Contracts Management 2012 NICMAR-SODE/PGPM-14 Page 1 ASSIGNMENT NICMAR/CODE OFFICE 1. Course No. - PGPM 14 2. Course Title - Contracts Management 3. Assignment No. - 04 4. Date of Dispatch - 16 th Nov 2012 5. Last date of Receipt of Assignment - At CODE Office 6. Name of Student - Ashutosh Kumar 7. Registration Nos. - 212-08-31-10966-2141 ASSIGNMENT Contract administration and monitoring is the most important area of construction management. Contract administration process should start right from the day work is assigned to the company. Discuss any project contract currently in progress with your company and how administration and monitoring is being done. Draw the organization chart for this activity and explain all the function carried out. Do you think the system is achieving results? Discuss.
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Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 1
ASSIGNMENT
NICMAR/CODE OFFICE
1. Course No. - PGPM 14
2. Course Title - Contracts Management
3. Assignment No. - 04
4. Date of Dispatch - 16th Nov 2012
5. Last date of Receipt of Assignment -
At CODE Office
6. Name of Student - Ashutosh Kumar7. Registration Nos. - 212-08-31-10966-2141
ASSIGNMENT
Contract administration and monitoring is the most important area of construction
management. Contract administration process should start right from the day work is
assigned to the company. Discuss any project contract currently in progress with your
company and how administration and monitoring is being done. Draw the organization
chart for this activity and explain all the function carried out. Do you think the system is
achieving results? Discuss.
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 2
NAME OF PROJECT:
Main Interior Fit-Out Contract for Asian Paints Colour Signature Store, Connaught Place,
New Delhi.
INTRODUCTION
Contract Management is the process that enables both the parties to a contract to meet
their obligation 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 optimising the efficiency, effectiveness and economy of the
service or relationship described by the contract, balancing costs against risks and actively
managing the customer-provider relationship. Contract management may also involve aiming for
continuous improvement in performance over the life of the contract.
Type of Contract:
Under an EPC contract, the contractor designs the installation, procures the necessary
materials and builds the project, either directly or by subcontracting part of the work. In some
cases, the contractor carries the project risk for schedule as well as budget in return for a
fixed price called lump sum or LSTK depending on the agreed scope of work.
When the scope is restricted to engineering and procurement, this is referred to as an
EP or E and P or E+P Contract. This is often done in situations where the construction risk is
too great for the contractor or when the owner does the construction.
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NICMAR-SODE/PGPM-14 Page 3
The EPC contractor (EPCC) agrees to deliver the keys of a commissioned plant (Perhaps should
recognise that some EPC contracts take the work to Mechanical Completion but EXCLUDE
Commissioning while Lump-Sum Trunkey (LSTK) contracts always INCLUDE Commissioning) to
the owner for an agreed amount, just as a builder hands the keys of a flat to the purchaser.
EPC is gaining importance worldwide. It requires good understanding by the EPCC to return a
profit. An owner decides for an EPC contract for reasons that include:
Reduced stress for owner
Single point of contact for owner simplifies communications.
Ready availability of post-commissioning services
Ensures quality and reduces practical issues faced in other ways
Owner protected against changing prices for materials, labour, etc.
Cost is known at the start of the project
Besides the plant sitting, in an EPC contract the owner defines:
Scope and the specifications of the plant
Quality
Project duration
Cost
The cost (the price to be paid to the EPCC) is negotiated and finalised and paid in mutually
agreed instalments.
Owner and Contractor Liabilities
Once an EPC contract is signed, the EPC contractor becomes liable for completing the project
according to the tender conditions. The EPC contractor, in turn, may hire sub-contractors or
sub-vendors to complete different portions. Payment commensurate with the work
completed (in addition to an advance) is normally preferred by a contractor.
Projects are more likely to succeed when the owner:
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NICMAR-SODE/PGPM-14 Page 4
Defines guarantees well
Defines scope and quality very carefully
Defines milestones meticulously
Defines LD/penalty clauses
Makes payment terms very specific
The contractor also has ways to improve project success:
Adopts similar terms and conditions as owner regarding quality, guarantee etc., for
subcontracts/vendors
Do not keep terms open-ended
Coordinate vigilantly to reduce chances of errors at site.
Global Arena
An EPC contract is a complex agreement. In a global context, EPC management is more
complex. The EPCC must have data and expertise in all the required fields. Some important
areas are:
Local market conditions for materials and labour availability and capabilities
Local code, statutory etc., requirements
Availability of local supervisory personnel
Availability of local engineering services
Local and global subcontractor experience and performance
Cost Certainty
One main reason an owner may prefer an EPC arrangement is "certainty of cost". An
EPC contract binds the Contractor to deliver the project at a firm, predetermined price
regardless of any increase in costs that the Contractor may incure after the contract is signed.
However, changes to specifications initiated by the owner (better finishes for example) may
be incorporated through a "change order". Here, the owner and the Contractor negotiate the
price to make the changes and these changes/prices are recorded in the change order
document.
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 5
Owner responsibility
To ensure quality, the owner must select an experienced EPC contractor. A third-party
or in-house consultant can verify the design of major structures and inspect the main
equipment installations. Changes in scope of work can affect project schedule, cost and risk.
Such changes are the responsibility of the owner.
SCOPE OF WORK
1.1 Contract Scope
1.1.1 The New Delhi Signature Store premise has been secured at a prime location on the
Inner Circle of Connaught Place, and comprises 3,500 Sqft. over two-levels. The
design concept represents a truly innovative environment, providing an interactive
experience for customers, including state-of-the-art lighting, AV and digital
technologies.
1.1.2 The Main Interior Fit-out Contract (MIFC) shall comprise all civil and interior fit-out,
custom fixtures and furniture’s, MEPF services and the attendance and/or
installation of the Client’s specialist supplied items. The MIFC shall take an overall
coordination role for the entire works, including other separate contracts which may
be let directly with the Client, which may include fixtures, fittings & equipments
(FF&E) installation, signage, digital, AV, security and specialist installation contracts.
1.1.3 The envisaged packages for the entire works are as follows:
“The Engineer shall act as the DAB in accordance with this Sub-Clause 20.4, acting
fairly, impartially and at the cost of the Employer. In the event that the Employer
intends to replace the Engineer, the Employer’s notice under Sub-Clause 3.4 shall
include detailed proposals for the appointment of a replacement DAB.”
Sub-Clause 12.2– Rights not affected
“Nothing in this Clause 20 shall be construed as preventing a Party from:
(a) Seeking urgent interlocutory or injunctive relief; or
(b) Terminating this Contract under Sub-Clauses 15.2, 15.5 or 16.2.”
5.0 APPENDIX TO TENDER
5.1 Schedule of Contract Particulars
5.1.1 The following schedule describes the contractual and financial particulars required
under Contract, and which shall be included within the Appendix to the FIDIC form:
Commencement Date The tentative award date is 25th October 2010, and tentative
commencement date for the Works at site is 01st November 2010.
The work shall commence within 7-days of issuance of a Letter of
Acceptance (LOA).
Completion Date The target completion date for the substantial completion of the
Shell Fitout and MEP Services Works is 31st December 2010, being
approximately within 60-days of the commencement of works at
site. However, various third-party installations, in particular the
fixtures/furnitures, digital installation and other Client supplied
items, is likely to continue beyond this date until end-Feb 2011,
being approximately a further 60-days, and the Contractor shall
continue to provide site supervision and coordination of these
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 34
remaining works until final handover to Client.
Target Final Handover to the Client is 01st March 2011. The work
shall be treated as completed upon the successful handover of the
site and necessary documents to the client.
The actual completion date shall be mutually agreed after
consideration of the Contractor’s detailed construction
programme prior to Contract award.
Tender Security (Earnest Money) Rs. 1,00,000/- (Rupees One Lacs Only) as a Demand Draft / Pay
Order in favor of Asian Paint Limited payable at New Delhi.
Advance Payment (Mobilization
Advance)
10% of contract value against bank guarantee of equivalent amount
valid till the completion of the work. The completion of the work
shall be considered upon the completion letter issue by the Client.
Performance Security
(Performance Bond)
For the value of 5% of the contract value in the form of scheduled
bank guarantee to be submitted up on issue of the order and valid
till 30 days after the expiry of defects liability period, in approved
format as acceptable to Project Manager/ Client.
Interim Claims One claim per month subject to the amount being at least 30 % of
the Contract Value and shall be addressed to Project
Manager/Client The claims shall be submitted to the Project
Managers along with all supporting documents. The date of
receipt of the bills shall be the date when all supporting
documents of the errorless bill are submitted.
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NICMAR-SODE/PGPM-14 Page 35
Retention Money 5% of the value of work done in each interim bill up to a maximum
of 5% of total adjusted contract value.
Release of Retention The retention money shall be returned upon the expiry of defect
liability period. The same can be paid on the completion of the work
against the bank guarantee of equivalent amount in favour of the
client.
TaxDeducted at Source Tax, including Works Contract Tax (WCT), shall be deducted at
source, as applicable, in accordance with the statutory
requirements from all payments made to the Contractor, including
that in respect of the Mobilization advance, if paid.
Delay Damages (Liquidated
Damages)
Rs. 50,000/- per day subject to a maximum of 5% of the contract
value.
Defect Notification Period
(Defect Liability Period)
12-months from the date of completion.
Period of Final Claim Final Claim shall be submitted within 1-month of completion of
works.
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Organisational Chart from Employer:
Senior Project Manager:
The Senior Project Manager gives the directive and is the final authority for approvals for
the Project for all the issues related to technical and financial matters. He also has the power
to sanction the financial approval for the resolved discrepancies etc. which is amounting to
the excess cost of the project than the estimated cost.
MANAGER (Contracts Administration)
The function of a Manager (Contracts) is to regularise the work flow in the project. He forms a planning department under which all the essentials of the project are
been maintained and recorded. The Manager (Contracts) being the head of the planning department has to keep
up the above mentioned functions. He is assisted by:
Quantity Surveyor:
Preparing and checking Bills of Quantity related to all civil, interior, MEP relatedwork on site.
Manager(Services)
Manager(Procurement)
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NICMAR-SODE/PGPM-14 Page 36
Organisational Chart from Employer:
Senior Project Manager:
The Senior Project Manager gives the directive and is the final authority for approvals for
the Project for all the issues related to technical and financial matters. He also has the power
to sanction the financial approval for the resolved discrepancies etc. which is amounting to
the excess cost of the project than the estimated cost.
MANAGER (Contracts Administration)
The function of a Manager (Contracts) is to regularise the work flow in the project. He forms a planning department under which all the essentials of the project are
been maintained and recorded. The Manager (Contracts) being the head of the planning department has to keep
up the above mentioned functions. He is assisted by:
Quantity Surveyor:
Preparing and checking Bills of Quantity related to all civil, interior, MEP relatedwork on site.
Senior Project Manager
Manager(Procurement)
Manager (Co-Ordinatio)
AssistantManager(Interior)
ProjectEngineer(Service)
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 36
Organisational Chart from Employer:
Senior Project Manager:
The Senior Project Manager gives the directive and is the final authority for approvals for
the Project for all the issues related to technical and financial matters. He also has the power
to sanction the financial approval for the resolved discrepancies etc. which is amounting to
the excess cost of the project than the estimated cost.
MANAGER (Contracts Administration)
The function of a Manager (Contracts) is to regularise the work flow in the project. He forms a planning department under which all the essentials of the project are
been maintained and recorded. The Manager (Contracts) being the head of the planning department has to keep
up the above mentioned functions. He is assisted by:
Quantity Surveyor:
Preparing and checking Bills of Quantity related to all civil, interior, MEP relatedwork on site.
Manager(Contracts)
QuantitySurveyor
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 37
MANAGER (Procurement)
The commercial Manager looks after finance, administration and HR relatedwork
Site Legal matters and General books of account maintenance Subsidiary records and Financial reports Billing and Payment of invoices Personnel records, Payrolls and records Wage and personnel reports to public agency
Manager- Service (MEP)
He will be responsible for all Service related work on site. Service work is very criticalhere as lot of co-ordination is required between electrical and lighting vendor.
Manager (Co-ordination):
He will be senior manager who will be responsible for co-ordination for all the activityon site. He should be specialized in sequencing of activity and planning schedule ofactivity over site. He will be assisted by:
Assistant Manager:
He will be reporting to Manager (Co-Ordination) and reporting all the site activitiesrelated to services. He has to prepare all site reports, progress reports etc.
Project Engineer (Service)
He has to deliver multiple roles for reporting as he has to work under Manager(Services) and also adhere instruction from Manager (Co-ordination) for site activityrelated to services.
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 38
Organisation Chart for Contractor
Director:
The director of the company is the Proprietor and reserves all the final rights of theactivities of the company. He is the decision making authority in participation for thetenders and quoting the rates for the concerned works. He does make the policy decisionin a broader perspective for the activities and the growth of the Company.
Project In-Charge:
It is the Key Co-ordinator between the Client and the management of the Company.He has to Co-ordinates regularly with the Manager (Co-ordination) of Employer/Clientteam for all the activity pertaining to the progress of the project. He is the person whocommunicates all the matters to the client on behalf of the Contractor. He is the soleresponsible person for the progress and quality of construction of the Project. He has tomake periodical schedules and plan for the resources like material and man-power.
Site Engineer (Interior):
He will be permanent site staff who had to look after all the interior related work onsite. He has to report to Project-in Charge. His responsibilities include estimation ofquantities for interior work, sequencing of activity, site staff supervision etc
Site Engineer(Interior)
Site Supervisor
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 38
Organisation Chart for Contractor
Director:
The director of the company is the Proprietor and reserves all the final rights of theactivities of the company. He is the decision making authority in participation for thetenders and quoting the rates for the concerned works. He does make the policy decisionin a broader perspective for the activities and the growth of the Company.
Project In-Charge:
It is the Key Co-ordinator between the Client and the management of the Company.He has to Co-ordinates regularly with the Manager (Co-ordination) of Employer/Clientteam for all the activity pertaining to the progress of the project. He is the person whocommunicates all the matters to the client on behalf of the Contractor. He is the soleresponsible person for the progress and quality of construction of the Project. He has tomake periodical schedules and plan for the resources like material and man-power.
Site Engineer (Interior):
He will be permanent site staff who had to look after all the interior related work onsite. He has to report to Project-in Charge. His responsibilities include estimation ofquantities for interior work, sequencing of activity, site staff supervision etc
Director
Project In-Charge
Site Engineer(Interior)
Site Supervisor Site Supervisor(Marketing)
Site Engineer(Services)
Site Supervisor
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 38
Organisation Chart for Contractor
Director:
The director of the company is the Proprietor and reserves all the final rights of theactivities of the company. He is the decision making authority in participation for thetenders and quoting the rates for the concerned works. He does make the policy decisionin a broader perspective for the activities and the growth of the Company.
Project In-Charge:
It is the Key Co-ordinator between the Client and the management of the Company.He has to Co-ordinates regularly with the Manager (Co-ordination) of Employer/Clientteam for all the activity pertaining to the progress of the project. He is the person whocommunicates all the matters to the client on behalf of the Contractor. He is the soleresponsible person for the progress and quality of construction of the Project. He has tomake periodical schedules and plan for the resources like material and man-power.
Site Engineer (Interior):
He will be permanent site staff who had to look after all the interior related work onsite. He has to report to Project-in Charge. His responsibilities include estimation ofquantities for interior work, sequencing of activity, site staff supervision etc
Site Engineer(Services)
Site Supervisor
Contracts Management 2012
NICMAR-SODE/PGPM-14 Page 39
Site Engineer (Services):
He will be also permanent site staff who had to co-ordinate with Manager Servicesand his Project-In Charge. His responsibilities include estimation of quantities for MEPWork, sequencing of activity for High Side, Low Side, Electrical, Plumbing work.
Recommendations and Conclusion:
The above concludes the mode of operations undertaken within a FIDIC environmentand having a well executed EPC Contract placed between Asian Paint (Client) and itsstakeholder responsible for the complete project delivery. The body of contract explainsabout throws light on specific issues majorly important points of construction, paymentterms, quality norms, technology and knowledge transfer. In parallel, the mean of EPCintends to empower the hierarchy top down bottom organizational structure, its functionand authority of each person. The scope definition is well audited under EPC form ofContract management with FIDIC Administration. Whilst EPC Cater the basic need of thefulfilment of the clients requirement, FIDIC deals with more technical reasons ofcontentions like ambiguity, classification, dispute etc and various ways and means ofsettlement majorly DAB, EOT, IPC etc.
Bibliography:
"Best Practices in Contract Management: Strategies for Optimizing Business Relationships<".Aberdeen Group. Retrieved 2008-07-10.