Chapter 4

Contract Management
By

Bharosh Kr. Yadav

(Asst. Professor)

Department of Mechanical Engineering

Email: [email protected]

[email protected]
Contact No. : +977-9869200324
 The Public Procurement Act, 2063
The Public Procurement Regulation,
2064
Date of certification and publication
30th Poush 2063 (14 January 2007)
• “Procurement” means acquisition of any
goods, consultancy services or other services
or carrying out or causing to be carried out
any construction works, by a public entity
pursuant to this Act;
• Description of Goods, Construction Works and
Services to be Prepared :
• Prior to procuring goods, construction works
or services, a Public Entity shall have to
prepare specifications, plan, drawing, design,
special requirement or other descriptions
pertaining thereto.
• Cost Estimate to be Prepared:
• A Public Entity shall have to prepare a cost
estimate as prescribed for any procurement
whatsoever.
Procurement Method to be selected:
A Public Entity while procuring shall have to
procure by applying any of the following
methods based on such conditions and
purchase price as prescribed:-
Procurement Method to be selected:
(a) For procurement of goods, construction works
or other services:
(1) By inviting open bids at international level,
(2) By inviting open bids at national le vel,
(3) By inviting sealed quotations,
(4) By procuring directly,
(5) Through participation of users' committee or
beneficiary group,
(6) Through force account.
Procurement Method to be selected:
(b) Procurement of consultancy service:
(1) By requesting competitive proposals,
(2) Through direct negotiations.

(2) In making procurement pursuant to this Act

and the rules framed under this Act,
procurement shall not be so made in piece-
meal as to limit competition.
 Process in Procurement
A Public Entity shall establish a procurement unit or
assign the responsibilities thereof in order to
carry out the following acts:
(a) Preparing a procurement plan,
(b) Preparing prequalification documents, bidding
documents and procurement contract related
documents by making necessary amendments in
the standard bidding documents, standard
prequalification documents and standard
procurement contract documents prepared by
the Public Procurement Monitoring Office,
(c) Preparing documents relating to proposals
for consultancy services by making necessary
modification in the standard request for
proposal prepared by the Public Procurement
Monitoring Office,
(d) Publicly publishing the procurement notice,
(e) Issuing pre-qualification documents, bidding
documents or forwarding documents relating
to proposals for consultancy service,
(f) Receiving and safely keeping pre-qualification
proposals, bids or consultancy service proposals,
(g) Submitting the pre-qualification proposals, bids
or consultancy service proposals to the
evaluation committee for evaluation and submit
the evaluated bids for acceptance,
(h) Notifying the acceptance of the pre-qualification
proposals, bids or consultancy service proposals,
(i) Obtaining, examining and safely keeping the
performance guarantee,
(j) Examining, or causing to be examined, the
quality standards of the goods, construction
works or services that have been procured,
(k) Making available the information and
documents asked for by the Public Procurement
Monitoring Office, and
(l) Performing other functions as may be prescribed.
 Functions, Duties and Powers of Public
Procurement Monitoring Office:
(a) To make recommendation to the GoN for reform in the
procurement policy or laws in force,
(b) To issue technical guidelines and manuals required for
implementing this Act,
(c) To prepare standard model of the standard bidding
documents, prequalification documents, procurement
contract document and documents relating to proposal to
be used by a Public Entity to conduct procurement
proceedings,
(d) To collect statistics of procurement proceedings and to
monitor or to make technical auditing of whether or not
such proceedings are conducted in compliance with this Act
or Regulations or manual, made there-under
 Functions, Duties and Powers of PPMO
(e) If the Public Entity seeks opinion, advice about a
matter as referred to in this Act or Regulations,
Manuals made there- under, to provide opinion,
advice,
(f) To establish and operate procurement website,
(g) To publish a bulletin
(h) To prepare procedures required for coordination in
the procurement proceedings and submit to the
Government of Nepal for approval,
(i) To make arrangements for regular training program for
the bidder or the employee involved or to be involved
in procurement proceedings,
 Functions, Duties and Powers of PPMO
(j) To make necessary criteria of exclusion from the blacklist
under Section 63 and exclude from such blacklist as per
such criteria,
(k) To review, appraise construction works, supply, consultancy
service, and other services system in order to make the
procurement system effective,
(l) To prepare plan of domestic or foreign assistance required
to systematize and reform procurement system and to act
as the central body for coordinating such assistance,
(m) To submit the annual report of the procurement
proceedings
(n) To do other prescribed functions.
 Procurement Transaction Through
Electronic Communications Means
Government of Nepal may, by publication of a notice in
the Nepal Gazette, provide a mechanism that the
Public Entity may arrange, through the means of
electronic communications, invite a pre-qualification
proposal, issue notice of bid invitation, prepare a short
list by inviting expression of interest, invite a proposal
of consultancy service, transmit bidding or pre-
qualifying documents, receive bids, proposals for pre-
qualification or consultancy services, conclude the
procurement contract, make payment and give and
receive other notices.
 Methods of execution references for -
Works/Goods
1) Direct purchase
o Minimum three quotation from standing list is required if purchase is above 25000
o Estimate up to 5,00,000 for construction work (revised)
o Estimate up to 3,00,000 for goods
o Estimate up to 15,00,000 for domestic products for one time in FY

2) Sealed Quotations
o Estimate up to 2 million for construction work (revised)
o Estimate up to 1 million goods
o 15 days notice in national or local newspaper
o 3 minimum quotations are required .
o 45 days bid validity and 75 days bid security validity
o 7 days notice for agreement
o No withdraw and no modifications
o Contract only within or below the estimate amount
3) National Contract Bidding (Bid/Tender)
o 30 days notice in national newspaper/website
o minimum one responsive bid
o 9O (up to to 10 crore / 120(10 crore above) days bid validity
and 120/150 days bid security validity
o 15 days notice for agreement
o One time withdraw or modifications
o Single or joint venture (maximum 3 and not less than 25%
share)
o Selection notice for 7 days
o Contract can award if bid amount is not substantially higher
than the approved estimate
4) International Contract Bidding (Bid/Tender)
o 45 days notice in national English newspaper or
international journal/website
o minimum one responsive bid
o Single or joint ventures

5) Users committee / beneficiary committee

o Including all cost
o Up to 6 million
o Up to one third of estimate – mobilization
 Methods of execution references for-
Goods
6) Direct purchase
o Minimum three quotation/proposal from standing list is required if
purchase is above 25000
o Estimate up to 3,00,000 for" purchasing goods

7) Sealed Quotations
o Estimate up to 1 million
o 15 days notice in national or local newspaper
o 3 minimum quotations are required
o 45 days bid validity and 75 days bid security validity
o 7 days notice for agreement
o No withdraw and no modifications
o Contract only within or below the estimate amount
8) NCB (Bid/Tender)
o 30 days notice in national newspaper
o minimum one responsive bid
o 9O / 120 days bid validity and 120/150 days bid security validity
o 15 Days notice for agreement
o Onetime withdraw or modifications
o Single or join venture (maximum 3 and not less than 25% share)
o Contract can award if bid amount is not substantially higher than the
approved estimate
9) ICB (Bid/Tender)
o 45 days notice in national English newspaper or international
journal/website
o Single or joint venture
10) User's committee / beneficiary committee
o Including all cost
 Methods of work execution
Procurement of works :
• ICB/NCB/Sealed Quotations/Direct/Users
group/Special/Non-government/Amanat

Procurement of goods :
• ICB/NCB/Sealed Quotations/Direct/Users
group/Special/Non-government/Amanat

Procurement of consultancy services – Competitive (15 days'

notice of EOI & 30 days’ notice of presenting Proposals)
/direct
* EOI = Expression of Interest
 Tendering procedures
Tender:- (Definition)
• Offer in writing by the tenderer/owner (the
person/firm who offers the tender) to execute
some specified work or to supply some
specified goods at certain rate/amount within
stipulated time under certain conditions of
agreement.
• It’s the initial process/step in formulation of
contract.
 Purpose for tendering / bidding
• Use of fund for intended purpose (project
implementation).
• For the observation of economic and efficient
project (best value for money) .
• To give an equal opportunity to compete for
eligible bidders .
• To encourage for the development of domestic
contracting & manufacturing industries.
• For the transparency in all stage of procurement
process.
 Tender notice
• lt is the information inviting bids from
competent and capable contractors
firms/service providers and forms a part of
contract document
• lt should be widely published in important
newspapers or acclaimed national daily
newspapers eg : Gorkhapatra / Kantipur /
Nagarik etc.
 Preparation before inviting Tender
notice publication
• Project preparation
• Estimation of quantities
• Cost estimation (abstract of cost)
• Approval of cost estimate from concerned
authorities
• Resource planning
• Tender/bid document preparation & approval
• Tender invitation
 Information to be furnished in Tender
Notice
• Name of authority publishing the notice
• First date of publication
• Brief description of the job
• Duration of the project to be completed
• Date time and place-where and when the bid documents is
available and to be submitted
• Cost of tender/bid document
• Cost estimate (optional)
• Date, time and place of opening the tender/bid
• Earnest money(bid security) and security deposit
amount(performance security)
• Expected date of acceptance of successful bids etc.
 Earnest money (bid security):

• it is the amount of money deposited while bidding a

tender as a guarantee of the party's willingness of
carrying out the work awarded to him/them
• it’s amount generally ranges from 1% to 3% . ln Nepal
2.5% of the bid amount is demanded as earnest money
and for foreign party, the amount is considered to be
5%
• This money(fund) is refunded to unsuccessful bidder.
• lf a successful bidder fails to carry the work, this
amount will be forfeited
 Security Deposit (Performance Security)

• lt is the amount of money which is deposited by a

successful bidder as a security for the satisfactory
performance (quality of work)
• ln Nepal, security deposit is equal to 5% of the
contract amount whereas 10% of the bid amount
will be taken as security amount for foreigner
• lt includes the earnest money deposited
• This is refunded after the completion of defect
liability period (maintenance period)
• This fund can be forfeited if contractor fails to
perform his duty
 National Competitive Biddings (NCB)
• Local competitive bidding
• All the eligible bidders are invited to
participate in bidding
• Tender notice to be published in national daily
newspaper for two consecutive days
• Aiso, tender shall be published in the
concerned office
 International Competitive Bidding
(ICB):
• If the amount of work is huge and national/domestic contractor
cannot perform the job, eligible bidders are invited from all over
the world
• In this process tender notice is provided to diplomatic missions
working in the country

 Information to be furnished in the bid by foreign bidder

o Whether the bidder is having a local agent or not

o Name and address of the agent if any .
o Types of the service being provided by the agent
o Currency and procedure of payment to the agent
o Other agreement with the agent if any
 Qualification Procedure for tendering

• Two forms of qualification :

A. prequalification and
B. post-qualification
- are used to ensure that bidders have adequate capability
and resources to perform the particular contract
satisfactorily, taking into account their
1. Experience record on works of a similar nature and complexity,
2. Financial capability,
3. Personnel capability,
4. Equipment capability and
5. Litigation(Legal Actions) history.
6. Other relevant information of certification (lSO certificate),
particular job experience, methodology etc
• Pre Qualification is carried out in advance of bidding to
establish a list of capable firms to be invited to tender
while ensuring that a proper level of competition is
safeguarded.
• Post Qualification is used where no prequalification
has been carried and bids are invited at large from one
or more classes of contractor, and is carried out after
bids are received as part of the bid evaluation process.
• Post Qualification has the advantage of reducing the
total procurement time by cutting out the
prequalification steps.
 Pre-Qualification (PQ)

• It is a process of short listing of eligible bidder and to

avoid crowd of bidder.
• Also, it ensures that the invitation to the-bid is
extended only to those perspective bidders who have
adequate capability and resources to perform the
work/contract satisfactorily taking into accounts their:
• Experience & past performance on similar
work/contract
• Capabilities with respect to personnel , equipment and
construction & manufacturing facilities
• Financial status
• Litigation history
 Benefits of Prequalification
• Reduces the amount of work and time involved in evaluating bids from
unqualified contractors
• Encourages local firms to form joint ventures with other local or
international firms, thereby benefiting from their resources and
experience
• Reduces significantly; if not eliminate, problems associated with low prices
submitted by bidders of doubtful capability
• Enables contractors, who may be insufficiently qualified on their own, to
avoid the expense of bidding or to form a joint venture; which may give a
better chance of success
• The well qualified firms may also price their bids more competitively with
the knowledge that they will only be competing with other qualified
bidders meeting realistic minimum competence criteria
• The assurance that competitors which lack the necessary qualifications
will be excluded from bidding thus encourages leading contractors or
suppliers to bid
 Post Qualification
Eligible bidders can participate in the bidding. No pre-qualification
process is adopted. This process may include single envelope
system (financial proposal only) or double envelope system
(financial as well as technical proposal). ln double envelop system
successful bidders are selected by adopting one of the following
three methods:

1. Short list from technical proposal and select the lowest bidder to
award the contract
2. Select the lowest bidder first and check the technical proposal. lf
technical proposal is ok select the firm. If technical proposal is not
satisfactory, select second lowest bidder and check the technical
proposal
3. Give weightage to both technical proposal as well as financial
proposal. Then, select the bidder getting highest point.
 Contract
• An agreement between two or more competent parties in which
an, offer is made and accepted, and each party benefits.
• Agreement concluded between two or more parties for performing
/not performing any work
• If any person or firm advances any proposal to any other person or
firm and latter gives his / their consent, they shall be deemed to
have a contract
• it is done to seek a legal action/remedies any parties breached the
agreement
• in extensive sense, it includes every description of agreement, or
obligation, whereby one party becomes bound to another to pay a
sum of money or to do or to omit to do a certain act
• It is an act which contains a perfect obligation
 Agreement
• It is the acceptance to the offer (proposal)
with or without any conditions
• It does not have any legal obligations
 Essential elements of Contract.
1. Offer and acceptance: In simple expressions, offer is a promise made by
one party (or a person) to another party ( or a person). The party who
made promise is called "offeror" and the party whom to whom a
promise has been made is called "offeree“. As per contract act 2056, the
offer made by a person to another person with the intention of getting
approval to do or not to do any business. Similarly, acceptance has been
in the Act as the consent given by the offeree to the matters in the offer
in the same spirit of the offeror.
2. Competent parties: Both parties or person who make contract must be
competent according to law
3. Mutual intent to enter into contract : Both parties in a contact shall
have intentions to establish a legal relationship. Therefore, agreements
made without the intention s of establishing legal relationship cannot be
considered as contract. A social, family and even commercial agreement
that has no intention of establishing legal relationships can be taken as
example.
4. Consideration: Consideration can be described as something of value that is
exchanged by contracting parties (D.L Martson, Law for professional engineer,
1996). As per contract act 2056, consideration means the promise of doing or
not doing any thing because of doing or not doing the work stated in the offer.
In general, the court does not see for the adequacy of the consideration.

5. Capacity to contract: The parties need to have capacity to contract. As per

contract Act 2056 except the following person, all others persons are capable to
contract.
a) Person below 16 years
b) Person not in own control (mad senseless )

6. Lawful purpose: Contract must have lawful purpose otherwise; law cannot
enforce it. As per contract act 2055, contract becomes void if there is an illegal
objective or consideration in the contract.
a) Lawful consideration
b) Law full object
7. Free consent: The parties in a contract should have given
free consent that is without any correction, undue
influence, fraud, misrepresentation etc. In such cases the
party suffering damage may make the contract void.

8. Possibility of performance: Any contract should be within

possibility of performance. The law does not consider
legal of the contract work is not within possibility of
performance.

9. Certainty: Contractual conditions must not be unclear and

unlimited. Both parties under the contract must have
understood the term and conditions
 Elements of Contract.
• Two or more competent parties
• Offer & acceptance
• Intention of creating legal relation by both parties
• Considerations
• Capacity to contract/competence to contract
• Free consent
• Lawful purpose
• Possibility of performance
• Verbal or written and registration
 Importance of contract
1. To make an agreement legally enforceable.
2. To record the terms of agreement.
3. To specify what the contractors / supplier/ service-
provider must do & what the owner must pay.
4. To specify the quantity & quality of work to be done
5. To specify the time frame within which the Work is to
be completed and payment to be made.
6. To specify the means, methods / mode, terms and
time of payment
7. To identify the parties to the agreement
8. To identify the official agent or representatives of parties
to the agreement and define their authority and
responsibility
9. To set out in advance the courses of action that will be
taken in different possible situations
10. To define words and establish common meanings
11. To define what is and what is not included in contract
12. To specify how the contract will be terminated
13. To specify the responsibilities of the parties not just to
each other but to third parties such as government ,
community in which work is to be done, workers, sub-
contractors, material suppliers, unions, etc.
 Types of contract
(Classification of contract)
With respect to mode of creation :
1. Indirect contract: Not withstanding anything contained
elsewhere in this act, a contract shall be deemed to have
been concluded as follows in the following circumstances:

A. In case a person who is incompetent to conclude a

contract under this Act or other prevailing Nepal law, or
any other person who is to be maintained by him/her is
provided with any material, commodity or service which
material commodity service paid from the property of
such he/she needs and that is consistent with his social
status, to have the cost of such person to the person so
meeting his/her need.
B. In case any person, who is concerned with the payment or
nonpayment of any amount to be paid by another person under
the prevailing Nepal law makes such payment him/herself, to have
that payment repaid to him/her from the property of the person
who is actually under obligation to make the payment.
C. In case any person gives anything to another person, or employs
him/her in any work, to pay the appropriate cost or remuneration.
D. In case any person keeps under his/her personal possession any
property belonging to another person that property as a bailment
property.
E. In case any person pays amount (to any person) by mistake, to
refund the same.
2. Contingent contracts:
a) In case a contract has been concluded to performing or
not to perform any work if any event happens in the
future, the contract shall not create any liability until such
event happens.

b) In case a contract has been concluded subject to the

condition that it shall be deemed to have been concluded
in case person performs any specified work in the future,
no liability shall be deemed to have emerged from that
contract if such person does anything in such a manner
as not to perform that work or acts in such a manner that
the work cannot be performed.
3. In case a contract has been concluded to perform or not to perform any
work if any uncertain event does not happen in the future, liability under
that contract shall emerge only after the happening of that event
becomes impossible.

4. In case a contract has been concluded with a provision to perform or not

to perform any work if any event happens within a specified period in
the future, the contract shall be deemed to have become invalid after
the happening of that event becomes impossible within the specified
period or after the expiring of that period.

5. In case a contract has been concluded with a provision to perform or not

to perform any work if any event does not happen within a specified
period in the future, liability under such contract shall emerge if that
event does not happen within that period or if it becomes certain that
the event will not happen within that period.
 Types of contract
(Classification of contract)
With respect to legal relationship
[Valid/Void/Voidable]

1. Valid Contracts: A contract that complies

with all the essentials of a contract and is
binding and enforceable on all parties.
2. Void Contracts:
The following contracts shall be void:
A. A Contract preventing anyone from engaging
him/herself in any occupation, profession or trade
which is not prohibited by prevailing law. Provided
that a contract shall not be deemed to have been
concluded in preventing profession or trade in the
following circumstances:
I. A contract preventing the seller from engaging
him/herself in a profession or trade at the time and place
as mentioned in the contract concluded between the
buyer and the seller on selling and buying of the goodwill
of any trade
II. A contract concluded among partners in preventing their
engagement in any trade or business, other than those of the
partnership firm, similar to those of the partnership firm or any
other trade or business together with other competitors belonging
to the same kind of trade or business as long as the partnership
continues.
III. A contract concluded among the partners in preventing them from
engaging in a trade or business under the partnership firm for the
specified time or place after being separated from the partnership;
IV. A contract preventing any individual from receiving the service of
any such agency, company, firm, individual or competitor of such
agency, company, firm, or individual for the specified period of time
after the retirement from service or during the service of such
agency, company, firm or individual pursuant to contract concluded
by any individual with any agency, company, firm or individual.
b) A contract restraining marriages other than those prohibited by the prevailing
law.
c) A contract preventing any one from enjoying the facilities already being enjoyed
by the general public.
d) A contract seeking to prevent the legal rights of any person from being enforced
by any government office or court.
e) A contract concluded in matters, contrary to or prohibited by the prevailing law.
f) A contract concluded for immoral purpose or against Public morality or public
interest.
g) A contract which cannot be performed because the parties there to do not
exactly know about the matter in relation to which it has been concluded.
h) A contract which is considered impossible to fulfill even at the time is concluded.
i) A contract which is vague as it does not provide reasonable meaning there of.
j) A contract concluded by an incompetent person to conclude such contract.
k) A contract concluded with an unlawful consideration or objective.
3. Voidable Contacts: (Coercin/Undue influence/Fraud)
1) The following contracts may be made void by the
aggrieved party:
a) A contract concluded through coercion
Explanation:
A person shall be deemed to have indulged if he/she,
with the objective of compelling any person, to accept
any contract against his /her will, withholds or threatens
to withhold property belonging to him/her, or threatens
to defame him/her or takes or threatens to take any
other action in contravention of prevailing law.
b) A contract concluded through of undue influence:

Explanation:
I. Undue influence means influence exercised by a person upon another
person who is under his/her influence and is amenable to his/her
personal benefit or interest.
II. Without prejudice to the generality of Clause (1), the following persons
shall be deemed to be under the influence of any person and amenable
to his/her wishes:

1) A person living under his/her guardianship, protection or custody.

2) A persons who cannot take care of their interest temporarily or permanently
by reason of old age, sickness or physical or mental weakness.
3) A person who can be subjected to under one's economic or ranking
influences.
c) A contract concluded through fraud:

Explanation:
• A party to the contract or his/her agent shall be
deemed to have committed fraud if he/she, leads the
other party or his/her agent to believe or takes any
action to believe the particular matter is true, although
he/she knows that it is false, or suppresses any
information in his/her possession, or indulges in any
other fraudulent act punishable under prevailing law,
with the intention- of deceiving the opposite party or
his/her agent.
d) A contract concluded through deceit:
Explanation:
1) Any of the following act shall be taken as deceit:
i. Submission of false particulars on any matter without reasonable basis for
doing so;
ii. Misleading any party so as to aggrieve him/her;
iii. Causing any wrong deliberately on the matter of contract;

2. In a case of a voidable contract under this section, the following matters

shall be dealt with as prescribed below:
i. The party caused to enter into a contract may, instead of making the
contract void, demand his/her position to be remained the same, as it was
prior to conclusion of the contract.
ii. Burden of proof of innocence of undue influence shall be rest in the party
who claims that such contract is not concluded under an undue influence in
case a contract is concluded with
Difference between Void and Voidable.
1. When dealing with contracts, the terms void and voidable
are widely used. A void contract is considered to be legal
contract that is invalid, even from the start of signing the
contract.
2. On the other hand, a voidable contract is also a legal
contract which is declared invalid by one of the two
parties, for certain legal reasons.
3. While a void contract becomes invalid at the time of its
creation, a voidable contract only becomes invalid if it is
cancelled by one of the two parties who are engaged in
the contract.
4. In the case of a void contract, no performance is possible,
whereas it is possible in a voidable contract.
5. While a void contract is not valid at face value, a voidable contract
is valid, but can be declared invalid at any time.
6. A contract can become void if it involves any illegal activity, if the
contract is made in such a way that it cannot be executed, or if the
contract is not properly structured. An example of a void contract
is a contract between a drug dealer and a buyer. This type of
contract is void because it involves an illegal activity.
7. There are many reasons attributed to a voidable contract. It is a
situation where one party of the contract may repudiate it. A
contract involving minors is an example of voidable contract.
Although minors can enter into contracts, these agreements
cannot be enforced, as minors are at liberty to change their stand.
8. While a void contract is nonexistent and cannot be upheld by any
law, a voidable contract is an existing contract, and is binding to at
least one party involved in the contract.
 Summary
1. While a void contract becomes invalid at the time of its
creation, a voidable contract only becomes invalid if it is
cancelled by one of the two parties who are engaged in the
contract.
2. A contract can become void if the contract involves any illegal
activity, if the contract is made in such a way that it cannot
be executed, or if the contract is not properly structured.
3. A voidable contract is where one party in the contract may
repudiate it.
4. A void contract is nonexistent and cannot be upheld by any
law. On the other hand, voidable contracts are existing
contracts, and are bound to at least one party involved in the
contract.
 Types of contract with respect to
procurement method
A. For goods and other services: goods or other
services may be procured by entering into
any one contract out of the following:
a) Contract for supply of specific goods and other
services.
A contract for the supply of specific goods or
other services may be used for the procurement
of raw materials, equipment required for any
specific purpose, pharmaceuticals, drugs, tools
or similar other goods of specific nature
b) Framework or unit rate contract:
A framework or unit rate contract may be used for
obtaining the goods or other services set forth in the
procurement contract from one or more than one
supplier at the prices and terms specified in the
procurement contract as and when a demand is placed
by the public entity.
This contract shall specify the minimum and maximum
quantity of goods or other services to be procured by the
public entity.
This term of this contract shall normally not exceed one
year.
C. Multi-year contract:
A multi-year contract can be entered into in the
following circumstances:
a) lf procurement under a multi-year contract would result
in substantial savings to the public entity as compared to
procurement as under an annual contract,
b) lf the quantity of procurement remains substantially
unchanged during the period of procurement contract,
c) lf the design of goods to be procured remains unchanged
during the period of procurement contract, and
d) lf the technical risks associated with the supplies of goods
are not excessive.
d) Design, supply and erection contract:
A design, supply and erection contract may be
used for designing of goods involving state-of-art
or complex technology such as big power plants
or pumping stations, delivering such goods at the
construction sites, assembling there of, testing
and commissioning the same and providing
training, as required, to the employees of the
concerned public entity for handling such goods.
such contract may also be entered into for any
two works out of design, supply and erection
e) Turn-key contract:
A turn-key contract may be entered into for
designing, supplying, building and erecting an
industrial plant involving state of art
technology such as fertilizer plant and milk
processing plant in accordance with the
procurement contract, specifying the
performance capacity of such plant, and then
transferring the plant to the public entity.
B. For construction works:
a) Unit Price Contract:
An unit price contract may be entered into where the quantity of a
construction work is difficult to be ascertained or where a
construction work is to be procured on the basis of unit price set
forth in the bill of quantity.
The bidder has to include in such unit price the materials, labor and
other matters required to complete the proposed construction
work.
In making payment for work done under this contract, the public
entity shall make such payment on the basis of the unit of work
actually done and measured in the field.
b) Lump sum contract:

A lump sum contract may be entered into for procuring a

construction work such as ground water pipeline installation, the
quantities of which are difficult to measure or a construction work
such as superstructure of bridge, the quantities of which can be
measured.
Such contract shall specify that the construction entrepreneur shall
be responsible for all types of risks and liabilities associated with
the construction work provided that if the financial liabilities of the
construction entrepreneur increases as a consequence of an order
issued by the public entity that involves any type of change in the
construction work after the commencement of work upon making
the contract, the public entity shall bear such liabilities.
c) Cost reimbursement contract:
A cost reimbursement contract may be entered into for procuring a
construction work involving high risks and unpredictable conditions, when
it is likely that a construction entrepreneur would refuse to, or be unable
to perform the work under a unit price contract.

While making payment to the construction entrepreneur for the

construction work procured under this contract, such payment may
include the costs actually incurred by that entrepreneur, overheads of that
work plus profits set forth in the approved cost estimate.

In procuring a construction work under this contract, the chief of public

entity shall establish the ceiling of maximum amount of cost
reimbursement and approval of the department head shall be required to
make reimbursement of the cost in excess of that ceiling.
d) Time and materials rate contract:
Where the labor and materials required for the repair and
maintenance of any construction work cannot be predicted at the
time of entering into a procurement contract, a time and materials
rate contract can be entered into for procuring work by calculating
labor on the basis of time and materials on the basis of unit price.
This contract shall clearly provide for payment as follows to the
construction entrepreneur:
(i) Amount to be set by adding overheads and profits set forth in
the approval cost estimate to the amount set by dividing the
construction entrepreneur's labor on the basis of per hour or per
day or per month, and
(ii) Amount paid for the materials used in the repair and
maintenance subject to the ceiling set forth in the procurement
contract
e) Design and build contract:
A design and build contract may be entered for procuring
the design and build of any construction work from the
same construction entrepreneur. The work set forth in this
contract shall commence only after the public entity has
through its technician or group of technicians examined
and approved the design of construction work.

The technician or group of technician who so examine the

design shall, in examining and accepting such design,
drawing and cost estimate, examine and accept in
accordance with the procedures to be adopted for making
examination and acceptance.
f) Management contract:
Under a management contract, the construction
entrepreneur entering into procurement contract
with a public entity, while undertaking full legal
and contractual liabilities for time and quality of a
construction work, shall execute the work
through a number of sub-contractors managed
and supervised by that entrepreneur.
Payments for work set forth in this contract shall
be made only to the construction entrepreneur
entering into contract with the public entity.
g) Performance based maintenance or
management contract :
A performance based maintenance or
management contract may be entered into for
the procurement of any construction work by
specifying only the final performance without
specifying the equipment and various item-
wise works required for the maintenance or
management of such work.
h) Piece work contract:
A piece work contract, which establishes a list
of prices of construction work, may be
entered into for procuring commonly
occurring minor items of construction work to
be used as and when the need arises. The
validity period of this contract shall not
normally exceed one year.
 For consultancy services
a) Lump sum contract:
• A lump sum contract may be entered into for procuring
consultancy service for a clearly defined assignment, the
quality of which can be readily assessed, with minimum
risks to the consultant, such as feasibility studies, project
design and preparation of tender documents.
• This contract shall provide that the consultant is to submit a
report to the public entity upon performing the assignment
of specified technical characteristics set forth in the terms
of reference within the specified period and the entity is to
pay consultant remuneration to the for the same.
b) Time based contract:
where it is difficult to estimate the period of consultancy
service such as supervision of construction works,
management of complex business institutions or design of
complex structures such as dams and tunnels, a time based
contract may be entered into for such service. This contract
shall provide that the consultant's remuneration shall be
based on:
• (a) Amount to be set upon multiplying the rate of
remuneration set forth in the contract by the actual time
spent by the consultant in executing the assignment,
• (b) Reimbursable expenses using actual expenses
supported by bills, receipts.
c) Performance based remuneration contract:
lf it is required to procure consultancy service on
conditions that the consultant shall be called as
and when required to perform the assignment
set forth in the procurement contract or
remuneration is to be paid based on the
assignment executed by the consultant, a
performance based remuneration contract may
be entered into. The remuneration of the
consultant shall be as set forth in such contract.
d) Percentage contract:
• A percentage contract may be entered into for
procuring goods inspection service, architect
service, supervision or monitoring service or
similar other service.
• This contract shall provide that consultant's
remuneration is to be paid on the basis of the
percentage of the estimated or actual cost of the
concerned construction work or project or the
cost of goods procured or inspected
e) Indefinite delivery contract:
An indefinite delivery contract may be entered into for the
procurement of a consultancy service as and when required on a
particular activity such as adviser required from time to time for the
implementation of a construction work, adjudicator or arbitrator for
the settlement of any dispute relating to the procurement contract,
adviser on institutional reforms or procurement and technical
problem shooter. This contract shall provide for the following
matters:
• (a) The contractor shall perform the assignment set forth in the
contract at the rates stipulated in the procurement contract as and
when the public entity so requires,
• (b) Remuneration shall be paid on the basis of the time actually
used by the consultant in the performance of assignment.
 Factors to be considered in preparing
contract
1. The contract must be fair
2. The contract must be clear
3. Contract language must be consistent
4. Do no repeat (No Repetition)
5. Use each part of the contract for its proper
purpose
6. Contract information must be retrievable
7. Use foresight
8. If you want it, get it in the contract.
 Conditions of Contract
• Whatever agreement is reached between
different parties, it is followed by certain terms
and references (conditions) that bind all the
parties reaching an agreement.
• This helps for the ease and smooth functioning of
work and minimizes disputes.
• These terms and conditions are called the
conditions of contract.
• There may be two parts
1. General condition of contract.
2. Special condition of contract.
 Elements of Contract
• Definition and interpretation
• Security Deposits
• Time of completion and delays
• Mode of payment
• Alternation, additions, variations and omissions
• Execution of work and measures of completed works
• Subletting
• Breach of contract
• Arbitration – Settlement of Disputes
• Suspension of works
• General obligation of contract
• Labor and labor welfare
• Changes in cost and legislation
• Material and workmanship etc
 Contract Documents
• The documents that describes in details the
scope of the agreement and responsibility of
the parties to it is called contract document.
• The document that lead towards a contract
are referred to as contract document
 Priority of Contract Document
• The contract agreement
• The letter of acceptance
• The bid / tender
• Conditions of contract – general / special
• The detail specifications
• The detail drawings
• Priced bill of quantities (BOQ)
• Addenda (list of things) to clarify, corrects and
provide additional information.
 Roles of Contract Document
• Define duties and responsibilities of the parties
involved in the contract
• Defines payment procedures such as lump sum /
• Deals with variation / changes in the work during
implementation
• Guides for the procedure, pricing and payment of the
altered, added & omitted work
• Value and duration of the contractual work
• Contract termination process
• Assigns risks (weather
condition/delays/changes/performance) etc.
The End