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CONTRACT MANAGEMENT
J T Nashikkar

Mr. Nashikkar is a Civil Engineer with additional qualifications of M.Tech, LLB, M.A( Public
Administration) and M.Sc ( HW Engg), UK. Belonging to the old school of PWD Engineers who
fulfilled our dream of a modern India, and after 30 years of meritorious service, he recently
retired as Joint Managing Director, Maharashtra State Road Development Corporation
Mr Nashikkar has probably forgotten more about contract management than most people will
ever know and he wrote this article as part of the material prepared by YASHADA for the
Ministry of Urban Development, under its Rapid Training Programme initiative.
Preamble: The chapter on contract management is written for the guidance of the Engineer and
officers working on JNNURM on the basis of outline, Syllabus provided by YASHADA. The
various cash contract provisions have been explained on the basis of FIDIC Fourth edition for
construction contracts. The latest versions of contract forms, guidelines, published by FIDIC are
available on sale. The trainee must remember that the provisions will have to be interpreted,
appropriately modified as per requirements and the contract form used in actual practice. The
conditions of particular application (COPA) need to be drafted as per the requirements of the
project and the policies of the Employer/Corporation/Agency. Some general guidance based on
international guidelines is also included. This also will have to be suitably interpreted for
particular contract.
BASIC TERMS AND CONCEPTS
Contract: The word contract can be defined in short as an agreement between the parties
enforceable under the law. A contract is a legally binding agreement between the parties
identified in the agreement to fulfil all the terms and conditions outlined in the agreement. A
prerequisite requirement for the enforcement of a contract, amongst other things, is the condition
that all the parties to the contract accept the terms of the claimed contract. One who is in charge
of the project is known as the Employer. One who agrees to execute or perform is known as the
Contractor.
FIDIC: means the Fdration Internationale des Ingnieurs-Conseils, or the international
federation of consulting engineers and was founded in Belgium in 1913. The original founding
countries were France, Belgium and Switzerland. The United Kingdom only signed up as a
member in 1949 followed by the United States in 1958. The newly industrialised countries
started to become members in the 1970s. FIDIC is probably best known to the world at large as
the organisation, which produces standard forms of contract for engineering construction, and for
the provision of mechanical and electrical plant. For example, the form for civil engineering
construction, the Red Book, is known to many as the "FIDIC contract". In fact the document is
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often just called "FIDIC" with many people may not have an idea of the meaning of these capital
letters.
FIDIC is an association of national member associations and thus individual firms of consulting
engineers are not themselves members of FIDIC. Many of these national associations represent
other construction professionals such as architects in addition to consulting engineers. FIDIC
also has affiliate members other than engineers or construction professionals, like organisations
who have an interest in the work it undertakes such as lawyers and insurers. The FIDIC
document provides for General Conditions of Contract and the Conditions of Particular
Application (COPA). The amendments, modifications to the General conditions of the contract
are to be drafted by the client required for a particular project and incorporated in the COPA
Types of Contract
Contracts can be broadly classified as Cash Contract, and BOT Contracts. In cash contract the
consideration for the agreement is payment in cash to the contractor as per the terms and
conditions of the agreement by the Employer. In a Built Operate and Transfer type of project, the
contractor invests the capital cost and consideration is recovery rights like toll, rent etc over an
agreed period. There are various models in Built Operate Transfer type contracts. Some of these
are BOT, BOOT, BOLT.
Contracts can be further classified as Service Contracts, Management Contract, Lease Contract,
Divestiture, Sales Contracts (including leases), Purchasing Contracts, Partnership Agreements,
Trade Agreements, and Intellectual Property Agreements Etc
Service contract could be an agreement to provide agreed kind of services to the customer.
Service delivery management ensures that the service is being delivered as agreed, to the
required level of performance and quality. In civil engineering a routine maintenance contract for
sweeping cleaning of Roads, Flyovers, security at site etc are relative examples of the service
contractor
Sales Contract is a contract between a company (the Seller) and a Customer that you are
promising to sell products and/or services. The customer in return is obligated to pay for the
product/services bought.
Purchasing Contract is a contract between your company (the Buyer) and a Supplier who is
promising to sell you products and/or services.
Partnership Agreement may be a contract, which formally establishes the terms of a
partnership between two legal entities such that they regard each other as partners in a
commercial arrangement.
Lease Agreement is generally an agreement related to rights to enjoy property for certain period
as per the terms and conditions of the agreement. A standard consideration is the agreed Lease
rent. Typical example will be renting a flat, Advertisement permits etc
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Divestiture is the disposition or sale of an asset by a company. A company will often divest an
asset, which is not performing well, which is not vital to the company's core business, or which
is worth more to a potential buyer or as a separate entity than as part of the company.
Terms Used: In this chapter, the term customer, Employer, Client are used to denote the
buying organisation, normally a government department or other public body. The term
provider or contractor refers to the company providing services under the contract. It may
equally apply to a consortium of contractor companies or to a prime contractor who subcontracts
service components.
What Is Contract Management?
The central aim of contract management is to obtain the product as agreed in the contract and
achieve value for money. Contract management may also involve aiming for continuous
improvement in performance over the life of the contract. A key point is that the foundations for
contract management are laid before contract award, in the procurement process and DPR stage.
The terms and conditions of the contract should include specifications, bill of quantities,
contractor bonus, liquidated damages, time period, means to measure items executed, price
adjustment procedures, variation/change control procedures, foreclosure, termination, and all the
other formal mechanisms that enable a contract to be implemented.
It is vital to build a contract that identifies clearly the obligations of the contractor and the
employer. The contract must be built on a firm formal and legal foundation, it should be flexible,
to accommodate changes, variations etc.
Good contract management goes much further than ensuring that the agreed terms of the contract
are being met. There will always be some friction between the different perspectives and
approach of employer and contractor. Contract management is about resolving or reducing such
friction and achieving the completion of the project as envisaged.
Increasingly, many organisations are departing from traditional methods of contract management
and moving towards building constructive relationships with contractors. The following factors
are essential for good contract management:
Good preparation of bid document: A detailed estimate, project report of the work helps
create a clear output-based specification. Proper eligibility criterion effective evaluation
procedures and selection will ensure that the contract is awarded to the right person.
The right contract form: The contract is the foundation for the project implementation. It
should include aspects such as obligations of the parties, the quality assurance of items
required, and defect liability period, as well as procedures for variations and dispute
resolution. E.g. Lumpsum contract, Item rate contract etc
Good contract management is proactive, it should aim to anticipate and respond to project needs.
If contracts are not well managed from the employer side, any or all of the following may
happen:
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The contractor is likely to neglect the quality, resulting in substandard product that is not
durable and structurally unsafe
Decisions are not taken at the right time or not taken at all
That leads to delays in payment, approvals - leading to claims
Time and cost overrun

What can go wrong, and why?
One of the chief reasons for project delays is poor contract management, and any or all of the
following may happen:
Parties fail to understand their obligations and responsibilities
There is inaction, misinterpretation and trepidation at the implementing level, with too many
issues being escalated to top management for decisions
Progress is slow and the inability to proceed forward gets compounded
The expected product specifications are not realised
Ultimately, the contract becomes unworkable. There are several reasons why organisations fail to
manage contracts successfully. Some possible reasons include:
Poorly drafted contracts
Inadequate resources assigned to contract management
Project team and the contractor team lacking skills or experience (or both)
Inexperienced people being put in place, also leading to ego clashes
Contents, responsibilities and obligations of the contract are not well appreciated
Inadequate delegation of authority and /or responsibility, resulting in financial decisions not
being taken in time
Failure to monitor and manage retained responsibilities due to external interference and
pressures from stakeholders.
Contract management consists of the full and proper fulfilment of roles and responsibilities. The
main task areas are site management, adherence to specifications, and contract administration.
The additional resources required to manage the contract depend on its scale, complexity and
importance. For smaller contracts, the same individual may cover two or more areas: like, the
contract manager takes on responsibility for administering the contract and supervision.
Alternatively, a proper contract management team may be created in the employer organisation.
Managing long term contracts
For long-term strategic contracts, the emphasis on building proper records will be much greater.
The costs involved in changing contractor are likely to be high and, in any case, contractual
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realities, and legal implications may make it very difficult and costly. It is in the organisations
own interests to make the contract implementation successful. The three key factors for success
are: Mutual trust and proper understanding of roles, openness and excellent timely
communications, a joint positive approach to managing the project.
Communication
The key to successful contract execution is clear and adequate communication between employer
and contractor at all times. The timely sharing of plans and communication of designs about
future item executions can help ensure the parties develop confidence in the construction
programme. This should be a two-way process. An important point is that the arrangement
should be that these levels of communication are preserved even when problems arise.
Contractors should realise that it would not be appropriate for them to go to the top and liaise
directly with the top management, as it will undermine the contract manager. Similarly, it would
be inappropriate for staff on the contractor side to complain about their internal grievances to the
contract manager in the employer organisation.
Good communication is an enabler of a particular culture between employer and contractor: one
built on openness, trust and mutual interest. Communication will pave the way for more
openness between the parties and the individuals involved in the contractual relationships. In
addition, the way people get involved in the project and the attitudes they hold about other
organisations, about the project, and about the concept as a whole, are crucial to the successful
implementation of the contract.
Careful thought needs be given in identifying the skills and attitudes of staff that will fill key
posts and to the behaviours and personal attitudes that are required for the proper execution of
the work. Commitment to managing the project and to long-term success requires proactive and
assertive people, and not passive and submissive, or indifferent behaviour. In most cases a
discussion on the problem, will be all that is required to secure agreement on remedial action.
Negotiations whether informal or formal during the contract, are a valuable means of resolving
any problems, disputes or outstanding issues
Professional Consultants
Where contract management expertise is not available in-house, it may be appropriate to appoint
professional consultants, or even appoint a professional contract manager. Such arrangements
should be clearly defined in the construction contract to ensure that ownership of the
arrangement as a whole continues to rest with the employer organisation. The key contract
management issues that are anticipated can be addressed in the contract conditions and
specifications; they will also have a bearing on the subsequent procurement strategy of the
employer organisation.
The contract manager acts as the interface between the contractor and the employer organisation
in handling requests for incorporating variations into the contract. A preliminary investigation
into the new requirement, possibly with the assistance of the contractor, will usually be required
to determine whether it should be the formal change or otherwise. It is particularly important that
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additional works in the contract should be carefully controlled. In other cases, especially where
additional costs are involved, contract managers may have to submit the proposal to the
competent authorities within specified budgetary and technical constraints in the consultancy
contract or delegated authorities. Formal authorisation will be required to ensure that only those
additional requirements that can be justified are added to the contract.
Changes to contract, procedures or works may have an effect on completion, performance; on
costs and on whether the contract remains financially viable or otherwise.
Contract Administration
Good project preparation and the right contract are essential foundations for effective contract
management. The arrangement must also be flexible enough to accommodate change. In long
term contracts, where interdependency between employer and contractor is inevitable, it is in
both their interests to make the relationship work. Contract administration handles the formal
governance of the contract and changes to the contract documentation. All these areas must be
managed successfully if the arrangement is to be a success.
The three key factors for success are trust, communication, and recognition of mutual aims.
Management structures for the contract need to be designed to facilitate effective
implementation; staff involved at all levels must show their commitment to it. Information flows
and proper communication should be stipulated at the beginning of a contract, and maintained
throughout contract period. There should be set procedures for raising issues and resolving
disputes, so that they are dealt with as early as possible and at the appropriate level in the
organisation.
Contract administration, the formal governance of the contract, includes such tasks as contract
maintenance and change control, charges and cost monitoring, variation order process and
payment procedures, management reporting, and so on. The importance of contract
administration to the success of the contract, and to the relationship between employer and
contractor, cannot be underestimated. Clear administrative procedures will ensure that the parties
to the contract understand who does what, when, and how. The contract documentation itself
must continue to accurately reflect the arrangement, and changes to it as per stipulated
procedures, and carefully controlled. Responsibility for authorising different types of variations
will often rest with top management, and documented internal procedures should reflect this.
The importance of contract administration to the success of the contract implementation, and to
the customer and contractor relations, should not be underestimated. Contract administration will
require appropriate resourcing. It may be that the responsibility falls on the contract manager.
Otherwise the responsibility is shared across a contract management team. It is important that all
members of the team deal promptly with contract administration tasks, during the various stages
of implementation. Some typical procedures that combine to make up contract administration are
as follows:
Contract document maintenance and variation/change control
Cost monitoring
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Variation ordering procedures
Payment procedures
Funding procedures
Resource management and planning
Management reporting
Project Asset management
These procedures will need to be designed to reflect the specific works in the contract and the
organisation. It should be borne in mind that additional administrative procedures may also be
needed. Contractual relationships evolve and must respond to changes in the work environment.
It follows that the contract document itself must be capable of evolving efficiently and
effectively, through formal change control procedures and by mutual consent, in response to
changing requirements. It is preferable to update documentation as changes occur rather than
relying on informal arrangements.
Elements of Contract Administration
To keep the contract documentation up to date is an important activity, and should be entrusted
to an experienced person. The effort required may be reduced by prescribing the formats for
variation, order interim payments etc. The contract must clearly stipulate provisions to enable
required changes and pricing mechanism within agreed parameters, without needing to change
the contract documentation or conditions. Procedures should be established to keep the contract
documentation up to date and to ensure that all documents relating to the contract are consistent.
For a large or complex contract, some form of change control procedure is needed. Applying
document management principles involves:
Identifying all relevant documentation (including contract clauses and schedules, procedures
manuals etc)
Change control, variation procedures, and ensuring no changes are made without appropriate
authorisation from the competent authorities.
Recording the status of every document (current/historic, draft/final)
Ensuring consistency across various documents.
It may be noted that the specification and management of change control is an important area of
contract administration as it leads to increase in cost and time of completion.
Supervision
The supervision of the project needs to be handled by an experienced team of persons or experts
of relevant fields. For infrastructure contracts, there is a practice to invite bids from consultants
with relevant experience. The bid document for the consultancy services typically comprise
Terms of Reference (TOR), standard conditions of consultancy contract, period of completion,
payment schedule etc. The TOR includes the type of personnel to be appointed by the consultant
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for the job and their qualifications, experience, period on the project (man-months) etc. The role
of the supervision consultant is very crucial for the contract management and completion of the
project. Apart from the day-to-day supervision, the Project Management Consultant (PMC) has
to carry out documentation of the contract and the project. Generally, the entire correspondence
with the Contractor is made through the PMC. It is therefore important to have a capable,
qualified and experienced PMC on the job who understands the various provisions of the
contract.
FIDIC has also published Client-Consultant Agreement (White Book) Guide 2nd Ed. This
document can be used with project specific changes.
Contract Monitoring
The exact monitoring requirements and methodology will depend on the nature of the contract
and the project to be completed. There are some standard practices that can apply. These include:
Monitoring the contractors performance against the specific targets and milestones laid
down in the contract i.e. a particular milestone being reached in stipulated time
Inspection of completed work or random sample checks
The contractor providing information and reports on his own performance
Regular review meetings held between the Employer and contractor
Recording complaints received from client, specific systems may need to be set up where a
good complaints or customer satisfaction procedure like ISO 9000 can be prescribed.
Quality Assurance System-(QAS)
In standard contracts, the Contractor is expected to institute a quality assurance system to
demonstrate compliance with the requirements of the Contract. The system should be in
accordance with the details stated in the Contract. The Engineer shall be entitled to audit any
aspect of the system. Details of all procedures and compliance documents shall be submitted to
the Engineer for information before each design and execution stage is commenced. When any
document of a technical nature is issued to the Engineer, evidence of the prior approval by the
Contractor himself should be apparent on the document itself. Compliance with the quality
assurance system shall not relieve the Contractor of any of his duties, obligations or
responsibilities under the Contract.
Construction Programme (CP)
Construction programme in simple words is the activity chart of the contractor as to how he
intends to complete the project within the prescribed time schedule. The contractor has to submit
the CP immediately on commencement of the contract. The PMC has to monitor the
performance and achievement of the contractor with reference to this CP. The periodic review
will indicate the status of the project as well as how contractor is performing. The monitoring of
CP will also help PMC and the Employer to take timely, corrective measures. The contractor has
to revise and submit the CP if required as per the provisions of the contract. The PMC may ask
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for modifications in the programme if found necessary. The approved programme becomes the
basis for the performance evaluation and project monitoring. The contractor has to submit the
cash-flow, equipment, manpower details to the PMC for evaluation of the CP. The Engineers
decision in the CP is final and binding on the contractor.
The progress of the contract is monitored with reference to the approved contraction programme.
Generally, monthly progress reports are to be prepared by the Contractor and submitted to the
Engineer in multiple copies. The first report shall cover the period up to the end of the first
calendar month following the Commencement Date. Reports shall be submitted monthly
thereafter, each within 7 days after the last day of the period to which it relates. Reporting should
continue until the Contractor has completed all work. Each report should typically include:
(a) Charts and detailed descriptions of progress, including each stage of design (if any),
Contractors Documents, procurement, manufacture, delivery to Site, construction, erection
and testing; and including these stages for work by each nominated Subcontractor
(b) Photographs showing the status of manufacture and of progress on the Site
(c) For the manufacture of each main item of Plant and Materials, the name of the manufacturer,
manufacture location, percentage progress, and the actual or expected dates of: (i)
commencement of manufacture,(ii) Contractors inspections,(iii) tests, and (iv) shipment and
arrival at the Site;
(d) Details described in contract
(e) copies of quality assurance documents, test results and certificates of Materials
(f) list of notices given under contract [Employers Claims] and notices given under contract
[Contractors Claims]
(g) safety statistics, including details of any hazardous incidents and activities relating to
environmental aspects and public relations; and
(h) Comparisons of actual and planned progress, with details of any events or circumstances
which may jeopardise the completion in accordance with the Contract, and the measures
being adopted to overcome delays.
Effective Control
Effective control ensures that both parties fulfil their contractual obligations. The contract
manager must record, co-ordinate and communicate what is and has happened with the contract.
This information can then be used for forward planning and any future contracts likely to be
undertaken. A skill that is required for effective control is the ability to identify problems that
require corrective action. The types of problems that might occur are:
Unsatisfactory performance
Misunderstanding the requirement
Inadequate channels of communication
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Changes to the contract, brought about by unexpected requirements
Contract control involves actively keeping the contractors performance to the required standard.
Participation by both parties is needed if this is to be successful, to enable any problems to be
quickly identified and resolved. If monitoring indicates that a contractors performance has
deteriorated, action will need to be taken as provided in the contract. The nature of the action
will depend upon the level of the under-performance or shortfall. If regular monitoring is
effectively carried out, problems will be spotted early and the degree of any disruption from the
target and corrective action will be minimised.
Extension of Time (EOT)
Every contract provides for the extension of the time for completion of the project for reasons
beyond the control of the contractor. For e.g. it may be noted that in civil infrastructure contracts
the land required for execution of the project is generally to be provided by the Employer.
Similarly, there are various utility services in the city, like, electric poles, water supply lines etc.
These are required to be shifted with the help of the Employer. The delays on this count are
generally beyond the capacity of the contractor.
The contractor has to continuously report to the engineer delays occurring in the project, which
entitles him for extension. The Engineer shall assess and determine the admissible extension to
the contractor due to these delays. The Engineer shall satisfy that the delays are beyond the
control of the contractor and he is entitled to the extension as per the provisions of the contract.
In that case the Engineer shall notify the contractor and the Employer, the certificate of
extension.
The Contractor shall be entitled subject to contract provisions to an extension of the time for
completion if and to the extent that completion for the purposes of contract [taking-over of the
works and sections] is or will be delayed by any of the following causes:
a) Variation (unless an adjustment to the Time for Completion has been agreed under the
contracts Variation Procedure) or other substantial change in the quantity of an item of work
included in the Contract
b) Cause of delay giving an entitlement to extension of time under contract conditions
c) Exceptionally adverse climatic conditions
d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or
governmental actions, or
e) Any delay, impediment or prevention caused by or attributable to the Employer, the
Employers Personnel, or the Employers other contractors.
If the Contractor considers himself to be entitled to an extension of the Time for Completion, the
Contractor shall give notice to the Engineer in accordance with the provisions of the contract.
When determining each extension of time under the contract, the Engineer shall review previous
determinations and may increase, but shall not decrease, the total extension of time.
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Liquidated Damages
Liquidated damage is the predetermined amount to be paid by the contractor to the Employer for
the delays in completion of the project or achievement of a stipulated milestone. A milestone is
the pre-decided stage of the project to be completed by the contractor in the prescribed period as
per contract. For e.g. number of kilometres of road to be completed, foundations of a bridge etc.
Non-achievement of a stipulated milestone will render contractor liable to pay the stipulated
liquidated damages to the Employer unless the period is extended.
The liquidated damages are prescribed in the contract, as an amount to be paid per day or per
week. This amount, payable by the contractor, is generally deducted from the interim payments
due to the contractor. It needs to be noted that this is not a source of revenue to the Employer,
nor a penalty to the contractor in the strict sense. It is an estimated predetermined damage to be
paid by the contractor to the Employer on failure of performance like non-achievement of
stipulated milestone in the contract.
Managing Change - Change Control
A successful arrangement requires a mutual commitment to meeting evolving business
requirements and adapting to changing circumstances. Reasons for change during contracts can
come from a range of sources, both internal and external. Whatever the reasons, it is important to
realise the implications of change for the contract and all parties involved. There could be
implications or concerns in areas such as continuing value for money, and the possibility of
moving beyond the original scope of the requirement. Change is easier to deal with when
preparations are made. Not every possibility can be foreseen and planned for, but it is desirable
that the contract includes some flexibility as well as the necessary procedures for handling
changes. A properly managed change can be a good opportunity to alter or improve the project,
prompted by:
Significant revisions to the corporate strategy/business objectives of either party.
Developments, changes in technology
Public demand
Change in the requirements of the Employer
Changes in local legislations or development plans etc.
Financial or other restraints
The importance of understanding the implications of change from the perspective of both parties
cannot be overemphasised. Change to a contractual arrangement affects the scope, and thus the
viability of the contract, for either or both parties. To an extent, both parties are taking a
calculated risk when they enter long term contract arrangements that the cumulative effect of
change over the term will balance out for both. Joint planning of change is vital if risks are to be
minimised. It is essential that both parties have realistic expectations of what the contract will
deliver at the outset: that the contract is neither intentionally nor inadvertently over-sold by
either party. This foundation of realism is essential if the expectations generated by both the
customers and the contractors business cases are to be met.
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This is not as straightforward as it may seem, as there is often a tendency within both employer
and contractor organisations during the procurement phase to over-sell the prospects for the
contract in order to gain the necessary management approvals to proceed. This temptation must
be resisted if the viability of the contract is to be maintained for both parties.
Care must also be taken not to distort the original competition, particularly the original value for
money equation, as this could conflict with procurement policy and rules. If the cumulative
effect of change is to reduce the scope of the contract, clearly the customer will be concerned
about the overall profitability of the relationship from its perspective. In legal terms, the
customer must ensure that it is not open to claims from the contractor for misrepresentation. The
employer must also ensure that the variations do not take the resulting contract outside the scope
of the original advertisement, or outside the permitted extensions to existing contracts. The
original scope advertised will have a strong influence on later situations where change increases
the scope of the contract. In order to prevent this, it is important that the requirement set out is
sufficiently broad to allow for some changes in scope and/or volumes. Again, in any cases of
doubt, specialist or legal advice must be sought.
Changes are always easier to manage when they are planned. Even where they occur without
warning, it is often possible to foresee what might happen and plan for what can be done.
Change in external factors may make change hard to avoid. According to the type of contract, the
contractor may be closely involved in planning the changes, or may even be entirely accountable
for them. Changes will always need to be negotiated with the contractor by the Engineer.
Types of Change or Variation
In all cases, it is likely that there will be consequent changes, leading to a contract variation that
will need to be negotiated with the contractor. Key principles of this re-negotiation are that: the
contract(s) should have provisions for such change; and the employer should always be aware of
the possibility of the contractor seeking to increase their profitability. Therefore, solutions and
the associated costs proposed by the contractor should always be rigorously audited by the expert
for best value.
Major change will require the revision of a construction programme, and management mode of
operation for monitoring a completion period.
Change control procedures should be included in the contract. The respective roles and
responsibilities of both parties in the change control process must be clearly identified, along
with the procedures for raising, evaluating, costing and approving change requests. A change
control procedure should apply to all changes, although there may be certain delegated or
shortened procedures available in defined circumstances such as delegated budget tolerance
levels within which a contract manager or the Engineer would not have to seek senior
management approval. However, flexibility needs to be built into this procedure to deal with
issues such as emergencies. A change control procedure should provide a clear set of steps and
clearly allocated responsibilities covering:

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requesting changes
assessment of impact
prioritisation and authorisation
agreement with contractor
control of implementation
documentation of change assessments and variation orders.
Responsibility for authorising different types of change will often rest with competent
authorities, and documented internal procedures should reflect this. In particular, changes to the
overall contract, such as changes to prices outside the scope of agreed price variation
mechanisms, must have senior management approval. In many cases, it will be possible to
delegate limited powers to authorise minor changes using agreed processes. Appropriate
structures need to be established, with representatives of both employer and contractor
management, for reviewing and authorising change requests.
Managing Changes in Construction Contracts
Construction contracts are fundamentally different from major service contracts. There are
various types of construction contract. The choice of contract depends on the basis of pricing,
and the contract strategy that best meets the project objectives. The various types offer different
ways of handling pricing, risk transfer, responsibility for performance, cost certainty, and
complexity. The main customer-side roles involved in handling construction contracts are the
project manager and the project sponsor. The project manager manages the contract on behalf of
the customer, co-ordinating the design and construction and managing claims and disputes in an
impartial manner. On large-scale projects, the project sponsor fulfils a higher level, less hands-on
role, overseeing the project manager and monitoring budgets etc
Variation means any change to the Works, which is instructed or approved as a variation under
the contract. In construction contracts, there is a provision for variation and determination of rate
for such variation. The variations are well defined in the contract. Ideally, it is desirable to
prepare detailed estimate with full investigations and analysis. Once the estimate is put to tender
changes, variations during execution should be avoided. However due to certain unforeseen
circumstances such variations become imperative. In that situation it should be dealt with as per
the provisions of the contract. If the variation or the additional work is separable from the main
work, then it should be dealt under a separate contract. In variations, applicability of a tender rate
to a new or varied item is always a contentious issue. The same need to be decided by the
Engineer as per the contract provisions.
However, a new rate or price shall be appropriate for an item of work if (Typical provision)
(a) (i) the measured quantity of the item is changed by more than (25%) from the quantity of this
item in the Bill of Quantities or other Schedule,
(ii) this change in quantity multiplied by such specified rate for this item exceeds (0.25%) of the
Accepted Contract Amount,
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(iii) this change in quantity directly changes the Cost per unit quantity of this item by more than
(1%, or 2%) and
(iv) this item is not specified in the Contract as a fixed rate item
OR
(b) (i) the work is instructed under the contract [Variations and Adjustments],
(ii) no rate or price is specified in the Contract for this item, and
(iii) no specified rate or price is appropriate because the item of work is not of similar character,
or is not executed under similar conditions, as any item in the Contract.
Each new rate or price shall be derived from any relevant rates or prices in the Contract, with
reasonable adjustments to take account of the matters described in sub-paragraph (a) and/or (b),
as applicable. If no rates or prices are relevant for the derivation of a new rate or price, it shall be
derived from the reasonable cost of executing the work, together with profit, taking account of
any other relevant matters. Until such time as an appropriate rate or price is agreed or
determined, the Engineer shall determine a provisional rate or price for the purposes of Interim
Payment Certificates as soon as the concerned Works commences.
Whenever the omission of any work forms part (or all) of a Variation, the value of which has not
been agreed, if:
(a) the Contractor will incur (or has incurred) cost which, if the work had not been omitted,
would have been deemed to be covered by a sum forming part of the Accepted Contract Amount;
(b) the omission of the work will result (or has resulted) in this sum not forming part of the
Contract Price; and
(c) this cost is not deemed to be included in the evaluation of any substituted work;
... then the Contractor shall give notice to the Engineer accordingly, with supporting particulars.
Upon receiving this notice, the Engineer shall proceed in accordance with contract
[Determinations] to agree or determine this cost, which shall be included in the Contract Price.
The Engineer may initiate variations at any time prior to issuing the Taking-Over Certificate for
the Woks, either by an instruction or by a request for the Contractor to submit a proposal. The
Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives
notice to the Engineer stating (with supporting particulars) that (i) the Contractor cannot readily
obtain the Goods required for the Variation, or (ii) such Variation triggers a substantial change in
the sequence or progress of the Works. Upon receiving this notice, the Engineer shall cancel,
confirm or vary the instruction.
Each Variation may include:
(a) Changes to the quantities of any item of work included in the Contract (however, such
changes do not necessarily constitute a Variation)
(b) Changes to the quality and other characteristics of any item of work
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(c) Changes to the levels, positions and/or dimensions of any part of the Works
(d) Omission of any work unless it is to be carried out by others
(e) Any additional work, Plant, Materials or services necessary for the Permanent Works,
including any associated Tests on Completion, boreholes and other testing and exploratory
work, or
(f) Changes to the sequence or timing of the execution of the Works.
The Contractor shall not make any alteration and/or modification of the Permanent Works,
unless and until the Engineer instructs or approves a Variation.
The Contractor may, at any time, submit to the Engineer a written proposal which will, if
adopted, (i) accelerate completion, (ii) reduce the cost to the Employer of executing, maintaining
or operating the Works, (iii) improve the efficiency or value to the Employer of the completed
Works, or (iv) otherwise be of benefit to the Employer. The proposal shall be prepared at the cost
of the Contractor and shall include the items listed in the contract [Variation Procedure].
If a proposal, which is approved by the Engineer, includes a change in the design of part of the
Permanent Works, then unless otherwise agreed by both Parties:
(a) The Contractor shall design this part,
(b) Contractors General Obligations shall apply, and
(c) If this change results in a reduction in the contract value of this part, the Engineer shall
proceed in accordance with the contract [Determinations] to agree or determine a fee, which
shall be included in the Contract Price. This fee shall be decided as per the provisions of the
contract.
Variation Procedure/ Price Adjustment
If this Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or
falls in the cost of Labour, Goods and other inputs to the Works, by the addition or deduction of
the amounts determined by the formulae prescribed in this Sub-Clause. To the extent that full
compensation for any rise or fall in Costs is not covered by the provisions of this or other
Clauses, the Accepted Contract Amount shall be deemed to have included amounts to cover the
contingency of other rises and falls in costs.
The adjustment to be applied to the amount otherwise payable to the Contractor, as valued in
accordance with the appropriate Schedule and certified in Payment Certificates, shall be
determined from formulae for each of the currencies in which the Contract Price is payable. No
adjustment is to be applied to work valued on the basis of Cost or current prices. The formulae
shall be included in the contract with base indices for calculating the price adjustment.
It may not always be possible to predict all variations. Changes to the requirements normally
affect the cost and so will need to be recorded. It may be decided that during the course of the
contract, a slight change to the requirement is needed due to external factors. Changes to the
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contract may affect: The stipulated specifications; the quantity of items in BOQ; completion
times or milestones.
It will normally be the role of the contract manager to ensure that the need for any contract
variation is recorded and is varied in line with the procurement procedures for variations. The
variation must be clearly tied in with the main contract so a clear audit trail is possible.
PAYMENT
Performance Security, or Security Deposit
This is the amount to be paid by the contractor to the Employer before signing of contract as a
security against performance. The amount varies from 5 % to 10 % of the estimated cost put to
tender. This security can be furnished in form of a bank guarantee in the prescribed form.
Advance Payments
Some contracts provide for mobilisation advance to the contractor @ 5 % of the contract amount
against a bank guarantee in the prescribed form. These advances are paid at the beginning of the
contract or commencement of the work. The purpose is to provide cash to the contractor for
initial infrastructure required to be created to take up the actual construction work. The Employer
shall make an advance payment, at a stipulated interest for mobilisation and cash flow support,
when the Contractor submits a guarantee in accordance with the contract. The total advance
payment, the number and timing of instalments (if more than one), and the applicable currencies
and proportions, shall be as stated in the Contract Data.
Unless and until the Employer receives this guarantee, or if the total advance payment is not
stated in the Contract Data, then no advance shall be payable. If there is a provision for advance
payment in the contract then the Engineer shall deliver to the Employer and to the Contractor an
Interim Payment Certificate for the advance payment or its first instalment after receiving a
Statement under the provisions for [Application for Interim Payment Certificates]) and after the
Employer receives (i) the Performance Security in accordance with the provision for
[Performance Security] and (ii) a guarantee in amounts and currencies equal to the advance
payment. This guarantee shall be issued by an entity and from within a country approved by the
Employer, and shall be in the form approved by the Employer.
The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment
has been repaid, but its amount shall be progressively reduced by the amount repaid by the
Contractor as indicated in the Payment Certificates. If the terms of the guarantee specify its
expiry date, and the advance payment has not been repaid prior to the expiry date, the Contractor
shall extend the validity of the guarantee until the advance payment has been repaid.
Running Bills
The Contract should provide for the period, minimum amount of interim amount to be paid to the
contractor. It should also provide for interest on delayed payments. It needs to be borne in mind
that it is the responsibility of the Employer to make payment in time as this affects the cash flow
of the contractor and in turn the performance and completion of the project.
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Further the contract can also provide for interim payments to the contractor at prescribed interval
for the work completed. Payment to the contractor should be made as prescribed and provided in
the contract. Generally the Contractor shall submit a Statement in multiple copies to the Engineer
after the end of each month, in a form approved by the Engineer. This bill shall indicate showing
in detail the amounts to which the Contractor considers himself to be entitled, together with
supporting documents. Thereafter, the Engineer shall, within prescribed period after receiving a
Statement and supporting documents, deliver to the Employer and to the Contractor an Interim
Payment Certificate which shall state the amount which the Engineer fairly determines to be due,
with all supporting particulars for any reduction or withholding made by the Engineer on the
Statement if any.
The Employer has to then make payment as per the certificate of the Engineer. The Employer
should carry out some in-house checking so as to avoid in correct payment. As per the standard
contract provisions all payments to the contractor are running or advance payments. Hence any
over payment or mistake in payment can be rectified in the subsequent or the final bill.
Final Bills
Within the prescribed period after receiving the Performance Certificate, the Contractor shall
submit, to the Engineer, multiple copies of a draft final statement with supporting documents
showing in detail in a form approved by the Engineer:(a) the value of all work done in
accordance with the Contract, and (b) any further sums which the Contractor considers to be due
to him under the Contract or otherwise. If the Engineer disagrees with the draft final statement,
the Contractor shall submit such further information as the Engineer may reasonably require
within the prescribed period and shall make such changes in the draft as may be agreed between
them. The Contractor shall then prepare and submit to the Engineer the final statement as agreed.
This agreed statement is generally referred to as the Final Statement.
However if, there is any dispute to the draft final statement, the Engineer shall deliver to the
Employer an Interim Payment Certificate for the agreed parts of the draft final statement.
Thereafter, if the dispute is finally resolved under the contract, the Contractor shall then prepare
and submit to the Employer a Final Statement.
When submitting the Final Statement, the Contractor shall submit a discharge, which confirms
that the total of the Final Statement represents full and final settlement of all moneys due to the
Contractor under the Contract. This discharge may state that it becomes effective when the
Contractor has received the Performance Security and the outstanding balance of this total, in
which event the discharge shall be effective on such date. After receiving the Final Statement
and discharge in accordance with the contract, the Engineer shall deliver, to the Employer and to
the Contractor the Final Payment Certificate which shall state:
The amount is finally due, and After giving credit to the Employer for all amounts previously
paid by the Employer and for all sums to which the Employer is entitled, the balance (if any) due
from the Employer to the Contractor or from the Contractor to the Employer, as the case may be.
If the Contractor has not applied for a Final Payment Certificate in accordance with the contract,
the Engineer shall request the Contractor to do so. If the Contractor fails to submit an application
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within a prescribed period, the Engineer shall issue the Final Payment Certificate for such
amount as he fairly determines to be due. The Employer shall not be liable to the Contractor for
any matter or thing under or in connection with the Contract or execution of the Works, except to
the extent that the Contractor shall have included an amount expressly for it: in the Final
Statement; and also things arising after the issue of the Taking-Over Certificate
Retention Money
Retention Money means the accumulated retention moneys which the Employer retains under
the contract. Retention money is the amount deducted, generally 5 % from interim payments for
remedying the defects if any in the work. When the Taking-Over Certificate is issued for the
Works, generally the Engineer shall certify the first half of the Retention Money for payment to
the Contractor. If a Taking-Over Certificate is issued for a Section or part of the Works, a
proportion of the Retention Money shall be certified and paid. This proportion shall be half
(50%) of the proportion calculated by dividing the estimated contract value of the Section or
part, by the estimated final Contract Price. Promptly after the latest of the expiry dates of the
Defects Notification Periods, the outstanding balance of the Retention Money shall be certified
by the Engineer for payment to the Contractor.
If a Taking-Over Certificate was issued for a Section, a proportion of the second half of the
Retention Money shall be certified and paid promptly after the expiry date of the Defects
Notification Period for the Section. This proportion shall be half (50%) of the proportion
calculated by dividing the estimated contract value of the Section by the estimated final Contract
Price.
DISPUTE RESOLUTION
Handling problems
Whatever the nature of the problem, it is vital that:
problems are recorded as they occur, in order to highlight any trends and to help in assessing
overall performance and value for money
the contractor is notified of problems by an appropriate route and at an appropriate level
approaches to resolving problems are clear and documented
escalation procedures are followed.
If a dispute cannot be resolved at the level where it arises, it will be necessary to involve a higher
level of authority. This escalation process needs to be managed. Escalation procedures should
allow for successive levels of response depending on the nature of the problem and the outcome
of action taken at lower levels. The levels for escalation should match those of the interfaces
established between contractor and customer. Every effort should be made to resolve the
problem at the lowest practicable level. For more serious problems, the contract should specify
the circumstances under which the organisation would have the right to terminate the contract.
The contract manager must consult senior management and contractual advisors as soon as this
possibility arises.
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The contract manager should collate information on the number and severity of problems, as
well as the way they were resolved, during the life of the contract. This information will provide
useful input to reviews. The contract manager should periodically arrange for a check on the
financial viability of the contractor, as well as continually monitoring any changes in ownership
of the contractor. Where potential problems are identified the contract manager should seek
specialist advice as soon as possible. Normally, most problems should be resolved before they
become major issues; contract managers on both sides should meet regularly to raise any issues
promptly as they occur. In extreme cases, where agreement cannot be reached, the Employer and
contractor should seek the assistance of mediators before resorting to legal action.
Handling problems/ Settlement of Disputes - Every standard contract document provides for
the settlement of dispute between the parties to the contract. A provision comprises reference to
the Engineer within a stipulated period. The Engineer has to give his decision within the
prescribed period. On failure or dissatisfaction of the either party with the decision of the
Engineer the dispute can be taken further or referred to the Appellate authorities stipulated in the
contract.Where notice of dissatisfaction has been given under the contract, both Parties shall
attempt to settle the dispute amicably before the commencement of arbitration.
Multilevel Settlement of Dispute
Settlement of dispute should be the responsibility of the Advisory /steering committees, if
provided for. If either party is not satisfied the dispute could be further referred to an Arbitrator
to be nominated by the designated party. The Arbitrator so appointed then deals the dispute as
per the Arbitration act. In some Government contracts, the provision of Arbitration is replaced by
a hierarchical clause. The dispute is first referred to the Engineer and if the contractor is not
satisfied by the decision of the Engineer the dispute is further referred to the Appellate
Authorities/higher ups in the organisation. The Arbitrator is supposed to give reasoned award
within the stipulated time. The expenses towards arbitration are to be shared by the parties to the
contract. The contractor has to continue to work during pending disputes.
Arbitration
However, unless both Parties agree otherwise, arbitration may be commenced on or after the day
on which a notice of dissatisfaction and intention to commence arbitration was given, even if no
attempt at amicable settlement has been made. Unless indicated otherwise in the Particular
Conditions of contract, any dispute not settled amicably and in respect of which the Dispute
Board (DB)s decision (if any) has not become final and binding shall be finally settled by
arbitration. Unless otherwise agreed by both Parties.
Some standard provisions of the Arbitration clause are reproduced for guidance- (a) the place
of arbitration shall be the city where the headquarters of the appointed arbitration institution is
located, (b) the arbitration shall be conducted in the language for communications defined in the
contract [Law and Language], and (c) for contracts with domestic contractors, arbitration with
proceedings conducted in accordance with the laws of the Employers country.
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The arbitrators shall have full power to open up, review and revise any certificate, determination,
instruction, opinion or valuation of the Engineer, and any decision of the DB, relevant to the
dispute. Nothing shall disqualify representatives of the Parties and the Engineer from being
called as a witness and giving evidence before the arbitrators on any matter whatsoever relevant
to the dispute.
Neither Party shall be limited in the proceedings before the arbitrators to the evidence, nor
arguments previously put before the DB, to obtain its decision, or to the reasons for
dissatisfaction given in its notice of dissatisfaction. Any decision of the DB shall be admissible
in evidence in the arbitration. Arbitration may be commenced prior to or after completion of the
Works. The obligations of the Parties, the Engineer and the DB shall not be altered by reason of
any arbitration being conducted during the progress of the Works. In the event that a Party fails
to comply with a final and binding DB decision, then the other Party may, without prejudice to
any other rights it may have, refer the failure itself to arbitration.
If a dispute arises between the Parties in connection with, or arising out of, the Contract or the
execution of the Works and there is no DB in place, whether by reason of the expiry of the DBs
appointment or otherwise: provisions of Obtaining Dispute Boards Decision and Amicable
Settlement shall not apply, and the dispute may be referred directly to arbitration
ESCALATION
Price Adjustment
The contractor is expected to consider the prices of the construction material and other factors
while submitting the Bid. Further price adjustment is carried out through the provisions of the
contract. If this factor is not accounted then offers are likely to be unrealistic and loaded for
uncertain price rise. In fact if the prices fall during the contract period then the price adjustment
could be negative. The salient features of the price adjustment are as follows:
Price adjustment clause is provided in the contract to account variation in labour, material,
fuel, and prices during the contract period.
Subsequent legislations during the contract period may also change the price structure. To
account for the same price adjustment is provided in the contract
For working out the price adjustment the Base indices, base rates needs to be defined in the
contract
The price adjustment is worked out by a prescribed formula in the contract
Standard formula prescribed Govt in PWD restrict the price adjustment to 085P, where P is
the value of work done
Star rates for basic material
A typical escalation clause may go something like this:
Formula for Escalation- Labour component
V1 = 0.85 P K1/100 *(L1-L0)/L0
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Where, V1 = Amount of price variation, P = Cost of work done during the period,
K1 = Percentage of labour component in the project cost, L0 = Basic consumer price index, L1
= Average consumer price index
Formula for material component shall be similar as above with appropriate changes to the
material specific. Similarly the price rise due to fuel component is calculated. All these prise rise
are then added to work out the total escalation payable to the contractor. In earlier days there was
a practice not to provide for price adjustment during first twelve months period. The contractor
was expected to consider the same and load it in his offer. However in many cases the work
could not be completed in the first 12 months period and then contractors submitted claims to the
employer, as there was no provision for the price adjustment. It is therefore desirable to provide
for the price adjustment in the contract with required restrictions. The same becomes operational
in such peculiar situations. Some times the star rate are prescribed for the main construction
material like cement, Steel etc. The idea is to compensate for the actual increased rates during the
contract period. The basis for selection of the star rates need to be decided carefully.
Suspension of Work
9.1 The standard contract shall contain a provision to suspend the work. Though this may not
happen but there might be situation when the Employer may like to suspend the work for some
period due to other requirements. Typical provisions on suspension of the work are as follows:
Engineer or Employer can suspend work
Contractor to protect work during suspension period
No duty to instruct suspension if reason are obvious
Entitlement for extension, payment,
No payment if suspension is due to contractor
Long suspensions may entitle contractor as variation
Termination
If contractor defaults or there is a breach of contract the contract can be terminated. The typical
provisions for the breach of contract are as below:
If the Engineer certifies that the Contractor:
Repudiated the contract;
Failed to commence or proceed with the work;
Failed to comply with a notice;
Persistently or flagrantly neglecting his obligations then employer can terminate the
contract
Typical provisions related to the termination of the contract are listed below
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In the event of default contract can be terminated
Notice of termination issued by Engineer after approval from Employer
Termination payments as per contract
Contractor expelled from site
Work to be completed by other contractor
If the contractor continually fails to perform, this may constitute a breach of contract. The
severity of the failure and the cost to the Employer will need to be assessed. Legal advice may be
required before any further action is considered. Although it is sometimes difficult to predict
accurately where problems may arise, good contract management with regular dialogue between
the contractor and employer will help to identify potential problems. This will enable problems
to be dealt with swiftly and effectively and so prevent major disputes.
MULTI PARTY CONTRACTS
Consortium
Consortium is a group of different companies formed to execute a particular project. The
consortium shall have the MOU (Memorandum of understanding) detailing the role, share and
responsibilities of different members in the group. A typical consortium comprises a lead
member, a technical member and other members. Though the number of members in a
consortium varies, typically these are restricted to four members. A consortium can participate in
any contract but these are usually formed for large magnitude contracts and BOT contracts.
PPP Contracts - What are PPPs?
In PPPs, the private sector provides a public service, or contributes to an economic activity, on
behalf of and under the control of the public authority. Usually these are for a fixed period of
time. PPPs are different from public procurement. These are Output based: compensation based
on availability and quality of service, paid by public sector and/or end users. Private sector
assumes substantial financial, technical and operational risks. In India, PPs have been found
initially in infrastructure services, and Municipal services. Standard contract documents for the
PP contracts are also available. Some of them are MODEL CONCESSION AGREEMENT
FOR SMALL ROAD PROJECTS published by NHAI, New Delhi.
The main benefits of the PPP contract can be summarised as follows:
Accelerated supply of services
Higher quality service, often at lower cost
Enhanced accountability in service delivery anchored in contract
Refocused role of State: From operator to policymaker and regulator
Shift in public sector management from budget expenditure to whole life cycle cost
management
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Development of private sector enterprises and local financial markets
Types of PPP Contracts commonly used are: Service contract, Management contract, Lease
contract, Concessions, and BOT variants
In any type, the contract design should specify:
What is to be awarded
Performance obligations and rights of contractor must be clear and comprehensive to
minimise risk of renegotiations after contract award, yet contract must be flexible enough to
allow efficient and innovative solutions
Incentives and risks including pricing arrangements
The PPP contracts should also be awarded by competitive bidding process among the pre-
qualified bidders or post-qualified bidders. The eligibility must be defined carefully, and
observed strictly. The bids of the responsive bidders only need to be opened and processed.
Analysis and management of risk are critical for successful PPP Contract. Hence following
aspects need to be kept in mind while dealing with the PPP projects:
Clear identification and quantification of project and non-project risks
Allocate risk to the party best able to manage, control and mitigate it
Never allocate risk to party unable to bear its consequences
Risk Classification
There are a variety of project related risks, such as:
Completion risk (engineering, construction cost and time control)
Operational risk
Market risk (volume and tariff, non-payment by users)
Environmental risk, past and future liabilities
Project delays, cost overrun etc
Non- project related risks may be:
Force majeure
Political risk (expropriation, currency convertibility and transfer)
Contractual and regulatory risks
Macroeconomic risks
Institutional and legal risks
Social acceptability of PPP principle
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These steps critical as it is essential to achieve high performance by concessionaire, reduce
regulatory risk and hence cost, increase competition for the concession, facilitate financing,
minimise chance of renegotiations after contract award, and maintain political support
The key lessons to be learnt in the PP projects can be summarised as below:
Need to develop legal and institutional framework to manage PPP process
Need to communicate with stakeholders to know the requirements and acceptability
Need to carry out sartorial reforms and appropriate legislative mechanism, a must for
sustainability
Select appropriate PPP structure in ready sectors
Careful project preparation but flexible contract design
Match incentive and risk sharing to suit project characteristics
Competitive bidding among pre-qualified or post qualified bidders
Insist on performance bonds or bank guarantees
Carefully monitor PPP projects and adjust when necessary based on experience
IMPORTANT PROVISIONS OF BOT CONTRACT
Instructions to the Bidders (ITB)
The instructions to the bidder are similar to the conventional cash contracts. Only the additional
eligibility criterion a project specific is added. The ITB should contain the dates for pre proposal
meeting, manner and time, place of submission and opening of the bid. The eligibility criteria
should be specific for the project. Generally the Technical criteria stipulate the experience
required for such project.
The financial criteria should included the Net Worth, Net cash profit after tax (NPT), minimum
equity holding of the Lead Member (min 26 %), minimum equity holding by the Principal
contractor (10 %), Minimum equity of the consortium as a whole (51 %). The ITB should also
indicate the bid criteria i.e. concession period or viability. The preferred bidder on selection can
form the Project Company or in common term known as Special Purpose Vehicle/Company to
execute the project.
The Concession Agreement is generally signed by the SPV with the Employer. Once the
preferred bidder is selected or the SPV is formed then the parties sign the concession agreement.
There are some typical formats available for CA. These include the documents published by
FIDIC, NHAI, Planning Commission GOI, such as:
Concession Agreement for projects Rs.100 Cr and above: Updated version as on 23.03.2000.
Model Concession Agreement for Small Road Projects up to Rs.100 Cr.
Model Concession Agreement For Annuity Based Project - developed as a sample for
Panagarh-Palsit project.
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In case the project requires viability gap funding from the GOI then the instructions, method
stipulated by the competent authority need to be carefully followed.
The concession agreement, apart from the typical or conventional provisions, must include the
provision fore variation and mechanism of compensation for such variations. It should also
indicate the termination payments, compensations to the BOT operator in the event of
cancellation of the project. These provisions are required to have a bankable project. If the
project is not bankable then the same may not take off.
Project Information Document (PID)
PID is prepared for providing information on the project to the bidders. It contains the location,
scope of the project in brief. It also provides for the information of the studies carried out like
Techno-economic Feasibility studies (TEFS), Broad bankability (IRR) of the project. The PID
provides for the pricing and availability of various reports like traffic studies etc. These are only
for information and not binding on the Employer or the Bidder. The exact scope, conditions etc
shall be as per the concession agreement. The bidder has to carry out his own studies and
consider the same for his offer.
Contractor claims
The contract should provide for the procedure for raising claims by the contractor. The main
provisions for the claims can be-
Notice of Claims
Contractor to give notice to Engineer for claims
Contractor to keep records of claims
Payment of Claims
Maintaining Audit Trail
It is essential to keep records of dealings with contractor whether written or verbal. All
information should be kept in the contracts file held in the procurement section. Records will be
required for: information if problems arise; reviewing meetings and re-negotiations; audit
purposes; and planning for any subsequent re-tendering processes
Completion Reports
It is good practice at the completion of any contract to review and place on record what went
well and what lessons can be learned for any future contracts. After completion of any council
contract, the contract manager is required to complete a Contractor Evaluation Report. The
information on this report will be used to evaluate the councils suppliers and contractors and
monitor their effectiveness. In the case of high value contracts where the contract is of a complex
nature i.e. consultancy contracts, there should be a formal post project assessment covering all
key aspects of the procurement.

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This should include the following:
The outcome of the project
The extent to which the expected benefits (deliverables) were achieved; and
The total cost (including full economic cost of in-house staff engaged on the project).

References
1. Public Private Partnerships: Contract Management, Australian Govt, December 2006
2. Using Contract Management and Performance Tools effectively in outsourcing
management, By Claude Marais, Partner, TPI, July 2007
3. Principles for service contracts, Contract management guidelines, Office of Government
Commerce (OGC),UK
4. Conditions of Contract for Construction
5. Conditions of Contract for Plant and Design-Build
6. Conditions of Contract for EPC/Turnkey Projects
7. (Ref. The FIDIC Contracts Guide)
8. Construction contract, Fourth Edition, FIDIC
9. NHAI Web site
10. FIDIC web site









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