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CONSTRUCTION CONTRACTMANAGEMENT

BY

MUMTAZ HUSSAIN

1

PROJECT DIRECTORCAPITAL DEVELOPMENT

AUTHORITHY


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INTRODUCTION A contract is a formalized means of communication between two parties. This facility is used very commonly by the projectmanager and owner to control the delivery of their

ro ects.

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A contract has the added advantage of forcing ownersto define their, requirements, organize and arrangetheir thinking, and make a commitment to their

project.


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BASIC REASONS FOR A CONTRACT

BASIC REASONS1. It defines the work and the owners delegation of

responsibilities to the various parties to completethe work

2. It inherently defines the nature and extent of risk to various parties.

3. It defines the transfer of financial incentives to

complete the work.


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CON AC

HE O D CON AC I DE I ED F OM LA IN

O D HICH MEAN D A NOGE HE ;


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WHAT IS A CONTRACT?

A contract may be defined as a voluntary agreementenforceable at law, made between two or more parties,whereby rights are acquired by one party to act or forbearances by the other.

According to the Construction Specification InstituteCSI Manual of Practice, a contract is a romise or a

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set of promises for the breach of which the law gives aremedy of the performance of which the lawrecognizes a duty (CSI 2008).

The agreement is reached by the acceptance of anoffer made by one party to do something for other for a stipulated consideration.


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ELEMENTS OF A CONTRACT

These are the five basic elements of a contract

OFFER

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CONSIDERATION ACCEPTANCE

LEGAL PURPOSE LEGAL CAPACITY


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CONTRACT AGREEMENT

The agreement is designed to formalize thecontract. It brings together all the other contract documents by reference to them and is

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.


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CONTRACT MANAGEMENTThat function of a project which is responsible for conformation of performance within the stipulationsof contract.

CONSTRUCTION CONTRACT

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A contract under which one party promises to furnish service& materials to build a structure for another party who promisesto pay for the work performed. There are two basic types of construction contracts

Fixed price (or lump sum) Cost type


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CONSTRUCTION CONTRACT (Contd.)The success of a project is often judged on theconstruction performance because this activity ishighly visible. The success of a project is alsoinfluenced by;

The accuracy and details of its documentation

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The understanding between parties and acceptanceof their particular responsibilities

How professionally and accurately the day to day

administration is handled How conflict or contractual problems are resolved.


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Construction Project DevelopmentPhases

Typical construction project development

phases includes;1. Preliminary planning and feasibility studies2. Preliminar en ineerin and desi n3. Detailed Engineering design4. Procurement5. Construction6. Operation7. Demolition


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Contracts are used during all phases of construction projects.In the first phase , which is the feasibilityphase, contracts are formed between an

firm, or an architectural firm to perform afeasibility and site selection study.In the construction phase contract areformed between an owner and aContractor firm.


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C C DC :

1. C 2. E 3.

. 5. F6. B7. A


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PEC BIDDING DOC MEN Standard Form of Bidding Documents (Civil Works)

(to be used for estimated value of more than Rs. 25 Millions)

Standard Form of Bidding Documents for Procurement of Works (E&M)(to be used for estimated value of more than Rs. 25 Millions)

Standard Form of Bidding Documents for Procurement of Works(For Smaller Contracts)(to be used for all type of procurement for estimated value of not more than Rs. 25Millions)

Standard Form of Contract for Engineering Consultancy Services(For Large Projects) Time Based Assignments(to be used for consultancy fee over Rs. 2 Millions)

Standard Form of Contract for Engineering Consultancy Services

(For Large Projects) Lump Sum Assignments(to be used for consultancy fee over Rs. 2 Millions)

Standard Form of Contract For Engineering Consultancy Services(For Smaller Projects)(to be used for consultancy fee not more than Rs. 2 Millions)


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1. IN C ION O BIDDE2. CONDI ION OF CON AC (GENE AL PA I &

PA IC LA PA II)3. FO M OF ENDE & CON AC EC I IE4. PECIFICA ION & PECIAL P O I ION

A NORMAL SET OF TENDER DOCUMENTS

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5. BILL OF Q AN I IE O CHED LE OF P ICE6. D A ING7. PPLEMEN A DA A


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STAGES OF CONTRACT MANAGEMENT

A. PRE-REQUISITION OF INVITATION TOTENDER

B. FORMULATION OF TENDER DOCUMENTS

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.D. CONTRACT ADMINISTRATION


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A - PRE-REQUISITION FOR INVITATION TO TENDER

A-1. COMPLETION OF FEASIBILITY STUDIES TECHNICAL FEASIBILITY ECONOMIC VIABILITY


(Contd.)

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A-2. DETAILED ENGINEERING DESIGN

DESIGN OF PROJECT COMPONENTS

FINALIZATION OF TECHNICAL REPORTS SPECIFICATIONS COMPUTATION OF QUANTITIES FORMULATION OF ENGINEERS ESTIMATE


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STAGES OF CONTRACT MANAGEMENT(Contd.)

A-3. ADMINISTRATIVE APPROVAL

PREPARATION OF PC-1 PROFORMA APPROVAL BY THE GOVERNMENT

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A-4. ARRANGEMENT OF FINANCES LOCAL & FOREIGN EXCHANG COMPONENTS

A-5. LAND ACQUISTIONA-6. PREQUALIFICATION OF CONTRACTORS


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B. FORMULATION OF TENDER DOCUMENTS

a. Specificationsb. Detailed Designc. Tender Drawings


(Contd.)

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d. Estimation of Quantitiese. Decision About Specific Provisionsf. Decision About format-ADB/IDAg. Conditions of Contract - Part 1 & II.


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TENDER DOCUMENTS General Conditions of Contract

These define the legal rights and obligations of the parties

and may be described as the regulations under which thecontract will be performed.

Nominates an independent third person called the

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General conditions vary from country to country andorganization to organization

Conditions of Contract internationally

Federation Internationale des Ingenieurs- Counseils(FIDIC), Switzerland, 1992.

Pakistan Engineering Council


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Tender Documents (Contd.) Special Conditions of Contract

These are additions to, deletions from or amendments tothe General Conditions to make them project or partyspecific.

S ecifications

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Give full description of work to be carried out Detail the materials and workmanship that the Contractor is to utilize in the project

Define the quality and standards of workmanship required Act as a legal evidence in the event of litigation


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Tender Documents (Contd.)

Drawings Bill of Quantities

Quantities are estimates only and should have limits of accuracy

Tender

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orma o er to un erta e t e pro ect. r ce, con t ons anmethod statements are detailed. It should be noted that alldocuments submitted with a tender form part of the tender

Letter of Acceptance Relevant Correspondence

This often include points of clarification of either theTender Documents or a tender.


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INSTRUCTIONS TO BIDDERS

This Contains Information's And Instructions Which AProspective Contractor Is Required To Know Or Abide ByFor Participation In Tendering:-

Name Of Work To Be Constructed

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ource un s or e or s Eligibility & Qualification Requirement Firms And Persons Authorized To Submit Tender Cost On Tendering Not Reimbursable What Makes A Tender Non-responsive Holding Of Pre-tender Conference, If Required


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Stages of Contract Management (Contd.)

C. TENDERING/EVALUATION

C-1. Tendering

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Tendering Process Packaging LCB/ICB Tendering

Types of Tender


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Stages of Contract Management (Contd.)

C-2. Evaluation Tender Opening Preliminary Evaluation

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Procedure for Preference


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C-2 TENDER EVALUATION

C-2.1 AT TENDER OPENING IS TENDER SECURITY ACCOMPANIED

WITH TENDER?

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,ACCOMPANIED BY?

POWER OF ATTORNEY

JOINT VENTURE AGREEMENT DISCOUNT (IF ANY)?


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TENDER EVALUATION (Contd.)

GENERAL CONFORMITY OF:

Legal & Contractual Evaluation Cost & Financial Evaluation

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Deviations:

Major

Minor


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C-2.2 PRELIMINARY EXAMINATIONOF ALL TENDERS


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ELIGIBILITY & QUALIFICATION ARITHMETIC CHECK CURRENCY PROPORTION

ADJUSTMENT ON ACCOUNT OF FOREIGNCOMPONENT?


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C-3. Detailed Evaluation Of Substantially

Responsive Tenders Only Detailed Scrutiny Of Minor Deviations:


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LEGAL & CONTRACTUAL ASPECTS TECHNICAL ASPECTS

COST & FINANCIAL EVALUATION

Clarifications (If Required)

Loadings Of Tenders For Minor Deviations


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Legal & Contractual Evaluation

Evaluation for Responsiveness

Evaluation of legal & ContractualAspects

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ompar son w t Pre-qua cat onStatus


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Cost & Financial Evaluation

Correction of Errors Adjustment of Foreign Currency Components Interest Rate for Dela ed Pa ments

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Price Adjustments Evaluated Tender Price Balanced Tender


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Technical Evaluation

Program of Work Key Personnel Mobilization

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Method of Construction Equipment Dewatering

Sub-Contractors Materials


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RANKING OF SUBSTANTIALLY

RESPONSIVE TENDERS

COMPARISON OF TENDERS AFTER

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ALLOWING DOMESTIC PREFERENCE

ISSUANCE OF LOA

PERFORMANCE SECURITY


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D P P D

Advertisement Pre-qualification Criteria

P F List of pre-qualified Contractors

I P B

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B P P E L E B

Letter of Acceptance Submission of Performance Bond Signing of Contract Agreement Letter of Commencement/ Notice to proceed

Financial Assistance in form of Mobilization Advance


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B C /P B M

Bidder conferences (sometimes called contractor conferences,vendor conferences, and pre-bid conferences) are meetings withall prospective sellers and buyers prior to submittal of a bid or proposal) are meetings with all prospective sellers have a clear and common understanding of the procurement (both technicaland contractual requirements), and that no bidder receivepreferential treatment.

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Responses to questions can be incorporated in to theprocurement documents as amendments.

To be fair, buyers must take great care to ensure that allprospective sellers hear every question from any individualprospective seller and every answer from the buyer.


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TENDER SECURITY/BID BOND

Bid Bonds are used to protect owners when thecontractor that is lowest, responsible , responsive

bidder on a competitively bid project refuses to enter into the contract for the project.

Amount of securit shall be in form of Cash De osit

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Certified Cheque, Bank Draft, Letter of Credit,Guarantee from a Scheduled Bank in Pakistan or Foreign Bank Acceptable to Employer.

If Tender is not accompanied by an acceptableTender Security (1-3% of Est. Cost, whereas 3% for smaller Contracts). It will be rejected being non-responsive and having major deviation.


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CON AC ADMINI A ION

P B F A /M A A E A P C D M I C 14 P

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B O C D P C C D L C


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Performance BondsPerformance bonds are guarantees by the surety that a contractor will perform the work as required by all of the conditions and termsof the contractThe Performance Security shall be of an amount equal to 10% of the Contract Price stated in the Letter of Acceptance. Such Securityshall, at the option of the bidder, be in the form of either (a) bankguarantee from any Scheduled Bank in Pakistan or (b) bank

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guarantee from a bank located outside Pakistan duly counter-guaranteed by a Scheduled Bank in Pakistan or (c) an insurancecompany having at least AA rating from PACRA/JCR.

"Commencement Date" means the date upon which the Contractor

receives the notice to commence issued by the Engineer pursuantto Clause 41.


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The Engineer" means the person appointed by the Employer to act asEngineer for the purposes of the Contract. The Engineer shall

obtain the specific approval of the Employer before carrying outhis duties in accordance with the Clauses mentioned in documente.g.:

Consenting to the sub-letting of any part of the Works underSub-Clause 4.1 Subcontracting.

"Letter of Acceptance" means the formal acceptance by the Employer of the Tender.


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5.2 Priority of Contract Documents

The documents listed at (1) to (6) of the Sub-Clause are deleted and substitutedwith the following:

(1) The Contract Agreement (if completed);(2) The Letter of Acceptance;(3) The completed Form of Bid;

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(5) The Particular Conditions of Contract Part II;(6) The General Conditions Part I;(7) The priced Bill of Quantities (Appendix-D to Bid);

(8) The completed Appendices to Bid (B, C, E to L);

(9) The Drawings;(10) The Specifications; and(11)______ (any other).


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L D

41

F 10%


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BONUS

The Contractor shall in case of earlier completion be paid bonus up-toa limit and at a rate equivalent to 50% of the relevant limit and rate o fliquidated damages prescribed in the Contract.

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51.1 Variations The Engineer shall make any variation of the form, qualify or quantity

of the Works or any part thereof that may, in his opinion, be necessaryand for that purpose, or if for any other reason it shall, in his opinion,be appropriate, he shall have the authority to instruct the Contractor todo and the Contractor shall do any of the following:(a) increase or decrease the quantity of any work included in theContract,b omit an such work but not if the omitted work is to be carried

out by the Employer or by another contractor),(c) change the character or quality or kind of any such work,(d) change the levels, lines, position and dimensions of any part of the Works,(e) execute additional work of any kind necessary for the completionof the Works, or (f) change any specified sequence or timing of construction of anypart of the Works.


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Ability to influence cost over time


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Ability to influence cost over time

Greatest potential to influence cost is during thepre-construction design phase

Claims avoidance begins during pre-construction Design phase

Intensive re aration and review of contract

documents Careful consideration of methods and

equipment = consider overall constructability


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In the event of:

(a)the amount or nature of extra or additional work,

(b)any cause of delay referred to in these Conditions,

,

(d)any delay, impediment or prevention by the Employer, or

(e)other special circumstances which may occur, other than through adefault of or breach of contract by the Contractor or for which he isresponsible ,


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The Contract shall not be considered as completed until aDefects Liability Certificate shall have been signed by theEngineer and delivered to the Employer, with a copy to theContractor, stating the date on which the Contractor shall havecompleted his obligations to execute and complete the Works

and remedy any defects therein to the Engineer's satisfaction.

The Defects Liability Certificate shall be given by the Engineer within 28 days after the expiration of the Defects LiabilityPeriod, or, if different defects liability periods shall becomeapplicable to different Sections or parts of the PermanentWorks, the expiration of the latest such period, or as soonthereafter as any works instructed, pursuant to Clause 49 and50, have been completed to the satisfaction of the Engineer.Provided that the issue of the Defects Liability Certificate shallnot be a condition precedent to payment to the Contractor of the second portion of the Retention Money in accordance withthe conditions set out in Sub-Clause 60.3.


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ADMINI E P OC EMEN :

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CON AC CLAIM

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Claims Avoidance producing comprehensive, accurate, contract documents

constructability review clear understanding of contract requirements prior to

bidding having good administrative procedures in place

open and honest communication timely troubleshooting

Claims avoidance begins in the pre-constructionphase


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53.1 Notice of Claims

Notwithstanding any other provision of the Contract, if the Contractor intends to claim any additional payment pursuantto any Clause of these Conditions or otherwise, he shall give notice of his intention to the Engineer with a copy to theEmployer, within 28 days after the event giving rise to the claim has first arisen.

53.2 Contemporary Records Upon the happening of the event referred to in Sub-Clause 53.1, the Contractor shall keep such contemporary records

as may reasonably be necessary to support any claim he may subsequently wish to make. Without necessarilyadmitting the Employer's liability, the Engineer shall, on receipt of a notice under Sub-Clause 53.1, inspect suchcontemporary records and may instruct the Contractor to keep any further contemporary records as are reasonable andmay be material to the claim of which notice has been given. The Contractor shall permit the Engineer to inspect allrecords kept pursuant to this Sub-Clause and shall supply him with copies thereof as and when the Engineer soinstructs.

53.3 Substantiation of Claims

Within 28 days, or such other reasonable time as may be agreed by the Engineer, of giving notice under Sub-Clause53.1, the Contractor shall send to the Engineer an account giving detailed particulars of the amount claimed and thegrounds upon which the claim is based. Where the event giving rise to the claim has a continuing effect, such accountshall be considered to be an interim account and the Contractor shall, at such intervals as the Engineer may reasonablyrequire, send further interim accounts giving the accumulated amount of the claim and any further grounds upon whichit is based. In cases where interim accounts are sent to the Engineer, the Contractor shall send a final account within28 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.

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P ICE ADJ MEN IN

CON C ION CON AC


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INCREASE OR DECREASE OF COST I E

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S.No. MATERIAL MARKETPRICE

MARKET PRICE Difference

Dec-07/

Jan 0831 st May-08 %

1 Cement 240 300 25.00

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2 Reinforcement 47000 84000 78.72

3 Diesel 37.8 50.21 32.83

4 Bitumen 36395 48195 32.42

5 Labour (unskilled) 250 300 20.00


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PRICE INCREASE

DEC 07/Jan 08to

March 2008to

60

31 st May 2008 31 st May 2008

39.40% 21.29%


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Why a formula? M (

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1. COMPLETION PERIOD OF THE CONTRACT

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2. CO OF HE CON AC

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P A

PEC C C

( . 30 M ).


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P C C P II

C 70 I D CA F

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P = A+ *L /L + *F /F + *C /C +* / + *E /E + *M /M ..

APPENDI C


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APPENDI C

CostElement

Description BaseCost

Weightages

Applicable index

(i) Fixed Portion - 0.35

(ii) Labour Government of Pakistan (GP)Federal Bureau of Statistics(FBS) Monthly Statistical

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.

(iii) Cement- in bag FBS

(iv) Reinforcement Steel Pakistan Steel Mills/ FBS

(v) HSD PSO

(vi) Bricks FBS

(vii) Bitumen Attock/National Refinery

Total 1.0


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3. DECI ION ABO ELEMEN O BE CO E ED

4. EIGH AGE OF EACH CO ELEMEN

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5. ELEC ION OF O CE

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6. BA E CO P ICE

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M P C


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M P C

Quality and Cost Based Selection (QCBS) Least Cost Selection (LCS) Fixed Budget Selection (FBS)

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Quality Based Selection (QBS) Single Source Selection (SSS)

M D B


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Executing Project Procurement Management


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Plan ContractingProcurement documents:

Request for Proposal (RFP) - requests a detailed proposal on how the work will be done, who will do it, . . . , basically a Project Execution Plan from thecontractor

Invitation for Bid (IFB, or RFB) - requests one price to do all the work.

Re uest for uotation RF - Re uests a rice uote er item, er hour charges, etc.

Test yourself:

Procurement Document Contract Type Scope of Work

RFP

IFB

RFQ

Cost Reimb. (CR)Fixed Price (FP)

Time/Matl (TM)

PerformanceDesign

Any

C


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C


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Employer

Contractor Consultant

Engineers Representative

M P C


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M P C

Quality and Cost Based Selection (QCBS) Least Cost Selection (LCS) Selection Based on Consultants Qualifications

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Single Source Selection (SSS) Fixed Budget Selection (FBS) Quality Based Selection (QBS)

Individual Consultants