Audit of Contracts

POM 370

AUDIT OF CONTRACTS AND MOUsProcurement, Execution & Materials Management. General and special Conditions of Contracts,pre Order tie-ups and MOUs

V K MathurDy. General Manager I/c (MM)Steel Authority of India LimitedR & D Centre for Iron & Steel

Procurementis the acquisition of goods, services or works from an external source. It is favorable that the goods, services or works are appropriate and that they are procured at the best possiblecostto meet the needs of the purchaser in terms of quality and quantity, time, and location. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion.

PROCUREMENTPublic Procurement can be defined as the procurement of goods, works and services by all Govt. Ministries, Departments, Agencies, Statutory Corporations and Public Sector Undertakings in the Centre and the States, Municipal Corporations and other local bodies and even by private Public Sector Undertakings providing public services on monopoly basis award of Public Private Partnership projects.

PUBLIC PROCUREMENTESSENCE OF PUBLIC PROCUREMENT Transparency

Fairness

Efficiency

Economy

Adherence to laid down procedures

"Public Private Partnership" means, an arrangement between the Central Government, statutory entity or any other Government owned entity on one side and a private sector entity on the other, for the provision of public assets or public services or both, through investments being made or management being undertaken by the private sector entity, for a specified period of time, where there is defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and predetermined performance standards, measurable by the public entity or its representative.

PUBLIC PRIVATE PROCUREMENTMaterial management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation5 Rs of Materials Management: Of Right Quality In Right Quantity At Right Time At the Right Cost From the Right Source

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PROCUREMENT FLOW DIAGRAM

Purchase ProposalClarificationFrom PartiesTechno-comml EvaluationIssue of OrderFollow up withSupplier

Acceptance

Storage of MaterialsInspectionReceipt of MaterialIssue of MaterialsRaising of IndentFinanceMMDScreening CommitteeBudgetClearanceTender OpeningIssue ofEnquiryEnq. Proposal& ApprovalScrutiny of Indent

IndentRegistration

MODE OF TENDERING

Limited Tender Enquiry

Open Tender Enquiry

Global Tender Enquiry

Single Tender Enquiry ( for Proprietory Items)

Single Tender Enquiry ( Non-Proprietory Items)*

Repeat Order*

Emergency Purchase*

GENERAL AND SPECIAL CONDITION OF CONTRACT

The General Conditions of Contract (GCC) shall apply to all procurement contracts done by the oganisation. These General Conditions are intended primarily for use in lump sum contracts but may be applied to other categories of contract and as modified with the Special Conditions of Contract (SCC).

Special Conditions of Contract (SCC) shall be read in conjunction with the General Conditions of Contract (GCC) also referred to as General Terms & Conditions of Works Contract, Schedule of Quantities, Specifications of work, drawings and any other document forming part of this Contract wherever the context so requires.

Where any portion of the GCC is repugnant to or at Variance with any provisions of the Special Conditions of Contract, then unless a different intention appears, the provision(s) of the Special Conditions of Contract shall be deemed to override the provision(s) of GCC only to the extent that such repugnancy or variations in the Special Conditions of Contract are not possible of being reconciled with the provisions of GCC.

ESTIMATE PREPRATION Indent Estimate should be judiciously prepared

For frequently purchased items Last Purchase Price (LPP) should be taken into consideration.

For Slow moving / new items estimate should be prepared taking into consideration the input cost of material and technology cost etc. w.r.t to budgetary quotations obtained.

For proprietary items: Manufacturers price list / rates with discounts, if any , should be taken into consideration.

For Labour oriented Jobs , the latest rate of wages should be taken into consideration while preparing estimate.

For Job contracts, if L-1 price is less as compared to the lower range of estimated price, the L-1 party will be asked to justify the rates quoted which is to be examined by Indentor. On non-acceptance of justification, the party will be asked to furnish PGB of differential amount

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TCS PREPARATIONAll tech. points offered by party viz a viz TS requirement to be examinedAll items/services as per BOM to be examinedAvoid using phrases like offered as per TS or specs offered by partyAll models/makes offered by party to be examined & acceptability to be indicatedFinal TCS to be prepared after examining & taking into consideration of all the clarifications giving reference in TCS too.Party may be invited for discussion in high value casesFirst, Eligibility to be checked minutely11More info on slides then normal

GENERAL CONDITIONS OF CONTRACTScope of FacilitiesCompletion TimeContractors ResponsibilitiesEmployers ResponsibilitiesPayment Terms, Taxes and DutiesConfidential Information: Patent, CopyrightWork ExecutionTest and InspectionGuarantee and liabilitiesDispute Settlement, Risk Distribution


SPECIAL CONDITIONS OF CONTRACT SCOPE OF FACILITIESCOMPLETION TIMEPAYMENT TERMSWORK EXECUTIONTEST AND INSPECTIONGUARANTEES AND LIABILITIES


ORDER EXECUTIONPO details to be checked by Indenting Group. Discrepancies if any to be informed to MMDKick off meeting with the Party / Plant/ RDCISProtocol of the activities to be duly signedBilling schedule to be frozen & approvedBackup documents for LD to be maintainedTimely follow-ups for delivery, inspection, I&C, PAC, FAC, etc All correspondences to be made with a copy to MMCommercial issues, to be referred to MMNo additional supply / job / alteration to Scope shall be allowed during execution.


ORDER EXECUTION (Contd.)Nomination of Representative: Employer, ContractorCo-operation with Other ContractorsWork ProgramProgress ReportProgress of PerformanceManpower Requirement for Operation & Maintenance of FacilitiesTrainingsubcontractingDesign and EngineeringCodes and Standards


ORDER EXECUTION (Contd.)Approval / Review of Technical Documents by Engineer / ConsultantCivil Engineering WorkStructural Load TestRoyalties for the Construction MaterialsexplosivesImport License & Export LicensePackingTransportationCustoms Clearance


ORDER EXECUTION (Contd.)InstallationLabour and Labour RulesCompliance with Statutory Laws and Other Regulations of Govt. / Local AuthoritySite Regulations and SafetyErectionEmergency WorkSite ClearanceTest and InspectionPreliminary Acceptance


ORDER EXECUTION (Contd.)CommissioningPerformance Guarantee TestFinal Acceptance


IMPORTANT TERMS / DEFINITION CONTRACT: Contract Agreement entered into between the Employer and the Contractor, together with the Contract Documents constitute the ContractTECHNICAL SPECIFICATIONS/CONTRACT TECH. SPECIFICATION: Technical Specifications, schedules, detailed designs, statements of technical data, performance characteristics value and all other technical particulars of the ContractCONTRACTOR: The person(s) whose bid to perform the Contract has been accepted by the Employer and is named as such in the Contract Agreement, and includes the legal successors or permitted assigns of the Contractor. In case Contract is with Consortium of two or more members then the contractor shall mean one or more members of Consortium as the case may be.


IMPORTANT TERMS/DEFINITION (Contd.)CONTRACTORS REPRESENTATIVE: Person nominated by the Contractor and approved by the Employer hereof to perform the duties delegated by the contractor. For site work Contractors Representative shall also mean the representative of Sub-Contractors and Sub-Contractors Sub-ContractorsSUB-CONTRACTOR: Including vendors, means any person to whom execution of any part of the Facilities, including preparation of any design or supply of any Plant and Equipment, is sub-Contracted directly or indirectly by the Contractor, and includes its legal successors or permitted assigns.FACILITIES: The work specified in Technical Specification, including General Technical Specification and all supply & services to be carried out by the Contractor under the Contract.


IMPORTANT TERMS/DEFINITION (Contd.)INSTALLATION SERVICES/SERVICES: All those services ancillary to the supply of Plant and Equipment for the Facilities, to be provided by the Contractor under the Contract; e.g., design & engineering, supervision work, Customs & Port clearance, loading & unloading, dismantling & modification, intermediate storage, transportation & provision of insurance, inspection, site preparation works, installation, testing, commissioning, demonstration of performance guarantee tests, training, etc.CONTRACTORS EQUIPMENT: All plant, equipment, machinery, tools, apparatus, appliances or things of every kind required in or for installation completion and maintenance of Facilities that are to be provided by the Contractor, but does not include Plant & Equipment, or other things intended to form or forming part of the Facilities.SITE: The land and other places upon which the Facilities are to be installed, and such other land or places as may be specified in the Contract as forming part of the site.


IMPORTANT TERMS/DEFINITION (Contd.)EFFECTIVE DATE OF CONTRACT: The date of signing of Contract or 30 days from date of Letter of acceptance (LOA), whichever is earlierTIME FOR COMPLETION: The time specified in the Contract Agreement within which Completion of the Facilities as a whole (or of a part of the Facilities where a separate Time for Completion of such part has been prescribed) is to be attained in accordance with the stipulations made in the Contract Agreement and the relevant provisions of the ContractPRELIMINARY ACCEPTANCE OF THE FACILITIES: The Facilities have been completed operationally and structurally and put in a tight and clean condition, and that all work in respect of pre-commissioning of the Facilities have been completed; in other words, that the Facilities are fit for Start-up & Commissioning.


IMPORTANT TERMS/DEFINITION (Contd.)PRELIMINARY ACCEPTANCE CERTIFICATE: The Certificate to be issued by the Employer on successful completion of preliminary Acceptance TestsCOMMISSIONING: Operation of the Facilities by the Contractor to a level of outputCOMMISSIONING CERTIFICATE: The Certificate to be issued by the Employer on completion of commissioningPERFORMANCE GUARANTEE TEST: The test(s) specified in the Technical Specifications to be carried out to ascertain whether the Facilities are able to attain the Performance Guarantees specified in the Contract


IMPORTANT TERMS/DEFINITION (Contd.)PERFORMANCE GUARANTEE CERTIFICATE: The Certificate to be issued by the Employer upon successful establishment of Performance Guarantee ParametersFINAL ACCEPTANCE: The acceptance by the Employer of the Facilities which certifies the Contractors fulfillment of the ContractFINAL ACCEPTANCE CERTIFICATE: The Certificate to be issued by the Employer on Final Acceptance of SystemDEFECT LIABILITY PERIOD: The period of validity of the Warranties given by the Contractor commencing from the date of Commissioning of the Facilities, during which the Contractor is responsible for defects with respect to the Facilities


MOUs and PRE ORDER TIE UPMemorandum of Understanding (MOU) is a common understanding reached between parties to do or not to do certain things or work or act.Under an MOU obligations are moral but in a contract rights and obligations are legalNo legal right flows from MOU unless contents of MOU expressly provides soIt is contents of MOU which will determine the nature and character of the documents as to whether it is MOU or contractMere heading of a document as MOU will not make it MOU


MOUs and PRE ORDER TIE UPWitness should be avoidedNo legal clauses such as arbitration, force majeure, severability, fee, payment terms, tax clauses, indemnity. Liability, guarantee/warranty etc. should be written in MOUIf intention is to create Under an MOU it would be treated as contract and not MOUIf intention is not to create legal rights, then at the end of MOU it should be expressly written that parties shall within specified time sign a legally enforceable contract

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