Public Procurement and Contract - Theory and practice in Nepal_2013

Procurement and Contract
Lecture
Gyanendra Shakya
gshakyaguita@gmail.com

Procurement and Contract
Procurement - Basics
Procurement - Methods
Procurement - Contracts

Procurement
• “to obtain sth…” >>
– Goods
– Works
– Services (consulting and non-consulting)
Actors
• ‘Buyer’, ‘Employer’, ‘Owner’
• ‘Bidder’ = Contractors, consultants, service providers, seller.
• Other stakeholders >> ‘User’, ‘consultant’ etc
Procurement Cycle
PROCUREMENT - Basics
Appriasal Call Award
Contract
Contract
administration
Project
completion

Public Procurement
Therefore, this must be managed/controlled by some common
(public) rules. This way of doing procurement is public procurement.
“Public procurement is the buying of goods and services on behalf of a
public authority, such as a government agency. Governments
spend public monies to secure inputs and resources to achieve
their objectives and by doing so, create significant impact on key
stakeholders and wider society.“
PROCUREMEN T- Basics
Money
belongs to A
User is B
C
Spending
distributing
agency

PRINCIPLES OF PUBLIC PROCUREMENT :
1. Economy – best value for money &
competition - Finance Ministry’s concern
2. Efficiency – Timely action & completion
Project’s concern, but against the Fairness
3. Fairness on equal footing, no biasness – but
may be against the Effiiciency – Bidder’
concern
4. Transparency –well informed to all
potential/ interested bidders/applicants –
but may be against the Efficiency-Auditor’s
concern
Ideally, all of these 4 parameters should be met
100%, but in practice it is not possible. Attempt
should be to be in the nearest of this, while meeting
the project’s objectives.

“Public procurement is one of the areas where local
and central governments interact with the private
sector given the fact that huge funds are
relocated from public to private actors.
Procurement can also serve as a mechanism to
foster additional policy aims such as enhancing
competition, innovation and social goals – which
may lead to additional conflicts of interest
regarding the original goals ”.
Hence vulnerable to corruption  remedy is to
enhance transparency and accountability
Issues:
1. Coercion, Collusion, Cartel, Fraudulent
practice, conflict of interest and corruption
2. Ethical > Probity, transparency and
accountability

Nature of subject to be procured
Goods
• Tangible, measureable and countable physical component
• Order > purchase > delivery>warranty/guaranty
• Quantity, Quality and cost matters
Works
• Measurable quantity of works constitute of labor, material,
installation and overheads.
• Works done in situ as per design and specification
Services [Consulting and non-consulting]
• service can't be quantified
• lower fee doesn't guarantee lower project cost.
• mutual confidence and trust between two parties helps in
getting Best project results.
PROCUREMENT - Basics

Acts, Regulation and guidelines
Public Procurement Act 2063
Public Procurement Regulation 2064
Public Procurement Regulation (Revision) 2068
Procurement under assistance of EDPs
Joint Financing Arrangement (JFA) – ground for
national government for following Guidelines of
EDPs such as World Bank Group, ADB, JICA etc.
A Case study: “e-bidding for NCB and no e-bidding for
ICB ??”

METHODS OF PROCUREMENT
General methods
• Direct engagement (Shopping)
• PPP arrangement
• User committees
• NGOs/INGOs
• Force account
For consultants only
• Selection by ability
• Design competition
For Works/Goods only
• Sealed Quotation
• Tender (NCB/ICB)
PROCUREMEN T- Methods

10
Methods of Procurement Under Different Guidelines
S
N
Descri
ption
WB ADB GoN - Proc Act/Reg
1 Works
1.ICB (GL 2.1-2.65)
2.NCB (GL 3.3-3.4)
3.Shopping (GL 3.5)
4.Direct Contracting (GL 3.6- 3.7)
5.Force Account (GL 3.8)
1.ICB (GL 2.01-2.50)
2.International Shopping (GL
3.02-3.03)
3.LCB (GL 3.04)
4.Direct Purchase/ Negotiation or
Single Tender (GL 3.05)
5.Force Account (GL 3.07)
1.ICB
2.NCB
3.Sealed Quotation (A40/R-84)
4.Direct Contracting (A41/R-85)
5.Force Account (R-98)
6.Through Users’ Committee
2 Goods
1. ICB (GL 2.1-2.65)
2. Modified ICB (GL 2.66-2.68) for
large value contracts
3. Limited International Bidding (GL
3.2)
4. NCB (GL 3.3-3.4)
5. Shopping (GL 3.5)
6. Direct Contracting (GL 3.6-3.7)
7. Procurement from UN Agencies
(GL 3.9)
1.ICB (GL 2.01-2.50)
2.International Shopping (GL
3.02-3.03)
3.LCB (GL 3.04)
4.Direct Purchase/ Negotiation
(GL 3.05)
5.Limited Tendering and Repeat
Order (GL 3.06)
1.ICB
2.NCB
3.Sealed Quotation ((R-84)
4.Direct Contracting (R-85)
3 Service
s 1.QCBS (GL 2.1-2.31)
2.QBS (GL 3.2-3.4)
3.Selection Under a Fixed Budget (GL 3.5)
4.Least Cost Selection (LCS)(GL 3.6)
5.Selection Based on the Consultant’s
Qualification (CQS) (GL 3.7-3.8)
6.Single Source Selection(SSS) (3.9-3.13)
7.Selection of Particular Types of
Consultants (GL 3.15-3.21)
1.QCBS (GL 6.04-6.12)
2.QBS (GL 6.01)
3.Individual Consultants (GL
8.01-8.07)
4.Special Selection Procedure
(GL 6.13)
1.QCBS (R-70)
2.QBS (R-70)
3.QCBS from Standing List (R-
72)
4.Direct Selection (R-82)
5.Design through Competition
(R-87)
6. Through I/NGOs
7.Other Methods (R-83)

Nepal's National Practice
• PPA , 2063 and PPR 2064
• direct negotiations if < = 3 lakh rupees fee; - piecemeal not
allowed.
• Request for Proposals (RFP) – >3 three or <=10 lakhs
• allows by soliciting proposals from consultants included in
standing list:
– for Less than One Million Rupees
– Call by writing from the consultants included in the standing list
– at least three consultants must submit proposals in separate envelopes.
– shall be evaluated according to the quality and cost based selection
method (QCBS).
• Invitation of Expression of Intent (EOI) for shortlisting :
– values more than one million rupees
• if more than thirty million rupees >> international letters of
intent (ILOI)
PROCUREMENT - Methods

PROCUREMENT - Methods
• “ I must run
the machine
as I find it”.
• - Abraham Lincoln (on
administration)

PROCUREMEN T- Contract
CONTRACT AGREEMENTS
Form of Contract ? oral or written
Why contract ? >> to spell out -
service definition
obligations of each party
defines the steps to be followed in initiating, modifying
and terminating the services.
Dispute resolution
staffing
payment procedures
definition of payment items
method of calculating payment due,
frequency of payments
recovery of advance payment, retention etc.
price adjustments
liability of the two parties
"it is much safer to make use of standard contract documents."
AIA, RIBA, IIA, PPMO, WB, ADB, FIDIC etc.

PROCUREMEN - Contract
Contract is an agreement made
between two or more than two
parties, which can be enforceable
by law. (Contract Act 2056)

Essentials of Contract
Between
competen
t parties
Essentials
of
Contract
Free
consent
of Parties
Definite
proposal
and
acceptance
Lawful
considerat
ions and
object.
Possibility
of
performa
nce
Meaning
shall be
certain.

Types of Construction Contract
Admeasurement/
Item rate/ BoQ
Turnkey or Semi-
Turnkey
(Design & Build)
Lump-sum
Cost reimbursable
Contract
Management
Contract
Performance
Base repair and
maintenance
management
Time and material
rate contract
contract
Piecework
Contract
based on method of payment and scope of work

Types of Contract for Consulting Service
based on method of payment and scope of work
Man-month or time-based fees
Lump-sum fees
Percentage fees
Cost plus fixed-fee.
Retainer Fee

Contract Documents (for works)
• SBDs – FIDIC, PPMO, WB, ADB etc.
• PWD – till 2002 (advent of PPA)
Classification of PPMO's SBD
Medium
Contracts
Works up
to NRs.500
million
30million-
500million
– NCB
Small
Contracts IA
NRs 6.00
million to
NRs.30.00
million.
(NCB)
Small
Contracts IIA
NRs 1
million to
NRs. 6.00
million.
NCB – no
qualificatio
n criteria
only
eligibility
criteria.
Sealed
Quotation
NRs 0.5
million to
NRs.1.00
million.
Direct
Purchase
Works
upto
NRs.0.5
million.
PROCUREMENT - Contract

Contract Documents
Case Study – SBD for Small Contracts IA
A. Invitation Of Bids (IFB)
B. Part I - Bidding Procedures
• Section 1 -Instructions to Bidders (ITB)
• Section 2 -Bid Data Sheet (BDS)
• Section 3 -Evaluation and Qualification Criteria (EQC)
• Section 4 -Bidding Forms (BDF)
C. Part II - Requirements
• Section 5 -Works Requirements (WRQ)
• Section 6 -Preamble to the Bill of Quantities (BOQ)
D. Part III - Conditions Of Contract and Contract Forms
• Section 7 -General Conditions of Contract (GCC)
• Section 8 -Special Conditions of Contract (SCC)
• Section 9 -Contract Forms (COF)

Contract Documents
Section I: Instruction to Bidders (IBT)
• background information
• instruction on preparation of bids
[such as filling bid rates, currency of bid, bid validity, bid
security; instruction on submission of bids such as mode,
deadline, modification and withdrawal; instructions for bid
opening and evaluation and award of contract]
• performance security
• corrupt and fraudulent practices - effective only when the
client is strict in safeguarding his investment.

Contract Documents
Section II: Bidding Data Sheet (BDS) –
• ITB - standardized
• BDS – to define variable of ITB clauses
• [such as addresses, deadlines, bid security amount, date of
completion etc.
• as Nutshell
Section III: Qualification Information
• Eligibility criteria - legality, tax clearance, pending litigation,
requirements of the J/V partners' minimum share and
soundness of the financial situation.
• Qualification requirements – firm which does not pass in
qualification evaluation, can not be selected despite of his
lowest bid.
• Pre –qualification - Cartel may be possible.
• Post –qualification - less likely

Contract Documents
QUALIFICATION CRITERIA
• Financial Situations:
• Historical financial performances - audited balance
sheets of last 5 years.
• Average Annual construction turnover
• Financial Resources:
• Cash flow requirement
• Line of credits = estimate x (4 to 6)/time period in
months
• Experiences
• General construction experiences: 3 to 5 years
• Specific experiences: Similar Size and Nature
• Specific key activities
• Qualification of key personnel
• List of Equipments available: (owned or leased)

Contract Documents
• Section IV: Form of Bid - standard formats
• letter of bid, security guarantee, qualification and eligibility
submission formats
• Section V: Work requirements - Specification, the Drawings,
supplementary information, scope of works.
• Section VI: Preamble to the Bill of Quantities: “Bill of Quantities” /
“Schedule of Activities” in case of lump sum contracts
• Day work Schedule: for any unforeseen work E.g. classes of labor,
materials, and equipment
• Provisional Sums: - insurance premiums, lab test costs, cost for
preparing as built drawings - reimbursable after producing a the
original invoices. .
•

Contract Documents
Contract Management
Section 7 - General Conditions of Contract (GCC)
• Clauses for conditions which apply to the contract.
• Consultant/Project Engineer's role in contract administration
• Consultant's representative - Project Manager/ Engineer.
• Government's technical agency – Employer

Contract Documents
Contract Management
Section 8 - Special Conditions of Contract (SCC) All the variable
conditions specific to each contract are included in this section so as
to avoid altering the standard conditions. The name of the contract,
names and addresses of the client, his representative, the Project
Manager, the intended starting date, the location of the site, the
defects liability period, the percentage of liquidated damages,
bonuses, insurance, language, applicable law, currency of payment,
adjudicator, retention amount, performance security and any
additional conditions are included in this section.
Section 9 - Contract Forms: These are standard forms or formats that
is used in the contract. They includes: Letter of Intent, Letter of
Acceptance, Contract Agreement, Performance Security, Advance
Payment Security, Form of Agreement.
•

Contract Documents
Contract Management
ADB/FIDIC provisions (which is not supported by PPR)
• Compensation – [late supplying of drawings, delay in providing site, Work
stoppage due to emergencies.
• Reassessment of rates for variations - if 10%
• interest if approved bill same are paid lately.
• Arbitration to be settled in the International Chamber of Commerce.
Important components of Contract Agreement
• Project period – Start & end
• Contract price – (Variations/Indemnity and compensation)
• Price Adjustment (escalation & currency exchange)
• Method of payment
• Advance Payment
• Penalty /liquidated damages and Bonus
• Work Completion and Termination
• Insurance
• Quality Control
• Warranty / D L P
• Dispute resolution

CONTRACT ADMINISTRATION
• After signing contract >
• "The architect/project engineer needs to ensure
construction is carried out as per the plans and
specifications according to the terms of the contract ."
• comprehensive consulting service > architect is in key role
• Authorizaton of Personnel:
• The client/project director informs the contractor about
architect
• Contractor informs the his/her representatives.
• Study Documents: The architect/project engineer should
thoroughly study the working drawings, specifications,
estimates, contract documents etc. before commencement
of the works. Any errors or omissions > notified/rectift,
• Get acquainted with the contractor’s plan of operations,
safety provisions and schedule of progress.

• Delays
• Liquidated damage > If not able to document the cause
of delay >
• no Liquidated damage > if Force Majeure - owner
directed changes, acts of God, strikes, war etc.
• May also covered from Insurance claim.
• If owner caused delays > both time extension and
additional payments
• Payment to Contractor:
• prepare/check bills and certify [monthly basis or at every
predetermined milestones.]
• made for work completed, material delivered to the work
site and work prefabricated
• a retention money –[5%-10%] as guarantee against any
defective work – usually returned of amount after issuance of
'Substantial Completion Certificate the remainder is paid
after the expiry of the DLP (covers rainy season)
• deductions for any advance payments in each bill

• Record Keeping
• project activities, correspondence, daily diaries of events
(source of information, outcomes etc. which can serve as
evidence in case of later controversies), personnel, supplies
and equipment, project progress reports, final report,
photographs etc.
• Variations
• must be within the scope of the contract.
• Causes:
• modification made by the owner or designer, differing
site conditions, unforeseen work essential to complete
the work, mistake in estimate
• unforeseeable delays which increase the cost or time of
construction
• substitution by alternate equipment, material or process.
• Modifications often require >> adjustments in the contract
price and construction time
• May become cause of dispute

• Material and Equipment Control:
• approval of quality of construction material
• take samples and tests of materials
• storage and handling
• records of presence of materials and equipment >>
becomes important in case of termination due to default of
contractor.
• Work Completion
• Inspect the works < After notification from the contractor
• Punch list > enlist defects or unfinished works.
• Substantial completion certificate >> If minor
• DLP – starts soon after Substantial Completion Certificate .
• Defect Liability Certification >> if contractor corrects all
previously noted defects as well as any new defects by the
time the defects liability period is completed
• Final payment > + retention money

• Dispute Resolution:
• Contractor's Claim >
• additional payments
• time extension
• DISPUTE
• a disagreement between the client and the contractor
on some contractual matters.
• The architect/project engineer as adjudicator >
Or
• An Adjudicator may be appointed as agreed by both
parties> if could not be agreed > appointing authority will
do.
• properly evaluate
• decide
• to give his unbiased judgment
• if dissatisfied >> arbitration.

FIDIC Red Book
1987Edition
1999Edition

CONTRACT AGREEMENTS (for consulting service)
• SCAEF’S Model Agreement
– adopted from FIDIC and ADB
• CONTRACT
Form of
Agreement
General
Conditions of
Contract
Part 1 - standard
conditions
Part 2 - special
conditions
Appendices

• PART 1: Standard Conditions
• General Conditions
– definitions
– Relationship between parties – not master/servant or
principal/agent
– Language and Law – English/ law of Nepal
– Headings – not part of agreement/ not to effect contract
– Notices – to be given in writing
– Location, Authority of member in charge, Representatives, taxes
• Commencement, Completion, Alteration and Termination of
Contract
– Effectiveness of contract,
– Expiry, Variations
– Force Majeure [def., measures to be taken, EoT, Consultation,
Suspension]

– Death of client – obligation passed on to successor
– Sub-contract – can be done without written consent
– Termination
By Client
• client can terminate contract through written notice giving at
least 30 days notice
• force majeure
• Default by consultant
• corrupt n' Fraudulent Practice
By Consultant
• if payment is not made within stipulated period
• if project is postponed by more than 6 months.
• Consultant to be paid in full for work performed up to
effective date of termination or postponement

• Undertaking of the Consulting Firm
– standard of performance
– Records – keep accurate and systematic records and allow
client to inspect records and accounts
– Information – furnish all required information to client
– Confidentiality
– conflict of interest
– Indemnification - will indemnify client and his agents
against all actions, claims and liabilities arising out of
consultant’s actions including violation of copyright,
patent.
– Clients Equipment and Materials – client’s property if
furnished or purchased with client’s funds.

• Undertaking of the Consulting Firm
– Proprietary rights of the client in reports and records
– Insurance
– Notice of delay – promptly notify of any delay and may
request for time extension
• Liability of the Consulting Firm
– liability amount
– Liability to expire on date of completion as stated in Part 2
– Liable for violation of patents or copyrights
– Not liable for work not undertaken by him
– Not liable for actions of client, contractor or supplier not
covered by TOR or his instructions or written orders
– Liable for payment of taxes, duties, fees as per law

• Obligations of the Client
– provide all relevant information and give decisions timely
– Provide free access to land
– Where applicable assist in obtaining necessary visas,
licenses, permits and customs to bring in equipment,
permission to bring reasonable amounts of foreign
currency for services and personnel, authorization to take
out earned foreign currency and repatriation in event of
emergencies.
– Client to compensate for any unrecovered cost of taxes,
duties etc. where exemptions apply.
– Client to provide equipment as listed in Appendix.
– Client to provide counterpart staff as listed in Appendix.
– Pay remuneration as per agreement.

• Obligations of the Client
– Consultant to cooperate with other firms engaged by client
as listed in Appendix.
• Settlement of Disputes
– Amicable settlement (30 days)
– Adjudicator (30 days) – appoint jointly.
– Arbitrator (30 days) as per NEPCA -Decision of arbitrator to
be final.
• Personnel
– Services to be carried out by personnel during period
indicated in Appendix B
– Designate team leader responsible for liaison between
client and consultant
– If necessary replace staff with person of comparable
experience with client approval

• Personnel (contd…)
– Client’s staff to be remunerated and removed by client
• Remuneration to the Consulting Engineer
– Client to pay consultant as set forth in Appendix
– Additional remuneration to be paid if supplementary
services required.
– If additional work - appropriate remuneration to be paid
• Payment to the Consulting Engineer
– Payment amount - Appendix.
– Payment within 30 days of invoice otherwise interest
– If dispute – hold only that item.
– If applicable foreign currency payement
– Exchange rate of foreign currency = selling rate

• PART 2: Conditions of Particular Application
• Notices
– addresses
• Languages and Law
• Authorized Signatories
• Others
– Commencement Date
– Completion Date
– Financial Liability of Consulting Engineer – limited to 100% of
total remuneration
– Expiry of Liability of Consulting Engineer – date
– Settlement of Disputes – place
– Client’s individual experts
– Specification and designs
– Special clauses related to particular project

• APPENDICES
– ToR
– Reporting Requirement
– Key personnel and Subconsultants
– Duties of the Client
– Cost Estimates
– Form of Guarantee for Advance Payment.
– Minutes of Negotiation meetings.

PPMO model of agreements
• PPMO's standard contract document is similar to ADB
documents. Some important terminologies to be remembered
and understand in details are:
• Terminations
• Force majeure
• Extension of Time (EOT)
• Breach of Contract
• Conflict of interests
• Confidentiality
• Obligation of Client
• Obligation of Consultants
• Payments
• Retention

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