contract administration
DESCRIPTION
c2TRANSCRIPT
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1.Responsibilities/Liabilities
Principal, contractor
2. Settlement of claims
- claims for advance
- claims for payment of bills
- claims for extras/ variations
- claims for cost escalations
- claims for time extensions
3. Statutory Requirements and
social responsibilities /
obligations
4. Files and records
Contract Administration
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Contract
Administration
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Performance, cost and time depends on three conditions:
1. The parties to the contract must have a clear understanding of and
commitment to their obligations.
2. Employer should select a project team with adequate experience good
exposure to project problems, ability to give prompt decisions, make
timely payments and to settle extra items/ claims judiciously.
3. The contractor should select a competent project manager and other
members of the team, make a correct assessment and deploy required
resources, by proper forward planning, keeping in view time, cost and
quality control.
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To nominate Engineer in charge/ Project Manager and his
team.
Giving possession of site, obtaining necessary sanctions,
permissions.
Supplying Instructions to carry out the work.
Furnishing necessary plans, designs, drawings, specifications,
etc., sufficiently in advance.
Timely supply of materials to the contractor in required
quantities and quality as specified in schedule of Materials.
1 a] Responsibilities / liabilities of Principal
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Nominating / approving the Sub-Contractors.
Supervision of the work
- Ensuring that execution works is as per drawings, design and
specifications.
- Monitoring progress, quality of work.
- Giving necessary instructions, guidance.
- Giving clearances without undue delay.
- Issuing necessary certificates.
- Ensuring coordination among the contractors.
Contd
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Maintaining good relationship, working condition.
Ensuring smooth progress of work.
Noninterference in contractors work.
Settlement of the claims.
Claims for payment of bills, extras/variations, cost escalations,
time extension.
Compliance with statutory requirements and social
responsibility / obligations.
Preparing and submitting reports to the owner, maintenance of
files, records, documents.
Contd
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i) Execution of works in compliance with plans, drawings, design
and specifications.
ii) Execution of works to meet performance criteria of Quality,
Time and Cost.
iii) Ensuring safety and security of the staff, laborers.
iv) Selection of resourceful sub-contractors, coordinating and
monitoring their work.
v) Setting up and running the site organization
1 b] Responsibilities / Liabilities of Contractor
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Procurement of materials, labor at reasonable cost, ensuring
their proper usage and storage.
Controlling the wastage
vii) Planning and organizing the execution of work. Providing
designs of those minor works for which the Principal has not
provided the designs.
viii) Maintenance of construction equipment and machinery.
ix) Labor safety and welfare.
contd
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x) Providing assistance to the Principal for supervision,
monitoring, quality checking, measurements, etc..
xi) Submitting all claims in time.
xii) Site clearance and handing over possession of works after
completion.
Contd
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a) Claims for advances:-
Contractors will have a need for large amount of money before
commencement of the execution of works for
Mobilization and preparations for commencement of the
execution of works.
Purchase of plant, machinery, Equipment, tools etc.,
Payment of advances for materials, sub contracts
Working capital, contingency, etc.
SETTLEMENT OF CLAIMS
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Following is a list of various advances that can be
made available to contractor in major contracts:
Mobilization advance
Advance against machinery and equipment's
Advance against materials
Advance for work done but not measured.
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[purpose, conditions, guarantee to be provided, recovery of advances]
Mobilization advance:-
Purpose:- to facilitate mobilization of construction resources to the site and
make arrangements for commencement of the execution of works.
Conditions:-
This advance may be granted to the extent of about 5% to 10% of the
contract value.
Where the work is of specialized nature and mobilization expenses are likely
to exceed 10% of the contract value, additional advance may be made
available through a specific enabling clause in the contract conditions.
Mobilization advance may not be necessary for minor contracts ( contract
value, say, < 10 to 25 lakhs)
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In contracts of very large value, mobilization advance may be
given in installments in accordance with an agreed schedule
specified in contract conditions, as and when the contractor
incurs the expenses.
[NOTE: - in many international contracts under FIDIC conditions
and world bank aided projects, mobilization will be treated as a
separate item of work and payments are done on quoted rate
basis.]
Mobilization advance
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Guarantee to be provided:-
This advance will be given against a bank guarantee to be
furnished by the contractor.
The principal will be entitled to make sure that the mobilization
advance released to the contractor is utilized for the particular
contract for which it has been given. The bank guarantee can be
encashed if the contractor fails to properly account for the
advances received against the expenses incurred towards
mobilization.
Mobilization Advance
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ii) Advance against machinery and equipment:-
Purpose:- to remunerate the contractor for his investments on
plant, machinery, equipment, tools etc..
Conditions:-
Advance against plant, machinery, equipment, tools, etc., bought
to the site for use in the execution of works under the contract
can be given for both new purchases for the contract as well as
the existing, deployed at the site.
The advance in case of new purchases can be up to 75% to
90% of the cost , subject to furnishing of satisfactory evidence
of purchase and cost by the contractor.
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In case of existing, plant, machinery, equipments, tools,
etc., deployed at the site up to 50% of their estimated present
value may be given as advance. In this case, a certificate from
an approved valuer about their present value estimated
according to accepted norms of valuation, must be provided
by the contractor.
These advances are normally limited to about 10% of the
contract value. In special cases it may be 20% or even higher.
Contd.
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Guarantee to be provided:-
These advances are provided against the security of
the plant , machinery, Equipment, tools, etc., deployed
at the site on their hypothecation to the owner/
Principal by executing a deed of hypothecation.
A bank guarantee may be accepted in lieu of
hypothecation.
Contd
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Advance against materials:-
Secured advances can be granted to the contractor
against non-perishable materials brought to the site for
consumption in the works under the contract.
In civil construction contracts these materials include
coarse and fine aggregates, boulders, bricks, size stones,
tiles, wood etc., [steel and cement if not supplied by the
Principal].
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Conditions:- these advances are provided under the following terms-
i) Advance is granted up to 75% of actual cost of materials purchased
and brought to the site.
ii) The advance has to be recovered within a period of three months
from the month in which advance is paid.
iii) The contractor must provide adequate storage and protection for
these materials against damage by weather/ other causes and
pilferage.
iv) The contractor must provide an Indenture Bond or Surity Bond by
executing a suitable deed.
Contd.
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Advance for work done but not measured:-
Sometimes the contractor makes a request for payment against
a part of work that is completed but its detailed measurement and
/ or quality assurance checks has not yet been done. In such cases
the contractor can be paid up to 80% of the value of such work as
advance payments.
The advance so provided must be recovered in the subsequent
monthly running bill based on detailed measurement and quality
assurance checks of all works completed till then, including the
work against which advance payment has been done.
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RECOVERY OF ADVANCES:-
The recovery of advances should be so regulated that it does not hinder the
availability of funds to the contractor.
Therefore recovery of funds can commence after at least work of the value
equal to 10% of the contract value is completed and paid to the contractor.
The recoveries are made in such a phased manner that the total
principal amount against all types of advance granted to the contractor
together with interest ( if any ) there on is fully recovered by the time
80% of the value of the work under the contract is completed and within a
suitable timeframe that is not exceeding 90% of the originally scheduled
completion time in the contract.
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If there is an exceptional delay due to some
genuine reasons and the contract period has
been extended, then, the advance recovery period
may also be rescheduled, if deemed necessary.
Contd
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SETTLEMENT OF CLAIMS FOR PAYMENT OF BILLS:-
This is the most sensitive and vital issue in contract
management. Timely payment of bills is a basic obligation of the
Owner / Principal.
Its delay / denial will be a cause for frustration to contractors
resulting in disputes.
A smooth and assured cash flow to the contractor fetches a
better rate and will serve as an incentive, motivation for better
performance by the contractor.
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Normal expected Time Schedule for payment of Bills are:-
- Interim or running bills: with in a fortnight or a month
- Final bill :- within three to six months.
If final bill is held up due to any reason advance to the extent of
90% of the bill amount may be paid pending settlement of the final
bill.
Contd
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MEASUREMENT OFWORKS:-
IS 1200 standard mode of measurements of Buildings
- Unless otherwise specified measurement of civil construction
works are done as per the guidelines provided in this standard.
- A measurement book (M B) to be maintained in which
measurements are recorded.
- Measurements are to be recorded by the Principals authorized
engineer in the presence of the authorized representative of the
contractor. His signature should be obtained on M.B. as a token of
acceptance of the measurement.
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Each set of measurements should include the following:-
i) name of the work / contract , its reference code number
ii) name of the contractor
iii) date of agreement and date of commencement of work
iv) date of recording the measurement
v) reference of the previous measurement.
Contd..
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RECOVERIES TO BE MADE FROM THE BILLS:-
1) security deposit
2) recoveries from the advances paid
3) retention money (if any)
4) liquidated damages for delay in construction time
5) income tax deductions and any other statutory deductions
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ISSUES IN SETTLEMENT OF CONTRACTORS BILLS
- Payment at reduced rates
- Payments to the sub- contractor
- Suspension of works
- Defects liability period
NOTE:- interim / partial payments, Entire/partial
occupancy of the works by owner/ principal will not be
deemed as acceptance of work or its materials which are not
in accordance with the specifications.
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(C) CLAIMS FOR TIME EXTENSIONS
The time period for completion of contract work may be specified
by giving :
a specified date for completion
number of calendar months
number of weeks from the date of commencement within which the
works should be completed.
The reasons for delay in completion of the works are categorized
as delays attributable to i) Principal ii) Contractor iii) Neither
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i) DELAYS ATTRIBUTABLE TO THE PRINCIPAL
These include the following:-
1. Not able to give the possession of whole or part of the site.
2. Not able to secure mandatory clearances from the relevant
government authorities.
3. Delay in supplying drawings, designs, specifications, etc,
4. Delay in issuing materials agreed to be supplied by principal
as per schedule A of the contract.
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5. Delays due to extra items of work or variations in quantities of
the items of work, beyond specified limits.
6. Delay in checking contractors work and giving the clearance
to proceed with the work.
7. Temporary suspension of the work by the principal.
8. Delay due to other contractors work.
Contd..
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Most contracts presume that such delays will be within
reasonable and tolerable limits. Hence, do not provide for any
compensation to be payable to the contactor for delays that are
attributable to the Principal. Only time extensions as required
will be granted.
However, if there is a delay beyond reasonable tolerable limits
then it constitutes a fundamental breach by the principal and at
the option of the contractor, the contract can be terminated. He
can then, even, file a claim for a suitable compensation also.
Contd
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A few contracts do provide for compensation to be payable to
the contractor for delays attributable to the Principal which are
beyond the specified limit. The compensation payable will be
based on the estimate of contractors loss due to idle men and
equipment.
Contd
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ii) DELAYS ATTRIBUTABLE TO CONTRACTOR
These include in addition to contractors own defaults, labour
strikes / disputes, bad weather, delays due to transportation, non-
availability of materials, laborers, etc.
In order that the contractor makes sincere efforts to minimize
such delays all contracts usually provide for the compensation to
be paid to the owner for delay in completion of the works due to the
reasons attributable to the contractor. Such a compensation which
is deductible from contractors bill is termed as Liquidated
Damages.( L.D.)
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A maximum limit for L.D. is specified in the contracts
usually 10% to 15% of the total contract value and if
L.D. reaches this limit, it constitutes a fundamental
breach by the contractor and at the option of the
principal, the contract can be terminated (termination is
not mandatory or automatic)
Contd
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iii) DELAYS ATTRIBUTABLE TO NEITHER
these include natural calamities, earthquake, massive landslides,
Acts of Government, Acts of Terrorism, wars, prolonged General
Strikes.
In all three cases, where delay is within acceptable limits, a
reasonable extension of time for completion as assessed by the
Engineer In-Charge will be provided and then time extension has
to be got approved by the Engineer-in-charge from the competent
authority of the Principal.
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Delays beyond acceptable limits attributable to the Principal/
Contractor constitute a fundamental breach of the contract.
Delays beyond acceptable limits attributable to neither
constitute a Force Majeure / Frustration.
Contd
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CLAIMS FOR EXTRAS/ VARIATIONS
Settlement of claims for extras / variations
Engineer-in-charge has the power to make additions, deletions,
alterations to the original B.O.Q such changes would not invalidate the
contract. However , this power usually has the following limitations:-
i) the variation in quantities of individual items of the work are
permitted up to a limit specified in the contract. ( generally, 25% to
30% of the quantity included in the B.O.Q)
ii) if variations in quantities of individual items of work exceed above
defined limits then it will be treated like an extra item of work.
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iii) the total variation in the contract value due to variations in
quantities or extra items/ deletions shall be limited to 15% to
20% of the original contract value, as awarded.
If variations, extra items and deletions exceed the limits specified
as above then the contractor can refuse to execute such
variations, extra items or deletions.
Contd
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PROCEDURES FOR FIXING RATES OF EXTRA ITEMS OF WORK
1st preference:- the rate is derived from any similar or allied
item in the contract document with suitable modifications for
rates of materials and (or) labour as decided by the Engineer-
in-charge.
2nd preference:- where no such similar/allied item of work
exists in the contract document the rate shall be derived from
the latest available CPWD schedule of rates ( to be specified in
the contract document) with suitable modifications for
escalations and contractors overheads profits.
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3rd preference:- if the rates are not available in CPWD
schedule also, then , the rates should be derived from
accepted norms of rate analysis based on the market
rates for materials and labour with a provision of about
15% to 25% towards contractors overheads profit.
The rates as fixed from any of the above methods shall
be agreed upon between Engineer-in-charge and the
contractor before the commencement of such items of
work.
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The rates and quantity of such items of work shall be got approved
from competent authority of the Principal.
If there is disagreement over the rates between the Engineer-in-
charge and the contractor then the matter will have to be settled
through the dispute settlement process specified in the contract.
Pending the approval of rates by the competent authority of the
Principal / settlement of the rates by the dispute settlement process ,
payment can be made to the contractor as an advance , by taking a rate
equivalent to 75% to 90% of the proposed rate.
In order to avoid disagreements over the rates, sometimes, the
tenderers are asked to quote their rates, at the time of tendering
itself for anticipated extra items of work and for those items of work
where quantities are likely to vary beyond specified limits.
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SETTLEMENT OF CLAIMS FOR COST ESCALATIONS
The price adjustments for escalations in costs, when provided for
in contracts, will be governed by the following conditions:-
i) the materials covered in schedule A, which are issued by the
principal, shall be excluded from the scope of price adjustments for
escalations as these would be issued at a fixed price.
ii) the price adjustment shall be done from the date indicated in the
contract document.(usually date of submission of bid or date of
award of contract)
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iii) the price adjustments will be provided up to date of
completion, initially specified in the contract or such
extended period of time as sanctioned for reasons not
attributable to the contractor.
iv) price adjustments shall be determined for each quarterly
or monthly running bill as per, the procedure and based on
indices, specified in the contract documents.
v) price adjustments shall be given to the extent of 75% to
85% of the escalation in costs.
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PRICE ADJUSTMENT PROCEDURE:-
Price adjustment shall be calculated separately for the cost of
labour, cement, POL(petroleum, oil and lubricants) and other
materials. They are then added up to arrive at the escalations in
costs which have to be paid.
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ADJUSTMENTS FOR LABOUR COMPONENT:-
VL= { K *( PLR/100)} * { (L1 L0)/L0}
K= Allowable escalation factor (0.75 to 0.85 usually)
PL = Percentage of cost due to labour
R = quantity of work done in the billing period.
L1 = labour index on 28 days prior to billing date
L0 = labour index on base date/ reference date.
VL = variation cost due to labour.
CPI Consumer price index
MLW Minimum labour wage.
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Files and Records:
The following is a list of some of the typical files and records that many
become necessary for a major civil engg, construction contract .
A. Contract Document with all its amendments/ modifications.
Amendments/ modifications to drawing, designs, specifications, BOQ.
Construction progress
Minutes of meeting between the principal and contractor
Record of staff, labor, equipment, etc., deployed at the site by the contractor.
Record of instructions given to the contractor.
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B. Field office files and records:
Correspondence with consultants, H.O, supplies,
statutory bodies, govt. authorities etc.
Samples of approved materials, suppliers warranties.
Manufacturers certificates for pre-fabricated items,
equipment's etc.
Reports at operation tests, field investigations.
Documentation of measure of safety, hazard warnings.
Inspection reports of statutory authorities.
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C. Construction files and records:
Work progress reports
Reports of quality check/ measurements
Concrete batch plant reports (for critical works)
Contractors submission for claims, records of its processing
D. Miscellaneous files and records:
Labour welfare standards review records
Job conferences
Construction photographs/ video-graphs
Records of dignitaries and other visitors to the site, their
impressions
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Social Responsibilities/ obligations Statutory requirements
Social responsibilities/ obligationgs
Joint responsibility
Some of the commonly required facilities/ measures for a large project in a remote area
are listed below, and the responsibilities of the Principal, Contractors for their provision
are discussed.
1. Approach Roads:
The main approach road to the site and the major roads within the site which are
likely to be used by many contractors are constructed and maintained by the
Principal.
The subsidiary(or internal) roads within the contractors work area and from the
colonies of the contractors personal, his stores, offices etc., are constructed and
maintained by the contractor.
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2. Housing and Sanitation:
These include houses for staff, labour, colonies, site offices, stores etc.,
These facilities are to be provided by the contractor for his staff and
labour and by the principal for his personnel.
A few houses and office's constructed by the principal may be made
available temporarily to the contractor in the initial period on agreed
charges.
Provision may be made in the contract to take back a specific number
of houses, officies, stores etc., built and used by the contractor at
depreciated cost at the end of the contract period.
Such aspects should be considered in the planning of infrastructural
facilities for the project and they have to be clearly specified in the
special conditions of the contract (SCC)
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3. Power and water Supply:
Arrangements must be made by the principal for taking off power and water by the contractor from within a reasonable distance (usually 1 or 2km ) from his work place.
From the designated taken points further distribution and it maintenance is the responsibility of the contractor.
The contractor should also make arrangements for maintaining proper voltage, standby generator, water storage and its pumping to take care of disruption in supplies. The contractor cannot claim any compensation or extension of time for disruption of time for disruption in power or water supplies.
The designated points of take off of power and water should be clearly identified and specified in the SCC.
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4. POL supply, Banking and communication facilities:
The communication facilities include post, telegraph, wireless, telephone etc.,
POL supply, banking, and communication facilities must be ensured at the
project site by the principal.
Contractor can avail these facilities by paying the applicable user charges.
5. Medical, Educational shopping facilities and entertainment:
The basic minimum facilities in respect to these have to be made available at
the project area by the principal.
Tender documents should clearly indicate the provision made with regard to
these facilities and its applicable usage charges, their location, transport
arrangements that are made available.
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6. Law and order, security arrangements:
It is the general obligation of the state and central government to
provide general security, maintain law and order.
The principal has to interact with the government authorities to
ensure the law and order and security arrangements are set up at
the site. The costs involved in providing the required facilities in
respect of these have to be taken care by the principal.
However, the security and maintainance of works under the
contract, materials, plant and equipments etc., is the
responsibility of the contractor.