WORLD BANK

Contract Negotiations & Contract Management

OECS Regional Engineering WorkshopSt. George’s, GrenadaDecember 2-3, 20013

World Bank Projects and Procurement Environment

World Bank Projects and Procurement Environment

OECS• The regulatory framework is outdated and requires substantial

revision and OECS countries have not adopted PPL’s defining the legislative frameworks for the public procurement; MOF’s regulate the public procurement in accordance with the Finance Audit Acts and they issue Financial Regulations and Procurement and Store Regulations which rule the procurement ;

• Current procedures and practices do not support and are not conducive to efficient and transparent procurement

• Significant gaps in the framework contribute to distorting practices and the widespread perception that the system lacks transparency.

World Bank Projects and Procurement Environment

Institutions:

Central /Public Tender Boards - inviting, considering, rejecting offers for supply of goods, works and services for the governments, ministries, state institutions etc. (they are not policy making and regulatory bodies); Departmental Tender Boards (Grenada, St Lucia ad hoc);

CTB’s, MoF’s, or Cabinets approve most of the contracts (low thresholds); delays and reduction of the procurement entities’ ownership and accountability ;

There are no independent complaints bodies; bidders may bring law suits - costly and lengthy civil procedures and not used

Capacity of the PI/CU’s Procurement Staff: Varies; room for improvement;

World Bank Projects and Procurement Environment

Challenges, Actions: Adopt harmonized regulatory framework, national laws and

implementing regulations (where applicable);

Establish regional and national policy bodies:

Establish complaint procedures and independent bodies;

Strengthening procurement planning processes;

Building up the capacity of procuring entities in carrying out procurement in accordance with the provisions of the PPL; regular procurement trainings, regional procurement workshops, advisory, on the job-training;

Improving private sector’s awareness of their obligations and their rights when participating in public tenders

6

Country Partnership/Assistance Strategy (CP/AS)

Implementation Completion Report (ICR)

Project Preparation

Project Identification

Project Appraisal

Loan Negotiations

Loan Approval, Signing And Effectiveness

Implementation andProject Supervision

Investment Project Cycle & Contracts Negotiations and Contract Management

7Working for a world free of poverty

LOAN/CREDIT AGREEMENT

WORLD BANK

IMPLEMENTING AGENCY (Borrowing Country Government)

SUPPLIER/

CONTRACTOR

BIDDING DOCUMENTS/ CONTRACTS

Contractual Relationships

Contracts Negotiations

Consulting Services: When?

- QBS, CQS, SSS, IC (under selection methods where the price is not a factor for selection;

- additional services under existing contracts;- No negotiations on rates under QCBS, LCS,

FBS; How to prepare and successfully negotiate?

– Preparation:- Preparation of TOR’s – specifying: the

required services and deliverables; realistic times for their implementation and submission; required key-professional staff and time;

Contracts Negotiations

- Preparation of realistic cost estimate – requires establishment and maintenance of database with consultants’ rates (Percentage of Works? Is it realistic and does it work?) ;

- Request for Technical and Financial Proposals:

- Detailed technical proposal should include: approach and detailed work plan and methodology; CV's of the proposed key staff, and staffing schedule;

Contracts Negotiations

- Financial proposal should include: detailed cost breakdown per activity (deliverable); breakdown of the remuneration (including names, positions, time, unit rate, amount per consultant) and breakdown of the reimbursable expenses;

- the consultant should also fill in and submit the forms of Appendix 1 of the SRFP.

- The consultant should also submit a statement that: "the basic salaries indicated in the attached table are taken from the firm’s payroll records and reflect the current salaries of the staff members listed, which have not been raised other than within the normal annual salary increase policy as applied to all the firm’s staff “.

Contracts Negotiations

Negotiations:- Contracts with firms: lump sum; time-based- Contracts with individuals: lump sum; time-

based

Works: When?

- Only under Direct Contract, incl. rehabilitation works in response to natural disasters;

- Additional works under existing contracts (VO’s);

- No negotiations on rates and prices under competitive bidding;

Contracts Negotiations

How to prepare and successfully negotiate?– Preparation:

- Preparation of accurate BoQ and TS;- Realistic prices: maintenance of database

with rates of works, including: materials, labor, equipment etc.;

- Invitation for Bid including priced BoQ, TS, etc.

Negotiations:- Contracts: lump sum; time-based

Goods: similar to works; under DC

Contract Management

Contract Management is the process that goes on through the entire duration of the contract and ensures that the objectives of the contract (supply of goods, delivery of services or execution of works) are met in a timely fashion and value for money is achieved.

Contract ManagementA successful procurement does not mean only a timely and “clean” bidding or selection process because most of the challenges and risks occur during the contract implementation stage: Risks related to costs (cost overruns); Risks related to time (delays of the

implementation of the contract); Risks related to the objective of the contract

(jeopardize the delivery or compromise the quality of the output).

Contract Management

BIDDING CONTRACT IMPLEMENTATION

PROCUREMENT

RISKS C

O

S

T

Contract Signing

Bank Involvement

Contract Completion

Contract ManagementReactive vs. Proactive - attitudes towards risks There are two possible ways to deal with the potential problems or events that may occur during the implementation of a contract:   The reactive approach – responding to problems after they

occur. The best we can hope is to limit the extent of the damage that has already been produced (damage control).

The proactive approach – anticipating the problems (by going through the steps described below – identify, analyze and address risks) and taking precautionary actions to prevent them from happening.

Contract ManagementThree approaches:  “In-house” contract management means that the

contract may entirely be managed by the implementing agency alone;

“Full Outsourcing” means that the contract management should entirely be entrusted to specialized firms, contracted by the implementing agency.

“In-house + Outsourcing” means that the contract may be managed by the staff of the implementing agency, supported (in various degrees) by outside experts.

Contract Management

Contract Management – Red Flags front-loading – the contractor performs more expensive activities at the beginning of

the contract, thus putting the contract at risk of incompletion as a significant part of the contract amount has already been disbursed;

frequent change orders / variation requests especially with regard to items with high rates and prices;

requests for subcontracting, especially to firms that took part in the bidding process and were rejected or offered higher prices;

deliberate use of unqualified supervisors by the Engineer or Project Manager;

failure to report any deviations from the contract;

substitution of consultants by less qualified of inexperienced replacements;

failure to use proper project management tools in order to hide cost overruns and make actual progress of works impossible to determine;

poor filing and records (missing invoices, timesheets, logs, deliverables, supporting documents etc.).

Contract Management Step by Step

1. Internal arrangements:2. Kick-off meeting with the supplier/contractor/consultant

but also with other important stakeholders (if applicable – designers of specifications, Engineer, Project Manager, end users and beneficiaries of the goods, services or civil works, local community etc.)

3. Processing advance payments/verification of advance payment guarantee and performance security:

4. Verification of insurance policies5. Checking proper mobilization of the

supplier/contractor/consultant (financial resources, manpower, plant, equipment, deployment on site, site facilities etc.);

Contract Management Step by Step

6. Inspections and tests (where applicable)7. Quality control and rejection of non-compliant

inputs8. Health & safety and environmental protection

issues9. Use of adequate project management tools

for time and cost control (especially useful for civil works contracts)

Contract Management Step by Step

Contract Management Step by Step

10. Changes in quantities (change orders, variation orders)11. Price adjustment12. Use of Provisional Sums or contingencies 13. Review and approval of payment applications14. Time control15. Remedies against non-performing contractors:16. Acceptance / Taking Over Certificate17. Warranty / Defects Liability Period18. Final Acceptance / Performance Certificate19. Termination of Contract20. Claims and settlement of disputes

Thank You!