CONTRACT

MANAGEMENT

1
2
 What is a contract?
• As per section 2(h) of the Indian Contract Act, 1872, “Contract is an
agreement enforceable by law”

• It is a legally binding written agreement between two parties i.e. owner and the
contractor to initiate construction of a project.

• In governmental projects, contracts are executed for purchases, construction as

well as for maintenance.

• It is a set of promises mutually made by the owner and contractor under the
enforcement of prevailing laws, rules and regulations of the government.
3
4
• For award of the contract, offers are invited, evaluated, the best agency
selected and contracts drawn up to bind the parties together.

• The contracts stipulates as to how the work is to be done by whom and

what cost, by what time.

• The contract agreement also lays down procedure for settlement of claims,
solving disputes through arbitration or otherwise.

• Hence, contract agreement envisages proper planning and management of

contracts so as to control time and cost over-run.

5
OBJECTIVES OF A CONTRACT:
The objective of a contract is

• to carry out the desired works

• making available the needed materials

• equipment and services in the right quantity and quality at the right
time and right place after giving fair and equal chances to all tenderers
as per the work policies of the organization.

6
 ESSENTIAL FEATURES OF A CONTRACT
• Both the owner and the contractor should know exactly what is expected from
each of them and what are the financial commitments.
• The quality of materials and workmanship required should be elaborated
clearly.
• The conditions of contract should be reasonable, specific and clear.
• Targets of desired quantity of finished work ensuring quality and its planning
and monitoring system should be specified in the contract so as to avoid cost
over-run,
• Provision should be made for contract progress review meeting to be held
between the contractor and clients and consultants, target completion in a
chronological pattern
7
TERMS USED IN CONTRACT

• Owner • Letter of Intent (LOI)

• Contractor • Warranty
• Sub-contractors • Liquidity Damages
• Engineer • Performance
• Specifications Guarantee
• Site • Force Majeure
• Inspector • Earnest Money

8
DOCUMENTS IN A CONTRACT
• Enquiry or invitation to offer or Notice Inviting Tenders (NIT)

• Quotation or tender bid given by the contractor in response to the enquiry

• Offers given during negotiation

• Letter of Intent, Letter of award issued in response to the quotations and

neglected offers

• Acceptance of Letter of Award (LOA) by the contractor

• Any change in the letter of Award made by the owner or contractor,

provided there is a mutual Agreement 9
TYPES OF CONTRACTS
Item Rate
Contracts

Cost + plus Types of Lump-Sum

Contract Contracts Contract

Percentage
Rate
Contract 10
Item Rate Contract
• Here the work is divided into a number of items, rates of which are
estimated by either rate Analysis or by adopting some Standard
Schedule of Rates. The tender documents are prepared by including
the bill of quantities i.e. the estimated quantities for each item of work
giving full nomenclature

• The tender is required to mention his rates in the tender document

against each individual item.

11
Lump-Sum Contract

• Here the contract is based on drawings and Specifications, or bill of

Quantities. The bidder is required to calculate his own rate and
quantities where not provided

• Contractor should be careful in working out the details, of items, the

quantities and the rates, as mistake as any would be to his cost.

12
Cost Plus Contract
• In these contracts, the contractor is given the job on turn-key basis. In
this case quantities and rates are not given to the contractor.

• He will be reimbursed on the basis of actual expenditure. Contractors

adds his profit and over-head expenses.

• In these types of contract supervision has to be done very carefully.

13
14
PREPERATION OF TENDER DOCUMENTS
• Notice Inviting Tender (NIT)
• Clauses of Contract
• Security Deposit
• Contract Duration
• Defective Work
• Defect Liability Period
• Rescinding of the contract
• Payment Terms
• Escalation of Contract
• Execution of Extra Items
• Variations in Quantities
• Payment of Taxes
• Schedule of Tools (Plants
and Machineries)
15
16
LABOUR LAWS
• Indian Contract Act 1872
• Contract Labor Act 1970
• Contract labor Central Rules 1971
• Payment of Wages Act 1936
• Minimum Wages Act 1948
• Maternity Benefits Act 1961
• Workmen’s Compensation Act 1923
• Industrial Dispute Act 1947
• Central GOODS AND SERVICE TAX (GST)

17
SPECIAL CONDITIONS OF CONTRACT

• Sometimes, in certain projects, there will be separate set of

conditions for which a separate set of conditions /clauses are
enclosed in the tender documents.

1. CHANGE OF IN SCOPE OF CONTRACT

2. CONTRACT MONITORING
3. SETTLEMENT OF DISPUTES
4. DISPUTE RESOLUTION BOARD (DRB)

18
19
Project Planning
by
Project Planning

• What is Project?
• A specific activity on which money is spent in the expectation of
returns.

• It has specific objective & specific geographic location to serve a

group of population

• Project Implementation is an investment decision for the development

of the country

• There can be many projects, but criteria for selection is based on

efficient use of resources
Decision for selecting the project

• While selecting, the decision is taken after careful consideration of cost and
benefits

• To maximize the present value for all the benefits – all costs subject to
constraints

• The costs involved may be private costs (individual costs & overhead
charges) or public costs (social costs, cost to the nation, societal sacrifice,
marginal & opportunity costs)
Aspects considered while Evaluating a
Project
• All the inputs & outputs must reflect social and economic aspects

• Certain costs & benefits are unquantifiable, as they accrue over time

• A project includes all the activities which are necessary and aimed at:

• Production of goods or services or both,

• Increasing the capacity of the existing projects,
• Increase the productivity of the existing means of production
Phase of Project

Following are the phases:

1. Project Identification 9. Project evaluation,

2. Project preparation or formulation,
– Preliminary project study
– Feasibility study

3. Project Appraisal,
4. Negotiations
5. Project approval
6. Detailed project planning
7. Project implementation
8. Project monitoring and control,
Phase of Project
Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

1. Project Identification

• Project identified based on high priority to government or public

• Such identified projects are checked for feasibility/ viability.
• Cost should be less than expected benefits (cost/benefit)
• Alternative project ideas are emerged, socio-economic analysis is done
• Proper strategy is to be developed for identified projects
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

1. Project Identification
2. Project Preparation:
• Divided in two stages
i. Preliminary Project study
• Preliminary information is collected
• Rough estimation of resources and cost is done
• If results are unfavorable, project is dropped and vice versa.
ii. Feasibility Study
• Most exhaustive stage in the project planning
• To see if project is realistic & recommendations in previous study are technically sound
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

2. Project Preparation
3. Project Appraisal

• Most important part of the planning process.

• It provides a comprehensive review on every aspect of project & final step of
the preparatory work
• Cost-benefit analysis is done to take a decision on the project
• Analyses involves attributes such as Land Acquisition cost, manpower,
capital and foreign exchange etc.
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

3. Project Appraisal
4. Negotiations:

• Discussions between project authorities & financial/ govt. institutions

regarding the success of project
• Clearances from various agencies such as electricity board, environmental
and forest ministry & archeological survey of India etc are given
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

4. Negotiations
5. Approval of Project:

• After appraisal and negotiation, approval is to be given by Central Planning

Commission, Public Investment Board etc

• Final recommendation & clearance is given after cabinet decision

 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

5. Approval of Project:
6. Detailed Project Planning (pre-project construction plan):

• Each and every stage of planning needs to worked out, while considering all
the relevant project provisions well in advance
• Physical facilities are to planned w.r.t time and cost to meet predetermined
objectives.
• Resource Mobilization and effective utilization are one of the key aspects
• Different authorities for different activities and tasks are developed, estimates
are more precisely prepared
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

6. Detailed Project Planning

7. Project Implementation:
• Project is implemented (construction ) in various stages.
• A sound project management system is established with latest management
techniques
• In govt., Project Implementation Unit (PIU) headed by Chief Project Officer &
IAS officers handle the project management
• Additional Consultancies are hired to assist PIU
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

7. Project Implementation
8. Project Monitoring & Control
Following are the aspects
• Collection of information regarding physical progress & cost incurred of
project
• Information regarding future progress & resource availability & their effect on
target completion
• Finding out shortfalls & determining the reasons for the same
• Initiating corrective actions if required
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

7. Project Implementation
8. Project Monitoring & Control
• Project Delay and Cost Overrun:

• It occurs due to

• Inadequate Planning
• Delay in finalization of any technical specification
• Delay in order placement
• Inadequate funds
• Delayed Resource Mobilization
• Deficiencies in Organization
 Project
Project Project Detailed Project Project Project
Project Appraisal Negotiations Project Approval Monitoring &
Identification preparation Planning Implementation Evaluation
Control

8. Project Monitoring & Control

9. Project Evaluation:

• Project auditing and evaluation is done w.r.t to the level of fulfillment of vision

• The level of inadequacies are observed & whether corrective action is

possible in future

• Re-estimation (for cost overruns) & economic reevaluation is done

• Any benefits, existing policies & their shortcomings, approaches and

procedures for improving the performance of the project
Project Management

• Tool for management & control to efficiently use manpower, resources &
information to achieve the objectives at every level of organization

• Ensuring the objectives are achieved well within the budget, on schedule & at
desired performance level while adjusting to certain changes at same time

• Project Manager
• A person nominated for successful implementation of project from Detailed Project
Report stage till successful completion of project
Successful Completion of Project

A project is successful when completed in time and in budgeted costs.

For a successful completion of a project, the following factors are essential:

i. Strong drive & motivation with common objectives

ii. Strong desire for work accomplishment,
iii. Good working environment under a strong and efficient leadership,
iv. A good intra & inter personal relationship,
Thank You