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FORM OF CONTRACTAND BIDDING PROCEDURE

HASITHA GUNASEKARAM.Sc in PM, B.Sc (Hons.) QS, Dip. Arbitration,

AIQS (SL), ACIArb (UK), MCIOB (UK)

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CONSRUCTION CONTRACT

All construction is done within a contract except that done by a person for himself.

A contract determines the actions of the parties in their dealings with each other.

The construction contract documents define the agreement between the Client and the Contractor. It is a two-party agreement that does not include the designer

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CONTRACTS REQUIREMENTS

Mutual Agreement Offer and Acceptance (Form of Bid and Letter of

Acceptance) Capacity to Contract Consideration in a Contract Lawful Object of a Contract Contract Time

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WRITTEN CONTRACTS

Contracts usually need not be in writing to be valid, but they may need to be in writing to be enforceable.

Usually a contract must be in writing. Therefore, most major construction projects require a written contract

An oral contract is unsubstantial and difficult to prove, and because it cannot be demonstrated by tangible.

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WRITTEN CONTRACTS (Contd…)

The written instrument of most ordinary contracts is a printed standard form. The majority of building construction jobs have a lot in common and the use of standard forms of construction contracts is both economical and practical.

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INDUSTRY STANDARD CONTRACT DOCUMENTS (LOCAL)

ICTAD/SBD/01 Standard Bidding Document -

Procurement of Works

ICTAD/SBD/02 Standard Bidding Document - Major

Contracts    

ICTAD/SBD/03 Standard Bidding Document - Minor

Contracts

ICTAD/SBD/04 Standard Bidding Document - Design &

Build Contracts

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INDUSTRY STANDARD CONTRACT DOCUMENTS (FUNDED)

World Bank Asian Development Bank UNOPS JAICA etc

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INDUSTRY STANDARD CONTRACT DOCUMENTS (INTERNATIONAL) International construction documents are

also often based on industry-prepared standard forms.

A number of organizations prepare recommended standard general conditions and associated forms. Such as:FIDIC (International Federation of Consulting

Engineers)ICE (Institute of Civil Engineers, United

Kingdom)JCT (Joint Contracts Tribunal)

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CONSTRUCTION CONTRACT DOCUMENTATION

Construction contract documents generally include:• The agreement• General conditions• Supplementary conditions• Drawings• Specifications• BOQ• Addenda issued before submittal• Bonds

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TERMS AND CONDITIONS OF CONTRACTS In some construction contracts, the order of

superiority of the several parts of a written contract is as follows: Agreement General conditions Supplementary conditions Specifications Drawings

All the several parts go together as one (complementary);

In a discrepancies the contract may say that a stipulated order of superiority determines which part governs.

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TERMS AND CONDITIONS OF CONTRACTS (cont.)The agreement should contain:

The names of contracting parties

A brief description of the work

A list of contract documents, including agreement, general

conditions, drawings, and specifications.

The contract sum, or amount

The procedures for payment

The contract time, or dates for start and completion

The signatures of contracting parties and witnesses

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Award of Competitive-Bid Contract

Award contract to the “lowest responsive bidder”

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Tender/ Bidding ProcedureBids can be either:

Negotiated Bid Limited competition /selective Bid Open competition Bid

Negotiated Construction Bid

The Engineer on behalf of the owner, invites a contractor to submit a bid.

The initial invitation includes information regarding the proposed contract

procedure, a brief description of the work etc.

Prepare the priced bill of quantities.

The priced bills are then handed over to the other party for consideration.

Rates in dispute are compared with current rates for similar work and

negotiate for finalization

When the Engineer and the Contractor reach agreement, the agreed

schedule of prices is sent to the Owner for his approval and assent.

Limited Competition Construction Bids Calls for bids from a few contractors who are

known to have specialized in the special type of work and from whom he has, in the past, experienced excellent results.

This procedure is usually adopted for private works, where the owner has the right to negotiate directly and to enter into agreement with whomsoever he chooses.

Open Competition Construction Bids The method is usually adopted for public works,

as the rules generally require that government and other public contracts be advertised publicly, to obtain the most advantageous terms.

Any contractor who is willing to undertake a work and who has the requisite finance and construction equipments to complete it satisfactorily is allowed to submit a bid.

Advantages of Open Tender 

1. Give high level of competition and contractors tend to give best prices as compare to other tendering method

2. There is no list of restrictive tenderer, which does not allow favoritism

3. It is very transparent process which ensures that only the contractor with the best price and meeting all the technical requirements will win the tender.

Disadvantages of Open Tender 

1. The low price usually detriment of quality and often result in the client obtaining poor quality job and late completion of work. 

2. There are no restrictions on the number of contractor who can bid and become bulky and lengthy job for tender analyses which often result in delays and high cost. 

Method of Pricing Fixed-price

1. Lump sum Traditional, single fixed price Predetermined price that includes profit,

overhead, and all other costs Greatest risk to contractor resulting in a

higher markup (the greater the risk, the higher required rate of return )

Most common contract form

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TYPES OF CONTRACTS

Measure & Pay Lump sum Cost reimbursable contracts

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Reimbursable Costs Definitions of what types of costs can be

reimbursedPayments to Subcontractor per subcontractContractor’s field labor, material and equipment

costs Definitions of what types of cost that will NOT be

reimbursedContractor’s main office overhead and staffSalaries of contractor’s officers

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Cost Reimbursable Contracts

1. Cost–Plus-Fee as a Percentage-of-Cost

Fee may be on a sliding

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Cost Reimbursable Contracts (cont.)

2. Cost-Plus-Fixed-Fee Contracts

3. Incentive contracts

Share of the cost savings up to a maximum

Bonus for each day finished early, or penalty for

each day finished late

4. Guaranteed Maximum Cost

Fixed-price2. Measure and pay

Prices of specified units of work are fixed or predetermined

Actual cost to the owner will vary with actual quantities placed

Best used when details and general character of the work are known, but quantities are subject to variation

Risk of unbalanced bids

Cost-plus○ Contractor agrees to perform the work for a fixed

or variable fee covering profit and home office costs (general overhead)

○ Field costs are reimbursable at actual cost○ Used when:

nature of the work or physical conditions are unpredictable

scope is unknown or difficult to define

Cost-plus○ All cost-plus contracts depend on cooperation

among A/E, owner, and contractor○ Record keeping and timely evaluation are

extremely critical○ Detail record of labor hours and salaries,

material and equipment must be maintained

Types of Cost-plus Contracts

Cost plus fixed % Fixed % based on portion or all of reimbursable

costs Used in construction involving new technology

or extremely pressing needs Owner assumes risk Contractor cooperation very high Little or no incentive for cost savings

Types of Cost-plus Contracts

Cost plus fixed fee▫ More incentive for cost savings ▫ Incentive for timely completion▫ Risk shared by owner and contractor

Cost plus variable %▫ Also called “sliding scale %”▫ Keeps fee in line with type & volume of work▫ Fee becomes progressively smaller on work that is

repetitive, requires little or no re-engineering, re-planning, or additional layout

Types of Cost-plus Contracts

Target estimate May be based on cost, man-hours, schedule, or

combination Cost savings or overrun shared by owner and

contractor at predetermined split Cost under run increases contractor profit, overrun

decreases profit

Selection CriteriaIn this following section look at the ways to

choose between different bidders, reviewing the specific Criteria for bid evaluation:

• Technical evaluation• Financial Evaluation• Relationship between Technical and Financial

Finally review possible Bidding processes:• Prequalification, 2 Envelope• 2 Stage Bid Process

Content of Bidding DocumentsInvitation to BidVolume 1:

Section 1 Instructions to Bidders

Section 2 Standard Forms [Contract]

Section 3 Conditions of Contract

Volume 2:

Section 4 Form of Bid and Qualification Information

Section 5 Bidding Data and Contract Data

Section 6 Specifications

Section 7 Bills of Quantities

Section 8 Drawings

Section 9 Standard Form [ Bid]

Invitation for Bids (IFB)

[name of Procuring Entity]

 

1. The Chairman [insert MPC/DPC/PPC/RPC as appropriate] on behalf of the [insert name of Procuring Entity] now invites sealed bids from eligible and qualified bidders for construction/renovation/rehabilitation/refurbishment/repair* of [insert the title of the Works to be procured] as described below and estimated to cost [insert relevant cost of construction in the latest TCE (Total Cost Estimate)]

[Insert a brief description of the Works including major quantities, location of project, and other information necessary to enable potential bidders to decide whether or not to respond to the Invitation. The construction period is [insert no. of Days].

2. Bidding will be conducted through National Competitive Bidding Procedure.

3. To be eligible for contract award, the successful bidder shall not have been blacklisted and shall meet the following requirements [list the required ICTAD registration]

4. Qualifications requirements to qualify for contract award include: [insert key technical, financial, legal and other requirements].

5. Interested bidders may obtain further information from [insert name of Procuring Entity; insert name, address and e-mail of officer in charge] and inspect the bidding documents at the address given below [state address at end of this IFB] from [insert office hours].

6. A complete set of Bidding Documents in English language may be purchased by interested bidders on the submission of a written application to the [state addressee] from [state date of commencement of issuing document] until [state date] from 0900 hrs to 1500 hrs. upon payment of a non refundable fee of [insert amount in Rupees]. The method of payment will be [insert method of payment].

7. Bids shall be delivered to the address below [state address] at or before [insert time and date]. Late bids will be rejected. Bids will be opened soon after closing in the presence of the bidders’ representatives who choose to attend.

8. All bids shall be accompanied by a [insert as appropriate, either “Bid Securing Declaration”/ “Bid-Security, of (insert amount in Rupees”)]

The address(es) referred to above is(are):

 

Name

Designation,

Address, fax number etc of the Procuring Entity

INSTRUCTIONS TO BIDDERSA. General, 91. Scope of Bid, 92. Source of Funds, 93. Ethics, Fraud and Corruption, 94. Eligibility and Qualification of the Bidder, 95. One Bid per Bidder, 96. Cost of Bidding, 107. Site Visit, 10--------------------------------------------------------A. Bidding Documents, 101. Content of Bidding Documents, 102. Clarification of Bidding Documents, 103. Amendment of Bidding Documents, 11--------------------------------------------------------A. Preparation of Bids, 111. Language of Bid, 112. Documents Comprising the Bid, 113. Bid Prices, 114. Currencies of Bid, 125. Bid Validity, 126. Bid Security and Bid-Securing Declaration, 127. Pre-BID Meeting, 138. Format and Signing of Bid, 13

A. Submission of Bids, 131. Sealing and Making of Bids, 132. Deadline for submission of Bids, 143. Late Bids, 144. Modification and Withdrawal of Bids, 14-----------------------------------------------------------------------------A. Bid Opening and Evaluation, 151. Bid Opening, 152. Process to be Confidential, 153. Clarification of Bids, 154. Examination of Bids and Determination of Responsiveness, 155. Correction of Errors, 166. Currency for Bid Evaluation, 167. Evaluation and Comparison of Bids, 168. Preference for Domestic Bidders, 17-----------------------------------------------------------------------------A. Award of Contract, 17 1. Award of Contract, 172. Employer’s Right to Accept any Bid and to Reject any or all Bids,

183. Notification of Award and Signing of Agreement, 184. Performance Security, 185. Advance Payment and Security, 196. Adjudicator, 19

Form of Bid Note: Prior to issue of the bidding documents, the Employer should insert relevant data for all items marked with an asterisk (*).Name of Contract:* …………………………………………… To:* [insert name of Employer6]  Gentleman,  1. Having examined the Standard Bidding Document - Procurement of Works [ICTAD/SBD/01 - Second Edition, January 2007],

Specifications, Drawings and Bills of Quantities and Addenda for the execution of the above-named Works, we the undersigned, offer to execute and complete such Works and remedy any defect therein in conformity with the aforesaid Conditions of Contract, Specifications, Drawings, Bills of Quantities and addenda for the sum of Sri Lankan Rupees ....................................... (LKR ...................) or such other sums as may be ascertained in accordance with the said Conditions.

 2. We acknowledge that the Contract Data forms part of our Bid. 3. We undertake, if our Bid is accepted, to commence the Works as stipulated in the Contract Data, and to complete the whole of the

Works comprised in the Contract within the time stated in the Contract Data. 4. We agree to abide by this Bid for the period of* ........................... ................ (insert number of Days in accordance with Sub-Clause 15.1

of Instructions to Bidders) Days from the date fixed for receiving or any extended period and it shall remain binding upon us and may be accepted at any time before the expiration of that period.

 5. Unless and until a formal agreement is prepared and executed this Bid, together with your written acceptance thereof, shall constitute a binding contract between us.

 6. We accept / we do not accept the Adjudicator. 7. We understand that you are not bound to accept the lowest or any Bid you may receive. 

Dated this ............. day of ............ 20... in the capacity of .............. duly authorized to sign tenders for and on behalf of ............................................................................

(IN BLOCK CAPITALS) Signature : ....................................................

Address : ...............................................................................................................

Witness : ...................................................

DATA FOR BIDDING DOCUMENT

EV = Estimated Value( Initial Contract Price) = 100 M Rs. 73,000,000.00

Duratiion in months 4

Clause No

Footer Note Description Equation Value

(4.2)b 20 Average annual volume of construction work performed in any of the last five years

1.5 x (EV x 12) /(Duration in Months) 328,500,000.00

Experience in the construction of at least one contract of a nature and complexity equivalent to the Works over the last 10 years (to comply with this requirement, works sited should be at least 70 percent complete)

EV+EVx70%+ect. 73,000,000.00

(4.2)f 22The minimum amount of liquid assets and/or credit facilities net of other contractual commitments and exclusive of any advance payments which may be made under the contract shall be not less than

EV/ (Duration in Month) x 3 45,625,000.00

17.1 27 The amount of bid security EV x 2% 1,460,000.00

13.1 41 Minimum cover for Insurance of Works & of Plant & Materials EV x 110% 80,300,000.00

42 Minimum deductible for insurance of Works & of Plant & Materials EV x 5% 3,650,000.00

14.5 46 Minimum amount of Interim Payment Certificates50% of the average monthly value of the contract

9,125,000.00

27.4 48 The Amount to be withheld for late submission of a Programme is EV x 2% 1,460,000.00

39.2 49 Engineer may order variation up to a total cumulative value of not exceeding EV x 10% 7,300,000.00

48.1 53 The retention of from each payment shall be 10%

54 The limit of retention shall be 5%

49.1 55 The liquided damages for the whole of the Works shall be per day EV x 0.002% 36,500.00

50.1 56 The maximum amount of liquidate damagges for the whole of the work shall be EV x 10%

7,300,000.00

52.1 57 The perfomance Security shall be EV x 5% 3,650,000.00

60.1 58 The percentage to apply to the value of the work not completed, representing the Employer's additional cost for completing the works, is EV x 25%

18,250,000.00

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Lowest responsive bidder Lowest bidder whose offer best

responds in quality, fitness and capacity to fulfill the particular requirements of the proposed work and with the necessary qualifications to complete the job in accordance with the terms of the contract.

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Retention

A percentage of the payment to the contractor that is withheld each month

Usually is 10% Owner may reduce below 10% after

SUBSTANTIAL COMPLETION Paid by owner to contractor after FINAL

COMPLETION of the project Serves as an incentive for contractor to

complete ALL work per contract

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Other Contractual Terms

Substantial Completion

“Beneficial Occupancy” of the project

Warranty Period

Contact time

Calendar days vs. working days

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Other Contractual Terms

Liquidated Damages

Used as a PENALTY for late completion

Must be a REASONABLE penalty based on a

forecast of actual damages the owner would

suffer if the contractor is in breach of contract by

finishing late

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THANK YOU