Contract Management-I

Presentation by

H. L. CHAWLA

CONSTRUCTION CONTRACTS Introduction The Construction Industry is almost unique where the Projects is sold before it is made. Instead it can be said that each individual contract in the construction industry contains a degree of distinctiveness even though the contracts may be on standardized forms. The reasons are not far to seek.

CONTRACT MANAGEMENT

Construction is the essence of 3 E's (Economical Extraction of Energy) & 5 M's (Men, Money, Materials, Machines, and Methods), may be even 6 Ms (Management)

Construction is field & project oriented. Construction is a Service industry. Prime responsibility of this industry is to convert design concepts & specs prepared by Architect/Engineer into a finished project. Total construction in the world is estimated to be US $ 4 trillion each

year.
Construction activity in India is estimated at about Rs. 700,000 crores per annum. In the 11th plan period, the estimated annual outlay is around Rs. 290,000 crores only on infrastructure projects.

To achieve above, what is required from the construction sector? Possession of Site Resource planning Creating Systems, training and coordinating procedures Mobilization of men, materials, equipment and machinery.

Completion & handing over

.

PROJECT MANAGEMENT
A project can be defined as a sequence of: Unique Complex Connected activities Having a particular role or purpose to be completed within the following: Specific time Within budget According to specification

Number of activities comprising a project must be completed in some specific order or sequence. One goal. Large projects may be divided into several subprojects. Specified time. All projects have a specified completion date. Within budget . All projects will have a resource limit. These pertain to number of people, money or machines to be deployed on a project. Specifications. All clients expect a certain level of quality and functionality from the project.

Project parameters

There are the following constraints which operate on every project:

Scope Quality Cost Time and Resources

A change in one set can cause a change in another constraint. Therefore, the set of above five parameters form a system that must remain in balance for the project to be in balance. The

success or failure of the project depends on the maintaining of

the balance between the five constraints.

Almost all projects have inherent risk factors. In fact somebody

who can gamble will be successful in implementing a project.

The contracting firm has also to ensure that it is fully prepared to meet its obligations and is equipped with the latest technology, technicians, engineers and other skilled

personnel for the different operations. Timely completion of works to stipulated standards is possible only when a spirit of give and take and mutual trust and confidence exists between

the client and contractor and both parties to meet the

contractual requirements without trying to take undue advantage of each other.

It is, therefore, vital that the contracting agencies engaged for a particular project understand the requirements of the project in its entirety including technical features, complexities, if any, the time limits fixed for its completion, and that they mobilize an adequate force of competent technical and managerial staff, labour, equipment and materials to complete the work within the time stipulated. They should take advance measures to ensure availability of the site for construction, materials and construction drawings as per the predetermined schedule, discuss with the project authority an agreed

schedule of operations, and draw up PERT/CPM charts.

Proper planning of the entire sequence of activities in advance and adequate and timely inter-linkages between different components of the project would go a long way in

realizing the benefits of the project as Planned. Contractors

have to endeavor to execute the works in a spirit of cooperation and accommodation with the project authority and

whenever any problems arise, these may be discussed

among the parties and appropriate solutions arrived at.

Construction of different components of the projects is supervised by engineering departments. The existing organizational structure of the concerned engineering departments is based on hierarchical structured system and is more prone to delays in the implementation of projects. A personalized service specific to the project is a vital need. The Engineer-in-Charge if armed with adequate powers to give decisions on issues that arise in the field would hasten the progress. In addition, the Engineers-in-Charge of projects should have specialized training in modem methods of construction and management of men, materials and machinery. It is also necessary that senior engineers in charge of project construction remain at the project site for closer supervision.

The following are the major requirements in any construction project:

Activities for Contractors prior to actual commencement Management of Contracts Systems & Controls Schedule Performance Progress Evaluation Activities for Employer during the project cycle after award

ACTIVITIES FOR CONTRACTORS PRIOR TO ACTUAL COMMENCEMENT Setting up of the camp offices Setting up of the stores at site Setting up of the quarries, crushing plant for aggregates Setting up of the laboratories Setting up of mechanical workshop (s) Setting up of the accommodation for staff & workers Constructing haul roads Establishing water supply & sanitary facilities Placing orders for plant, equipments & materials Recruitment of staff & workers Arrangement of transport facilities for Project manager & staff Arranging telephone connection, wireless facilities, if required Identifying sources of materials & placing orders

MANAGEMENT OF CONTRACTS - SYSTEMS & CONTROLS Efficient Project management team Programme of implementation Layout of works Recording of levels Working out x-sections & L-sections, particularly for road works Team work GFC (Good for construction drawings)

SCHEDULE PERFORMANCE SAP Programmes CPM/PERT charts Bar charts Project Management software- Microsoft Project, Primavera S-curve Daily, weekly, monthly, quarterly progress reports Difference between planned vs. actual work done LD vs. Bonus clauses

PROGRESS EVALUATION

Reasons for difference between planned & actual work done & the analysis thereof Availability of land Availability of designs & drawings Availability of decisions Following up of contractual obligations, both by the Employer & Contractor Issue of Employer supplied materials Grant of exemptions/ licenses/permissions by the Employer Timely certification of contractors bills & payments thereof Timely decisions on deviated items- quantities & prices Force- majeure conditions

ACTIVITIES FOR EMPLOYER DURING PROJECT CYCLE AFTER AWARD Project management/Contract management team-availability of competent persons Readiness on designs, drawings Mobilization of the Project management team at the site including office, transport & infrastructure facilities Competence in handling jobs of similar nature in the past Land acquisition on time Timely approval of shop drawings Geared up to make timely payment

CONTRACT PROVISIONS FOR RISK ALLOCATION Provisions for the allocation of risk among parties to a contract can appear in numerous areas in addition to the total construction price. Typically, these provisions assign responsibility for covering the costs of possible or unforeseen occurrences. A partial list of responsibilities with concomitant (associated with) risk that can be assigned to different parties would include:

Force majeure (i.e., this provision absolves an owner or a contractor for payment for costs due to "Acts of God" and other external events such as war or labour strikes) Indemnification (i.e., this provision absolves the indemnified party from any payment for losses and damages incurred by a third party such as adjacent property owners.)

Liens (i.e., assurances that third party claims are settled such as "mechanics liens" for worker wages), Labour laws (i.e., payments for any violation of labour laws and regulations on the job site), Differing site conditions (i.e., responsibility for extra costs due to unexpected site conditions), Delays and extensions of time, Liquidated damages (i.e., payments for any facility defects with payment amounts agreed to in advance) Consequential damages (i.e., payments for actual damage costs assessed upon impact of facility defects), Occupational safety and health of workers, Permits, licenses, laws, and regulations, Equal employment opportunity regulations, Termination for default by contractor, Suspension of work, Warranties and guarantees.

CONTRACTUAL PROBLEMS
Sound feasibility studies, efficient designs, timely supply of construction drawings and equitable administration of contracts are important for developing an efficient construction industry. These services are provided more effectively by consulting firms than by government departments. Moreover, consulting firms spearhead the initiatives on adoption of modern technology, improvement in design practices and effective use of local materials. Consulting firms help in ensuring a fair contract administration and are more effective in discharging the responsibilities of "Engineer" than a Government Department operating both as the "Employer and the Engineer". A well developed consulting profession is, therefore, essential for promoting the construction industry. In India, we have a well developed domestic construction industry and emerging competent consulting firms. For large and more complex projects, foreign consultants can be utilised, if considered necessary.

CONTRACT REQUIREMENTS The overall experience so far with the preparation and management of contracts is that the contract documents do not provide full information and data required for a proper appreciation of the job requirements. Added to this is the fact that a number of such uncertainties are left to the sole discretion of the Engineer-in-Charge. Under such circumstances, the bids of contractors are likely to be either high as they will naturally try to cover up the cost for lack of information or unreasonably low which could later on lead to claims, disputes and even abandonment of the work. The client may also end up by paying a higher cost or getting involved in avoidable arbitration proceedings or litigation.

CONTRACT DOCUMENT Some of the other special aspects are: 1. Many of the projects are located in remote areas often with poor communication and civic facilities like housing,

drinking water, medical, schooling, law and order .etc

2. People have to work under difficult and hazardous conditions quite often away from their families. Most of the jobs during construction are of temporary nature. These factors adversely affect the psychology of the people.

3. Availability of limited information on physical aspects of the

project, the foundations and soil characteristics etc. at the time of signing of contract. This information is updated and

upgraded

as

the

work

proceeds.

Sometimes

new

information calls for major changes in scope and extent of the contract. The contractors are thus required to be prepared to face and provide for such unknown factors.

4. The scope of the work is usually not very well defined; large
deviations take place, involving change in methodology and induction of additional resources.

5. In river works and in hilly terrain; floods, land slides and unfavourable weather conditions impose severe

limitations on the working season. Unprecedented natural phenomenon beyond the control of the contractors can result in severe damage to life and property and to partially completed works.

6. The contract period is long, usually 2-10 years. Constant

physical change in the project and financial atmosphere of

rising costs affect the contract prices as the work proceeds.

a. The time allowed for completion of contracts is based

on the wishes of the client and not necessarily on a

scientific evaluation of the scope of work. This does not take into account the unknown factors which are required to be faced;

b. Lately, a number of projects are coming up with foreign collaboration with agencies mostly from western nations and time bound programmes are framed for completion of the projects. While making out the time bound programme and the methodology of the project, the collaborators mostly keep in mind the facilities available in their countries, with improved transportation, communication etc. and are not at all aware of the handicaps which a developing country faces. Therefore, it is necessary that the time allowed for completion of contracts on such projects should be realistic keeping in mind the conditions/ facilities for transportation, availability of materials etc. in our country.

For example, if chilled water or ice has to be used in concrete it is essential first to locate the quantity of ice required for chilling and to ensure that this facility is available nearby. If not, the tendering authority should make a provision of developing an ice factory in the area to meet the ice requirements for continuous supply during the required period. It is also observed that foreign collaborators provide material specifications in accordance with practices in their countries for which the equivalent in our country have to be identified. It should be mandatory on the part of the project authorities that they should provide the Indian equivalent of specifications to the foreign agencies during the tender stages, to avoid delays in the procurement of the material, because of non-matching of specifications.

7. The needed input of resources both in terms of machinery, manpower, and finance is large as compared to the manufacturing industry for the same output, over a

period of time.

8. The machines deployed on a project cannot be

depreciated on the same project. At the same time there

is no guarantee for continuity of job for machines and men.

While all the above factors affecting large civil engineering projects are well known and recognized, they are hardly reflected in the tender documents or the contract documents. Also the conditions of the contract attached with the tender documents in vogue tend to ignore these factors.

The first step in this direction would be to exercise care in the

preparation of tender documents and to modify some of the conditions of contract to achieve the above objectives.

Completing of Projects on Schedule

Completion of the projects on schedule will be the culmination

of a number of activities taken up prior to and after the award of

the contract for construction. The project planning has to be

done in a thorough manner so that all problems likely to arise

during design and construction are identified. Both the client

and contractor have to work in a spirit of give and take and try
to accommodate each other to the extent possible.

Detailed information should be recorded on each print to serve as defence photographs in the event of claims.
The following documentation should be properly indexed and recorded at site/office of the Contractor: True copies of the Contract documents incorporating all amendments. Drawings and dimensions for which the Bills of Quantities were prepared. Copies of the original as well as the subsequently revised construction programme in assessing the value of delay in construction operations. Copies of agreed minutes of site meetings with Project Authorities. Contract diary including a journal of general activities, recording problems that arise and information required etc. Record of Labour and Staff inputs. Preparing valuation of variations and notifying the Client within the specified time, delays and other factors which have a bearing on cost and date of completion.

There are four compelling reasons for changing this situation: 1. Delays in project implementation are becoming increasingly costly.

2. Delays are seriously affecting the rate of physical and human capital formation in the country.
3. Delays are constraining the objectives of optimizing the productivity and efficiency of investments. 4. In World Bank aided projects, delays are contributing to the borrowers perception that the Bank products are too costly.

Managers responsible for executing projects and the officials in

the ministries who decide project issues do not fully understand

the concepts of Economic Rate of Return (ERR). They do not know how their decisions change ERR values or what those changes really mean.

Government officials may appear indifferent, slow, uncommitted

and inefficient when the responsibility for the results of their actions is too diffused to hold them accountable. But when they know that they could be identified as the ones responsible for delays and consequent loss to the government, they act efficiently and expeditiously. This is the way bureaucracies work.

The Government departments failure to act promptly on project

issues is not due to lack of commitment, but due to lack of a

system for establishing accountability.

The prospect of prompt decisions during project implementation

will be greatly enhanced if the cost of delays is quantified and those who make decisions are made aware of those costs. It will

also provide the top management an effective tool for expediting

projects.

A research study carried out by the World Bank shows that 16

percent of the project cost is lost per year due to delays which slows down the economic progress.

RECORDS Construction Records

1. Progress of the work

2. Telephone calls 3. Tests of materials 4. Diary or log 5. Log of submittals

 Construction Field Office Files

Correspondence
Job drawings Shop drawing submittals Requisitions Reports Approved material samples Operating tests Deviation requests

 Construction Progress Record

Daily construction report

Field diary or construction log Documentation of intermittent inspections Special feedback reports Report of field correction

Concrete Batch Plant/ Hot Mix Plant - daily reports

Field investigation report

 Documentation of dangerous & safety hazard warnings

Miscellaneous records
Labour standards review records Job conferences Contractor submittals Construction photographs

Public relations photography

Progress photography Time-lapse photography

Detailed information should be recorded on each print to serve as defence photographs in the event of claims. The following documentation should be properly indexed and recorded at site/office of the Contractor: True copies of the Contract documents incorporating all amendments. Drawings and dimensions for which the Bills of Quantities were prepared. Copies of the original as well as the subsequently revised construction programme in assessing the value of delay in construction operations. Copies of agreed minutes of site meetings with Project Authorities.

6. Contract diary including a journal of general activities, recording problems that arise and information required etc.

7. Record of Labour and Staff inputs.

8. Preparing valuation of variations and notifying the Client within the specified time, delays and other factors which have a bearing on cost and date of completion.

SITE INFORMATION All information regarding the infrastructure and other facilities should be given in detail. The following particulars are considered necessary but some more information specific to the type of works for which tenders are invited would be necessary. 1. Location of the works 2. Access to the works mentioning nearest Railway Station, Sea Port and Airport. 3. Wharfage and port charges. 4. Communication facilities including Railways, Post and Telegraph. 5. Roads in the area. 6. Availability of labour. 7. Water supply.

8. Contractor's working areas for

Construction
Camps, workshops, stores, offices Dumping/ Disposal areas

9. Medical facilities
10. Climatic conditions. 11. Geological data including complete details of logging and

cored/ bored holes.

12. Hydrological data: Rainfall, flood and fair weather discharges, high flood level etc.

13. Parameters of permeability coefficients and other data

relevant to dewatering for selecting the type and quantum of dewatering equipment.

TYPES OF ENGINEERING CONTRACTS The engineering contracts are of various natures, and therefore for execution of contracts different types or methods are used. The various types of engineering contracts commonly adopted in state or central Public Works Departments or Government undertakings are listed below:

CONTRACT DOCUMENT Consultancy contract Construction contract Supply contract

TYPES OF CONTRACT Lumpsum contracts Item rate contracts Cost plus contracts (%) Cost plus contracts (fixed cost) Maximum price contracts Incentive contracts Turnkey contracts BOT contracts BOOT contracts

SELECTION PROCESS

Prequalification for
Major/ complex/ special works to enable Employer to select commercially, financially, technically, managerially qualified suitable contractors.

Varying selection criteria to develop uniform selection criteria meeting International parameters. Post qualification may be resorted to if prequalification not possible.

TENDERING PROCEDURE Contract act.very old No uniform tender conditions No standard bid documents Tender conditions normally one sided & not equitable. For Internationally tendered projects, funding agencies insist on ICB procedures. Tender documents based on FIDIC conditions. Standard bid documents-based on principle of equity between Employer, Engineer & Contractor. FIDIC conditions suitably modified to suit local conditions. Validity period -should be a fixed one & not flexible. International funding agencies do not permit negotiations. Prices go up on re-tendering. Contractor should quote reasonably workable rate.

Low price leads to: Bad quality work Large claims

High price because of Cartel/ Ring formation Land acquisition is a major problem. This leads to delay & Disputes even at the inception stage.

THE LOW BID

"It's unwise to pay too much, but it's worse to pay too little. When

you pay too much, all you lose is a little money - that is all. When
you pay too little, you sometime lose everything because the thing you bought was incapable of doing the thing it was bought to do.

The common law of business balance prohibits paying a little and

getting a lot-'-it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better"

John Ruskin.

CONTRACT MANAGEMENT Preparation of Contract Document Preparatory Activities Detailed investigations affecting design, technological alternatives Detailed designs Drawings

Specifications

In short Contract Management is synonymous with Competent Construction Management.

Contracting Sector Government Departments---Public Sector Undertakings--Major Contracting Companies. Contracting Agencies must appreciate & understand all aspects including: Technical features Complexities Time for completion Required mobilization of resources incl. equipments, manpower, materials, managerial staff and finance

Project Authority : There are 3 important players: Employer Engineer Contractor

Major Projects Different Govt. departments/ agencies have different

contract forms
No standard document Different countries also use different forms International followed Contracts---normally FIDIC document

ICB (International Competitive Bidding)

LCB (Local Competitive Bidding) Price preference for locally established companies

CONTRACTUAL PROBLEMS Contracts not equitable or fair Problems in management of contracts Disputes: DRB Arbitration Court cases Consulting firms in a better position to administer contracts Pre-contract Requirements Information & data must be complete Uncertainties should be minimum Contract document should be equitable Specifications & Drawings must be clear Social amenities are also a major issue. This includes rehabilitation & re-settlement

CONSULTANCY IN MANAGEMENT

Engineers' Role
PCC (Project Construction Consultant) Project Formulation Detailed Engineering. Transfer of Technical know-how Finalization of Contracts CSC (Construction Supervision Consultant) Monitoring Quality Control Preparation of regular progress reports. Preparation of Completion reports

MAIN ISSUES
Possession of site free of all encumbrances Information & Data Discrepancies in the contract documents Quality control Payments Advance for mobilization of machinery equipment Additions, omissions & variations

Excess/deficit over tendered quantity

Extra items

MAIN ISSUES

Extension of time
Escalation Time for completion

Liquidated damages
Measurements ICB standard bidding documents. SBD for Procurement of works SBD for Procurement of goods SBD for Procurement of major equipments & installations

LCB Works of lower magnitude Labour intensive

CIDC DOCUMENT
MOSPI DOCUMENT

MONTHLY PROGRESS REPORT FOR THE MONTH OF .

1
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Introduction
Project Organization Organization & Mobilization Project Data Executive Summary S-Curve Linear Progress Data Linear Presentation of Progress-Road Works Information Progress Chart of Culverts, Bridge Works & Underpasses Contractors Resources Contractors Staff List of Lab Equipment Material Testing Report Weather Report Environment Management Plan Worksite Safety Management Accident Data CPR Structures Encumbrances

20

Tree Cutting

PROJECT ORGANIZATION 1. Employer

2. The Engineer
Name Key Personnel Staff Sub-Key Professional Staff Support Staff Position Date of Mobilization

ORGANIZATION & MOBILIZATION

1. General Construction and Consultancy Supervision Contract Package

2. Consultants Organisation Package Supervision Consultants Staff .as on end of
Name Key Professional Staff 1. 2. Key Sub-Professional Staff 1. 2. Position Date of Mobilisation

Field Support Staff 1. 2.

Support Staff 1. 2.

PROJECT DATA
1 Project Name

2
3 4 5

Length of Project
Contract/ Phase Civil Contract Award Amount Name of Contractor Contract Package No.. Rs..

6
7 8 9 10 11 12 13 14

Name of sub-contractor
Contract Commencement Date Original Completion Date Revised date of completion Performance Security Third Party Insurance Liquidated Damages Bonus for Early Completion Defect Liability Period

15
16 17

Minimum Amount of IPC

Retention Money Name of Supervision Consultant

PROJECT DATA
18 Supervision Contract Award Amount

19
20 21 22 23 24 25

Supervision Services Commencement Date

No. of Structures Flyover/ Underpasses on the following locations have been provided as additional works Major Towns Enroute Rivers Enroute Any other No. of old Bridges to be rehabilitated under running contract

EXECUTIVE SUMMARY
1. 2. 3. 4. Title of the Project Contract Package No. .. The Contractor Construction Supervision Consultant The Actual Status of site possession as of . (according to ground reality and physical verification):
Main carriageway (km) Scope Available Length Affected Length LHS RHS Service Road (km) LHS RHS Remarks

EXECUTIVE SUMMARY
Structure Works
Structure Name
Scope (nos.)

LHS
In Progress (nos.) Complete (nos.) Scope (nos.)

RHS
In Progress (nos.) Complet e (nos.)

Remarks

Hume Pipe Culverts Box Culverts Slab Culverts

Minor Bridges
Major Bridges Underpasses

ROB
Other Events Issues with Contractor Issues with Employer Other Issues Other Matters Site Visits

EXECUTIVE SUMMARY
Road Works
Main Carriageway/ Service Road Scope (kms) LHS (kms) RHS (kms) Progress (%)

Available working fronts C&G Embankment works complete Sub-grade works complete Granular Sub-base works complete for (1st layer) Granular Sub-base works complete for (2nd layer) WMM works complete (1st layer) WMM works complete (2nd layer)

Bituminous Works, DBM/BM Complete for (1st layer)

Bituminous Works, DBM/ BM Complete for (2nd layer) BC works complete

S-Curve
Contractor Engineer

Cum. Turnover in Million

Month
Month ..> Cumulative Progress (Rs. In Million) Monthly Progress (in %) Cumulative Progress (in %)

Affected site Possession of Main Carriageway/ Service Road

Sr. No. 1 2 3 4 Village From Chainage To Side Length (m) Remarks

5
6 Total unavailable length on LHS/RHS (m)

Total length on LHS/RHS (m)

WEATHER REPORT
Month. Date Max. temp (0C) Min. temp (0C) Average Rainfall in MM Humidity in (%)

ENVIRONMENTAL MANAGEMENT & SAFETY REPORT

Month. Sr. No. 1 Issues Site Clearance Details Remarks

2
3 4 5 6 7

Tree Plantation
Borrow Area Top-soil management Setting-up of construction camp Site management Pollution control Noise, Dust, Oil spillage , Waste water, Maintenance of equipment Pollution monitoring during construction Air, Water, Noise, Soil Workshop on environment practices Enhancement of common properties Road safety

8 9 10 11

SAFETY RATING REPORT

Sr. No. 1 2 3 4 5 6 7 8 9 10 Component / Aspect Traffic Management Signage, Barricading/ Delineation of work front Dust control Road maintenance Storage and transportation of materials Fire safety practices Electrical safety practices Mechanical safety practices Workers Safety First-aid and Emergency Response Arrangements Rating

Over-all rating 1 Highly Unsatisfactory (HU), 2- Unsatisfactory, 3- Moderately Unsatisfactory (MU) 4- Moderately Satisfactory (MS), 5 Satisfactory, 7- Highly Satisfactory

ACCIDENT DATA
S. No. Date Time of Acci dent Acc Loca tion Natu re of Acc Class ificat ion of ACC Caus es Road Feat ures Road Cond ition Inter secti on type & contr ol Wea ther cond ition Vehi cles resp onsi ble No. of affected persons No. of anim als killed , if any Help provi ded by amb ulan ce/ Petr o/ Vehi cles Rem arks

DETAILS OF CPR STRUCTURE

Sr. No. Location of CPR Side Type of CPR Status Remarks

STATUS OF TREE REMOVAL FROM THE PROJECT

Sr. No . K.M. Total Trees to be cut Left Right Total Trees Cut Left Right Total Balance Trees to be cut Left Right Total

Total

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