FOREWORD

Projects are the cutting edge of development. These are undertaken to achieve planned results within the budgeted resources and targeted timeframe. Success depends largely on carrying out the constituent tasks in a proper sequence, deploying the resources to the best advantage. In the last 14 years, the Project Management Division of the Ministry of Statistics & Programme Implementation has monitored a few thousand infrastructure and industrial projects of the Central/Public Sector enterprises and Government agencies.

It emerges from the analysis of the Central Sector Projects by the Ministry of Statistics & Programme Implementation that many of the projects suffer from inadequacies in project formulation and implementation, resulting in large time and cost overruns, affecting the very viability of the projects and acting as drag on the economy. The analysis has also identified several factors responsible for time and cost overruns - some within the control of the enterprises and some beyond their control. As an apex institution for monitoring, the Ministry of Statistics & Programme Implementation has initiated several measures to improve the system and procedures relating to project formulation, implementation and monitoring. These include 2-stage clearance, appointment of Nodal Officers, improved procedures for cost benefit analysis and approval, delegation of more powers at project level, release of project implementation manual, institution of MOU system, institution of 3-tier regular monitoring, adoption of network based monitoring, extensive training of project managers, prioritization of projects matching with available resources and several project based interventions. A host of other measures, like, amendment to Land Acquisition Act and development of Standard Rehabilitation Package, On-line Computerised Monitoring System etc. are under progress.

Inequity condition in construction contract has been identified as one of the major maladies in Project Execution. Traditionally, the text of contract documents is drafted by the owner and this normally results in a manual which, sometimes, is drafted to favor one of the parties entering into a contract. An inequitable contract hurts all parties at all times, and therefore, is not a workable contract. Then, there is a question of multiplicity of contract texts. Almost all wings of Government, be they the Union Ministries, State Departments, or even the Public Sector Undertakings, both at the Central as well as State levels, have evolved and practice their own contract texts. Several of these are not relevant or designed to meet the exigencies posed by the complexities of present day contract management requirements. In this backdrop, this Ministry of Statistics & Programme   Implementation took the initiative to develop a harmonized and transparent Contract Management System.

The contract document drawn up by the Ministry, after wide consultations with the Construction Industry Development Council (CIDC) and its associates, major Public Enterprises and Government Ministries / Departments, would go a long way in serving as a standard document and a set of guidelines for preparing proper contract documents. This will, in turn, lead to reduction in delays as well as improvement in productivity of both the owner as well as the contractor, improving co-operation and sense of responsibility and also reducing incidence of disputes between them. I believe that this is one of the positive steps towards good governance and hope that all agencies would adopt these Guidelines in the right spirit.

I am privileged to write the preface to the Guidelines on Contract Management System developed by Project Monitoring Division (PMD) of the Ministry of Statistics & Programme Implementation after consultations with several Government Agencies/Public Sector Enterprises.

The concerted efforts of PMD in bringing about several system improvements and in creation of awareness among the Ministries/Departments and Public Sector Enterprises about the need for completion of Projects within time and approved costs has paid rich dividends. These guidelines would provide a more effective and transparent system for good governance and result in ultimate savings to the nation by reducing incidence of disputes in contracts, enhancing better cooperation among the participating parties and inculcating greater sense of responsibility, leading to speedy execution of projects. The ideas drawn up in the guidelines for management of contracts with sound planning and net-working of the related inter-linked activities would help the owner as well as the contractor in keeping a good control on the implementation of projects on day-to-day basis and in keeping the projects on proper track.

The Standard Contract Clauses, which, by and large, conform to the international practices followed by the World Bank, the UN Agencies as well as the FIDIC, would provide basic structure for preparing the Contract Documents, and the Standard General Conditions for domestic bidding would serve as guidelines for providing safeguards for specific work requirements. These would help clearly identify the responsibilities of the parties entering into contract to achieve the specific objectives within the prescribed specifications and boundary limits. These guidelines have been approved by the Committee of Secretaries with a provision of periodic review by an expert body comprising experts drawn from Construction Industry, Public Sector Enterprises, and Government organisations.

The PMD of the Ministry of Statistics & Programme lmplementation took up this matter and prepared the guidelines on Contract Management System at the national level. I acknowledge the dedicated efforts of Shri Sarweshwar Jha, Additional Secretary and Shri J. L. Narayan, Joint Adviser, in the Ministry of Statistics & Programme Implementation, Shri Harish Chandra, former DG (Works), Shri P. R. Swarup, D.G., CIDC and all esteemed members of the Harish Chandra Committee for their valuable contributions in drafting and finalising these Guidelines on Contract Management System. Let us adopt these Guidelines in the right spirit and help the cause of infrastructure building and project management in our country in a significant way.

1.     CLAUSE1         Eligibility and Pre-qualification (PQ)                                                          7

2.     CLAUSE 2         Earnest Money (EM)                                                                                    8

3.     CLAUSE 3         Security Deposit (SD)                                                                                  8

4.     CLAUSE 4         Variations, Extra / Substituted Items                                                           8

5.     CLAUSE 5         Payment of Running Bills                                                                              9

6.     CLAUSE 6        Payment of Final Bills                                                                                    9

7.     CLAUSE 7        Advance Payment                                                                                        10

8.     CLAUSE 8        Secured Advance                                                                                         10

9.     CLAUSE 9         Liquidated Damages and Incentives                                                          10

10.   CLAUSE 10      Escalation                                                                                                        11

11.   CLAUSE11       Disputed Items and Arbitration                                                                     11

12.   CLAUSE11A    Dispute Resolution Board                                                                             12

13.   CLAUSE 12      Owner's Risk and Compensation Events                                                    13

14.   ANNEXURE I    The Review Committee for Contract Management Systems                    15

15.   ANNEXURE II    The Committee                                                                                               16

CLAUSE 1-Eligibility and Pre- qualification (PQ)

A.       Eligibility Criteria :

          a.     Experience on similar works executed during the last five years; and details like monetary value,                    clients, proof of satisfactory completion ;

           b.     Registration, if any, with specified deptts/ organisations, class / type of registration ;

           c.     Documentary evidence of adequate financial standing.

            a.     Constitution and legal status. Joint-venturing or other tie-ups for technology, equipment, financial                      backing and / or project management;

            b.     Registration (class and type) with specified agencies and previous pre-qualification(s) for similar                      projects.

            c.     Experience on similar work(s) during last 5 years with details including year wise monetary value,                      clients, and proof of satisfactory completion of works.

            d.     Financial standing as certified by Bankers, Audited Profit & Loss A/c and Balance Sheet, Annual                      turnover in last 5 years, access to adequate working capital.

            e.     Construction Equipment proposed to be deployed for the project and proof of its availability;                      equipment proposed to be purchased or leased.

            f.     Key personnel available and proposed to be engaged for management and supervision of the                      Project, their qualifications and experience.

            g.     Project planning and quality control procedures to be adopted.

            h.     Information regarding projects in hand, current litigation, orders regarding exclusion/expulsion or                      black listing, if any.

            i.     The capacity of a construction agency to take up a new project under consideration in addition to                     his present commitments must be carefully assessed on the basis of the above information. The                     method of this assessment may be left to the owner or his Consultants.

            j.      It may be mentioned, as an example, that some organisations, like, the World Bank, adopt the                      following formula :

            k.     The cut of grade obtained by Construction Company under the Grading scheme of CIDC should be

CLAUSE 2 -Earnest Money (EM)

                   D. For items existing in the Bill of Quantities but where quantities have increased beyond the                      variation limits, the rate payable for quantity in excess of the quantity in the Bill of Quantity plus the                      permissible variation should be :

                    2.   Market rates of material and labour, plus 20% for overheads and profits of contractor.

            B. The contractor should re-submit the bill, with corrections within 30 days of its return by the Engineer.               The re-submitted bill should be checked and paid within 60 days of its receipt.

C. Interest at a pre-specified rate (say 12%) should be paid if the bill is not paid within the time limit          specified above.

CLAUSE 7 Advance Payment

A. Mobilisation Advance and Construction Equipment Advance should be given at 12% interest or free of interest at the discretion of the owner and against Bank Guarantee for Mobilisation Advance and against hypothecation of Construction Equipment to the Owner for Construction Equipment Advance.

B. Mobilisation Advance should be given upto 10% of Contract price, payable in two equal instalments. The first instalment should be paid after mobilisation has started and next instalments should be paid after satisfactory utilisation of earlier advance (s).

C. Construction Equipment Advance should be paid upto 5% of Contract price, limited to 90% of assessed cost of machinery. For special cases, a higher advance for construction equipment upto 10% of contract price may be considered.

D. Construction Equipment advances should be paid in two or more instalments. First instalment should be paid after Construction Equipment has arrived at the site and next instalments should be paid after satisfactory utilisation of earlier advance (s).

E. Recovery of Mobilisation and Construction Equipment advance should start when 15% of the work is executed and recovery of total advance should be complete by the time 80% of the original Contract price is executed.

CLAUSE 8 -Secured Advance

A. 75% of cost of materials brought to site for incorporation into works only should be paid as Secured Advance. Materials which are of perishable nature should be adequately insured. In case, advance is not payable against any particular items, they should be listed in the Contract Document.

CLAUSE 9 -Liquidated Damages and Incentives

A. In case of delay in completion of the contract, liquidated damages should be levied at the rate of ½% of the Contract price per week of delay, subject to a maximum of 10% of Contract price.

B. For early completion of the contract before the stipulated date of completion or such later date as authorised by the owner, incentive should be paid to the contractor at ½% of the contract price per week of early completion, subject to a maximum of 10% of contract price.

C. The incentive of ½% of the contract price per week to the contractor would be applicable in cases where completion of work (contract) before the schedule leads to tangible benefits or benefits envisaged in the project document on its completion as per schedule.

CLAUSE 10- Escalation

A (I) All short duration contracts up to 24 months should be awarded on fixed price basis and are not subject to any escalation what so ever. However, only statutory variation limited to duties and taxes are considered for adjustment in contract price.

A (II) For calculating escalation, base prices should be taken as on the date of opening of the Bids.

B. The Contract document should specify the suitable percentage of input for labor, materials like cement, steel, bitumen, POL and other materials and equipment usage for the purposes of calculating escalation.

1. Escalation should be calculated, based on

• Notified fair wages and in the absence of which consumer price index for labour would be applicable,

• Average official retail price of bitumen & POL, and

• Whole sale price index for other materials,

• Published Government Documents should be used for calculation of escalation amount.

                    e) If the parties reach agreement of the dispute, they may draw up and sign a written settlement                      agreement. They may request the Conciliator to draw up or assist them in drawing up the                      settlement agreement.

                    f) If settlement agreement shall have the same status and effect as if it is an arbitral award on                      agreed terms on the substance of the dispute rendered by an arbitral tribunal under section 30 of                      the Act.

                    g) If a settlement does not appear possible, the Conciliator, after consultation with the parties, will                      give a written declaration that further efforts at Conciliation are no longer justified and the                      Conciliation Proceedings are terminated.

If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or arising out of the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after the repudiation or other termination of the Contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred to the Dispute Review Board.

The Board shall be established by signature of the Dispute Review Board Agreement ("the Board Agreement") which shall occur at the same time as the signature of the Contract Agreement.

Membership of the Board in all contracts of value upto Rs. 3.00 crores will consist of one Member, experienced in the type of construction involved in the Works and in the interpretation of document, to be appointed by the President, Institution of Engineers (India) at the request of the employer. In all other cases, membership of the Board shall comprise three Members similarly experienced. One Member shall be selected by each of the Employer and the Contractor and approved by the other. If either of these Members is not so selected and approved within 14 days of the date of the Contract Agreement, then upon the request of either or both parties such Member shall be selected within 14 days of such request by the President, Institution of Engineers (India).

The third Member shall be selected by the other two and approved by the parties. If the two Members selected by or on behalf the parties fail to select the third Member within 14 days after the later of their selections, then upon the request of either or both parties such third Member shall be selected within 14 days by the same international / national appointment authority as above who shall seek the approval of the proposed third Member by the parties before selection, but failing such approval nevertheless shall select the third Member. The third Member shall serve as Chairman of the Board.

In the event of death, disability, or resignation of any Member, such Member shall be replaced in the same manner as the Member being replaced was selected. If for whatever other reason a Member shall fail or be unable to serve, the Chairman (or failing the action of the Chairman then either of other Members) shall inform the parties and such non-serving Member shall be replaced in the same manner as the Member being replaced was selected. Any replacement made by the parties shall be completed within 30 days, failing which the replacement shall be made by the same international / national appointing authority as above in the same manner as described above. Replacement shall be considered complete when the new Member signs the Board Agreement. Throughout any replacement process the Members not being replaced shall continue to serve and the Board shall continue to function and its activities shall have the same force and effects as if the vacancy had not occurred.

Either the Employer of the Contractor may refer a dispute to the Board and the Board's recommendations shall be binding on the Employer and the Contractor in respect of disputes involving individual claims upto one percent of the contract value subject to a ceiling of Rs.1 (one) million for contracts valued upto three hundred million or and (ii) ceiling of Rs. 10 (Ten) million for contracts valued above Rs. 300 (Three hundred) million. In all other cases, upon receipt of Board's Recommendation (s), these shall be deemed accepted. Accepted and deemed accepted Recommendations shall be final and binding on the parties.

Any dispute on which the Board has not issued a Recommendation within 42 days of its final hearing on the dispute, or regarding which the Recommendation (s) are not accepted, may be referred in writing by either party to arbitration in accordance with this Clause, by written notice to the other party with copies to the Engineer and the Board. Such notice shall state that it is being made pursuant to this Clause and shall establish the entitlement of the party giving it to commence arbitration provided that no such arbitration may be commenced until such notice is given. Such reference shall be made within 14 days of receipt of the Board's recommendation (s), or within 14 days of the day on which said period of 42 days expired, as the case may be, failing which reference any recommendation (s) previously rejected or not accepted shall be deemed accepted despite such previous rejection or non-acceptance and shall be final and binding upon the parties.

All Recommendations, which have become final and binding, shall be implemented by the parties forthwith; such implemenation shall include any relevant action of the Engineer.

Whether or not accepted or deemed accepted, all of the Recommendations shall be admissible in any subsequent dispute resolution procedure, including any arbitration or any litigation having any relation to the dispute or disputes to which the Recommendation (s) relate.

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect forthwith to every decision of the Engineer unless and until the same shall be revised, as hereinafter provided, in an arbitral award.

A.        Owners Risks: The owner is responsible for the excepted risks, which are :-

          (a)    War, hostilities, invasion, act of foreign enemies, rebellion, revolution, insurrection of military or                      usurped power, or civil war;

          (b)    Riot, commotion, disorder, unless solely restricted to employees of the Contractor or his                       sub-contractors and arising from the conduct of the works;

          (c)     Contamination by radio activity from any nuclear fuel, or from any nuclear waste radioactive toxic                      explosive;

          (d)    A cause due solely to the design of the Works, other than the Contractors design;

          (e)    Pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonis speeds;

           (f)     Flood, tornadoes, earthquakes and landslides;

          (g)    Loss or damage due to the use or occupation by the Employer of any Section or part of the                     Permanent Works except as may be provided for in the Contract ;

          (h)    Any operation of the forces of nature (in so far as it occurs on the site) which an experienced                     contractors could :

                  * not have reasonably foreseen or could

                  * reasonably have forseen, but against which he could not reasonably have taken at least one of the                     following measures :

ANNEXURE-II

• To identify clauses which require discussion, to discuss alterations considered desirable and to suggest suitable modifications.

          3.       Composition of Committee :

                        CHAIRMAN : Shri. Harish Chandra

                        (Former DG, CPWD, Former Member UPSC and

                        Chairman, Planning Commission's Working Group on Construction 1989-90)

MEMBER SECRETARY Shri P.R. Swarup, Director CIDC

Shri L.R. Gupta, Former Director General (Works), CPWD gave useful suggestions on his behalf and on behalf of the Builder's Association of India.

* These Members could not participate in the deliberations of the Committee.