A Brief on Timely Closing of Works Contract

Introduction of writer– Mr Raj Deo Keshri, B.E(Mech.) , LL.B., MBA(HRD) have

worked in NTPC Corporate Contracts department around 34 years till his
retirement on Nov.,2015. He was involved in Rihand, Auraiya, Uchahar,
Faridabad, Talcher, Sipat, Tanda and Badrpur Contracts. His no. of articles on
various issues related to contract have been published in NTOC “HORION” from
1999 to 2015. After retirement from NTPC he have served M/S Techno Electric
& Engineering Co. Ltd as General Manager and as Advisor to M/S Kalpataru
Power Transmission Ltd.

Award of project work contract is done on may unknown conditions like

behaviour of natural conditions, future behaviour of work force, hindrance on
ground conditions, even un-even soil conditions, availability/hindrance in
construction water, change in rules and regulations relating to business,
availability/non-availability of natural resources, political and non-political
issues and fast growing change in Technology, change in state rules &
regulations and other natural behaviour etc. for timely and successful
completion of project/works in scheduled time. In fact timely closing of such
contract where provision exists for amendment in contract conditions to over-
come resolution of unknown conditions and delegation of power to resolve
unknown natural phenomena in time exists, time execution of contract and its
closing becomes practical. Its true that a proper eye on completion and closing
of contract against any misadventure in execution on project is must however
more tightly contract administration regime leads loss to both execution of
contract and closing of contract.

Desired execution of contract and its closing is outcome of any contract which
have win-win situation for both contractor and owner in practical sense. No
genius contractor desires to work in a loss making contract and no owner wish
to accept bad project execution and its performance. Therefore, successful
closing of any contract on completion of work is an important as its proper and
timely execution of work. Overrun in any contract involves wastage of time,
manpower, natural resources, money and frustration of contractor with owner
and leads to non-availability of genius contractor to owner for future work and
increase in cost of projects.
It may be seen for specialised project like NTPC, only few genius contractor
exists and they have performed to desired outcome in past for NTPC Ltd.
However, in spite of various efforts made by NTPC in past contract closing always
remains a challenge in NTPC for which NTPC is also responsible as the
Contractor(s). Smooth execution of contract is directly associated with timely
inflow of money from ongoing completion of various activities in the work. It is
seen in the past that due to various documentation issues and timely resolution
of same project execution is delays which leads to pro-longed contract closing
and sometimes a profitable contract becomes heavy loss making project to
contractor. To resolve this Owner and Contractor both requires more attention
so that various problems for contract closing may be avoided. The owner needs
to understand that genius and reliable contractors also work in current
environment and behave according to growth rate and opportunity of
development in country. When country growth is ongoing and sizable work is
available in market they may not show their interest in your tender if you have
undesired contract closing activity in past.
As such contract closing is administrative process which involves codification
of various abnormalities, deficiency in execution and punch points and their
practical execution in technical as well as financial model. The deficiency or
Punch Points in execution of any contract and its technical and financial
outcome requires to be visualised and analysed. The punch points which do not
have adverse effected on normal working and health of plants needs to be
sorted and technically and financially resolved for timely closing of contract. . At
various occasions few punch points which may be serious in nature but ARE
BEYONG ANYONEONE CONTROL NEEDS A PRACTICAL RESOLUTION IN TIME. This
may require delegation of Power to Regional Levels so that their practical
solution may be implemented in time for closing of contract,
It is seen that some contracts are very tight in terms and conditions and
amendment to incorporate practical natural condition for issuance of
amendment at desired level of owner do not exists and therefore for small-small
things permission of highest level in organisation is required which understand
everything like courts or with blind eyes. With changing environments in country
fast decision making at owners end always help in timely closing of contract
MY OWN EXPIRENCE IN DEALING WITH PGCIL AS CONTRACTOR FOR CLOSING
OF CONTRACT
PGCIL condition of contract are very similar to NTPC with only minor changes.
- At various occasions due to tight project schedule few
equipment/material is supplied to project without desired MDCC/MICC
which is must for release of payment. PGCIL, I could get waivable of MICC
for payment based of factory test reports, performance of equipment for
desired result on installation and warranty surety bond which lead to
closing of contract in time
- It is a normal practice at site to insist existing contractor who have
completed his work to enforce extra unrelated work which divert
contractors attention from execution of deficiency /Punch Points from
completed scope of work and prolonged delay in closing of contract. The
study indicates that with few efforts owner must have awarded unrelated
work to a separate contractor and help the existing contractor for
completion of punch points and closing of contract.
- One practical example with PGCIL, on completion of all work PGCIL asked
to built a road inside plant which was not in our scope and PGCIL could
award the work to a civil contractor and easily got done. It was estimated
that accepting road construction work will delay closing of contract by six
month which otherwise is possible within 1 month. The road construction
work was refused by me as beyond scope of work awarded to me and
contract was closed in two months’ time.
- The release of advance payment bank guarantee and contract
performance guarantee is very important in closing of contract. As far as
advance payment bank guarantee PGCIL allows on completion of all
supplies release of advance bank guarantee after adjusting residual
advance from running bills and no demand certificate. For Contract
Performance Guarantee reduction of Bank Guarantee to the value of
items where longer warranty period is allowed.
- A various other aspects which will follow
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