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1
Types of Contracts for works and Goods and Guidelines for their choice
2
Usual Codal Provisions
• PWD Codes discuss in brief generally only two types of contracts, namely Lump-sum and Schedule (Item Rate);
• Development projects of Government Departments/PSUs and local bodies are sometimes complex and necessitate use of other alternative types of contracts.
3
Choice of Type of Contracts
• Choice of type of contract has to be made at the initial stage itself, preparation of Procurement Plan;
• Type of contract affects the subsequent stages of procurement, the content of tender document etc;
4
Choice of Type of Contracts (contd)
• Factors which affect/influence the choice of type of contracts;– Nature and complexity of works;– Size and duration of contract;– Degree of definition of the works and the element of
risk/uncertainty;– Status of design(preliminary or final);– Technical capability, design and supervisory resources
of the Employer;– Financial resources and budgetary constraints;– Previous experience of Employer on the type of contract
5
Lump-sum or all inclusive contract (Works)
• Tenderer quotes a fixed sum for execution of work as per design and specification within stipulated time;
• Payment is linked to stage of completion of an activity;
• Relatively easy to administer;Inflexible for design changes
• Normally used for small, short duration, well defined, detailed works;
• Example standard housing, bus shelters, primary health centre etc.
6
Item rate/unit rate/ad-measurement contract (Works and Goods supply)
• Most common type of contract;• Tenderer quotes unit rates for different items;• Unit rates is inclusive of the costs of labour,
materials, equipment;• Detailed measurements are recorded and payment
made at the tendered unit rates;• Flexible to handle variations due to changes in
design;• Higher supervisory costs;• Amenable for manipulation
7
Percentage rate contract (Works)
• Contractors to submit the %age above or below the current schedule of rates;
• Simple to comprehend for the contractor;• Decision on tender immediate;• Irrational tender, same percentage above or below
different category of items;• Appropriate for small value contracts, when items
of work are few and belong to same category.
8
Cost plus contracts (Works)
• Periodic reimbursement of contractor’s costs of inputs plus fee to cover overheads;
• Fee may be fixed or percentage of measured costs;• Early mobilization possible in emergency situations
or poorly defined works;• If fee is fixed little incentive to produce quality
work; If fee is %, limited incentive to be cost effective;
• Appropriate for open ended emergency situations;• Mostly used in private sector.
9
Supply and erect/install, commission and test contracts (Combination of Supply and
Works)
• Single responsibility;
• Management is simple;
• Direct cost is likely to be more;
• Appropriate for power plants, water pumping plants, water treatment and sewerage treatment plants; telecommunication projects etc
10
Design and Build Contract (Works)
• Innovative competitive designs are possible, which result in economy, better design and aesthetics;
• Pre-qualification is an essential feature;
• Appropriate for important buildings, major bridges, complex flyover, navigation works, airports and other infrastructure works
11
Turnkey contracts (Combination of Works and Supply of Goods)
• Tenders for alternative systems and processes;• Two stage tendering procedure followed;• Usually Lump sum with price adjustment;• Employer is able to choose the best available
processes and thus effect economy;• Appropriate for procurement of complex industrial
process plants such as steel mills, fertilizer plants, food processing, oil refineries etc.
12
Management Contracts (Combination of Works and Supply of Goods)
• Firm acts in the role of a contractor that does not actually perform work directly but manages the work of other sub-contractors;
• Bears full responsibility and risk for price, quantity and timely performance of contract;
• Appropriate for major infrastructure projects such as airports, sea ports etc.
13
Public Private Participation contracts (Mostly infrastructure Projects)
• BOT, BOO, BOOT contracts;• Concessionary turn key type of contract including
financing in addition to design and construction, operation and maintenance of public and private revenue earning projects;
• It is a way of overcoming the budgetary constraints to acquire the needed infrastructure for growth;
• Appropriate for profit earning projects such as power generation and distribution, toll roads, and other projects.
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