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Contract Award, Performance, and Administration. Award of Contract Contract Documents Documents should clearly define: FTHE SCOPE OF WORK TO BE PERFORMED.

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Presentation on theme: "Contract Award, Performance, and Administration. Award of Contract Contract Documents Documents should clearly define: FTHE SCOPE OF WORK TO BE PERFORMED."— Presentation transcript:

1 Contract Award, Performance, and Administration

2 Award of Contract Contract Documents Documents should clearly define: FTHE SCOPE OF WORK TO BE PERFORMED FTHE GOODS TO BE SUPPLIED FTHE RIGHTS AND OBLIGATIONS OF THE PURCHASER AND OF THE CONTRACTOR OF SUPPLIER AND

3 Award of Contract Contract Documents (contd) FIN ADDITION TO THE GENERAL CONDITIONS OF CONTRACT ANY SPECIAL CONDITIONS APPROPRIATE TO THE NATURE AND LOCATION OF THE PROJECT SHOULD BE INCLUDED

4 CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS SHOULD BE PREPARED ON THE BASIS OF EQUALITY AND MUTUAL BENEFIT

5 Contract Definition A CONTRACT IS AN AGREEMENT BETWEEN TWO OR MORE PARTIES WHEREBY EACH PARTY PROMISES TO DO, OR NOT DO DO, SOMETHING: A TRANSACTION INVOLVING TWO OR MORE INDIVIDUALS, WHEREBY EACH HAS RECIPROCAL RIGHTS TO DEMAND PERFORMANCE OF WHAT IS PROMISED (Friedman, Jack. P., Dictionary of Business terms, page 123)

6 CONTRACT AGREE TO TERMS, HAVE THE RIGHT TO DEMAND PERFORMANCE MORE IMPORTANT THIS PROMISE TO DO OR NOT TO DO SOMETHING IS ENFORCEABLE BY LAW AND INCORPORATES REMEDIAL RIGHTS FOR NON PERFORMANCE SELLER BUYER

7 Applicable Law A CONTRACT COMES INTO BEING WHEN THE PARTIES HAVE REACHED AGREEMENT ON ALL ESSENTIAL POINTS IN THE FORM REQUIRED BY THE APPLICABLE LAW

8 Applicable Law (contd) WORLD BANK STANDARD DOCUMENTS FA CONTRACT WILL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE PURCHASERS COUNTRY FUNTIL A FORMAL CONTRACT IS SIGNED, THE BIDDERS OFFER TOGETHER WITH THE NOTIFICATION OF AWARD WILL CONSTITUTE A BINDING CONTRACT

9 Contract Format FCONTRACT FORM FBID FORM FPRICE SCHEDULE FSCHEDULE OF REQUIREMENTS FTECHNICAL SPECIFICATIONS

10 Contract Format (contd) FGENERAL CONDITIONS OF CONTRACT FSPECIAL CONDITIONS OF CONTRACT FAMENDMENTS TO THE BIDDING DOCUMENTS, IF ANY FPURCHASER NOTIFICATION OF AWARD

11 Preparation of Contract FEACH CONTRACT IS UNIQUE FBUYER AND SELLER MUST AGREE FPREPARE ON THE BASIS OF EQUALITY AND MUTUAL BENEFIT FPREPARE IN LINE WITH THE APPLICABLE LAW

12 Preparation of Contract (contd) FAVOID CONFUSION AND LEGAL GAPS (by adhering to standard documents, such as those included in the World Banks Sample Bidding Documents) FMAKE SURE YOU KNOW YOUR CONTRACT

13 13 Contract Performance and Administration

14 Contracts for Goods/Equipment – INCOTERMS – Use of Letter of Credit Contracts for Works – Securities Common Problems 14

15 Contracts for Goods/Equipment Performance Security Payment Terms Pre-Shipment Inspection (Compliance with Specifications, with Bid) Understanding Delivery terms Liquidated (Delay) Damages Receipts Stores (Accounting for Goods received/dispatched) Warranty Obligations 15

16 Contracts for Goods/Equipment Contract changes/amendments are exceptional (and should be subject to Bank review) Litigation relatively rarely (Dispute settlement by arbitration if amicable settlement fails) Any amicable settlement should be subject to Bank review 16

17 INCOTERMS 2000 GROUP E: DEPARTURE – EXW: EX WORKS (…named place) GROUP F: MAIN CARRIAGE UNPAID – FCA: FREE CARRIER (…named place) – FAS: FREE ALONGSIDE SHIP (…named port of shipment) – FOB: FREE ON BOARD (...named port of shipment) 17

18 INCOTERMS 2000 cont. GROUP C: MAIN CARRIAGE PAID – CFR: COST AND FREIGHT (...named port of destination) – CIF: COST, INSURANCE AND FREIGHT (...named port of destination) – CPT: CARRIAGE PAID TO (…named place of destination) – CIP: CARRIAGE AND INSURANCE PAID TO (...named place of destination) 18

19 INCOTERMS 2000 cont. GROUP D: ARRIVAL – DAF: DELIVERED AT FRONTIER (…named place) – DES: DELIVERED EX SHIP (...named port of destination) – DEQ: DELIVERED EX QUAY (...named port of destination) – DDU: DELIVERED DUTY UNPAID (…named place of destination) – DDP: DELIVERED DUTY PAID (…named place of destination) 19

20 EX WORKS (EXW) DELIVERY: – SELLER PLACES THE GOODS AT BUYERS DISPOSAL – AT SELLERS PREMISES – NOT CLEARED FOR EXPORT – NOT LOADED ON ANY VEHICLE 20

21 EX WORKS (EXW) 21 SELLERS RISK SITE BUYERS RISK SB SELLERS COSTBUYERS COST DELIVERY

22 FREE ON BOARD (FOB) DELIVERY: – WHEN GOODS PASS SHIPS RAIL – IN PORT OF SHIPMENT SELLER CLEARS GOODS FOR EXPORT FOB ONLY FOR SEA AND INLAND WATERWAY TRANSPORT 22

23 FOB 23 S SITE B SELLERS COSTBUYERS COST SELLERS RISKBUYERS RISK DELIVERY

24 COST, INSURANCE AND FREIGHT (CIF) DELIVERY: – WHEN GOODS PASS SHIPS RAIL – IN PORT OF SHIPMENT SELLER CONTRACTS AND PAYS: – INSURANCE – FREIGHT CIF ONLY FOR SEA AND INLAND WATERWAY TRANSPORT 24 TO NAMED PORT OF DESTINATION

25 CIF 25 S SITE B SELLERS COSTBUYERS COST SELLERS RISKBUYERS RISK DELIVERY

26 CARRIAGE AND INSURANCE PAID TO (CIP) DELIVERY: – TO FIRST CARRIER NOMINATED BY SELLER SELLER CONTRACTS AND PAYS: – CARRIAGE – INSURANCE CIP USED IRRESPECTIVE OF MODE OF TRANSPORT, INCLUDING MULTIMODAL TRANSPORT 26 TO NAMED PLACE OF DESTINATION

27 CIP 27 S DELIVERY BUYERS RISK SITEBORDER B SELLERS COST

28 28 Most suitable for purchase of imported goods and equipment Use of Letters of Credit

29 29 Definition of Letters of Credit A written undertaking by a bank (issuing bank) given to the Seller at the request and in accordance with the instructions of the Purchaser to effect payment up to a stated amount, within a prescribed time limit, and against stipulated documents

30 30 LETTER OF CREDIT: 1 BUYER SELLER 1. Contract 3. Letter of Credit 5. Goods on Board 12. Goods Delivered CIF Doc.s 8. Documents 9. Money 11. M o n e y 10. D o c u m e n t s 2. C r e d i t Advise L/C issued 4. ISSUING BANK ADVISING/CONFIRMING BANK

31 Contracts for Works Performance Security Advance Payment Security Insurance Obligations/Documentation Supervision of Works Due Diligence of Engineer/Employer (Progress) Payment Certificates Liquidated (Delay) Damages Completion Certificate Liability Period (usually 1 year) Defect Liability Certificate 31

32 Unit Price/Ad Measurement Contracts Use of Bill of Quantity (quantities estimated by Employer and Unit Prices offered by Contractor/Bidder) Payments as per quantities executed * Unit Prices Variation Orders Quantity Variations: use contract provision for % limits on increases / decreases New Prices determined by Engineer 32

33 Lump Sum Contracts For simple contracts, construction of buildings Quantities estimated by Contractor/Bidder under his own responsibility Final Payment predetermined as a LS Payments as per Schedule of Activities Normally no price increase (except under Price Adjustment provision in contract) Engineer to supervise quality and compliance with contract specifications 33

34 Contracts for Works Price Adjustment Provision Final Payment Delayed Payments/Interest due Contract Amendments (subject to Bank Review if > 15% in value) As-Built Drawings Operation and Maintenance Manuals 34

35 SECURITIES, BONDS AND GUARANTEES (contd) PERFORMANCE SECURITY –BOND OR BANK GUARANTEE BORROWER SPECIFIES IN BIDDING DOCUMENT BOND -- 30% - 50% PERFORMANCE BANK GUARANTEE -- 10% 35

36 SECURITIES, BONDS AND GUARANTEES (contd) RETENTION –NORMALLY 5% OR 10% OF EACH PAYMENT CERTIFICATE –HALF PAID TO CONTRACTOR ON TAKE OVER –SECOND HALF REPLACEABLE BY BANK GUARANTEE ON TAKE-OVER (HENCE ALSO PAID ON TAKE-OVER) ADVANCE PAYMENTS –TO BE SECURED BY BANK GUARANTEE (NOT BY AN INSURANCE BOND!) FOR EQUAL AMOUNT

37 Common Problems Inappropriate payment practices – Excessive advance payments (70%!) 15-20% should be a maximum – Advance payments inadequately secured (must be a bank guarantee) – Delays in making balance payment (up to one year+!) – Interest is not paid to Contractor on delayed payment Consequences: – Contractors add cost to their bid price (up to 35%!) – Serious contractors/suppliers stay away from public procurement! 37

38 Common Problems (contd) Poor performance by Contractors Mostly consequence of: – Insufficient qualification of contractors – Poor practices in qualifying contractors – Lack of monitoring and remedial actions by Employer/Engineer – Collection of Delay (Liquidated) Damages is deficient/non existent 38

39 Common Problems (contd) Receipt of Goods/Delivery Notes deficient and/or unrecorded End users unaware of warranty obligations of supplier Contract Filing and Documentation inadequate 39

40 Contract Management Monitoring and Evaluation 40

41 Issues to be addressed Monitor contract execution to ensure that Contractor/Supplier performs as per Contract Sanctions in case of non-performance Payment should be contingent on satisfactory performance 41

42 Recommendations for Effective Monitoring (1/2) Monitoring system should provide for adequate sanctions against both public officers and contractors/suppliers Sanctions must be well known to both contractors and implementing agencies Project monitoring should be provided with appropriate staff, equipment, and motivation and by empowering the team with the required authority 42

43 Recommendations for Effective Monitoring (2/2) Need for a handbook for monitoring goods/works/services, build on best practice, and addressing both financial and technical issues Use independent consultants for monitoring/supervision of large technical supplies and civil works 43


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