A PROJECT REPORT To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha

Project for MBA in Project Management

A PROJECT REPORTTo study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha.Under the guidance ofMs Smruti Rekha SahooSr. Management Faculty

Submitted by:Name - Khan Mohd Saadullah Regd No 1308003641

In partial fulfillment of the requirementFor the award of the degreeOfMBAInProject Management

DECLARATION

I hereby declare that the project report entitled To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha, submitted in partial fulfillment of the requirement for the degree of Masters of Business Administration to Sikkim Manipal University, India, is my original work & not submitted for the award of any other degree, diploma, fellowship or any other similar title of prizes.

Place: Angul Khan Mohd SaadullahDate: 17th May, 2015 Regd No.: 1308003641

EXAMINERS CERTIFICATION

The project report of Mr. Khan Mohd Saadullah, title To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha is approved and is acceptable in quality and form.

Internal Examiner External Examiners

BONAFIDE CERTIFICATE

Certified that this project report titled To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha is a Bonafide work of Khan Mohd Saadullah who carried out the project under my supervision.

SIGNATURE HOD

ACKNOWLEDGEMENET

I wish to acknowledge my indebtedness to my project guide Ms Smruti Rekha Sahoo, Senior Management Faculty, without whose sincere guidance and support this project would not have been a success. Thanking her is a small gesture for the generosity shown.I am also grateful to Mr. Prodipta Chandra (Asst. Manager-Contracts, L&T Construction) for helping me and providing me useful information. I am also indebted to all the employees of the L&T Construction and Bhushan Steel Limited for their sincere help and cooperation.This project is a satisfactory outcome of several days hard work. I am thankful to the respondents who have given me sample feedback and co-operation during the preparation of this project.Finally, I take this opportunity to thank the entire senior executives team and every associate of the organization, who have helped me directly and indirectly during this period of project preparation.

Khan Mohd SaadullahRegd No: 1308003641

UNIVERSITY STUDY CENTRE CERTIFICATE

This is to certify that the project report entitled To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha submitted in partial fulfillment of the requirement for the degree of Masters of Business Administration of Sikkim-Manipal University of Health, Medical and technological sciences.Mr. Khan Mohd Saadullah has worked under my supervision and guidance and that no part of this report has been submitted for the award of any other degree , diploma , fellowship or other similar titles or prizes and that the work has not been published in any journal or magazine.

Regd No: 1308003641Certified by DIRECTOR

COMPANY CERTIFICATEThis is to certify that Mr. Khan Mohd Saadullah; MBA student of Creative Institution Of Management, Sikkim Manipal University has successfully completed the project as partial fulfillment of the MBA program from 16th Aug, 2014 to 15th April, 2015. The report entitled: To study contract lifecycle management for construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha. is his original work and the same has not been submitted prior to this in any form.During the above period we found him to be sincere and hardworking. He followed the rules and regulations of the organization and was punctual in his attendance. His performance and conduct was good. He possesses the ability to transform conceptual knowledge to practical situations.

Mr. Hare Ram(Project Manager)L&T ConstructionBSL Site, Angul.

CONTENTS

Description Page No.1. Executive Summary1. Introduction92. Objectives93. Methodology104. Analysis105. Conclusion116. Recommendation122. Company Profile1. Introduction132. Brief History153. Project Overview1. Introduction182. Objectives493. Methodology554. Analysis815. Conclusion916. Recommendation100

4. Bibliography1095. Reference1106. Glossary111

EXECUTIVE SUMMARY

1.1 INTRODUCTIONContract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It also involves building a good working relationship between customer and provider. 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 life cycle management is the process of systematically and efficiently managing the contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk.Taking an example of a project for construction of 1200 & 1120 TPD Oxygen Plant at Bhushan Steel Plant by L&T Construction, I had tried to study the contract and the phases that took place in contract management from the initiation of the project to its completion.

1.2 OBJECTIVESThe project aims to study and understand the various contractual conditions and clauses agreed between the two parties at the time of creation of contract, the variations that came into effect at the time of execution, the procedure for pursuance and providence of amendments in line with the actual contractual terms, the various complications and conflicts arising due to uncertain clauses and their counteractive measures taken by the parties in consideration.The central aim of contract management is to obtain the services as agreed in the contract and achieve value for money. This means optimizing the efficiency, effectiveness and economy of the service or relationship described by the contract, balancing costs against risks and actively managing the customerprovider relationship. With the mentioned case study and learning, the aim is to establish the guidelines for preparation of a balanced and effective contract document and appropriate implementation of the contract clauses throughout the project life cycle.

1.3 METHODOLOGYThe communication held between the employer and the contractor during the execution of the contract to incorporate the variation and changes which took place and their consequential actions is one of the most important aspects of the contract management. Therefore the letters exchanged between the two parties are compiled in their original form to get the exact knowledge of the events which happened during the course of time.The important clauses of the original contract are mentioned and the use of these clauses by the employer and the contractor are also studied and mentioned.

1.4 ANALYSISContract management consists of a range of activities that are carried out together to keep the arrangement between customer and provider running smoothly. They can be broadly grouped into three areas. Service delivery management ensures that the service is being delivered as agreed, to the required level of performance and quality. Relationship management keeps the relationship between the two parties open and constructive, aiming to resolve or ease tensions and identify problems early. Contract administration handles the formal governance of the contract and changes to the contract documentation.After a contract has been signed there are a number of matters that should be addressed to provide the foundation for successful contract management. An early step is to ensure that sufficient resources and senior management support are available to manage the contract. It is equally important to understand both the contract provisions and contractual relationships at the outset.

1.5 CONCLUSIONManaging the contract in an efficient manner is very important for the commercial success of the project.During the execution of the contract for construction of Oxygen Plant, it was found that the client was posing difficult conditions for payment of the executed works as well as delaying the payment of already certified invoices. So is should be kept in mind during the negotiation of the contract that the contractor should try to form clause regarding interest paid for the delay payment after a certain period of time.Also the escalation clause should be crafted carefully and the works or items for which escalation amount will be paid should be mentioned clearly.Contract management is successful when: Service delivery continues to be satisfactory to both client and contractor Expected business profits and value for money are realized Parties involved are co-operative and responsive Parties know their roles and responsibilities under the contract There are no disputes There are no surprises for either party

1.6 RECOMMENDATIONThe roles and responsibilities should be distributed to competent people in the initial phase of the project so that the contractual obligations are dealt in proper and controlled manner.Contract management should aim for achieving continuous improvement over the life of a contract. It is necessary for ensuring that contract objectives are achieved and the best value of money is attained as specified in the contract. The roles and responsibilities of project parties should be clearly defined. A proactive approach should be used for anticipating the future needs of the contract. The contract strategy should be prepared in accordance with contract characteristics.Not only the Contract Manager and the Planning Engineer but all the personnel involved in the execution of the contract should have proper knowledge of the contract. The Site In-charges and the Site Engineers should know exactly what the scope of the work and should do the additional work after consultation with the contract manager so that the extra claims should be made to the client.

COMPANY PROFILE

2.1 INTRODUCTIONBhushan Steel Ltd. was formerly known as Bhushan Steel & Strips Ltd. is one of the leading companies in Steel Industry. Backed by more than two decades, of experience in Steel making, Bhushan Steel is now Indias 3rd largest Secondary Steel Producer Company with an existing steel production capacity of 2 million tones per annums (approx.).It was the vision of the founder Mr.Brij Bhushan Singal, that the first stake was driven into the soil of Sahibabad (Uttar Pradesh) in 1987. His vision helped BSL overcome several periods of adversity and strive to improve against all odds.The company has three manufacturing units in the state of Uttar Pradesh (Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India and sales network is across many countries.The company is a source for vivid variety of products such as Cold Rolled Closed Annealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Colour Coated Coils, Galume Sheets and Coils, Hardened & Tempered Steel Strips, Billets, Sponge Iron, Precision Tubes and HFW/ERW Pipe.As one of the prime movers of the technological revolutions in Indian Cold Rolled Steel Industry, BSL has emerged as the countrys largest and the only Cold Rolled Steel Plant with an independent line for manufacturing Cold Rolled Coil and Sheet up to a width of 1700mm, as well as Galvanized Coil and Sheet up to a width of 1350 mm.In due course of time, BSL has grown incredibly its turnover and production capacity by successive expansions as well as improved realizations with these manufacturing units. The dynamic reason of awesome and unparallel growth of BSL, is rapid integration on the Steel value chain; conceivably, it would be its unwavering focus on acquiring the latest technology, also the BSLs commitment to provide its customers with the best quality products.Given a vibrant Steel industry dynamics in India, we are on a course to become a fully Integrated Steel & Power Company with market leading offerings in value added Steel in Automotive and White Good Segment with the quality been approved by ISO 9001:2008 & ISO 14001:2004.Larsen & Toubro is a USD 14 billion technology, engineering, construction, manufacturing and financial services conglomerate, with global operations. One of the largest and most respected companies in India's private sector, L&T's products and systems are marketed in over 30 countries worldwide. A strong, customer-focused approach and the constant quest for top-class quality have enabled L&T to attain and sustain leadership in its major lines of business over seven decades.L&T Construction is the construction arm of Larsen & Toubro. Ranked 28th among the top 225 global contractors by Engineering News Record in 2013, L&T Construction offers EPC solutions with single-source responsibility for executing large industrial and infrastructure projects from concept to commissioning.L&T Construction has over the past seven decades been transforming cityscapes and landscapes with structures of immense size and grandeur. India's largest construction organization and ranked among the world's top 30 contractors, the company's capabilities span the entire gamut of construction - civil, mechanical, electrical and instrumentation engineering and its services extend to all core sector industries and infrastructure projectsSeveral of the country's prized landmarks - edifices, structures, airports, industrial projects, flyovers, viaducts, pipelines - are a result of the considerable skills of L&T Construction. Today, more and more structures beyond India's boundaries are standing tall thanks to L&T Construction. L&T Construction offers a broad spectrum of Engineering, Design, Research and Consultancy services, ranging from concept to commissioning for all types of projects at its AR Centre located at Chennai.

2.2 HISTORYThe company was incorporated on 7thJanuary 1983, under the name of Jawahar Metal Industries Private Limited for the manufacture of cold rolled steel strips and steel ingots at Sahibabad Industrial Area, District Ghaziabad. On 14th January 19870, Brij Bhushan Singal and his sons Sanjay Singal and Neeraj Singal and associate companies took over the management of the company by acquiring the entire share capital of the company.In 1989,the company undertook the setting up of a new plant for the manufacture of wide width Cold Rolled Steel Strips with integrated plant facilities.The company became a deemed public limited company under Section 43-A (I-A) of the Companies Act, 1956 with effect from 14th July. The name of the company was changed to the present name of Bhushan Steel & Strips Limited in 1992 and fresh Certificate of Incorporation was issued.The galvanizing plant was commissioned in January 1994. Presently the company has facilities for the manufacture of 1,20,000 tonnes per' annum of wide width cold rolled steel strips and 1,00,000 tonnes per annum of galvanized sheets.

The contractor, Larsen & Toubro was incorporated on 7th February 1946. Larsen & Toubro carries on business as civil mechanical electrical chemical & agricultural engineers as manufacturers as importers & exporters & as contractors. The Company represents a large number of overseas manufactures, notably manufacturers of tractors, agricultural machinery, dairy machinery, film cooling towers and general industrial and engineering plants and coal mining machinery.During the year 1996, the Company has two subsidiary companies namely, L&T-McNeil Limited and L & T Finance Limited, and seven associate companies namely, Audco India Limited, Ewac Alloys Limited, Tractor Engineers Limited, L&T- Niro Limited, L&T-Chiyoda Limited, L&T-Sargent & Lundy Limited and Larsen & Toubro (Oman).In 2009, Larsen & Toubro has received a Rs 2,000-crore order from GMR Energy for commissioning a 2x384 MW gas-based power plant at Vemagiri near Rajahmundry, Andhra Pradesh. Larsen & Toubro's buildings and factories operating company, part of its construction division, has bagged new orders aggregating Rs. 1513 crore for the construction of high rise tower, luxury hotel, hospital and factory building projects from DB Hospitality, ITC group, NBCC and Arshiya International.Larsen & Toubro (L&T) has secured the BOP contract valued at Rs 1635.30 crore from Madhya Pradesh Power Generation Co. Ltd, (MPPGCL) for 2 x 600 MW MALWA Coal Fired Power Plant, The project was won against stiff competition from domestic BOP bidders.Larsen & Toubro (L&T) is readying to cash in on the sunrise sector-nuclear power as L&T will team up with the Nuclear Power Corporation of India Limited (NPCIL) to make parts for atomic units.Larsen & Toubro's (L&T) Infrastructure Operating Company - a part of its Construction Division (ECC), has secured one of the single largest construction orders in India's Nuclear Power sector by winning a contract valued at Rs. 844 Crores from Nuclear Power Corporation of India Limited (NPCIL) for construction of the Main Plant Civil works of Reactor 3&4 at Kakrapar Atomic Power Project, Tapi (Gujarat).

PROJECT OVERVIEW

3.1 INTRODUCTIONAccording to Indian Contract Act-1872 section 2(h),An agreement enforceable by law is a Contract. In other word, a contract is a legal agreement between two or more people or companies for an exchange of goods or services.A project contract is a legally binding agreement between two or more project parties for achieving a certain goal, i.e., creating a unique product, service or result. Parties involved in a project are legally bound to fulfill their roles and responsibilities, specified in their respective contracts.Project contract covers the following: Contract conditions, commercial terms and pricing arrangements Scope of work (technical) Project execution planSome of the advantages of a project contract are as follows: It allows the project company and the client to get a clear idea about what the project entails. It acts as a tool to make both project parties work as per the agreement and minimizes the chances of getting misunderstood by any of the parties. It clearly defines the payment terms, the project timeline and the expected project deliverables. It helps in avoiding scope creep, which describes the phenomenon of undefined increase in scope a very common feature in projects. It helps to understand the scope of the project, as it is mentioned in the contract clearly. It helps in managing changes in the scope of the project. It provides legal protection in case of any dispute. It helps in fostering a healthy client relationship.Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactively to anticipate future needs as well as reacting to situations that arise.The central aim of contract management is to obtain the services as agreed in the contract and achieve value for money. This means optimizing the efficiency, effectiveness and economy of the service or relationship described by the contract, balancing costs against risks and actively managing the customerprovider relationship. Contract management may also involve aiming for continuous improvement in performance over the life of the contract.Good contract management goes much further than ensuring that the agreed terms of the contract are being met this is a vital step, but only the first of many. No matter what the scope of the contract, there will always be some tensions between the different perspectives of customer and provider. Contract management is about resolving or easing such tensions to build a relationship with the provider based on mutual understanding, trust, open communications and benefits to both customer and provider a win/win relationship.A key concept is the relationship that is documented in the contract, not just the mechanics of administering the contract. Agreements, models and processes form a useful starting point for assessing whether the contract is underperforming, but communication, trust, flexibility and diplomacy are the key means through which it can be brought back into line. Adversarial approaches will only increase the distance between customer and provider.Contract life cycle management is the process of systematically and efficiently managing the contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk.The initial phase of the Contract Management includes the invitation to tender and tendering. An invitation to tender is a stipulated document sent to the various suppliers / contractors to obtain an offer of goods or services. Tendering is the process of making an offer, bid or proposal to an invitation for tender.Tendering passes through numerous steps. The process of tendering is explained as follows:1. Organizations requesting the tender will determine the type of tender that will be used.2. Request for tender is prepared. It outlines the contractual requirements.3. The invitation for tender is floated to the required public. The type of the public depends upon the value, complexity and category of business.4. Suppliers respond to the queries. They have to complete all the documentation. They also attend any pre-tender briefing sessions that help in clarifying any doubts.5. Submission of tenders by the suppliers.6. Evaluating and selecting the tender, the tenders will be verified for any compliance. The documentation is checked and tender that offers the best value is selected.7. Contracts are established and managed. The Tenderer will be requested about the outcome of the contract in writing.

3.1.1 Criteria for evaluation of tendersThe criteria for evaluation of tenders are decided in the early stage only, which ensures that it is based on objective criteria. The tender is evaluated against the following aspects: Technical aspects Execution aspects such as design, procurement, installation and implementation Commercial aspects Contractual aspects3.1.2 Contract Documents Tender Notice General Instructions and Directions Form of contract Conditions of Contract List of Materials if any Bill of Quantities Specifications-General/particular Drawings3.1.3 Types of Contract Competitive Bidding Negotiated contracts Unit-price contract Fixed-price - Lump sum Cost-plus Man- hour ContractCompetitive biddingIn this type of contract a formal advertisement is provided for the public work and in case of private work selective invitation is given to the parties which the employer thinks are competent for the particular project.The awarding of the contracts is by:Lowest responsible bidMostly in public works the lowest bidder L1 is provided the contract.Best value i.e.: technical scoreIn projects which are critical in nature and requires certain specialized technical skills or which are larger in magnitude, the technical score of the bidders is compared based on their history and available resources and the contract is awarded to the party with best value.Negotiated contractsThese contracts are negotiated for construction of an asset. The benefits of this type include flexibility of pricing arrangement. These are often used on projects of large size and great complexity. The owner may value expertise and integrity of a particular contractor and can award contract without competition that may otherwise exclude that contractor from the work.Unit-price contractThis type of contract is used by employer who had the resources and wanted to be involved in the execution of the contract. Prices of specified units of work are fixed or predetermined. Actual cost to the owner will vary with actual quantities placed at site.It is best used when details and general character of the work are known, but quantities are subject to variation. The employer may provide the material or not based on which the rates are decided.Fixed-price - Lump sumTraditional, single fixed pricePredetermined price that includes profit, overheadGreatest risk to contractor resulting in a higher markup (the greater the risk, the higher required rate of return)Generally called as LSTK- Lump sum Turnkey.Cost-plus ContractContractor agrees to perform the work for a fixed or variable fee covering profit and home office costs (general overhead)Field costs are reimbursable at actual costUsed when:natures of the work or physical conditions are unpredictablescope is unknown or difficult to defineMan Hour ContractThese contracts are mostly used in IT services and in design services. In it the payment is based on the Man-Hours employed in the project, schedule or combination of both.Example: EDRC man hours spent is booked in BU/ SBG

3.1.4 Contract StructureThe main elements of a contract structure are:Preamble: The Preamble is an introductory statement of facts or assumptions upon which a contract is based. It covers information such as: Title of the agreement (for example, Supply Contract, Non-Disclosure Agreement, Agreement for Design, Supply, Installation and Commissioning of an industrial plant, Professional Services Agreement etc.) Information about the parties (the buyers and sellers names and addresses) Date on which the agreement was entered intoRecitals/Introductions: The recitals give the background information about the parties, the context of the agreement and an introduction to the agreement. The different kinds of recitals are as follows: Party related recitals: They involve the relevant business activities of each party. Context or background recitals: These describe those events or circumstances that the project will follow. For instance, a context may explain the particularities of sale; specify trademarks, terms and conditions; etc. Compliance related recitals: They involve certain requirements or pre-requisites for entering into an agreement.Body of the contract: The body of a contract is the heart of the agreement, because it includes the reason for entering into the contract. The set up of the body of the contract is as follows: Definitions and provisions related to the interpretation of the agreement The conditions of the agreement or the closing of the transaction Purchase price adjustments and payment Warranties, indemnities and limitations of liability Terms and termination conditions of the agreement, confidentiality of the information and miscellaneous provisions3.1.5 General Conditions of a ContractDuring the execution of the contract some of the important clauses are to be kept in mind as their reference will be used the most. Following are these clauses: Statement of Work (SOW): Statement of Work (SOW) includes, besides the scope, the implementation schedule as well as specific exclusions from the scope, roles and responsibilities of each party, assumptions, dependencies, constraints, etc.Payment TermPayment Clause states the conditions through which the payment for the executed work will be made to the contractor. Example in EPC projects it may be on milestone achievement, in Unit Rate contract it will be on Running Accounts Bills monthly made on the basis of the BOQ.Escalation ClauseEscalation Clause states the extra amount of payment which may be made by the employer in case of delaying of the project if the project is delayed due to liabilities of the employer.Extension ClauseExtension Clause states the conditions in which the contractor will be entitled to time extension after the closing of the actual date of completion of the contract.InsuranceThe Insurance Clause contains the insurance of people, machinery and materials as well as structures of which the employer or the contractor is responsible.Settlement of DisputeDisputes may arise during the execution of the contract, so settlement of these disputes by proper authority is important for smooth functioning and without escalating tension between the parties.Defect LiabilityDefects liability period is the period after the completion of the project in which the contractor will be responsible for any defects arising in the structures and the contractor will take care of the maintenance without any extra payment from the employer.Liquidated damagesLiquidated Damages can be defined as a mutually agreed predetermined monetary compensation, recoverable by one of the parties to the contract for the loss or detriment deemed to have been suffered by it on account of late or non-performance on the part of the other or others. Liquidated damage is the penalty imposed on the contractor in case of the delaying of the project without any reasonable explanation and prior notification to the employer.Earnest Money Deposit (EMD)It is the deposit to be furnished by bidders in accordance with the relevant clause in the bid document. Earnest Money Deposit (EMD) is the security money the contractor deposits as bank guarantee in favour of the employer to show his willingness to execute and complete the project. In case the contractor is unable to complete the project within the stipulated time frame due to reasons not mentioned in the contract, or the project is terminated by the contractor, this money will go to the employer.Taxes & DutiesThis clause mentions the tax and duties applicable to the particular contract which the contractor is entitled to pay on account of the work executed. Examples are VAT, Sales Tax, Work Contract Tax, Service Tax etc.Force MajeureForce Majeure means an exceptional event or circumstance which is beyond a Partys control; which party could not reasonably have provided against before entering into the contract; which having arisen, such party could not reasonably have avoided or overcome; and which is not substantially attributable to the other Party.IndemnificationIt is the clause which has the conditions to compensate for the loss or damage and to provide security for financial reimbursement to the employer as well as the contractor in case of dispute between the parties.MobilizationMobilization Clause states the number of days after receiving the Letter of Intent or Contract signing before which the contractor has to mobilize the workforce and machinery to the project site. It also mentions the advance payment which the employer will pay to the contractor as mobilization advance to the contractor to meet the early expenses. Example 15% of the contract value was paid as mobilization advance by Bhushan Steel to L&T Construction to mobilize its workforce.Labor LawsLabor laws are implemented by the government. The Labor Commissioner is responsible for the welfare of the labors working on the project. The contractor and the employer has to make sure that the labors are working in good conditions and are provided all the basic necessities and are well paid. The law is Contract Labour Act (Regulation and Abolition Act, 1970).Differing site conditionsThe site conditions are unpredictable and may be different as compared to the conditions stated by the employer and on basis of which the contractor prepares its bid documents. This clause incorporates such changes which may arise during the execution of the project.Delays and Extension of TimeDue to unforeseen conditions or availability of resources the project may be subjected to delay. This clause states the liabilities of the employer which if not met, the contractor will be entitled to extension in time.Warranties and guaranteesThe contractor has to provide certain warranties and guarantees to assure the employer that the standards will be maintained and the project will be completed as per the requirements.Consequential damageConsequential damages are the damages which may happen to the local environment and people due to the execution of the project at that place. Proper tools and techniques should be used and methods should be employed to minimize such affects.Occupational safety and health of workersEvery occupation comes with some health problems if proper measures are not taken in the beginning to ensure the safety of the workers. The workers working in hazardous environment have to take extra precautionary measures while working apart the personal protective equipments. This clause makes sure that the contractor as well as employer takes such needs into account.Permits, licenses, and regulationsIn order to execute the contract, permits and licenses are required by the local authorities, statutory bodies and government agencies and regulations are to be followed. All these are mentioned in this clause and it is the duty of the contractor to make sure that all the requirements are fulfilled before starting the execution of the contract. Examples of laws to be followed are: Contract Labour Act (Regulation and Abolition Act, 1970), Minimum Wages Act, 1948, Payment of Wages Act, 1936, Workmen Compensation Act, 1923.Termination for default by contractorThis Clause mentions the conditions in which the employer may terminate the contract as the contractor was unable to fulfill the requirements of the contract.Suspension of workThis Clause states the circumstances and conditions in which the work may be suspended and the remaining work may be completed on later stage by entering into a new contract.

3.1.6 FEDERATION INTERNATIONAL DES INGENIEURS CONSEILS (FIDIC)FIDIC was founded in 1913 in Belgium and the original founding countries were France, Belgium and Switzerland, having a chequered history with the intervening war years. The United Kingdom signed up in 1949 and the United States in 1958, some of the newly industrialized countries becoming members in1970s, thus becoming truly international.3.1.6.1 FIDIC Conditions of Contract General ConditionsConditions of general application that may require modifications in certain legal jurisdictions or for the practical purposes or to take account of the circumstances and locality of the works

Particular ConditionsA guide/aide memoire suggesting modifications in order to provide further or supplementary information, to meet local conditions or to comply with local law

3.1.6.2 Basic Principles behind all FIDIC ContractsTo achieve optimum results by not expecting contractors to quote for risks which could not be reasonably foreseen or evaluated.For the Employer to assume responsibility for costs arising from events which may never occur, which lie outside the Contractors control or which cannot be covered by insurance at a reasonable premium (i.e. Employers Risks)Close cooperation and teamwork between Employer/Contractor and Engineer within the framework of the Contract, with a mutual desire to produce a satisfactory end productTo remove mistrust or lack of confidence with all parties performing their duties under the Contract responsibly and correctlyThe use of independent Engineer, who is required to exercise his discretion with impartiality, even if he is an employee of the Employer3.1.6.3 THE NEW FORMS OF CONTRACTIn August-September, 1998, FIDIC published Test Editions of four new standard forms of contract, the first three of which are referred to as the New Books. Conditions of Contract for Construction (The Red Book) Conditions of Contract for Plant and Design Build (The Yellow Book) Conditions of Contract for EPC Turnkey Projects (The Silver Book) Short Form of Contract (The Green Book) Contract for Dredging and Reclamation Works

Conditions of Contract for ConstructionWhich are recommended for Building or Engineering Works designed by the Employer or his Representative, the Engineer. Under the usual arrangements for this type of contract, Contractor constructs the works in accordance with a design provided by the Employer. However, the works may include some elements of Contractor-designed civil, mechanical, electrical and/or construction works.From the above description, it can be seen that the scope of the Construction Contract is indistinguishable from that of the previous Red Book, in that the employer pays the contractor on a measure-and value basis for constructing the works which have been designed by or on behalf of the Employer. This contract is intended to be applicable to a wider variety of contracts and it is now more common place for contracts to contain a significant proportion of works designed by the Contractor, so the Construction Contract contains more provisions which would be applicable in such a case. E.g.: Clauses 4.1, 13.2 and 9.

Conditions of Contract for Plant and Design-BuildWhich are recommended for the provision of electrical and/or mechanical plant, and for the design and execution of building and engineering works. Under the usual arrangements for this type of contract, the Contractor designs and provides, in accordance with the Employers requirements, plant and for other works; which may include any combination of civil, mechanical, electrical and/or construction works.Although this book has been referred to as the Plant Contract, it is also suitable for the design and construction of building and engineering works and will thus, replace the Orange Book. On the lines of the Construction Contract, this contract requires the Employer to appoint the engineer to administer the Contract, although (as described below) the Engineer is not now required to exercise discretion impartially.

Conditions of Contract for EPC Turnkey ProjectsWhich are recommended where one entity takes total responsibility for the design and execution of an engineering project. Under the usual arrangements for this type of contract, the entity carries out the Engineering, Procurement and Construction; providing a fully equipped facility ready for operation (at the turn of a key). This type of Contract is usually negotiated between the parties.Whilst the basic principles of the Construction and the Plant Contracts are being adopted for many projects, many other projects are being procured by one major contracting entity to take total responsibility for the entire design and execution of the project, including all the engineering, procurement and construction (EPC). Such Contracting party would need to have a greater freedom to satisfy the requirements of the end user which are specified in the contract, would enter into the Contract with the expectation that it would be more profitable than under the traditional procurement principles and would be prepared to accept a greater degree of risk and less entitlement subsequently to claim increases in contract price.From the Contracting Partys point of view, the Tenderer will wish to fully appraise the site in order to limit the degree of risk of unforeseen conditions. Tendererss investigations will be subject to the constraints of time and cost and also by the factors itself on site, especially when there is occupation by others in terms of access during the tender period and after award of contract.On the other hand, the Employer will have the advantage of being able to budget his expenditure with greater confidence based on contracting entitys undertaking to be bound to his price to a greater extent than more traditional procurement principles. EPC procurement may therefore be preferred by the people who finance major infrastructure projects and who place greater importance on the predictability of the financial outcome of such projects. They will also be less concerned about such procurement being more expensive because of the contracting partys attempt to ensure that the agreed price for the project is sufficient to cover all the risks that eventuate as well as those that do not.EPC may also be preferred by private financing organizations which provide finance to a BOT Employer organization established at the instance of a contracting firm who participate as members of the construction joint venture for a major engineering project. However the EPC contract makes no direct reference to these private financing organizations or to their likely requirements.

Short Form of ContractThis is recommended for building or engineering works of relatively small capital value. Depending on the type of work and the circumstances, this form may also be suitable for contracts of greater value, particularly for relatively simple or repetitive work or work of short duration.

FEATURES OF THE NEW RED/YELLOW BOOKS In both these books the administration of the Contract and the supervision and execution of the works is carried out by the Engineer, employed for this purpose. In the Red Books, the payments are on the basis of measurements by applying the rates and prices in the BOQ, with an option of lump sum payment. In the Yellow Book, payments will usually be according to an agreed schedule of payments perhaps based on milestone events and on a lump sum basis. The Engineer has powers of effecting a dispute settlement, decision making and eventual referral to a Dispute Adjudication Board.

FEATURES OF THE ORANGE BOOK One of the main features of this book is the departure from the traditional role of the Engineer. Most of the Engineers duties are to be carried out by an Employers Representative, who may be a consulting engineer and the book also does not expressly require the Employers Representative to be impartial, 0nly that he act fairly in matters of time and money and in accordance with the Contract (Clause 3.5) In cases of dispute resolution the Engineers role is taken over by the DAB but the Particular Conditions do offer the option of the Engineer acting as an Adjudicator, but in such cases there is the express requirement of being impartial.Despite the updating of the existing books and bringing out new revised editions along with the Orange Book it was felt that the these books were lacking in that they still did not take into account the modern practices of tendering and award of contracts, where due to the private sector financing, there is a two party approach.The approach now seems to be that proposals are invited from various pre-selected companies, examined, the most preferred bid determined, final technical and commercial conditions discussed and agreed and contract then awarded, which as we have considered earlier, led to the drafting of the Silver Book.

FEATURES OF THE SILVER BOOK The contractor has a much stricter obligation to take on more risks and complete in time with less chance of being granted time extensions or costs. The contractor also takes on greater responsibility for design defects, (including checking parts of the Employers Requirements) Responsibility for site data and sub surface conditions and unexpected underground obstructions, placing more emphasis on the tender phase. Employer retains responsibility for the intended purpose of the works and for the criteria for the testing and performance, (assuming special importance), of the works. All securities are to be on-demand guarantees Retention money may be withheld to ensure that the performance criteria are actually reached Payments linked to mile stones Developer/Financiers must expect to pay more in the case of such contracts due to increased risks adopted by the Contractor There is no provision for an Engineer and disputes are to be handled by a DAB.

3.1.6.4 FIDIC NEW FORM OF CONTRACT IMPORTANT CLAUSESContract Price and Payment - Clause 14 Contract Price to be agreed to and determined under Sub-clause 12.3 and subject to adjustments under the contract Inclusive of all taxes, duties and fees and not be adjusted except for the reasons as stated in Clause 13.7 (Adjustments for Changes in Legislation) Quantities are estimated quantities Employer to make advance payment in the form of an Interest Free loan for mobilization The Engineer shall issue the first Interim Payment Certificate after receiving the application for the same and the Performance Security and guarantee for advance payments, such advance payments to be repaid through percentage deductions. Engineer to issue to the Employer an Interim Certificate of Payment within 28 days of receiving a Statement and supporting documents, which shall stipulate an amount which the Engineer fairly determines to be due, with supporting documents. Withholding of the Interim Payment Certificate shall not be done, but in cases where anything supplied or work done by the Contractor is not in accordance with the contract, the cost of rectification or replacement may be withheld till it has been completed and if the Contractor has been failing to perform any obligation under the Contract and has been notified earlier, the value of work or obligation may be withheld until performed.Variation Clause 13 Variations may be initiated at any time prior to the issue of the Taking over Certificate, either by an instruction or request to the Contractor to provide a proposal. The Contractors are to be bound by each variation unless proving that it is not possible to do so along with supporting particulars, upon which Engineer may cancel, confirm or vary the instruction. The Contractor may at any time submit a proposal to the Engineer, which in the Contractors opinion if adopted, will accelerate completion, reduce the cost to the Employer of executing, maintaining, operating the works, improve the efficiency to the Employer of the completed works or otherwise be of benefit to the Employer. Proposal to be prepared at the cost of the Contractor and shall include the items on the Variations procedure: 13 If the proposal envisages a change in the design of the permanent works, then unless agreed to, the Contractor shall design this part, Clause 4.1 (Contractors General Obligations) shall be applicable. If the change results in a reduction in the contract value, resulting from the change, excluding adjustments under 13.7 (Adjustments for Changes in Legislation) and 13.8 (Adjustment for Changes in Cost), the Engineer shall proceed in accordance with 3.5 to agree or determine a fee, which shall be included in the Contract Price and the fee shall be 50% of the difference between;1. Such reduction in contract value resulting from the change, excluding adjustments under 13.7 and 13.8and the2. Reduction (if any) in the value to the Employer of the varied works, taking account of any reductions in quality, anticipated life or operational efficiencies However, if the first is less than the second then there shall not be such a fee. Variations are to be evaluated in accordance with Clause 12 (Measurement and Evaluation), unless the Engineer instructs or approves otherwise in accordance with this Clause. Adjustments will be made for changes in Legislation and the Contractor suffering any delay and/or incurring any additional cost as a result of these changes, shall give notice to the Engineer and shall be entitled to, subject to Clause 20.1, to an EOT and payment of such costs. Following such notice, the Engineer will make a determination under Sub-clause 3.5.

Measurement and Evaluation: Clause 12 The Engineer is to proceed in accordance with Sub-clause 3.5 (Determinations) to agree or determine the Contract Price by evaluating each item of work, applying the measurement agreed or determined in accordance with 12.1 and 12.2 and the appropriate price for each item.

Allocation of Risks: Clauses 17.2 to 17.4 The Contractor is required to take full responsibility for the care of the Works, materials and Plant from the Commencement Date until the Taking-Over Certificate is issued for the works. If any loss or damage happens to the Works or materials and Plant, other than due to Employers Risks (as defined), the Contractor must rectify this loss or damage at the Contractors cost Employers Risks are generally events or circumstances over which neither party will have any control (e.g. war, hostilities and the like) or events or circumstances caused by the Employer, directly or indirectly. Contractors risks cover not only Works, materials and plant but also: Goods - new concept and includes Contractor s equipment whether on or off site and Contractors Documents - new term - includes software and documents of a technical nature supplied by the Contractor The Employers Risks do not cover those related to the use, occupation by the Employer, design by the personnel and operation of the forces of nature, keeping it in line with the risk allocation principle of the Book

Limitation of Liability: Clause 17.6 Red Book: no limitation of liability of the C because there was little or no design Yellow Book: provided for a limitation of liability, to the sum stated in the Contract or to the Contract Price and excluding liability for defects etc after the expiry of the DLP, except in cases of gross misconduct. Orange Book: also limited liability on the same fines as the Yellow Book but did not exclude liability for defects etc after expiry of the DLP.

Termination by the Employer: Clause 15 All the New Books have the provision of the Employer for the Termination of the Contract by specified defaults by the Contractor. Notice Period of 14 days but no notice required in cases of bankruptcy of the Contractor or bribery Termination for Convenience clause operates but precludes the Employer from terminating the Contract in order to execute the Works himself or arrange for the Works to be executed by another Contractor

Suspension or Termination by Contractor: Clause 16 Contractor may suspend the works where the Employer fails to pay a Certificate, fails to certify a Payment Certificate, when he should do so, and where the Employer fails to provide reasonable evidence that financial arrangements have been made and are being maintained to enable the Employer to pay the Contract Price in accordance with the Payment Schedule. Contractor may terminate the Contract where the Contractor does not receive reasonable evidence of the Employers financial arrangements within 42 days after giving a notice to suspend on this account and In the case of the New Construction Contract where the Engineer fails within 56 days of receiving a payment application and supporting documents to issue the relevant payment certificate.Claims of the Contractor Sub-Clause 20.1 Contractor to give notice of claim not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance giving rise to the claim If the Contractor fails to do so, Time for Completion not to be extended and the Contractor not entitled to additional payment. Requirement for keeping contemporary records Submission of fully detailed claim including full supporting particulars of the basis of the Claim/EOT and any additional payment claimed, within 42 days,- if the event or circumstance has a continuing effect then procedure as perClause20.1 (a)(b)(c) Within 42 days of receiving such claim or any further particulars or within such other period as may be proposed by the Engineer or Employer and approved by the Contractor, the Engineer/Employer must respond with approval/ disapproval and detailed comments. May request further particulars but shall give his response on the principle of such claim within such time. If the Contractor fails to comply with this provision or any other provision in relation to the claim procedure, such shall be taken into account.

3.1.6.5 PROBLEMS RELATED TO FIDIC NEW BOOKSThe intention of the New Books is to achieve early resolution of the disputes, however, the difficulties in practice are: The Engineer who pressures the Contractor not to submit claims at all and adopts an oppressive application of other contract provisions, if claims are submitted The Employer who pressures the Engineer to adopt such attitude. The Engineer who abuses the power to request further particulars The difficulty of maintaining voluminous contemporary records relating to the claims and events of delay and devoting all resources to the efficient progressing of the works. The Engineer may also instruct the keeping of any contemporaneous records he wishes, as opposed to the earlier restriction in the 4th Edition, which was limited to the keeping of those records as are reasonable and material to the claim. The time limit for substantiating the claim has been shortened, in the sense that in the 4th Edition, 28 days after giving notice of the claim, while the new edition, it is 42 days after the event giving rise to the claim. Thus, the Contractor will have to give notice within 28 days and then substantiate within a further 14 days.

Claims of the Employer: Clause 2.5 If the Employer considers himself to be entitled to any payment under any Clause of these conditions or otherwise...and/or any extension of the DLP, the Employer or Engineer shall give notice and any particulars to the Contractor -Notice to be as soon as practicable and those related to the DLP, before the expiry of such Period The Employer may only set off against or make any deductions from an amount certified in a Payment Certificate, or otherwise claim from a Contractor, in accordance with the procedure laid down in Clause 2.5. This is the first time that the FIDIC Contracts have protected the Contractor from unilateral action by the Employer.

3.1.7 DISPUTE ADJUDICATION BOARDS Under the General Conditions of all the New Books, there is a provision for adjudication of disputes by a DAB, however, the Particular Conditions of the Construction and the Plant Contracts, which provide that they shall be administered by an Engineer, offer the option of adjudication by an Engineer as the first step. The Guidance notes to the use of the Red and Yellow Books suggest that the parties use an Engineer as a DAB, which may be contradictory given that some of the disputes may involve the Engineers determinations themselves. In the absence of a DAB Member, then two may proceed and decide unanimously.A new development is that the decision of the DAB is now admissible as evidence in Arbitration, thereby causing a much heavier burden on a party challenging such a decision, causing reservations amongst some people.

3.1.8 DISPUTE RESOLUTIONHowever positive may be the approach of the two parties but still disputes may arise and hence to resolve these disputes there is s proper procedure.Source of Dispute Poor contract drafting Unclear risk allocation Incomplete design / specification Improper execution of contract Where contractors bid at negative margin and tries to find means to raise a claim in order to survive in the competitive market.The Need for Arbitration To provide means for expeditious resolution To get exclusive remedy for the disputes To lessen burden on courts To avoid cumbersome process of litigation To have procedural flexibility, save time and avoid the stress of conventional trial by courtsAlternate Dispute Resolution (ADR) Dispute Review Board (DRB) Conciliation ArbitrationDispute Review Board (DRB) DRB contains panel of normally experienced with type of construction involved, respected and impartial reviewers. DRB is organized before the contract is executed. DRB has the following principal responsibilities. To visit the site periodically. Keep abreast of job activities and developments. Encourage the resolution of disputes by the parties. Upon a dispute being referred, to conduct hearings, enter into deliberation, and prepare recommendations in a professional and timely manner. The parties are free to accept or reject the recommendations of DRB members and they are not binding on them. Upon commencement of hearing the contractor, the employer and the engineer to have full opportunity to be heard and evidence offered. Board to hear all parties by giving equal opportunities and recommendations to be given within the period prescribed in the contract. If the recommendations of the board is not rejected by the parties within a specified time limit (normally given in the contract agreement) the recommendations become final and binding on parties.

Conciliation Parties to try for amicable settlement before going for arbitration. Amicable settlement is by way of appointment persons called as conciliators. The procedure for conciliation is contained in sections 61 to81 of the arbitration and conciliation act, 1996. Party initiating conciliation has to invite the other party to conciliate. Proceedings are deemed to commence when the other party accepts the invitation in writing. Conciliators are appointed by parties who help the parties to arrive at a settlement agreement. Conciliators to assist parties in an independent and impartial manner and are to be guided by the principles of objectivity, fairness and justice. Proceedings can be terminated at any time by any party. Conciliators cannot impose decision on the parties. Cost of conciliation to be shared by parties equally. When an amicable settlement is reached, conciliators help the parties to draw terms of settlement agreement. Once the terms of settlement agreement is signed by the parties and conciliators it is final and binding on the parties and it precludes any party to initiate further proceedings. The terms of settlement is equivalent to the award rendered by the Arbitral Tribunal.ArbitrationChronological events in a normal arbitration are as follows: Upon formation of tribunal, preliminary meeting is held to discuss the following. Sitting fees and other miscellaneous expenses to be paid to the arbitrators. Procedure to be followed viz. filing of claim statement, reply statement and counter claim if any, rejoinder and reply to the rejoinder. Time for submission of the aforesaid statements. Further hearing dates to be fixed in advance. Venue for the arbitration. Upon completion of the aforesaid procedure, arguments to be advanced by the parties. Upon hearing the submissions/evidence given by the parties, the arbitral tribunal renders a reasoned award. The award to be signed by all the members of the tribunal and also to be stamped as per the stamp act prevailing in the state concerned. The award should state the reasons in detail upon which the decision has been arrived at. In case of a three member tribunal the majority of the decision is taken into account and in case of a sole arbitrator his decision shall be final and binding on the parties. After receipt of the award the aggrieved party can challenge the award only on the following limited grounds: If the party furnishes proof that a party was under some incapacity If the arbitration agreement is not valid under the law to which the parties have subjected it or under the law for the time being in force. If a party was not given proper notice of appointment of arbitrator or arbitral proceedings or was otherwise unable to present his case. The arbitral award deals with a dispute not contemplated/falling within the terms of submission to arbitration. Such irrelevant matters in the award may be set aside. If the composition of the arbitral tribunal / procedure was not in accordance with the agreement of the parties or If the court finds that the subject matter of the dispute is not capable of settlement by arbitration under the law. If the arbitral award is in conflict with the public policy. The award rendered by the tribunal carries the status of the decree of the court. To enforce, the successful party has to file execution proceedings for realizing the award amount. Execution proceedings to be filed before the district courts having jurisdiction over the award.

3.2 OBJECTIVES

The project aims to study and understand the various contractual conditions and clauses agreed between the two parties at the time of creation of contract, the variations that came into effect at the time of execution, the procedure for pursuance and providence of amendments in line with the actual contractual terms, the various complications and conflicts arising due to uncertain clauses and their counteractive measures taken by the parties in consideration.3.2.1 Contract Lifecycle Management Increases contract visibility Streamline Business processes Eliminate risks Ensure compliance Improve profitability

The contract for civil works for construction of 1200 TPD Oxygen Plant of Bhushan Steel Plant Phase-III at Meramandali Site, Orissa was offered on 15th March, 2011 with work order reference number 8/4029/10-11/023 to L&T Construction. The contact person for M/s Bhushan Steel Ltd was Mr. B.B.Saha (A.V.P Project Monitoring) and for M/s L&T Construction was Mr. Tinanjan Mitra (Project Manager).The main clauses mentioned in the contract are as follows:1. Scope of Work: The scope of work shall include for civil work for 1200 TPD Oxygen Plant, Phase-III at our Meramandali Site, Orissa.2. Total Contract Value: The total Contract value of the order for civil work for 1200 TPD Oxygen Plant, Phase-III at our Meramandali Site, Orissa will be on Unit Rate Basis.The contractor has to ensure that the completion of work will be within 6 months from the date of receipt of this work order. In case the completion of work goes beyond 6 months period due to reasons attributable to L&T then no escalation for the extended period will be given.In case the delay is attributable to BSL, the matter will be discussed mutually and then it will be settled out for escalation.

3. Contract Price and Payment3.1 Valuation of Work3.1.1 The works shall be valued as provided for in the Bill of Quantities.3.1.2 Terms of Payment 15% of the contract value as advance (10% immediate and 5% of contract value on Mobilization at site) against submission of bank guarantee. Running Accounts Bill of the balance 85% will be invoiced monthly and 90% of the invoice shall be paid within 7 days of submission and balance payment within 30 days of the bill submission. The payment shall be made as an LC Payment through a reputed bank authorized by RBI, where BSL opens an irrevocable and reversible LC account. For all works scheduled in the BOQ and Price Schedule, the payment for the quantity completed and certified by the engineer in charge shall be paid as per the terms of payment stated above. On award of the contract, L&T will deposit with BSL a Bank Guarantee 2.5% of contract value towards retention and Security Deposit and release of these guarantee shall be 1.25% of Bank Guarantee returned on completion of work and 1.25% will be returned after immediate completion of the Defects Liability Period (6 months). No retention will be deducted from L&Ts Running Accounts Bill.3.1.3 Liquidated DamageTime and date of completion of the project shall be the essence of the contract. No Liquidity damage are levied/ deducted to/ from the contractor on account of the delay.

3.2 Monthly Statements3.2.1 The contractor shall be entitled to be paid at monthly intervals the value of work executed.3.2.2 The contractor shall submit each month to the employer a statement showing the amount to which he considers himself entitled.3.3 Payments3.3.1 Within 30 days of delivery of each statement, the employer shall pay to the contractor the amount shown in the contractors statement at the rate stated in the BOQ, and less any amount for which the employer has specified his reasons for disagreement. The employer shall not be bound by any sum previously considered by him to be due to the contractor.

3.4 Retention3.4.1 No retention shall be deducted by the employer to the contractor as a sum of 2.5% of the contract value in the form of Bank Guarantee valid up to the completion / Defects Liability Period.

3.5 Final Payment3.5.1 Within 30 days of the latest events listed above, the contractor shall submit a final account to the employer together with any documentation reasonably required to enable the employer to ascertain the final contract value.3.5.2 Within 28 days after the submission of this final account, the employer shall pay to the contractor any amount due. If the employer disagrees with any part of the contractors final account, he shall specify his reasons for disagreement when making payment.

3.6 Delayed Payment3.6.1 The Contractor shall be entitled to interest at the rate applicable as per prevailing bank interests for each day the employer fails to pay beyond the prescribed payment period.

4. Escalation on Labour4.1 If during execution of the works including the extended period, minimum wages payable to the minimum rated workers (unskilled workers) as declared by Labour Department, Govt. of Orissa are increased, the variation in contract price shall be payable to the contractor as per the following formula:VL=50 x CV (L1-L0)/L0 x100%WhereVL=Amount payable due to Labour wage escalationCV=Value of work executed w.e.f the date of increase in minimum wagesL0 = Minimum wages payable to minimum rated workers (Mazdoor/unskilled workers) as per minimum wages rule of Orissa Govt. according to Minimum Wages Act 1948 as applicable to project site and as valid on 18.10.2008.L1 = Increased minimum wages payable to the minimum rated workers (Mazdoor/unskilled workers) due to Govt. Intervention, Tribunal Awards under section 10A of Industrial Dispute Act 1947, Legislative Enactment , Conciliation by Central/State Govt. Labour Officer, Contract Labour (Regulation and Abolition) Act subsequent to the date of contractors bid.

5. Completion Schedule6 months from the date of receipt of the work order.

6. Service TaxThe contractor shall raise Cenvat Invoice showing Service Tax amount to avail Cenvat Credit by BSL. Service Tax shall be reimbursed to the contractor on the basis of Cenvat invoice raised to BSL.

7. Deduction of Income TaxAs required by Income Tax Act 1961, with latest revision BSL shall deduct appropriate Income Tax from all payments due to the contractor. In case the contractor obtains a certificate from the Income Tax Officer certifying Income Tax deduction at a lower Rate or no deduction of Income Tax, relaxation will be made by BSL accordingly.

8. Sales Tax on Works ContractDeduction of tax at source under sub-section (1) of section 54 of the Orissa Value Added Tax 2004, BSL shall deduct WCT/Odisha VAT from all payments due to the contractor. In case the contractor obtains an exemption certificate (under clause (a) of sub-section (5) of section 54 of the Odisha Value Added Tax 2004) from the Sales Tax Officer certifying deduction of tax at lower rate or no deduction of tax, relaxation will be made by BSL accordingly.

9. Insurance of PersonnelBefore commencing the execution of work, the contractor shall take out an insurance policy to cover his liability under Workmens Compensation Act, 1923 and its subsequent amendment. The policy shall be taken as to cover the total number of workers to be employed by the contractor at the site at any time during the execution of work.

10. Provident FundContribution towards P.F., if any is required to be made for this contract for contractors workmen /staff; the same shall be on contractors account.

11. Compliance with Statutory Laws and other RegulationsThe Contractor shall throughout the performance of this order comply with all the laws, rules, regulations and statutory requirements, obligations of Govt. of India/State Govt. of Orissa/ Local Authorities of Meramandali and any other statutory bodies applicable at site for this contract work and BSL shall not be liable for any action of the statues applicable due to non-fulfillment of statutory obligations by the Contractor including:(i) Employee Provident Fund Act, 1952(ii) Contract Labour Act (Regulation and Abolition Act, 1970)(iii) Minimum Wages Act, 1948(iv) Payment of Wages Act, 1936(v) Workmen Compensation Act, 1923(vi) Factories Act, 1948, if applicable(vii) Apprenticeship Act, 1961(viii) Family Pension Act, 1952(ix) ESI and Bonus Rules as applicable(x) Labour Insurances

3.3 METHODOLOGY

The primary data had been obtained in due course of time by way of experience as working as a planning engineer for the contractor at mentioned site and also through consultation and discussions with the colleagues involved in contract management at site.The communication held between the employer and the contractor during the execution of the contract to incorporate the variation and changes which took place and their consequential actions is one of the most important aspects of the contract management. Therefore the letters exchanged between the two parties are compiled in their original form to get the exact knowledge of the events which happened during the course of time.Secondary data: The data for various correspondences between the employer and the contractor regarding the contractual terms and conflict resolution had been collected by interviewing the senior officials from both parties. For further evaluation and research on the topic, guidance had been taken from FIDIC books and other domestic and international journals and books.The contract is a negotiated type contract. The contractor L&T Construction was already working with the employer Bhushan Steel Limited for the construction of Integrated Steel Plant. So for the construction of Oxygen Plant, BSL asked L&T to submit the rates according to the BOQ.The contract was awarded and work order was issued to L&T construction. Below is the letter from L&T to BSL regarding some issues of drawings after getting the work order.

LARSEN & TOUBRO LIMITEDECC DIVISION (ENGINEERING, CONSTRUCTION & CONTRACTS)

Site Office: BHUSAN STEEL LTD., MERAMANDALI, DHENKANAL DIST-759121, Orissa. Tel: (06764) 9238773152

Ref: LTCD//BSL/SMS-III/277 Date 10.11.2011

ToAVP, Project MonitoringM/s Bhushan Steel Limited,Meramandali,Orissa-759122Kind Attn: Mr. B.B.Saha

Sub: - 1200 TPD Oxygen Plant.

Ref: 1. Discussion held on 08.02.2011 with EVP/BSL at site.2. Letter No BSL/Proj-Monitoring/2011/247, Dtd: 08-02-2011,

Dear Sir,This has reference to the subject work and letter cited above. We thank BSL Management for their consent on us to proceed with the construction for the subject civil and structural works. We request your good self to issue a separate order / LOI with BOQ and unit rates for the same in line with the same terms & base date of our earlier civil and structural work order no.- 8/4012/09-10/020 dtd-14.11.2009.

Also, vide letter referred above, we have received only one copy of drawing which is not sufficient for execution. We request a minimum of three copies of drawings for execution and request henceforth to issue the same.

Thanking you and assuring our best services at all times.

Yours faithfully,For Larsen & Toubro LimitedECC Division

(TINANJAN MITRA)Project-Manager

CC: Mr. Rahul Sengupta, EVPMr M M Prasad, A.V.P (Contracts)

Headquarters: Mount Poonamallee Road, Manapakkam, P.B.No.979, Chennai 600 089, Tel.:2492747 / 2493318 Fax: +044-2493317Regional Office :- PARKPLAZA 2nd Floor , 71, Park Steet, Kolkata 700016 Tel:- 033-2255-0000 Fax:- +033-22499705

After the execution of work was started and construction of 1200 TPD Oxygen Plant was in process, BSL decided to increase the scope of work and an additional area 1120 TPD Oxygen Plant was given to L&T. Following is the order amendment copy.

Since the contract is a Unit Rate Contract without material, so the material will be provided by the client. Following is a letter stating requirement of Galvanized Iron (GI) pipes.



Ref: LTCD//BSL/SMSIII/286 Date: 17.02.2011

To,The AVP (Project Monitoring), BSLM/s Bhushan Steel Limited,Meramandali,Orissa.

Kind Attn. Mr. B B Saha

Sub: G.I. pipe requirement for Oxygen Plant.

Ref: Construction of 1200 TPD Oxygen Plant at BSL site.

Dear Sir,

With reference to the subject matter cited above, we are furnishing herewith the requirement of G.I. pipe of medium duty as per IS-1239 for Oxygen Plant as follows.

1. 50mm Dia - 190 Rm.2. 25mm Dia - 45 Rm.

Kindly arrange to supply the same at the earliest.Thanking you and assuring you of our best services at all times.


(Tinanjan Mitra)Project Manager

Headquarters: Mount Poonamallee Road, Manapakkam, P.B.No.979, Chennai 600 089, Tel.:2492747 / 2493318 Fax: +044-2493317Regional Office: - PARKPLAZA 2nd Floor, 71, Park Street, Kolkata 700016 Tel: - 033-2255-0000 Fax: - +033-22499705

There was a shortage of reinforcement steel bars, so letter was sent to BSL for urgent requirement of reinforcement steel bars so that the execution will not get hindered



Ref: LTCD//BSL/SMS-III/303 Date: 21.02.2011

The AVP (Project Monitoring), BSLM/s Bhushan Steel Limited,Meramandali,Orissa.Kind Attn: Mr.B B SAHA,

Sub: Reinforcement steel requirement.

Ref: Construction of 1200 TPD Oxygen Plant at BSL site.

Dear Sir,In line with the above job, we would like to furnish our reinforcement steel requirement pertaining to civil works at Oxygen Plant as follows:

08mm Dia - 20 MT 10mm Dia - 20 MT 12mm Dia - 20 MT 16mm Dia - 40 MT 20mm Dia - 50 MT 25mm Dia - 75 MT 32mm Dia - 20 MT

Kindly arrange to issue the same at the earliest.Thanking and assuring you of our best services at all times.



Headquarters: Mount Poonamallee Road, Manapakkam, P.B.No.979, Chennai 600 089, Tel.:2492747 / 2493318 Fax: +044-2493317Regional Office: - PARKPLAZA 2nd Floor, 71, Park Street, Kolkata 700016 Tel: - 033-2255-0000 Fax: - +033-22499705

The Payment Clause states the payment will be made monthly as per the Running Accounts bill raised by L&T. Following is a letter attached with the measurements of running accounts bill sent for certification.




ToThe AVP-Project MonitoringM/s Bhushan Steel Limited,Meramandali,Orissa.

Kind Attn: Mr. B B Saha

Sub: Construction of 1200 TPD Oxygen Plant at BSL Site

Dear Sir,With reference to the above job, we are enclosing herewith our civil works measurements pertaining to the month of February-11 in Oxygen Plant area for your necessary review and certification.

We request you to release the certified measurements at the earliest.

Thanking and assuring you of our best services at all times.


(TINANJAN MITRA)Project Manager

Encl:a/a


Due to variance of scope and increase in scope from time to time it was getting difficult for L&T Construction to complete the project within the stipulated time frame. Following is the letter sent to raise the issue of retention money and time of completion of the project.



Ref: LTCD/BSL/SMS-III/348 Date: 08.04.2011

ToThe A.V.P (Contracts),M/s Bhushan Steel Limited,F Block, 1st Floor,International Trade Tower,Nehru Place,New Delhi 110 019

Kind Attn: Mr. M. M. Prasad

Ref: your work order no 8/4029/10-11/023 dated 15/03/2011.

Sub: Amendment for work order for civil work for 1200TPD Oxygen Plant, Phase-III at BSL Site, Meramandali.Dear Sir,We are thanking you for issuing the above reference work order for civil work of oxygen plant. The following points mention in work order is not acceptable by us.

1. Period of work: 6 months from the date of receipt of orderDue to non-mention of any quantum of civil work involved in this area, period of completion cannot be predicted /agreed.2. Payment terms for Balance 10% contract valueAs agreed, this order is same as order no 8/4012/09-10/020 dated 14.11.2009, we shall not agree any variation in payment terms.

Hence we are requesting your good office to issue the amendment order considering the above points.

Thanking you and assuring you of our best services at all times.



CC: Mr B.B.Saha, A.V.P (Project Monitoring)


In reply to the above query raised, BSL awarded an order amendment to the contract giving a time extension up to 30th September, 2013.

Because of further increase in scope due to additional drawings received by L&T Construction, L&T again asked for time extension.

Following is the order amendment given by BSL for time extension.



Ref: LTCD/BSL/SMSIII/1149 Date 18-02-2014

ToM/s Bhushan Steel Limited,Meramandali,Odisha.

Kind Attn: Mr. B B. Saha (VP-Project Monitoring)

Sub: Time extension for Civil work in 1200 TPD & 1120 TPD Oxygen plant.

Work Order No: 8/4029/10-11/023 dtd 15.03.2011.

Dear Sir,With reference to the above mentioned order, the scope for balance civil works had been provided, so as discussed with your project team and considering present site condition, we would like to request you to consider an order extension up to 31st August2014 to complete the balance work at site and commission the plant successfully.Thanking and assuring you of our best services at all times.

Yours faithfully,

For Larsen & Toubro Limited(HARE RAM)Project Manager

Encl:-Work order copy.

Headquarters: TECHNOPOLISH, 6th Floor, Block-BP, Plot No. 4, Sector V, Salt Lake, Kolkata 700091, Tel:- +91-33-4408 8100Cluster Office:-11th Floor, Godrej Water Side Tower II, Sector V, Salt Lake, Kolkata 700 091 Tel: - 033-44141095

While asking for time extension from the client, it should be kept in mind that the reasons mentioned for seeking the time extension should comes under the clients liability, otherwise the time extension clause would not be valid and the client may or not provide the extension.

Even after completion of the works, the client has the authority to inspect the works by a third party and the contractor will be liable to clear the punch points provided by the consultant. This time L&T has asked for time extension citing the reason for delay in receiving the punch points.





Kind Attn: Mr. B B. Saha (VP-Project Monitoring)

Sub: Time extension for Civil works in 1200 TPD & 1120 TPD Oxygen plant.

Work Order No: 8/4029/10-11/023 dtd 15.03.2011.

Dear Sir,With reference to the above subject, we would like to inform you that due to delay in receiving clear work front for balance jobs in hand as on date, the overall job could not be completed and handed over to BSL on time.Also, we are yet to receive the punch points from your end which will take few months to attend.Considering the above conditions and present scenario of job, we would like to request you to extend the completion time from 31st August2014 to 31stMarch2015.

Thanking and assuring you of our best services at all times.

Yours faithfully,

For Larsen & Toubro Limited

(HARE RAM)Project Manager

Encl: Work Order Copy

Head Office: Godrej Water Side, Tower 2, 11th Floor, DP 5, Sector V, Salt lake City, Kolkata 700091, INDIARegistered Office: L&T House, N. M. Marg, Ballard Estate, Mumbai - 400 001. INDIACIN - L99999MH1946PLC004768L&T Metallurgical & Material Handling is a brand of Larsen & Toubro Limited

In the Payment Clause, it is mentioned that the 10% retention money will only be released after the certification of final bill. So the final measurements of all the structures were submitted for certification.



Ref: LTCD/BSL/SMSIII/1335 Date 08-09-2014


Kind Attn: Mr. Mr. D K Singh-VP-Billing & Audit

Sub: Final Measurement of 25 Nos. Structures of 1120 & 1200 TPD Oxygen Plant.

Work order No:-8/4029/10-11/023 dtd. 15.03.2011

Dear Sir,

With reference to the above work order, we are submitting final measurements of all structures for 1120 & 1200 TPD Oxygen Plant for your necessary checking & certification.

We request you to kindly release the certified measurement at the earliest

Thanking and assuring you of our best services at all times.Yours faithfully,

For Larsen & Toubro Limited

(HARE RAM)Project Manager

Enclo:- List of the Structures.Measurements.

Head Office: Godrej Water Side, Tower 2, 11th Floor, DP 5, Sector V, Salt lake City, Kolkata 700091, INDIARegistered Office: L&T House, N. M. Marg, Ballard Estate, Mumbai - 400 001. INDIACIN - L99999MH1946PLC004768L&T Metallurgical & Material Handling is a brand of Larsen & Toubro Limited

3.3.2 Contract ClosureThe contract was in closing phase and the date of completion was 31.03.2015. Contract closure is defined as the process for "completing and settling each contract, including the resolution of any open items and closing each contract applicable to the project or project phase. A part of this process is to verify that all work and deliverables were acceptable. The important steps taken for closing the contract are as follows:1. Collecting contract documentation: In order to close a contract successfully, it is important to collect all the relevant documents for review. This may include collecting all the documents regarding the original contract, variations, schedules and performance reports.2. Completing contractor final review: It includes a complete review of all contracts and verifying that all the requirements and outputs specified in the contracts have been met. It also aims to ensure that all the variations to the contract requirements have been documented with a clear tracking system, approved and completed.3. Drafting formal acceptance letter: It is the next step in the contract closure process that involves drafting the formal acceptance letter, on behalf of the client, regarding the acceptance and verification of all the contractual obligations. It provides the contractor a formal notice that the contract is complete from the clients side. In projects involving the construction of industrial plants, this is usually split into two stages: preliminary acceptance and final acceptance.4. Starting administrative closure: At this step, the project manager starts the administrative closure activities by preparing the closure documentation of the project outcome to ensure that the projects and their assets are redistributed.5. Completing financial closure and audit: This step involves completing and terminating the financial and budgetary aspects of the project, including the release of final payments.6. Archiving documents: This step ensures that all the documentation related to project closure has been properly archived. This includes the Lessons Learnt document. As we have noted earlier, we are bound to face uncertainties in every project, and thus, every project is likely to witness some mistake or the other by the people implementing it. Therefore, there are always lessons to be learnt from every project. These have to be recorded meticulously, as they can be very valuable reference for future.7. Moving personnel and facilities: This step involves the reassignment and reallocation of human resources and other equipment that have been used during the project.8. Completing closeout phase, review and lessons learnt: It the final phase, where lessons learnt session is held for the entire team involved in the project. It offers the members to exchange their observations regarding the project performance for helping in future projects of a similar nature.

3.4 ANALYSIS

3.4.1Contract management consists of a range of activities that are carried out together to keep the arrangement between customer and provider running smoothly. They can be broadly grouped into three areas. Service delivery management ensures that the service is being delivered as agreed, to the required level of performance and quality. Relationship management keeps the relationship between the two parties open and constructive, aiming to resolve or ease tensions and identify problems early. Contract administration handles the formal governance of the contract and changes to the contract documentation.All three areas must be managed successfully if the arrangement is to be a success: that is, if the service is to be delivered as agreed, the formal governance properly handled, and the relationship between customer and provider maintained. Although possibly handled by different figures or departments within the customer organization, the various areas of contract management should not be separated from each other, but form an integrated approach to managing service delivery, relationship and contract together.In addition, the arrangement must be flexible enough to accommodate change, and the process of change must be prepared for and managed. A key factor in all these areas is intelligent customer capability: the knowledge of both the customers and the providers business, the service being provided, and the contract itself.Figure 1 shows how contract management functions with intelligent customer capability form the link between those who need and use the service and those who provide it that is, between demand and supply.

DEMANDBusiness AreaINTERFACEIntelligent CustomerSUPPLYProvider

Business ManagerService ManagementService Delivery Management Business Needs Communication Flows

UsersRelationship ManagementRelationship Management/Account Management

Contract Administration

Service DeliveryFigure 1: Contract management functions, in the centre of this diagram, form the link between business managers and users on the customer side and the provider organization.The business manager identifies and articulates the business needs that the service should meet. Users of the service provide feedback on how the service and the relationship are going, and may also request the contract manager to make changes to the service.In the centre of the diagram, providing the functional layer that supports the customers business and the service provider, contract management activities keep the arrangement running smoothly. Intelligent customer capability (see right) in all three areas provides an expert interface between the customer and its providers.The lifecycle begins with setting direction: high-level objectives and policies for the