CHAPTER 4: CONTRACT MANAGEMENT

4.1 METHODS OF WORK EXECUTION / CONTRACTING 2082 2080 2079 2078 2076 2074 2069

Methods of Execution for Works / Goods 208020792076

1. Direct Purchase 2079

• Works: estimated cost ≤ NRs 5 Lakhs; Goods: ≤ NRs 3 Lakhs
• For amounts above NRs 25,000: minimum 3 quotations required
• Up to NRs 15 Lakhs for domestic one-time purchases
• Simplest and fastest procurement method; suitable for small, routine items

2. Sealed Quotation (SQ) 20822079

• Works: ≤ NRs 20 Lakhs; Goods: ≤ NRs 10 Lakhs
• Notice period: minimum 15 days
• Minimum 3 quotations required to proceed; bids opened in presence of bidders
• Bid validity: 45 days; Bid security validity: 75 days
• No withdrawal or modification of bid once submitted

3. National Competitive Bidding (NCB) 208220802076

• For works/goods exceeding SQ thresholds but below ICB thresholds
• Notice period: minimum 30 days, published in national newspapers
• Minimum 1 responsive bid sufficient to proceed
• Bid validity: 90 days (works) / 120 days (goods); Security validity: 120 / 150 days
• One-time withdrawal/modification allowed before deadline
• Joint Venture: maximum 3 firms, each contributing at least 25%

4. International Competitive Bidding (ICB) 20822076

• Notice period: minimum 45 days, published in English-language newspaper
• Diplomatic missions abroad must be notified
• Foreign bidders must submit company registration, audited financial statements, and country-of-origin information
• Used for large, complex, or donor-funded projects where domestic capacity may be insufficient

5. User’s Committee

• Community-based execution for local infrastructure (rural roads, water supply, small buildings)
• Maximum budget: NRs 60 Lakhs
• 1/3 of the contract amount given as mobilization advance
• Promotes community ownership and local employment

6. Other Methods

• Special Provision: Used under special circumstances defined by law
• Non-Government: When donor-specific procurement rules apply
• Amanat (Force Account): Government executes work using its own resources (labor, materials, equipment) without hiring a contractor — for emergency, security-sensitive, or highly specialized works

Methods for Consultancy Services 20782074

A. Competitive Selection

1. Publish EOI: Expression of Interest notice published in national newspapers (minimum 15 days)
2. Shortlisting: Evaluate EOI submissions and create a shortlist of 3–6 qualified firms
3. Issue RFP: Request for Proposal sent to shortlisted firms (minimum 30 days for submission)
4. Evaluate & Award: Technical + Financial proposals evaluated; contract negotiated with top-ranked firm

B. Direct Negotiation

Used for very small assignments, continuation of existing work, or emergency situations where competitive process is not feasible.

Pre-Qualification 2069

For contracts exceeding NRs 60 Lakhs (as per FAR Rule 65), pre-qualification is conducted before inviting bids. Only pre-qualified firms can bid.

Benefits of Pre-Qualification:

• Ensures only competent and experienced firms participate in bidding
• Reduces risk of contract failure and poor-quality work
• Saves time during bid evaluation (fewer unqualified bids)
• Promotes confidence among stakeholders and financing agencies
• Allows better risk assessment before awarding large contracts

4.2 TYPES OF CONTRACTS 2081 2080 2079 2078 2077 2076 2075 2074 2073 2072 2071 2070 2069

Definition of Contract 207820772070

A contract is a legally binding agreement between two or more competent parties that creates mutual obligations enforceable by law. It involves an exchange of promises (consideration) and is intended to create legal relations.

Agreement vs Contract 2079

Essential Elements of a Valid Contract 20812079207820772076207520742072207120702069

1. Offer & Acceptance: One party makes a definite offer; the other accepts it unconditionally
2. Competent Parties: Parties must have legal capacity to enter a contract
3. Mutual Intent: Both parties must intend to create legal relations (not just social agreement)
4. Consideration: Something of value exchanged between parties (payment for work/services)
5. Capacity: Parties must be above 16 years of age, of sound mind, and not disqualified by law
6. Lawful Purpose: The purpose/object of the contract must be legal and not against public policy
7. Free Consent: Agreement must be without coercion, undue influence, fraud, or misrepresentation
8. Possibility of Performance: The obligations undertaken must be capable of being performed
9. Certainty of Terms: Terms must be clear, definite, and not vague or ambiguous

Importance of Contract (13 Points) 20812079

1. Make formal legal relationship between parties
2. Record the rights and obligations of each party
3. Specify the scope and nature of work
4. Specify the quality standards and specifications
5. Specify the time frame for completion
6. Specify the method of payment
7. Specify the conditions for variation and claims
8. Specify dispute resolution mechanism
9. Identify risks and allocate them between parties
10. Set penalties for non-performance or breach
11. Define the procedure for contract administration
12. Define the roles/responsibilities of each party
13. Provide legal recourse in case of disputes or breach

Classification by Legal Relationship 208120782069

Valid Contract

A contract that satisfies all nine essential elements is a valid contract — legally enforceable and binding on all parties.

Void Contract 208120782069

A contract that has no legal effect from the beginning or becomes void subsequently. A void contract is not enforceable in court.

Conditions making a contract void (10):

1. Contract with a minor (below 16 years)
2. Contract with a person of unsound mind
3. Agreement without consideration
4. Agreement to perform an impossible act
5. Agreement with uncertain/vague terms
6. Agreement against public policy
7. Agreement in restraint of trade
8. Agreement in restraint of legal proceedings
9. Agreement in restraint of marriage
10. Wagering agreements (gambling)

Voidable Contract 20812069

A contract that is valid but can be voided at the option of the aggrieved party. The contract remains enforceable until the aggrieved party chooses to void it.

Grounds for voidability:

1. Coercion: Forcing consent by threat or violence
2. Undue Influence: Dominant party abusing position of power to obtain unfair advantage
3. Fraud: Intentional misrepresentation of facts to induce consent
4. Deceit (Misrepresentation): Innocent false statement of fact that induces consent

Types of Contract for Works 20802073

4.3 TENDERING PROCEDURE 2081 2080 2079 2078 2077 2076 2073 2072 2071 2070

Definition of Tender 207920782077207320712070

A tender is a written offer submitted by a bidder/contractor to execute a specified work at a certain rate or total amount within a stipulated time period, in accordance with specified conditions and specifications.

Purpose of Tendering (5 Points) 2079207820732070

1. Efficient Fund Use: Ensures public money is spent wisely through competitive pricing
2. Economy & Efficiency: Competition drives lower prices and better quality
3. Equal Opportunity: All qualified bidders get a fair chance to participate
4. Domestic Industry Promotion: Supports local contractors and suppliers
5. Transparency & Accountability: Formal documented process reduces corruption and favoritism

Tender Notice 20802079

A tender notice is an official announcement/advertisement inviting interested and eligible bidders to submit tenders for specified works, goods, or services. It is published in national newspapers of wide circulation.

Preparations Before Inviting Tender (7 Steps) 2073

1. Complete detail survey, design, drawings, and specifications
2. Prepare cost estimate (detailed or engineer’s estimate)
3. Obtain administrative and technical approval
4. Ensure budget allocation / financial provision
5. Prepare bid documents (ITB, GCC, SCC, BOQ, drawings)
6. Determine procurement method (Direct/SQ/NCB/ICB)
7. Get approval from the appropriate authority to publish notice

Information in Tender Notice (11 Items) 20792078207620712070

1. Name and address of the procuring entity (employer)
2. Project name, description, and location of work
3. Estimated cost of the project
4. Date of first publication of the notice
5. Place, date, and time to obtain bid documents
6. Cost of bid documents (non-refundable)
7. Last date and time for bid submission
8. Date, time, and place of bid opening
9. Amount and form of bid security (earnest money)
10. Eligibility and qualification requirements
11. Right of the employer to accept or reject any/all bids

Sample Tender Notice 2080 2079

Tendering Process Flow

Earnest Money (Bid Security) 2081

• Amount: 2–3% of estimated cost (5% for foreign bidders)
• Purpose: Guarantee that the bidder is serious and will not withdraw the bid
• Refunded: To unsuccessful bidders after contract signing; to successful bidder after furnishing performance security
• Forfeited: If bidder withdraws during bid validity, refuses to accept award, or fails to furnish performance security
• Submitted in the form of bank guarantee, demand draft, or cash deposit

Security Deposit (Performance Security) 2081

• Amount: 5% of contract amount (10% for foreign contractors)
• Includes: Earnest money amount is adjusted against performance security
• Purpose: Guarantee for faithful and timely performance of the contract
• Refunded: After the defect liability period (typically 12 months after completion) if no outstanding claims or defects
• Usually in the form of bank guarantee from a scheduled bank

4.4 CONTRACT AGREEMENT 2075 2073 2072 2071 2069

Conditions of Contract: GCC and SCC 20732069

General Conditions of Contract (GCC): Standard clauses that apply to all contracts of a similar nature. They are pre-printed and remain unchanged from project to project. GCC forms the backbone of the contract and covers general provisions, rights, and obligations.

Special Conditions of Contract (SCC) / Particular Conditions: Project-specific modifications or additions to the GCC that address unique aspects of a particular project (location, time, local conditions, special requirements).

Elements of GCC (15 Items) 20732069

1. Definitions and interpretation
2. Engineer / Project Manager — duties and authority
3. Assignment & subletting provisions
4. Contractor’s obligations and responsibilities
5. Time for completion and extensions
6. Delays and liquidated damages
7. Variations and adjustment of contract price
8. Payment terms (interim, final, retention)
9. Materials, equipment, and workmanship
10. Insurance requirements
11. Defect liability period
12. Termination of contract
13. Force majeure provisions
14. Dispute resolution (arbitration, adjudication)
15. Applicable law and jurisdiction

Contract Documents & Priority 20752071

In case of discrepancy between documents, the following order of priority applies (highest to lowest):

1. Contract Agreement (the signed agreement document)
2. Letter of Acceptance (formal acceptance of the bid)
3. Contractor’s Bid / Tender (the submitted offer)
4. Special Conditions of Contract (SCC)
5. General Conditions of Contract (GCC)
6. Technical Specifications
7. Drawings
8. Bill of Quantities (BOQ) / Schedule of Prices

Rules of Contract Interpretation 20732071

1. Self-explanatory Rule: The contract should be interpreted from its own language without reference to external evidence. Words are given their plain, ordinary meaning unless a technical meaning is specified.
2. Court Interpretation: When ambiguity exists that cannot be resolved by the parties, the court interprets the contract based on the intention of the parties at the time of making the contract.
3. Contra Proferentem Rule: Any ambiguity in a clause is interpreted against the party that drafted it. This protects the non-drafting party from unclear language.
4. Exclusion Clauses: Clauses that seek to exclude or limit liability must be clearly and expressly stated. Any ambiguity in exclusion clauses is interpreted narrowly (restrictively).

CHAPTER SUMMARY

Most Repeated Questions

Key Points to Remember