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.
LARSEN & TOUBRO LIMITEDECC DIVISION (ENGINEERING,
CONSTRUCTION & CONTRACTS)
Site Office: BHUSAN STEEL LTD., MERAMANDALI, DHENKANAL
DIST-759121, Orissa. Tel: (06764) 9238773152
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.
Yours faithfully,For Larsen & Toubro LimitedECC Division
(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
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/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.
Yours faithfully,For Larsen & Toubro LimitedECC Division
(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
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.
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/312 Date 02.03.2011
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.
Yours faithfully,For Larsen & Toubro LimitedECC Division
(TINANJAN MITRA)Project Manager
Encl:a/a
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
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.
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/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.
Yours faithfully,For Larsen & Toubro LimitedECC Division
(Tinanjan Mitra)Project Manager
CC: Mr B.B.Saha, A.V.P (Project Monitoring)
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
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.
LARSEN & TOUBRO LIMITEDECC DIVISION (ENGINEERING,
CONSTRUCTION & CONTRACTS)
Site Office: BHUSAN STEEL LTD., MERAMANDALI, DHENKANAL
DIST-759121, Orissa. Tel: (06764) 9238773152
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.
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/1308 Date 19.08.2014
ToM/s Bhushan Steel Limited,Meramandali,Odisha.
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.
LARSEN & TOUBRO LIMITEDECC DIVISION (ENGINEERING,
CONSTRUCTION & CONTRACTS)
Site Office: BHUSAN STEEL LTD., MERAMANDALI, DHENKANAL
DIST-759121, Orissa. Tel: (06764) 9238773152
Ref: LTCD/BSL/SMSIII/1335 Date 08-09-2014
ToM/s Bhushan Steel Limited,Meramandali,Odisha.
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