Contract Administration Lecture @ RBSC

On Mar 09, 2015 by

Jyothy SChartered Engineer, Valuer, Contract Specialist

B Tech, EEPSM (IIM-K), CAIIB, MIE, MICA, MINDT, AIV

What is a contract?In common law legal systems, a contract (or informally

known as an agreement in some jurisdictions) is anagreement having a lawful object entered into voluntarily bytwo or more parties, each of whom intends to create one ormore legal obligations between them.

The elements of a contract : "offer" and "acceptance"by "competent persons" having legal capacity who exchange"consideration" to create "mutuality of obligation”.

Contract Administration : Jyothy

Why do you enter into a contract?

To achieve our goals with the help of others.

To share the risks with others.

To minimize the risk by outsourcing certain activities for others to perform.

Contract Administration : Jyothy

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Why should you understand “contract”?

Enforcing Contract: India is at 186th place

Contract Administration : Jyothy

Some myths

Who does win / benefit under a contract?

Whether only one party should win / benefit or both parties?

How to protect your interest?

Contract Administration : Jyothy

Outcome of Contract ?

Win-win

Win-lose or Lose-Win

Lose-Lose

Contract Administration : Jyothy

What is your role?

Your KPA covers procurement

The process of procurement for work, material, services, etc. ensures:

Efficiency, Value for Money (Economy), Transparency

Fair & Equitable treatment

Promotion of Competition

Quality

On timeContract Administration : Jyothy

Procurement: Stages

Tendering

Contract

Contract Administration

Contract Administration : Jyothy

Tendering : Key Processes Budget Provision. Administrative approval. Technical sanction.

Tendering (open / limited). Empanelment of Contractor. Eligibility criteria.

Adequate and wide publicity given thru newspaper, website, trade journals, etc.

Convenient tender receiving/opening time and address of the tender receiving officials/tender box are properly notified.

Tenders/bids are opened in the presence of bidders/their authorised representative.

Corrections/omissions/additions etc., in price bid are properly numbered and attested and accounted page –wise. Tender opening register is scrupulously maintained.

Conditions tenders are dealt before opening of the price bids.

Tender evaluation. Determining reasonableness of the Rates, ABC Analysis, HQR, LOR, etc.

Whether the tenderer / crucial documents have been submitted & duly signed ?

Whether the requisite EMD (Earnest Money Deposit) has been furnished ?

Tender is sealed

Two types of Bids: Technical & Financial, Validity of tender

Financial Sanction

Contract Administration : Jyothy

Standard Tender Document

Part I -

NIT

Instruction to bidder / tenderer

GCC, SCC

Schedule of Requirement

Tech. Specifications

Form for tender submission

Form for agreement

Form for BG, Other Standard Forms

Part II - BoQ / Price Schedule

Contract Administration : Jyothy

Forms of Contract for

Engineering works

There are several Standard Forms (GCC) available.

Following are some of the best known forms of GCC and widely used.

FIDIC

JCT

NEC etc.Contract Administration : Jyothy

Award of work

Whether LOI is sufficient to proceed?

Whether LOA is sufficient to proceed?

Whether agreement is to be executed?

What is the value of stamp paper?

Contract Administration : Jyothy

Types of Contract

Item Rate

Lump-sum

EPC

Design & Build

BOT

PPP

Cost plus etc.

Contract Administration : Jyothy

Award of work to contract

Once the bids are opened, don’t alter the scope, specification and the conditions of the contract.

Sign the agreement. Execute the contract as defined in the bid / tender, sign and seal

Obtain Security Deposit / BG. Verify the BG and monitor the validity.

Refund of EMD

Award of work to be published on website

Obtain Insurance & Labour License. Read insurance paper / certificate. Is it a contract?

Obtain Labour License

Contract Administration : Jyothy

Contract agreement: check listThe elements : "offer" and "acceptance" by "competent persons" having legal

capacity who exchange "consideration" to create "mutuality of obligation”.

Who are the parties? Are the persons representing the parties competent to sign?

What are the promises? Has the offer been accepted? Is there a mutuality of obligation?

Is there an appropriate consideration?

Is the contract legally enforceable ?Contract Administration : Jyothy

Contract Document

A set of documents containing:

The Contract Agreement

LOA

Addendums, Minutes of Pre-bid meeting

NIT, Instructions to the bidders

SCC & GCC

Technical Specifications, drawings, etc.

BoQ / Bid

Contract Administration : Jyothy

Contract Administration

While administering contracts, vital requirements & provisions sometimes overlooked. CVC often observe these shortfalls:

Signing contract agreement

Insurance

Labour License, Labour Act

Programme of work

Dealing delays

EOT, LD

Contract Administration : Jyothy

Contract Administration

What are GCC, SCC, etc.? Is it necessary to read and understand the entire contract document?

Do you ensure for compliance of all provisions under the contract? If not, what /why?

Do you quote contract clauses whilst corresponding?

Contract Administration : Jyothy

Contract Administration: Some vital

clauses

Is it possible to “extent the contract period”?

What is “Time for Completion”?

Whether the programme of work, cash flow chart etc. got any relevance?

What are Liquidated Damages? Is it a penalty? Do you think you need to give actual details /

justification of the estimated LD?

Contract Administration : Jyothy

Contract Admn.: “time is the

essence of contract”

Contract has provision:

a) Time for Completion

b) Approval of programme of work

c) Stage-wise payment

Did you any time prepare a budget? Why do you monitor & control cost?

Here comes the concept “time value of money”.

“Time Value of Money”

What is the payment cycle and mode? 60 days or back-to-back….

What is the cost of the capital?

Why does timely payment is important?

PV = FV / (1+WACC)^t

Contract Administration : Jyothy

Contract Administration : Jyothy

Why “time is the essence of contract”

and “the time value of money” are so

important?

Rs 50 lakh today

Rs 50 lakh after 5 year

Rs 50 lakh after 10 year

Compliance with Labour Act

Contract Labour Act 1970 applies to every:

Establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labour.

Contractor who employees or who employed on any day of the preceding twelve months 20 or more workmen.

It shall not apply to establishments in which work only of an intermittent or casual nature is performed. If a question arises whether work performed in an establishment is of an intermittent or casual nature, the appropriate Government shall decide.

Principal employer needs to ensure:

Labour License

Minimum labour wages, other compliances,

Ensure welfare & health of contract labour, Other facilities: viz. canteen, rest rooms, first aid facilities, etc.

SafetyContract Administration : Jyothy

Closure

Whether the contract is closed once the time for completion of work is over?

What are the important steps in the closure?

When does the DLP start?

Contract Administration : Jyothy

Contract Administration : Jyothy

“If you can't explain it to a six

year old, you don't understand it

yourself.” (Albert Einstein)

THANK YOU