Cost&Contract

Table of Contents
SECTION-I ..........................................................................1
Contract Management........................................................1
Procurement .....................................................................1
Contract Management........................................................2
Procedures of open competitive bidding and Alternative
methods of procurements...........................................6
SECTION-II ......................................................................15
Procurement of Works......................................................15
Pre-Qualification of Bidders..............................................15
A. General............................................................................................................21
1. Scope of Application...........................................................................21
2. Source of Funds.................................................................................21
A. Requirements.............................................................25
1.Brief Description of the Scope........................................25
2.Major Contract Components...........................................25
3.Estimated Quantities of Major Components....................25
4.Methods Required.........................................................25
5.Contract Implementation Period....................................25
B. Supplementary Information........................................25
1.Project Country.............................................................25
2.Contract Site.................................................................25
C. Facilities to be Provided by the Employer....................25
PEC Bidding Documents for Procurement of Works............30
Bid Evaluation and Award of Contract...............................43
The Role of the Employer & the Contractor........................52
Risk Allocation & Management in Construction Contracts. .56
Guide Book Cost and Contracts
ii Table of Contents
Construction Claims Management.....................................62
Price Adjustment in Construction Contract........................81
SECTION-III.......................................................................88
Procurement of Goods......................................................88
Introduction.....................................................................88
The Bidding Documents for Procurement of Goods generally
used, are based on documents prepared by the World
Bank 1997, 2001 and 2004, revised upto 2010...........88
INCOTERMS....................................................................107
International Commercial Terms.....................................107
Incoterms 2010............................................................111
Main features of the Incoterms 2010 rules....................111
Two new Incoterms rules DAT and DAP have replaced the
Incoterms 2000 rules DAF, DES, DEQ and DDU.........111
Documentary Credits in International Business Transactions
..............................................................................113
International Trade.........................................................113
In an international trade transaction involving goods or
services, the buyer and the seller negotiate details
about the method and timing of both payments and
delivery. ................................................................113
Dispute Settlement Provisions in Goods Contracts..........124
Essential elements of good contract management...........124
The right contract with right specifications and terms. ...124
www.pakistanconstitution-law.org..................................134
SECTION-IV.....................................................................135
Procurement of Consulting Services................................135
Introduction:..................................................................135
1.1 143
SECTION-I iii
152
Estimating Cost and Budget for Consulting Services.......163
Introduction.......................................................................................................163
Price Adjustment in Consultancy Contract......................................................170
Introduction.......................................................................................................170
In order to adjust the remuneration for foreign and/or local inflation, a price
adjustment provision should be included in the Contract...................170
PEC: 170
SECTION-V......................................................................173
Engineering Cost Management........................................173
Project Management.......................................................173
173
Note: For further information refer following websites;...181
Budget for Construction Projects....................................182
Bills of Quantities and Schedule of Rates ........................189
Bills of Quantities (BoQ) .................................................189
A quantified and completed list of works describing the full
requirements in the drawings and specifications. The
rates are quoted by the contractors........................189
Importance of BoQs........................................................189
Avoid unnecessary effort from multiple contractors to
prepare the tender.................................................189
Provide a standard basis for the tender purpose.............189
Provide Quality control...................................................189
Assist the tender evaluation ..........................................189
Provide rates for valuation of variations.........................189
Provide the basis for the payment purpose.....................189
Provide basis for financial reporting/cash flow................189
Schedule of Rates (SoR)..................................................189
iv Table of Contents
A schedule listing the works with the rates to provide a list
of rates for the valuation purposes in conformance to
the standard specifications.....................................189
Importance of Schedule of Rates ....................................189
Cost Estimation..............................................................189
Precision........................................................................189
Uniformity......................................................................189
Transparency.................................................................189
Quick.............................................................................189
Differences between BoQ & SoR......................................189
BoQ 189
Quantities form part of the Contract...............................189
Buildup the tender/contract sum.....................................189
Provide a list of rates for the valuation of a set purposed
work.......................................................................189
Take longer preparation time for all consultants.............189
SoR 189
The Quantities do not form part of the contract. .....189
Provide a list of rates for the valuation of works or
component of a work..............................................189
Buildup the Engineers Estimate/tender sum...................189
Usually based on standard specifications and drawings not
fully detailed. ........................................................189
The time required is usually shorter................................189
Specifications:................................................................190
Specifications are written descriptions of materials and
construction processes in relation to performance,
characteristics, installation and quality of work
requirements..........................................................190
SECTION-I v
Drawings:.......................................................................191
Drawings are the graphic means of showing work to be
done, as they depict shape, dimension, location,
measurement of material and relationship between
building components..............................................191
Rates of Materials, Labour & Rental charges of
Plant/Equipment;....................................................191
Rates collection; directly from markets, manufacturers,
suppliers, vendors and form different sources in a
district or city.........................................................191
Rate determination; by applying transportation charges to
Ex-factory/Ex-source rates......................................191
Identification of materials and their sources in a particular
district or city.........................................................191
Labour rates are different in different areas, mostly
obtained from Revenue Department.......................191
Plant/Equipments rental charges are almost same at all
places....................................................................191
The rates are derived at district head quarter /city level..191
Processing of Collected Rates;........................................191
At least from three Sources, Verification of these Rates and
then Comparison for their suitability of use is carried
out. .............................................................191
Quantities of different materials in a unit quantity of work
item, worked out based on specifications, experiences,
proven facts and references...................................192
Wastage of material in a unit quantity of work is considered
as 2% to 7% depending upon construction activity and
execution technique...............................................192
Labour inputs are different from place to place depending
upon socio-economical conditions...........................192
The efficiencies of equipments or machines remain all most
unchanged at all places..........................................192
vi Table of Contents
SECTION-VI.....................................................................195
FIDIC Conditions of Contracts..........................................195
SECTION-I 1
SECTION-I
Contract Management
Procurement
In order to describe how procurement should be planned and implemented by the Employer,
it is appropriate to establish at the outset why this topic is worthy of attention. This inquiry
can be fruitfully addressed by approaching it from following three linked perspectives:
(a) The constituents of proficient public procurement and its distinguishing characteristics;
(b) Its importance; and
(c) Priority of its achievement and maintenance.
Proficient procurement
The principal distinctive characteristics of proficient public procurement are:
Economy;
Efficiency;
Fairness;
Reliability;
Transparency; and
Accountability and Ethical Standards.
Economy:
Procurement is a purchasing activity whose purpose is to give the purchaser best value for
money. For complex purchases, value may imply more than just price, for example, since
quality issues also need to be addressed. Moreover, lowest initial price may not equate to low-
est cost over the operating life of the item procured. But the basic point is the same: the ulti-
mate purpose of sound procurement is to obtain maximum value for money.
Efficiency:
The best public procurement is simple and swift, producing positive results without protracted
delays. In addition, efficiency implies practicality, especially in terms of compatibility with
the administrative resources and professional capabilities of the purchasing entity and its pro-
curement personnel.
Fairness:
Good procurement is impartial, consistent, and therefore reliable. It offers all interested con-
tractors, suppliers and consultants a level playing field on which to compete and thereby, di-
rectly expands the purchasers options and opportunities.
Transparency:
Good procurement establishes and then maintains rules and procedures that are accessible
and unambiguous. It is not only fair, but should be seen to be fair.
Accountability and Ethical Standards:
Good procurement holds its practitioners responsible for enforcing and obeying the rules. It
makes them subject to challenge and to sanction, if appropriate, for neglecting or bending
those rules. Accountability is at once a key inducement to individual and institutional probity,
a key deterrent to collusion and corruption, and a key prerequisite for procurement credibility.
A sound procurement system is one that combines all the above elements. This directly and
concretely benefits the Employers, the Purchasing entities, responsive Contractors and
Suppliers, and the donor agencies providing the project finance.
2 SECTION-I
The Employer should establish fundamental rules for the use of its funds and for supervising
the execution of projects. Four considerations guide these rules:
(a) Ensuring economy and efficiency in project implementation including the procurement of
goods, works and services;
(b) Giving eligible bidders from member countries a fair opportunity to compete in
procurement;
(c) Encouraging the development of domestic industries and consulting services; and
(d) Providing for transparency in the procurement process.
PROCUREMENT LIFE CYCLE PHASE
Procurement Life Cycle commences from the procurement planning phase to post
contract review phase.
Throughout this period consideration is being given to the requirements of how the
contract will be managed based on consideration of the value, complexity, strategic im-
portance, risk, the general market maturity and the selected supplier capability.
Contract Management
Contract management is the process that enables both parties to a contract to meet their obli-
gations in order to deliver the objectives required from the contract. It also involves building a
good working relationship between the parties. It continues throughout the life of a contract
and involves managing proactively to anticipate future needs as well as reacting to situations
that arise. Contract Management is:
Process enabling both parties to meet obligation
Involves building good working relationship
Enables & assists in anticipating future needs
Implemented through the Contract Management Plan
Importance of contract management
The importance of contract management is to ensure that services / works are provided:
To the required standard;
SECTION-I 3
Within the agreed timeframe; and
Achieving value for money.
The key point is that the foundations for contract management are laid in the stages before
contract is awarded, including the procurement process. The terms of the contract should
include an agreed level of service, pricing mechanisms, incentives, contract timetable, means
to measure performance, communication routes, escalation procedures, change control
procedures, agreed exit strategy and agreed break options, and all the other formal
mechanisms that enable a contract to function. These formal contract aspects form the
framework around which a good relationship can grow. If the contract was poorly
constructed, it will be much more difficult to make the relationship a success.
CONTRACT MANAGEMENT PHASE
In planning for contract management it is often broken down into three broad areas:
Service delivery management;
Relationship management; and
Contract administration.
All the three areas must be managed for successful completion of contract.
Service Delivery Management
Service delivery management is concerned with ensuring the service is being fully delivered:
As agreed;
To the required level of performance; and
Quality.
The contract should define the service levels and terms under which a service is provided.
Service level management is about assessing and managing the performance of the service
provider to ensure value for money. Considering service quality against cost leads to an
assessment of the value for money that a contract is providing. Thus Managing service
delivery means ensuring that what has been agreed is delivered, to appropriate quality
standards.
Relationship Management
As well as the contractual and commercial aspects, the relationship between the parties is vi-
tal to making a success of the arrangement. Relationships should be managed in a profession-
al manner and be based on cooperation and mutual understanding taking into account the
need for probity and ethical behaviour. Maintaining a good relationship does not mean that
the terms of the contract are not enforced where this is warranted. It is about enforcing the
terms of the contract in a professional manner based on evidence of contractual performance.
This requires the establishment and maintenance of an appropriate record trail. What is nec-
essary in the circumstances will vary but the importance of the maintenance of accurate, con-
temporaneous records to successful contract management cannot be underemphasized. The
approach to relationship development will vary depending on the contract, but it is important
that the specific responsibilities are not neglected, even though there may not be a nominated
individual assigned to the role of relationship manager.
Relationship management is focused on keeping the relationship between the two parties:
Open and constructive;
Resolving or easing tensions; and
4 SECTION-I
Identifying problems early.
In long term contracts, where interdependency between the parties is inevitable, it is in the in-
terests for the success full contracts to make the relationship work. The three key factors for
success are trust, communication, and recognition of mutual aims. A structured approach to
managing relationships should be adopted, comprising of informal, day to day discussions
and interactions and formal meetings at pre-determined intervals with nominated personnel
from both the parties.
Contract Administration
Contract administration covers the formal governance of the contract. These may include:
Contract maintenance;
Change control;
Cost monitoring;
Ordering procedures;
Payment procedures; and
Management reporting.
The importance of contract administration to the success of the contract, and to the
relationship between the parties, should not be underestimated. Clear administrative
procedures ensure that all 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 (required by changes to services or procedures) carefully controlled.
These procedures are normally documented in the contract management plan.
The Contract Management plan
The written contract is a record of each partys obligations. The contract management plan
might include:
o A summary by date of milestones and deliverables,
o Key individuals and their responsibilities e.g. the contract manager, gover-
nance board.
o A schedule of risks that have been identified and are being monitored and
managed.
o Reporting.
o Meeting schedules and any standard agenda items.
o Processes around how the contractual obligations are to be achieved.
o Procedures for the management of any specific activities in the contract.
o Contract variations. Details of the approval process and approval authorities.
o Details of any ordering procedures.
o Payment procedures
Construction projects are becoming more and more complex due to new standards, advanced
technologies, and owner-desired additions and changes. While the successful completion of
projects has been thought to depend mainly on cooperation between the contractor, consul-
tant, and owner, problems and disputes have always erupted due to conflicting opinions as to
the various aspects of design and construction. However these may be averted with the appli-
cation of greater sense of responsibility, lies on parties to contract for successful completion
of works.
SECTION-I 5
Contract Management solution is a must in your organization if;
You want compliance with contract prices as well as terms and conditions,
You want structured contract metadata to enable such things as risk analysis and plan-
ning; better supplier performance measurement and management; better opportunity dis-
covery for strategic sourcing, and compliance measurement and management,
You want more discipline, greater efficiency, and more speed in your process for contract
authoring,
You want all contracts with suppliers to consistently reflect enterprise financial and legal
standard terms, language, and priorities,
You want to be able to give more people access to contract data and documents without
sacrificing security,
You want to make it easier for people to comply by making it easy for them to search for
contracts and to extract the information they need from within contracts, and
You want audit trails and version controls around contract authoring and negotiation.
Successful Contract Management
A Successful contract management is defined as when:
The arrangements for service delivery continue to be satisfactory to employer /
client / customer and contractor / supplier / provider,
Expected business benefits and value for money are being realised,
The contractor / supplier / provider is co-operative and responsive,
The employer / client / customer knows its obligations under the contract,
Disputes are minimum,
There are no surprises for either party.
6 SECTION-I
Procedures of open competitive bidding and Alternative methods of
procurements
Procurement Planning Guidelines
General Considerations for implementation of work
Scope of work
Financing
Eligibility
Joint Ventures
Misprocurement
Fraud and Corruption
Procurement Plan
Type and Size of Contracts
Type of Bidding
Notification and Advertising
Prequalification of Bidders
Bidding Documents
General
Validity of Bids and Bid Security
Language
Clarity of Bidding Documents
Standards
Use of Brand Names
Pricing
Price Adjustment
Transportation and Insurance
Currency Provisions
Currency of Bid
Currency Conversion for Bid Comparison
Currency of Payment
Terms and Methods of Payment
Alternative Bids
Conditions of Contract
Performance Security
Liquidated Damages and Bonus Clauses
Force Majeure
Applicable Law and Settlement of Disputes
SECTION-I 7
Bid Opening, Evaluation, and Award of Contract
' Time for Preparation of Bids
' Bid Opening Procedures
' Clarifications or Alterations of Bids
' Confidentiality
' Examination of Bids
' Evaluation and Comparison of Bids
' Domestic Preferences
' Extension of Validity of Bids
' Post-qualification of Bidders
' Award of Contract
' Publication of the Award of Contract
' Rejection of All Bids
Invitation for Bids (Important Public Procurement Rules are summarised below)
PPR-12 Methods of advertisement
(1) Procurements for Govt. Departments; over hundred thousand rupees and up to the
limit of two million rupees shall be advertised on the PPRAs website in the manner
and format specified by regulation by the PPRA from time to time. These procurement
opportunities may also be advertised in print media, if deemed necessary by the
procuring agency. Procurements for Autonomous Bodies; this limit is for more than
five hundred thousand rupees.
(2) All procurement opportunities for Govt. Departments; over two million rupees
should be advertised on the PPRAs website as well as in other print media or newspa-
pers having wide circulation. The advertisement in the newspapers shall principally
appear in at least two national dailies, one in English and the other in Urdu.
PPRA require minimum information:
1. Name of procuring agency.
2. Tender number (for identification)
3. Procurement Title (indicating type and quantity).
4. Contact person (for seeking bidding documents).
5. Last date for obtaining bidding documents and its price (if any).
6. Closing time and date as well as place for receiving bids.
7. Time and Place of public opening of bids (Bids must be opened on the closing date).
8. Amount of bid security (%age of bid price or lump sum).
9. Time period for performance of contract.
PPR-13 Response time
The response time shall not be less than fifteen working days for national competitive
bidding and thirty working days for international competitive bidding from the date of
publication of advertisement or notice.
(PEC - preparation and submission of bids may take 42 to 154 days depending on the size of
the Works, Civil and E&M)
8 SECTION-I
PPR-15 Pre-qualification
A procuring agency, prior to the floating of tenders, invitation to proposals or offers in
procurement proceedings, may engage in pre-qualification of bidders.
PPR-20 Principal method of procurement
The procuring agencies shall use open competitive bidding as the principal method of
procurement for the procurement of goods, services and works.
PPR-21 Open competitive bidding
The procuring agencies shall engage in open competitive bidding if the cost of the object to be
procured is more than one hundred thousand rupees in case of Govt. Departments and five
hundred thousand rupees in case of Autonomous bodies, except provisions given under
PPR-42, Alternative methods of procurements.
PPR-25 Bid security
The procuring agency may require the bidders to furnish a bid security not exceeding five
per cent of the bid price.
(PEC - a lump sum figure ranging from 1% to 3% of the likely cost of the Works or a
percentage ranging from 1 % to 3 % of the Bid Price for Civil and E&M works)
PPR-26 Bid validity
A procuring agency, keeping in view the nature of the procurement, shall subject the bid to a
bid validity period. However under exceptional circumstances, if an extension is considered
necessary, all those who have submitted their bids shall be asked to extend their respective
bid validity period. Such extension shall be for not more than the period equal to the period of
the original bid validity.
The Bidders who agree to the procuring agencys request for extension of bid validity period
shall not be permitted to change the substance of their bids; and if do not agree to the exten-
sion shall be allowed to withdraw their bids without forfeiture of their bid bonds or securities
(PEC - the period of bid validity may range from 56 to 182 days depending upon the
size and nature of the Works, Civil and E&M)
Bids Opening
PPR-28 Opening of bids
The bids shall be opened at least thirty minutes after the deadline for submission of bids on
the same day.
PPR-31 Clarification of bids
No bidder shall be allowed to alter or modify his bid after the bids have been opened. Howev-
er the procuring agency may seek and accept clarifications to the bid that do not change the
substance of the bid. The clarification and the response shall be in writing.
PPR-33 Rejection of bids
The procuring agency may reject all bids or proposals at any time prior to the acceptance of a
bid or proposal. The procuring agency shall communicate, the grounds for its rejection of bids
or proposals, but not required to justify those grounds.
PPR-34 Re-bidding
The procuring agency before invitation for re-bidding may revise specifications, evaluation
criteria or any other condition for bidders as it may deem necessary.
SECTION-I 9
[As per PPRA, if all the bids prices substantially exceed the cost estimated/market value, the
procuring agency is allowed to cancel all the bids prior to acceptance as provided under
Rule-33 and invoke Rule 34 for re-bidding.]
PPR-35 Announcement of evaluation reports
Procuring agencies shall announce the results of bid evaluation in the form of a report giving
justification for acceptance or rejection of bids at least ten days prior to the award of
procurement contract.
PROCEDURES OF OPEN COMPETITIVE BIDDING
PPR-36 Procedures of open competitive bidding
The following procedures shall be permissible for open competitive bidding:
1. Single stage one envelope procedure
2. Single stage two envelope procedure
3. Two stage
4. Two stage two envelope procedure
1. Single stage one envelope procedure
Each bid shall comprise one single envelope.
The envelope shall contain, financial proposal and technical proposal.
All bids received shall be opened and evaluated in the manner prescribed in the bid-
ding document.
The bid found to be the lowest evaluated responsive bid shall be accepted.
Note: This procedure is ordinarily the main open competitive bidding procedure used for
most of the procurement.
Example:
Bidder Responsive Bid
Corrected Bid
Price
Lowest Responsive
Bidder
Name Pre-Qualification Status Rs in million Award
A Qualified Responsive 1000 A
B Qualified Responsive 1100 -
C Not Qualified Not invited - -
D Qualified Non Responsive 900 -
E Not Qualified Not invited - -
F Qualified Responsive 1200 -
2. Single stage two envelope procedure
The bid shall comprise a single package containing two separate envelopes. Each en-
velope shall contain separately the financial proposal and the technical proposal;
10 SECTION-I
The envelopes shall be marked as FINANCIAL PROPOSAL and TECHNICAL
PROPOSAL;
Initially, only the envelope marked TECHNICAL PROPOSAL shall be opened;
The envelope marked as FINANCIAL PROPOSAL shall be retained with the
procuring agency without being opened;
The procuring agency shall evaluate the technical proposal without reference to the
price and reject any proposal which does not conform to the specified requirements;
During the technical evaluation no amendments in the technical proposal shall be per-
mitted;
After the evaluation and approval of the technical proposal the procuring agency,
shall at a time, date and venue within the bid validity period, publicly open the finan-
cial proposals of the technically accepted bids only;
For the opening of financial proposals of bids all the bidders who have participated
will be invited.
The financial proposal of bids found technically non-responsive shall be returned un-
opened to the respective bidders;
The bid found to be the lowest evaluated bid shall be accepted.
Example:
Bidder Technical Proposal Financial Proposal
Lowest Responsive
Bidder
Status Status Rs in million Award
A Qualified Responsive 1000 A
B Qualified Responsive 1100 -
C Not Qualified Not opened - -
D Qualified Non Responsive 900 -
E Not Qualified Not opened - -
F Qualified Responsive 1200 -
Note:
This procedure may be termed as the modified form of Post-Qualification.
Single stage two envelope bidding procedure shall be used where the bids are to
be evaluated on technical and financial grounds and price is taken into account
after technical evaluation.
In this Bidding method, the Employer is well aware of the work in hand, its de-
sign and speciations.
3. Two stage procedure
First stage
The bidders shall first submit, according to the required specifications, a technical
proposal without price;
SECTION-I 11
The technical proposal shall be evaluated in accordance with the specified evaluation
criteria and may be discussed with the bidders regarding any deficiencies and unsatis-
factory technical features;
After such discussions, all the bidders shall be permitted to revise their respective
technical proposals to meet the requirements of the procuring agency;
The procuring agency may revise, delete, modify or add any aspect of the technical re-
quirements or evaluation criteria, or it may add new requirements;
Those bidders not willing to conform their respective bids to the procuring agencys
technical requirements may be allowed to withdraw from the bidding without forfei-
ture of their bid security;
Note: Such revisions, deletions, modifications or additions are communicated to all the
bidders equally at the time of invitation to submit final bids, and that sufficient time is
allowed to the bidders to prepare their revised bids.
Second stage
The bidders, whose technical proposals or bids have not been rejected and who are
willing to conform their bids to the revised technical requirements of the procuring
agency, shall be invited to submit a revised technical proposal along with the financial
proposal;
The revised technical proposal and the financial proposal shall be opened at a time,
date and venue announced and communicated to the bidders in advance;
The revised technical proposal and the financial proposal shall be evaluated in the
manner prescribed above.
The bid found to be the lowest evaluated shall be accepted.
Note: For the submission of the revised technical proposal and financial proposal the
procuring agency shall allow sufficient time to the bidders to incorporate the agreed
upon changes in the technical proposal and prepare their financial proposals
accordingly.
Two stage bidding procedure shall be adopted in large and complex contracts where
technically unequal proposals are likely to be encountered or where the procuring
agency is aware of its options in the market but, for a given set of performance re-
quirements, there are two or more equally acceptable technical solutions available to
the procuring agency.
4. Two stage - two envelope procedure
First stage
The bid shall comprise a single package containing two separate envelopes. Each en-
velope shall contain separately the financial proposal and the technical proposal;
The envelopes shall be marked as FINANCIAL PROPOSAL and TECHNICAL
PROPOSAL;
Initially, only the envelope marked TECHNICAL PROPOSAL shall be opened;
The envelope marked as FINANCIAL PROPOSAL shall be retained in the custody
of the procuring agency without being opened;
12 SECTION-I
The technical proposal shall be discussed with the bidders with reference to the
procuring agencys technical requirements;
Those bidders willing to meet the requirements of the procuring agency shall be al-
lowed to revise their technical proposals following these discussions;
Bidders not willing to conform their technical proposal to the revised requirements of
the procuring agency shall be allowed to withdraw their respective bids without forfei-
ture of their bid security;
Second stage
After agreement between the procuring agency and the bidders on the technical re-
quirements, bidders who are willing to conform to the revised technical specifications
and whose bids have not already been rejected shall submit a revised technical pro-
posal and supplementary financial proposal, according to the technical requirement;
The revised technical proposal along with the original financial proposal and supple-
mentary financial proposal shall be opened at a date, time and venue announced in ad-
vance by the procuring agency;
The procuring agency shall evaluate the whole proposal in accordance with the evalu-
ation criteria and the bid found to be the lowest evaluated bid shall be accepted.
Note: For the submission of the revised technical proposal and supplementary price
proposal a procuring agency shall allow sufficient time to the bidders to incorporate
the agreed upon changes in the technical proposal and to prepare the required
supplementary financial proposal.
Two stage two envelope bidding method shall be used for procurement where alterna-
tive technical proposals are possible, such as certain type of machinery or equipment
or manufacturing plant.
Acceptance of bids and award of contracts
PPR-38 Acceptance of bids
The bidder with the lowest evaluated responsive bid shall be awarded the contract, within the
original or extended period of bid validity.
[Public Procurement Rules, 2004 don't put any limit on number of tenders/ bids received in
response to tender notices provided that the procurement opportunity has been advertised in
the prescribed manner. The single bid may be considered if it meets the evaluation criteria
expressed in tender notice and is not in conflict with any other rules, regulations or policy of
the Federal Government.]
PPR-39 Performance guarantee
The procuring agency shall require the successful bidder to furnish a performance guarantee
which shall not exceed ten per cent of the contract amount.
(PEC - an amount equal to 10 percent of the Contract Price is commonly specified for
bank guarantees)
PPR-40 Limitation on negotiations
SECTION-I 13
There shall be no negotiations with the bidder having submitted the lowest evaluated bid or
with any other bidder.
PPR-41 Confidentiality
The procuring agency shall keep all information regarding the bid evaluation confidential
until the time of the announcement of the evaluation report.
ALTERNATIVE METHODS OF PROCUREMENTS
PPR - 42
a) Petty purchases
The object of the procurement is below the financial limit of Rs 25,000 (twenty five
thousand rupees). Such procurement shall be exempt from the requirements of bidding
or quotation of prices:
b) Request for quotations
(i) The cost of object of procurement is below the prescribed limit of Rs 100,000
(Rupees one hundred thousand) for Govt. Departments and Rs 500,000 (Ru-
pees five hundred thousand) for Autonomous bodies;
(ii) The object of the procurement has standard specifications;
(iii) Minimum of three quotations have been obtained; and
(iv) The object of the procurement is purchased from the supplier offering the low-
est price:
c) Direct contracting
(i) The procurement concerns the acquisition of spare parts or supplementary ser-
vices from original manufacturer or supplier:
(ii) only one manufacturer or supplier exists for the required procurement:
(iii) Where a change of supplier would oblige to acquire material having different
technical specifications or characteristics and would result in incompatibility
or disproportionate technical difficulties in operation and maintenance:
(iv) The contract(s) do not exceed three years in duration;
(v) Repeat orders not exceeding fifteen per cent of the original procurement;
(vi) In case of an emergency:
(vii) When the price of goods, services or works is fixed by the government or any
other authority, agency or body duly authorized by the Government, on its be-
half, and
(viii) For purchase of motor vehicle from local original manufacturers or their au-
thorized agents at manufacturers price.
d) Negotiated tendering
(i) For the supplies involved are manufactured purely for the purpose of support-
ing a specific piece of research or an experiment, a study or a particular devel-
opment;
14 SECTION-I
(ii) For technical or artistic reasons, or for reasons connected with protection of
exclusive rights or intellectual property, the supplies may be manufactured or
delivered only by a particular supplier;
(iii) For reasons of extreme urgency brought about by events unforeseeable by the
procuring agency, the time limits laid down for open and limited bidding
methods cannot be met. The circumstances invoked to justify extreme urgency
must not be attributable to the procuring agency:
Note: For complete set of PPRA Rules, refer S.R.O. 432(I)/2004, dated 09-06-2004,
Amended upto vide Cabinet Division No. 5/37/2005-M-III/Admin (PPRA), dated
23-09-2008.
SECTION-I 15
SECTION-II
Procurement of Works
Pre-Qualification of Bidders
Introduction:
The successful execution of contracts for large civil engineering works, supply and
installation, turnkey, and design & and build projects requires that contracts be awarded only
to firms, or combinations of firms, that are suitably experienced in the type of work and
construction technology involved, that are financially and managerially sound, and that can
provide all the equipment required in a timely manner. The assessment by an implementing
agency of the suitability of firms to carry out a particular contract prior to being invited to
submit a bid is a process called pre-qualification.
WB, ADB and most multilateral financing institutions require pre-qualification of
firms for the construction of large or complex Works contracts.
PPR-15: A procuring agency, may engage in pre-qualification of bidders in case of
services, civil works, turnkey projects and in case of procurement of expensive and
technically complex equipment.
PEC Works bye-laws-4(4): A license granted by the Council shall entitle a licensee to
perform an engineering work for the Client or Employer. However, the Client or Em-
ployer may prescribe his own requirements over and above the requirements for li-
cense prescribed by the Council.
WAPDA
For works worth more than Rs 250 million, pre-qualification of bidders is mandatory.
For works of Special nature valuing less than Rs 250 million, pre-qualification of bid-
ders may be carried out.
Pre-qualification of bidders to be decided by the authority next above the authority
competent to accept the Bid, upto Members/Managing Directors.
Advantage of Pre-qualification:
O Early elimination of non-conforming bidders.
O Selection of homogenous bidders.
O Encouraging genuine competitors to avoid unrealistic competitors.
O Reduce bid evaluation efforts.
O Allows adjustment/modifications in the bidding documents from the trend of appli-
cants.
O Facilitates Joint Venture formulation of pre-qualified bidders.
O Reduce problems of low priced bids.
O Help the non-qualified bidders from bidding efforts.
O Enables the Employer to access bidders eligibility for domestic bidder price prefer-
ence where this is applicable.
O Where a project is divided into separate contracts, applicants may be pre-qualified
through a single pre-qualification exercise.
Disadvantage of Pre-qualification:
o Loss of time and efforts before bidding
16 SECTION-II
o For normal projects, duplicity against PEC licensing (possibility of price-rigging is
easier among a limited number of identified bidders)
o Employer is required to review all prequalification applications, whereas post-qualifi-
cation requires review of the qualifications of, the bidder who have quoted the lowest
price, however if it fails then the qualifications of 2
nd
lowest proposer is evaluated and
so on.
o Time gap between pre-qualification and bidding may nullify effect and/or loss of left
over bidders
Areas for Pre-Qualification:
Section 4(4) & 7(3) of PEC W/bye-laws and PPRs-15(2) envisage following areas for Pre-
qualification:
Financial Soundness
Plant, Equipment and Personnel Capabilities
Previous experience (how a new contractor can work?)
Business Management Capabilities
Specific Expertise
Current PEC License
Any other area required relevant to work
The Pre-qualification Process
The pre-qualification process includes four main phases:
i. Advertising
ii. Preparation and Issuing of the Pre-qualification Document
iii. Application Preparation and Submission
iv. Application Evaluation, and Pre-qualification of Applicants
Pre-qualification of Bidders
(Based on PEC Standard Procedure for Pre-Qualification of Constructors)
E Invitation for Pre-qualification
E Pre-qualification Documents :
Invitation for Pre-qualification
Instructions to Applicants
Evaluation Criteria
Letter of Application to be filled in Applicants
Various forms according to the work
E Evaluation of the bidders
E Communication of the evaluation result on pass/fail basis
Preparing Invitation:
1. Name of the Executing Agency and Name of Project
2. Name of Executing Agency and General Project descriptions with location, nature and
complexity of works
SECTION-II 17
3. Expected date of issue of Invitation to Bid
4. Specify PEC construction license category
5. Address of Employer and Applicant
6. Amount of non refundable fee towards documents and Cost of mailing
7. Minimum essential requirements: may be number of projects completed, referred to
Instructions to Application documents.
8. Delivery address, Last date of delivery, and project /Contact number
9. Name of Employer
Instructions to Applicants:
All blank spaces to be filled in and instructions within parenthesis to be deleted.
Original plus No of copies of submission
Time period for Application submission
Name of the Project
Location, Time and Date for clarification, if provided
Qualification Criteria
Sr. No. Category Weightage/Marks
1. Financial Soundness 30
2. Experience Record 35
3. Personnel Capabilities 15
4. Equipment Capabilities 20
Total: 100
Prequalification status shall be decided on Pass/Fail basis.
The applicant must score at least 50% score in each category.
Qualification Sub-Criteria
1. Financial Position:
Sr. Nr. Description Maximum Marks
1.1 Available Bank Credit Line 5
1.2 Working Capital during last 3 years 5
1.3 Registration with Income Tax Department 5
1.4
Litigation History where decision went against the
Firm
5
1.5 Blacklisting from any Agency 5
1.6 Valid License for other related items of Work 5
Sub-total: 30
2. General Experience:
Sr. Nr. Description Maximum Points
2.1
Projects of similar nature and complexity
completed during latest 10 years
15
2.2 Projects of similar nature and complexity in hand 10
2.3 Experience of Works related to project but not 5
18 SECTION-II
basic part (general experience)
2.4
Status of enlistment with Government
Organizations and other agencies
5
Sub-total: 35
3. Personnel Capabilities:
Sr. Nr. Description Maximum Points
3.1 Graduate Engineers Registered with PEC
a)Number of Engineers
b)Experience of Engineers in number of years
6
3
3.2 Number of Diploma Engineers in Employment of
the Firm
a)Number of Engineers
b)Experience of Engineers in number of years.
4
2
Sub-total: 15
4. Equipment Capabilities (List relevant equipment and Assign Marks):
Sr. Nr. Equipment Type and Characteristics Maximum Marks
4.1 [e.g. Concrete Static mixer 0.4 cum capacity 2
4.2 Dumper 10 Ton Capacity 2
4.3 Mobile Crane 10 Ton etc.] 3
4.4
Sub-total: 20
Letter of Application:
E Employer to fill-in for their part
E Some of the instructions and spaces attributable to Applicant shall be retained
E Applicant must sign the Application in order to avoid disqualification
Forms;
Forms are annexed for obtaining information of applicants as General Experience Record,
Joint Venture Summary, Particular Experience Record, Details of Contracts of Similar Nature
and Complexity, Current Contract Commitments/ Works in Progress, Personnel Capabilities,
Candidate Summary, Equipment Capabilities, Financial Capability and Litigation History.
Evaluation Criteria:
Applicants meeting the minimum requirements mentioned above besides other factors shall
be considered for pre-qualification. No compromise shall be made on minimum requirements
of 50% score in each category.
Evaluation Result (Passing/Maximum):
Bidder
Financial Experience Personnel
Tool &
Plant
Total
Marks
PEC
Category
Status
15/30 17.5/35 7.5/15 10/20 50/100 A/B Q/CQ/NQ
SECTION-II 19
A 18 23 14 13 68 A Q
B 0 2 4 18 24 B NQ
C 0 3 0 13 16 B NQ
D 30 24 15 19 88 A Q
E 12 27 12 16 67 B CQ
F 12 25 5 17 59 B CQ
Q=Qualified, CQ=Conditional Qualified, NQ=Not Qualified
PEC Evaluation Criteria for Qualification; An example merely as guideline is given in
detail in PEC Procedure for pre-qualification of constructors.
PEC Pre-qualification documents based on Engineering Works bye-Laws:
E Pre-qualification is an assessment made by the Employer, of the appropriate level of
experience and capacity of firms before inviting a constructor to bid.
E Bidder/Constructor means any person, partnership, corporate body or other legal
entity registered or licensed as such by the PEC (works/bye-laws 2(f)).
E Sub-contractor means the constructor who has been sublet work by the prime con-
tractor (w/bye-laws 2(n)).
E Construction Contract means the contract under which the contractor promises to
complete the project undertaken by him through prime contract, sub-contract or in any
other form of contract regardless of the appellation thereof, and the other party prom-
ises to duly effect the payment for such project executed by the said contractor
(w/bye-laws 2(e)).
E Construction of an engineering work shall also mean to include surveys, sub-soil
and other investigations, erection, installation, testing and commissioning and execu-
tion of any other activities required to achieve the desired final shape of an engineer-
ing work, and shall also include extension remodeling, rebuilding and repair works
(w/bye-laws 2(d)).
E Registration of Constructors by some organization is not a substitute of Pre-qualifica-
tion.
E Organization blacklisting constructors shall inform PEC reasons for such action
(w/bye-laws 8(11)).
E Consulting engineer shall monitor constructors license status and inform PEC
(w/bye-laws 8(12)).
Priority of Documents:
E Provisions stated in the Pre-qualification Documents.
E In absence relevant provision in PEC Act, bye-laws, procedure.
E Pre-qualification Documents can not be prepared in contradiction to statute laws &
relevant PEC Procedure and bye-laws.
E Priority of PEC Documents:
Act
Relevant Bye-laws
Procedure (Guidelines)
20 SECTION-II
E PPRA Rules are assimilated in June 11, 2007 PEC documents.
PEC Licensed Contractors:
E Engineering works to be assigned only to PEC licensed constructors
E 20% of work of other discipline can be executed by a licensee, in a particular field or
disciplined, in which he is entitled (w/bye-laws 4(3)).
E Foreign contractors license in two stages
E Foreign contractors shall work with maximum 70% share of work in J/V with Pak-
istani contractors with minimum 30% share of work (w/bye-laws 7(2)).
E No separate license of J/V required (w/bye-laws 4(10))
E J/V can work for value more than their individual entitlement (w/bye-laws 4(10)).
E Can a licensed non-pre-qualified constructor bid in J/V with a pre-qualified bidder?
Yes; provided non-pre-qualified constructor subsequently found within pass
limit.
Foreign constructors Enlistment Certificate can be treated as domestic con-
structors license.
Pre-qualification must be as J/V (w/bye-laws 4(10))
License to foreign constructor is issued for project to project basis; therefore,
license is possible only for winning bid (w/bye-laws 7(2)).
Two or more firms of common individual can not bid separately but in J/V
(w/bye-laws 7(4)).
PEC license not required for only supply contracts, since, it is not engineering
works (Act.2(k))
PEC licensed in appropriate category
Note :
PEC Standard Procedure for Pre-Qualification of Constructors contains instructions to
users to use the document and to evaluate the pre-qualification application. In the
Invitation for Pre-qualification of Constructors, Instruction to Applicants and Letter of
Application, the User may make changes in the text only under some special
circumstances.
Pre-qualification Documents :
(Based on WB/ADB Standard Forms)
The Employer is responsible for the preparation and issuance of the Prequalification Docu-
ment (PQD).
The Employer shall prepare the PQD using the published version of the WB/ADB Standard
Documents without suppressing or adding text in Section I, Instructions to Applicants (ITA),
which does not allow modifications for works which are funded by the Bank.
The Employer and the Applicant should keep in mind that all information and data specific to
an individual prequalification process must be provided by the Employer in the following
sections:
Section I, Instructions to Applicants (ITA)
Section II. Prequalification Data Sheet (PDS)/ Applicants Data Sheet (ADS)
SECTION-II 21
Section III. Qualification Criteria
Section IV. Application Forms
Section V. Eligible Countries
Section VI. Scope of Works
Section VII. Evaluation of Applications
The Applicant is responsible for the preparation and submission of its application.
During this stage, the Employer shall promptly respond to requests for clarifications from
Applicants and amend, as needed, the PQD.
The Employer shall appoint experienced staff to conduct the evaluation of applications.
Section I. Instructions to Applicants
The Instructions to Applicants (ITA) specify the procedures that regulate the prequali-
fication process.
The ITA contains standard provisions that have been designed to remain unchanged,
their wording should not be modified.
The ITA refers those clauses that need to be complemented to suit the conditions of a
particular pre-qualification process to the Prequalification Data Sheet (PDS); the PDS
provides such additional information.
Sample:
A. General
1. Scope of
Application
1.1 In connection with the Invitation for Prequalification indicated in Section-
II, Prequalification Data Sheet (PDS), the Employer, as defined in the
PDS, issues this Prequalification Document (PQD) to applicants
interested in bidding for the works described in Section-VI, Scope of
Works. The name and identification of contract corresponding to this
prequalification, are provided in the PDS.
2. Source of
Funds
2.1 The Employer will arrange the finance towards the cost of the project
named in the PDS. The Employer intends to apply a portion of the funds
to eligible payments under the contract resulting from the bidding for
which this prequalification is conducted.
Sample:
Section II. Prequalification Data Sheet (PDS)
A. General
ITA 1.1 The Employer is: : [ insert full name, including name of Project Officer, and
address]
ITA 1.1 The list of contracts is: [insert number, names and identification numbers]
ITA 2.1 The name of the Project is: [insert name of Project]
ITA 4.1 (i) The parties in a JV [insert shall or shall not] be jointly
and severally liable
(ii) Maximum number of partners in the JV shall be: [insert a
number or insert not limited]
B. Contents of the Prequalification Document
22 SECTION-II
ITA 7.1 For clarification purposes, the Employer's address is:
[insert information _or state same as in 1.1 above]
Attention: [insert name of Project Officer]
Address: [insert full contact/address]
Note: Provisions may be tailored;

Slice and Package of Similar Contracts (ITA 1.1 and 25.3)
Domestic Bidders Preference (ITA 22.1)
If the Loan/Credit Agreement allow a margin of preference for domestic
contractors, and the Employer wishes to use the preference for the award of
contract(s) subject to this prequalification, the PQD (and subsequent Bidding
Documents) should include basic information on the preference
PEC Bidding Documents does not provide Domestic Bidders Preference for works
contracts because of WTO regulation.
Nominated Subcontractors (ITA 24.2)
Section III. Qualification Criteria
The purpose of Section-III, Qualification Criteria and Requirements is to specify the criteria
and corresponding requirements that the Employer shall use to evaluate the applications and
pre-qualify the Applicants. The Employer shall specify the Qualification Criteria and
Requirements as per following table. The four main qualification criteria are:
1. Eligibility
2. Historical Contract Non-Performance
3. Financial Situation
4. Experience
Sample:
Eligibility and Qualification Criteria Compliance Requirements Documentation
No. Subject Requirement Single Entity
Joint Venture
Submission
Requirements
All Parties
Combined
Each Partner
One
Partner
1. Eligibility
1.1 Nationality Nationality in
accordance
with ITA Sub-
Clause 4.2
Must meet
requirement
Existing or
intended JV
must meet
requirement
Must meet
requirement
N/A Forms ELI
1.1and 1.2,with
attachments
1.2 Conflict of
Interest
No conflicts of
interest in ITA
Sub- Clause
4.4
Must meet
Requirement
Existing or
intended JV
must meet
Requirement
Must meet
requirement
N/A Application
Submission Form
SECTION-II 23
1.3 Employers
Ineligibility
Not having
been declared
ineligible by
the Bank, as
described in
ITA Sub-
Clause 4.7
Must meet
requirement
Existing JV
must meet
Requirement
Must meet
requirement
N/A Application
Submission
Form
Note: The above provision may be amended as per specific requirements. A couple of
sample Forms are given at the end.
2. Historical Contract Non-Performance
2.1 History of Non-Performing Contracts
2.2 Failure to Sign Contract
2.3 Pending Litigation
3. Financial Situation
3.1 Financial Performance
3.2 Average Annual Construction Turnover
4. Experience
4.1 General Construction Experience
4.2 Specific Construction Experience
Section IV. Application Forms
The Employer shall include in the PQD all application forms that Applicants must complete
and submit together with their applications. These forms are as specified in Section IV of the
prequalification document:
a. Application Submission Form
b. Applicant Information Form
c. Applicant's Party Information Form
d. Historical Contract Non-Performance
e. Financial Situation
f. Average Annual Construction Turnover
g. General Construction Experience
h. Similar Construction Experience
i. Construction Experience in Key Activities
Example: Financial Soundness of the Bidders;
Audited balance sheet for last 5 years to demonstrate:
Sr.# Financial Information
Actual: previous five years (US $ million)
5 4 3 2 1
1. Total assets 18.5 19.0 20.0 23.0 25.0
2. Current assets 12.0 13.0 14.5 14.0 15.0
3. Total liabilities 9.0 10.5 10.0 11.0 11.5
4. Current liabilities 7.0 6.5 7.0 7.5 7.8
24 SECTION-II
5. Profits before taxes 1.4 1.3 1.3 1.4 1.8
6. Profits after taxes 1.0 0.9 0.9 1.0 1.3
7. Net worth (1) - (3) 9.5 8.5 10.0 12.0 13.5
8. Current ratio (2)/(4) 1.7 2.0 2.1 1.9 1.9
9. Return on equity % (5)/(7 of
prior year)
13.7 15.3 14.0 15.0
1. Current soundness of applicants and long term profitability;
Curent ratio = Curent assets / Curent liabilities
Average over last 5 years = (1.7+2.0+2.1+1.9+1.9)/5 = 1.9
If <1.5, then risk of potential financial problem exists for last 5 years.
Return on Equity = Profits before taxes / Net worth of prior year %
Average over last 5 years = (13.7+15.3+14.0+15.0)/4 = 14.5
If <10, then it is not consistent with net worth record for specified period.
2. Capacity to cash flow;
Contract Description: Building Construction
Estimated Cost (Including contingencies): US$ 528 million
Duration: 2 years
Cash flow = 528/24 = US$ 22 million per month
For four months = 22x4 = US$ 88 million
WB & ADB requires cash flow for about four months
3. Average annual construction turn over
Turn over = 528/2 = $ 264 million per year
Average annual turnover = 264x1.5* = US$ 396 million
*Factor = 2 if contract price is less than US$ 200 million
This Section states the country eligibility policy of the Employers Country, and provides lists
of ineligible countries.
Section VI. Scope of Work/Contract
WB Based;
The Scope of Works should provide sufficient information for an Applicant to decide whether
or not to compete for that type of works, and whether it will need to use subcontractors for
specific parts of the Works, and/or form a Joint Venture. It should provide information on the
three following aspects:
1. Description of the Works
Describe the Works in sufficient detail to identify location, nature, and complexity. Estimat-
ed quantities of major components of the works should be indicated in the bill of quantities.
2. Construction Period
SECTION-II 25
State expected construction period and time in weeks or months; if alternative time schedules
are permitted, give the range of acceptable construction periods. Additional construction time
may be permitted for a combination of contracts if prequalification is for multiple contracts.
The evaluation shall then take into account the benefits foregone for the longer times of
completion.
3. Site and Other Data
Provide general information on the climate, hydrology, topography, geology, access to site,
transportation and communications facilities, medical facilities, project layout, facilities,
services provided by the Employer, and other relevant data.
ADB Based;
The Scope of Contract should be complete, precise and clear in order to avoid unnecessary re-
quests for clarification from Applicants that may cause delays in the prequalification process.
Depending on the nature of clarifications, the Employer may need to amend the Prequalifica-
tion Document and eventually extend the deadline for submission of Applications.
A. Requirements
1. Brief Description of the Scope
2. Major Contract Components
3. Estimated Quantities of Major Components
4. Methods Required
5. Contract Implementation Period
B. Supplementary Information
1. Project Country
2. Contract Site
C. Facilities to be Provided by the Employer
26 SECTION-II
Sample:
Application Submission Form
Date: ____________
IFP No.: ___________
Title: _________________________
To:
General Manager (C&M) Water, WAPDA,
530, WAPDA House, Lahore
We, the undersigned, apply to be prequalified for the referenced Bid and declare that:
(a) we have examined and have no reservations to the Prequalification Documents, including
Addendum(s) issued in accordance with Instructions to Applicants (ITA) Clause 8;
(b) we, including any subcontractors or suppliers for any part of the contract resulting from this
prequalification process, have nationalities from eligible countries, in accordance with ITA
Sub-Clause 4.3;
(c) we, including any subcontractors or suppliers for any part of the contract resulting from this
prequalification, do not have any conflict of interest, in accordance with ITA Sub-Clause 4.4;
(d) we, including any subcontractors or suppliers for any part of the contract resulting from this
prequalification, have not been declared ineligible by the Employer's country laws, official regulations,
or under execution of a Bid Securing Declaration in the Employer's Country or having submitted Bid
Security did not sign the contract after receipt of Letter of Acceptance as a successful Bidder, in
accordance with ITA Sub-Clauses 4.6 and 4.8;
(e) we are not a Government owned entity and if we are, we meet the requirements of ITA Sub-
Clause 4.7;
(f) we, in accordance with ITA Sub-Clause 24.1, plan to subcontract the following key activities
and/or parts of the works:
______________________________
______________________________
(g) we declare that the following commissions, gratuities, or fees have been paid or are to be paid
with respect to the prequalification process, the corresponding bidding process or execution of
the Contract:
Name of Recipient Address Reason Amount
________________
________________
________________
________________
________________
________________
________________
________________
________________
________________
________________
________________
(h) We understand that you may cancel the prequalification process at any time and that you are
neither bound to accept any application that you may receive nor to invite the prequalified
applicants to bid for the contract subject of this prequalification, without incurring any liability to
the Applicants, in accordance with ITA Clause 26.
Signed _____________________________
Name _______________________________ in the Capacity of ____________________________
Preliminary Examination:
Completeness of documentation
Eligibility
Joint. Venture requirements
Qualification Assessment
History of Non-Performing Contracts
Pending Litigation
Financial Performance
Average Construction Turnover
General Construction Experience
Similar Construction ?/?Experience
Experience
Prepare report and notification and
seek Employers approval/Banks no
objection as necessary
NO
SECTION-II 27
Duly authorized to sign the application for and on behalf of:
Applicants Name _________________________________________________________________
Address _________________________________________________________________________
Dated on ________ day of ______________, __________
Sample:
Form ELI -1.1
Applicant Information Form
Date: _______________
IFP No.: _______________
Page _____of _____ pages
Applicant's/ Joint Venture applicant legal name:
In case of Joint Venture (JV), legal name of each partner:
Applicant's Actual or Intended country of constitution:
Applicant's actual or Intended year of constitution:
Applicant's legal address in country of constitution:
Applicant's authorized representative information
Name:
Address:
Telephone/Fax numbers:
E-mail address:
Attached are copies of original documents of
E Articles of Incorporation or Documents of Constitution, and documents of registration of the legal
entity named above, in accordance with ITA 4.3.
E In case of JV, letter of intent to form JV or JV agreement, in accordance with ITA 4.1.
E In case of Government owned entity, documents establishing legal and financial autonomy and
compliance with commercial law, in accordance with ITA 4.7.
Section VII. Evaluation of Applications Yes / No basis
Eligibility
Pending Litigation
Experience
NO
28 SECTION-II
The following flow chart indicates the successive steps of the evaluation process as a Guide
during the evaluation, concurrently with Section-III. This Section is the part of users guide
only.
Prequalification Evaluation Flow Chart
Post-qualification :
World Bank
NO
Submission of Applications
Eligibility
Request clarification and/or
substantiation of information from
Applicant
Does Applicant
substantially
comply with
preliminary
examination ?
Reject the Application.
Prepare reasons for rejection
Pending Litigation
Experience
Are
the Applicants
deficiencies
material?
NO YES
YES
NO
YES
Are the
Applicants
deficiencies material?
Request clarification and/or
substantiation of Information from
Applicant
Does
the Applicant meet
all
the qualification
criteria ?
Does clarification and/or
substantiation of information
substantially meet the
qualification criteria
Qualify the Applicant
Conditionally
qualify the
Applicant
NO
YES
YES
NO
SECTION-II 29
An assessment made by the Employer after the evaluation of bids and immediately
prior to award of contract, to ensure that the lowest-evaluated, responsive, eligible
Bidder is qualified to perform the contract in accordance with previously specified
prequalification requirements.
The Standard Bidding Documents prepared for use for the procurement of works for
smaller contractsvalued at generally less than US$10 million, may be used under
post-qualification of the bidders.
Does not prefer Post-qualification for large and complex works.
PPRA
Does not prefer Post-qualification.
ADB
Does have Post-qualification Bidding Documents, as SBD for Procurement of Works
without Following Prequalification.
The Post-qualification process may be used for contracts of simple nature to be pro-
cured through National Competitive Bidding valuing generally less than US$
01 million.
The prequalification shall be used for National Competitive Bidding for the contracts
for sophisticated works like fabrication of technically complex plant and equipment.
PEC
PEC Bidding Documents may be used for Post-qualification.
Note: The Single Stage-Two Envelop bidding procedure may be termed as the refined form of
Post-Qualification, therefore being a well recognized transparent bidding procedure,
Single Stage-Two Envelop should be used instead of Post-qualification.
Complete sets of Prequalification Documents are available on the following web sites:
www.pec.org.pk
www.picc.org.pk
www.worldbank.org/procure
www.adb.org/Procurement
www.ppra.org.pk
SECTION-I 30
PEC Bidding Documents for Procurement of Works
(Works worth more than Rs 25 million)
Bidding and Contracting Requirements
o Bidding documents are the fundamental documents and the basis for the execution of
contracts.
o Well prepared bidding documents are essential for the success of projects. Ambigu-
ous, incomplete or inconsistent bidding documents not only cause confusions and mis-
understandings, errors and are the source of delay and construction errors, resulting in
costly disputes or litigation.
o It is thus vital to establish uniform procedures and standards for preparing bidding
documents to minimize confusions, errors, delays and disputes.
Basis of the Documents
FIDIC GCC PART-I: 1987 (4
th
Edition) reprinted in 1988 and 1992 with further
amendments
Pakistan Standard Conditions of Contract (Civil), 1st Edition reprinted in July 1993
Standard Bidding Documents finalized by WAPDA in 1987 for use on medium sized
contracts
National Highway Authority Contract No.1, Indus Highway Project (N-55)
Asian Development Bank-Sample Bidding Documents
World Bank Standard Bidding Documents-Procurement of Works May 2005 (based
on FIDIC 99 Second Edition)
Public Procurement Rules, 2004
Nature of the Documents
For Civil Works (may also include related works)
Finalized by PEC Act & bye-laws Committee
Reviewed by stakeholders employers, consultants, constructors, Govt. organizations
Approved and Notified by P&D GoP and ECNEC in 2002 and 2004 respectively
Revised on June 11, 2007 and Notified by ECNEC on Feb 12, 2008
Law of the land for all private/public sector projects over Rs. 25 million
Under P&D 2004 Notification non use of the document will attract suspension of
PSDP funds
Revised on March 2006 & June 2007
Relevant PPRA rules included
Integrity Pact added under PMs directive
Combined COPA I & II as PCC
Reduced large work value from Rs. 50 million to Rs. 25 million
Changed the word Tender to Bid
Harmonized the Documents with PPRA
Insurance bonds at the option of Contractor
Payment period increased to 28 days
SECTION-II 31
Delayed payment compensation revised as KIBOR+2% for local and LIBOR+1% for
foreign currencies.
Purpose of the Documents
Increasing uniformity and productivity
Equitability among the contracting parties
Ensuring quality construction
Minimizing malpractices in award and execution
Timely completion of the projects
Avoidance of cost overruns
Growth of construction and consultancy sectors
Compliance of international standards and WTO provisions
Structure of the Documents
Instructions to Users of the Documents
Invitation for Bids
Instructions to Bidders
Bidding Data
General Conditions of Contract, Part I (GCC)
Particular Conditions of Contract, Part II - (PCC)
Specifications - Special Provisions
Specifications - Technical Provisions
Form of Bid & Appendices to Bid
Sample Bill of Quantities
Form of Bid Security
Form of Agreement
Form of Performance Security/Bond & Mobilization Advance Guarantee/Bond
Drawings
Salient Instructions
Read the Instructions as check list
Part I of GCC to remain unchanged
Amendments in Part II, PCC are guided or as per requirement.
Any amendment in Part II, PCC shall not alter the spirit of the documents
All the spaces to be filled in and instructions within parenthesis to be deleted appro-
priately
Instructions to Bidders and Bidding Data may not form part of the contract
Invitation for Bids
Normally remains part of the Bidding Documents
Calls for PEC license and pre-qualification / enlisting requirement (IB-3)
Blank spaces for the following to be filled by Employer:
Name of employer, funding detail, name of project and brief project
descriptions
32 SECTION-II
Employers mailing address
Cost of Bidding Documents
Bid Security amount; delivery address; hours and date; time for bid opening
on same date
Instructions to Bidders (IB)
No change required in Instructions to Bidders
Notes on Bidding Data will be deleted
Instructions in parenthesis only will be deleted
In case of conflict , the information in Bidding Data will supersede those of the In-
structions to Bidders
Documents comprising the bid are listed in IB-7
IB, GCC, PCC, Forms and all other items in IB-7 to be prepared/reviewed by
the employer
Bidding Data (BD)
Instructions to fill Bidding Data are as under:
1.1 Name and address of the Employer:
[Name of the Employer and his representative complete with address tele, fax, etc.]
1.1 Name of the Project & Summary of the Works:
[Insert brief summary, including relationship to other contracts under the Project. If
the Works are to be tendered in separate contracts, describe all the contracts.]
2.1 Name of the Borrower/Source of Financing/ Funding Agency:
[Insert name of Borrower and statement of relationship with the Employer, if different
from the Borrower]
2.1 Amount and type of financing:
[Loan/credit in various currencies towards the cost of the project]
8.1 Time limit for clarification:
[Minimum number of days to seek clarification by the prospective bidder may be
inserted as 28 days.]
10.1 Bid language:
[The same language in which the Bidding Documents are written. English, should be
used in National/ International Competitive Bidding.]
11.1(b) Prequalification Information to be updated:
[Indicate what items of information submitted with application for prequalification is
to be updated. It may include: Evidence of access to financial resources, works
awarded during the interim period, availability of essential critical equipment etc.]
11.1(c) Furnish Technical Proposal:
[The bidder to submit a technical proposal in sufficient detail to demonstrate the
adequacy of the bid in meeting requirements for timely completion of the Works.]
13.1 Currencies of Bid and Payment:
SECTION-II 33
[Bidders to quote entirely in Pak. rupees but specify the percentages of foreign
currency they require]
14.1 Period of Bid validity:
[Insert number of days after the deadline for Bid submission. Normally the validity
period should not exceed 182 days.]
15.1 Amount of Bid Security:
[This amount should be the same as also quoted in the Invitation for Bids. A fixed sum
is advisable with 1 to 3 % of engineers estimate]
17.1 Venue, time, and date of the Pre-Bid meeting:
[Insert address of venue, or indicate that the meeting will not take place. The meeting
should take place not later than four weeks before the deadline for Bid submission. It
should take place concurrently with the Site visit, if any (see Sub-Clause IB-6).]
18.4 Number of copies of the Bid to be completed and returned:
[Usually one original and two copies]
19.2(a) Employer's address for the purpose of Bid submission:
[Should match the receiving address provided in the Invitation for Bids.]
19.2(b) Name and Number of the Contract:
[Insert and number of Contract.]
20.1(a) Deadline for submission of bids:
[The time and date should be the same as that given in the Invitation for Bids]
23.1 Venue, time, and date of Bid opening:
[Date should be the same as that given for the deadline in Invitation for Bids but
time for opening of bids shall be at least thirty minutes after the time for the deadline
for submission of bids].
32.1 Standard form and amount of Performance Security acceptable to the
Employer:
[Select the kind of Performance Security (bank guarantee and / or insurance bond),
and indicate the amount.
An amount equal to 10 percent of the Contract Price is commonly specified for bank
guarantees, which %age should match with that stipulated in Appendix-A to Bid.
WAPDA requires bank guarantee]
Bid and Appendices
1. Form of Bid - only Bid Reference to be provided by Employer
2. All other blank spaces shall be filled by the Bidder
3. Bidder must sign and stamp Form of Bid appropriately
Appendix A: Special Stipulations
1. Engineers Authority to issue Variation GC 2.1
34 SECTION-II
[up to 2 % of the Contract Price]
2. Amount of Performance Security GC 10.1
[10 % of the Contract Price]
The cost of complying with requirements of this Sub-Clause shall be borne by the
Contractor (PEC).
If in compliance with requirements, the charges to be incurred, is made part of BoQ
under Bill Nr. 1: General Items;
The Contractor will arrange the Security, 10% of Contract Price from the bank, and in
this connection bank charges incurred by the Contractor will be paid to him through
BoQ item, generally known as prime cost/LS item.
Example: Engineers Estimate is Rs 1000 million with one year completion and
one year defect liability (maintenance) period.
Bank Charges;
Performance Security (PS) @ 10% of EE = Rs 100 million
a) Bank Alfalah will charge @ 3.22 % of PS per year
=> Rs 6.44 million for 2 years
b) H B L @ 1.72 % of PS per year
c) A B L @ 1.43 % of PS per year
d) N B P @ 2.03 % of PS per year
It may be 2% to 3% for estimation purpose;
However normally charges are used.
3. Time for Furnishing Programme GC 14.1
[Within 42 days from the date of receipt of Letter of Acceptance]
4. Min. amount of third party insurance GC 23.2
[Rs 12.00 million]
Example: Insurance Coverages, Clause GC - 21, 23 & 24;
Section I;
Material Damage: Sum Insured (Contract Sum plus 15%)
Say Rs 1,000,000,000
Act of God including rain Rs 1,800,000
All other perils Rs 900,000
Equipment: Repair/replacement value
Section II;
N B P
SECTION-II 35
Third Party Liability: Limit of indemnity in respect of one or
series of accidents arising out of one event i.e. Rs 12,000,000 De-
ductible for one occurrence Rs 120,000
Bodily Injury:
Property damage:
Section III;
Workman Compensation: The Insured/Contractors liability
to employees (Workman) of the Contractor.
Compensation according to Workmen's Compensation Act,
1923 - Schedule I to IV.
The Costs of arranging such insurances shall be borne by the Contrac-
tor (PEC).
If these Costs/Premiums are made part of BoQ under Bill Nr. 1: Gener-
al Items;
The Costs of arranging such insurances/Premiums, incurred by the Contractor will be
paid to him through BoQ items, generally known as LS items.
i) Contractor All Risk Policy (CAR);
Premium @ 5 of value of work.
=> (5/1000 x 1000) = Rs 5.00 million
ii) Contractor Plant & Machinery (CPM);
Premium @12.5% on CAR Premium per year;
=> (12.5/100 x 5 x 2) = Rs 1.25 million for 2 years.
Total Premium for CAR & CPM = Rs 6.25 million for 2 years
iii) Third Party Liability (TPL);
Premium @10% on CAR Premium, per year;
=> (10/100 x 5 x 2) = Rs 1.00 million for 2 years
iv) Workman Compensation (WC);
Premium 5% on total salary component;
Total salary component for 2 years assumed = 18% of value of work
Salary component for 2 year = 18/100 x 1000 = Rs 180 million
WC Premium @ 5% on total salary component.
=> (5/100 x 180) = Rs 9.00 million
Note: These premiums based on are generally considered for estimation purpose.
The value of premium is on lower side for higher value of work.
5. Time for Commencement GC 41.1
[Within 14 days from the date of receipt of Engineers Notice to Commence]
6. Time for completion GC 43.1 & 48.2
N I C L
36 SECTION-II
[364 days]
7(a) Amount of Liquidated Damages GC 47.1
[Rs 27,397/- per day]
LD per day = % to 1% x V/P, where % to 1% depends on size and
period of work, V is value of work (Engineers Estimate) say Rs 1000
millions and P, completion period in days, e.g. (one year) 365 days.
Considering 1% of Engineers Estimate per day;
LD = 1/100 x 1000,000,000/365 = Rs 27,397/- per day up to the limit 10%
of the Contract Price.
As per WB and ADB, usually liquidated damages are set between 0.05
percent and 0.10 percent per day. If Sectional Completion and Damages
per Section have been provided, the latter should be specified.
As per PEC, it shall be a sum equal to 10 % of the likely cost of the Works
divided by one-fourth of the number of days specified as completion time.
Mere calculation based on percentage basis, which is common in
practice, should be avoided!
7(b). Amount of Bonus GC 47.3
[If applicable half of the LDs per day subject to a maximum of 5% of Contract price]
8. Defects Liability Period GC 49.1
[364 days]
9. Percentage of Retention Money GC 60.2
[10 % of the amount of Interim Payment Certificate.]
The amount of an IPC/Running Bill is Rs 83 million. (Rs.1000/12)
Retained Money = 10/100 x 83 = Rs 8.3 million per IPC
10. Limit of Retention Money GC 60.2
[5 % of Contract Price]
Limit of Retention = 5/100 x 1000 = Rs 50 million.
Deduction at the rate of 10% of IPCs up to Rs 50 million.
(50% is released upon issuance of TOC and the remaining 50% i.e. Rs 25
million after DLP)
11. Min. amounting Running Bills GC 60.2
[Rs 50 Million]
SECTION-II 37
The minimum amount of Interim Payment Certificate should be deter-
mined by the Employer depending upon the size and duration of the
Works.
Average amount of Running Bills = 1/1.5 x 1000/12 = Rs 55.33, say Rs 50
million
12. Time of Payment of Interim Payment Certificate GC 60.10
[28 days in case of local currency or 42 days in case of foreign currency].
In the event of the failure of the Employer to make payment within the
times stated, the Employer shall pay to the Contractor compensation at the
28 days rate of KIBOR+2% per annum for local currency and LIBOR+1%
for foreign currency, upon all sums unpaid from the date by which the
same should have been paid.
The provisions of this Sub-Clause are without prejudice to the Contractors
entitlement under Clause 69, Default of Employer.
13. Mobilization Advance PCC 60.12 Select one of the following
a) Mobilization Advance; 15 % of the Contract Price (Interest Free)
In two Equal Parts, Ist Part within 14 days after singing the agreement or date
of receipt of Engineers Notice to Commence, whichever is earlier, and Second
part within 42 days from the date of payment of the first part.
The Advance shall be recovered in equal installments; first installment at the
expiry of third month after the date of payment of first part of Advance and the
last installment two months before the date of completion of the Works.
(WAPDA allows: 10% to 15% of the Contract Price)
b) Mobilization/ Demobilization Cost; 15% of the Contract Price
80 % of the Mobilization Cost shall be paid for mobilization at Site and 20 % of
Mobilization Cost shall be paid for operation and maintenance of the constructed
facilities and for demobilization as per schedule of payment.
c) Materials Supplied by Employer;
The Employer shall supply to the Contractor materials, like cement, steel, bitumen
or any other material whichever deemed necessary to complete the project; and
the cost thereof shall be recovered from the Contractor through monthly
statements on the basis of actual consumption.
Appendix B: F/C. Requirements
Stamp Not Used if no foreign currency payment foreseen.
If F.C payment foreseen, blanks spaces in Appendix-B to be filled in by Bidder
(IB-13.1).
Exchange Rate TT&OD Selling Rates published or authorized by SBP 28 days prior
to Bid (IB-13.2).
Percentage and type of F.C without Provisional Sums.
38 SECTION-II
Equivalent Rupees on the Exchange Rate.
Data to be filled in accordingly.
Modify Sub-Clauses 72.2 & 72.3 of GCC in PCC accordingly if, exchange rate for
payment is different and payment of Provisional sums in F.C.
Appendix C: Price Adjustment
To be filled in by Employer.
Employer may add/delete/modify elements according to project need.
Federal Bureau of Statistics indices apply where, available.
Appendix-C should be read with Formula under Sub-Clause 70.1 PCC.
Weightages or coefficients to be prepared on rate analysis for project to project.
Price Adjustment apply for contract duration six months or more.
Contractor can submit weightages and source of indices if he differs with Appendix-
C; subject to approval by Engineer [70.1(c) PCC].
Appendix D: Bill of Quantities
Given bills are examples only.
Employer should prepare various bills leaving blank spaces for rates and totals.
Reasonable accuracy in quantity estimate required to avoid cost overruns, Price Ad-
justment accuracy etc.
Appendix E: Construction Schedule
Construction Schedule to be provided by the bidder in prescribed manner.
Completion by parts/section shall be distinctly identified by separate Schedule.
Sheets to be attached as necessary.
Sub-clauses 43.1 & 48 of GCC to be referred.
Clause 43.1: completion part or whole of the works within scheduled time (Clause-
48) or extended time (Clause-44).
Appendix F: Method of Work
Bidder to submit this information.
Organization chart of personnel for various activities.
Mobilization Plan/Facilities be provided.
Method of executing the work etc.
Appendix G: Major Equipment
To be filled in by Bidder in three categories;
- owned
- To be purchased
- To be arranged on Lease
Appendix H: Camp & Housing
SECTION-II 39
To be submitted by Bidder.
Sub-clause 34 (labour, staff, camp by Contractor at his own cost and responsibility)
GCC apply.
Site Preparation.
Provision of services.
Construction facilities.
Construction equipment assembly.
Security Services etc.
Appendix I: List of Sub-Contractors
To be submitted by the bidder.
Name of sub-contractors for each part of the work.
Profile of the sub-contractors to be submitted.
PEC license for the sub-contractors to be provided where applicable.
Appendix J: Estimated Progress Payments
To be submitted by the bidder
Quarterly estimates based on his
- Programme of works
- Rates in BoQs
- In Pakistani Rupees
Appendix K: Organization Chart
To be submitted by bidder for
- Supervisory staff
- Labour
Appendix L: Integrity Pact
To be signed and stamped by the bidder
Name of the bidder is to be filled
Mandatory under Prime Ministers directive and PPRA Rules
Punitive action against non-compliance stipulated under Sub-Clause 74.1 PCC
Forms
Bid Security IB-15
Form of Performance Security
Form of Contract Agreement
Mobilization Advance Guarantee
General Conditions of Contract (GCC)
FIDIC 1987, Fourth edition as GCC PART-I, no change is required in the GCC.
Particular Conditions of Contract (PCC)
Change in GCC Guided in Instructions to User of the Documents and space /in-
structions provided in PCC PART-II
40 SECTION-II
In the PCC following are the spaces/instructions:
1.1(a)(i) Name and address of Employer
1.1(a)(iv) Name and address of the Engineer
2.1(b) Employer may further vary Engineers duties and authorities
requiring employers approval.
5.2(k) any other document in priority of Contract Documents
14.1 Employer to select appropriate (Bar chart)
21.1 Employer may vary Insurance sub-clause 21.1(b)
53.4 Failure to Comply - This Sub-Clause is deleted in its entirety
60.12 Financial Assistance to Contractor Employer to select one of the
three alternatives and delete the other two
67.3 Arbitration place of arbitration to be provided
68.2 Notice to Employer and Engineer Names and addresses of
Employer and the Engineer to be provided
70.1(b) Price adjustment formula Actual formula to be prepared
73.2 Customs Duty & Taxes Employer may incorporate the provisions
Salient Amendments in June, 2007 Documents
Only one Particular Conditions of Contract instead of two (Part-I & II).
Bid preparation time 42 to 154 days.
No conditions of contract in special provisions.
Technical specifications Guide included environmental, safety and seismic conditions.
Bank Guarantee from schedule bank/ insurance companies in Pakistan.
J/V condition added in Invitation for Bids.
Post qualification for reasons even for Pre-qualified bidder (IB 29.2).
Announcement of bid evaluation report at least 10 days prior to issue of LoA.
No negotiations for award, clarification meetings only to clarify outstanding matters
in bid evaluation reports (IB-31.2).
Integrity Pact added with text at Appendix-L (IB-35).
Price Adjustment: Appendix-C and Formula changed.
Engineer's duties and authorities requiring approval of items added (2.1 PCC).
Provisions for replacement of the Engineer revised (2.8 PCC).
Mandatory requirement for insurance from NIC relaxed (25.5 PCC).
Time for payment harmonized with PPRA (60.10 PCC).
Complete formula for Price Adjustment built-in (70.1 PCC).
Debatable Issues
Invitation for Bids Part of the Bidding Documents.
Instructions to Bidders not part of the contract.
Foreign contractors and funding agencies intend to avoid PEC licensing and J/V re-
quirements.
SECTION-II 41
Document signed by participants to be part of the bid evaluation report.
Lowest evaluated responsive bidder to be awarded.
IB.30 does not permit the Employer from escaping award to the lowest.
Employer seeks negotiation but legally not tenable.
Bid and Performance Securities from Insurance Company.
Deletion of Sub Clause-53.4, Failure to Comply.
Price Adjustment for 6 months or more duration contract. Determination of co-effi-
cient often incorrect.
Employer reluctant to include delayed payment compensation provision.
Contractors want Insurance Guarantee at their option.
Specifications: Special Provisions
It can include information specific to the project, about:
Location of project
Site of works
Datum levels
Climate / Data
Utilities
Geology, Hydrology
Extent of work
Description of Works
Shop drawings
Right to change
Contractors responsibility
Quality of Materials
Use of Standards / Specifications
Quality Control (QC) and Quality Assurance (QA)
Contract close-up
Inspection / Tests
Contract Schedule
Layout of works / surveys
Access to site
Facilities by contractors
Facilities by employer
Environmental protection
Lump Sum price breakdown
Measurement / payment
Specifications: Technical Provisions
General items
Care and handling of water including dewatering
Earthwork
Sand and aggregates
42 SECTION-II
Cement
Concrete in general
Blinding concrete
Reinforced concrete
Reinforcement
Stone pitching
Canal lining
Bored cast-in-situ RC piles
Brickwork in general
Gate equipment
Miscellaneous works
Reinforced cement concrete railing
Drainage under concrete lining of canal
Note;
Complete form of PEC Bidding Documents is available on the following web sites:
www.ppra.org.pk,
www.pec.org.pk &
www.picc.org.pk
SECTION-II 43
Bid Evaluation and Award of Contract
Introduction
Evaluation and Award are most important but often controversial matters.
Bid is an offer or proposal of a specified price.
Bid Price refers to the amount of money needed to acquire something.
Type of bidding ICB, LCB, SSB (Single Source).
Tender and bid are used in the same meaning.
Procedures of biddings:
Single Stage-single envelope
Single Stage two envelopes
Two Stage single envelope
Two Stage two envelopes
Evaluation is the process to determine whether a bid meets specified criteria.
Generally according to provisions in the bid.
Agreement = Bid + Acceptance
A contract is the agreement enforceable by law.
Principles to conform Contract Act 1872.
Essentials of a valid contract: (a) competent to contract (b) free consent (c) lawful
considerations (d) lawful object.
Parameters
Limited to procurement of goods and works.
Process commences upon receipt of bids.
Process ends after Award.
Based on Single Stage Single Envelope method.
Based on the following PEC documents:
Standard Procedure for Evaluation
Instructions to Bidders for Civil Works Documents
Instructions to Bidders for E&M Works Documents
Instructions to Bidders for Smaller Works Documents
PPRA Rules 2004
Construction Engineering Works bye-laws
Planning Commission Guidelines
Priority of Documents for Evaluation
Provisions stated in the Bidding Documents.
In absence relevant provision in PEC Act, bye-laws, procedure.
Bidding Documents can not be prepared in contradiction to statute laws & relevant
PEC framework bidding documents and bye-laws.
Priority of PEC Documents:
Act
44 SECTION-II
Relevant Bye-laws
Procedure (Guidelines)
PPRA Rules are incorporated in June, 2007 PEC documents
General Principles
Evaluation shall be based on explicit provisions in the Bidding Documents.
In case deficient, ambiguous provisions; PEC documents and International Practices
to follow.
Three bids requirement is a convention and an inference from Rule # 42 of PPRA
Rules 2004.
Members of Committee for adjudication of evaluation must be engineers.
Instructions to Users of PEC documents are of legal value as rules.
Besides required knowledge, evaluators must have moral integrity, impartiality and
should work on good faith.
Non-transparent evaluation and awards results:
Lack of interest by bidders at large.
Foreign bidders hesitate to invest.
Less competition increased cost, more time for project completion.
Area of Dispute
Substantial responsiveness.
Arithmetic corrections.
Price Adjustments of acceptable deviations (Loadings).
Long list of unresolved issues.
Pre-award negotiations/clarifications.
Domestic Preference.
Conditional acceptance Award to lowest bidder.
Getting Ready for Evaluation
Evaluation team comprising relevant professionals.
Preferably team members should be from among those preparing Bidding Documents.
Necessary checklists, formats specific to the Bidding Documents are ready.
Bid opening materials received:
Copies of bids verified with originals.
Signed statements of the bid opening committee members.
Instructions to proceed with evaluation with schedule.
ISO-9001Process and Quality Plan for evaluation.
Bid Opening
The committee publicly announce and sign tabulated sheet for:
Name of bidder, single or a J/V of firms
SECTION-II 45
Quoted Price (read out)
Discounts, if any
Withdrawal of bids, if any
Late receipt of bids, if any
Submission of bid security & amount or otherwise
Alternative bids, if any
Minutes of the meeting prepared by the Committee
Read-Out Total Bid Prices and Discount
Sr.
Nr.
Bidder's
Name
Read-Out Tender Price
Discoun
t
Offered
Tender
Security
Provide
d
Yes/No
Discounted Tender Price
FCC *LCC FCC LCC
EURO USD PKR
EUR
O
USD PKR
1 Bidder A - 1,478,779 43,584,814 Nil Yes - - -
2 Bidder B 2,806,511 - 65,908,443 Nil Yes - - -
3 Bidder C - 2,431,072 68,760,570 Nil Yes - - -
* Includes Provisional Sum of PKR 15,000,000
Preliminary Examination
Pertains to Eligibility, Qualification, Bid Security and Completeness of Bid;
Eligibility of Bidders:
Have valid PEC License.
Pre-qualification/enlisted with Employer.
From eligible countries.
Qualification of Bidders:
Capacity to work & minimum years of work experience.
From eligible source country.
Average Annual turn over during last five years equal to or more than the Bid
price.
Adequate funding facility/line of credit.
If foreign bidder; represented local by agent having maintenance, repair and
spare parts facilities.
Written power of Attorney for the signatory.
Availability of critical construction equipment.
Joint Venture Agreement, in case the bidder is a J/V.
At least one of the J/V partners shall satisfy experience requirement.
Properly signed by the authorized person(s) and the authorization is bona-fide
and available.
Any other items, provided in the Bidding Documents due to its peculiarity.
Documents comprising the Bid are accompanied, duly signed and stamped.
46 SECTION-II
Accompanied Bid Securities:
Amount and validity period are adequate.
In the prescribed form.
From Scheduled Bank/ Insurance in Pakistan.
[WAPDA does not allow Bid Securities from any Insurance Company]
For the specified period.
Original Security.
In the name of J/V in case bidder is a J/V.
Segregation of Bid Security in special circumstances.
Clarification of Bids IB.23 & IB.25:
To assist in examination, evaluation and comparison.
Query to bidder is at the discretion of Employer.
Bid-Queries and their responses shall be in writing.
Not to change the substance of the bid.
Requirements for clarifications may also include confirmation and to provide
supporting documents.
Substantial Responsiveness (IB.24 & IB.26):
A substantially responsive bid is one which (i) meets the eligibility criteria;
(ii) has been properly signed; (iii) is accompanied by the required Bid Security; and (iv)
conforms to all the terms, conditions and specifications of the Bidding Documents, with-
out material deviation or reservation.
The details and implications of any deviations which are not explicit
should be clarified by the Engineer/Employer with respective bidders without change in the
substance or price of the bids. Bids with minor deviations may be considered substantially
responsive if their further consideration assigns a monetary cost or adjustment to the bid
for the purpose of bid comparison only.
Bids, not be considered responsive, if:
Not accompanied with bid security.
The bidder/JV Partner participated in more than one bid.
Bid received after deadline for submission.
Bid submitted through fax, telex, telegram or e-mail.
Prices quoted are not firm, in case of firm price contract.
Bidder/JV refuses to accept arithmetic corrections.
Bid is materially different.
Any other conditions of rejection stated in a particular Bidding Documents.
Arithmetic Corrections IB.27:
Check for the discount calculations.
The amount in words will govern instead of amount in figure.
Unit rates govern to correct line total.
SECTION-II 47
Exception to the general rule, if the Employer is of the opinion that gross mis-
placement of the decimal point in the unit rate.
Correction thus made is binding upon bidder; non-acceptance will entail for-
feiture of Bid Security.
Material deviation or reservation:
Which affects in any substantial way the scope, quality, or performance of the works?
Which limits in any substantial way, inconsistent with the Bidding Documents, Em-
ployers rights or bidders obligations?
Whose rectification/adoption will affect competitive position of bidders?
Minor informality, non-conformity or irregularity will not constitute reasons for rejec-
tion, which can be waived-off.
Detailed evaluation to be carried out only for the substantially responsive bids.
Detailed Evaluation of Bids
Correction for Prices:
Read-out total bid prices excluding provisional sums and discounts.
Corrected total bid price (discount + arithmetic corrections).
Corrected price converted to single currency.
Evaluated Bid Price after Price Adjustment.
Corrected Total Bid Prices Converted to Single Currency
Sr.
Nr.
Bidders
Name
Corrected Total Tender Price
Corrected Total Tender Price
Excluding Provisional Sums
Eq.PKR
FCC
LCC
PKR
EURO USD
(1) (2) (3) (4) 5={(3)x**}+{(4)-15,000,000*}
1 Bidder A - 1,468,814 43,557,284 146,062,403
2 Bidder B 2,806,511 - 65,908,452 387,689,172
3 Bidder C 2,431,072 68,760,570 248,246,330
*Provisional Sum of PKR 15,000,000 ** Exchange Rate; US$=Pak. Rs 80/-, Euro=Pak. Rs 120/-
Bank is State Bank of Pakistan
Computations & rates to be part of Bid Evaluation Report:
Exchange Rate used on the date of Bid Date for evaluation
Price Adjustments for Technical Compliance
Price Adjustments for Commercial Compliance
Domestic Preference, if applicable
Price adjustments (Loading):
For evaluation purpose only
Only against stated provisions
Completeness included in other items
Missing items competitors average price
Technical compliance highest price of bidders
48 SECTION-II
Payment terms highest Bank Rate/annum
Completion Schedule 0.05% of total bid price per day
Commercial Compliance cost of doing the deficiencies
Other deviations Prima Facie situation
Domestic Preference IB.27(E&M):
For Civil Works no preference
Preference for use of indigenous products as per SRO 827, dated: 03-12-2001
All Bidders; domestic, J/V, foreign entitled to Price Preference for minimum
total of 20% value addition
Preference 15%, 20% & 25% are allowed
Preference is calculated on a prescribed formula by reducing corresponding
ex-factory bid price
ADDITIONS, ADJUSTMENTS AND PRICED DEVIATIONS
Bidder Corrected/
Discounted
Bid Price
Additions Adjustments Priced
Deviations
Total Price
(b) + (c) + (d) + (e)
(a) (b) (c) (d) (e) (f)
Each insertion in columns c, d, or e should be explained in adequate detail, accompanied by
calculations.
Summary of Evaluation Procedure
Minor Material deviations
Deviations from the bidding requirements which do not appear at first sight so serious as
to provide immediate grounds for bid rejection maybe considered further in the evaluation
process. The following are examples of such deviations:
i. An amount of advance payment and other payment terms (including retention money,
guarantees, the details of price adjustment provision) differing from the prescribed
conditions;
ii. Non-compliance with local regulations relating to labour, imports taxes, duties, no-
tarization, etc.;
iii. Changes in specified methods of construction or execution (temporary works, shift work
by labour, etc.);
iv. Subcontractors slightly meeting pre-specified requirements;
v. Omission (deliberate or unintentional) of minor works or items included in the scope of
work;
vi. Non-acceptance of full liabilities (e.g. risks to third parties, nearby structures, etc.);
vii. Modification of, or a limit to the amount specified for liquidated damages; and
SECTION-II 49
viii. Proposed changes in standards or codes relating to materials, workmanship or design.
After clarification from Bidder, the implication of a deviation may be such as to justify
rejection of the bid as non-responsive. A bid is likely not to be considered if;
i. It is submitted by a Bidder who has participated in more than one Bid.
ii. It is received after the time and date fixed for its receipt.
iii. It is submitted through fax, telex, telegram or e-mail.
iv. It is not accompanied with Bid Security.
v. It is unsigned
vi. Its validity is less than specified.
vii. It is submitted for incomplete Scope of Work.
viii. It indicates completion date later than specified.
ix. It indicates that prices quoted are not firm during currency of the contract except
those prices where escalation/adjustments are permitted in the Conditions of
Contracts.
x. It indicates that material to be supplied does not meet the eligibility require-
ments.
xi. It indicates that Bid Prices do not include the amount of taxes & duties.
xii. If Bidder refuses to accept the arithmetic corrections.
xiii. It is materially and substantially different from the Conditions/Specifications of
Bidding Documents.
xiv. It provides Sub-contracting, contrary to conditions specified in the Bidding Doc-
uments.
xv. It fails to comply Mile-Stones/critical dates specified in Bidding Documents.
xvi. The bidder is not valid license holder of the PEC
Major Material deviations
i. Stipulating price adjustment when fixed price bids were called for.
ii. Failing to respond to specifications.
iii. Failing to comply with Mile-stones/critical dates provided in Bidding Documents.
iv. Subcontracting contrary to the Conditions of Contract specified in Bidding Docu-
ments.
v. Refusing to bear important responsibilities and liabilities allocated in the Bidding
Documents, such as performance guarantees and insurance coverage.
vi. Taking exception to critical provisions such as applicable law, taxes and duties
and dispute resolution procedures.
vii. Those deviations that are specified in the IB requiring rejection of the bid (such as,
in the case of works, participating in the submission of other bids other than as a subcon-
tractor).
Example: Conformance to Bidder Requirements (Commercial)
Sr.
Nr.
Clause
Nr. of IB
Description Specified Requirement Bidder A Bidder B Bidder C
50 SECTION-II
1 2.1 Prequalification of
Bidders
Whether the Bidder is pre-
qualified
C C C
2 2.1 Eligibility of
Bidders
Registered with PEC C1 C1 NC1
3 2.1 Eligibility of Plant
and Services
(a) Covering Letter C C C
4 9.1 Documents
comprising the Bid
(b) Form of Bid /Letter of
Offer (duly filled-in,
signed and stamped)
C2 C C
C: Conformance NC: Non Conformance S: Submitted NS: Not Submitted NA: Not Applicable
Example of notes
Bidder A
C1:As required under the provisions of Sub-Clause 2.1 of Instructions to Bidders (IB), PEC
license valid for the year 2005 has been provided for Siemens Pakistan only, whereas,
Bidder has not provided Enlistment Certificate for Siemens AG, Germany.
C2:Bid Schedule A Price Schedule is initialed by a person for whom no Power of Attorney
is available with the Bid. In response to post bid query, Bidder provided Power of
Attorney of required person.
C3:Bid Schedule E Specific Plant Data is not initialed as per Sub-Clause 9.1 of IB.
C4:The amount of Bid Security shown is incorrect. This matter has further been discussed in
the Report.
Evaluation Process
Process to be confidential until Announcement of evaluation result.
Announcement to be made at least 10 days prior to award.
Announcement text has been simplified under IB.24.
Any effort to influence Employer in processing bid or in award may result
in rejection of such bid.
Aggrieved bidder may lodge written complaint within 15 days of Announce-
ment.
Mere lodging complaint should not suspend procurement process.
Employers Evaluation or Grievance Redressal Committee will dispose off
the grievances.
Bid Evaluation will not contain too many unresolved matters requiring reso-
lution prior to award.
Award of Contract
Employers Right to Accept or Reject - PPR-38
Prior to contract award: Accept or reject any bid, annual bidding process and
reject all bids at any time.
No liability of Employer for affected bidders.
Grounds for rejection (without justification) will be communicated to request-
ing bidder(s).
Rejection of all bids shall be notified to all bidders promptly.
IB 29.1 when read in conjunction with PPR-38; lowest evaluated responsive
bidder can not be avoided.
SECTION-II 51
Employer shall not award to a bidder black listed by PEC (IB.24).
Employers right to post qualification;
Even the bidders were pre-qualified, for a reason or prima facie evidence.
If pre-qualified, post qualification is for only lowest evaluated responsive bid-
der.
Minimum post qualification review items are; (a) completed at least one such
project and value of the project is equal or higher than the Bid Price in last five
years.
No negotiations but clarifications on outstanding items in Bid Evaluation Report
(IB 31.2).
Conditional Acceptance of bid is not tenable under Section 7 of Contract Act 1872.
Letter of Acceptance to be issued prior to expiration of Bid validity period.
Upon receipt of Performance Security, the Employer will notify others and return their
bid securities.
Failure to furnish Performance Security within 28 days of LOA may annul the award
of contract and forfeit the bid security.
Section 7 of Contract Act 1872
Acceptance must be absolute. In order to convert a proposal into a promise, the
acceptance must:
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes a manner in which it is
to be accepted, and the acceptance is not made in such manner, the proposer may,
within a reasonable time after the acceptance is communicated to him, insist that his
proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails
to do so, he accepts the acceptance.
Evaluation Report
The Bid Evaluation Summary Checklist shall consist:
* Explanation of any inconsistencies between prices and modifications to prices read
out at bid opening and recorded.
* Details about eliminating of any bids during preliminary examination. Attached
selected pages showing objectionable features.
* Explanation of any substantial corrections for computational errors that may affect the
ranking of bidders.
* The additions, adjustments, and priced deviations shall require detailed explanations
where they may affect the ranking of bidders.
* Eligibility for domestic preference if any must be verified and its details shall be
attached.
* Explanation of any cross-discount not read out and recorded at bid opening. In
addition, copies of any evaluation reports for the other related contracts awarded to the
same bidder may be attached.
* Detailed reasons for refusing to award a contract to a party other than the lowest
evaluated bidder.
52 SECTION-II
* If an alternative bid is accepted, provide a detailed explanation of the reasons for its
acceptance, addressing issues of timeliness, performance, and cost implications.
* An attachment explaining adjustments to the price. Also explanation of any changes
to scope of bid and contract conditions.
* Provide evidence of alternative insurance.
* Attach copies of any correspondence from bidders that raise objections to the bidding
and evaluation process, together with detailed responses.
* Attach copies of any letters to bidders requesting clarifications. Provide copies of
responses.
It should be noted that evaluation and the resulting report need not necessarily be lengthy.
Procurement of goods without domestic preference can usually be quickly and easily
evaluated. In general, the complexity of evaluation lies with larger works and with the supply
and installation of industrial plants and equipments.
The report should include a number of attachments to explain details of bid evaluation or to
show specific controversial wording or numbers in a bid. Cross-referencing should be used
extensively, as well as references to pertinent clauses in the bidding documents.
Note:
The evaluation forms and guide providing step-by-step procedures for the evaluation of
bids are available on the following web sites;
www.pec.org.pk
www.picc.org.pk
www.adb.org/procurement
The Role of the Employer & the Contractor
The role of the Employer and the Contract are almost same in the FIDIC 1987 and 1999,
except the provisions of the Employers Personnel and the Employers Claims provided in
FIDIC 1999, beside some other minor differences in relation to the above mention subject. In
FIDIC 1987 the Employer can not invoke his right to claim in a manner given in FIDIC 1999.
Nonetheless under FIDIC 1987, the Employer may deduct money from the Contractors due
payments, only against proven and determined fault of the Contractor and that often occurs
on termination of contracts by the Employer.
The role of the Employer and the Contractor discussed below, are based on FIDIC 1999.
The Role of the Employer
SECTION-II 53
The FIDIC standard form for the Contract Agreement includes the statement
that the Employer covenants to pay the Contractor the Contract Price in consideration of
the execution of the Works and the remedying of defects therein. However, this does not
mean that the Employer is only required to appoint an Engineer to administer the project
and then sign the payment certificates.
Even though the Engineer is classed as Employers Personnel there are some
tasks which are allocated to the Employer.
The Employer could delegate the paperwork to the Engineer, but the actual
tasks require the Employer to be involved.
It is important that the Employer designates a staff member, separate from the
Engineer to represent him whenever the Contract requires notice to, or action by the Em-
ployer.
Right of Access to the Site
The Employer shall give the Contractor right of access to, and possession of all
parts of the Site within the time stated in the Appendix to Tender.
The Employer may withhold such site/right of possession until the Perfor-
mance Security has been received.
If no such time is stated in the Appendix to Tender, the Employer shall give
the Contractor right of access to, and possession of the Site within such times as may be
required to enable the Contractor to proceed in accordance with the programme submit-
ted.
If the Contractor suffers any delay as a result of a failure by the Employer to
give any such right or possession within such time, the Contractor shall give notice to the
Engineer and shall be entitled to:
Extension of time for any delay if completion is or will be delayed, and
Payment of any such Cost plus reasonable overhead, which shall be included
in the Contract Price.
After receiving this notice the Engineer shall proceed in accordance
with the clause on determinations to determine these matters. However, if the Em-
ployers failure was caused by an error or delay by the Contractor including an error in, or
delay in the submission of any of the Contractors Documents, the Contractor shall not be
entitled of time and Cost.
The possession does not necessarily mean exclusive possession, but
shared possession needs clarification in the Particular Conditions.
When the Contractor takes possession of the Site, he is responsible for
safety, security and insurance. If the Contractor does not have full control of the Site and
the activities on the Site, or the site will be shared, then the extent of the Contractors re-
sponsibilities must be clearly stated.
If the Employer fails to give right of access to and possession of the
Site within the stated period then the Contractor will be entitled to an extension of time
plus its associated costs with reasonable overhead.
Permits, Licenses or Approvals
The Employer shall provide reasonable assistance to the Contractor at
the request of the Contractor:
By obtaining copies of the Laws of the Country which are relevant to
the Contract:
54 SECTION-II
For the Contractors applications for any permits, licenses or approvals
required by the Laws of the Country
Employers personnel
The Employer shall be responsible for ensuring that the Employers
Personnel and the Employers other Contractors on the Site:
Cooperate with the Contractors efforts, and
Take actions similar to those which the Contractor is required to take in rela-
tion to the clauses relevant for Safety Procedures and Protection of the Environ-
ment.
Employer s Personnel includes:
The Engineer and his assistants.
All staff, labour and employees of the Employer and the Engineer.
Any other person who the Employer or the Engineer has decided to designate
as Employers Personnel.
When two or more Contractors are working on the same Site the possibilities of delays
and costs from failures of cooperation can lead to serious problems.
The FIDIC Clauses may be adequate when one Contractor is carrying out a
high percentage of the total work on the Site.
If the work is more evenly divided between two or more Contractors, the pro-
visions of the Contract need to be reviewed.
Employers Claims
If the Employer considers himself entitled to any payment the Employ-
er or the Engineer shall give notice and particulars to the Contractor.
The notice shall be given as soon as practicable after the Employer be-
came aware of the event or circumstances giving rise to the claim.
The particulars shall specify the Clause or other basis of the claim, and
shall include substantiation of the amount and/or extension to which the Employer con-
siders himself to be entitled for the claim.
The Engineer shall then proceed in accordance with the Determina-
tion clause to agree or determine:
The amount that the employer shall be paid by the Contractor.
This amount can be deducted from the Contract Price and Pay-
ment Certificates.
If the Employer deducts money from the Contractor which he
(the Employer) is not entitled to do, will enable the Contractor to claim for all conse-
quences of the deductions.
This could involve a substantial claim by the Contractor. In
such case, the Employer would be advised to reserve his rights but not to deduct any
money until the final resolution of this matter.
The Role of the Contractor
In accordance with the FIDIC form, the Contractor will
execute and complete the Works and remedy any defects therein, in conformity with the
provisions of the Contract.
SECTION-II 55
In order to achieve this, the Contractor accepts a large
number of secondary obligations.
The Contractor shall design (to the extent specified in
the Contract), execute and complete the Works in accordance with the Contract and with
the Engineers instructions and shall remedy any defects in the Works.
The Contractor shall provide the Plant and Contractors
Documents specified in the Contract, and all Contractors personnel, Goods, consum-
ables and other things and services required to carry out the Works.
The Contractor shall be responsible for the:
Adequacy,
Stability, and
Safety of all site operations and methods of construction.
The Contractor shall whenever required by the Engineer, submit details
of the arrangements and methods which the Contractor proposes to use.
No significant alteration to these arrangements and methods shall be
made without having been notified to the Engineer.
The FIDIC Conditions of Contract for Construction are intended to be
used for projects with the design provided by the Employer.
The phrase execute and complete is important in the Contract. The
requirement to execute and complete can also give an obligation to complete any item of
work which is necessary for total completion of the Works, but may not have been shown
in detail on the Drawings.
This is an obligation to carry out and complete the Works and the ques-
tion of whether payment is included in the Accepted Amount is a separate issue.
The Contractor shall obtain a Performance Security for proper
performance, in the amount and currency stated in the Appendix to Tender.
The Contractor shall deliver the Performance Security to the
Employer within 28 days after receiving the letter of Acceptance, and shall send a copy to
the Engineer.
The Contractor shall ensure that the Performance Security is
valid and enforceable until the Contractor has executed and completed the Works and
remedied any defects.
If the Performance Security has an expiry date and the Contrac-
tor has not become entitled to receive the Performance Certificate by the date 28 days pri-
or the expiry date, the Contractor shall extend the validity of the Performance Security un-
til the completion of the Works and any defects have been remedied.
Contractors Representative
The Contractors Representative is the Contractors equivalent to the Engineer.
Some Tender Documents specify:
The required qualifications.
The required experience and
That the Contractors Representative must be named in the tender.
The Contractors Representative must:
56 SECTION-II
Have received the consent (approval) of the Engineer.
Not be removed or replaced without the prior consent of the Engineer.
Have the authority to act on the Contractors behalf under the Contract.
Be on site whenever work is in progress.
Be fluent in the language for communication stated in the Contract.
Subcontractors
The Contractor shall be responsible for the acts or defaults of any Subcontractor and
his employees.
Cooperation
The Contractor shall allow the following to carry out work on or near the site:
The Employers Personnel.
Any other contractors employed by the Employer.
The personnel of any legally constituted public authorities (government bod-
ies) that carry out work not included in the Contract.
However, the Contractor may make a claim for Unforeseeable Cost
and get paid as a Variation.
Any delays would qualify for an extension of time.
Setting out
The Contractor shall be responsible for the correct positioning of all
parts of the Works, and shall rectify (correct) any error in the positions, levels, dimensions
or alignment of the Works.
Risk Allocation & Management in Construction Contracts
Project risk is an uncertain event or condition that, if it occurs, has a positive or a negative
effect on at least one project objective. A risk may have one or more causes and, if it occurs,
there may be one or more impacts.
All contracts contain risks. The prime objective under a contract is to allocate risks between
parties to the contract. An ideally successful contract is one which got completed in stipulated
time and within the reasonable cost meeting the requisite specifications.
Sources of Construction Contract Risk
Construction Contracts will generally need to identify and assign risks in the following areas:
O Project Execution
Quality
Schedule
SECTION-II 57
Cost
O Financial Factors
Escalation
Foreign exchange
Cost of money
O Market Factors
Supply demand in local and global pricing as distinct from escalation
O Regulatory Factors
Change in legislation and regulation
Contract Risk Allocation is Critical
Allocate the risk factor to the party best able to manage the risk
Excessive contractor risk will result in un-economic levels of contingency and
risk costs
Excessive owner risk may make the project un-finance-able
Balance risk allocation to ensure alignment between the Owner and
Contractor on project objectives.
Reflect the reality of the regulatory environment and associated
impact on project scope and schedule.
Terminology
Hazard; a particular event which has the potential if it occurs of an adverse effect.
Risk; the probability of occurrence of a defined hazard and the magnitude of the con-
sequences.
Risk Assessment; the estimation and evaluation of the risk; the magnitude of the con-
sequences together with the probability of the consequences.
Risk Identification; an awareness of those risks which could adversely affect the out-
come of the project.
Risk Management; the identification, measurement and economic control of risks.
Risk Allocation
The main objective of any contract is to allocate risks between the contracting parties. Risks
of likely events and occurrences affecting the performance of contract are allocated between
the Contractor and the Employer through various provisions of the contract.
The understanding of contractual allocation of risks is fundamentally necessary to identify
claims arising from these risks.
The Contractual Risks
There are two types of contractual risks:
Those that have been expressly stated in the contract to be allocated to a particular
party; and
Those risks that are deemed to be included in the contract by the operation of the law
governing the contract.
PEC Form of Contract Document based on FIDIC, 4th Edition, Red Book (Conditions of
Contract for Civil Works) makes the Employer expressly responsible for the risks connected
with certain events and occurrences.
58 SECTION-II
Examples of Risks in Construction
Inclement weather;
Unforeseen ground conditions;
Industrial action;
Deficiencies in design;
Insolvency or non-performance by a subcontractor;
Unavailability of materials;
Cost overruns in labour and materials; and
Occupational health and safety.
Dealing with Risk Allocation
Normally in construction industry people deal with risk by burying their head in the
sand.
If the risks are not ignored, they are dealt with simply by adding contingencies to es-
timated costs and time.
If the risks are actually allocated it is in a lopsided and inappropriate manner.
Rarely is there a structured and logical approach to risk identification, allocation and
management.
Controlling
It can be assumed i.e. risk taking;
It can be priced i.e. built into the tender price;
It can be laid off i.e. insured or passed on to another entity e.g. subcontractor;
It can be refused i.e. decline the job; or
It can be shared i.e. in alternative contractual arrangements such as alliance and
partnering.
But it should never be ignored!
Types of Risks in Construction
Acts Of God
Physical
Financial & Economic
Political & Environmental
Design
Construction Related
Acts Of God
- Flood
- Earthquake
- Landslide
- Fire
- Wind damage
Physical
- Damage to structure
- Damage to equipment
SECTION-II 59
- Labour injuries
- Fire
- Theft
Financial & Economic
- Inflation
- Availability of funds
- Exchange rate fluctuations
- Financial default
Political & Environmental
- Changes in laws and regulations
- Requirement for permits
- Law & order
- Pollution and safety rules
Design
- Incomplete design scope
- Defective design
- Errors & omissions
- Inadequate specifications
Construction Related
- Labour disputes
- Labour productivity
- Different site conditions
- Design changes
- Equipment failure
Risk Management
A systematic approach to control the level of risk to mitigate its effects, is known as Risk
management. It refers to the art of identifying, analyzing, responding to and controlling
project risk factors in a manner which best achieves the objectives of all participants.
Contractual risk transfer is a form of risk management which has been employed for many
years in the construction industry. It involves the allocation or distribution of the risks
inherent to a construction project between or among contracting parties. If done effectively,
risk transfer does not grossly or inequitably allocate all risk to one party, but instead places
risk upon parties according to their ability to control and insure against risk. Additionally,
effective risk management typically generates positive results on a project by improving
project performance, increasing cost effectiveness and creating a good working relationship
between contracting parties.
Risk Management System
1. The contract serves as the principal risk management vehicle, par-
ties must begin managing and minimizing risks long before the contract is signed. To
avoid inequities, all parties should come to the negotiating table with some idea of
their risk management goals. Unfortunately, most contractors pay insufficient atten-
tion to the risk management process (e.g., compare budget of estimating department
60 SECTION-II
versus investment allocated to training and maintaining cadre of risk management
professionals).
2. Contractual risk transfer in the construction industry is seen most
frequently in contract provisions regarding indemnity, consequential damages, differ-
ing site conditions and delay.
3. Risk management requires a systematic and practical method of
dealing with both the predictable and unpredictable risks inherent in the construction
industry. Contract administrators must acquaint themselves with the risks they are to
manage and develop specific risk minimization strategies. Risk management typical-
ly involves the following functions:
Risk Analysis
Estimating the potential impacts of risk to decide what risks to retain and what risks
to transfer to other parties which include:.
Risk Identification
Risk Estimation
Risk Evaluation
Risk Monitoring
The risk manager must evaluate risk factors or characteristics of a risk such as the
risk event, its probability of occurrence, and the amount of potential loss or gain. The
impact of possible risks can be controlled to the extent the risks are effectively
identified and managed.
Risk Response
I. Elimination, II. Transfer, III. Retention & IV. Reduction
Elimination
- Tendering a very high bid
- Placing conditions on the bid
- Pre-contract negotiations as to which party takes certain risks
- Not biding on the high risk portion of the contract
Transfer
- The activity responsible for the risk may be transferred, i.e. hire a subcontrac-
tor to work on a hazardous process
- The activity may be retained, but the financial risk transferred, i.e. methods
such as insurance.
Retention
- Handling risks by the company who is undertaking the project.
- Two retention methods, active and passive.
Active retention is a deliberate management strategy after a conscious evalua-
tion of the possible losses and costs of alternative ways of handling risks.
Passive retention occurs through negligence, ignorance or absence of decision.
Reduction
- Continuous effort.
SECTION-II 61
- Related with improvements of a companys physical, procedural, educational,
and training devices.
- Improving housekeeping, maintenance, first aid procedures and security.
- Education and training within every department.
Model of Risk Allocation
A party to a contract should bear a risk where:-
The risk is within the partys control;
The party can transfer the risk, e.g. through insurance, and it is most economically be-
neficial to deal with the risk in this fashion;
The preponderant economic benefit of controlling the risk lies with the party in ques-
tion;
To place the risk upon the party in question is in the interests of efficiency, including
planning, incentive and innovation; and
If the risk eventuates, the loss falls on that party in the first instance.
The Principal should not ask a Contractor to price an unquantifiable risk that is within
the control of the Principal e.g. ground conditions.
The Principal, may ask the Contractor to manage and control a neutral risk e.g. weath-
er.
The Contractor should carry the risk for the safety of its own workers.
62 SECTION-II
Construction Claims Management
The management of construction claims is the greatest challenge that is being faced in todays
competitive business environment. Construction projects are becoming increasingly
susceptible to a variety of factors that give rise to time extensions and cost recovery. Although
the construction business environment has moved toward partnering arrangements in recent
years, the number of contractual difficulties continues to rise. Thus the construction industry
needs to develop methodologies for construction claim management to better manage the
ongoing trend.
In order to understand the nature of claims before dealing with them, the clauses that trigger
claims in a contract are investigated, and to avert conflicts, it is necessary that, the contract
should prescribe:
The respective obligations of contracting parties in clear terms.
Specifies as to when, or the time period within which, the obligations undertaken in
the contract are to be performed.
The events and circumstances whose risk of occurrence is allocated to one party or the
other.
The mechanism to resolve the controversies/disputes connected with or arising from
the Contract.
A well-drafted contract states
The obligations (duties) of each party.
The timings of discharge of obligations (duties)
The consequences, if the party fails to do its duty at the prescribed time (breach).
The completion period of the entire contract.
The risk allocation of the specified unforeseen event or circumstances (causation)?
How and to what extent would the party resultantly suffering from such unpredictable
occurrence be compensated (claim/damages)?
How would the party proceed to get compensation?
Mobilization & Performance Schedule
In view of the contractual duties/obligations and the prescribed completion period the
contractor mobilizes his resources and prepares his performance schedule to meet the
completion deadline so fixed.
The Contractor shall commence the Works on Site within the period specified in Ap-
pendix-A to Bid from the date of receipt by him from the Engineer of a written Notice to
Commence (Sub Clause-41.1, CoC)
An Ideal Contract
If every thing goes well in accordance with what had been foreseen by the parties at the time
of signing the contract then the contractor usually succeeds in completing the contract in the
scheduled time.
The record of construction industry
Completion of any project on time is not so good.
SECTION-II 63
Usually public sector construction projects overrun their completion
schedule by more than 40 percent and some of them overrun their original time targets by
more than 80 percent.
Delay in the timely completion of construction projects is the major rea-
son for contractual disputes and claims.
There are other causes of claims also.
Events Intervening Performance
Some events and occurrences may intervene during the performance
which do not allow the contractor to complete his performance within the given comple-
tion period.
Contractors performance is impeded /hampered not necessarily due to
his own default.
Events Adversely Affect Performance
Events within the contractors control or beyond his control may adversely affect his
performance for which the contract may or may not compensate the contractor for loss of
time or/and extra costs incurred during the impeding occurrences.
Slow Progress
- A good Claims Manager develops the necessary insight to identify the
cause that leads to slow progress or disruption of an on-going construction activity and
then find out as to whether or not the said cause leads to a claim in his favour under the
provisions of the contract.
- Successful management of claims gives an edge to the contractor be-
cause through such claims he can make good the loss of time and money occasioned by
the claim events.
Compensatory Provisions
Provisions of the contract may allow compensation to the contractor if he himself has not
caused the impeding event and the other party (Employer) has undertaken the risk of such
happening upon him under the terms of the contract. The demand for such compensations in
terms of time and money is called Claim. Successful management of claims gives an edge
to the contractor because through such claims he can make good the loss of time and money
occasioned by the claim events
The duty/obligation undertaken by the contractor under the terms of the contract
Independent; the contractors performance exclusively, nothing to do
with the performance of other parties in the contract; or,
Dependant upon the performance; of Employer or the Engineer or any
other contractor /third person; or,
Dependant upon circumstances; and situations that were supposed to re-
main unchanged during the execution of the contract.
Primary Source of Claim and Contractual Scheme of Risk Allocation
Claims may not end up as disputes if the parties clearly understand the risk allocation
established by their contract or its governing law.
Claims Provisions under Changed Conditions Clauses in a Contract
The Differing Site/Physical Conditions Clause;
64 SECTION-II
The Changes Clause (Character/Scope of work);
The Suspension of Work Clause.
Cost & Time Claims for Compensable / Excusable Delays
Demand for compensations in terms of time and money is called Claim. Successful
management of claims gives an edge to the contractor because through such claims he can
make good the loss of time and money occasioned by the claim events. Understanding the
contractual allocation of risks is necessary to identify claims arising from risks.
PEC Form of Contract Document based on FIDIC, 4th Edition, Red Book makes the
Employer expressly responsible for the risks connected with certain events and occurrences.
Delayed Drawings / Engineers Instructions
Work Program submitted by the contractor is an indicator to the
Engineer as to when the drawings or instructions should reach the contractor without af-
fecting his performance adversely. (Sub Clause-14.1, CoC)
Failure or inability of the Engineer to issue any drawing or in-
struction, for which the Contractor has given prior notice, is a claim-able event. (Sub
Clause-6.4, CoC)
Obstructions or Adverse Conditions encountered during Performance of Contract
Ordinarily, the contractor is not expected to encounter any
physical obstruction or decelerating physical condition during the execution of the Works.
Adverse effect on the performance of the contract caused by
climatic condition on Site is not recognized as a physical condition that would entitle the
contractor to relief under this provision in so far as the cost compensation is concerned.
Time compensation is allowed. (Sub Clauses-12.2 & 44.1, CoC)
Halting Progress of Execution when Confronted with Antiques etc.
The contract requires the contractor to be watchful in case he
finds fossils, coins and antiques of geological or archeological interest on site during exe-
cution of the contract.
Upon discovery of these or such like articles on work site he
is required to halt further progress of work and inform the Engineer immediately. (Sub
Cluse-27.1, CoC)
Instructed Suspension of Contract Execution
The Engineer has authority under the contract to suspend the execution
of the Works or hold back the contractor from performing any part of the contract if he
thinks that the same is necessary.
The contractor is duty bound to comply with such an instructed suspen-
sion. During suspension the contractor is required to protect and secure the works already
executed (Sub Cluse-40.1, CoC).
Reasons for Suspension entailing no compensation
SECTION-II 65
The contractor is not compensated for suspension ordered for following reasons:
Due to some default of the contractor, or,
In view of foreseen climatic conditions on site, or,
It is necessary for proper execution of works or their safety, or,
When the instructed suspension is already provided for in the contract.
Opted Suspension of Contract Execution requiring compensation
Whenever payment of a certified amount is delayed by the Employer the contractor, among
other remedies such as interest and termination of contract, is also entitled to suspend
execution of whole of the contracted Works or any part of such works (Sub Cluse-40.2, 40.3,
69.1 & 69.4 CoC).
Possession of Site and its Access
Immediately upon the issuance of Notice to Commence, the
Employer is duty bound to make appropriate proportion of the work site available to the
contractor for work.
In addition the Employer is also duty bound to give proper
access to the work site so that the contractor can mobilize his construction resources and
commence work on the available site (Sub Cluse-42.1 & 42.2, CoC).
Prescribed Risks of the Employer
War:
Revolt:
Ionizing Radiation:
Pressure Waves:
Unrest:
Employers Occupation of Works:
Design Failure:
Forces of Nature/Act of God: (Sub Cluse-20.4, CoC).
Variations
The Engineer has vast powers to vary the contracted Works but usually he is deprived
of any power or limited power to vary the contract. (Sub Cluse-2.1, CoC).
Contractor is to comply with the instruction to vary the quantity, quality, form, char-
acter, kind, position and dimension of the Works. (Sub Cluse-51.1, CoC).
Additional Tests
The Contract always prescribes the tests that are to be performed before, during or af-
ter the execution of the Contract.
These prescribed tests being part of work to be carried out under the Contract they are
deemed to have been accounted for, both in terms of cost & time, by the Contractor in his
bid. (Sub Cluse-36.3, CoC).
If any test required by the Engineer is not intended by or provided for, or not so partic-
ularized in the contract then the cost of such test shall be borne by the Employer. (Sub
Cluse-36.5, CoC).
66 SECTION-II
Delay Claims
The term delay in construction activity is used to represent the time during which
some part of the construction project has been extended beyond what had been originally
planned.
This extended time may have been caused due to some unforeseen or unexpected cir-
cumstance.
Delaying incidents
An incident that affects the performance of a particular activity without affecting the
completion deadline is also called delay.
It is not necessary that delay in execution should necessarily disturb the planned com-
pletion deadline.
A delaying incident may originate from within the Contractors organization or from
any other factor interacting with the construction project.
Delaying incidents within the Contractors Organization
The delaying incidents originating within the Contractors organization are
those which have been caused by the Contractor or his representatives.
Mismanagement and absence of planned execution by the Contractor may be
responsible for the delay that results. Contractor is responsible to make good the time
lost due to such delays.
Delaying incidents outside the Contractors Organization
Delaying incidents outside the Contractors organization may be caused by:
Employer, or,
Designer, or,
Other prime contractors, or,
Subcontractors, or,
Suppliers, or,
Labour Unions, or,
Nature, or,
Other organizations and entities which participate in the construction process.
Events entitling for Extension of Time
the amount or nature of extra or additional work, or
exceptionally adverse climatic conditions, or
any delay, impediment or prevention by the Employer, or
any cause of delay referred to in the Conditions of Contract, or
other special circumstances which may occur, other than through a default of or
breach of contract by the Contractor or for which he is responsible,
EOT submission requirements
A description of the cause of the delay and the contractual provision which is
being relied upon for the extension;
The date when the delay commenced and the period for the delay;
SECTION-II 67
The date of notice of delay, specifying the reference and relevant documents;
A summary of records and particulars;
A narrative of the events and effect on progress;
A diagrammatic illustration showing the status of the programme progress and
current completion date prior to the commencement of the delay;
A diagrammatic illustration showing the effects of the delay on the progress
and the completion date;
A statement requesting an EOT for the period shown in the illustration.
Procedure for Claiming Extension of Time for Completion Sub Clause-44.2, CoC:
Provided that the Engineer is not bound to make any determination unless the Contractor has;
within 28 days after such event has first arisen notified the Engineer with a copy to the
Employer, and
within 28 days, or such other reasonable time as may be agreed by the Engineer, after
such notification submitted to the Engineer detailed particulars of any extension of time
to which he may consider himself entitled in order that such submission may be
investigated at the time.
Interim Extension of Time Sub Clause-44.3, CoC:
Where an event has a continuing effect such that it is not practicable for the Contractor to
submit detailed particulars within the period of 28 days referred to in Sub-Clause 44.2(b),
CoC, he shall nevertheless be entitled to an extension of time provided that he has submitted
to the Engineer interim particulars at intervals of not more than 28 days and final particulars
within 28 days of the end of the effects resulting from the event.
Valuation of Variation
BoQ Rates: "varied work" shall be valued at the rates and prices set out in the Con-
tract or as basis of valuation. (Sub Clause-52.1, CoC)
Rates derived from BoQ Rates: the rates and prices in the Contract shall be used as the
basis for valuation. (Sub Clause-52.1, CoC)
New Rates: the rate or price contained in the Contract is, by reason of varied work,
rendered inappropriate or inapplicable, then, a suitable rate or price shall be agreed.
(Sub Clause-52.2, CoC)
Variations Exceeding 15 per cent (Sub Clause-52.3, CoC)
If, on the issue of the Taking-Over Certificate for the whole of the Works, it is found that
as a result of:
(a) all varied work valued under Sub-Clauses 52.1 and 52.2, and
(b) all adjustments upon measurement of the estimated quantities set out in the Bill of
Quantities, excluding Provisional Sums, dayworks and adjustment of price made un-
der Clause 70.
but not from any other cause, there have been additions to or deductions from the Con-
tract Price which taken together are in excess of 15 per cent of the "Effective Contract
Price" then in such event (subject to any action already taken under this Clause-52),
there shall be added to or deducted from the Contract Price such further sums determined
by the Engineer having regard to the Contractor's Site and general overhead costs of the
Contract.
Daywork (Sub Clause-52.4, CoC)
68 SECTION-II
The Engineer may, if in his opinion it is necessary or desirable, issue an instruction that
any varied work shall be executed on a daywork basis.
Indicators of Claim
Performance difficulty is the first indicator of a likely claim; whenever some occurrence,
condition or event on site creates obvious performance difficulties such difficulty should
immediately be seen against the background of the happening of a likely claim event.
Causes impeding Progress
It is to be seen as to whether the causes impeding the progress of performance of the
contractor are the one:
Whose risk has been undertaken by the Employer or the Engineer/Architect under the
terms of the contract or it is caused by some one else;
Whose risk is attributable to one party or the other under the governing law of the con-
tract.
Management of Claims
Claim management is an important aspect of the overall contract management which is a
salient attribute of the Project Managing. Good project management is based on managing the
contract and the claims properly.
Important Steps in Claims Management
The Claim Index:
It is prepared as a checklist and contains clearly defined various occurrence or course of
events or causes that could possibly result in performance difficulty.
' The Occurrence Report:
' Preparation of Claims:
' Substantiation of Claims:
' Submission of Claims:
Types of Claims
There are mainly three types of claims that arise from any contract:
* Time Claim (Extension of time for completion of contract);
* Cost of Time Claim (Prolongation Costs), and
* Cost Claim (Compensation for extra expense incurred due to an
event whose risk is upon the Employer).
Excusable Delays
Excusable delays are compensated by mere grant of extension of time for completion
without any monetary compensation (additional costs).
Such delays are usually caused by events covered by the force majuere clause of the
contract.
Both the Employer and the Contractor suffer loss, the Employer in terms of late com-
pletion of project and the Contractor for the expense incurred during the delay period.
Instances of Excusable Delays - I
Acts of God or of the public enemy;
Acts of the Government;
SECTION-II 69
Acts of another contractor in performance of his contract with the Govern-
ment;
Fires;
Floods; and
Epidemics.
Instances of Excusable Delays - II
Quarantine restrictions;
Strikes;
Freight embargoes;
Unusually severe weather; and
Delays of subcontractors or suppliers at any tier arising from unforeseeable
causes beyond the control and without the fault or negligence of both the contrac-
tor and the subcontractors or suppliers
Compensable Delays
Compensable delays are compensated by grant of extension of time as well as additional cost
incurred due to such delays.
Procedure for Claiming Costs
Step I - Notice of Claims (Sub-Clause 53.1, CoC)
Notwithstanding any other provision of the Contract, if the Contractor intends to claim any
additional payment pursuant to any Clause of these Conditions or otherwise, he shall give
notice of his intention to the Engineer, with a copy to the Employer, within 28 days after the
event giving rise to the claim has first arisen.
Step II - Contemporary Records (Sub-Clause 53.2, CoC)
Upon the happening of the event referred to in Sub-Clause 53.1, CoC, the Contractor shall
keep such contemporary records as may reasonably be necessary to support any claim he may
subsequently wish to make. Without necessarily admitting the Employer's liability, the
Engineer shall, on receipt of a notice under Sub-Clause 53.1, CoC, inspect such contemporary
records and may instruct the Contractor to keep any further contemporary records as are
reasonable and may be material to the claim of which notice has been given. The Contractor
shall permit the Engineer to inspect all records kept pursuant to this Sub-Clause and shall
supply him with copies thereof as and when the Engineer so instructs.
Step III - Substantiation of Claims (Sub-Clause 53.3, CoC)
Within 28 days, or such other reasonable time as may be agreed by the Engineer, of giving
notice under Sub-Clause 53.1, CoC, the Contractor shall send to the Engineer an account
giving detailed particulars of the amount claimed and the grounds upon which the claim is
based. Where the event giving rise to the claim has a continuing effect, such account shall be
considered to be an interim account and the Contractor shall, at such intervals as the Engineer
may reasonably require, send further interim accounts giving the accumulated amount of the
claim and any further grounds upon which it is based. In cases where interim accounts are
sent to the Engineer, the Contractor shall send a final account within 28 days of the end of the
70 SECTION-II
effects resulting from the event. The Contractor shall, if required by the Engineer so to do,
copy to the Employer all accounts sent to the Engineer pursuant to this Sub-Clause.
Step IV - Failure to Comply (Sub-Clause 53.4, CoC)
If the Contractor fails to comply with any of the provisions of Sub-Clause 53.1, 53.2 & 53.3 in
respect of any claim which he seeks to make, his entitlement to payment in respect thereof
shall not exceed such amount as assessed by the Engineer or any arbitrator or arbitrators ap-
pointed pursuant to Sub-Clause 67.3.
Note: The Sub-Clause 53.4 has been deleted in its entirety under Particular Condition
of Contract (PCC) of PEC Bidding Documents.
Payment of Claims (Sub-Clause 60.1, 60.5, 60.6 & 60.8, CoC)
The Contractor shall be entitled to have included in any interim payment certified by the
Engineer pursuant to Clause 60 such amount in respect of any claim as the Engineer, after due
consultation with the Employer and the Contractor, may consider due to the Contractor
provided that the Contractor has supplied sufficient particulars to enable the Engineer to
determine the amount due. If such particulars are insufficient to substantiate the whole of the
claim, the Contractor shall be entitled to payment in respect of such part of the claim as such
particulars may substantiate to the satisfaction of the Engineer.
General Cost Claims
Prolongation
Acceleration
Disruption
Idling
Change in Cost (Escalation)
Subsequent Legislation
Prolongation Cost Claim
The prolongation costs are only paid for such extended periods which are granted on the basis
of delaying events whose risks have been assumed by the Employer expressly given in the
contract or for which the Employer is held liable to compensate under the governing law by
implication.
Acceleration Cost Claim
The contractor was slow as per Clause-14, Program, CoC, and
then he accelerate the pace of work under notice (Sub Clause-46.1, Rate of Progress). The
contractor gets no cost compensation.
The contractor accelerate the work pace at his own, he gets no
compensation other than reduced Liquidated Damages (LDs) for other section of work
(Sub Clause-47.2, Reduction of LDs) or the bonus (Sub Clause-47.3, Bonus for Early
Completion of Works)
As per requirement of the Employer if the contractor completes
the contract before the original or extended completion time then the contractor will be
compensated. (additional resources plus fixed cost i.e. overhead)
SECTION-II 71
Disruption Cost Claim
Sub Clause-6.3, Disruption of Progress and Sub Clause-6.4, Delay and Cost of
Delay of Drawings, allows cost and time compensation for disruption caused by non
availability of drawings or any instruction with out which the work could not be contin-
ued.
Sub Clause-12.2, Not Foreseeable Physical Obstructions or Conditions, if in
the opinion of the Engineer, the obstructions or conditions could not have been reasonably
foreseen by an experienced contractor, then after due consultation with the Employer and
the Contractor, determine the Delay and Cost of Delay.
Idling Cost Claim
There may be occasions where the contractor goes under:
1. Instructed suspension or,
2. Forced suspension or,
3. Self-suspension.
Owing to these three causes, the resources of the contractor deployed for execution of
contract go into an idling state. All additional costs connected with suspension are
compensated.
Change in Cost Claim (Escalation)
Owing to increase in the cost of construction inputs during execution of work w.r.t. the rates
and prices prevailed at the time of bidding, then pursuant to Sub Clause-70.1, Increase or
Decrease of Cost, the contractor is compensated for only the specified inputs as mentioned in
the Appendix-C to Bid.
Subsequent Legislation Cost Claim
Changes in existing or introduction of new State Statute, Ordinance, Law, Regulation or Bye-
Laws, would make the contractor entitle to the increased cost for the legislative items w.r.t.
the cost prevailed at the time of bidding, pursuant to Sub Clause-70.2, Subsequent Legislation
Principle of law
It is mentioned in Section-67 of Contract Act, 1872 that every promise must extend
reasonable facilities to the party obliged to perform so that his performance is completed
unhindered.
Consequence of prevention is compensation to the party provided under, Section-53 & 54 of
Contract Act, 1872, as under;
Liability of party preventing event on which the contract is to take effect (Section-53):
When a contract contains reciprocal promises, and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any loss which he may
sustain in consequence of the non-performance of the contract.
Illustration;
A and B contract that B shall execute certain work for A for a thousand rupees. B is
ready and willing to execute the work accordingly, but A prevents him from doing so.
The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled
to recover from A compensation for any loss which he has incurred by its non-
performance.
72 SECTION-II
Effect of default as to that promise which should be first performed, in contract
consisting of reciprocal promises (Section-54):
When a contract consists of reciprocal promises, such that one of them cannot be performed,
or that its performance cannot be claimed till the other has been performed, and the promiser
of the promise last mentioned fails to perform it, such promiser cannot claim the performance
of the reciprocal promise, and must make compensation to the other party to the contract for
any loss which such other party may sustain by the non-performance of the contract.
Illustration;
(a) A hires B's ship to take in and convey from Karachi to the Mauritius a car got to be
provided by A, B receiving a certain freight for its conveyance. A does not provide
any cargo for the ship. A cannot claim the performance of B's promise, and must
make compensation to B for the loss which B sustains by the non-performance of
the contract.
(b) A contracts with B to execute certain builders' work for a fixed price, B. supplying
the scaffolding and timber necessary for the work, B refuses to furnish any scaf-
folding or timber, and the work cannot be executed. A need not execute the work,
and B is bound to make compensation to A for any loss Caused to him by the non-
performance of the contract.
(c) A contracts with B to deliver to him, at a specified price, certain merchandise or
board a ship which cannot arrive for a month, and B engages to pay for the mer-
chandise within a week from the date of the contract. B does not pay within a
week. A's promise to deliver need not be performed, and B must make compensa-
tion.
(d) A promises B to sell him one hundred bales of merchandise, to be delivered next
day, and B promises A to pay for them within a month. A does not deliver accord-
ing to his promise. B's promise to pay need not be performed, and A must make
compensation.
SECTION-II 73
Dispute Resolution in Construction Contracts
Grievances during Procurement Process
PPR-48, Redressal of grievances by the procuring agency;
o The procuring agency shall constitute a committee comprising of odd number of per-
sons, with proper powers and authorizations, to address the complaints of bidders that
may occur prior to the entry into force of the procurement contract.
o Any bidder feeling aggrieved by any act of the procuring agency after the submission
of his bid may lodge a written complaint concerning his grievances not later than fifteen
days after the announcement of the bid evaluation report.
o Any bidder not satisfied with the decision of the committee of the procuring agency
may lodge an appeal in the relevant court of jurisdiction.
INTRODUCTION TO CONSTRUCTION ARBITRATION
Typical Features of Construction Disputes (1)
* Technically complex, fact intensive, require technical experts as well
as lawyers.
* Often more than two parties, even in turnkey projects (involvement of
subcontractors, suppliers, lenders, consultants, other contractors etc).
* Often more than one relevant contract (subcontracts, supply contracts,
construction of other facilities on same project, off take contracts, operation and mainte-
nance etc).
* Parties of (some times many) different nationalities on the same job.
* Site may be in another administrative areas altogether.
Typical Features of Construction Disputes (2)
* Large sums in dispute, at least in absolute terms.
* Project usually of long duration, with disputes emerging throughout.
* English law often applies, or at least contracts often inspired by Eng-
lish law. PEC Bidding Documents consists of PEC bye laws.
* Use of standard form contracts (e.g. FIDIC contracts).
Issues that Causes Construction Disputes
* Alleged interference by or deficiencies of the Employer:
Lack of site possession
Late approvals or instructions
Changes in design/materials/specification
Non payment
* Alleged deficiencies of Contractor:
Contractors design omissions and deficiencies
Defective manufacture and construction
Delayed performance (various causes attributable to contractor)
Excessive cost, when contract price not fixed
74 SECTION-II
* Third party events:
Adverse site conditions
Adverse weather
Material escalation
Hostilities/strikes
Changes in law
Typical Construction Claims
Contractor usually claims one or more of the following:
Compensation for extra work performed
Compensation and/or schedule relief for acceleration, delay
and/or disruption
Payment and interest
Blocking draw of performance bond
Employer usually claims one or more of the following:
Damages (usually liquidated) for delay, or for poor perfor-
mance (plant not at specification)
Correction or compensation for defective work (under war-
ranties)
Draw on performance bond
Mechanism for Resolving Construction Disputes
PEC Binding Dispute Resolution Forms
Engineers Decision
Arbitration
Court Litigation
PEC Rules of Reconciliation and Arbitration Not
Notified
FIDIC and ICC have their own Dispute Board pro-
cedures
Dispute Resolution Process
The Engineers Decision (ED) pursuant to Sub Clause-67.1 marks the
opening of the dispute resolution mechanism provided in the contract. This Clause is the
stepping stone to eventual reference of dispute to arbitration. In case the Engineer gives a
decision acceptable to both the parties (Employer/Contractor) then the ED finally settles
the dispute at the initial stage.
No notice is required to be given when the Contractor intends to seek Engi-
neers Decision under Sub Clause-67.1
The matter in dispute/disagreement can be referred to the Engineer any
time. There is no express time limit for the same.
SECTION-II 75
Step-1 (Engineers Decision (ED))
The reference of dispute for ED is required in writing.
An oral request is not valid.
The reference has to clearly state that the decision is sought under Sub Clause-67.1,
CoC.
The Engineer upon receiving the request for ED, has 84 days to give his decision.
The time limit starts from the day the Engineer receives the reference.
The Engineer is required to notify his decision to both, the Contractor and the Em-
ployer.
The Decision given beyound 84 days is invalid.
The Notice of intention to commence arbitration on the matter in the dispute is to be
given within 70 days when:
Either the Engineer fails to give his Decision within 84 days.
Or the Engineer gives the Decision but any party (Employer/Contractor) is
dissatisfied with the ED.
The time limit starts from the day the parties in dispute receive the ED.
In case neither the Employer nor the Contractor serves upon the other party the re-
quired notice of intention to commence arbitration then upon the expiry of 70 days, the
ED becomes final and binding for both parties.
Step-2 (Amicable Settlement)
Pursuant to Sub Clause-67.2 the parties are encouraged to settle their dispute amicably
within 56 days.
The parties may shorten or extend this time period mutually.
If no mutual agreement, then they have to wait for 56 days even if no attempt is made
to settlement.
The time limit start from the date when one party receives the notice to commence
arbitration given by the party having dissatisfied with the ED.
Arbitration may commence any time after the expiry of 56 days, but not before unless
agreed by the parties.
Pursuant to Sub Clause-67.3, when the ED has not become final and binding under
Sub Clause-67.1, and amicable settlement has not been reached under Sub Clause-67.2,
the dispute shall be finally settled under the provisions of the Arbitration Act 1940.
76 SECTION-II
Pursuant to Sub Clause-67.4, the reference to arbitration is made without complying
with the requirements stated in Sub Clause-67.1 and Sub Clause-67.2.
Step-3 (Arbitration Act 1940)
Under an arbitration agreement, the reference shall be to a sole arbitrator.
If the reference is to an even number of arbitrators, the arbitrators shall appoint an
umpire not later than one month from the latest date of their respective appointments.
The arbitrators shall make their award within four months after entering on the refer-
ence.
The arbitrator(s) unanimously make their award.
The award is made rule of court.
If the arbitrators have not made an award or have delivered to any party to the arbitra-
tion agreement or to the umpire a notice in writing stating that they can not agree, or there
is a split award then the umpire shall forthwith enter on the reference in lieu of the arbitra-
tors.
The umpire shall make his award within two months of entering on the reference.
The award of the umpire shall be final and binding on the parties.
The award is then made rule of court.
Step-4 (The Court of Law)
If any of the party is not satisfied with the award given by the arbitrators/umpire, he
may file appeal in the court of law.
The case will then be decided in the court.
The decision of the court shall be final and binding.
The provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings be-
fore the court, and to all appeals.
All the provisions of the Limitation Act, 1908 shall apply to arbitrations as they apply
to proceedings in the Court.
Note:
The Court may appoint one or several arbitrators.
The Court may modify or set aside the award of arbitrator(s) or umpire.
The Court may remove an arbitrator or umpire
Amicable settlement is open all the time.
Normally arbitration is initiated after completion of work.
Maximum time for the appointment of arbitrator(s) under Limitation Act,
1908 on reference to arbitration is one year.
If one party fails to appoint an arbitrator, either originally or by way of substi-
tution, for fifteen clear days after the service by the other party of a notice in writing

Given effect unless
Contractors Notice of
Dissatisfaction
14 days of receipt
Silver
Book
SECTION-II 77
to make the appointment, such other party having appointed his arbitrator before giv-
ing the notice, the party who has appointed an arbitrator may appoint that arbitrator to
act as sole arbitrator in the reference, and his award shall be binding on both parties as
if he had been appointed by consent.
FIDIC and its Dispute Resolution Provisions
In November 1992 FIDIC, introduced the procedure of Dispute Resolu-
tion in Clause 67 of its Red Book, 1987, through ED to Rules of Conciliation and Arbi-
tration of the International Chamber of Commerce (Arbitration Act 1940 used by PEC).
FIDIC introduced the concept of Dispute Board into its Orange Book
(Design & Build) contract in 1995.
In 1999, FIDIC revised its Forms of Contract:
FIDIC Dispute Resolution provision is set out in Clause 20 of the New Red
(Conditions of Contract for Construction for Building and Engineering
Works), Yellow (Conditions of Contract for Plant and Design-Build for Elec-
trical and Mechanical Plant and for Building and Engineering Works) and Sil-
ver (Conditions of Contract for EPC/Turnkey Projects) Books.
Approach used by FIDIC is the Dispute Adjudication Board (DAB) which is-
sues a decision.
The FIDIC DAB provisions apply whenever a FIDIC contract is used unless
parties delete the provision.
The FIDIC DAB decisions are immediately binding and parties are obliged to
comply with the decision pending other stages of the dispute resolution proce-
dure, e.g. revised by amicable settlement or arbitral award.
New Red (Construction Contract) and Yellow (Plant and Design-Build Con-
tract) Books provide the Engineer to act as adjudicator and DAB. Silver Book
(EPC Contract) and Gold Book (DBO) have no Engineer, so disputes here
handled by DAB.
FIDIC Clause 20 (Claims, Disputes and Arbitration) provides for a combi-
nation of a Dispute Adjudication Board (20.4), amicable settlement (20.5),
and ICC arbitration (20.6).
Dispute Adjudication Board
Rules set out in New Red and Yellow books
Rules apply to the resolution of a referred dispute only
They may offer decisions or advice & opinion in the matter
Formation:
One or three person in the Board
The members are Independent & Impartial
Each party nominates one member
Parties consult members and agree a chairman
List of potential members in tender
If no agreement;
FIDIC President will nominate

Given effect unless
Dissatisfaction
14 days of receipt
Silver
Book
A Typical ICC Arbitration Procedure
78 SECTION-II
Due consultation with parties
Functions:
Become Familiar
Visit the site
Keep up to date
Encourage resolution of issues
When a dispute is referred:
Act Fairly & Impartially
Convene a hearing
Deliberate
Prepare a Decision
Avoid unnecessary delay or expense
Advantages of the DAB
Resolves disputes in 84 days
Lower costs than Arbitration or Litigation
Impartiality
Real time assessment
Improves standards
Provides clarity
Diffuses problems
Encourages competitiveness in tenders
FIDIC Procedure for Contractors Claims (1999)

28 day Notice of Claim to Engineer
42 day Fully
Detailed Claim
to Engineer
Final Claim 28 days after
end of effects
42 days after receipt of claim
Engineers Response
Sub Clause 20.1
Contractors
Claims
Sub Clause
3.5
Determinati
ons
28 day Notice of Claim to Employer
42 day Fully Detailed
Claim
to Employer
Final Claim 28 days after end of
effects
42 days after receipt of claim
Employers Response
Given effect unless
Dissatisfaction
14 days of receipt
New Red/Yellow
Books
Silver
Book
Agreement/ Determination
given effect unless revised under Clause 20
Employer to Agree or
Determine
Employer to Agree or
Determine
SECTION-II 79
International Arbitration
No institutions specialised in construction cases. Instead, the usual top international
arbitration institutions are recommended, such as:
International Chamber of Commerce (ICC)
London Court of International Arbitration (LCIA)
Singapore International Arbitration Centre (SIAC)
Hong Kong International Arbitration Centre (HKIAC)
China International Economic and Trade Arbitration Commission (CI-
ETAC)
Beijing Arbitration Commission (BAC)
International Centre for Settlement of Investment Disputes (ICSID)
(Note: In leading institutions arbitration rules are largely similar. For further details, visit:
Application for
Interim Relief
Request for
Arbitration
Answer to
Request
and Filing of
Counter claims
Hearings
Post-Hearing
Submissions
Exchange of
Written
Submissions
Constitution of
Arbitral
Tribunal
Terms of
Reference
and Procedural
Timetable
Limited
Discovery
(Exchange of
Documents)
Final Award &
Costs
Typical duration: 15-24
months
Reference to Dispute Adjudication
Board (DAB)
(1 or 3 Member)
Sub Clause-20.5
Sub Clause-20.5
80 SECTION-II
www.iccwbo.org, www.lcia.org, www.siac.org.sg, www.hkiac.org, www.cietac.org,
www.bjac.org.cn/en & www.icsid.worldbank.org)
SECTION-II 81
Price Adjustment in Construction Contract
Increase or decrease in costs of goods and services is a common phenomena world over. In
order to cater rise or fall of costs, provisions of Price Adjustment in construction contracts are
practiced to have more realistic competitive bids and execution of contracts on equitable and
just basis.
Importance;
Bidders quote price on prevailing market rates.
Cost of basic construction materials fluctuate unpredictably in Pakistan.
Unlimited cost increase not foreseeable and cannot be built in competitive bidding
process.
Contractors can execute work only at reasonable costs.
Legally and logically contracts are not executable without an equitable mechanism ac-
ceptable to the parties.
Results of non-adjustments: Project delay, disputes, termination of contracts result-
ing more cost for the Employer.
Introduction;
Terms Escalation/De-Escalation, Rise/Fall and Increase / Decrease in cost.
Meaning Adjustment of Contract Price for increase or decrease of prices of ad-
justable materials / services.
It is compensation and not extra benefit to Contractor.
Adjusted on monthly IPCs/Running Bills during contract period.
Basic formula: Price Adjustment = Quantity x (current rate base rate).
FIDIC formula: . etc
Eo
En
d
Mo
Mn
c
Lo
Ln
b A pn + + + + =
If a price adjustment factor is applied to payments made in a currency other than the
currency of the source of the index for a particular indexed input, a correction factor
Zo/Zn will be applied to the respective component factor of pn for the formula of the
relevant currency. Zo is the number of units of currency of the country of the index,
equivalent to one unit of the currency of payment on the date of the base index, and
Zn is the corresponding number of such currency units on the date of the current in-
dex. However the correct procedure for price adjustment is to use an index relating to
the country of supply for a particular input and to make payment in the currency of
that country.
Provision in Contract Documents
Bidding Documents for Civil Works: Sub Clause - 70.1 (PEC & FIDIC -1987).
Bidding Documents for E&M Works: Sub Clause - 47.1 (PEC & FIDIC -1987).
Bidding Documents for Building and Engineering Works: Sub Clause - 13.8
(FIDIC -1999)
Bidding Documents for EPC Turnkey Projects: Sub Clause -13.8 (FIDIC
-1999)
Bidding Documents for Building and Engineering Works: Sub Clause - 13.8
(FIDIC-MDB 2005)
82 SECTION-II
Calculation of Price Adjustment using Formula;
Nonadjustable factor B = Adjustable factor
A + b + c + d + = 1
Engineers Estimate or Effective Contract Price = 1
Pn = A + B
Pn = A + {(Coef.)i x (Current/Base Price)i}
Pa = Pn x Po
Pa is Price adjusted amount.
Pn is Price Adjustment Factor.
Po is effective contract price/workdone amount.
A is constant, nonadjustable factor, representing the nonadjustable portion.
b, c, d, etc. are coefficients / weightings representing portion of each cost element.
Ln, Mn, En, etc. are the current cost indices of cost elements for month n
Lo, Mo, Eo, etc. are base cost indices corresponding to above cost elements.
Ln/Lo is known as Price Relative Factor or Cost Relative Factor.
The source of indices and the weightages/coefficients for use in the adjustment formula under
Sub Clause-70.1, CoC, shall be as follows:
Appendix C to Bid (PEC)
Cost
Element
Description Weightings Unit Base Rates Rs
Applicable
Index
A Fixed Portion 0.350 - - -
b Labour Day-hour FBS
c Cement Bag FBS
d Reinforcing Steel Ton FBS
e High Speed Diesel (HSD) Ltr. FBS
f Bricks 1000 No FBS
g Bitumen Kg FBS
h
Total 1.000
Notes on Appendix C (PEC)
Employers using this price adjustment provisions may add or delete any elements as
deemed appropriate to the project.
Indices are taken from FBS or Source of indices shall be those listed in Appendix-C as
approved by Engineer.
The base cost indices or prices shall be those applying 28 days prior to the latest day
for submission of bids.
. etc
Eo
En
d
Mo
Mn
c
Lo
Ln
b A pn + + + + =
SECTION-II 83
[The base cost indices or prices shall be for the month falling on the date 28 days
prior to the latest day for submission of bids. The unit of time shall be a calendar
month.]
Current indices or prices shall be those applying 28 days prior to the last day of the
billing period.
[The current cost indices or prices shall be for the month falling on the date
28 days prior to the latest day of the billing period or for the month/period of exe-
cution to which a particular monthly statement is related. The unit of time shall be
a calendar month.]
Any fluctuation in the indices or prices of materials other than those given above shall
not be subject to adjustment of the Contract Price.
Fixed portion shown here is for typical road project, Employer to determine the
weighting of Fixed Portion considering only those cost elements having cost impact of
five (5) percent or more on specific project.
Supporting Guidelines
If at any time, current indices are not available, provisional indices are determined by
the Engineer will be used subject to subsequent adjustments.
As the basis of Price adjustment, Contractor may submit the tabulation of Weightings
& Source of Indices different from AppendixC, subject to mutual agreement between
the parties.
Price adjustments admissible even for the sanctioned extended completion period.
If extension due to Contractor's fault, Price adjustments will be done using indices be-
fore or after the completion time, favorable to the Employer.
Determination of Weightings (Based on PEC Guidelines)
The Procuring agency at the time of preparation of bidding documents, works out the
Weightages/ Coefficients from the Rate Analysis of the related Engineers Estimate/ BoQ.
Each of the cost elements, having cost impact of five (05) percent or higher can be selected
for adjustment. Cost elements of HSD and Labour shall be included in the Price Adjustment
formula irrespective of their percentage determined for a particular project, if these are
applicable for that project.
In determining the weightages, the following procedure shall be adopted:
(a) Base Price alone of an element based on market rate shall be consid-
ered excluding cost of construction / installation, overheads and profit.
(b) Appropriate Rate Analysis of the Engineers Estimate shall be made to
determine costs of the basic elements.
(c) For elements having different characters, individual cost of such family
of the elements shall be determined and added to work out as a single element
cost. For example, in a particular project various types of steel such as sheet
steel, hydraulic structure steel and Grade-40 & Grade-60 steel are used. In
such a case, respective prices of all three types of steel are to be considered
and added up to come out with the single steel cost component. Similar case
may be for different types of cement used, etc.
(d) Each cost element determined as above, shall be divided by the total
amount of Engineers Estimate to determine various weightages.
(e) It is clarified that while computing Price Adjustment, base and current
prices of the representative elements have to be used in the same way as they
84 SECTION-II
are mentioned in the PEC bidding documents. For example Grade-40 half inch
dia Steel is the representative cost element for all types of steel; similarly un-
skilled labour is the representative cost element for all types of labour etc.
Weightage of fixed portion (Non-adjustable portion of the estimated cost of the
contract), A shall be determined as under:
(i) First the weightages of all the cost elements having value of 5 percent or more
(HSD and Labour to be included irrespective of their weightages) to be added
up to a level when the total is 65 percent or less. In that case the total is to be
subtracted from 100 percent to determine the weightage of the fixed
portion,A
(ii) In case total weightage of the cost elements including HSD and Labour
exceeds 65 percent, the element(s) having lowest weightage(s) other than HSD
and labour, shall be excluded in considering the adjustable costs elements.
(iii) Fixed portion shall never be less than 35 percent and the adjustable
portion shall never be more than 65 percent of the Engineers Estimate.
(iv) Sum of fixed portion, A and weightages a, b, c, d, .etc., of the ad-
justable portion shall always be one (01).
Example for determination of weightings
An Engineer's Estimate prepared during June, 2006 for the construction of a building
amounts to Rs 196,880,500. Thereafter in order to prepare Appendix-C of Bidding
Documents, particularly for the determination of weightages i.e. percentage of construction
inputs in the Engineer's Estimate worked out with the help of Rate Analysis in accordance
with above mention guidelines.

The South African Federation of Civil Engineering Contractors
The coefficients provided below are issued as a basic guideline only and are subject to
amendment, depending on the specific requirements and variations contained in differing
types of contracts.
No. Work Category Labour Plant Materials Fuel
SECTION-II 85
1 Bulk Earthworks 0.10 0.65 0.05 0.20
2 Earthworks (with culverts and drainage) 0.15 0.50 0.20 0.15
3
3.1
(a)
(b)
3.2
(a)
(b)
New Road Construction:
National Provincial Roads:
Including bitumen
Excluding bitumen
Urban Roads:
Including bitumen
Excluding bitumen

0.15
0.20

0.25
0.30

0.35
0.40

0.15
0.30

0.35
0.25

0.55
0.35

0.15
0.15

0.05
0.05
4
(a)
(b)
Township Roads and Services
Including bitumen
Excluding bitumen

0.20
0.21

0.25
0.27

0.45
0.42

0.10
0.10
5
(a)
(b)
Rehabilitation/Resurfacing Works
Including bitumen
Excluding bitumen

0.15
0.20

0.25
0.35

0.50
0.35

0.10
0.10
6
(a)
(b)
Routine Maintenance Works
Including bitumen
Excluding bitumen

0.45
0.48

0.30
0.37

0.15
0.05

0.10
0.10
7 Water and Sewer Reticulation 0.15 0.20 0.55 0.10
8 Concrete Works (reservoirs and other
general civil engineering works)

0.25

0.15

0.55

0.05
9 Concrete Works (major structures) 0.15 0.20 0.55 0.10
Note; Overhead and minor elements of construction input are included in above components.
Determination of Price Adjustment
Price Adjustment in term of 65 % Foreign and 35 % Local Component of the Contract
Price;
Foreign Portion (Rs) for IPC # 2, Amounting; Rs 26,862,316.00
Element Coefficient
Base
Indices
Current
Indices
Factor
(5/4)
Adj. Factor
(6x3)
(1) (2) (3) (4) (5) (6) (7)
a Fixed Portion 0.15 - - - 0.1500
b Labour - Exp. (E) 0.07 18.63 22.17 1.1900 0.0833
c Equipment 0.27 151.50 187.60 1.2383 0.3343
d Misc. 0.16 151.70 212.20 1.3988 0.2238

Sub Total 0.65 0.7914
Portion not Adj. (Local) 0.35 0.3500
Total 1.00 1.1414

IP
C Rs 26,862,316.00 30,661,934.52
Net Increase (Rs) 3,799,618.52
Local Portion (Rs) for IPC # 2 Amounting; Rs 26,862,316.00
Element Coefficient
Base
Indices
Current
Indices
Factor
(5/4)
Adj. Factor
(6x3)
(1) (2) (3) (4) (5) (6) (7)
a Fixed Portion 0.05 - - - 0.0500
86 SECTION-II
b Labour - Local (L) 0.06 2,500.00 6,000.00 2.4000 0.1440
c Fuel 0.07 134.26 422.36 3.1458 0.2202
d Cement 0.06 245.00 375.00 1.5306 0.0918
e Reinforcing Steel 0.06 18,600.00 61,500.00 3.3065 0.1984
f Misc. 0.05 106.74 192.08 1.7995 0.0900

Sub Total 0.35 0.7944
Portion not Adj. (Foreign) 0.65 0.6500
Total 1.00 1.4444

IP
C Rs 26,862,316.00 38,800,144.77
Net Increase (Rs) 11,937,828.77
Local + Foreign (Rs) 15,737,447.29
Change or adjustment of Weightings:
World Bank; Sub Clause-70.7
The weightings for each of the factors of cost given in the Appendix to Bid shall be
adjusted if, in the opinion of the Engineer, they have been rendered unreasonable, un-
balanced, or inapplicable as a result of varied or additional work already executed or
instructed under Clause 51 or for any other reason.
PEC; Sub Clause-70.1 (f)
The weightages for each of the factors of cost given in Appendix-C to Bid shall be ad-
justed if, in the opinion of the Engineer, they have been rendered unreasonable, unbal-
anced, or inapplicable as a result of varied or additional work executed or instructed
under Clause 51. Such adjustment(s) shall have to be agreed in the variation order.
Abrupt or sudden changes in price of materials and labours do not put any impact on
Weightings.
Note;
Non Adjustable Portion includes:
Minor Construction Inputs [less than 5% (PEC) / 3-5% (WB) of the
total estimated cost of work]
Contractors Overhead and profit.
If any of the specified material is not used for a certain period, then impact of increase
or decrease, relative cost indices should be a unit i.e. one (1).
If any of the specified material is stored at site by the Contractor, then for adjustment,
the current rate pertaining to that material would be taken for the month falling on the
date that material was purchased by the Contractor, and similarly a weighted average
rate shall be used for the material purchased once but used during different months.
Sample:
SOUTH SANGHAR DISPOSAL CHANNELS, CONTRACT NR. S15.AB8
Calculation of Mean Price
SECTION-II 87
Material Ordinary Portland Cement
Unit Metric Ton

Basic Price Rs.2600.00

Material Used Calculation of Mean Price
According to Quantity Invoice Delivery Delivered Schedule Unit Schedule Total
IPCs Nr. Date Quantity Price(Rs) Price(Rs)
(1) (2) (3) (4) (5) (6) (7)
IPC-3(June94) 2.040 235 09-05-94 3.000 2737.00 8211.00
IPC-4(July94) 2.270 301 07-07-94 5.000 3197.00 15985.00
IPC-5(Aug-Sep94) 2.350 6325 12-09-94 5.000 3197.00 15985.00
IPC-6(Oct94) 1.710 128 01-02-95 4.000 3151.00 12604.00
IPC-7(Nov94) 1.170 112 06-04-95 2.000 3151.00 6302.00
IPC-8(Dec94) 1.180 1436 08-05-95 3.000 3151.00 9453.00
IPC-9(Jan95) 1.580
IPC-10(Feb95) 3.030
IPC-11(Mar95) 1.850
IPC-12(Apr95) 2.190
IPC-13(May95) 0.130
IPC-14(Aug95) 0.060
IPC-15(Sep95) 1.800
IPC-16(Oct95) 0.380
IPC-17(Nov95) 0.000

TOTAL 21.740 22.000 68540.00
Mean = (7) /
(5) 3115.45
Example
Weighted Average Rate per Running Bill
IPC # Effective Period
Cement
Period Days
Rate/bag
per month
d x e
Ave. Rate
[(dxe)i/di]
a b c d e f g
1 05/11/2007 - 19/12/2007 Nov.,2007 25 215.00 5375.00
Dec.,2007 19 215.00 4085.00
Total 44 9460.00 215.00
2 20/12/2007 - 15/01/2008 Dec.,2007 13 215.00 2795.00
Jan.,2008 15 235.00 3525.00
Total 28 6320.00 225.71
SECTION-III 88
SECTION-III
Procurement of Goods
Introduction
The Bidding Documents for Procurement of Goods generally used, are based on
documents prepared by the World Bank 1997, 2001 and 2004, revised upto 2010.
These Bidding Documents for Procurement of Goods, assumes that no prequalifi-
cation has taken place before bidding.
Background for best practices
Purchasing process
Market/Procurement analysis
A. Planning of the purchase B. Chosing the right method for the
purchase
C. Drafting the Invitation to Bids D. Planning the award criteria
E. Sending procurement notice and / or
invitation to bids
F. Receipt of the bids
G. Qualification of the bidder. H. Evaluating the bids
I. Decision making J. Informing
K. Remedies L. Contract and/or order
M. Monitoring the contract N. Closing the contract
Formation of Bidding Documents for Procurement of Goods (WB Based)
SECTION-I1I 89
PART 1 Bidding Procedures
Section I. Instructions to Bidders (ITB)
Section II. Bidding Data Sheet (BDS)
Section III. Evaluation and Qualification Criteria
Section IV. Bidding Forms
PART 2 Supply Requirements
Section VI. Schedule of Requirements
PART 3 - Contract
Section VII. General Conditions of Contract (GCC)
Section VIII. Special Conditions of Contract (SCC)
Section IX. Contract Forms
Sample:
Invitation for Bids (IFB)
[ insert: name of Project ]
[ insert: IFB Title ]
[ insert: IFB Number ]
1. The [insert name of Purchaser] [has received/has arranged from its recourses] a
[loan/credit/found] toward the cost of [insert name of Project], and it intends to apply part
of the proceeds of this [loan/credit/found] to payments under the Contract for [insert
name/no. of Contract].
2. The [insert name of Implementing Agency] now invites sealed bids from eli-
gible and qualified bidders for [insert brief description of the Goods to be procured].
3. Interested eligible bidders may obtain further information from and inspect
the bidding documents during [insert office hours] at the office of [name of appropriate
purchasing unit] [mailing address of appropriate office for inquiry and issuance of bid-
ding documents and cable, telex, and/or facsimile numbers].
4. Qualifications requirements include: [insert a list of technical, financial, le-
gal and other requirements]. A margin of preference for certain goods manufactured do-
mestically [insert shall or shall not, as appropriate] be applied. Additional details are
provided in the Bidding Documents.
5. A complete set of Bidding Documents in [insert name of language] may be
purchased by interested bidders on the submission of a written Application to the above ad-
dress and upon payment of a non refundable fee [insert amount in local currency].
6. Bids must be delivered to the above address at or before [insert time and
date]. Late bids will be rejected. Bids will be opened in the presence of the bidders repre-
sentatives who choose to attend in.

All bids must be accompanied by a Bid Security of
[insert amount in local currency or minimum percentage of bid price].
7. The bidders are requested to give their best and final prices as no negotia-
tions are expected.
PART 1 BIDDING PROCEDURES
This Section provides information to help Bidders prepare their bids.
90 SECTION-III
Information is also provided on the submission, opening, and evaluation of bids and
on the award of Contracts.
Section I contains provisions that are to be used without modification. However if it is
not Bank finance procurement, then certain clauses may be tailored/ changed to suit
the procuring agency.
Section I contains about 42 Clauses.
Sample
A. General
1. Scope of Bid 1.1 The Procuring agency/Purchaser indicated in the Bidding
Data Sheet (BDS), issues these Bidding Documents for the
supply of Goods and Related Services incidental thereto as
specified in Section VI, Schedule of Requirements. The name
and identification number of this procurement are specified in
the BDS. The name, identification, and number of lots of are
provided in the BDS.
2. Source of
Funds
2.1 The Purchaser or Recipient specified in the BDS has applied
for or received financing (hereinafter called funds) from the
Government of Pakistan or the Financial Institution or has ar-
ranged from its own resources toward the cost of the project
named in the BDS. The Purchaser intends to apply a portion
of the funds to eligible payments under the contract for which
these Bidding Documents are issued.

This Section includes provisions that are specific to each procurement and that sup-
plement Section I, Instructions to Bidders.
Whenever there is a conflict, the provisions herein shall prevail over those in ITB.
[Instructions for completing the Bid Data Sheet are provided, as needed, in the notes
in italics mentioned for the relevant ITB Clauses.]
Sample
ITB Clause Ref. A. General
ITB 1.1 The Purchaser is: [insert complete name]
ITB 1.1 The name and identification number of the Bidding are: [insert
name and identification number]
ITB 2.1 The Procuring agency is: [insert the name]
ITB 2.1 The name of the Project is: [insert the name of the Project]
ITB 4.3 A list of firms debarred from participating is available at PPRA
and World Bank web sites.
B. Contents of Bidding Documents
SECTION-I1I 91
ITB 7.1 For Clarification of bid purposes only, the Purchasers address
is:
Attention: [insert name of Project Officer]
Address: [insert street name and number and room number, if
applicable]
City: [insert name of city or town]
ZIP Code: [insert postal (ZIP) code, if applicable]
Country: [insert name of country]]
Telephone: [insert telephone number including country and city
codes]
Facsimile number: [insert fax number including country and city
codes]
Electronic mail address: [insert e-mail address of Project
Officer]
C. Preparation of Bids
ITB 10.1 The language of the bid is: [Insert English].
ITB 11.1 (h) The Bidder shall submit the following additional documents in its
bid: [insert list of documents, if any]
ITB 13.1 Alternative Bids [insert shall not be] considered.
ITB 14.5 The Incoterms edition is: [insert year of edition i.e. Incoterms
1990 or Incoterms 2000].
ITB 15.1 The Bidder [insert is or is not] required to quote in the
currency of the Purchasers Country the portion of the bid price
that corresponds to expenditures incurred in that currency.
ITB 18.3 Period of time the Goods are expected to be functioning (for the
purpose of spare parts): [insert duration ]
ITB 19.1 (a) Manufacturers authorization is: [insert required or not
required]
ITB 19.1 (b) After sales service is: [insert required or not required]
ITB 20.1 The bid validity period shall be [insert number] days.
ITB 21.1 The bid shall include a Bid Security (issued by a bank)
ITB 21.2 The amount of the Bid Security shall be: [insert amount]
ITB 22.1 In addition to the original of the bid, the number of copies is:
[insert number]
D. Submission and Opening of Bids
ITB 24.1 For bid submission purposes, the Purchasers address is:
Attention: [insert full name of person, if applicable, or insert
name of the Project Officer]
Address: [insert street name and number and floor and room
number, if applicable] [important to avoid delays or
92 SECTION-III
misplacement of bids]
ZIP Code: [insert postal (ZIP) code, if applicable]
Country: [insert name of country]
The deadline for the submission of bids is:
Date: [insert day, month, and year, i.e. 15 June, 2010]
Time: [insert time, and identify if a.m. or p.m., i.e. 10:30 a.m.]
ITB 27.1 The bid opening shall take place at:
Street Address: [insert street address and number and floor and
room number, if applicable]
Date: [insert day, month, and year, i.e. 15 June, 2010]
Time: [insert time, and identify if a.m. or p.m. i.e. 11:00 a.m.]
E. Evaluation and Comparison of Bids
ITB 35.1 Domestic preference [insert shall or shall not] be a bid
evaluation factor.
[If domestic preference shall be a bid-evaluation factor, the
methodology for calculating the margin of preference and the
criteria for its application shall be as specified in Section III,
Evaluation and Qualification Criteria.]
ITB 36.3(d) The adjustments shall be determined using the following criteria,
set out in Section III, Evaluation and Qualification Criteria:
[refer to Schedule III, Evaluation and Qualification Criteria;
insert complementary details if necessary]
a) Deviation in Delivery schedule: [insert Yes or No. If yes
insert the adjustment factor]
b) Deviation in payment schedule: [insert Yes or No. If yes
insert the adjustment factor]
c) The cost of major replacement components, mandatory
spare parts, and service: [insert Yes or No. If yes, insert the
Methodology and criteria] the availability in the Purchasers
Country of spare parts and after-sales services for the equip-
ment offered in the bid [insert Yes or No, If yes, insert the
Methodology and criteria]
d) the projected operating and maintenance costs during the
life of the equipment [insert Yes or No, If yes, insert the
Methodology and criteria]
e) the performance and productivity of the equipment of-
fered; [Insert Yes or No. If yes, insert the Methodology and
criteria]
f) [insert any other specific criteria]
F. Award of Contract
SECTION-I1I 93
ITB 41.1 The maximum percentage by which quantities may be increased
is: [insert percentage]
The maximum percentage by which quantities may be decreased
is: [insert percentage]
Section III. Evaluation and Qualification Criteria
This Section specifies the criteria to be used to determine the lowest evaluated bid,
and the Bidders qualification requirements to perform the contract.
Contents;
1. Domestic Preference (ITB 35.1)
2. Evaluation Criteria (ITB 36.3 {d})
3. Multiple Contracts (ITB 36.6)
4. Postqualification Requirements (ITB 38.2)
1. Domestic Preference (ITB 35.1)
If the Bidding Data Sheet so specifies, the Purchaser will grant a margin of preference to
goods manufactured in the Purchasers country for the purpose of bid comparison, in
accordance with the procedures outlined in subsequent paragraphs.
Bids will be classified in one of three groups, as follows:
Group A: Bids offering goods manufactured in the Purchasers Country, for which (i)
labour, raw materials, and components from within the Purchasers Country
account for more than 30 percent of the EXW price; and (ii) the production
facility in which they will be manufactured or assembled has been engaged in
manufacturing or assembling such goods at least since the date of bid
submission.
Group B: All other bids offering Goods manufactured in the Purchasers Country.
Group C: Bids offering Goods manufactured outside the Purchasers Country that have
been already imported or that will be imported.
PEC guidelines may be used for Domestic Preference.
2. Evaluation Criteria (ITB 36.3 {d})
The Purchasers evaluation of a bid may take into account, in addition to the Bid Price
quoted in accordance with ITB Sub-Clause 14.6, one or more of the following factors as
specified in ITB Sub-Clause 36.3(d) and in BDS referring to ITB 36.3(d), using the
following criteria and methodologies.
(a) Delivery schedule. (as per Incoterms specified in the BDS)
The Goods specified in the List of Goods are required to be delivered within
the acceptable time range.
No credit will be given to deliveries before the earliest date, and bids offering
delivery after the final date shall be treated as non responsive.
Within this acceptable period, an adjustment, as specified in BDS Sub-Clause
36.3(d), will be added, for evaluation purposes only, to the bid price of bids offer-
ing deliveries later than the Earliest Delivery Date
(b) Deviation in payment schedule. [insert one of the following ]
94 SECTION-III
Bidders shall state their bid price for the payment schedule outlined in the
SCC. Bids shall be evaluated on the basis of this base price. Bidders are, howev-
er, permitted to state an alternative payment schedule and indicate the reduction
in bid price they wish to offer for such alternative payment schedule.
Or
If a bid deviates from the schedule and if such deviation is considered accept-
able to the Purchaser, the bid will be evaluated by calculating interest earned for
any earlier payments involved in the terms outlined in the bid as compared with
those stipulated in the SCC, at the rate per annum specified in BDS Sub-Clause
36.3(d).
(c) Cost of major replacement components, mandatory spare parts, and service.
[insert the following]
The Purchaser will draw up the list of items and quantities of major assemblies, compo-
nents, and selected spare parts, to be required or likely to be required, during the ini-
tial period of operation specified in the BDS Sub-Clause 18.3, is in the List of Goods.
An adjustment equal to the total cost of these items, at the unit prices quoted in each
bid, shall be added to the bid price, for evaluation purposes only.
(d) Availability in the Purchasers Country of spare parts and after sales services for
equipment offered in the bid.
An adjustment equal to the cost to the Purchaser of establishing the minimum service
facilities and parts inventories, as outlined in BDS Sub-Clause 36.3(d), if quoted sepa-
rately, shall be added to the bid price, for evaluation purposes only.
(e) Projected operating and maintenance costs.
Operating and maintenance costs. An adjustment to take into account the operating and
maintenance costs of the Goods will be added to the bid price, for evaluation purposes
only, if specified in BDS Sub-Clause 36.3(d).
(f) Performance and productivity of the equipment.
An adjustment to take into account the productivity of the goods offered in the bid will
be added to the bid price, for evaluation purposes only, if specified in BDS Sub-Clause
36.3(d). The adjustment will be evaluated based on the cost per unit of the actual pro-
ductivity of goods offered in the bid with respect to minimum required values.
(g) Specific additional criteria.
Other specific additional criteria to be considered in the evaluation and the evaluation
method shall be detailed in BDS Sub-Clause 36.3(d).
3. Multiple Contracts (ITB 36.6)
The Purchaser shall award multiple contracts to the Bidder that offers the lowest evaluated
combination of bids (one contract per bid);
The Purchaser shall:
(a) evaluate only lots or contracts that include at least the percentages of
items per lot and quantity per item as specified in ITB Sub Clause 14.8
(b) take into account:
the lowest-evaluated bid for each lot and
SECTION-I1I 95
the price reduction per lot and the methodology for its applica-
tion as offered by the Bidder in its bid
4. Postqualification Requirements (ITB 38.2)
After determining the lowest-evaluated bid in accordance with ITB Sub-Clause 37.1, the
Purchaser shall carry out the postqualification of the Bidder in accordance with ITB
Clause 38, using only the requirements specified.
a) Financial Capability
The Bidder shall furnish documentary evidence that it meets the following financial
requirement(s):
b) Experience and Technical Capacity
The Bidder shall furnish documentary evidence to demonstrate that it meets the
following experience requirement(s):
c) The Bidder shall furnish documentary evidence to demonstrate that the Goods
it offers meet the following usage requirement:
d) [list the requirement(s)]
Section IV. Bidding Forms
This Section includes the forms for the Bid Submission, Price Schedules, Bid Security,
and the Manufacturers Authorization to be submitted with the Bid.
Bidder Information Form
Joint Venture Partner Information Form
Bid Submission Form
Price Schedule: Goods Manufactured outside the Purchasers Country, to be
imported.
Price Schedule: Goods Manufactured outside the Purchasers Country, already
imported.
Price Schedule: Goods Manufactured in the Purchasers Country
Price and Completion Schedule - Related Services.
Bid Security (Bank Guarantee)
Bid-Securing Declaration
Manufacturers Authorization
This Section contains information regarding eligible countries.
If the Procuring agency does not permit firms and individuals from countries to offer
goods, works and services for the projects in the country, those countries excluded
from the list of Eligible Countries.
PART 2 SUPPLY REQUIREMENTS
Section VI. Schedule of Requirements
96 SECTION-III
This Section includes the List of Goods and Related Services, the Delivery and
Completion Schedules, the Technical Specifications and the Drawings that describe
the Goods and Related Services to be procured.
1. List of Goods and Delivery Schedule
2. List of Related Services and Completion Schedule
3. Technical Specifications
4. Drawings
5. Inspections and Tests
Notes for Preparing the Schedule of Requirements
The Schedule of Requirements shall be included in the bidding documents by
the Purchaser, and shall cover, at a minimum, a description of the goods and ser-
vices to be supplied and the delivery schedule.
The objective of the Schedule of Requirements is to enable bidders to prepare
their bids efficiently and accurately, in particular, the Price Schedule. In addition,
the Schedule of Requirements, together with the Price Schedule, should serve as a
basis in the event of quantity variation at the time of award of contract pursuant to
ITB Clause 41.
The date or period for delivery should be carefully specified, taking into ac-
count (a) the implications of delivery terms stipulated in the ITBs pursuant to the
Incoterms rules (i.e., EXW, or CIF, CIP, FOB, FCA termsthat delivery takes
place when goods are delivered to the carriers), and (b) the date prescribed herein
from which the Purchasers delivery obligations start (i.e., notice of award, con-
tract signature, opening or confirmation of the letter of credit).
The Schedule of Requirements containing Technical Specifications is to define
the technical characteristics of the Goods and Related Services required by the
Purchaser. [If a summary of the Technical Specifications has to be provided, the
Purchaser shall insert information in the form of table. The Bidder shall prepare a
similar table to justify compliance with the requirements as under.]
Item No
Name of Goods or Related
Service
Technical Specifications and Standards
[insert item No] [insert name] [insert TS and Standards]
PART 3 CONTRACT
Section VII. General Conditions of Contract (GCC)
This Section includes the general clauses to be applied in all contracts. The text of the
clauses in this Section shall not be modified.
1. Definitions
2. Contract
Documents
3. Fraud and
Corruption
4. Interpretation
5. Language
6. Joint Ven-
ture, Consortium or Associa-
tion
7. Eligibility
8. Notices
9. Governing
Law
10. Settlement of
Disputes
11. Scope of
Supply
12. Delivery and
Documents
13. Suppliers
Responsibilities
14. Contract
Price
15. Terms of
Payment
16. Taxes and
Duties
17. Performance
Security
18. Copyright
19. Confidential Information
20. Subcontracting
21. Specifications and Standards
22. Packing and Documents
23. Insurance
24. Transportation
25. Inspections and Tests
26. Liquidated Damages
27. Warranty
28. Patent Indemnity
29. Limitation of Liability
30. Change in Laws and Regulations
31. Force Majeure
32. Change Orders and Contract
Amendments
33. Extensions of Time
34. Termination
35. Assignment
SECTION-I1I 97
Section VIII. Special Conditions of Contract (SCC)
This Section includes clauses specific to the contract that modify or supplement
Section VII, General Conditions of contract.
Sample:
Section VIII. Special Conditions of Contract
The following Special Conditions of Contract (SCC) shall supplement and / or amend the
General Conditions of Contract (GCC). Whenever there is a conflict, the provisions herein
shall prevail over those in the GCC.
GCC 1.1(j) The Purchasers country is: [insert name of the Purchasers Country]
GCC 1.1(k) The Purchaser is: [Insert complete legal name of the Purchaser]
GCC 1.1 (q) The Project Site(s)/Final Destination(s) is/are: [Insert name(s) and detailed
information on the location(s) of the site(s)]
GCC 4.2 (a) The meaning of the trade terms shall be as prescribed by Incoterms. If the
meaning of any trade term and the rights and obligations of the parties
thereunder shall not be as prescribed by Incoterms, they shall be as
prescribed by: [exceptional; refer to other internationally accepted trade
terms ]
GCC 4.2 (b) The version edition of Incoterms shall be [insert date of current edition]
GCC 5.1 The language shall be: [insert the name of the language]
98 SECTION-III
GCC 8.1 For notices, the Purchasers address shall be:
Attention: [ insert full name of person, if applicable]
Street Address: [insert street address and number]
Floor/ Room number: [insert floor and room number, if applicable]
ZIP Code: [insert postal ZIP code, if applicable]
Telephone: [include telephone number, including country and city codes]
Facsimile number: [insert facsimile number, including country and city
codes]
Electronic mail address: [insert e-mail address, if applicable]
GCC 9.1 The governing law shall be the law of: [insert name of the country or
state]
GCC 10.2 The rules of procedure for arbitration proceedings pursuant to GCC Sub
Clause 10.2 shall be as follows:
(a) Contracts with Supplier national other than the Purchasers
country:
All disputes arising in connection with the present Contract shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators
appointed in accordance with said Rules.
Or
(b) Contracts with Supplier national of the Purchasers country:
In the case of a dispute between the Purchaser and a Supplier who is a
national of the Purchasers country, the dispute shall be referred to
adjudication or arbitration in accordance with the laws of the
Purchasers country.
GCC 12.1 Details of Shipping and other Documents to be furnished by the Supplier
are [insert shipping details and other documents].
The above documents shall be received by the Purchaser before arrival of
the Goods and, if not received, the Supplier will be responsible for any
consequent expenses.
GCC 14.2 The prices charged for the Goods supplied and the related Services
performed [insert shall or shall not, as appropriate] be adjustable.
[If prices are adjustable, the following method shall be used to calculate
the price adjustment [see attachment to these SCC for a sample Price
Adjustment Formula]
GCC 15.1 Sample provision
The method and conditions of payment to be made to the Supplier under
SECTION-I1I 99
this Contract shall be as follows:
Payment for Goods supplied from abroad:
Payment of foreign currency portion shall be made in (___) [currency of the
Contract Price] in the following manner:
(i) Advance Payment: Ten (10) percent of the Contract Price shall be paid within
thirty (30) days of signing of the Contract, and upon submission of claim
and a bank guarantee for equivalent amount valid until the Goods are
delivered and in the form provided in the bidding documents or another form
acceptable to the Purchaser.
(ii) On Shipment: Eighty (80) percent of the Contract Price of the Goods
shipped shall be paid within thirty (30) days upon submission of documents
specified in GCC Clause 12.
Or
(ii) On Shipment: Eighty (80) percent of the Contract Price of the Goods
shipped shall be paid through irrevocable confirmed letter of credit opened
in favor of the Supplier/Suppliers Principal(s) in a bank in its country, upon
submission of documents specified in GCC Clause 12.
(iii) On Acceptance: Ten (10) percent of the Contract Price of Goods received
shall be paid within thirty (30) days of receipt of the Goods upon submission
of claim supported by the acceptance certificate issued by the Purchaser.
Payment of local currency portion shall be made in Pak Rs__ within thirty (30)
days of presentation of claim supported by a certificate from the Purchaser
declaring that the Goods have been delivered and that all other contracted
Services have been performed.
Payment for Goods and Services supplied within the country:
Payment for Goods and Services supplied from within the Purchasers country
shall be made in _________ [currency], as follows:
(i) Advance Payment: Ten (10) percent of the Contract Price shall be paid within
thirty (30) days of signing of the Contract against a simple receipt and a
bank guarantee for the equivalent amount and in the form provided in the
bidding documents or another form acceptable to the Purchaser.
(ii) On Delivery: Eighty (80) percent of the Contract Price shall be paid on
receipt of the Goods and upon submission of the documents specified in
GCC Clause 12.
(iii) On Acceptance: The remaining ten (10) percent of the Contract Price shall
be paid to the Supplier within thirty (30) days after the date of the
acceptance certificate for the respective delivery issued by the Purchaser.
GCC 15.5 The payment-delay period after which the Purchaser shall pay interest to
the supplier shall be [insert number] days.
The interest rate that shall be applied is [insert number] %
GCC 17.1 A Performance Security [ insert shall or shall not be required]
[If a Performance Security is required, insert the amount of the
Performance Security shall be: [insert amount]
[The amount of the Performance Security is usually expressed as a
percentage of the Contract Price. The percentage varies according to the
100 SECTION-III
Purchasers perceived risk and impact of non performance by the
Supplier. A 10% percentage is used under normal circumstances]
GCC 17.3 The Performance Security shall be in the form of: [insert a Bank
Guarantee]
GCC 17.4 Discharge of the Performance Security shall take place: [ insert date if
different from the one indicated in sub clause GCC 17.4]
GCC 22.2 The packing, marking and documentation within and outside the packages
shall be: [insert in detail the type of packing required, the markings in the
packing and all documentation required]
GCC 23.1 The insurance coverage shall be as specified in the Incoterms.
If not in accordance with Incoterms, insurance shall be as follows:
[insert specific insurance provisions agreed upon, including coverage,
currency an amount]
GCC 24.1 Responsibility for transportation of the Goods shall be as specified in the
Incoterms.
If not in accordance with Incoterms, responsibility for transportations shall
be as follows: [insert The Supplier is required under the Contract to
transport the Goods to a specified place of final destination within the
Purchasers country, defined as the Project Site, transport to such place of
destination in the Purchasers country, including insurance and storage,
as shall be specified in the Contract, shall be arranged by the Supplier,
and related costs shall be included in the Contract Price.]
GCC 25.1 The inspections and tests shall be: [insert nature, frequency, procedures
for carrying out the inspections and tests]
GCC 25.2 The Inspections and tests shall be conducted at: [insert name(s) of
location(s)]
GCC 26.1 The liquidated damage shall be: [insert number]% per week
GCC 26.1 The maximum amount of liquidated damages shall be: [insert number]%
GCC 27.3 The period of validity of the Warranty shall be: [insert number] days
For purposes of the Warranty, the place(s) of final destination(s) shall be:
[insert name(s) of location(s)]
GCC 27.5 The period for repair or replacement shall be: [insert number(s)] days.
Attachment: Price Adjustment Formula
If in accordance with GCC 14.2, prices shall be adjustable, the following method shall be
used to calculate the price adjustment:
Prices payable to the Supplier, as stated in the Contract, shall be subject to adjustment during
performance of the Contract to reflect changes in the cost of labor and material components
in accordance with the formula:
SECTION-I1I 101
P
1
= P
0
[a + b
L
1
+ c
M
1
] - P
0
L
0
M
0
a + b + c = 1
in which:
P
1
= adjustment amount payable to the Supplier.
P
0
= Contract Price (base price).
a = fixed element representing profits and overheads included in the Contract
Price and generally in the range of five (5) to fifteen (15) percent.
b = estimated percentage of labour component in the Contract Price.
c = estimated percentage of material component in the Contract Price.
L
0
, L
1
= labour indices applicable to the appropriate industry in the country of
origin on the base date and date for adjustment, respectively.
M
0
, M
1
= material indices for the major raw material on the base date and date for
adjustment, respectively, in the country of origin.
The coefficients a, b, and c as specified by the Purchaser are as follows:
a = [insert value of coefficient]
b = [insert value of coefficient]
c = [insert value of coefficient]
The Bidder shall indicate the source of the indices and the base date indices in its bid.
Base date = thirty (30) days prior to the deadline for submission of the bids.
Date of adjustment = [insert number of weeks] weeks prior to date of shipment
(representing the mid-point of the period of manufacture).
The above price adjustment formula shall be invoked by either party subject to the
following further conditions:
(a) No price adjustment shall be allowed beyond the original delivery dates unless
specifically stated in the extension letter. As a rule, no price adjustment shall be
allowed for periods of delay for which the Supplier is entirely responsible. The
Purchaser will, however, be entitled to any decrease in the prices of the Goods and
Services subject to adjustment.
(b) If the currency in which the Contract Price P
0
is expressed is different from the
currency of origin of the labor and material indices, a correction factor will be
applied to avoid incorrect adjustments of the Contract Price. The correction factor
shall correspond to the ratio of exchange rates between the two currencies on the
base date and the date for adjustment as defined above.
(c) No price adjustment shall be payable on the portion of the Contract Price paid to
the Supplier as advance payment.
Section IX: Contract Forms
This Section includes the form for the Agreement, which, once completed, incorporates
corrections or modifications to the accepted bid that are permitted under the
Instructions to Bidders, the General Conditions of Contract, and the Special Conditions
of Contract.
The forms for Performance Security and Advance Payment Security, when required,
shall only be completed by the successful Bidder after contract award.
1. Contract Agreement
102 SECTION-III
2. Performance Security
3. Bank Guarantee for Advance Payment
4. An Invitation for Bids form is provided at the end of the Bidding
Documents for information
The Contract;
After issuance of the Purchasers Notification of Award and acceptance of it by the
Supplier, the following documents shall constitute the Contract between the Purchaser
and the Supplier, and each shall be read and construed as an integral part of the
Contract:
a) Contract Agreement
b) Section I. General Conditions of Contract (GCC)
c) Section II. Special Conditions of Contract (SCC)
d) Section III.Technical Specifications
e) Section IV. Schedule of Requirements
f) The Suppliers Bid and original Price Schedules
g) The Purchasers Notification of Award
h) [Add here any other document(s)]
(Note: Standard Documents are available on www.worldbank.org/procure)
Purchase Order:
For small value contracts, after invitation for bids/quotations and evaluation of
bids/quotations, Purchase Order is issued to the lowest responsive bid/quotation.
The confirmation of the award would be in the form of a Purchase Order, pre-
pared by the Procuring Agency, attached to which will be the Conditions of Purchase. The
Purchase Order will be signed by both the Procuring Agency and the Supplier; the origin-
al will be kept by the Procuring Agency and a copy given to the Supplier. Signing of a
separate contract is not usually required; however, if the Procuring Agency wishes to sign
a formal contract, it may exceptionally do so, after issuing the Purchase Order.
The Procuring Agency may require a bid/quotation security; and, because of
the small value and nature of the procurement method, there may be no requirement for a
Performance Security.
Shopping (W B Guidelines)
Shopping is a procurement method based on comparing price quotations
obtained from several suppliers, with a minimum of three;
It is an appropriate method for procuring readily available goods or stan-
dard specification commodities of small value;
Requests for quotations shall indicate the description and quantity of the
goods or specifications of works, as well as desired delivery time and place;
Quotations may be submitted by letter;
The evaluation of quotations shall follow the same principles as of open
bidding; and
SECTION-I1I 103
The terms of the accepted offer shall be incorporated in a purchase order
or brief contract.
PPR Rule - 42 (b)
The cost of object of procurement is below the prescribed limit of rupees five
hundred thousand for Autonomous bodies;
The object of the procurement has standard specifications;
Minimum of three quotations have been obtained; and
The object of the procurement is purchased from the supplier offering the low-
est price:
Note; the above PPRA Rule does not necessarily require Purchase Order
Sample: Request for Quotation (RFQ)
[Purchaser to use normal Letter Headed format]
Request for Quotation for the Supply of
[brief description of Goods and Contract Package number]
To: [name and address of the Supplier]
Date: [date of issue of the RFQ]
1. The [name of the Procuring Agency] has a budget allocation for the purchase of Goods
and wishes to apply some of that allocation for the purchase of Goods for which this Re-
quest for Quotation is issued.
2. Payments made against any Purchase Order arising from this Request for Quotation will
only be made in Pak Rs. The Unit Rate(s) offered by the Supplier, if accepted, shall re-
main fixed for the duration of the Purchase Order.
3. Your quotation, in duplicate, must be delivered to the office of the undersigned on or be-
fore [state time and date]. Any quotation received later than the scheduled time will be re-
jected and returned unopened. The envelope containing the quotation must be clearly
marked Quotation for [state nature of goods].
4. All quotations must be valid for a period of thirty (30) days from the closing date of the
Request for Quotations.
5. The quotation shall be completed and signed by an authorised representative of the Sup-
plier. In the case of a Supplier offering to supply goods that the Supplier itself does not
manufacture or otherwise produce, the Supplier must show that they have been duly au-
thorised by the goods manufacturer to supply the goods in Pakistan.
6. In the case of any arithmetical discrepancy between the Unit Rate and the Total Amount
quoted, then the Unit Rate shall prevail both for the evaluation of quotations and for the
subsequent Purchase Order.
7. Depending on the final requirement, the quantities shown may increase or decrease and
this shall be reflected in the Purchase Order.
8. There will be no public opening of quotations; the Purchaser is not bound to accept the
lowest quotation and reserves the right to accept or reject any or all the quotations as per
PPR Rules.
Signature of official authorised to receive to RFQ
Print name and designation of official
104 SECTION-III
Schedule of Items and Priced Quotation
Sr.
Nr.
Item Nr.
Description
&
Details
Unit Qty
Unit
Rate
Rs
Total
Amount
Rs
[The Supplier should attach copies of relevant brochures/catalogue for the equipment to be
supplied, which will give sufficient data to permit effective evaluation of the quotation].
Technical Specification of the Goods Required
Sr.
Nr
Item Nr. Specification
Documentation Required with the Submission of the Quotation;
Terms and Conditions for the Supply of Goods and Payment;
Sample of Purchase Order:
[Purchaser to use normal Letter Headed format]
PURCHASE ORDER FOR THE SUPPLY OF GOODS
Purchase Order No: Purchase Order Date:
From:
[name and address of Purchaser]
[Contact person, Telephone Number, Fax
Number & e-mail address]
To:
[name and address of the Supplier]
[Contact person, Telephone Number, Fax
Number, e-mail address & supplier reference]
Delivery date: Order Value:
Delivery terms:
The Purchaser has accepted your Quotation dated [insert date] for the supply of Goods as
listed below and requests that you provide the goods within the delivery date stated above, in
the quantities and units and on the Terms and Conditions as stipulated below. For
convenience a copy of your signed quotation is attached.
1. Description
ORDER ITEMS
Item
Nr.
Description
Supplier
Ref
Unit
Price
Qty
Total
Price
In acceptance of this Purchase Order you are requested to sign below, at which time the
Contract shall become legally binding upon both parties. You are also requested to confirm
that you will be supplying the goods within the Delivery date mentioned above.
2. Specification
SECTION-I1I 105
As mentioned with item description.
3. Terms and Conditions for the Supply of Goods.
The Terms and Conditions hereinafter may only be varied with the written agreement of
the Purchaser and no terms and conditions put forward at any time by the Supplier shall
form any part of the Contract.
(a) the Supplier shall not be required to submit a performance security;
(b) the supply of the goods shall be completed within [state number] days from
the date of issue of the Purchase Order, or the signing of the contract (if applicable);
(c) after completion of the supply of the goods, the Supplier shall submit an ori-
ginal Invoice, and two (2) copies, to the Purchaser. The invoice shall show the cost of
the goods and Duties & Taxes separately;
(d) payment of the Invoice shall be arranged by the Purchaser, within [thirty
(30)] days, but only against the actual supplied quantities of goods as listed in the Pur-
chase Order;
(e) payments against Duties/Taxes and other impositions shown in the Supplier-
s invoice shall be made as prevailing rules and regulations.
(f) if the Supplier fail to deliver the stores or any consignment within the speci-
fied delivery period, the Purchaser shall be entitled at his option to recover from the
Supplier liquidated damages levied at the rate of 0.05% per day or part thereof up to
10% (The liquidated damages shall be recovered only for the stores supplied late): Or
the Purchaser may, by written notice sent to the Supplier, terminate the Purchase
Order (or Contract if applicable) in whole or in part at any time for its convenience:
(i) if the Supplier fails to deliver any or all the goods within the time period(s)
specified in the Purchase Order, or
(ii) if the Supplier fails to perform any other obligation(s) under the Purchase Or-
der, or
(iii) if the Supplier, in either of the above circumstances does not cure its failure
within a period of (3) three calendar days after receipt of a notice of default
from the Purchaser specifying the nature of the default(s), or
(iv) if the Supplier, in the judgment of the Purchaser, has engaged in any
corrupt or fraudulent practices in competing for or in executing the tasks un-
der this Purchase Order;
(g) the Supplier shall provide the warranty, as stipulated in the Quotation docu-
ment, for the goods to be supplied and confirm that if any faults are detected within
the warranty period in the supplied/installed goods, the Supplier shall be bound to
rectify the fault or replace the goods as the case may be.
(h) in case the Supplier subsequently quoted less prices for the items mentioned
under this Contract to any other organization, during the currency of this Contract,
the amount in excess shall be refundable to Purchasing agency.
(i) the rates approved are on the basis of FCS (Free delivery to consignees
store) through reliable Transport Company and as such material should be dis-
patched at the Suppliers risk. All losses during transit will be replaced at the Suppli-
er cost against the claim preferred on the Supplier within fifteen days of the receipt
of consignment by consignee. The consignee will hand over the number of items
damaged during dispatch for replacement.
106 SECTION-III
(j) the Supplier will, not be absolved of the responsibility to meet the demands
of the Purchaser if the quantities exceed the estimated requirement. The Purchaser,
however, reserves the right to obtain the same from any source the items covered by
this Contract to meet in an emergency.
(k) the Supplier will be responsible for packing the stores suitable for transit so
as to ensure their being free from loss or damage on arrival at destination.
(l) the Supplier shall observe all applicable regulations regarding safety of
work, equipment, third party injury and damage to property.
4. Inspection
All reasonable facilities provided in the specification are allowed by the industry or trade
in general shall have to be afforded to the Inspecting Officers by the Supplier. The
Company may send its representative to be present at the time of unpacking;
i) the Inspection team may reject a part or the whole of the consignment offered for
inspection, if after inspection such portion thereof as it may decide in its discretion, it
is satisfied that the consignment is below the requirements of the particulars
governing the supply given in the purchase order;
ii) the decision of the Inspection team shall be binding.
iii) if the stores are rejected as aforesaid then without prejudice to the right, the
purchaser shall have the following rights:
a) to purchase the stores in place of rejected goods at the Supplier cost and
expense.
b) to terminate the contract and recover from the Supplier the loss, the Purchaser
thereby incurs.
5. Test Certificate
Manufacturers test certificate in triplicate, conforming that the goods offered conform to
specification laid down in the Contract will be enclosed in each consignment.
6. Warranty
The Supplier will furnish a full comprehensive warranty certificate, certifying that the
goods supplied conform exactly to the specifications laid down in the contract and are
brand new and that in the event of the material being found defective at the time of
delivery and for a period of warranty from the date of supply/installation, you will be held
responsible for all losses and that the un-acceptable goods shall be substituted with
acceptable goods at your expense and cost.
The warranty period i.e ( ____ ) days will commence from the date of joint certification
both by the Supplier and the purchaser regarding installation / commissioning and receipt
of accessories / spares parts according to specifications.
7. Arbitration
This contract shall be governed by the existing Laws of Pakistan as amended from time to
time. The parties shall comply with the Arbitration Act 1940. Arbitration place will be
[Lahore].
For the Purchaser: For the Supplier:
SECTION-I1I 107
Signature Signature
Print Name Print name
Designation Designation
Date Date
Note: Guidelines and documents are available on following websites;
www.pec.org.pk
www.picc.org.pk
www.adb.org/Procurement
www.ppra.org.pk
INCOTERMS
International Commercial Terms
The INCOTERMS is a set of definitions of International Trade Terms,
First published by the International Chamber of Commerce (ICC) In 1936,
Amendments & additions were later made during 1953, 1967, 1976, 1980,
1990, 2000 and 2010.
Purpose of INCOTERMS
- To provide a set of international rules for the interpretation of most commonly
used trade terms in foreign trade.
- Scope of INCOTERMS is limited to matters relating to the rights & obliga-
tions of parties to a contract of sale with respect to delivery of good sold.
- INCOTERMS are primarily intended for use, where goods are sold for deliv-
ery across national boundaries.
- In practice INCOTERMS are also incorporated in contracts for sale of goods
within purely domestic markets.
Misconceptions about INCOTERMS
108 SECTION-III
- First, INCOTERMS are frequently misunderstood as applying to contract of
carriage rather than the contract of sale.
- Second, they are wrongly assumed to provide for all the duties which parties
may wish to include in a contract of sale.
Application of INCOTERMS
- INCOTERMS apply to the sale of tangible goods.
- INCOTERMS do not apply to sale of intangible goods such as computer soft-
ware.
INCOTERMS deal with
- the relation between sellers & buyers under the contract of sale, and
- only to do so in some very distinct respects.
Contracts performed by Importers & Exporters
Contract of sale
Contract of carriage
Insurance contract
Contract of financing
INCOTERMS relate only to contract of sale & none others
Obligations of the parties under INCOTERMS
- sellers obligation to place the goods at the disposal of the buyer, or
- hand over the goods for carriage, or
- deliver the goods at destination
- distribution of risks between the parties in the above situations
- obligation to clear the goods for export & import
- packing of the goods
- buyers obligation to take delivery of goods
- obligation to provide proof of having fulfilled respective obligations
Costs Involved in Sale
- Packaging, Marking,
- Loading at Point of Origin,
- Inland Transit Costs at Origin,
- Inland Transit Insurance at Origin,
- Export Permit Costs,
- Export Duties,
- Wharf Expenses at Origin,
- Loading at Origin,
- Main Freight,
- Insurance,
- Wharf Expenses at Destination,
- Import Permit Expenses,
SECTION-I1I 109
- Customs Clearance Costs at Destination,
- Inland Transit Costs at Destination,
- Inland Transit Insurances,
- Unloading at Place of Discharge.
INCOTERMS - GROUPS
= Group E - Departure
= Group F - Main Carriage Unpaid
= Group C - Main Carriage Paid
= Group D - Arrival
INCOTERMS GROUP E
EXW EX WORKS (Named Place)
Ex means from. Works means factory, mill or warehouse, which are the sellers
premises. EXW applies to goods available only at the seller's premises. Buyer is
responsible for loading the goods on truck or container at the seller's premises, and for the
subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the
seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after EXW, for example
EXW Kobe and EXW San Antonio.
INCOTERMS GROUP F
FCA FREE CARRIER (Named Place of Departure)
The delivery of goods on truck, rail car or container at the specified point (depot) of
departure, which is usually the seller's premises, or a named railroad station or a
named cargo terminal or into the custody of the carrier, at seller's expense. The point
(depot) at origin may or may not be a customs clearance center. Buyer is responsible
for the main carriage/freight, cargo insurance and other costs and risks.
In the export quotation, indicate the point of departure (loading) after the FCA, for
example FCA Hong Kong and FCA Seattle.
FAS FREE ALONGSIDE SHIP (Named Port of Shipment)
Goods are placed in the dock shed or at the side of the ship, on the dock or lighter,
within reach of its loading equipment so that they can be loaded aboard the ship, at
seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo
insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after FAS, for example
FAS New York and FAS Bremen.
FOB FREE ON BOARD (Named Port of Shipment)
110 SECTION-III
The delivery of goods on board the vessel at the named port of origin (loading), at
seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance
and other costs and risks.
In the export quotation, indicate the port of origin (loading) after FOB, for example
FOB Vancouver and FOB Shanghai.
INCOTERMS GROUP C
CFR COST & FREIGHT (Named Port of Destination)
The delivery of goods to the named port of destination (discharge) at the seller's
expense. Buyer is responsible for the cargo insurance and other costs and risks. The
term CFR was formerly written as C&F.
In the export quotation, indicate the port of destination (discharge) after CFR, for
example CFR Karachi and CFR Alexandria.
CIF COST, INSURANCE & FREIGHT (Named Port of Destination)
The cargo insurance and delivery of goods to the named port of destination
(discharge) at the seller's expense. Buyer is responsible for the import customs
clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after CIF, for
example CIF Pusan and CIF Singapore.
CPT CARRIAGE PAID TO (Named Place of Destination)
The delivery of goods to the named place of destination (discharge) at seller's expense.
Buyer assumes the cargo insurance, import customs clearance, payment of customs
duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after CPT, for
example CPT Los Angeles and CPT Osaka.
CIP CARRIAGE AND INSURANCE PAID TO (Named Place of Desti-
nation)
The delivery of goods and the cargo insurance to the named place of destination
(discharge) at seller's expense. Buyer assumes the import customs clearance, payment
of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym
CIP, for example CIP Paris and CIP Athens.
INCOTERMS GROUP D
DAF DELIVERED AT FRONTEIR (Named Place)
The delivery of goods to the specified point at the frontier at seller's expense. Buyer is
responsible for the import customs clearance, payment of customs duties and taxes,
and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after DAF, for
example DAF Buffalo and DAF Welland.
DES DELIVERED EX SHIP (Named Port of Destination)
The delivery of goods on board the vessel at the named port of destination (discharge),
at seller's expense. Buyer assumes the unloading fee, import customs clearance,
payment of customs duties and taxes, cargo insurance, and other costs and risks.
SECTION-I1I 111
In the export quotation, indicate the port of destination (discharge) after DES, for
example DES Helsinki and DES Stockholm.
DEQ DELIVERED EX QUAY (Named Port of Destination)
The delivery of goods to the quay (the port) at destination at seller's expense. Seller is
responsible for the import customs clearance and payment of customs duties and taxes
at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after DEQ, for
example DEQ Libreville and DEQ Maputo.
DDU - DELIVERED DUTY UNPAID (Named Place of Destination)
The delivery of goods and the cargo insurance to the final point at destination, which
is often the project site or buyer's premises, at seller's expense. Buyer assumes the
import customs clearance and payment of customs duties and taxes. The seller may
opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after DDU, for
example DDU La Paz and DDU Ndjamena
DDP DELIVERED DUTY PAID (Named Place of Destination)
The seller is responsible for most of the expenses, which include the cargo insurance,
import customs clearance, and payment of customs duties and taxes at the buyer's end,
and the delivery of goods to the final point at destination, which is often the project
site or buyer's premises. The seller may opt not to insure the goods at his/her own
risks.
In the export quotation, indicate the point of destination (discharge) after the acronym
DDP, for example DDP Bujumbura and DDP Mbabane.
Incoterms 2010
Main features of the Incoterms 2010 rules
Two new Incoterms rules DAT and DAP have replaced the Incoterms 2000 rules
DAF, DES, DEQ and DDU
The number of Incoterms rules has been reduced from 13 to 11. This has been achieved by
substituting two new rules that may be used irrespective of the agreed mode of transport
DAT, Delivered at Terminal, and DAP, Delivered at Place for the Incoterms 2000 rules
DAF, DES, DEQ and DDU.
Under both new rules, delivery occurs at a named destination: in DAT, at the buyers disposal
unloaded from the arriving vehicle (as under the former DEQ rule); in DAP, likewise at the
buyers disposal, but ready for unloading (as under the former DAF, DES and DDU rules).
112 SECTION-III
Rules for any Mode or Modes of Transport
EXW EX WORKS
FCA FREE CARRIER
CPT CARRIAGE PAID TO
CIP CARRIAGE AND INSURANCE PAID TO
DAT DELIVERED AT TERMINAL
DAP DELIVERED AT PLACE
DDP DELIVERED DUTY PAID
Rules for Sea and Inland Waterway Transport
FAS FREE ALONGSIDE SHIP
FOB FREE ON BOARD
CFR COST AND FREIGHT
CIF COST INSURANCE AND FREIGHT
Note: For more information and for ordering Incoterms 2010 Rules, visit following sites;
www.iccwbo.org/Incoterms
www.iccbooks.com/Product
SECTION-I1I 113
Documentary Credits in International Business Transactions
International Trade
In an international trade transaction involving goods or services, the buyer and the seller
negotiate details about the method and timing of both payments and delivery.
These negotiations require attention to complex details concerning credit arrange-
ments, transaction structuring, legal issues, and political and cross-border risks.
Buyers and sellers, involved in an international trade transaction rely on the expertise
of a global bank for advice and assistance regarding these complex details.
Objectives
Understand the System of international trade transaction
Identify five payment options for settling trade transactions
Recognize the risks and advantages of the five payment options to buyers and sellers
Distinguish between commercial letters of credit and standby letters of credit
Understand the application of different types of letters of credit to international trade
transactions
Recognize the commercial and financial documents needed for a typical international
trade transaction
Establishing Terms between Buyers and Sellers
Buyers Goals
The buyers goals during the negotiations are to:
Minimize the total cost of the goods which, in addition to the agreed-upon price, may
include:
- Cost of financing the goods between the time they are purchased and the time
they are converted into cash upon subsequent resale
- Lost opportunity cost of not being able to invest funds in the event available
cash is used to pay for the goods
- Foreign exchange costs if the deal is denominated in a currency other than the
buyers
Assure receipt of specified goods as per contract
Maintain good relationships with sellers
Sellers Goals
The sellers goals are to establish terms that:
Increase the attractiveness of the product by offering lenient trade terms to the buyer;
it increases the likelihood that the buyer can afford the product.
Maximize the price of the goods without losing the sale
Both through borrowing or through available cash, the seller must cover the
cost between the time the sale is contracted and the final payment is received.
The seller may try to build this cost into the price of the product, but runs the
risk of making the goods less attractive

Assure payment from the buyer.
114 SECTION-III
The seller will examine all the risks associated with the trade transaction to ensure
that
The buyer is able to pay
Funds can be converted to the currency of the sellers country
Funds can be transferred to the sellers country
Leverage
The party with the most business influence during the
negotiations will be more successful in dictating terms that meet the desired objectives.
In other words, the amount of leverage each party has
determines how many goals the seller and buyer will achieve.
For example; a buyer who regularly purchases 90% of a sellers product may be able to nego-
tiate very favorable payment terms with that seller.
Payment Options
After establishing the terms of the deal, the two parties
draw up a contract.
The buyer and seller arrange one of five major payment
options to settle the transaction:
1. Cash in advance
2. Open account
3. On consignment
4. Documentary collections
5. Letters of credit
1. Cash in advance
Means - Payment before shipment
Cash in advance is the most basic payment method for goods.
The seller receives cash from the buyer before goods are shipped.
Disadvantages for Buyer;
There are no advantages to the buyer in this transaction and there are several risks
to consider.
Buyers risks
Lack of control over the goods
Loss of the use of the funds paid to the seller
Refusal or inability of the seller to ship the goods
Political (sovereign) risk in the sellers country until the goods are shipped. Po-
litical (sovereign) risk, a component of country risk, is the possibility that the ac-
tions of a sovereign government (e.g. nationalization) or independent events (e.g.,
wars, riots, civil disturbances) affect the ability of the seller in that country to meet
its obligations to the buyer.
Commercial or credit risk of the seller as a result of funds misuse, bankruptcy,
or any other improper business activity
SECTION-I1I 115
Sellers advantages and risks
The seller has all of the advantages in the cash-in-advance transaction and almost none of
the risks. The seller can ship the goods whenever convenient and, in the meantime, enjoy
the use of the buyers funds.
Banks role
Bank has minimal involvement in a cash-in-advance transaction. However, it can derive
fee income from transactions associated with funds transfer, foreign exchange (if re-
quired), and cash management.
Note; Cash in advance transactions are arranged only in situations where the seller may
have significant leverage and is able to dictate the terms of the deal for example,
when several buyers are competing for a limited product.
2. Open account
Means Shipment before payment:
The seller ships the goods, accompanied by the title
documents (legal documents, e.g. insurance and transport documents, indicating
proof of an individuals ownership of the goods), before receiving payment or a
written promise to pay (i.e. promissory note or draft).
The shipper does not retain control of the goods.
Buyers advantages and risks
- The buyer has all of the advantages and mini-
mal risk in an open account transaction.
- The buyer:
Retains control of the goods.
Has time to generate cash from the sale of the goods before
paying the seller to cover the period between the purchase and resale of the
goods. Nevertheless, lack of timely payments may cause the facility to be dis-
continued.
- The length of time between the shipment of
goods by the seller and the payment by the buyer depends on the credit terms pre-
viously negotiated.
- The purchase order issued by the buyer or the
contract of sale represents the terms and conditions of the negotiation.
- The buyer may not have to borrow and can use
available cash on receipt of the merchandise
- The buyer may incur foreign exchange risk if
the imported goods are priced in the sellers currency. The buyer may be unable to
pay if its currency weakens sharply against the sellers currency
Sellers Advantages and Risks
The seller has none of the advantages and all of the risks in an open ac-
count transaction.
The seller has no control over the goods and the buyers willingness to pay for
them.
The seller incurs cross-border risk which may prevent an otherwise reputable
buyer from sending payment. (Cross-border risk, a component of country risk, is
116 SECTION-III
the risk that, due to economic problems, political disturbances, or sovereign ac-
tions within the buyers country, it may become impossible to get money out of a
country or to convert the buyers currency into a foreign currency).
The seller may incur foreign exchange risk if the exported goods are priced in
the buyers currency.
The seller may need to borrow to cover the period between shipment of the
goods and receipt of funds. If the seller borrows at a floating rate, the seller may
incur interest rate risk (the interest rate at which the seller borrows may rise to the
point in which the transaction may become unprofitable for the seller).
Banks Role
Bank has minimal involvement in an open account transaction. However, it
can derive fee income from transactions associated with funds transfer, foreign ex-
change (if required), and cash management.
Documentation for the shipment of the merchandise is handled outside bank-
ing channels.
Note; The typical situations in which a seller would be willing to assume the above
risks are when the contract is:
Between parent companies and subsidiaries to facilitate intra-company trade
Between buyers and sellers with excellent long-term relationships
Between sellers and buyers, when sellers feel strong competitive pressures, es-
pecially in domestic markets
3. On Consignment
Means Seller ships goods but retains ownership
In an on consignment sale,
The seller ships the goods to the importer while retaining ownership of the
goods.
The importer is referred to as the consignee who is actually an agent responsi-
ble for paying for the goods if and when the goods are sold.
Consignees Advantages and Risks
The prime advantage for the consignee is that the consignee pays only as the
imported goods are sold.
The consignee receives a fee for brokering the sale.
There are no risks for the consignee.
Sellers Advantages and Risks
The key advantages for the seller are that;
the seller retains ownership of the goods until sold and
uses the services of the consignee to intermediate the sale of the goods to the
buyer.
In terms of risks, the seller:
Has limited control over the goods
Has no control over the consignees willingness to pay for goods
SECTION-I1I 117
Receives payment only upon sale of goods
May incur cross-border risk of the consignees country
May incur foreign exchange risk
May incur commercial or credit risk
Banks Role
Bank has minimal involvement in an on consignment transaction. However, it can de-
rive fee income from transactions associated with funds transfer, foreign exchange (if re-
quired), and cash management.
Note; Seller should only grant on consignment terms to a:
Reputable consignee with good credit ratings
Consignee with whom the seller has a good credit history
Consignee whose country enjoys economic and political stability
4. Documentary Collections
A documentary collection is a method by which a seller is able to collect pay-
ment from an overseas buyer through an intermediary bank.
Banks act as intermediaries in facilitating the flow of the title documents and
in the payment of the transaction.
Banks act upon instructions received
Parties and Process
There are four major parties involved: the seller, remitting bank (sellers
bank), buyer, and collecting / presenting bank (buyers bank).
There are four major steps in a documentary collection:
Step 1. The seller, after effecting shipment, forwards to the remitting bank
(sellers bank) the following documents covering the shipment
Written collection instructions
Draft (financial document which is a demand for payment), and/or
Commercial documents (e.g. commercial invoice, transport docu-
ment, and any other document applicable to the collection transac-
tion)
Step 2. The remitting bank (sellers bank), acting as an intermediary,
transcribes the sellers collection instructions and forwards it to the
collecting / presenting bank (buyers bank) along with the draft and/or
commercial documents.
Step 3. The collecting / presenting bank, acting as an intermediary, makes the draft
and/or commercial documents available to the buyer for inspection and
only delivers the original commercial documents in accordance with the
remitting banks collection instruction.
Step 4. The buyer, after inspecting the commercial documents, has three options:
(i) to pay,
(ii) to obligate itself to pay at a future date, or
(iii) to refuse either to pay or to obligate itself to pay the accompanying
draft.
118 SECTION-III
Buyers advantages and risks
In a documentary collection transaction, the buyers advantage is that
the buyer may refuse to:
Pay for drafts and/or documents
Accept a time draft
In terms of risks, the goods may not meet the buyers specifications af-
ter payment and/or acceptance.
Sellers advantages and risks
For the seller, the advantage is that;
The seller knows that the commercial and/or financial documents are
controlled by the banks, acting as intermediaries, and are not delivered to
the buyer until payment is made or a time draft is accepted by the buyer.
A banks control of the documents reduces the sellers risk in relation
to the documents only;
The seller may be exposed to following risks:
- Cross-border risk
- Foreign exchange risk
- Interest rate risk
- Commercial or credit risk
- Costs resulting from the buyers refusal to pay. In this instance, the
seller incurs the expense of storing goods in a foreign country while find-
ing another buyer in that country (or in another country), or arranging for
their return to the country of origin.
- Loss of goods resulting from a time limit for holding goods in public
storage. Regulations in many countries may restrict the number of days in
which goods may be held in public storage. After that time, the goods may
be sold at auction.
5. Letters Of Credit (L/C)
A letter of credit is an instrument issued by a bank to a named party which
substitutes the banks creditworthiness for that of its customer.
The letter of credit states the banks willingness to guarantee its customers
credit and the banks conditional obligation to pay the party named in the letter of
credit.
Bank assumes obligation to pay.
Parties to a Letter of Credit
Several participants are involved in a letter of credit transaction:
The applicant is the party that arranges for the letter of credit to be issued.
The beneficiary is the party named in the letter of credit in whose favor the let-
ter of credit is issued.
SECTION-I1I 119
The issuing or opening bank is the applicants bank that issues or opens the
letter of credit in favor of the beneficiary and substitutes its creditworthiness
for that of the applicant.
An advising bank may be named in the letter of credit to advise the beneficia-
ry that the letter of credit was issued.
The paying bank is the bank nominated in the letter of credit that makes pay-
ment to the beneficiary without recourse, after determining that documents con-
form, and upon receipt of funds from the issuing bank or another intermediary
bank nominated by the issuing bank.
The confirming bank is the bank which, under instruction from the issuing
bank, substitutes its creditworthiness for that of the issuing bank. It ultimately as-
sumes the issuing banks commitment to pay.
Banks role
A bank may take on more than one role in a single letter of credit transaction.
At least two banks are involved in most transactions the bank in the appli-
cants country and the bank in the beneficiarys country. However, it is not unusu-
al to find three, and sometimes four, different banks participating in one transac-
tion.
As a result of Banks global network, Bank can assume many roles in a single
transaction.
In a letter of credit transaction, banks deal only with documents; they have
nothing to do with the goods.
Types of Letters of Credit
o Letters of credit are issued either as revocable or irrevocable.
o Unless clearly designated revocable, a letter of credit is considered irrevo-
cable
A revocable letter of credit is one that can be amended or cancelled by the issu-
ing or opening bank at any time without prior notice to, or agreement of, the ben-
eficiary. It is seldom used.
An irrevocable letter of credit is one that is a definite commitment by the issuing
bank to pay, provided the beneficiary complies with the terms and conditions of
the letter of credit. It cannot be amended or cancelled without the consent of the
issuing bank, confirming bank (if the L/C is confirmed), and the beneficiary.
Categories of letters of credit
There are two major categories of letters of credit
commercial letter of credit and
standby letter of credit.
A commercial letter of credit is used as a payment method in conjunction with
the movement of goods.
A standby letter of credit is used as a monetary indemnification in relation to
the performance of the Banks customer in an underlying contractual obligation
with another party.
COMMERCIAL LETTER OF CREDIT
120 SECTION-III
When the beneficiary (seller or exporter) is in a position to dictate
terms that minimize risk, and the applicant (buyer or importer) wishes to pur-
chase goods without paying for them in advance, the beneficiary will require
the applicant to provide a commercial letter of credit.
A commercial letter of credit is an instrument that states the banks
obligation to pay the beneficiary upon presentation of conforming documents
evidencing that goods have been shipped.
Bank only pays the beneficiary if the required documents presented are
in accordance with the terms and conditions of the letter of credit.
Transaction flow
The typical transaction flow of a commercial letter of credit is as follows:
(a) The applicant (buyer or importer) initiates the request for a letter of
credit.
(b) The issuing bank (opening) issues the letter of credit and forwards it to
the beneficiary directly or transmits it to the advising bank.
(c) The advising bank authenticates and presents the letter of credit to the
beneficiary. If the issuing bank nominates the advising bank to be its paying
agent, the advising bank may also become the paying bank. The issuing bank
may also request that the advising bank add its confirmation to the letter of
credit.
(d) The beneficiary ships the goods.
(e) The beneficiary forwards the documents required under the terms and
conditions of the letter of credit to the paying (confirming) bank.
(f) The paying (confirming) bank examines the documents to ensure
compliance with the terms and conditions of the letter of credit. If the
documents comply, the paying bank receives funds from the issuing bank
before releasing payment to the beneficiary.
(g) The paying (confirming) bank forwards the documents to the issuing
bank. Upon receipt, the issuing bank reexamines the documents to ensure
compliance with the terms and conditions of the letter of credit.
(h) The issuing bank debits the applicants account.
Types of Irrevocable Commercial Letters of Credit
1. Straight letter of credit
A straight letter of credit usually involves three parties: an applicant, the
issuing bank, and the beneficiary. The commitment of the issuing bank extends
to the named beneficiary; the beneficiary presents the documents directly to the
issuing bank or nominated paying bank for payment.
2. Negotiable letter of credit
In a negotiable letter of credit, the issuing bank assures anyone who
negotiates against conforming documents that it will be reimbursed under the
terms and conditions of the letter of credit. The negotiating bank becomes a
legal party to the letter of credit.
3. Confirmed letter of credit
SECTION-I1I 121
A confirmed letter of credit is typically used when a beneficiary may not be
willing to rely on the credit standing (creditworthiness) of an issuing bank
and/or on the political risk of the issuing banks country.
The risks associated with the issuing banks country may affect the ability of the
issuing bank to honor its obligations.
The confirming bank guarantees payment and assumes the credit and country
risks of the issuing bank.
A confirmed, irrevocable letter of credit provides the best protection to the ben-
eficiary in mitigating the cross-border and commercial risks of the transaction.
STANDBY LETTERS OF CREDIT
The second major category of letter of credit, standby letter of credit, is an in-
strument that secures the beneficiary against loss resulting from the failure of
the banks customer to perform a contractual obligation, financial or nonfinan-
cial, that the customer has with the beneficiary.
This means that the bank promises to make a monetary payment under certain
conditions specified in the letter of credit.
While a commercial letter of credit is usually payable against the presentation
of specified documents evidencing the shipment of goods, documents required
in a standby letter of credit may consist simply of the beneficiarys statement
that the banks customer has defaulted in certain obligations that the customer
has with the beneficiary.
The bank does not investigate the underlying facts of the transaction and it pays
against documents only.
Standby letters of credit typically do not require the submission of shipping doc-
uments and are rarely used as a payment mechanism for the movement of
goods.
There are two basic types of standby letters of credit issued either as revocable
or irrevocable: guarantee and payment.
The guarantee type standby letter of credit, issued only as irrevocable, may be
used as a form of protection to cover performance, financial or non financial
obligation, under a contract. This instrument protects the beneficiary financially
in the event that the banks customer fails to perform under the contract men-
tioned in the letter of credit. Otherwise, the beneficiary may draw those funds
available under the letter of credit. It is referred to as a standby letter of credit
because it provides financial protection to the beneficiary if the applicant de-
faults on the terms of the contract or agreement.
The guarantee type can be used in just about any business transaction that
requires a financial indemnification such as:
In lieu of bid, performance, and surety bonds
In lieu of bank guarantees
To support another banks guarantee or undertaking
To provide security for advance payments
CONCLUSION
In international trade, buyers and sellers have different objectives:
122 SECTION-III
- The buyer wants to ensure the receipt and quality of the goods while structur-
ing a favorable payment schedule. As such, buyers prefer the open account pay-
ment option
- The seller wants to deliver the goods and receive payment as quickly as possi-
ble. As such, sellers prefer cash in advance.
- Bank has minimal involvement in those trade transactions associated with the
first three payment options i.e. cash in advance, open account, and on consign-
ment.
A letter of credit is an instrument that substitutes a banks creditworthiness for that of
its customer. It also provides the banks conditional obligation to pay the party named in
the letter of credit (the beneficiary). The letter of credit offers a certain degree of protec-
tion to both parties, applicant and beneficiary; hence, it is the preferred payment mecha-
nism in trade.
A letter of credit may be issued either in revocable or irrevocable form and will be
considered irrevocable if it is not clearly designated as one or the other.
A revocable letter of credit may be altered or canceled by the issuing bank at any time,
whereas an irrevocable letter of credit cannot be amended or canceled without the ex-
press permission of the parties involved beneficiary and intermediary banks.
A letter of credit assures the applicant that the beneficiary will only be paid if the doc-
uments presented by the beneficiary comply with the terms and conditions of the letter of
credit.
If the beneficiary complies exactly with the terms and conditions of the letter of credit,
and if the letter of credit is confirmed, the beneficiary will be protected against the appli-
cants credit risk and the issuing banks country and credit risks.
When the letter of credit is issued in the currency of the beneficiarys country, the ben-
eficiary is protected against foreign exchange and cross-border (transfer and convertibili-
ty) risk.
A bank incurs operational risks and any other risk depending on the role(s) played in a
letter of credit transaction.
As the issuing bank, it faces the applicants credit risk; as the advising / negotiating /
paying bank, it faces operational risks; and as the confirming bank, it faces the issuing
banks credit and country risks.
The applicant of a letter of credit has the advantage of not always needing to commit
funds to collateralise the transaction and enjoying the use of an instrument which is
widely accepted in the market place and less costly than other indemnification instru-
ments. However, the applicant runs the risk that the beneficiary may draw prematurely
or present fraudulent documents.
In terms of the beneficiarys advantages, when the beneficiary submits documents in
accordance with the terms and conditions of the letter of credit, the bank becomes obli-
gated to pay. The beneficiary can mitigate the issuing banks country risk by requiring
that the letter of credit be confirmed by a bank in its own country.
SECTION-I1I 123
If the letter of credit is issued in the currency of the beneficiarys country, the benefi-
ciary also eliminates its foreign exchange risk.
A commercial letter of credit is used to facilitate the payment of goods in a trade
transaction. It is essentially an agreement whereby a bank assumes a conditional obliga-
tion, in behalf of the applicant (buyer or importer), to make payment to a beneficiary
(seller or exporter) against the presentation of specified documents by the beneficiary ev-
idencing the shipment of goods.
A standby letter of credit is used as a monetary indemnification associated with the
performance of the banks customer in relation to an underlying contractual obligation
with a third party. It protects a third party, the beneficiary, from loss resulting from the
failure of a banks customer, the applicant, in performing some contractual obligation.
124 SECTION-III
Dispute Settlement Provisions in Goods Contracts
Essential elements of good contract management
The right contract with right specifications and terms.
Understanding of objectives.
Effective monitoring system.
Relationship management.
Knowing the system and each other.
Flexibility in management.
Change Management awareness.
Pro-activity to handle difficult situations.
Willingness to resolve disputes amicably.
Causses of disputes
Poorly drafted contracts.
Contracts not understood or interpreted properly.
Failure to check Contractors assumptions.
Lack of performance measurement.
Inadequate resources with supplier.
Incompatibility in skills/experience.
Unclear authorities or responsibilities.
Failure to monitor and manage retained risks.
Personality clashes.
Dispute Resolution
The process of performance of contracts may lead to certain disputes which if not resolved at
fast track may prove fatal to the existence of the contract. Disputes may also confront a
situation which may lead to a serious dispute
It is always desirable and prudent on the part of parties to the contracts to incorporate in the
contracts a formal clause governing the mode of resolving the dispute if at all one arises at
any stage of performance of the contract.
The parties to the contract have to choose:
whether they would go to the courts to settle the issue in accordance with the
formal mechanism provided by the state i.e. litigation or
Would they prefer to look to other methods of Alternate Dispute Resolution
(ADR) such as negotiation, facilitation, arbitration and mediation etc.
The decision to choose either of the dispute resolution methods, of course, would be
dependant on various factors like advantages and disadvantages of different methods. It
would also depend on the suitability for the particular business relationship, and the legal,
economic and commercial backgrounds of the parties to the dispute.
SECTION-I1I 125
If the dispute settlement system of formal courts is based on well set legal rules, principles
and is supported by sufficient case law, it could be a preferred choice of the parties. The
parties must include in the contract their agreed choice of jurisdiction and choice of
applicable law.
Then take the dispute if it occurs to that forum for resolution. Even in this case there could be
certain surprises, e.g. the problem of recognition and enforcement of judgments and arbitral
awards.
It is possible that the selected court may not entertain the case on the plea that they are
not the appropriate forum for the case or
The court may refuse to apply the law chosen by the parties as the law applicable to the
case.
This may happen due to any states public policy or any other reason.
Another problem could be that even if a party succeeds in getting a favorable judgment
after a long litigation process in a foreign country, the decree holder might not succeed
in getting the decree enforced in the country of the judgment debtor due to uncertainty in
the laws followed in various jurisdictions on recognition and enforcement of foreign
judgments. Such like difficulties created by the court system adversely affecting confi-
dentiality of case and the relationship of the parties may compel the parties not to choose
litigation as a method of dispute resolution.
The legal problems faced due to variation in procedural rules and substantive laws of
different nations also pose serious problems and discourage the parties from adopting lit-
igation as a preferred method of dispute resolution in the contracts.
In order to have an understanding of the system of litigation, it is necessary to know the
international laws related to litigation and the laws related to recognition and enforce-
ment of foreign judgments with special reference to Pakistani Law on the subject.
Lots of efforts have been made to reduce possibility of disputes in International trade and
other transactions by unification of related international laws through international
conventions. The examples are Vienna convention, the Hague-Visby Rules, International
Rules for the Interpretation of Trade Terms (INCOTERMS) the Uniform Customs and
Practice for Documentary credits 500 (UCP) and International Centre for Settlement of
Investment Disputes (ICSID) which have been developed by specialist organizations to
standardize the trade terms to avoid disputes and to resolve the disputes if at all they arise.
Despite all the abovementioned efforts the disputes still arise and will continue to be a part of
the business. However due to uncertainties associated with the choice of litigation, the parties
to the contracts are attracted to choosing other forms of dispute resolution. These methods of
dispute resolution, commonly called Alternate Dispute Resolution or ADR, offers greater
advantages to the parties e.g. confidentiality, and better control over the procedural rules and
legal principles.
METHODS OF DISPUTE RESOLUTION
Litigation; Courts Jurisdictions - No choice of parties, Standard fixed Law/procedure -
Time consuming / Slow and Costly.
Litigation- Procedure
Plaint by aggrieved party - Plaintiff
Jurisdiction of the court
126 SECTION-III
Applicable procedure CPC
Issues framing by the court
Witnesses Qanoon e Shahadat ?
Evidence of documents
Reply by defendant
Judgment and decree of the court
Appeals as per procedure
Last appeal
Execution through court
Alternate Dispute Resolution Methods
Arbitration; Arbitration is a method of private dispute resolution which arises from the
agreement of the parties in dispute. Arbitration is conducted in a judicial manner and the
decision of the arbitral tribunal is binding upon the parties and is recognized and enforced
by courts. In arbitration, the parties are the sole source of the arbitral tribunals power
and they have much more control of the arbitral process than litigants have of judicial
proceedings in the courts.
* An "arbitration" clause in a contract states that all disputes will be handled by arbitra-
tion rather than litigation.
* With growing court congestion, prolonged process, and increased cost of litigation, ar-
bitration has become an increasingly popular form of alternative dispute resolution.
* Arbitration allows an independent arbitrator to settle a dispute rather than putting it
before court in a lawsuit.
* In the absence of an agreement to do so, parties are not required to submit disputes to
arbitration.
* Advantages of Arbitration
Arbitration can be faster than litigation
Arbitration can be cheaper than litigation
Arbitration is less formal
Arbitrators tend to be more sophisticated and knowledgeable than juries.
* Disadvantages of Arbitration
May have a bad decision from the arbitrator, there usually is nothing you can
do about it (no appeals as are allowed in litigation).
Stuck up with a bad arbitrator.
Less chance to really investigate your case through discovery, which is typical-
ly broader in litigation.
Arbitration Proceeding
Commencement of Arbitration
The preliminary meeting
Filing of reference or statement of claim
Written reply by other party defendant
SECTION-I1I 127
Rejoinder by claimant
Framing of issues in consultation with the parties
Documental submittal
Written submittal about all the issues
Arguments by parties
Arbitration closed
Pronouncement of award and signing of award
Notifying parties about the award
Filing of award in the court to make it rule of the court
Execution of award through court
Dispute Resolution in Pakistani Law
The law related to recognition and enforcement of foreign arbitral awards,
contained in Arbitration Protocol and Convention, Act 1937 (APC)
The domestic arbitration law is governed by Arbitration Act 1940.
The APC was repealed through an Ordinance in 2005 to implement New York
Convention 1958 (NYC), related to recognition and enforcement of foreign arbi-
tral awards.
Pakistan was a signatory to NYC-1958 but had not ratified and implemented it.
The ordinance could not become Act of the Parliament and expired after 120
days when only one judgment had come from Sindh High court as per NYC-
1958.
The Ordinance has been repeatedly issued to give effect to the NYC-1958. It is
still to become an Act through parliament.
Recognition and enforcement of Foreign Judgments in Pakistan
Civil Procedure Code (CPC), 1908;
Judgment Sec 2(9) means statement given by the judge of the grounds of a de-
cree or order.
Foreign Judgment Sec-2(6) means the judgment of a foreign court.
Foreign court Sec-2(5) means a court situated beyond the limits of Pakistan
which has no authority in Pakistan and is not established or continued by the Federal Gov-
ernment.
Decree Sec-2(2) means a formal expression and adjudication which conclu-
sively determines the rights of the parties in controversy in the suit.
A foreign judgment or decree is not capable of automatic execution by
the Pakistani courts.
A decree of a foreign court in Pakistan is enforced by separate proceed-
ings; a foreign judgment is enforceable through a separate suit or by an application for ex-
ecution.
The procedural rules include:-
- Satisfaction of the court on principles of municipal law under section
13 of CPC.
128 SECTION-III
- Direct execution of a decree of reciprocating territory under section
44a of CPC.
Execution Procedure under Pakistan Law;
A foreign judgment is not enforceable in Pakistan or in any country unless it is given an
additional force by embodying it in a decree of a court where it is intended to be enforced.
Article 96 of the Qanun-e-Shahadat 1984 (the law of evidence in Pakistan) explains the mode
in which the foreign judicial records which include foreign judgments and decrees - become
admissible in evidence in Pakistan. Firstly, it has to be certified from a representative of the
Federal Govt. of Pakistan in that country.
That representative must certify that the judgment or decree of a foreign court has been
certified as it is commonly in use in that country. The certification in compliance with this
provision raises a presumption which can be rebutted, in favour of the judicial record
section 14 of the CPC. The article therefore, does not relate to the admissibility or
inadmissibility of the foreign judgment. It only helps the court to raise a presumption of
genuineness and accuracy of the foreign judgment or decree if it bears the certificate.
Remedies for Breach of Contract
When a party to a contract breaks the contract by refusing to perform his promise the breach
of contract takes place.
Following remedies are available to the aggrieved party against the guilty party in the court of
law.
Suit for Rescission
Suit for Damages
Suit upon Quantum Meruits; ( payment in proportion to the work done or rea-
sonable value of work done)
Suit for Specific Performance
Suit for Injunction
1 - Suit for Rescission
Rescission means cancellation of a contract. When one of the parties breaks the
contract, the other party is released from his obligation under the contract. If the
aggrieved party wants to sue the guilty party for damages for breach of the contract,
he must sue for rescission of the contract. When the court grants rescission, the
aggrieved party is free from his obligations and becomes entitled to compensation.
(Sec.75, Party rightfully rescinding contract, entitled to compensation, Contract Act-
1872 ).
Example
(a) A contracts to supply cement to B on 15 April. B agrees to pay the price on receipt
of goods. A does not supply on due date. B is discharged from liability to pay. B
can rescind and claim damages.
(b) A pledges ornaments to B and gets a loan. A does not return the loan to B. B may
rescind the contract and refuse to return the ornaments on payment.
2 - Suit for damages
SECTION-I1I 129
The aggrieved party may sue for damages. Damages are a monetary compensation
allowed to the injured party for the loss suffered by him as a result of the breach of
contract. In case of breach of contract, the aggrieved party can claim the following
damages (Sec.74, Compensation for loss or damage caused by breach of contract,
Contract Act-1872).
Kinds of Damages; the damages may be of the following five kinds:
(a) Ordinary Damages, (b) Special Damages,
(c) Exemplary Damages, (d) Liquidated Damages and (e) Nominal Damages
(a) Ordinary Damages
These are also called general damages. When a contract is broken, the aggrieved
party can recover ordinary damages from the guilty party. Ordinary damages are
usually assessed on the basis of actual loss. In a contract of sale of goods, the
damages payable are the difference between the contract price and the market
price at the date of breach. (Sec. 73, Contract Act-1872)
Example
A contracts to pay Rs.1 million to B on 1st Jan. A does not pay on that day. B, as a
result is totally ruined. A is liable to pay B only principal sum and interest on it.
(b) Special Damages
These damages arise under some special circumstances. These damages include
indirect loss which may arise due to breach of contract. The parties must be aware
of the loss which may arise from the breach of contract. The notice to this effect
must have been given to the other party: otherwise he is not responsible for special
damages. Subsequent knowledge of special circumstances will not create special
liability on guilty party. (Sec. 21, Contract Act-1872).
Example
A contracts C to buy 1 ton of iron for Rs. 80,000. A also contracts to sell B, 1 ton
iron for Rs. 1 lac. A informs C about the purpose of contract. C fails to supply, As
a result, A cannot supply to B. C is liable for loss of profit which A would have
earned form B.
(c) Exemplary Damages
These damages are awarded to punish the guilty party for the breach of contract.
The breach of contract results in monetary loss to the aggrieved party and causes
disappointment. Exemplary damages have no place in law of contract and are not
recoverable. These are awarded in the following cases;
a. In case of breach of a contract to marry, the amount of damages will
depend upon the extent of injury to the feelings of the party.
b. In case of dishonour of a cheque by a banker when there are sufficient funds to
the credit of the customer. The rule is, the smaller the cheque dishonored, the
greater the damage.
(d) Liquidated Damages
When parties to a contract fix the amount of damages for the breach of contract at
the time of formation of contract, such damages are called liquidated damages.
Where a sum is agreed in the contract to be paid by the defaulting party, in case of
breach of contract, the court will allow the reasonable damages, not exceeding the
130 SECTION-III
amount already agreed. If the actual loss is more than the agreed amount, damages
will be payable to the agreed amount. (Sec. 74, Contract Act-1872).
Example
A contracts to pay Rs. 500,000 as damages to B @ Rs. 25,000 per day, if he fails
to pay him Rs. 5 million on a given day. A fails to pay on that day. B can recover
damages not exceeding Rs. 500,000 even after 20th day.
(e) Nominal Damages
These are neither awarded to compensate the aggrieved party nor to punish the
guilty party. When the aggrieved party suffers no loss, the court may award
nominal damages in recognition of his right. The court has discretion in this case.
The court may refuse to award damages.
Example
A promises to sell cement to B for Rs. 250 per bag. A did not supply. At the time
of breach, the market rate of cement was the same. B is entitled to nominal
damages.
3 - Suit upon Quantum Meruit
The term quantum meruit means payment in proportion to the work done or
reasonable value of work done. Where a person has done some work under a contract
and the other party cancels the contract or an event happens, which makes the
performance of the contract impossible; such party can claim remuneration for the
work already done.
Example
B contracts to build a 3 storey house for A. When one story is complete, A stops Bs
work. B can get compensation for work done.
4 - Suit for Specific Performance
Specific performance means the actual carrying out of the contract by a party. In some
cases where the damages are not an adequate remedy the court may direct the guilty
party to fulfill the contract. The aggrieved party can sue for specific performance in
the following cases:
(a) Where compensation in money is not an adequate remedy.
(b) Where it is difficult to calculate the actual damages.
(c) Where compensation in money cannot be obtained.
Specific performance is not granted in the followings cases:-
(i) Where damages are an adequate remedy.
(ii) Where the court cannot supervise the execution of the contract, e.g, a construction
contract.
(iii) Where one of the parties is a minor.
Example
A agrees to sell his plot to B, who agrees to buy to erect a mill. A commits breach. On
the suit of B, A is directed by the court to perform the contract.
5 - Suit for Injunction
SECTION-I1I 131
Injunction is an order of a court restraining a person from doing something which he
promised not to do. It is a preventive relief. It is a discretionary remedy of the court. It
is appropriate in cases of anticipatory breach of contract.
Example
X agreed to take the supply of electricity only from Y company. X was, restrained by
an injunction from buying electricity from any other company.
Dispute Resolution Clauses (Chartered Institute of Arbitrators)
The parties shall attempt to resolve any dispute arising out of or relating to the contract
through negotiations between senior executives of the parties, who have authority to settle
the same.
If the matter is not resolved by negotiation within 30 days of receipt of a written
'invitation to negotiate', the parties will attempt to resolve the dispute in good faith
through an agreed Alternative Dispute Resolution (ADR) procedure, or in default of
agreement, through an ADR procedure as recommended to the parties by the President or
the Vice President, for the time being, of the Chartered Institute of Arbitrators.
If the matter has not been resolved by an ADR procedure within 60 days of the initiation
of that procedure, or if any party will not participate in an ADR procedure, the dispute
may be referred to arbitration by any party. The seat of the arbitration shall be England
and Wales.
The arbitration shall be governed by both the Arbitration Act 1996 and Rules as agreed
between the parties. Should the parties be unable to agree on an arbitrator or arbitrators,
or be unable to agree on the Rules for Arbitration, any party may, upon giving written
notice to other parties, apply to the President or the Vice President, for the time being, of
the Chartered Institute of Arbitrators for the appointment of an Arbitrator or Arbitrators
and for any decision on rules that may be necessary.
Nothing in this clause shall be construed as prohibiting a party or it's affiliate from
applying to a court for interim injunctive relief."
1. Arbitration Clause
Any dispute or difference arising out of or in connection with the contract shall be
determined by the appointment of a single arbitrator to be agreed between the parties,
or failing agreement within fourteen days, after either party has given to the other a
written request to concur in the appointment of an arbitrator, to an arbitrator to be
appointed by the President or a Vice President of the Chartered Institute of Arbitrators."
2. Arbitration & Mediation Clause
Any dispute arising out of or in connection with this contract shall, at first instance, be
referred to a mediator for resolution. The parties shall attempt to agree upon the
appointment of a mediator, upon receipt, by either of them, of a written notice to
concur in such appointment. Should the parties fail to agree within fourteen days, either
party, upon giving written notice, may apply to the President or the Vice President, for
the time being, of the Chartered Institute of Arbitrators, for the appointment of a
mediator.
132 SECTION-III
Should the mediation fail, in whole or in part, either party may, upon giving written
notice, and within twenty eight days thereof, apply to the President or the Vice
President, for the time being, of the Chartered Institute of Arbitrators, for the
appointment of a single arbitrator, for final resolution. The arbitrator shall have no
connection with the mediator or the mediation proceedings, unless both parties have
consented in writing.
The arbitration shall be governed by both the Arbitration Act 1996 and the Controlled
Cost Rules of the Chartered Institute of Arbitrators (2000 Edition), or any amendments
thereof, which Rules are deemed to be incorporated by reference into this clause.
The seat of the arbitration shall be England and Wales.
3. Adjudication Clause
A party to this contract ("the Referring Party") may at any time give notice ("the
Notice") in writing to the other party of its intention to refer a dispute arising under the
contract to adjudication.
The parties may agree the identity of the adjudicator.
Where an adjudicator is not agreed within 2 days of the Notice being given the
Referring Party shall immediately apply to the Chartered Institute of Arbitrators for the
nomination of an adjudicator, which nomination shall be communicated to the parties
within 5 days of receipt of the application.
Within 7 days of the Notice the Referring Party shall refer the dispute to the
adjudicator.
The adjudicator shall reach a decision within 28 days of referral or such longer period
as is agreed by the parties after the dispute has been referred.
The adjudicator may extend the period of 28 days by up to 14 days, with the consent of
the party by whom the dispute was referred.
The adjudicator shall act impartially.
The adjudicator may take the initiative in ascertaining the facts and the law.
The decision of the adjudicator is binding until the dispute is finally determined by
legal proceedings, by arbitration (if the contract provides for arbitration or the parties
otherwise agree to arbitration) or by agreement.
The adjudicator is not liable for anything done or omitted in the discharge or purported
discharge of his functions as adjudicator unless the act or omission is in bad faith and
any employee or agent of the adjudicator is similarly protected from liability.
ICC Standard Arbitration Clause
All disputes arising out of or in connection with the present contract shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with the said Rules
26.1.Parties shall make their attempt to settle all disputes arising under this contract through
friendly discussions in good faith. In the event that either party shall perceive such friendly
discussion to be making insufficient progress at any time, then such party may be written no-
tice to the other party remove the dispute (such final and binding arbitration as provided
above.
SECTION-I1I 133
26.2.All matters of dispute or difference regarding rejection of stores by the Inspector or can-
cellation of the contract by the Purchaser, arising out of this agreement between the parties
thereto, the settlement of which is not otherwise specially provided for in this agreement,
shall be referred to arbitration as under:-
(a) The dispute shall be referred for adjudication to two arbitrators one to be nomin-
ated by each party, who before entering upon the reference shall appoint an um-
pire by mutual agreement, and if they do not agree a judge of the Superior Court
will be requested to appoint the umpire. The arbitration proceedings shall be
held in Pakistan under Pakistan Law.
(b) The venue of arbitration shall be the place from which the contract is issued or
such other places as the Purchaser at his discretion may determine.
(c) The arbitration award will be firm and final.
(d) During the course of arbitration, the contract shall be continuously executed
except that part which is under arbitration.
(e) All proceedings under this clause shall be conducted in English language and in
writing.
Note: If the firm does not agree to the above clause then the desk officer should
approach the competent authority on the subject. However, any other clause framed /
agreed through negotiation must ensure the interest of the procurement agency. An
alternate clause is as fallows:-
(a) The parties shall attempt to settle all disputes arising under this contract through
friendly discussion and in good faith, if in the event, either party perceives that
such discussion may not make sufficient progress then such party at any time
may give notice to the other party may opt for final and binding arbitration as
provided below.
(b) All disputes, controversies or differences which may arise between the parties out
of or in relation to or in connection with the contract or for the breach thereof
shall be finally settled under the rules of conciliation and arbitration of the
International Chamber of Commerce (ICC) by one or more arbitrators appointed
in accordance with the rules. The award rendered by the three arbitrators shall
be final and binding upon both parties concerned. The amount of the cost of any
such arbitration and by whom they shall be paid will be determined as part of the
arbitration.
(c) Arbitration under this clause shall be held at a place mutually agreed between the
Purchaser and Supplier.
(d) During the course of arbitration, the contract shall be continuously executed
except the part under arbitration.
(e) All proceedings under this clause shall be conducted in English language.
Note: For further information;
www.iccwbo.org,
www.jurisint.org,
www. icsid.worldbank.org,
www.pakistanlaw.net,
134 SECTION-III
www.counselpakistan.com,
www.uncitral.org,
www.ciarb.org,
www.adr.org,
www.gasandoil.com &
www.ila_hg.org
www.pakistanconstitution-law.org
SECTION-IV 135
SECTION-IV
Procurement of Consulting Services
Introduction:
Consulting service is defined as intellectual and advisory services provided by consultants
using their professional skills to study, design and organize specific projects, advise clients,
conduct training, and transfer knowledge. The Consultants provide;
an efficient allocation of services (time and cost)
specific expertise
transfer of skills & knowledge to the client staff
independent advice
Examples of Consultants Used
Project preparation
sector studies
master plans
feasibility studies
design studies
Project implementation
tender documents
procurement assistance
construction supervision
project managers
Commissioning
Advisory services
policy & strategy
commercialization and privatization
institutional building
training
management advice
technical advice
Types of Consultants
consulting firms
individual consultants
departmental consultants
Note:
PEC, is not specific for consultancy services for small works but considers for large
works costing more than Rs 25 million.
WAPDA, may consider consultancy for works costing more than Rs 40 million.
WB;
136 SECTION-IV
Requires consultancy services as per its own recommendations.
The use of RFP is mandatory for contracts estimated to cost more than
US$200,000.
ADB;
Full Technical Proposal (FTP) is normally used for contract budgets over
US$1,000,000.
Simplified Technical Proposal (STP) is normally used for contract amounts be-
tween US$600,000 and US$1,000,000.
PPRA, does not specify any monetary limit for hiring of consultancy services.
Consultant Selection Principles
consultants are selected on a competitive basis
process must be fair and well defined
selection must be conducted in a transparent manner
Selection Methods Recruitment of Firms
1. Quality and Cost Based Selection (QCBS)
2. Quality Based Selection (QBS)
3. Fixed Budget Selection (FBS)
4. Least-Cost Selection (LCS)
5. Consultants Qualifications Selection (CQS)
6. Single-Source Selection (SSS)/direct selection (used only in exceptional circum-
stances)
QCBS is the preferred selection method.
FIDIC believes clients should use QBS
QCBS is a competitive process among short-listed firms that takes into account the
quality of the proposal and the cost of the services in the selection of the successful
firm.
QBS is appropriate for the complex or highly specialized assignments for which it is
difficult to define precise TOR and the required input from the consultants, and for
which the client expects the consultants to demonstrate innovation in their proposals
FBS Selection under a Fixed Budget is an appropriate method used only when the as-
signment is simple and can be precisely defined and when the budget is fixed.
LCS Least-Cost Selection is the only appropriate method for selecting consultants for
assignments of a standard or routine nature (audits, engineering design of noncomplex
works, and so forth) where well-established practices and standards exist.
CQS Selection Based on the Consultants Qualifications is the method which may be
used for small assignments for which the need for preparing and evaluating competi-
tive proposals is not justified.
SSS Single-Source Selection may be appropriate only if it presents a clear advantage
over competition: (a) for tasks that represent a continuation of previous work carried
out by the firm, (b) in emergency cases, such as in response to disasters and immedi-
SECTION-IV 137
ately following the emergency, (c) for very small assignments, or (d) when only one
firm has experience of exceptional worth for the assignment.
Clients Requirement
The scope of services/work must be well defined and clear to the client.
Later on this scope of services/work will be converted into Terms of Reference (TOR)
for the consultants to be hired.
Terms of Reference (TOR)
background information
detailed tasks
objectives and outputs
TOR is the document to be prepared by the client for:
scope of services for the consultants
estimation of consultants inputs
proposed costs of services
methods of selection of the consultants
standard forms of conditions of consultancy contract
various forms for making proposals and contracts
appropriate analysis of TOR by the consultants will facilitate consultants to
avoid post proposal disadvantages and loss of projects.
TOR should be prepared and proposals thereon to be made by the experienced
staff.
TOR and proposal making should involve both contractual and management
staffs having requisite knowledge of the relevant projects
client may hire consultants for preparation of TOR, but such consultants are
restricted for making proposals for such project
Contents of TOR
Project Background:
Its role in the project
History and location
Issues to be resolved
Source of financing
Objectives
Determination of project feasibility
Design of structures
Procurement documentation
Construction and completion of projects
Training programme
Scope of services
Phasing of tasks
Data collection
Environmental Impact Assessment (EIA)
138 SECTION-IV
Survey & investigation
Design
Procurement
Supervision
Requirement of Expertise
Qualification and Experience for technical proposals
Team responsibilities requirements
Association/joint venture issues
Technological or institutional experience
Training and skills transfer
Training of personnel (Implementing Agency)
Training of counterpart personnel
Training through job
Training through institutions
Institutional Arrangements
Project management organization
Consultants resident engineer
Status of clients personnel
Consultants responsibilities for project completion
Selection of staff and handling of unsuitable staff
Reporting Requirements
Periodic Progress Report
Inception Report
Interim Report
Final Report
The Inputs & Budget
The cost estimate of a consulting assignment is prepared by adding the remuneration of
consultant staff and the direct expenses to be incurred by consultants for the execution of that
assignment. The costs are based on an estimate of staff time (expert per unit of time, hour,
month) required to carry out the services and an estimate of each of their related cost
components. Because the estimate of the required staff time is derived from the TOR, the
more exhaustive and accurate the TOR, the more precise the estimate.
Estimation of Time Input
Activity Schedule
Staffing Schedule
Estimation of Cost Input
Salary cost
Social charges
Overhead costs
Fee
SECTION-IV 139
Direct Cost (Non-Salary)
Contingencies
Example: Billing Rate:
Sr.Nr. Items Description Rs (million)
a. Salary cost (including Social costs) 100.00
b. Overhead (say 95% of a) 95.00
c. Salary cost + overhead cost 195.00
d. Fee (say @ 10% of c) 19.50
e. Billing rate (c+d) 214.50
Short listing / Prequalification of Consultants
Expressions of Interest (EOI)
The consultant selection process is based on obtaining a few proposals from a short list
prepared by the Client. Because it is time-consuming and expensive for the Client to
invite and evaluate proposals from all consultants who want to compete, selection is
based on limited competition among qualified firms that, in the Clients view or
experience, the firms are capable and can be trusted to deliver the required services at the
desired level of quality. Therefore short listing / prequalification process for selection of
Consultants, is initiated through advertising a request for expressions of interest (EOI).
The EOI generally contains the following short listing criteria;
eligibility
experience in similar projects
experience in specific projects
qualifications
experience in the country/ region
language
After receipt of EOI, review and evaluation, short listing is finialised and then after its
approval from competent authority, the Request For Proposal (RFP) to the firms short
listed is issued.
Note; Number of firms to be short listed;
5 to 7 firms (ADB/WAPDA)
4 to 6 firms (WB)
Minimum 3 firms (PPRA)
4 to 7 firms (PEC)
3 to 6 firms (FIDIC)
PEC, PPRA & WB
Pre-qualification of consultants is not mandatory, however, recommended spe-
cially for major projects.
PEC Procedure for Pre-qualification of Consultants may be followed for pre-
qualifying the consultants.
Following documents are relevant for evaluation and award:
Conduct & Practice of Consulting Engineers Bye-laws 1986
140 SECTION-IV
PEC Standard Procedure for Evaluation of Proposal for Procurement of
Engineering Services
PPRA Rules, 2004 and PPRA Consultancy Services Regulations, 2010.
PPRA rules deficient to address evaluation and award of consultants propos-
als.
PPRA: Whether short-listing is done or not, the procuring agency may engage
in prequalification of Consultants in case of complex assignments.
WB does not require formal pre-qualification.
Example;
The weightage of the components of short listing evaluation criteria is given as under:
Sr.# Item Weightage (Points)
1. Firms Experience 30
1.1 Specific Projects 20
1.2 General Projects 10
2. Personnel Qualification 70
2.1 Team Leader 30
2.2 Other Experts 40
Total (1+2) 100
Minimum qualifying marks is 70% of the total weightage (100 points)
Request for Expression of Interest (EOI)
The Client seeks Expression of Interest (EOI) for Consultancy Services from
Firms/Joint Ventures of Firms, normally through prescribed Forms which contains;
(a) Invitation/Notice,
(b) Letter for Application of EOI; may briefly describe;
i. Introduction
ii. Project Location
iii. Project Objectives
iv. Scope of Work
v. Implementation of the Project
vi. Implementation Schedule
vii. Submissions Required from Consultants
viii. Evaluation Criteria
ix. Instructions to the Applicants
(c) Attachment:
Form-1 Information Submission Form
Form-2 Experience Form
Form-3 Curriculum Vitae of Proposed Experts Form
The Applications to be submitted should be restricted to the essential information only
and there shall be no need to make the application cumbersome.
On the basis of information received through the Applications, from Applicants, a short
list of Consultants is finalized and invited for submission of Proposals through Request
for Proposals (RFP).
SECTION-IV 141
Request for Proposal (RFP)
The Request for Proposals (RFP) provides all the instructions and information necessary for
the short listed consultants to prepare their proposals. The RFP also includes the assignment
Terms of Reference (TOR) and the draft contract. The RFP includes the following documents:
o Section 1 - Letter of Invitation
o Section 2 - Instructions to Consultants (including Data Sheet)
o Section 3 - Technical Proposal - Standard Forms
o Section 4 - Financial Proposal - Standard Forms
o Section 5 - Terms of Reference
o Section 6 - Standard Forms of Contract
o Section 7 - List of eligible Countries
Invitation of Proposal (RFP)
The Letter of Invitation (LOI) states the intention of the Client to enter into a contract for
a given assignment and informs the short-listed consultants that they are invited to submit
a proposal for the assignment. It provides the following basic information:
Name of the Client and the sources of funds to finance the consulting services.
Names of the short-listed consultants.
Name of the consulting services assignment.
Method of selection.
Instructions to Consultants
The Instructions to Consultants (ITC) section contains all the information and instructions
that consultants need to prepare responsive proposals. Among other things, it informs
consultants about not only the type of technical proposal to be submitted but also the
evaluation process (including the evaluation criteria and subcriteria, their respective
weights, and the minimum qualifying mark) to provide for a fair and transparent selection
process.
Instructions to Consultants shall not be modified. Any necessary changes, to address
specific region and project issues, shall be introduced only through the Data Sheet (e.g.,
by adding new reference paragraphs).
Sample;
Instructions to Consultants
1. Introduction 1.1 The Client named in the Data Sheet will select a consulting
firm/organization (the Consultant) from those listed in the
Letter of Invitation, in accordance with the method of selec-
tion specified in the Data Sheet.
1.2 The shortlisted Consultants are invited to submit a Techni-
cal Proposal and a Financial Proposal, or a Technical Pro-
posal only, as specified in the Data Sheet, for consulting ser-
vices required for the assignment named in the Data Sheet.
The Proposal will be the basis for contract negotiations and
ultimately for a signed Contract with the selected Consul-
142 SECTION-IV
tant.
1.3 Consultants should familiarize themselves with local con-
ditions and take them into account in preparing their Pro-
posals. To obtain first-hand information on the assignment
and local conditions, Consultants are encouraged to visit
the Client before submitting a proposal and to attend a pre-
proposal conference if one is specified in the Data Sheet.
Attending the pre-proposal conference is optional. Consult-
ants should contact the Clients representative named in the
Data Sheet to arrange for their visit or to obtain additional
information on the pre-proposal conference.
1.4 The Client will timely provide at no cost to the Consultants
the inputs and facilities specified in the Data Sheet, assist
the firm in obtaining licenses and permits needed to carry
out the services, and make available relevant project data
and reports.
1.5 Consultants shall bear all costs associated with the prepara-
tion and submission of their proposals and contract negotia-
tion. The Client is not bound to accept any proposal, and re-
serves the right to annul the selection process at any time
prior to Contract award, without thereby incurring any lia-
bility to the Consultants.
1.6 The Employer considers a conflict of interest to be a situation
in which a party has interests that could improperly influ-
ence that partys performance of official duties or responsi-
bilities, contractual obligations, or compliance with applica-
ble laws and regulations and that such conflict of interest
may contribute to or constitute a prohibited practice under
Countrys Anticorruption Policy. In pursuance of such Pol-
icys requirement the Employer will take appropriate ac-
tions to manage such conflicts of interest including with-
drawal of this RFP, and/or any shortlisting of a particular
firm or firms in relation thereto or termination of a resulting
Contract if it determines that a conflict of interest has
flawed the integrity of the consultant selection or engage-
ment or in the performance of the Services.
.
Data Sheet
The Data Sheet is the part of the ITC that contains specific information relating to the
Client and the assignment. The column marked Paragraph Reference refers to the
paragraph of the ITC under which the Client provides assignment-specific information to
the consultants. The Data Sheet can be modified for specific country or project conditions
that are not addressed by the ITC standard text.
Sample;
Paragraph
Reference
SECTION-IV 143
1.1 Name of the Client:
Method of selection:
1.2 Financial Proposal to be submitted together with Technical
Proposal:
Yes No
Name of the assignment is:
1.3 A pre-proposal conference will be held: Yes No
[If yes, indicate date, time, and venue]

The Clients representative is:
Address:
Telephone: Facsimile:
E-mail:
1.4 The Client will provide the following inputs and facilities:

1.6.1 (a) The Client envisages the need for continuity for downstream
work:
Yes No [If yes, outline in the TOR the scope, nature,
and timing of future work]
Technical Proposal (T P) Submission Forms

Form TECH-1: Technical Proposal Submission Form
Form TECH-2: Consultants Organization and Experience
A - Consultants Organization
B - Consultants Experience
Form TECH-3: Comments and Suggestions on the ToR and on Counterpart
Staff and Facilities to be provided by the Client.
A - On the Terms of Reference
B - On Counterpart Staff and Facilities
Form TECH-4: Description of Approach, Methodology and Work Plan for
Performing the Assignment
Form TECH-5: Team Composition and Task Assignments
Form TECH-6: CV for Proposed Professional Staff
Form TECH-7: Staffing Schedule
Form TECH-8: Work Schedule
Sample; Form TECH-1: Technical Proposal Submission Form
[Location, Date]
To: [Name and address of Client]
144 SECTION-IV
Dear Sirs:
We, the undersigned, offer to provide the consulting services for [Insert title of
assignment] in accordance with your Request for Proposal dated [Insert Date] and our
Proposal. We are hereby submitting our Proposal, which includes this Technical Proposal,
and a Financial Proposal sealed under a separate envelope
1
.
We are submitting our Proposal in association with: [Insert a list with full name and
address of each associated Consultant]
2
We hereby declare that all the information and statements made in this Proposal are
true and accept that any misinterpretation contained in it may lead to our disqualification.
If negotiations are held during the period of validity of the Proposal, i.e., before the
date indicated in Paragraph Reference 1.12 of the Data Sheet, we undertake to negotiate on
the basis of the proposed staff. Our Proposal is binding upon us and subject to the
modifications resulting from Contract negotiations.
We undertake, if our Proposal is accepted, to initiate the consulting services related to
the assignment not later than the date indicated in Paragraph Reference 7.2 of the Data Sheet.
We understand you are not bound to accept any Proposal you receive.
Yours sincerely,
Authorized Signature [In full and initials]:
Name and Title of Signatory:
Name of Firm:
Address:
1 [In case Paragraph Reference 1.2 of the Data Sheet requires to submit a Technical Proposal only, replace
this sentence with: We are hereby submitting our Proposal, which includes this Technical Proposal only.]
2 [Delete in case no association is foreseen.]
Sample; Form TECH-2: Consultants Experience
FIRMS REFERENCE
Relevant services carried out in the last ten years which best illustrate
Qualifications/Experience
[Using the format below, provide information on each assignment for which your firm, and each
associate for this assignment, was legally contracted either individually as a corporate entity or as
one of the major companies within an association, for carrying out consulting services similar to the
ones requested under this assignment. Use 20 pages.]
Assignment name: Approx. value of the contract (in current
US$ or Euro or Pak. Rs):
Country:
Location within country:
Duration of assignment (months):
Name of Client: Total Number of staff-months of the
assignment:
Address: Approx. value of the services provided by
your firm under the contract (in current
Pak. Rs. or US$ or Euro):
SECTION-IV 145
Start date (month/year):
Completion date (month/year):
Number of professional staff-months
provided by associated Consultants:
Name of associated Consultants, if any: Name of senior professional staff of your
firm involved and functions performed
(indicate most significant profiles such as
Project Director/Coordinator, Team
Leader):
Narrative description of Project:
Description of actual services provided by your staff within the assignment:
Firms Name:
Firms Share: ____________
Sample; Form TECH-3: Comments and Suggestions on the ToR and on Counterpart Staff
and Facilities to be provided by the Client.
A - On the Terms of Reference
[Present and justify here any modifications or improvement to the Terms of Reference you are
proposing to improve performance in carrying out the assignment (such as deleting some
activity you consider unnecessary, or adding another, or proposing a different phasing of the
activities). Such suggestions should be concise and to the point, and incorporated in your
Proposal.]
B - On Counterpart Staff and Facilities
[Comment here on counterpart staff and facilities to be provided by the Client according to
Reference given in the Data Sheet including: administrative support, office space, local
transportation, equipment, data, etc.]
Sample; Form TECH-4: Description of Approach, Methodology and Work Plan for Performing
the Assignment.
[Technical approach, methodology and work plan are key components of the Technical
Proposal. You are suggested to present your Technical Proposal (50 pages, inclusive of
charts and diagrams) divided into the following three chapters:
a) Technical Approach and Methodology. In this chapter the applicant should
explain his understanding of the objectives of the assignment, approach to the services,
methodology for carrying out the activities and obtaining the expected output, and the de-
gree of detail of such output. The applicant should highlight the problems being ad-
146 SECTION-IV
dressed and their importance, and explain the technical approach that would adopt to ad-
dress them. The applicant should also explain the methodologies to adopt and highlight
the compatibility of those methodologies with the proposed approach.
b) Work Plan. In this chapter the applicant should propose the main activities of
the assignment, their content and duration, phasing and interrelations, milestones (in-
cluding interim approvals by the Client), and delivery dates of the reports. The proposed
work plan should be consistent with the technical approach and methodology, showing
understanding of the TOR and ability to translate them into a feasible working plan. A list
of the final documents, including reports, drawings, and tables to be delivered as final
output, should be included here. The work plan should be consistent with the Work Sched-
ule.
c) Organization and Staffing. In this chapter the applicant should propose the
structure and composition of team. The applicant should list the main disciplines of the
assignment, the key expert responsible, and proposed technical and support staff.]
Sample; Form TECH-5: Team Composition and Task Assignments.
Professional Staff
Name of Staff Firm Area of Expertise Position Assigned Task Assigned
Sample; Form TECH-6: CV for Proposed Professional Staff
Curriculum Vitae (CV) for Proposed Professional Staff
1. Proposed Position [only one candidate shall be nominated for each position]:
2. Name of Firm [Insert name of firm proposing the staff]:

3. Name of Staff [Insert full name]:
4. Date of Birth: Nationality:
5. Education [Indicate college/university and other specialized education of staff member, giving
names of institutions, degrees obtained, and dates of obtainment]:

6. Membership of Professional Associations:

7. Other Training [Indicate significant training since degrees under 5 - Education were obtained]:

8. Countries of Work Experience: [List countries where staff has worked in the last ten years]:

9. Languages [For each language indicate proficiency: good, fair, or poor in speaking, reading, and
writing]:
SECTION-IV 147
10. Employment Record [Starting with present position, list in reverse order every employment held
by staff member since graduation, giving for each employment (see format here below): dates of
employment, name of employing organization, positions held.]:
From [Year]: To [Year]:
Employer:
Positions held:
11. Detailed Tasks Assigned
[List all tasks to be performed under this assignment]
12. Work Undertaken that Best Illustrates
Capability to Handle the Tasks
Assigned
[Among the assignments in which the staff
has been involved, indicate the following
information for those assignments that best
illustrate staff capability to handle the tasks
listed under point 11.]
Name of assignment or project:
Year:
Location:
Client:
Main project features:
Positions held:
Activities performed:
13. Certification:
I, the undersigned, certify that to the best of my knowledge and belief, this CV correctly describes
myself, my qualifications, and my experience. I understand that any wilful misstatement
described herein may lead to my disqualification or dismissal, if engaged.
Date:
[Signature of staff member or authorized representative of the staff] Day/Month/Year
Full name of authorized representative:
Financial Proposal (FP) Submission Forms
Form FIN-1: Financial Proposal Submission Form
Form FIN-2: Summary of Costs
Form FIN-3: Breakdown of Costs by Activity
Form FIN-4: Breakdown of Remuneration (Time-Based)
Form FIN-4: Breakdown of Remuneration (Lump-Sum)
Form FIN-5: Breakdown of Reimbursable Expenses (Time-Based)
Form FIN-5: Breakdown of Reimbursable Expenses (Lump-Sum)
Appendix: Financial Negotiations - Breakdown of Remuneration Rates
SELECTION METHODS
148 SECTION-IV
The choice of the appropriate method of selection of consultants will depend on the nature, size, and
complexity of the assignment; the likely downstream impact of the assignment; and technical and
financial considerations.
The QCBS Selection
The Quality- and Cost-Based Selection (QCBS) is a method based on the quality of the
proposals and the cost of the services offered. It is the method most frequently used to select
consultants. Because under QCBS the cost of the proposed services is a factor of selection,
this method is appropriate when;
the type of service required is common and not too complex;
the scope of work of the assignment can be precisely defined and the
TOR are clear and well specified;
the Client and the consultants can estimate with reasonable precision
the staff time, the assignment duration, and the other inputs and costs required of
the consultants;
the risk of undesired downstream impacts is quantifiable and manage-
able; and
the capacity-building program is not too ambitious and easy to esti-
mate in duration and staff time effort.
The QCBS Proposal
Two components: both submitted at the same time.
Technical Proposal
Financial Proposal
(in sealed envelope)
Technical Proposals evaluated first.
Technical Proposal must receive 75% minimum score as per WB and ADB
(WAPDA & PEC require 70%) from 100% maximum.
Next, Financial Proposals of technically qualified consultants opened publicly.
Financial Proposals evaluated.
Then, final ranking of Proposals.
QCBS Ranking
- technical score 80 %
- financial score 20 %
- these percentages are fixed.
- contract negotiations held with 1st ranked firm.
Benefits of using QCBS
O no financial negotiations (negotiations are held to finalize technical issues).
O consultants must provide quality experts at a competitive price.
O provides for clearer transparency as financial proposals are opened publicly.
SECTION-IV 149
The QBS Selection
Quality-Based Selection (QBS) is based on the evaluation of the proposal quality without any
initial consideration for cost. The consultant that submits the highest-ranked technical
proposal is then invited to negotiate its financial proposal and the contract.
QBS is appropriate when;
the downstream impact of the assignment can be so large that the quality of the
services is of overriding importance for the success of the project as a whole;
the scope of work, the duration of the assignment, and the TOR require a degree of
flexibility because of the novelty or complexity of the assignment, the need to select
among innovative solutions, or the particular physical, environmental, social, or
political circumstances of the project and of the Client;
the assignment itself can be carried out in substantially different ways such that cost
proposals may not be easily or necessarily comparable;
the introduction of cost as a factor of selection makes competition unfair; or
the need exists for an extensive and complex capacity building program.
The QBS proposal
Two components: submitted separately
Technical Proposal
(1st Submission)
Financial Proposal
(2nd Submission)
Technical Proposals evaluated and ranked (100 points max.)
Next, first ranked firm submits a Financial Proposal
Then, contract negotiations held with the firm
Benefits of using QBS
When scope of work is difficult to define in detail because of:
the complexity of assignment
the need for an innovative solution
alternative methodologies possible, therefore difficult to compare Financial Proposals
QCBS vs QBS
Sr.# QCBS QBS
1. Technical & Financial
Proposals submitted
Technical Proposal only
2. technical evaluation technical evaluation
3. public opening of Financial
Proposals
-
4. evaluation of Financial
Proposals
-
150 SECTION-IV
5. final ranking 80%technical +
20% financial
final ranking 100% technical
6. contract negotiations contract negotiations
Other & Direct Selection Method
o Similar selection procedure is used for other methods except used for Direct Selection.
o Direct Selection is used only in very exceptional cases, must be strongly justified.
Individual Consultant Selection
Selection criteria (Percentage/Points)
Description WB/ADB WAPDA
academic qualification 20 20
project related experience 70 70
country/region experience 10 05
employment status with firm - 05
Note;
3-5 candidates ranked (WB/ABD/WAPDA)
Minimum 3 candidates ranked (PPRA)
Evaluation of Proposal
The formula for determining the financial scores is the following:
Sf = 100 x Fm / F, in which Sf is the financial score, Fm is the lowest price and F the price of
the proposal under consideration or any other inversely proportional formula acceptable to
the procuring agencies.
Sr.# PROPOSAL QCBS QBS
i. Technical 80 100
ii. Financial 20 -
Total 100 100
The Form of Technical and Financial Proposals under QCBS or QBS and for other selection
methods are almost same.
Technical Proposal Evaluation Criteria (Percentage/Points)
Sr.# Description WB ADB PEC WAPDA
I Qualifications of firm 05-10 10-20 05-10 10-15
II Approach & Work Methodology 20-50 20-40 10-30 20-25
III Key Personnel 30-60 50-70 30-60 50-70
Total 100 100 100 100
Technical Proposal Evaluation Sub Criteria
Sr.# Description WB/ADB PEC WAPDA
SECTION-IV 151
I Qualifications of firm
Experience in similar projects
Experience in specific projects
5/10-10/20
5-10
5-10
5-10 10-15
5-5
5-10
II Approach & Methodology
Understanding of the project
Quality of methodology
Work program
Comments on TOR/Innovativeness
Personnel schedule
Proposal presentation
Counterpart facilities required
Association arrangement
20/20-50/40
2-3
7-12
2.5-4
2-3.5
2.5-3.5
2-3.5
2-3
-
10-30 20-25
5-6
5-6
2.5-3.5
2
2
1.5-2.5
1-2
1
Evaluation Sub-criteria of Key Personnel
Sr.# Description WB ADB PEC WAPDA
III Sub-criteria of key staff:
Academic qualifications
Total experience
Related project experience
Specialized Training
Working as Team/Deputy Team
Leader
Knowledge of language & Experi-
ence in region
Duration with firm
30-60
20-30
-
50-60
-
-
10-20
-
50-70
10-20
-
60-70
-
-
10-20
-
30-60
20-30
-
50-60
-
-
0-05
0-05
50-70
20-25
15-20
30-35
0-5
05-10
-
-
Total Points (I+II+III) = 100
PEC Evaluation of Proposals
PEC Procedure for Evaluation of Proposals provides as under:
Two methods QBS or QCBS
For QBS Technical Weightage is 100%
For QCBS Technical Weightage is 80-100% & Financial Weightage is 0-20%
Sample:
152 SECTION-IV
SECTION-IV 153
154 SECTION-IV
SECTION-IV 155
SUMMARY OF EVALUATION OF TECH. PRPOSAL
RE-DESIGN OF LBOD STAGE-I, BADIN AREA DRAINAGE SYSTEM
Sr
#
Description Max
Weightage
Points
Points Scored By
A B C D
1 Qualification of
Proposer
150 112.00 80.00 68.00 74.00
2 Approach and
Methodology
250 183.00 177.00 175.00 176.00
3 Key Personnel 600 537.30 509.30 491.90 465.42
TOTAL 1000 832.30 766.30 734.90 715.42
%age 100% 83.23% 76.63% 73.49% 71.54%
Ranking Ist 2nd 3rd 4th
SUMMARY OF EVALUATION OF FINANCIAL PROPOSAL
RE-DESIGN OF LBOD STAGE-I, BADIN AREA DRAINAGE SYSTEM
Sr
#
Description A B C D
1 Salary
Cost/Remuneration
23,217,925 20,644,416 25,655,216 19,356,238
2 Direct (Non-salary) Cost 9,539,040 10,340,000 12,306,043 8,362,265
3 Contingencies @ 3% of
(1+2)
982,709 929,532 1,138,838 831,555
4 Grand Total: 32,756,965 30,984,416 37,961,259 27,718,503
Evaluation of Proposals QCBS
Consultants
Technical
Score
(TS)
(TS)
x
80%
Price Pak Rs.
in Million
LPx100
P
Fin. Score
(FS)
(FS)
x
20%
Weighting
80+20
A
B
C
D
83.23
76.63
73.49
71.54
66.58
61.30
58.79
57.23
32.757
30.984
37.961
27.719
84.72
89.46
73.02
100.00
16.94
17.89
14.60
20.00
83.52
79.19
73.39
77.23
Evaluation of Proposals QBS
The Consultants Scoring highest points stand First rank.
WAPDA Notes;
i. The lead firm should have at least 50% of Key staff nominated to work on assignment.
156 SECTION-IV
ii. The Key Person should be regular employee of the firm having a minimum of two
years of services with the firm.
iii. The Joint Venture should not comprise more than four firms where only Local exper-
tise is required.
iv. The Joint Venture should not comprise more than five firms where foreign input is
considered necessary.
v. All the Key staff of the consultants/JV should be nominated by name along with CV.
vi. For TBN (To be Nominated) for the above mention position, 5% marks will be de-
ducted.
vii. Age limit of the consultant staff required to work in the field should be 70 years and
for desk job, 75 years.
viii. The technical ranking of firms/JVs shall be determined on the average of scores
awarded by each member of the Evaluation Committee.
WAPDA Evaluation Committee
Standing Committee for Evaluation of Technical Proposals
General Manager (P&D) Convener
General Manager, concerned Member
CE/PD/Director, concerned Member
CE (Dams), P&D Member
CE (CDO), Water Member
CE/Director, C&M Member
Task
o Evaluation of Technical Proposals of QBS and QCBS.
o Determination of ranking of Consultants/ JVs.
o Obtaining approval of the Authority for ranking of Consultants/JVs.
Standing Committee for Evaluation of Financial Proposals
General Manager (P&D) Convener
General Manager (Finance), Water Member
General Manager, concerned Member
Task
o Opening of Financial Proposals of technically qualified Consultants/ JVs.
o Determination of ranking of Consultants/JVs in case of QCBS and obtaining
its approval from the Authority.
o Obtaining approval of the Authority for Consultants/JV in case of QCB.
Note;
The Standing Committee for Financial Proposals would involve GM (CCC)
for processing during financial negotiations with top ranked consultant/JV on
the following;
SECTION-IV 157
Adequacy with justification for the scope of services proposed to be as-
signed to the Consultants.
Period of involvement of Consultants for the Project.
Adequacy with justification for man-months proposed by the Consul-
tants.
Direct cost proposed by the Consultants.
Justification for the %-age of overheads and fee.
Need for Foreign Consultants.
Status of PC-I/PC-II and allocation under PSDP.
Form of Contract Agreement
For Consultancy Contracts fee over Rupees two (2.0) Million.
PEC Standard Form of Contract for Engineering Services (Time Based)
PEC Standard Form of Contract for Engineering Services (Lump Sump Fee)
For Consultancy Contracts fee less than Rupees two (2.0) Million.
PEC Standard Form of Contract for Engineering Consultancy Services for Small
Works"
O Time-Based Contract:
o This type of contract is appropriate when it is difficult to define the scope and
the duration of services. This type of contract is widely used for complex studies, su-
pervision of construction, advisory services, and most training assignments.
o Payments are based on agreed monthly rates for staff (who are normally
named in the contract) and on reimbursable items using actual expenses and/or agreed
unit prices.
o The rates for staff include salary, social costs, overhead, fee (or profit), and,
where appropriate, special allowances.
o This ceiling amount should include a contingency allowance for unforeseen
work and duration, and provision for price adjustments.
o Time-based contracts need to be closely monitored and administered by the
client to ensure that the assignment is progressing satisfactorily and that payments
claimed by the consultants are appropriate.
O Lump Sum Contract:
o These types of contracts are used mainly for assignments in which the content
and the duration of the services and the required output of the consultants are clearly
defined.
o They are widely used for simple planning and feasibility studies, environmen-
tal studies, detailed design of standard or common structures, preparation of data pro-
cessing systems, and so forth.
o Payments are linked to outputs (deliverables), such as reports, drawings, bills
of quantities, bidding documents, and software programs. Lump sum contracts are
easy to administer because payments are due on clearly specified outputs.
Time-Based Contract, General Conditions
Comparison between PEC and WB Documents
158 SECTION-IV
Clause PEC Documents WB Documents
1.1 to
1.10
Same (with minor difference) Same
1.11 - Fraud and Corruption
2.1 to 2.4 Same Same
2.5 Modification
Modification of the terms and
conditions of this Contract, including
any modification of the scope of the
Services or of the Contract Price, may
only be made in writing, which shall
be mutually agreed and signed by both
the Parties.
Entire Agreement
This Contract contains all covenants,
stipulations and provisions agreed by the
Parties. No agent or representative of
either Party has authority to make, and
the Parties shall not be bound by or be
liable for, any statement, representation,
promise or agreement not set forth
herein.
2.6 Extension of Time for Completion;
If the scope or duration of the
Services is increased:
(a) the Consultants shall inform the
Client of the circumstances and
probable effects;
(b) the increase shall be regarded as
Additional Services; and
(c) the Client shall extend the time for
completion of the Services
accordingly.
Modifications or Variations
(a) Any modification or variation of the
terms and conditions of this
Contract, including any modification
or variation of the scope of the
Services, may only be made by
written agreement between the
Parties. Pursuant to Clause GC 7.2
here of, however, each Party shall
give due consideration to any
proposals for modification or
variation made by the other Party.
(b) In cases of substantial modifications
or variations, the prior written
consent of the Bank is required.
3.4 Liability of the Consultant;
[PEC Engineering Bye Laws]
Liability of the Consultant;
Subject to additional provisions, if any,
set forth in the SC, the Consultants
liability under this Contract shall be
provided by the Applicable Law.
3.5 to
3.10
Contents are same but Sub Clause Numbering is different.
3.5 Other Insurances to be Taken out
by the Consultants
Insurance to be Taken out by the
Consultant
3.6 Consultants' Actions Requiring
Client's Prior Approval
Accounting, Inspection and Auditing
3.7 Reporting Obligations Consultants Actions Requiring
Clients Prior Approval
3.8 Documents Prepared by the
Consultants to be the Property of
the Client
Reporting Obligations
SECTION-IV 159
3.9 Equipment and Materials
Furnished by the Client
Documents Prepared by the
Consultants to be the Property of the
Client
3.10 Accounting, Inspection and
Auditing
Equipment and Materials Furnished
by the Client
3.11 - Equipment and Materials Provided
by the Consultants
4.5 Removal and/or Replacement of
Personnel
(a) Except as the Client may
otherwise agree, no changes
shall be made in the Key Person-
nel. If, for any reason beyond
the reasonable control of the
Consultants, it becomes neces-
sary to replace any of the Key
Personnel, the Consultants shall
provide as a replacement a per-
son of equivalent or better quali-
fications.
Removal and/or Replacement of
Personnel
(a) Except as the Client may otherwise
agree, no changes shall be made in
the Personnel. If, for any reason
beyond the reasonable control of the
Consultant, such as retirement,
death, medical incapacity, among
others, it becomes necessary to
replace any of the Personnel, the
Consultant shall forthwith provide
as a replacement a person of
equivalent or better qualifications.
4.5 (b) &
(c)
Same Same
4.6 Same Same
5.1 Assistance, Coordination and
Approvals
Assistance and Exemptions
Text are different but themes are same
6.4 Mode of Billing and Payment Mode of Billing and Payment
Text are different but themes are same
6.5 Delayed Payments -
6.6 Additional Services -
6.7 Consultants' Entitlement to
Suspend Services
-
7.1 & 7.2 Same Same
8.1 & 8.2 Same Same
9.1 Integrity Pact -
Time-Based Contract, Special Conditions
Clause No. of GC PEC Documents
1.1 Definitions (p) "Project" means .....................................
160 SECTION-IV
1.6 Authorised
Representatives
The Authorised Representatives are the following:
For the Client: ..
For the Consultants:
1.7 Taxes [Note: To be included in this Clause as agreed with the Client.]
1.8 Leader of Joint
Venture
The leader of the Joint Venture is .................................... (name of the
Member of the Joint Venture).
[Note: If the Consultants do not consist of more than one entity, the
Sub-Clause 1.8 should be deleted.]
2.1 Effectiveness of
Contract
The date on which this Contract shall come into effect is the date when
the Contract is signed by both the Parties and revolving fund is
established in accordance with Sub-Clause 6.4.
[Note: The Sub Clause may be amended if revolving fund is not
envisaged]
2.2 Termination of
Contract for
Failure to
Become Effective
The time period shall be ........... days or such other period as the Parties
may agree in writing.
[Note: Fill in the time period e.g. one hundred twenty (120) days]
2.3 Commencement
of Services
The Consultants shall commence the Services within twenty-one (21)
days after the date of signing of Contract Agreement, or such other
time period as the Parties may agree in writing.
2.4 Expiration of
Contract
The period of completion of Services shall be ----------- days from the
Commencement Date of the Services or such other period as the Parties
may agree in writing. The Services are estimated to be completed
before.......................
"Completion of Services" means ...............................................
[Note: In the blank space, the last activity (such as submission of As
Built Drawings, Completion Report etc.) which declares the Contract
to be completed in all respect, may be stated]
3.5 Insurance to be
Taken out by the
Consultants
The risks and the coverages shall be as follows:
[(a) Third Party motor vehicle liability insurance;
(b) Insurance against loss of or damage to equipment purchased;
(c) Third Party liability insurance;]
3.6 Consultants'
Actions
Requiring
Client's Prior
Approval
[(c) The Consultants shall also clear with the Client, before
commitments on any action they propose to take]
3.8 Documents
Prepared by the
Consultants to
be the Property
of the Client
The Client and the Consultants shall not use these documents for
purposes unrelated to this Contract without the prior written approval
of the other Party.
4.6 Resident
Engineer
[Note: Name and address of the Consultants Resident Engineer, if
applicable will be provider here]
SECTION-IV 161
5.1.1 Assistance (a) The Client shall make available within ...... days from the
Commencement Date, the documents
namely ................................................................................................
[Other assistance and exemptions to be provided by the Client]
5.1.2 Coordination (a) The departments and agencies include .
5.1.3 Approvals The Client shall accord approval of the documents immediately but not
later than fourteen (14) days from the date of their submission by the
Consultants.
6.2 Remuneration
and
Reimbursable
Direct Costs
(Non-Salary
Costs
[(a)Payments for remuneration shall made in accordance with
Appendix-D and shall be adjusted after every 12 months in case of
foreign currency, and Remuneration paid in accordance with
Appendix-E, in local currency pursuant to the billing rates agreed
for each person shall be adjusted in July of every year ;
(b) The rates for foreign Personnel set forth in Appendix-D, and the
rates for local Personnel set forth in Appendix-E, after
adjustments, if any, pursuant to Sub-Clause 6.2(a) hereof shall be
used for billing purposes;
(c) Reimbursable Direct Costs (Non Salary Costs);]
6.3 Currency of
Payment
[(b) Remuneration for foreign personnel & reimbursable direct cost
expenditures as stated in Appendix-D shall be paid in foreign
currency and remuneration for local personnel & reimbursable
direct cost expenditures as stated in Appendix-E shall be paid in
local currency.]
6.5 Delayed Payments The compensation on delayed payments for local and foreign currency
shall be as follows:
(i) foreign currency = ------- percent (...%) per annum.
(ii)local currency = eight percent (8%) per annum.
162 SECTION-IV
Appendices to PEC Contract
Appendix A Description of the Services
Appendix B Reporting Requirements
Appendix C Key Personnel and Subconsultants
Appendix D Breakdown of Contract Price in Foreign Currency
Appendix E Breakdown of Contract Price in Local Currency
Appendix F Services and Facilities to be Provided by the Client and
Counterpart Personnel to be Made Available to the Consultants
by the Client
Appendix-G Integrity Pact
PEC Clarifications on Time Based Assignments;
Vide Letter # PEC/CPD/WAPDA/10, Dated: 19-04-2010
Any documentation in support of consultants given man-month cost against various
type of consultants personnel could be sought by the Client during evaluation of Pro-
posal and/ or at time of finalization of contract.
Once the man-month rate is established following Appendix-A of contract and Prac-
tice of Consulting Engineering Bye-Laws, payment is to made accordingly.
Client has prerogative to approve or disapprove the consultants personnel against a
specific rate.
The agreed billing rates shall remain fixed for one year and subject to upward revision
in next July, 2010 following Sub Clause 6.2 of Special Conditions of Contract.
During the currency of contract, the rate can be reviewed only, if a particular person is
changed by mutual agreement of the parties or if an equivalent or better person is not
available within the rank of the consultant.
Client has the right to check whether a particular input is provided and may seek certi-
fication thereof from relevant quarter during regular payments.
Reimbursement, as envisaged under Appendix-A of above said Bye-Laws, of actual
cost means the costs which have been already in the consultancy agreement and ac-
cording to the Salary Slip of the personnel of the consultants.
Note:
For details refer World Banks Consulting Services Manual 2006 (www.worldbank.org) and
ADBs Consulting Services Operations Manual published in 2008 (www.adb.org)
SECTION-IV 163
Estimating Cost and Budget for Consulting Services
Introduction
The Terms of Reference (TOR) is the key document in the selection of Consultants. It
explains the objectives, scope of work, activities, and tasks to be performed, respective re-
sponsibilities of the Client and the consultant, and expected results and deliverables of the
assignment.
The cost estimate of an assignment is prepared by adding the remuneration of consul-
tant staff and the direct expenses to be incurred by consultants during the execution of
their duties.
Those figures are based on an estimate of the staff time (man-month) required to carry
out the services and an estimate of each of the related cost components.
Since the estimate of the needed staff time is derived from the TOR, the more exhaus-
tive and detailed the TOR, the more precise the estimate.
A mismatch between the cost estimate and the TOR is likely to mislead consultants on
the desired scope and detail of the proposed assignment.
In general, a cost estimate includes expenses relating to;
- consultant staff remuneration;
- travel and transport;
- mobilization and demobilization;
- staff allowances;
- communications;
- office rent, supplies, equipment, shipping, and insurance;
- surveys and training programs;
- report translation and printing;
- taxes and duties; and
- contingencies.
When preparing cost estimates, it is useful to draft bar charts indicating the
time needed to carry out each main activity (activity schedule) and the time to be spent by
the consultant staff (staffing schedule).
When part or all of the consultant services are to be carried out by expatriates,
the cost estimate should identify those portions to be paid in foreign currency such as
monthly rates for professional staff, imported equipment and international travel.
The Client can require consultants to accept reimbursement of local expenses
in local currency.
Staff remuneration is generally broken down into foreign and local staff,
which may be further subdivided into professional or high-level specialists and support
staff.
Foreign personnel may be split into field and home office personnel.
Remuneration rates for staff vary according to sector and depend on the expe-
rience, qualifications, and nationality of the consultants.
The estimated staff months should not be priced on the basis of the highest in-
ternational rates, but rather using rates that allow for quality work at reasonable prices.
Specifically estimation of Consultants Cost is done under following heads;
Numeration/Salary Cost
Direct Cost (Non-Salary)
164 SECTION-IV
Contingencies
Consultant Staff Remuneration
o In general, staff remuneration rates include different proportions of the following compo-
nents, depending on company and industry-specific factors and country laws:
basic salary;
social charges;
overhead;
fees or profit; and
allowances.
o Knowledge of the breakdown of staff remuneration rates is relevant during the evalua-
tion of financial proposals and during negotiations of time-based contracts, if proposed
consultant rates appear to differ substantially from those of the market.
Reimbursable expenses/ Out-of-pocket expenses/ Direct Cost
These costs may include, but are not restricted to, cost of surveys, equipment, office rent,
supplies, international and local travel, computer rental, mobilization and demobilization,
insurance, and printing.
These costs may be either unit rates or reimbursable on the presentation of invoices, in
foreign or local currency.
Should the assignment include surveys (as may be the case in most sectors such as health,
education, rural development, and privatization), their cost would need to be assessed
separately.
Contingencies
The contingency amount, which completes the cost estimate, should cover physical and price
items.
Physical contingencies provide for unforeseen work that is needed. Physical
contingencies usually consist of 5 to 10 percent of the estimated cost of the assign-
ment.
Price contingencies account for monetary inflation. Price contingencies
for foreign and local costs should be considered only when the impact of inflation is
expected to be substantial or because of the duration of the assignment (say, beyond
18 months).
The Firms Responsibility
The firm shall disclose such audited financial statements for the last three years, to substanti-
ate its rates, and accept that its proposed rates and other financial matters are subject to scru-
tiny.
Breakdown of Remuneration Rates
The remuneration rates for staff are made up of salary, social costs, overheads, fee that is
profit, and any premium or allowance paid for assignments. Rate details are discussed here-
under:
o Salary; This is the gross regular cash salary paid to the individual in the firms
home office.
o Bonus; Bonuses are normally paid out of profits. However staff bonuses shall
not normally be included in the rates.
SECTION-IV 165
o Social Costs; are the costs to the firm, include, social security including pen-
sion, medical and life insurance costs, and the cost of a staff member being sick or on
vacation.
o Cost of Leave; The principles of calculating the cost of total days leave per
annum as a percentage of basic salary shall normally be as follows:
Leave cost as percentage of salary =
Where w = weekends, ph = public holidays, v = vacation, and s = sick leave.
o Overheads; Overhead expenses are the firms business costs that are not dir-
ectly related to the execution of the assignment. Typical items are home office costs
(partners time, non-billable time, time of senior staff monitoring the project, rent,
support staff, research, staff training, marketing, etc.).
An audited financial statements, is required certifying value of overheads of the firm.
o Fee or Profit; The fee or profit is based on the sum of the salary, social costs,
and overhead. The firm shall note that payments shall be made against an agreed es-
timated payment schedule.
o Away from Headquarters Allowance or Premium; Some Consultants pay
allowances to staff working away from headquarters. Such allowances are calcu-
lated as a percentage of salary and shall not draw overheads or profit.
Consultants Representations Regarding Costs and Charges (WB based)
Personnel 1 2 3 4 5 6 7 8
Name Position
Basic Salary per
Working
Month/Day/Year
Social
Charges
1 Overhead
1
Subtotal Fee
2
Away from
Headquarters
Allowance
Proposed
Fixed Rate
per
Working
Month/Day/
Hour
Proposed
Fixed Rate
per Working
Month/Day/H
our
1
Home Office
Field
1. Expressed as percentage of 1 2. Expressed as percentage of 4
Note:
When the assignment to be entrusted to consultants is new or very unfamiliar to the
Client and to the consultants themselves, the best advice is to let consultants prepare a
cost estimate based on their experience and the conditions of the assignment. In such
cases, the Client should invite proposals from consultants with a high reputation of
capacity and integrity and conduct the selection based on quality only (QBS), followed
by financial negotiations with the first-ranked consultant.
Sample of Consultant Staff Remuneration (PEC based):
total days leave x 100
[365 - w - ph - v - s]
166 SECTION-IV
Breakdown of Reimbursable/ Out-of-pocket / Direct Cost
Travel and Transport
o To estimate travel and transportation expenses, assume that all foreign person-
nel will originate from the farthest eligible country.
o For assignments expected to last more than six months, a good rule is to as-
sume that two-thirds of the team members have dependents, and to allow three round-trip
economy class airfares per year for each of the families and one such trip for the remain-
ing one-third of team members.
o Local travel and transport costs should be based on local tariffs.
o Number and type of vehicles and their operation and maintenance costs should also be
estimated.
o Other means of transport if supposed to be used, should also be considered.
Mobilization and Demobilization
o Each staff member is allowed reasonable travel time;
a medical checkup,
hotel costs,
local transportation, and
miscellaneous items.
o Costs for shipping personal effects should also be estimated.
o Expatriate staff normally receive overseas and subsistence allowances.
The overseas allowance is part of the monthly rate and is meant to represent an
incentive for consultant personnel to accept work overseas.
SECTION-IV 167
The subsistence allowance is paid separately and generally in local currency to
cover out-of-pocket expenses such as hotel and living expenses.
o Staff allowances also cover the costs of childrens education and are normally paid on
a monthly basis.
Communications
o Reasonable monthly allocations for international and local telecommunications
should be included.
o Modern telecommunications such as teleconferencing and the Internet may represent
a cost-effective substitute for travel.
Office Rent, Supplies, Equipment, Shipping, and Insurance
o Depending on the assignment, local costs for office rent and supply of local equipment
should be estimated separately according to local rates.
o Foreign costs for supplies and equipment (including specific software) should also be
estimated, together with related shipping and insurance costs.
Surveys and Training Programs
o The cost of surveys (such as topography, cartography, subsurface investigations, and
satellite imaging) and training programs related to the assignment
o Any other services to be subcontracted should be estimated.
Report Translation and Printing
The cost of printing or translating reports is substantial and should be included in the cost es-
timate.
Taxes and Duties
The Consultants submit their cost proposals excluding local taxes, which shall be estimated
and shown as separate amounts.
Such local taxes generally include the following:
duties on imported equipment and supplies later exported by the consultants,
for example, personal computers, scientific equipment;
duties and levies on equipment imported or locally acquired by the consultants
that is treated as property of the client, for example, cars, office equipment; and
local income taxes on the remuneration of services rendered locally.
Assignment costs must be estimated net of local, indirect taxes; never-
theless, for budgeting purposes, the Client should also make adequate provision for
the tax amount payable under the contract.
Note:
To establish a cost estimate, costs are normally estimated using unit rates (staff remuneration
rates, reimbursable expenses) and quantities; exceptionally, some items may be estimated on
a lump-sum basis. The method used to establish the cost estimate bears no relation to the type
of contract that will be used and the method of remuneration of the consultant (time-based or
lump-sum remuneration).
Consultants Reimbursable/ Out-of-pocket / Direct Cost (WB based)
Nr. Description
1
Unit Unit Cost
2
Per diem allowances Day
168 SECTION-IV
International flights
3
Trip
Miscellaneous travel expenses Trip
Communication costs
Drafting, reproduction of reports
Equipment, materials, supplies, etc.
Shipment of personal effects Trip
Use of computers, software
Laboratory tests.
Local transportation costs
Office rent, clerical assistance
Training of the Clients personnel
4
1Delete items that are not applicable or add other items accordingly.
2Indicate unit cost and currency.
3Indicate route of each flight, and if the trip is one- or two-ways.
4Only if the training is a major component of the assignment, defined as such in the TOR.
Sample of Consultants Reimbursable/ Out-of-pocket / Direct Cost (PEC based)
Note:
O The financial negotiations shall also focus on items of out-of-pocket expenses and
other reimbursable expenses. These costs may include, but are not restricted to, cost of
SECTION-IV 169
surveys, equipment, office rent, supplies, international and local travel, computer rental,
mobilization and demobilization, insurance, and printing. These costs may be either unit
rates or reimbursable on the presentation of invoices, in foreign or local currency.
O Payments to the firm, including payment of any advance based on cash flow
projections, shall be made according to an agreed estimated schedule ensuring the firm
regular payments in local and foreign currency, as long as the services proceed as
planned.
170 SECTION-IV
Price Adjustment in Consultancy Contract
Introduction
In order to adjust the remuneration for foreign and/or local inflation, a price adjustment
provision should be included in the Contract.
PEC:
Applicable to Time Based assignment Contract only.
Generally increase in cost for services.
Exclusions:
Cost of Additional work
Subsequent Legislation for other provisions
Modification of Contract under Sub Clause 2.5 SC
Payment to be adjusted under Sub Clause 6.2(a) SC.
Applicable for both Foreign & Local currency adjustments.
Local Currency Adjustment
Following are two options, any of these two may be consider for adjustments in Local salary
remuneration:
Option 1
Billing rates for each person shall be adjusted in each July.
For the first time, with effect from the remuneration earned in July following submis-
sion of financial proposal.
Revision Elements:
Annual increment
Increase due to promotion
Salary revision to Sub Clause 5.3 SC or otherwise
Or
Option 2
Using the formula:
RI = RI
o
x
II
II
o
Where:
RI is the adjusted billing rate
RI
o
is the billing rate payable
II is the Consumer Price Index (CPI) General
II
o
is CPI in July of the year Consultant submitted its proposal
Indices belongs to FBS (www.statpak.gov.pk)
Foreign Currency Adjustment
SECTION-IV 171
Billing rates for each person to be adjusted every 12 months.
For the first time, with effect from the remuneration earned in the 13th
calendar month after the date of signing the Contract) by applying the follow-
ing formula:
Rf = Rf
o
x
If
If
o
Where:
Rf is adjusted remuneration
Rf
o
is the remuneration payable
If is the official salary index in foreign country for the 13th month for
which adjustment is suppose to have effect.
If
o
is the official salary index in foreign country for the month w.r.t date
of signing of contract.
World Bank:
The adjustment should be made for the contract having duration
of more than 18 months or if the foreign or local inflation is expected to exceed
5% per annum,
The adjustment should be made every 12 months after the date
of the contract for remuneration in foreign currency,
If there is very high inflation in the Clients country, in which
case more frequent adjustments should be provided for at the same intervals for
remuneration in local currency,
Remuneration in foreign currency should be adjusted by using
the relevant index for salaries in the country of the respective foreign currency (which
normally is the country of the Consultant), and
Remuneration in local currency by using the corresponding
index for the Clients country.
A sample provision is provided below for guidance:
Local Currency Adjustment:
Remuneration paid in local currency pursuant to the rates set forth in Appendix-E shall
be adjusted every [insert number] months (and, for the first time, with effect for the
remuneration earned in the [insert number]th calendar month after the date of the
Contract) by applying the following formula:
lo
l
lo l
I
I
R R = or [ ]
lo
l
lo l
I
I
R R 9 . 0 1 . 0 + =
where R
l
is the adjusted remuneration, R
lo
is the remuneration payable on the basis of
the rates set forth in Appendix E for remuneration payable in local currency, I
l
is the
official index for salaries in the Clients country for the first month for which the
172 SECTION-IV
adjustment is to have effect and, I
lo
is the official index for salaries in the Clients
country for the month of the date of the Contract.
Foreign Currency Adjustment
Remuneration paid in foreign currency pursuant to the rates set forth in Appendix-D
shall be adjusted every 12 months (and, the first time, with effect for the remuneration
earned in the 13
th
calendar month after the date of the Contract) by applying the
following formula:
fo
f
fo f
I
I
R R = or [ ]
fo
f
fo f
I
I
R R 9 . 0 1 . 0 + =
where R
f
is the adjusted remuneration, R
fo
is the remuneration payable on the basis of
the rates set forth in Appendix F for remuneration payable in foreign currency, I
f
is the
official index for salaries in the country of the foreign currency for the first month for
which the adjustment is supposed to have effect, and I
fo
is the official index for
salaries in the country of the foreign currency for the month of the date of the Contract
Note:
The 2
nd
Formula is used when price is not an evaluation criterion in the selection
of Consultants.
For further details refer World Banks Consulting Services Manual 2006
(www.worldbank.org) and ADBs Consulting Services Operations
Manual published in 2008 (www.adb.org)
SECTION-V 173
SECTION-V
Engineering Cost Management
Project Management
Government of Pakistan Planning & Development Division
Introduction
In managing and controlling the construction projects, there are two basic features which go
hand in hand project management and project finance.
In general, most of the people especially engineers are aware of the project management
aspects while they do not pay much attention to the project financing. As a result, most of the
project failures and project delays arise due to the lack of the reliable financing which is the
main blood stream in developing the infrastructure projects.
The Project Management Life Cycle
The Project Management Life Cycle has five distinct phases:
1. Identification & Formulation;
2. Appraisal & Approval;
3. Project Implementation;
4. Project Completion/Closure; and
5. Ex-post Evaluation.
1. Project Identification & Preparation
Project identification and its formulation is the most important segment in a
project cycle in which the sectoral priorities must be followed;
In Pakistan projects are normally identified by the line Ministries/Divisions,
public sector corporations, NGOs, pressure groups and public representatives;
Development projects are prepared on the approved format i.e. PC-I Proforma.
Planning Commission has devised three Proformae in 2005, one each for Infrastruc-
ture Sector, Production Sector and Social Sector;
It is mandatory that the projects of Infrastructure Sector and Production
Sector costing Rs.300.00 million and above should undertake proper feasibility studies
before the submission of PC-I;
Separate provision has been made in the PSDP, under P&D Division
for financing of the cost of feasibility studies of development projects;
For mega projects, where huge amount for feasibility studies is in-
volved, a separate proposal on PC-II Proforma is to be submitted for approval;
In case of more complex concepts one of the donors could be required
for TA Grant;
For other low cost projects, in-house feasibility is carried out;
174 SECTION-V
At the project preparation stage, various indicators such as input, base-
line data, outputs and outcome, are determined over the life of project;
In addition, viability of the project in terms of financial and economic
indicators is also determined;
The sustainability aspect after completion;
After preparation of PC-I/PC-II, the Principal Accounting Officer has
to sign the PC-I/ PC-II; and
Thereafter, PC-I/PC-II is to be submitted to the relevant forum for ap-
proval/authorization.
2. Project Appraisal & Approval
Appraisal involves a careful checking of the basic data, assumptions and
methodology used in project preparation;
In-depth review of the work plan, cost estimates and proposed financing plan;
An assessment of the projects organizational and management aspects;
Finally the validity of the financial, economic and social benefits expected
from the project;
A comprehensive project appraisal is carried out in the Planning Com-
mission at approval stage;
The parameters including Benefit Cost Ratio, Net Present Worth and
Internal Rate of Return etc are worked out from financial and economic standpoints
for productive and infrastructure projects;
While in case of social sector projects viability is worked out on least cost ap-
proach and by calculating the unit cost of output and services;
If the project is found technically sound, financially & economically
viable and socially desirable only then the project is approved;
However, sometimes projects are also approved on political considera-
tions and social uplift of certain areas/target groups.
Development projects are approved by the different fora depending upon the
cost of the project. The approving limits of each forum in vogue are as under:-
Approving Authority Cost Limit
Departmental Development Working Party (DDWP) Up to Rs. 60 million
Central Development Working Party (CDWP) Up to Rs. 1000 million
Executive Committee of National Economic Council ECNEC) More than Rs. 1000 million
Provincial Development Working Party (PDWP) Rs. 5000 million
Corporations and Autonomous Bodies/CDA No Limit *
*with 100% self-financing and with no government guarantee and involving less than 25% foreign
exchange/foreign assistance.
- A Project (Federal or Provincial) in which foreign exchange is more than 25% of the cost of
project will be considered by CDWP.
The autonomous organizations whether commercial or non-commercial
having Board by whatever name called, are competent to sanction their development
schemes with 100% self-financing with no government guarantee and involving less
SECTION-V 175
than 25% foreign exchange/foreign assistance, subject to fulfillment of certain condi-
tions (to be approved by DDWP).
Once the project is approved by CDWP and ECNEC, the sanction is issued
by the Public Investment Authorization Section of P & D Division, while Provincial P
& D Departments issue sanction for the projects approved by the PDWP. In case of
DDWP level projects, the sanction is issued by the concerned Ministry/Division.
After issuance of sanction letter by the approving authority, the Ministry
concerned issues administrative approval of the project;
The next step involved as per ECNEC decision is appointment of an inde-
pendent (full time) Project Director for the project costing Rs.100 million and above;
According to ECNEC decision, the Project Director should be delegated
with full administrative and financial powers and be made accountable for any lapses.
o Project Authorization
Once the project is approved by the DDWP/CDWP/ECNEC as the case
may be, the sanction is issued by the Public Investment Authorization Section of P&D
Division in case of projects approved by CDWP and ECNEC;
Provincial P & D Departments issue sanction for the projects approved by
the PDWP;
In case of DDWP level projects, the sanction is issued by the concerned
Ministry/Division
o Allocation of Funds
As a general policy no new project shall be included in the PSDP during cur-
rency of the financial year, could be considered in case of only very high priority
projects;
Funds for the successive years should be provided in PSDP through Priority
Committee and Annual Plan Coordination Committee (APCC) meetings;
The final authority in the approval of funds is the National Economic Council
(NEC).
o Opening of Accounts
Assignment Account is opened and maintained in the banks with the approval
of Controller General of Accounts. This kind of account is normally opened for
foreign aided projects and non-lapsable funds;
The pre-audit accounts are opened and maintained by AGPR for all the devel-
opment projects which are lapsable;
3. Project Implementation
The physical activities like procurement of civil work, services, machinery &
equipment, etc., may be undertaken in accordance with the approved Work Plan/Ac-
tivity Chart;
The PPRA Rules - 2004 as amended is used for procurement;
Monthly reconciliation of accounts with AGPR should be made and submitted
to the respective Ministries for record;
Project Director should submit a quarterly progress report of on-going project
on proforma PC-III.
176 SECTION-V
The Fund release order is issued by the Ministry after the approval of work-
plan /cash-plan of the approved PC-I by the Technical Section of the P & D Division.
4. Project Completion/Closure
The project is considered to be completed / closed when all the funds have
been utilized and objectives achieved, or abandoned due to various reasons;
At this stage the project has to be closed formally, and reports to be prepared
on a proforma PC-IV;
Project closure involves handing over the deliverables to the concerned author-
ities, closing of contracts, and closure of bank account, releasing security money;
For regular operation and maintenance of projects after completion stage, it should be
handed over to the agency responsible for maintenance and operation;
If any of the project staff has to be retained on the project, a case for the shifting of the
post in revenue budget may be initiated and got approved from the Finance Division;
An annual operation reports have to be submitted to the P & D Division over a period
of five years on PC-V proforma.
5. Project Monitoring & Evaluation
Monitoring and Evaluation activities provide timely and useful information to
the project management/implementation agencies and also a feed-back to the policy
makers;
Produces new approaches/ideas, improving the planning, implementation and
supervision process of future projects;
This makes the Project Cycle self-renewing.
The Project Management Life Cycle
Financial Management
The Principal Accounting Officer is responsible for the efficient and economical con-
duct of the Ministry /Division/Department etc;
He is also personally answerable before Public Accounts Committee;
SECTION-V 177
There are two main principles to be observed are;
economy; (getting full value of money); and
regularity; (spending money for the purpose and in the manner prescribed by
Law & Rules).
O Re-appropriation within project cost
Funds are released to the project in accordance with the approved Cash/Work
Plan to which every Project Director has to stick;
However in some cases, re-appropriation within the project allocation is per-
missible with the approval of Principal Accounting Officer;
O Re-appropriation within projects
Re-appropriation of funds from one development project to another project is
not allowed;
In exceptional cases, however, re-appropriation of such funds may be allowed,
where necessary, by the Financial Advisor on the recommendation of P & D
Division;
Normally, in the Mid Year Review Meetings, Planning Commission allows re-
appropriation of funds from slow moving projects to fast.
ECNECs Decisions
The Central Development Working Party (CDWP) and Executive Committee of Na-
tional Economic Council (ECNEC) issue instructions and guidelines from time to time re-
garding various issues involved in the implementation of Development Projects.
The ECNEC is chaired by Prime Minister.
The CDWP is chaired by Deputy Chairman, Planning
Commission/Secretary P & D Division.
There is no need for revision of PC-1 if completion cost is within the permissible limit
of 15% of the approved cost of the PC-I;
During the implementation of project, if it is felt that there will be major change in the
scope of work or increase in the approved cost by more than 15%, then the project has
to be revised and submitted for approval by the competent authority;
The revised PC-I should provide reasons and justifications for revision in cost/scope
of work;
The Principal Accounting Officer of the Ministries /Divisions is competent to accord
extension in the implementation period but within the approved cost of the project;
The concerned Ministries should keep a vigilant eye on their projects and take timely
corrective measures during execution;
Quarterly progress reports on the monitoring of development projects should continue
to be submitted on a regular basis;
The PC-Is, must contain the quantifiable performance indicators showing the visible
impact on the economy after completion of project;
In the PC-Is, it should be made mandatory on the part of executing agencies to certify
that discussions have been held with all the stake holders of the project;
No project under directive of any authority is started without proper preparation of
PC-I/PC-II and approval of the relevant competent forum;
178 SECTION-V
The proposals for approval of individual projects should clearly indicate the phasing
of their financing in the subsequent years reflecting impact on each years PSDP allo-
cations.
Special CDWP meeting should be arranged after every quarter to review major
projects on which serious implementation/problems have arisen;
CDWP/ECNEC should be authorized to fix the responsibility on the defaulters of the
procedures, rules and regulations while implementing the projects;
The Project Director should be delegated full administrative and financial powers and
be made accountable for any lapses;
In case an adequately qualified person is not available within the department, the per-
son could be hired (on contract) and designated as Project Director;
Effective Monitoring and Reporting is essential to determine the progress, the status
and the achievements of the projects;
Quarterly progress report of on-going project on PC-III, completion report of the
project on PC-IV, and post completion review of project on PC-V;
The quarterly report should be submitted to the ECNEC on the monitoring/evaluation
of projects by the Projects Wing;
Within six months of project approval, detailed design and costing should be finalized
and submitted to the competent authority. Implementation of such project components
which require detailed designing should be started only when those have been final-
ized;
A strong check should be exercised on time over-runs and cost over-runs. For this pur-
pose frequent revisions of scope and design of the projects should be avoided;
Acquisition of land where required should be completed in the minimum time;
It is important that Planning and implementation capacity of the Federal Ministries as
well as the Provincial Governments be increased or strengthening of existing capacity
through training;
Only the projects under the long/medium term /annual plans and the policies of the
Government should be sponsored for foreign assistance and that, too, only after ap-
proval of their PC-I;
Development projects should be identified by the sponsoring agencies strictly on need
basis and the donors should not be allowed to determine the priorities of the country;
In case of a project where there is delay in the preparation/ approval of PC-I and there
is extreme urgency for exploring foreign assistance, concept clearance may be accord-
ed by the Concept Clearance Committee of the P & D Division;
It may be noted that concept clearance is accorded only to explore the foreign assis-
tance and on the basis of concept clearance, any kind of MOU/Agreement etc. can not
be signed by Sponsoring Agency with the Donor Country/Agency;
Such agreements etc. can only be signed after approval of PC-I/PC-II by the compe-
tent forum and completing other procedural requirements;
The projects should not be initiated / negotiated by any Federal/Provincial Agency
without the approval of P & D Department of Provinces and P & D Division as the
case may be.
O Consultants Role;
SECTION-V 179
o It has been noted that a high consultancy fee was paid on the consultancies
even in those projects which were based on simple technology and did not require
foreign consultants (NDP etc.);
o The total consultancy cost should not in any case exceed 10% of the total
project cost for infrastructure project involving construction etc.;
o This condition is however, not applicable to purely consultancy projects or in-
volving major part of consultancy;
o The donors are informed that consultancy oriented grant/loan will not be ac-
ceptable in any case.
o Local consultants should be associated with foreign consultants and encour-
aged to take up the consultancy work with or without the participation of foreign
consultants;
o It would be mandatory on foreign consultants to engage at least 30% local
consultants;
All Technical Assistance proposals (both concept clearance proposals and
PC-II will be accompanied by a certificate from the Secretary of the Federal
Ministry/Division in case of federal projects;
Due to depreciation of Rupee, a large amount of savings is being accrued in
case of on-going aided projects and in some cases donor agencies/lenders allow the
executing agencies to utilize these savings either on existing project by increasing its
scope or on new projects;
No such savings should be allowed to be utilized unless approved by the com-
petent forum;
All agreements for T.A., grants, loans or guarantees should be signed with
donors after obtaining approval from the competent authority (i.e.
Cabinet/ECC/CDWP /ECNEC);
For self financing projects, if foreign aid or governments guarantees are in-
volved, then those should come to the forum of CDWP/ECNEC.
SUMMARY
Project Planning & Management of Public Sector Development Projects
Preparation Stage:
The projects of Infrastructure and Production Sectors costing more than Rs
300 million should be based on proper feasibility study.
The Mega projects of Social Sector should also be based on proper feasi-
bility study.
In case of projects costing less than Rs 300 million should be based on in
house feasibility studies.
The indicators i.e. input, output, outcome and impact are clearly indicated
in PC-Is.
Costing of the project should be on market prices indicating quantities and
unit values.
Escalation @ 6.5% p.a. of base cost may be provided from 2nd year of
project till completion.
Contingencies are provided @ 3% of base cost.
Sustainability aspect of the project be discussed in the PC-I.
180 SECTION-V
The objectives of the project be clearly indicated preferably in quantitative
terms.
Detailed designing of civil work may be ensured in the PC-I.
Location analysis may be carried out scientifically.
Financial Plan should be clearly indicated in the PC-I.
In case of revised projects, work already done with quantities must be giv-
en clearly. The work to be done must be clearly indicated giving quantities and unit cost
over extended period. Reasons for revision may also be given along with justification.
Never provide lump sum provisions in PC-I.
Never indicate objectives in ambiguous form.
Never prepare PC-I without detailed designing of civil work.
Implementation Stage:
Get the financial and administrative Prowers delegated from
Principal Accounting Officer.
Get funds allocated in the Priorities Committee.
Prepare and get approved from Planning Commission workable
Work/Cash Plan as early as possible.
Plan physical activities to be carried out during the year on bar
chart on monthly basis.
Plan for the monthly activities in advance.
Get the monthly expenditure reconciled with AGPR/Banks as the
case may be.
Assign specific duties to the team members un-ambiguously.
Always discuss about the project activities with your team on reg-
ular basis for sharing project information.
At the time of award of contract if it is found that cost of the
project would exceed the approval limits by 15% get the project revised and approved by
the competent forum before implementation.
If there is a major change in the scope of the project (15%)
get the project revised immediately and approved from competent forum.
If the project cannot be completed within approved time
frame, get the desired extension from the Principal Accounting Officer.
Every activity should be time based and chased rigorously.
If there are several projects under implementation in an or-
ganization separate accounts of each project should be opened. Similarly, separate ac-
counts books are maintained for each project.
If expenditure in one head is expected to exceed the allocat-
ed amount get the re-appropriation of funds approved by the Principal Accounting Officer
before incurring the excess expenditure.
Proper coordination among different stakeholders must be en-
sured in case of implementation of national programs.
No revision of PC-I is required if the cost increase is due to
depreciation of Pak rupee in foreign exchange cost.
SECTION-V 181
Dont incur expenditure in excess of 15% of approved cost
before revising the project.
Dont spend expenditure beyond approved limits.
Never incur expenditure in excess of allocation from any oth-
er sources except approved by the competent authority.
Never violate Government rules.
Monitoring Stage:
Ensure completion of the project within approved cost and time.
Chase the targets of the year.
Monitor project activities on monthly basis.
Prepare quarterly reports of the project for quarterly review meetings to be
held in Planning Commission.
Share problems/issues hindering the successful Implementation of projects
with Monitoring Officer of Projects Wing.
Completion Stage:
If the project is to be maintained after completion by another agency
then coordinate in advance for the transfer of the project along with assets/ liabilities.
If some staff of the project is to be retained for the operation of the
project, then the case for the creation of posts under revenue budget may be initiated at
least six months ahead of the planned closing date.
Make a list of assets and entire record of the project and handover to
the relevant agency.
Close the bank accounts and cash/accounts ledgers.
Prepare completion report of the project on PC-IV Proforma
and send to the concerned Ministry and the Projects Wing of Planning Commission.
The sponsoring Ministry/Division is required to submit the an-
nual report on operation of the project for five years after completion of the project to the
Projects Wing of Planning Commission.
Note: For further information refer following websites;
www.planningcommission.gov.pk
www.pndpunjab.gov.pk
www.sindhpnd.gov.pk
www.balochistan.gov.pk
www.khyberpakhtunkhwa.gov.pk
182 SECTION-V
Budget for Construction Projects
In all organizations, a construction project is a capital investment project. Bud-
geting for the project will, therefore, be different from annual budgets for the organiza-
tion.
Construction project budgets are, ideally based on estimates of costs of construction
resources. However, most budgets are set before design is finalized. It thus means that
there will be much reliance on historical costs. In practice, typical approaches that may be
used are;
1. Setting a fixed amount to which design should conform.
2. Using updated historical unit cost records to generate overall costs which is then
distributed to parts. The overall cost will have professional fees added together with
other expenses.
3. If the development of the design permits it, resource costs may be calculated and even
project plans may be used for this purpose to make the budget time- related.
Cost Management
Includes processes required to ensure that the project is completed within the ap-
proved budget and in allocated time.
Processes involved are:
1- Resource Planning
2- Cost Estimating
3- Cost Budgeting
4- Cost Control
1- Resource Planning
Involves determining what physical resources (people, equipment, materials etc)
and what quantities of each should be used to perform project activities.
Inputs to Resource Planning
i). Work Breakdown Structure:
A deliverable-oriented grouping of project elements that organizes and defines
the total scope of the project. It identifies the project elements that will need
resources.
ii). Historical Information:
Historical information and feed back data.
iii). Scope Statement:
It contains the project justification and the project objectives.
iv). Resource Pool Description:
Knowledge of what resources are potentially available.
v). Organizational Policies:
The policies of the performing organization regarding staffing and the rental or
purchase of supplies and equipment.
Tools and Techniques to Resource Planning;
i). Expert Judgment
Well experience knowledge for judgment in prerequisite.
ii). Alternative identifications:
SECTION-V 183
To adopt different approaches for the same problem.
Outputs from Resource Planning (Resource Requirements)
Description of what types of resources are required and in what quantities for each
element of the work break down structure.
2- Cost Estimating
Developing an approximation (estimates) of the costs of the resources
needed to complete project activities.
Includes identifying and considering various costing alternatives.
Cost Estimating and Pricing
Cost Estimating involves developing an assessment of the likely quan-
titative result-how much will it cost the performing organization to provide the
product or service involved.
Pricing is a business decision-how much will the performing organiza-
tion charge for the product or service
Inputs to Cost Estimating
Work Breakdown Structure
Resource Requirement
Resource Rates: scheduled or non-scheduled
Activity Duration Estimates
Historical Information
Chart of Accounts:
Describes the coding structure used by the performing organization to report
financial information in its general ledger.
Tools and Techniques for Cost Estimating
Analogous Estimating / Top-down Estimating:
Using the actual cost of a previous, similar project as the basis for estimating
the cost of the current project. It is less costly but less accurate. (Rough - cost
Estimate)
Parametric Modeling:
Using project characteristics (parameters) in a mathematical model to predict
project costs.
Bottom-up Estimating:
Estimating the cost of individual work items, then summarizing or rolling
up the individual estimates to get a project title. (Detailed Estimate)
Computerized Tools:
Use of computerized tools such as project management software and
spreadsheets to assist with cost estimating.
Outputs from Cost Estimating
Cost Estimates
184 SECTION-V
Supporting Details like Scope of work, Calculation sheet, As-
sumptions made, Possible range of results, etc.
Cost Management Plan describing how cost variances will be
managed.
3- Cost Budgeting
Allocation of overall cost estimates to individual work items in order to establish a
cost baseline for measuring project performances.
Inputs to Cost Budgeting
Cost Estimates
Work Breakdown Structure
Project Schedule
Tools and Techniques for Cost Budgeting
Tools and Techniques for developing project Cost Estimates are used to develop
budgets for work items as well.
Outputs from Cost Budgeting
Cost Baseline;
A time-phased budget that will be used to measure and monitor cost
performance on the project. It is developed by summing estimated costs by
period and is usually displayed in the form of an S - curve.
4-Cost Control
Cost Control is concerned with;
(a) Influencing the factors which create changes to the cost baseline to ensure that
changes are beneficial.
(b) Determining that the cost baseline has changed.
(c) Managing the actual changes when and as they occur.
Cost Control includes:
Monitoring cost performances to detect variances from plan.
Ensuring that all appropriate changes are recorded accurately in the cost base-
line.
Preventing incorrect, inappropriate, or unauthorized changes from being in-
cluded in the cost baseline.
Informing appropriate stakeholders of authorized changes.
Inputs to Cost Control
Cost Baseline
Performance Reports
Provide information about cost performance such as which budgets have been
met and which have not. It also alerts the project team to issues which may
cause problems in the future.
Change Requests
SECTION-V 185
These may occur in many forms-oral or written, direct or indirect, externally or
internally initiated, and legally mandated or optional. These may require
increasing the budget or may allow decreasing it.
Tools and Techniques for Cost Control
Cost Change Control System
It defines the procedures by which the cost baseline may be changed. It includes
the paperwork, tracking systems, and approval levels necessary for authorizing
changes.
Performance Measurement
It helps to assess the magnitude of any variations which do occur.
Additional Planning
Perspective changes may require new or revised cost estimates or analysis of
alternate approaches.
Computerized Tools
Outputs from Cost Control
Revised Cost Estimates
Budget Updates
Corrective Action
Estimate at Completion
It is a forecast of total project costs based on project performance.
Lessons Learned
Objects of Cost Control
i) To have a knowledge of the profit and loss of the project throughout the
duration of the project.
Project Profits
1) Client payments.
2) Sale of surplus or scrap material and plant
3) Payments for plants or labor by others, where, this plant or labour is,
from time to time not required for the project.
Project Losses
1) Labour and site office costs
2) Plant costs
3) Site overheads i.e. site facilities, access roads and office etc
4) Cost of tendering including bonds, insurance, etc.
5) Material costs.
6) Head office overheads proportioned over all current projects.
ii). To have a comparison between the actual project performance and that
conceived in the original project plan.
Comparison is basically done according to the following bases:
1) According to units of production
186 SECTION-V
2) According to line items; e.g., labour, material, equipment, overheads,
---
iii).Provides feedback data on actual project performance to future project planning
Important notes;
A budget depends on estimates. Budgets are good to the extent that estimates
are good.
Estimates are made by qualified Engineers.
Budgets made early can be used to control the design process.
Proper Contract Administration and Management require controlling the Bud-
get.
Bidding and Contracts
Contract strategies
- Choice of contractor;
- Method of selecting contractor;
- Organization structure to control design, construction and interfacing of the
both;
- Selection of the content and sequencing of work package;
- Tender documents, including contract condition, risk allocation.
The tendering procedure
- Open tendering
- Selective tendering (Direct Contracting)
- Serial tendering (Repeat orders)
- Negotiation tendering
PPRA:
Open Competitive Bidding is the Principal method of Procurement
Budgeting in organization
The usual approach in most organizations is to base next year's budget on this year's budget
and expenses. A percentage is then added based on anticipated cost increases, thus;
Next year's budget = This year's budget + X.
The value X may be based on
1. Get feelings,
2. Inflation forecasts,
3. Additional plans made.
Major approaches
Top-down budgeting
Management has been said to be better at judging overall project costs than the cost of
individual parts. Top down budgeting may vary from an assessment of probable cost
by individuals, costs generated through consensus of experts' is then broken down to
individual parts. The broken down may use factors generated from experience. This
approach leaves the setting of overall budget to the top management while lower level
SECTION-V 187
managers have to distribute budget allocated to them to parts under them. Using this
approach, overall budgets may be accurate while errors are infighting between lower
level managers.
Bottom-up budgeting
In this approach, costs are calculated for individual parts and then summed up for the
whole project. There is thus the need to ensure that all parts are included. A major
failing is that individuals may tend to "overstate" budgetary requirements in the
knowledge that top management will reduce the budget. However, the approach leads
to participative management making the lower levels not to feel that budgets are
imposed.
Mixed approaches
Top management may call for budget requests and then use suggestions to make a
budget that is distributed down the organization.
Bid estimating process
The following steps describe the process of producing a cost estimate by the contractor as a
basis for tender submittal:
Decision to tender,
Programming the estimate,
Collection and calculation of cost information
Labour,
Plant,
Materials,
Sub-contractors,
Project study
o Drawings,
o Site visit,
* Description of site,
* Position of existing services,
* Description of ground conditions,
* Any problem related to the security of the site,
* A description of the access to the site,
* Topographic details of the site,
* A description of the facilities available for the disposal of soil,
* A description of any demolition works of temporary works to
adjoining building,
o Method statement
Preparing the estimate
Operational estimating,
Unit rate estimating,
Combined method, operational and unit rate estimating,
Site overheads
188 SECTION-V
- Site staff,
- Cleaning site and clearing rubbish,
- Site transport facilities,
- Mechanical plant which is not included in item rates,
- Scaffolding and gantries,
- Site accommodation,
- Small plant,
- Temporary services,
- Welfare, first aid and safety provisions,
- Final clearance and handover,
- Defects liability,
- Transport of workers to site,
- Abnormal overtime,
- Risk
Estimator's report
A brief description of the project,
A description of the method of construction,
Unusual risks which is not covered in contract documents,
Unresolved or contractual problems,
Design assessment and financial consequences,
Assumptions in estimated,
Assessment of the profitability of the project,
Other market and industrial information,
Top Five Cost Overrun Factors
Sr.# Factor Description
Fluctuation in prices of raw materials
Unstable cost of manufactured materials
High cost of machineries
Lowest bidding procurement method
Poor project (site) management/ Poor cost control
Long period between design and time of bidding/ tendering
Wrong method of cost estimation
Additional work
Improper planning
SECTION-V 189
Bills of Quantities and Schedule of Rates
Bills of Quantities (BoQ)
A quantified and completed list of works describing the full requirements in the drawings and
specifications. The rates are quoted by the contractors.
Importance of BoQs
o Avoid unnecessary effort from multiple contractors to prepare the tender
o Provide a standard basis for the tender purpose
o Provide Quality control
o Assist the tender evaluation
o Provide rates for valuation of variations
o Provide the basis for the payment purpose
o Provide basis for financial reporting/cash flow
Schedule of Rates (SoR)
A schedule listing the works with the rates to provide a list of rates for the valuation purposes
in conformance to the standard specifications.
Importance of Schedule of Rates
Cost Estimation
Precision
Uniformity
Transparency
Quick
Differences between BoQ & SoR
BoQ
o Quantities form part of the Contract.
o Buildup the tender/contract sum.
o Provide a list of rates for the valuation of a set purposed work.
o Take longer preparation time for all consultants
SoR
o The Quantities do not form part of the contract.
o Provide a list of rates for the valuation of works or component of a work.
o Buildup the Engineers Estimate/tender sum.
o Usually based on standard specifications and drawings not fully detailed.
o The time required is usually shorter.
Steps involved in Preparing SoR
* Specification and Drawing;
* Rates of Materials, Labour & Rental charges of Plant/Equipment;
* Standard Inputs / Drafting Standards;
* Rate Analysis, Fixation of Composite Item Rates;
190 SECTION-V
Specification and Drawing;
Specifications:
Specifications are written descriptions of materials and construction processes in
relation to performance, characteristics, installation and quality of work requirements.
Specifications are used (1) to convey information concerning desired products, (2) as a
basis for competitive bidding for the delivery of products, and (3) to measure
compliance to contracts.
Typically, there are four types of specifications; proprietary product, method, end-
result and performance specifications; generally recognised in the construction
industry.
o Proprietary Product Specifications;
A proprietary product specification is used when a generic description of a desired
product or process cannot be easily formulated. It usually contains an "or
equivalent" clause to allow for some measure of competition in providing the
product.
In general such a specification severely limits competition, increases cost,
provides little latitude for innovation, and puts substantial risk on the owner for
product performance. Most agencies avoid this type of specification whenever
possible.
o Method Specifications;
Method specification outlines a specific materials selection and construction
operation process to be followed in providing a product.
In the past, many construction specifications were written in this manner. A
contractor would be told what type of material to produce, what equipment to use
and in what manner, it was to be used in construction. In its strictest sense, only
the final form of the structure can be stipulated (for instance, the thickness of the
pavement layers). This type of specification allows for a greater degree of
competition than the proprietary product specification, but as long as the structure
is built according to the materials and methods stipulated, the owner bears the
responsibility for the performance.
o End-Result Specifications;
An end-result specification is one in which the final characteristics of the product
are stipulated, and the contractor is given considerable freedom in achieving those
characteristics.
In their roughest form, they specify minimum, maximum or a range of values for
any given characteristic and base acceptance on conformance to these
specifications. For instance, they may state a minimum layer thickness or a range
of thickness. Since it is impractical to measure every square foot of constructed
pavement, end-result specifications use statistical methods to estimate overall
material quality based on a limited number of random samples.
o Performance Specifications;
Performance specifications are those in which the product payment is directly
dependent upon its actual performance.
Typical of these specifications are warranty, limited warranty and design-build-
operate contracts. Contractors are held responsible for the product performance
within the context of what they have control over. The contractor is given a great
SECTION-V 191
deal of freedom in providing the product, as long as it performs according to
established guidelines. In this case, the contractor assumes considerable risk for
the level of service the product provides by paying for or providing any necessary
maintenance or repair within the warranty period.
Specifications Writing
Standard Specifications - are specifications that are applicable to all construction
projects within the country.
Supplemental Specifications - are specifications that are not included in the stan-
dard specifications or specifications rewritten after the publication of the standard
specifications.
Special Provisions - are specifications that are revisions to the standard specifica-
tions and supplemental specifications. They contain special instructions, provisions,
and requirements specific to an individual project. All projects require special provi-
sions.
Drawings:
Drawings are the graphic means of showing work to be done, as they depict shape,
dimension, location, measurement of material and relationship between building
components.
Rates of Materials, Labour & Rental charges of Plant/Equipment;
Rates collection; directly from markets, manufacturers, suppliers, ven-
dors and form different sources in a district or city.
Rate determination; by applying transportation charges to Ex-
factory/Ex-source rates.
Identification of materials and their sources in a particular district or
city.
Labour rates are different in different areas, mostly obtained from Rev-
enue Department.
Plant/Equipments rental charges are almost same at all places.
The rates are derived at district head quarter /city level.
Processing of Collected Rates;
At least from three Sources, Verification of these Rates and then Comparison for their
suitability of use is carried out.
Standard Inputs / Drafting Standards;
192 SECTION-V
Quantities of different materials in a unit quantity of work item, worked out
based on specifications, experiences, proven facts and references.
Wastage of material in a unit quantity of work is considered as 2% to 7% de-
pending upon construction activity and execution technique.
Labour inputs are different from place to place depending upon socio-econom-
ical conditions.
The efficiencies of equipments or machines remain all most unchanged at all
places.
Rate Analysis, Fixation of Composite Item Rates;
Basic Rates and Standard Inputs of a work item are used in the Rate Analysis
to arrive at the Composite Rate of that work item,
Rate Analysis is a worksheet having description of item of work, quantities of
different inputs of work, respective rates, unit of Composite Items and reference to the
specifications. It contains:
Material Component
Labour Component
Equipment/Machinery Usage
Overhead & Profit
PREPARATION OF ENGINEERS ESTIMATE
In order to prepare a detailed estimate the estimator must have with him the following data:
1. Plans, sections and other relevant details of the work.
2. Specifications indicating the exact nature and class of materials to be used.
3. The rates at which the different items of work are carried out.
To enable an estimator to take out the quantities accurately, the drawings must themselves
be clear, true to the fact and scale, complete, and fully dimensioned. The estimator has also
to bear in mind certain principles of taking out quantities.
Steps in Preparation of an Estimate:
There are three clearly defined steps in the preparation of an estimate.
1. Taking out quantities
In the first step of taking out quantities, the measurements are taken off from the drawings
and entered on measurement sheet or dimension paper. The measurements to be taken out
would depend upon the unit of measurement. For example, in the case of stone masonry in
superstructure, length, thickness and height of the walls above plinth level would be taken
out from the drawings and entered on the measurement sheet, whereas, in the case of
plastering only the lengths and heights of the walls would be entered. Obviously, the unit of
measurement in the first case is cubic meter and that in the second case is square meter
2. Squaring out
SECTION-V 193
The second step consists of working out volumes, areas, etc. and casting up their total in
recognized units.
3. Abstracting
In the third step all the items along with the net results obtained in the second step are
transferred from measurement sheets to specially ruled sheets having rate column ready for
pricing.
The second and third steps above are known as working up. All calculations in these stages
and every entry transferred should be checked by another person to ensure that no
mathematical or copying error occurs.
Standard Method of Measurement of Works:
The different methods of measuring used by various departments and by construction
agencies were found to be a serious difficulty to estimators and a standing cause of disputes.
For this reason a unification of the various systems at the technical level had been accepted as
very desirable and wanting.
Although the standard has no legal sanction and as such need not be adopted unless it is
referred to in the contracts.
Principles of Deciding Unit of Measurement:
A beginner may find it difficult to remember the units of measurement of different items.
Memorising of units of measurement would be greatly simplified if he knows the principles
kept in view while selecting the units of measurements. Following are the most important
principles of selection of unit of measurement:
i. The unit of measurement should be simple and convenient to measure, record and
understand.
ii. It should be one, which provides for fair payment for the work involved.
iii. In the result it should yield quantities, which are neither too minute nor too large.
iv. The price per unit should not be a very small figure or a very large one, that is,
generally costlier items will be measured in smaller units, cheaper ones in larger units.
v. The unit of measurement may sometimes depend upon the unit for the raw material
and/or labor and/or important dimensions. For example, stone masonry is measured in
cubic meters because raw materials are measured in cubic meters plastering or pointing is
measured in square meters, as the labor is considerable.
WCSR 2008
Sr.#
Rate Analysis Component
%-age
1. Material Component 58.00
2. Labour Component 24.00
3. Plant/Equip. Rental Component 08.00
4. Over-Head & Profit 20.00
Total 100.00
194 SECTION-V
SECTION-VI 194
SECTION-VI
FIDIC Conditions of Contracts
Introduction
The founding of FIDIC;
FIDIC was founded in July 1913 as the result of an invitation by Belgian and French
engineers to attend le Premier Congress International des Ingnieurs-conseils et
Ingnieurs-experts. The UK did not join until 1949.
Participants to the 1913 Congress in Ghent, Belgium
Expanded in 1945 to include 40 national associations.
Today has 80 member associations.
Headquarters in Switzerland.
Web Site : www.fidic.org
Published first Conditions of Contract in 1957.
Pre 1957 no internationally recognised contract conditions.
First Red book based on UK Institution of Civil Engineers (ICE) conditions.
The Traditional FIDIC Forms of Contract
FIDIC - 1987 (Red Book)
Conditions of Contract for Works of Civil Engineering Construction (Red
Book) was compiled in 1957, and later its second, third, and fourth edition were issued in
1963, 1977, and 1987 respectively.
The Only difficulty with the first FIDIC contracts was that they were based
on the detailed design being provided to the contractor by the employer or his engineer. It
was therefore best suited for civil engineering and infrastructure projects such as roads,
196 SECTION-VI
bridges, dams, tunnels and water and sewage facilities. It was not so suitable for contracts
where major items of plant were manufactured away from site.
A key feature of the 4
th
edition was the introduction of an express term
which required the engineer to act impartially when giving a decision or taking any action
which might affect the rights and obligations of the parties.
FIDIC - 1987 (Yellow Book)
This first edition of the Yellow Book being published in 1963 by
FIDIC for mechanical and electrical works. This had an emphasis on testing and commis-
sioning and was more suitable for the manufacture and installation of plant. The second
edition was published in 1980. The book was revised to include erection on Site and pub-
lished as third edition in 1987.
This book was suitable for use in contracts between an employer (own-
er) and contractor for the supply and erection of plant and machinery.
FIDIC - 1995 (Orange Book)
In 1995 a further contract was published known as the Orange Book.
This was for use on projects procured on a design and build or turnkey basis, dispensing
with the engineer entirely and providing for an Employers Representative who, when
determining value, costs or extensions of times had to: determine the matter fairly, rea-
sonably and in accordance with the Contract.
The New FIDIC Forms 1999
In 1994 FIDIC established a task force to update both the Red and the Yellow Books in the
light of developments in the international construction industry, including the development of
the Orange Book. The key considerations included:
(i) The role of the engineer and, in particular, the requirement to act impartially in the cir-
cumstances of being employed and paid by the employer;
(ii) The desirability for the standardisation of within the FIDIC forms;
(iii) The simplification of the FIDIC forms in light of the fact that the FIDIC conditions were
issued in English but in very many instances were being utilised by those whose
language background was other than in English; and
(iv) That the new books would be suitable for use in both common law and civil law
jurisdictions.
During updating the Red and Yellow Books, FIDIC has noted that certain projects have fallen
outside the scope of the existing Books. Accordingly FIDIC has not only updated the
Standard forms but has expanded the range, and has in September 1999, published a suite of
Engineer Employer
Contractor
Engineers Dual Role:
Employers agent in some cases
Duty to act impartially between
Employer and Contractor in other
cases
SECTION-VI 197
four new Standard Forms of Contract which are suitable for the great majority of construction
and plant Installation projects around the world.
The Books in the new suite are all marked "First Edition 1999" and are not regarded as direct
Updates of the existing Books. The existing Books are still available as long as there is a
demand, but it is expected that the new suite will supersede and expand the range of the
existing Books.
This new suite is also known as FIDIC new models of contracts of 1999:
(i) Conditions of Contract for Construction for Building and Engineering Works Designed
by the Employer: The Construction Contract (the new Red Book);
(ii) Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant
and for Building and Engineering Works, Designed by the Contractor The Plant and
Design/Build Contract (the new Yellow Book);
(iii) Conditions of Contract for EPC/Turnkey Projects: the EPC Turnkey Contract (the Silver
Book);
(iv) A short form of contract (the Green Book).
Characteristics of FIDIC Conditions of Contract
Contents of the Books
In keeping with the desire for standardisation, each of the new books includes General
Conditions, together with guidance for the preparation of the Particular Conditions, and a
Letter of Tender, Contract Agreement and Dispute Adjudication Agreements.
Unification of Terms and Clause
The new edition was drafted as the New Red Book, the New Yellow Book and the Silver
Book by a workgroup under the leadership of the FIDIC Contract Committee. The contract
form was not influenced by the former ICE framework, which was included in all 20 clauses.
So if the clauses content could be unified, it would be under the same titles and expressions.
In these three books, more than 80% of the content was consistent, and 85% of the definitions
and expressions were the same. It is of great help for the users to understand them completely,
saving study time.
Wider Application
When these new Conditions of Contract were drafted, FIDIC tried its best so the Conditions
could be applied under not only the Customary Law (i.e. Anglo-American Law System), but
also Civil Law. To pursue this, the contract working group had an attorney present to review
198 SECTION-VI
the clauses, so that they could be applied under the two laws noted above. The new edition
also shows more flexibility and adaptability. For example, in the old edition, the conditional
performance guarantee was necessary, for which the World Bank had different opinions,
while in the new edition, the guarantee forms were set by Particular Conditions which can be
applied giving the employers better flexibility.
Applicability under Various Project Delivery and Contracting System
1. The New Red Book can be used in any kind of Engineering Construction
Contract.
2. The New Yellow Book applies to the lump sum contract project where the
Contractor takes participation in the design work.
3. The Silver Book applies to the turnkey projects of infrastructures or large-
scale factories, where the Contractor takes on more work and risk while the Employers
participation is small (private financing or government financing), but it is strictly defined
upon the investment and construction period.
4. The Green Book can be used in all kinds of small-scale projects.
5. Altogether, these four Contract Conditions can be applied to nearly every kind
of project, expect for that of managing contracting or simply consulting or designing
High-quality Provisions and Logical Clause Sequencing
Compared with the original Red Book, the New Red Book has 163 clauses, nearly 40%
being freshly compiled. An additional 40% were modified and given supplements. Only 20%
were kept intact. The old edition adopted ICEs disorderly style clause sequence, while in the
new edition; the related sub-clauses are put into one clause when possible, and convenient to
the users.
More Specific Provisions concerning the Rights and Obligations of the Contract Parties
Considering the clause of Employers default as an example, we can see that in contrast to the
Red Book, three points are added into the New Red Book: two of them are concerned
with payment. The above shows the strict requirements for the Employer. However, the
Contractor shall institute a quality assurance system and submit to the Engineer to audit any
aspect of the system before execution. Monthly progress reports shall be prepared by the
Contractor to submit to the Engineer every month, otherwise, the payment will not be
released. Any kind of bribe can result in Contractors default. All of the above are high
requirements for the Contractor.
Changes in the Preparing Style
General Conditions in the former edition were fairly concise; some recommendable clauses
were given Particular Conditions. While in the new edition, there is a way around the
regulations being that the General Conditions are relatively comprehensive and detailed. An
example would be advanced payment and adjustment formula. The new edition writers
believe that it is more convenient for the users to delete the clauses they do not need than to
write them in the Particular Conditions by themselves.
Concise Language
The language and sentence structures in the new edition are rather easy to understand, and a
great help to the people whose native language is not English.
The Current (1999) Red Book Basic Features
SECTION-VI 199
1. Suitable for all civil works projects where main responsibility for design lies with
Employer (or his Engineer).
2. Some design may, of course, be carried out by Contractor.
3. Administration of Contract and supervision by Engineer.
4. Approval of work, payment and claims certified by Engineer.
5. Work done is measured, payment according to Bill of Quantities.
6. Option for payment on lump sum basis.
7. Balanced / fair risk-sharing.
The Current (1999) Yellow Book Basic Features
1. Suitable for all types of projects where main responsibility for design lies with Contractor.
2. Recommended for the provision of electrical and/or mechanical plant, and for the design
and execution of building or engineering works.
3. Some design may be carried out by Employer or his Engineer.
4. Employer provides Employers Requirements to which Contractor designs.
5. Administration of Contract and supervision by Engineer.
6. Approval of work, payment and claims certified by Engineer.
7. Lump sum Contract Price with payment usually based on schedule of payments.
8. More extensive testing procedures than for New Red Book, including Tests after
Completion.
9. Balanced / fair risk-sharing.
The Silver (EPC / Turnkey) Book Basic Features
1. Responsibility for design lies solely with Contractor.
2. Employer provides Employers Requirements to which Contractor designs Employers
Requirements usually performance specification type.
3. Contractor carries out all engineering, procurement, construction providing a fully
equipped facility, ready for operation at the turn of a key
4. No Engineer, instead it is the Employer who may appoint an Employers Representative.
5. Lump sum Contract Price with payment usually based on schedule of payments. (But
adjustments in limited specified cases)
6. Extensive testing procedures, including Tests after Completion.
7. Contractor takes majority of risks; Employer pays more to cover such risks.
8. Final price and time of completion are intended to be more certain.
Reasons for a New (1999) Contract for EPC Turnkey Projects
o Increased use of two-party approach, without Engineer.
o Increased sophistication, improved education and experience in developing
countries, hence reduced need for an intermediary like an Engineer.
o Increase in privately-financed projects, like BOT, where customary for
design and construction to be governed by an EPC Contract.
200 SECTION-VI
o As a result of increase in privately-financed projects, increased emphasis
on risk allocation.
o In privately financed projects, desire of lenders to place majority of risk on
Contractor.
The Conditions for EPC Turnkey Projects are not suitable in the following circumstances:
+ if time or information is insufficient before Contract signature
+ if considerable work underground or difficult to inspect
+ if Employer intends to supervise closely or control or review
+ if an intermediary certifies interim payments
+ where part of the Works is designed by Employer
+ for public bidding without negotiations
Note; for such circumstances P&DB should be used instead
The Green (Short Form) Book Basic Features
Many small scale and large scale projects can use simple techniques such as in residential
areas, also need a contract. So we shall compile a short form of contract in reference to FIDIC
Green Book. It is necessary to be fairly flexible in the mode and requirements of
management.
Recommended for projects without problems
Small Capital Value <$0.5M
Simple or repetitive works
No specialist subcontractors
Short duration 6 months
No Impartial Engineer
Named Adjudicator
Increased responsibility on Employer;
Priority of documents undefined
No ruling language
Risk & Claims; lists all Employers Liabilities, No bad weather claim, EoT to avoid
time at large & Early Warning
Taking Over no sectional handover
No defined Defects period 12months
Employer may vary on the basis of Lump sum, BoQ Rates & Daywork etc.
Contract price; Lump Sum, LS with schedule of rates, LS with BoQ, Remeasurement
with BoQ, Cost reimbursable.
Consider valuation methods
Dispute resolution; Amicable settlement, Adjudication, Dissatisfaction 28 days and
Arbitration.
FIDIC-MDB Harmonised Edition; First Published May 2005
SECTION-VI 201
While using the FIDIC Conditions it has been the regular
practice of the Multilateral Development Banks (MDBs) to
introduce additional Clauses in the Conditions of Particular
Application (or Particular Conditions) in order to amend
provisions contained in the FIDIC General Conditions. These
additional clauses in many cases have standard wording
which has to be repeated whenever procurement documents
are being prepared for a new project. Furthermore, the
provisions in bid documents, including the additional clauses
contained in the Particular Conditions, varied between the
MDBs, and this created inefficiencies and uncertainties
amongst the users of the documents, and increased the
possibilities for disputes
These problems were recognised by FIDIC and the MDBs as significant. Therefore to
harmonise the documents on an international basis, the FIDIC Conditions of Contract for
Construction, 1
st
Edition 1999 has been modified, in which the General Conditions contain the
standard wording which previously has been incorporated by MDBs in the Particular
Conditions. Following are the FIDIC MDB Harmonised publications;
FIDIC MDB Harmonised Construction Contract (May 2005)
FIDIC MDB Harmonised Construction Contract (March 2006)
FIDIC Harmonised Construction Contract (June 2010)
The MDB Harmonised Construction Contract has some debatable issues;
Role of the Engineer
Employer has now unilateral right to change authority of and to replace the
Engineer.
For Variations, Engineer needs specific approval of Employer.
Employer has now a discretionary right to make a claim.
Corrupt and Fraudulent Practices
Employer has now an unilateral right to terminate the Contract.
International Arbitration
The arbitration clause distinguishes between foreign contractors (interna-
tional arbitration applies) and domestic contractors.
Design-Build Operate Contract (Gold Book), 2007
202 SECTION-VI
This is a new development of FIDIC conditions of contract. It
was published on September 2007, Gold Book.
DBO can be viewed as a complete method in PPPs. This method
is a long-term process including procurement, construction,
operation, and transfer, in which high risk should be pay the most
attention to.
The DBO document for long-term contract
The DBO approach to contracting combines design, construction,
and long-term operation (and maintenance) of a facility into one
single contract awarded to a single contractor (who will usually
be a joint venture or consortium representing all the disciplines
and skills called for in a DBO arrangement. Public private
partnerships, PPPs, are this arrangement).
DBOs advantages
Time: With possibilities to overlap some design and build activities it
will be possible to minimize delays and optimize the smooth flow of construction activi-
ties.
Financial: With cost restraints and commitments and other risks being
carried by the Contractor, there is less risk of price over-runs.
Quality: With the Contractor responsible for 20 years operation, he
has an interest to design and build quality plant with low operation and maintenance
costs. Not only will the plant be fit for purpose but it will be built to last.
Basically the success of a true DBO contract depends on the commit-
ment of the Contractor to complete project - and the best way to do that is to cover the
whole design-build and the operation elements in a single contract. That is why FIDIC
chose a single long term Performance Security with a substantial reduction in value on
completion of the design-build but with an on-going commitment by the Contract to
perform and complete the operation service.
The other important factor considered in DBO document is the length
of the operation period, since the conditions suitable for long-term operation are not nec-
essarily suitable for a short-term operation. However the documents may be tailored for a
shorter period if required.
Risk control in DBO contract
DBO can be viewed as a complete method in PPPs. This method is a long-term
process including procurement, construction, operation, and transfer, in which high risk
should be paid, the most attention.
About PPPs: A wide spectrum of options is available for the delivery of public infra-
structure and services, ranging from direct provision by the government to outright priva-
tization, with increasing responsibilities, risks, commitment, and rewards transferred from
the government to the private sector.
Lots of risks have been identified in DBO contract; therefore, FIDIC has designed
new clauses to deal the risks in DBO contract:
SECTION-VI 203
Restructured Clauses (Clause 17: Risk Allocation, Clause 18: Exceptional Risks,
Clause 19: Insurance),
Identified the Risks to be carried by each Party,
Differentiated between Risks during the Design-Build Period and Operation Service
Period,
Classified the Risks into Commercial Risks and Risks of Damage,
Taken away the term Force Majeure
The DBO document format
The format of the new document follows the traditional format and layout of
previous FIDIC documents, with 20 clauses, and, where appropriate, using the same
terminology and definitions which are found in the other documents.
The document will have General Conditions, Particular Conditions, flow
charts and sample forms just like the other FIDIC documents, and a Guide which
will include, amongst other things, guidelines on how to change the clauses if it is re-
quired, or an operation period significantly different to the previous method adopted
in other FIDIC contract.
Employer: Requirement, Contract Data, Representative to administer the contract
Contractor: Design, Execute, Complete, Remedy Defects, Operation Service
SECTION-VI 194

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Table of Contents

Note: Provisions may be tailored;

Section II. Bidding Data Sheet (BDS)

Technical Proposal (T P) Submission Forms

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