions. Following are the FIDIC MDB Harmonised publications;

FIDIC MDB Harmonised Construction Contract (May 2005)

FIDIC MDB Harmonised Construction Contract (March 2006)

FIDIC Harmonised Construction Contract (June 2010)

The MDB Harmonised Construction Contract has some debatable issues;

Role of the Engineer

• Employer has now unilateral right to change authority of and to replace the Engineer.

• For Variations, Engineer needs specific approval of Employer.

Performance Security

• Employer has now a discretionary right to make a claim.

Corrupt and Fraudulent Practices

• Employer has now an unilateral right to terminate the Contract.

International Arbitration


SECTION-VI 203

• The arbitration clause distinguishes between “foreign contractors” (international arbitra-tion applies) and “domestic contractors”.

Design-Build Operate Contract (Gold Book), 2007

This is a new development of FIDIC conditions of contract. It was published on September 2007, Gold Book.

DBO can be viewed as a complete method in PPPs. This method is a long-term process including procurement, construction, operation, and transfer, in which high risk should be pay the most attention to.

The DBO document for long-term contract

The DBO approach to contracting combines design, construction, and long-term operation (and maintenance) of a facility into one single contract awarded to a single contractor (who will usually be a joint venture or consortium representing all the disciplines and skills called for in a DBO arrangement. Public private partnerships, PPPs, are this arrangement).

DBO’s advantages

Time: With possibilities to overlap some design and build activities it will be possible to minimize delays and optimize the smooth flow of construction activities.

Financial: With cost restraints and commitments and other risks being carried by the Contractor, there is less risk of price over-runs.

Quality: With the Contractor responsible for 20 years operation, he has an interest to de-sign and build quality plant with low operation and maintenance costs. Not only will the plant be ‘fit for purpose’ but it will be built to last.

Basically the success of a true DBO contract depends on the commitment of the Contrac-tor to complete project - and the best way to do that is to cover the whole design-build and the operation elements in a single contract. That is why FIDIC chose a single long term Performance Security with a substantial reduction in value on completion of the de-sign-build – but with an on-going commitment by the Contract to perform and complete the operation service.

The other important factor considered in DBO document is the length of the operation period, since the conditions suitable for long-term operation are not necessarily suitable for a short-term operation. However the documents may be tailored for a shorter period if required.

Risk control in DBO contract

DBO can be viewed as a complete method in PPPs. This method is a long-term process including procurement, construction, operation, and transfer, in which high risk should be paid, the most attention.

About PPPs: A wide spectrum of options is available for the delivery of public infra-structure and services, ranging from direct provision by the government to outright priva-


204 SECTION-VI

tization, with increasing responsibilities, risks, commitment, and rewards transferred from the government to the private sector.

Lots of risks have been identified in DBO contract; therefore, FIDIC has designed new clauses to deal the risks in DBO contract:

Restructured Clauses (Clause 17: Risk Allocation, Clause 18: Exceptional Risks, Clause 19: Insurance),

Identified the Risks to be carried by each Party,

Differentiated between Risks during the Design-Build Period and Operation Service Pe-riod,

Classified the Risks into Commercial Risks and Risks of Damage,

Taken away the term Force Majeure

The DBO document format

The format of the new document follows the traditional format and layout of previ-ous FIDIC documents, with 20 clauses, and, where appropriate, using the same ter-minology and definitions which are found in the other documents.

The document will have General Conditions, Particular Conditions, flow charts and sample forms – just like the other FIDIC documents, and a Guide which will in-clude, amongst other things, guidelines on how to change the clauses if it is re-quired, or an operation period significantly different to the previous method adopted in other FIDIC contract.


Employer: Requirement, Contract Data, Representative to administer the contract

Contractor: Design, Execute, Complete, Remedy Defects, Operation Service

SECTION-VI 194


[4]Cost&Contract

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