Contract Management [8 Hours]

5.1 Methods of Work Execution 2079

• Work execution = procurement of goods, consultancy services, and construction works
• Prior to procurement → organization must have specifications, plans, drawings, designs, special requirements, or other descriptions

Two broad methods of executing construction works:

1. Through Amanat (Force Account)
2. Through Contract

Amanat (Force Account)

• Definition: Force account — execution of public works using resources of a public agency, without competitive bidding or negotiated contract
• PPA 2063 states: repair/maintenance of ordinary nature, regular petty work, or sanitation may be done by force account
• May apply in works costing up to NRs. 100,000 as per PPA

Situations for Force Account:

• The size, nature, and location of the works being unsuitable for competitive bidding
• Works must be carried out without disrupting existing operations, by crews familiar with those operations
• When the implementing agency can bear the associated risks better than the contractor
• No contractor is interested in carrying out the works
• Emergencies
• Institutional development

Through Contract

• Works executed through sealed bidding, sealed quotation, or any other method except force account
• PPA, PPR along with Guidelines of PPMO describes methods of work execution as per total cost

Methods of Procurement (as per PPA/PPR) 2079

1. National Competitive Bidding (NCB)

• Also called local competitive bidding — all eligible domestic bidders invited to participate
• Notice published in national newspaper with period of at least 30 days
• NCB necessary if estimated work > 20 lakhs or estimated goods > 10 lakhs

2. International Competitive Bidding (ICB)

• When work is big and domestic contractors cannot perform → eligible bidders invited from all over the world
• Tender notice published in international/national newspaper in English, period of at least 45 days

Conditions for ICB:

• Goods or construction works not available under competitive price from more than one entrepreneur within Nepal
• No bid was submitted in response to NCB
• Goods/works must be procured from abroad under a foreign assistance agreement
• Public Entity certifies goods/works are of complex and special nature requiring international level bidding

3. Sealed Quotation

• For goods/services up to Rs. 10 Lakh and construction works up to Rs. 20 Lakh
• Notice published in national/local newspaper, period of at least 15 days

• A form of specifications, quality, conditions of supply and time shall be prepared before inviting
• The sealed quotation, once submitted, cannot be withdrawn or amended
• The lowest evaluated sealed quotation within the estimate shall be approved

4. Direct Procurement

• Goods/consultancy services up to Rs. 3 Lakh and construction work up to Rs. 5 Lakh
• Cannot be directly procured from same individual/company more than once in a fiscal year

5. Through Users Committee

• Construction works carried out by beneficiary community
• Used when economy, quality, or sustainability is increased
• Up to Rs. 1 Crore for works of simple nature

6. Procurement under Special Circumstances

• Emergency/special circumstances
• When only one supplier has exclusive right or technical efficiency

5.2 Contract 2080207920782077207620752074207320712070

5.2.1 Definition of Contract 2078 2076

• As per Contract Act 2056: "Contract is an agreement between two or more persons to do or not to do something, which can be enforced by law."
• Engineering Contract: A mutual undertaking negotiated between two parties for carrying out clearly specified work on a commercial basis
• Main objective: To seek legal action/remedies if any party breaches the contract

Elements of a Valid Contract 2078 2076

1. Offer and Acceptance: If a person advances a proposal and another makes acceptance, a contract exists. If no time limit is specified, it must be accepted within reasonable time. If the offerer dies or becomes insane before acceptance, no contract exists.
2. Consideration: The cause, motive, price or impelling influence that induces a contracting party to enter into a contract. Something of value exchanged by contracting parties.
3. Capacity to contract: All parties must be capable. Idiots, drunkards, insane, and children below 16 years are not capable of signing contracts.
4. Lawful purpose: An illegal contract is invalid.
5. Possibility of performance: An impossible contract is invalid.
6. Free consent: The contract should not involve coercion, fraud, undue influence, or deceit.
7. Certainty: Vague/ambiguous contracts are not valid.
8. Legal relationship: Clear intention of parties to enter into contract with necessary documents.
9. Written form: Verbal agreement cannot be a contract.
10. Two or more competent parties

Contract as per Enforceability

1. Valid Contract: If all elements of the contract are present.
2. Voidable Contract: Contracts that a party may make void:
   • Forceful contract or contract against free consent
   • Entered due to undue influence
   • Contract involving fraud or misstatement
3. Void Contract: Null and void:
   • Contrary to statutory law
   • Ambiguous, vague, and unlimited contract
   • Not the possibility of performance
   • Contrary to public policy and welfare
   • Signed by incompetent parties

Purpose of Engineering Contract

• Define the quantity and quality of work to be done
• Define the time frame for completion and payment
• Set out in advance courses of action if either party fails to perform
• Define words and establish common meanings
• Specify what is and is not included in the contract
• Specify how the contract will be terminated
• Specify responsibilities to parties and third parties

5.2.2 Types of Contract 2079 2078 2076 2075 2074 2073 2071 2070

Contracts are classified by three characteristics:

1. Method of payment for the work
2. Method by which the contractor is selected
3. Method of allocating technical and administrative responsibility

A. Classification by Method of Payment 2076 2075 2071

(a) Lump-Sum / Stipulated Sum Contracts

• Contractor quotes one single price based on complete plans and specifications
• Covers all direct costs (field staff, machines, materials) and indirect costs (office supervision, secretarial support, equipment maintenance)
• Includes contractor's profit
• Risk is on the contractor — if costs exceed the lump sum, contractor absorbs the loss

(b) Unit-Price / Schedule of Rates Contracts

• Project broken down into work items with measurable units (Cum, Sq.m, R.m, Nos)
• An estimated quantity is given for each item
• Contractor quotes a unit price for each item
• Total price = unit price × estimated quantity for all items
• Lowest reasonable bid selected; progress payments based on precise field measurement
• Most common type in Nepal for government projects

(c) Cost-Plus Contracts

• Contractor reimbursed for all costs incurred plus a variable fee to cover overhead and profit
• Four types of fee structures:

i. Cost + Percent of Cost:

• Oldest form — very lucrative for contractor but subject to abuse
• Little incentive for efficiency since higher costs = higher fee

ii. Cost + Fixed Fee:

• Fixed amount of fee regardless of cost fluctuation
• Gives contractor incentive to finish quickly
• Drawback: contractor may use expensive methods to expedite completion

iii. Cost + Fixed Fee + Profit Sharing:

• A target price is specified; if completed under target, savings are shared
• Typical formula: contractor gets 25% of savings below target
• Example: Target Rs.10M, actual Rs.9.5M → bonus = 25% of Rs.0.5M = Rs.125,000

iv. Cost + Sliding Fee:

• Provides bonus for underrun AND penalizes for overrun

Advantages of Cost-Plus (Owner's Position):

• Permits reduction of design-construct time by utilizing phased construction
• Quick reaction to major design changes, minimizes adversary position
• Opportunity to utilize contractor expertise during design phase
• Owner may participate fully in management and control
• May eliminate marginal contractors by letting work to prequalified subcontractors

Advantages of Cost-Plus (Contractor's Position):

• Avoidance of risk inherent in fixed-price contracting
• Work plan items not needed as in competitively bid contract
• Opportunity to obtain future work from harmonious relationship
• Job site can be staffed and managed efficiently

Disadvantages of Cost-Plus (Owner's Position):

• May not be most competitive in market
• Disreputable contractor can abuse the arrangement
• Owner's involvement is increased
• Definition of reimbursable items can be source of disputes

Disadvantages of Cost-Plus (Contractor's Position):

• Fees may be minimal compared to profit potential
• Planning and control functions made difficult by simultaneous construction and design
• Contractor may resent owner participation in tasks they'd normally control
• Contractor's reputation may suffer from delays or cost overruns

B. Classification by Method of Selecting the Contractor

(a) Competitively Tendered Contracts

• Owner invites bids following a formal competitive bidding procedure
• Multiple tenderers submit bids based on complete plans and specifications
• Contract awarded to the lowest responsible bidder
• Most widely used form of engineering contract

(b) Negotiated Contracts

• Principal negotiates directly with a contractor for mutually satisfactory agreement
• Major items of negotiation: fee level/amount, quality of work, projected completion time
• Most common form concluded is COST+FEE (since design documentation often not complete at negotiation time)

C. Classification by Technical & Administrative Responsibility

(a) Traditional Approach

• Design team prepares estimates and specifications before contractor selection
• Design and construction are separated by the tendering period
• Owner employs designer for plans, then monitors during construction
• Construction is responsibility of a single general contractor

Works well provided:

• Design is complete before tender stage (certainty)
• Designer understands how construction will be undertaken (buildability)
• Design does not change substantially during construction

Types under traditional: Lump-sum, Unit-price, Negotiated cost-plus fee contracts.

(b) Owner-Builder Approach

• Owners perform both design work and some/all construction with their own forces (force account)
• Owner retains management and conceptual design responsibilities
• May use consultants for detailed design and contractors for actual work

(c) Design and Build (D&B) Contract

• Main contractor responsible for both design and construction for an agreed lump-sum price
• Employer has control over design elements in their requirements
• Once contract is let, responsibility for design passes to contractor
• Contractor often appoints own consultants or uses in-house design

(d) EPC Contract (Engineering, Procurement and Construction) 2080 2079

• Contractor designs, procures materials, and builds the project (directly or by subcontracting)
• Contractor carries project risk for schedule and budget in return for a fixed price
• Price is negotiated, finalized, and paid in mutually agreed installments

(e) Turn-Key Contract 2079 2074

• Project constructed so it could be sold as a completed product — "Just turn a key in the door"
• Contractor entrusted to design, construct, commission, and handover the project
• Employer makes lump-sum payment at different stages
• Entire risk borne by the contractor

Advantages:

• Responsibility lies with a single firm, relieving the promoter
• Project is put into operation more rapidly than other contracts
• Minimal owner coordination required between construction, design, and other elements
• Opportunity for construction economies to be incorporated during design phase

Disadvantages:

• No firm project cost until design is well underway
• Quality may be subordinated to ensure profitability under lump sum
• Very few checks and balances; owner may not be fully aware of design/construction problems
• Completed project may not fully comply with owner expectations

(f) BOOT Contract (Build-Own-Operate-Transfer) 2079 2074 2073 2070

• A form of project financing where a private entity receives a concession from public/private sector
• Private entity finances, designs, constructs, and operates the facility
• Recovers investment, operating, and maintenance expenses through fees over the concession period
• Fee increases often tied to combination of internal and external variables

Major components of BOOT:

• Build: Design, manage, implement, procure, construct and finance
• Own: Own the asset for the concession period
• Operate: Manage and operate the plant, carry out maintenance, deliver product/service and receive payment
• Transfer: Handover plant in operating condition at end of concession period

Advantages of BOOT:

• Promotion of private investment
• Completion of projects on time without cost overruns
• Good management and efficient operation
• Transfer of new and advanced technology
• Utilization of foreign companies' resources
• Additional financial sources for priority projects
• No burden on public budget for infrastructure development

Comparison of Turn-Key and BOOT

• BOOT projects are contractor-financed turnkey contracts
• In turnkey contracts, governments bear risk of financing and operating; in BOOT, promoter bears these risks
• In turnkey, feasibility studies are by the principal; in BOOT, by the promoter
• In turnkey, operation is by principal after commissioning; in BOOT, promoter operates over concession period

(g) Construction Management Contracts 2079

• Group of management activities related to a construction program, carried out during pre-design, design, and construction phases
• Particularly suitable for entities that periodically build complex structures but do not desire to maintain construction staff

Advantages:

• Professional management expertise throughout all project phases
• Better coordination between design and construction
• Early involvement of construction knowledge during design reduces rework
• Faster project delivery through phased construction (fast-tracking)
• Owner retains control over design and contractor selection
• Transparent cost management — owner sees all subcontract bids and costs
• Reduced adversarial relationships compared to traditional contracting

(h) BOO Contract (Build-Own-Operate) 2079

• Private entity builds, owns, and operates the facility permanently — no transfer back to government
• Operator maintains ownership indefinitely and earns revenue through user fees or service charges
• Example: Private company builds and permanently operates a waste treatment plant

(i) BTO Contract (Build-Transfer-Operate) 2079

• Private entity builds the facility and transfers ownership to government immediately upon completion
• Then operates and maintains it under a management/lease agreement for an agreed period
• Example: Private company builds a hospital, transfers ownership, then operates under 20-year management contract

Comparison: BOOT vs BOO vs BTO

5.3 Tendering Process 2080207920752074207320722071

Definition

• Tender = an offer in writing by the tenderer to execute specified work or supply specified goods at a certain rate/amount within a fixed time frame
• It is the first step in the formulation of the contract
• Tenders are invited through open or limited bidding process

Why Tendering?

• To select the best contractor
• To get quality work
• To get work at a competitive price
• To ensure transparency
• Public-private partnership (encourage contracting procedure)

Bidding Stages / Procedures

i. Single-Stage One-Envelope (1S1E)

• Bidders submit single envelope containing both Financial and Technical Proposals
• Usually for construction work with estimated amount less than Rs. 2 Crore

ii. Single-Stage Two-Envelope (1S2E)

• Bidders submit two sealed envelopes simultaneously — Technical Proposal and Price Proposal — in an outer envelope
• Most common and popular method in Nepal

iii. Two-Stage Bidding Procedure

• Used when it is not feasible to define fully the technical aspects at time of invitation
• 1st Stage: Bidders submit only technical proposal (no price); discussions held, specifications modified, evaluation system determined
• 2nd Stage: Non-cancelled bidders invited to submit bids with price per revised documents

Tender Notice 2079 2075 2074 2072

• Tender Notice = information inviting bids from contractors, published widely in newspaper

Essential Details in Tender Notice:

• Name and address of Public Entity
• Nature of work and its location
• Place of delivery / construction work to be performed
• Amount of bid security and validity period
• Date, time, place for tender document availability
• Cost of tender document
• Place, manner, deadline for submission
• Provision of e-bidding and its process
• Place, date, time for opening of bids
• Expected date of acceptance

• NCB: at least 30 days notice
• ICB: at least 45 days notice
• Domestic preference may be given to Nepalese entrepreneurs

Sample Tender Notice (NCB) 20802071

Preparation Before Inviting Tenders 2075 2073

1. Project preparation with detail feasibility study
2. Estimating quantities of all items
3. Cost estimate with prevailing rates
4. Approval of estimate by the concerning authority
5. Resource planning — budget arrangement
6. Tender document preparation (BOQ, Specifications, Drawings, Conditions of Contract)

Bidding Document / Tender Document 2079 2074 2073

Contents of Bidding Documents:

• Instruction to Bidders (ITB)
• Tender notice
• Bid datasheet
• Plan, drawing of the proposed work
• Bill of quantities
• Quantity of goods / work to be done
• Time of supplying goods, completing construction work
• Provision regarding warranty, repair and maintenance
• Type and quantity of training and supervision
• Provision that goods shall be new and original
• Source of financing

Earnest Money / Bid Bond / Bid Security 2080 2072

• Bid Security = money deposited while bidding as guarantee of willingness to carry out work
• Bidders submit 1–3% of estimated amount in cash or bank guarantee
• Must be valid for the bid validity period

E-Bidding

• Electronic bidding increasingly used in public and private sectors in Nepal
• Allows bidders to submit requirements in real-time events
• Substantially reduced cartels, collusions, and rigging in Nepal
• Benefits: expedited decision-making, simplified selection, efficient use of government resources

5.4 Bid Evaluation & Award 208120802071

Opening of Bids

• Public Entity opens bids in the presence of bidders or their representatives
• No constraint for opening bids due to absence of a bidder

Preliminary Examination of Bids

• Purpose: Identify and reject bids that are incomplete before detailed evaluation
• Areas covered: Verification of signature, registration, agreement, eligibility, bid security, completeness

Detailed Bid Evaluation

• Evaluation shall be on the basis of information in the bids alone
• Comparison made by fixing quoted price excluding VAT
• Technical, commercial, and financial aspects shall be evaluated
• Arithmetic errors: If discrepancy between unit rate and total amount → unit rate shall prevail
• Figures vs Words: If discrepancy → amount in words shall prevail

Substantially Responsive Bid

• A bid is substantially responsive if it does not contain major deviations from bidding documents
• Commercial rejection: Inadequate bid security, inability to meet critical periods, conditional bids
• Technical rejection: Failure to bid for required scope, failure to quote each BOQ item

LESRB (Lowest Evaluated Substantially Responsive Bid)

• Bid with lowest price whose qualification conforms to evaluation criteria
• Public Entity shall select for acceptance only the LESRB

Letter of Intent & Award

• Within 7 days of bid selection → Public Entity serves notice of intent of acceptance
• Contract awarded to selected bidder
• Bidder must provide performance bond within 15 days

Performance Security

• Money deposited by successful bidder as security against performance
• General amount = 5% of bid price

• If BP ≥ 0.85×EP (within 15% below): PS = 5% of Bid Price
• If BP < 0.85×EP (more than 15% below): PS = 5% of BP + 0.5×(0.85×EP − BP)
• If bids are excessively low or front-loaded: extra 8% of bid price demanded
• Refunded after completion of Defect Liability Period
• If work is unsatisfactory, fund is forfeited

Performance Guarantee Calculation Example 2081

Given: BP (Bid Price) = Rs 1,00,50,000; EP (Estimated Price) = Rs 2,00,00,000

Step 1: Check if BP ≥ 0.85 × EP

0.85 × EP = 0.85 × 2,00,00,000 = Rs 1,70,00,000

Since BP (1,00,50,000) < 0.85 × EP (1,70,00,000), the bid is >15% below estimate.

Step 2: Apply additional PS formula:

Additional PS = (0.85 × EP − BP) × 0.5 = (1,70,00,000 − 1,00,50,000) × 0.5 = 69,50,000 × 0.5 = Rs 34,75,000

Step 3: Basic PS = 5% of BP = 0.05 × 1,00,50,000 = Rs 5,02,500

Total Performance Guarantee = Rs 34,75,000 + Rs 5,02,500 = Rs 39,77,500

Bid Validity Period

• Bid security period must cover validity period plus 30 days

5.5 Prequalification 20792075207420732070

• Pre-Qualification = assessment by implementing agency of suitability of firms to carry out a particular contract prior to being invited to bid
• A kind of shortlisting of eligible bidders to avoid crowding

• Ensures invitation extended only to bidders with adequate capacity and resources:

• Experience and past performance on similar contracts
• Capabilities w.r.t. personnel, equipment, and construction facilities
• Financial position
• Litigation history

Matters in Pre-qualification Documents

• Qualification criteria for the proposed work
• Documents to be submitted by bidders to prove qualifications
• Procurement to be made by separate lots or packages
• Method of preparing the proposal
• Procedure for evaluating pre-qualification proposal
• Major terms and conditions
• Method, place, deadline for submitting proposals

Benefits of Prequalification

• Enables prospective bidders to form joint ventures for better chances
• Qualified firms price competitively knowing they compete against qualified bidders only
• Employer can assess interest and adjust procurement conditions
• Identifies conflicts of interest
• Saves time evaluating unqualified bids
• Encourages local firms to form JVs with international firms
• Reduces problems from low-priced bids by unqualified bidders
• Gives Financing Agencies indication of Employer's procurement ability

Disadvantages of Prequalification

• May increase procurement lead time
• Requires review of all applications (vs post-qualification reviewing only one)
• Collusion easier among limited identified bidders
• Subjective judgment in applying criteria may lead to bias

Post-Qualification

• Pre-qualification process is not adopted
• All eligible bidders participate in the bidding process
• Qualification of the lowest evaluated bidder is checked after bid evaluation

Pre-bid Conference

• For big projects, a pre-bid conference is conducted to appraise tenderers of the project
• Questions and replies should form part of the contract
• Employers should not hesitate to relax rigid conditions for better offers

5.6 Consultant Selection Methods 208120732069

a) Quality and Cost Based Selection (QCBS)

• Both quality (Technical Proposal) and cost of consulting services are considered
• Technical and Financial Proposals submitted separately in sealed envelopes, put in outer sealed envelope
• Most commonly used method for consultant selection

b) Quality Based Selection (QBS)

• Appropriate for complex or highly specialized assignments with difficult TOR definition
• Only highest-ranked firm in Technical Proposal has Financial Proposal opened
• Negotiations on Financial Proposal and Contract follow

c) Least Cost-Based Selection

• Appropriate for assignments of standard or routine nature
• Financial Proposals of all consultants passing minimum Technical score are opened
• Lowest cost among technically qualified firms is selected

d) Fixed Budget Selection (FBS)

• Budget is fixed and best technical proposal within budget is selected

e) Consultants' Qualifications Selection (CQS)

• Based on qualifications and past experience of the consultant
• Used for small assignments

f) Single-Source Selection (SSS)

• Directly negotiated with a specific consultant without competitive process
• Used in emergency or when only one qualified firm exists

Expression of Interest (EOI)

• EOI = process of shortlisting consulting firms
• EOI notice indicates: name and address of public entity, description of assignment, source of funding, qualifications required, profile of firm, experience details
• After shortlist, Request for Proposals (RFP) is issued to shortlisted firms only

Types of Contract for Consultancy Service

1. Time-based contract: Fee = rate × time consumed. For work where period cannot be predicted (e.g., supervision of construction, complex designs).
2. Performance-based contract: Fee based on work completed or as and when required.
3. Lump-sum contract: For clearly identified work with low risk (feasibility study, project design, preparation of bidding documents).
4. Percentage-based contract: Payment as percentage of estimated or actual cost of the concerned work. For inspection, architect's services, supervision, or monitoring.
5. Indefinite service period contract: For consultancy required from time to time — arbitrators, dispute resolution, procurement consultants, technical troubleshooters.

5.7 Contract Documents

Sub-contracting

• Practice of assigning part of obligations and tasks under a contract to another party (subcontractor)
• As per PPA/PPR of Nepal, only 25% of contract value can be sub-contracted

Conditions of Contract

• Terms and references that bind all parties of the agreement
• Purpose: Easy and smooth running of work and minimizing disputes
• Contains two parts: GCC and SCC

General Conditions of Contract (GCC)

1. Definition & interpretations
2. Time for completion and delays
3. Payment to contractor
4. Execution of work and measurement of completed work
5. Breach of contract
6. Arbitration — settlement of dispute
7. Suspension of work
8. General obligation of the contractor
9. Labor and labor welfare

Special Conditions of Contract (SCC)

• Some conditions may be changed by mutual agreement between parties based on the law of the country, nature of work, etc.

Contract Agreement

• A contract may consist of multiple documents linked by cross-reference
• Engineering contract documents usually contain:

• Contract agreement
• Letter of acceptance
• Contractor's bid
• Special conditions of contract (SCC)
• General conditions of contract (GCC)
• Specifications
• Drawings
• Bill of quantities (priced BOQ)
• Addenda
• Any other relevant documents

Priority of Document

The documents forming the contract shall be interpreted in the following order of priority:

1. Contract Agreement
2. Letter of Acceptance
3. Contractor's Bid
4. Special Conditions of Contract
5. General Conditions of Contract
6. Specifications
7. Drawings
8. Bill of Quantities
9. Addenda

Factors in Preparing Contract Documents

• The contract must be fair
• The contract must be clear
• Contract language must be consistent
• No repetition (say it once, say it in proper place)
• Use each part of the contract for its proper purpose
• Contract information must be retrievable
• Use foresight (foresee possible problems and address them)
• If you want it, get it in the contract

Interpretation of Contract

• Contra Proferentem Rule: If a contract is capable of two different interpretations, the interpretation favoring the party that did not draft the document shall be adopted
• Ambiguity is resolved in favor of the non-drafting party

5.8 Important Contract Provisions

Liquidated Damages (LD)

• Liquidated (delay) damages = remedies to compensate for financial loss from proven breach of contract
• In Common Law Countries: Liquidated Damages
• In Civil Law Countries: Contractual Penalties

• Rate: 0.05% of contract price per day
• Maximum: 10% of total contract price

LD is NOT applicable if delay is due to:

• Delay in giving possession of the site
• Carrying out extra works
• Interfering extra items / increase in scope of works
• Price adjustment

Price Adjustment

• For contracts with duration exceeding 15 months, price may be adjusted
• Maximum adjustment: 25% of contract amount

Variation Order (VO)

• After starting work, if addition/reduction in quantity or addition of new items is required due to technical reasons
• Competent authority may issue a variation order for up to 15%

Advance Payment / Mobilization Amount

• May be made up to 20% of procurement contract price
• Advance shall be deducted from every running bill

Provisional Sum

• Amount allocated for specialized work by specialized firm, where details not available at tender time
• Represents best guess by employer/consultant
• Items: lab test, insurance, OSH, site office, environmental safeguards, survey instruments, etc.

Contingency

• Estimated costs of "known-unknowns" based on past experience
• Public projects: limited to 4% of estimated cost (2% work charge establishment + 2% minor physical contingencies)
• For construction >12 months: additional 20% (10% variations + 10% price adjustment) in budget

Interim Payment Certificates (IPC) / Running Bill

• Payment certificates issued periodically for work carried out
• Based on cumulative valuation of work done
• Payments on account are neither binding nor conclusive of acceptance of work

Taking Over Certificate (TOC)

• Most important milestone — handing over works to the client
• Site Manager must ensure notices are given in writing per Conditions of Contract
• Defect Liability Period (DLP) starts from date of issuing TOC

Defect Liability Period (DLP)

• Period after TOC where contractor is responsible for rectifying defects
• Starts from date of issuing TOC
• Typically one year for permanent works

5.9 Joint Venture (JV) 2079

• Joint Venture (JV) = business arrangement where two or more parties pool resources for a specific task
• Each participant responsible for profits, losses, and costs
• The venture is its own entity, separate from participants' other business interests
• Allows both parties to share burden and resulting profits

5.11 Other Important Terms

Line of Credit (LC)

• A flexible loan from a bank/financial institution
• Limited amount of money that can be accessed as needed and repaid over pre-specified period
• Interest paid only on money borrowed

Breach of Contract

• Violation of an obligation, engagement, duty or agreement
• Non-performance of a promise
• Refusal or neglect to execute as per contract
• Disrespect of contractual obligations

• Effects: Termination, claims, disputes, and arbitration situations
• A serious breach may be a "contract killer"

Termination of Contract

• When no further action is required
• By breach
• By mutual agreement
• By frustration (unforeseeable event destroys the basis of the contract)

Incoterms

• International Commercial Terms published by International Chamber of Commerce (ICC)
• Series of three-letter trade terms used in international transactions
• Incoterms 2010: 11 rules (reduced from 13 in 2000)
• 7 rules apply regardless of transport method; 4 apply only to water transport

5.12 FIDIC & FCAN

FCAN (Federation of Contractors' Associations of Nepal)

• Umbrella organization of all Nepalese contractors, formed in 1997
• Objectives:

• Unite all construction companies to protect, promote, and develop professional capabilities
• Promote unity, co-operation, and mutual help among contractors
• Advise and assist members in technical, non-technical and legal issues
• Render suggestions to government regarding policies, rules, and principles
• Mitigate dependence on foreign contractors
• Improve technical knowledge through lectures, seminars, etc.
• Acquire membership of international associations
• Involve in social service activities

FIDIC (Fédération Internationale Des Ingénieurs Conseils)

• International Federation of Consulting Engineers, formed in 1913
• Promotes interests of consulting engineering firms globally
• Best known for range of standard conditions of contract
• FIDIC forms are the most widely used standard contracts in construction industry

Rainbow Suite of FIDIC Contracts

1. Red Book: Conditions of Contract for Construction — Building and Engineering Works designed by Employer
2. Yellow Book: Conditions of Contract for Plant and Design-Build
3. Silver Book: Conditions of Contract for EPC/Turnkey Projects
4. Green Book: Conditions of Short Form of Contract
5. Blue Book: Contract for Dredging and Reclamation Works
6. White Book: Client/Consultant Model Services Agreement
7. Gold Book: FIDIC Design, Build and Operate Projects

Important Things to Consider