Contract Management

Mahmood A.
Sulehri
October 2012
1
SALIENT ASPECTS
of
CONTRACT ADMINSTRATION
for
PMs and REs
Throwing a Stone in Still Water

Stirs Interest
Introduction Only
Broad Guidance
May provide Direction
Helps Develop Sharper Focus
Basis for Further Learning
3
Schematic Design
Budgetary Estimate
Detailed Design
Quantity Take-Off
Preparation of BOQ
Work Specifications
Engineers Estimate
Bid Preparation
Contractor Pre-/ Qualification
Contractor Selection/ Bidding and Award
Project Commencement
Performance Security
4
Insurances
Project Control
Scheduling
Applying Conditions of Contract on the Project
Contract Interpretations
Execution of Work in accordance with Drawings and Specs
Quality Issues in Construction and their Resolution
Quality Manuals/ Testing Procedures
Work Inspection Procedures
Payment against IPCs (Clause 60)
Determination of Increase / Decrease in
Contract Price (Clause 70: Price Adjustment)
5
RESOLVING CLAIMS:
Variation Orders
Cost Claims (Clause 53)
EoT Claims (Clause 44)
DISPUTE RESOLUTION:
Engineers Decision (Sub-Clause 67.1)
Amicable Settlement (Sub-Clause 67.2)
Arbitration (DRB, DAB, etc.) (Sub-Clause 67.3)
Completion Certificate (Sub-Clause _____ )
Defects Liability Certificate (Sub-Clause ____)
Final Payment certificate (Sub-Clause ________)
Project Closure
6
1.
2.
3.
4.
5.
6.
7.
8.
9.
Engineering Contracts
Role of the Engineer & Engineers
Representative
Price Adjustment
Introduction to Cost & EoT Claims
Dispute Resolution
Liquidated Damages
Variation Orders
Guidelines for Interpretation
Introduction to PPRA Rules
7
SALIENT ASPECTS of CONTRACT ADMINSTRATION

for PMs and REs
Salient Aspects of Contract Administration for PMs

and REs
CONTRACT
1. Engineering Contracts
Evolution of Agreements / Contracts
S
DIVISION
PART
Two parties and witness(es)

Mutually Agreed Terms
Verbal in the beginning
Confirmation of verbal Contract in Simple writings
(1 page)

CONTRACT
and REs
Evolution of Agreements / Contracts
S
DIVISION
PART
Further Clauses added with experience and specific

requirements
Development of Society and Law introduced
concept of EQUITIBILITY
The present form of the Contracts cater for the
possible eventualities in a construction project
10

CONTRACTS
and REs
Project, Tender and Bid
DIVISION
PART
PROJECT is an activity, performed to achieve

a defined goal/ Customer Requirements,
having the following aspects:
Unique/ Non-Routine
Temporary/ One Time Effort
Complex
Limited by:
Time
Budget
Resources, and
Performance Specifications
11

CONTRACTS
and REs
Project, Tender and Bid
DIVISION
PART
TENDER is a formal offer to undertake Works, supply

of Goods or provide Services
BID is the price offered for executing Works
TENDER and BID are used interchangeably
PEC Standard Bidding Documents use the term BID
12

CONTRACTS
and REs
What is Engineering Contract
DIVISION
PART
Agreement = Offer / Proposal + Acceptance

A contract is an agreement enforceable by Law
Essentials of a valid contract:
(a) competent to contract
(b) free consent
(c) lawful considerations
(d) lawful object
13

CONTRACTS
and REs
What is Engineering Contract
DIVISION
PART
is to seek proposal
Bidding/Tendering
conforms to Contract Act 1872 as
Principles
amended
Contracts when the subject matters
Engineering
are the following and defined under Section-2(k) of
PEC Act 1976:
Goods
Works
Engineering Services
14

CONTRACTS
and REs
Bidding Procedure
DIVISION
PART
Preparation of Detailed Design, Drawings and BOQ

Preparation of Prequalification Documents and
Prequalification of Constructors
Preparation of Bidding Documents
Notice Inviting Bids
15

CONTRACTS
and REs
Bidding Procedure
DIVISION
PART
Bid Evaluation
Letter of Acceptance (Award)
Performance Guarantee
Conformed Contract Documents
16

CONTRACTS
and REs
DIVISION
PART
End of Part 1
17

for PMs and REs
18
Salient Aspects of Contract Administration for PMs and REs
2. Role of The Engineer
Definitions
CONTRACTS
DIVISION
PART
Engineer means the person:

appointed by the Employer
to act as Engineer
for the purposes of the Contract and
named as such in Part II of these Conditions
19

CONTRACTS
DIVISION
PART
Definitions
Engineers Representative means:

a person appointed from time to time
by the Engineer
under Sub-Clause 2.2 [
responsible to the Engineer

and shall carry out such duties and exercise such
authority as may be delegated to him by the Engineer
under Sub-Clause 2.3 [.]
20
Importance
CONTRACTS
DIVISION
PART
The Engineer has an extensive role in the

administration of the Contract and the way in
which he carries out his duties
His role has a major impact on the Work of the
Contractor and the success of the project
The Engineer is fully responsible for the execution
and completion of the Works
21
Salient Aspects of Contract Administration

for PMsCONTRACTS
and REs
Duties of the Engineer
DIVISION
PART
The Engineer has three prime and distinctive

duties/ functions:
Administrative
Technical
Managerial
22

for PMsCONTRACTS
and REs
Administrative Duties of the Engineer
DIVISION
PART
To fulfill his Administrative duties, The Engineer Shall:

Maintain Regular correspondence with the Contractor and
the Employer
Serve the notice to the concerned parties according to the
condition of the Contract under Clause 68 [
]
Recommend for advance payment to the Contractor under
Clause 60 [
]
Check and forward Interim Payment Certificates (ICPs) to
the Employer for payment under Clause 60
Take remedial actions in case the Contractor fails to comply
with the Contract Document.
23

for PMsCONTRACTS
and REs
Technical Duties of the Engineer
DIVISION
PART
To fulfill his Technical duties, The Engineer Shall:

Review/ Prepare the design and specification and interpret
them when necessary under Clause 7 [
]
Revise the design drawing as required for the successful
completion of the project under Clause 7
Make the Engineers Decision for dispute settlement under
Clause 67 [
]
Make variation order (if any), and recommend for its approval
under Clause 51 [
]
24

for PMsCONTRACTS
and REs
Managerial Duties of the Engineer
DIVISION
PART
To fulfill his Managerial duties, The Engineer Shall:

Monitor the schedule regularly and control it to ensure that
project is completed on time under Clause 46 [
]
Analyze the need for time extension and recommend the
Employer to award time extension under Clause 44 [
Coordinate with the Contractor and the Employer

Verify and approve Contractors Schedule
Lead the overall construction team in general
25

CONTRACTS
and REs
DIVISION
PART
End of Part 2
26

for PMs and REs
27

CONTRACTS
and REs
Significance of Price Adjustment
DIVISION
PART
on Civil Construction Projects
3. Price Adjustment
If price adjustment provisions do not exist,

then:
If inflation turns out to be more, the contractor
loses
If deflation occurs, the employer loses
For a fixed price contract, the contractor
includes a margin for variation in prices as risk
management. The price may be higher
Less Stringent requirements of Escalation Risk
Analysis for the Bidder
28

CONTRACTS
and REs
Significance of Price Adjustment
DIVISION
PART
3. Price Adjustment
Employer receives a balanced bid

No need for Complex Record keeping of the
Consumption of the Specified items
Provide reasonable and realistic bid/prices by the
Contractor
Price adjustment provisions protect both the
employer and the contractor
Less chances of claims and disputes
Employer and the Contractor are in a win-win
position
29

CONTRACTS
and REs
3. Price Adjustment
Escalation
DIVISION
PART
Payable Escalation =
(Quantity of specified materials consumed
during the billing period) x
(Current rate Base rate)
30

CONTRACTS
and REs
Formula Method of Price Adjustment
of Construction Contracts
DIVISION
PART
3. Price Adjustment
Provisions to be included in the bidding

documents
Price adjustment formula in Particular Conditions of
Contract
FIDIC 1987: Sub-Clause 70.1 Increase or
Decrease of Cost, OR
FIDIC 1999: Sub-Clause 13.8 Adjustment for
Changes in Cost
Appendix C to Bid: Table of adjustment data
under of PEC Standard Form of Bidding
Documents (Civil Works)
31

CONTRACTS
and REs
3. Price Adjustment
Major Cost Elements Subject to Adjustment
DIVISION
PART
Cost elements are elements of costs which are

estimated to have significant impact of inflation and
should not be less than 7% of total contract amount.
Local Labour
(covers skilled and unskilled labour working at site)
Cement
(covers OPC, SRC and all types of Cement)
Reinforcing Steel
(covers all kinds of steel used for the Works)
32

CONTRACTS
and REs
3. Price Adjustment
Major Cost Elements Subject to Adjustment
DIVISION
PART
High Speed Diesel

(covers all types of fuel used for the Works)
Bitumen
(covers asphaltic material used for the Works)
Bricks
(covers all types of bricks used for the Works)
Fixed Elements
(covers overhead and profit, etc.)
33

CONTRACTS
and REs
Price Adjustment Formula
DIVISION
PART
Pn = a + b Ln/Lo + c En/Eo + d Mn/Mo + ...
3. Price Adjustment
where:
Pn is the adjustment multiplier
a is a fixed coefficient specified in Appendix - C to Bid,
representing non-adjustable portion in contractual payments
b, c, d, are weightages or coefficients representing the
estimated proportion of each cost element
Ln, En, Mn,.. are the current cost indices of the cost
elements for month n
Lo, Eo, Mo,.. are the base cost indices prevailing on
the base date as defined in the bidding documents
34

CONTRACTS
and REs
3. Price Adjustment
Overview of the Price Adjustment Formula
DIVISION
PART
Formula method: notional price adjustment,

not the actual price adjustment
The estimated contract value of the work
carried out in the period n is adjusted:
disregarding the type of the work, or quantities

of actual usage
applying weightings in the formula as

determined for the whole of the Works (based
on the analysis)
35
3. Price Adjustment
Table

CONTRACTS
and REs
of Adjustment Data (Appendix-C)
DIVISION
PART
Cost element
*
Description of
cost index or
reference
price *
Weightage
Source of cost index or

reference
price *
0.35
Fixed Part
Non-adjustable
Local Labour
(L)
Rate of unskilled labour shall be

taken as representative of all
types of labour working at the
Site
Monthly bulletin of Statistics, Government of

Pakistan, Statistics Division, Federal Bureau of
Fuel (F)
Rate of High Speed Diesel per

liter shall be taken as
representative of all types of fuel
used at the Site
PSO
Cement of all
types (C)
Ordinary Portland Cement (OPC)

per bag shall be taken as
representative of all types of
cement used for the Works
Monthly bulletin of Statistics, Government of

Pakistan, Statistics Division, Federal Bureau of
Statistics and/or PICC
Statistics and/or PICC
Miscellaneous
Materials
Total
1.00
36

CONTRACTS
and REs
Fixed Portion
DIVISION
PART
3. Price Adjustment
Fixed portion in a
Price Adjustment Formula
Part of Contract Value not subject to price adjustment
Includes but is not be limited to:
Inflation for the cost pertaining Cost elements not included
in the table of adjustment data/ formula
Cost of Providing various Guarantees
Taxes and duties included in the Contract Price
Contractors profit margin
Fixed portion shall not be less than 35% as per PEC Standard
Bidding Documents
37

CONTRACTS
and REs
3. Price Adjustment
Adjustment After Time for Completion
DIVISION
PART
If Contractor fails to complete the Works within

Time for Completion, adjustment of prices
thereafter until the date of completion of the Works
shall be made using:
the indices related to prescribed (Original) time
forEither
completion or the current indices whichever is more
favourable to the Employer, and
the current indices, if an extension of time is granted
pursuant
to Sub-Clause 44 of COC of FIDIC 1987
38

CONTRACTS
and REs
3. Price Adjustment
DIVISION
PART
End of Part 3
39

for PMs and REs
40

for PMsCONTRACTS
and REs
4. Introduction to Claims
Cost and EOT Claims
DIVISION
PART
Introduction to Claims
Under FIDIC 1987,
4th Edition, Reprinted 1992
Clause-44 EOT Claims
Clause-53 Cost Claims
41

for PMsCONTRACTS
and REs
DIVISION
PART
Extension of Time (EOT) Claims [Clause 44]

Acceleration Claims .. [Clause xx]
Cost Claims [Clause 53]
Claims against Subsequent Legislations [Clause 70]
Counter Claims by the Employers .. [Clause xx]
42

for PMsCONTRACTS
and REs
DIVISION
PART
Sub-Clause 53.1 [Notice of Claims]

Notice for intention to claim within 28 days
Sub-Clause 53.2 [Contemporary Records]
The Contractor will maintain the contemporary
records
Sub-Clause 53.3 [Substantiation of Claims]
Within 28 days of giving notice, the Contractor shall
submit a detailed claim to the Engineer

If the event has continuing effect, the Contractor
should make interim submissions
Followed by a final claim once the effect ceases
43

for PMsCONTRACTS
and REs
DIVISION
PART
Sub-Clause 53.4 [Failure to Comply]

If the Contractor fails to:
give notice
keep records, or
provide detail
His entitlement will be limited to the extent of available record/
data
Sub-Clause 53.5 [Payment of Claims]
The Contractor is obliged to include:

an Interim Certificate in respect of such claim or
part of claim for which Contractor has supplied sufficient
particulars
The Contractor shall be entitled to:

an amount in respect of any claim, as the Engineer may consider
due, after due consultation with the Parties
44

for PMsCONTRACTS
and REs
DIVISION
PART
Definition
Additional time granted to the Contractor to provide
an extended contractual time period by which
works are to be completed
Purposes
To relieve the Contractor of liability for Liquidated
Damages (LDs) for delay
To establish a new contract completion date to
prevent Time for Completion of works becoming
at large
45

for PMsCONTRACTS
and REs
DIVISION
PART
Original Duration
Start of Project
Original
completion date
46

for PMsCONTRACTS
and REs
DIVISION
PART
Original Duration
Start of
Project
EoT
Original
completion date
Extended
completion date
47

for PMsCONTRACTS
and REs
DIVISION
PART
Original Duration
Start
of Project
LDs
EoT
Original
completion
date
Extended
completion
date
Actual
Completion
date
48

for PMsCONTRACTS
and REs
DIVISION
PART
The essential elements which must be addressed

while presenting an EoT Claim are:
The Standalone Event

Liability for the Event
Reference to the Contractual Provisions
Contractual Compliance; Notices and Detailed Particulars
Statement of Claim
Cause and Effect
Admissibility
Substantiation
Delay Analysis
Determination and Grant of EoT
49

for PMsCONTRACTS
and REs
DIVISION
PART
Substantiation: Provide documentary evidences for

evaluation of Claim i.e.:
Letters
Method Statements
Instructions
Progress Reports
Photographs
Minutes of Meetings, and
Effective and Realistic Programme (Baseline, As-Built)
50

for PMsCONTRACTS
and REs
Contractual Procedure for Granting EoT
DIVISION
PART
Sub-Clause 44.1 [Extension of Time for Completion]

The Engineer is obliged to determine the EoT on the following
grounds,
with the consultation of the Parties,
if Contractor is fairly entitled :
Extra or additional work
Any cause of delay referred to in these conditions
Exceptionally adverse climatic conditions
Delays not attributable to the Contractor (incl. Employer Delays)
Special circumstances, e.g., war, revolution, etc. (other than
through a default of or breach of Contract by the Contractor)
51

for PMsCONTRACTS
and REs
DIVISION
PART
Sub-Clause 44.2
[Contractor to Provide Notification and Detailed Particulars]
The Engineer is not bound to make any determination if the

Contractor does not give;
Notification; and
Detailed Particulars within specified time frame
Sub-Clause 44.3 [Interim Determination of Extension]

If delaying event has continuous effect;
Contractor will submit interim particulars and
Engineer will make interim determination of EoT
When the effect of the event is ceased, Contractor will submit final
particulars and Engineer will make final determination of EoT
52

for PMsCONTRACTS
and REs
DIVISION
PART
Type of Delay
Reasons/Conditions
Excusable Delays
Employers default (delays)
Non-Excusable
Delays
Contractors default (delays)
Concurrent Delays
Parallel/ overlapping delays of both

Contractor and Employer
Neutral Delays
Not attributable to either Contractor or

Employer
Compensable
Delays
Contractor is entitled for EOT and/or Cost:

(Time + Cost)
Neutral delays
Employers delays (Time + Cost)
Contractors delays (Time Only)
53

for PMsCONTRACTS
and REs
DIVISION
PART
Basic Component of EOT is a stand-alone event

Each stand-alone event is reviewed and analyzed in the light of
available information
Admissibility determined
Delay (if any admissible) caused by a stand-alone event is
determined in days
Delay time of individual events is incorporated in the respective

activities of the Schedule
Overall Impact (EOT) on contract completion date is determined by

using various Delay Analysis Techniques using scheduling software
Approval from the Employer is sought of such determination (EOT)

and notified to the Parties accordingly [Sub-Clause 44.1]
54

for PMsCONTRACTS
and REs
DIVISION
PART
Most commonly used delay analysis techniques:

Impacted
As-Planned
Collapsed
As-Built
Time Impact Analysis

Typical Layout of an EOT Report
55

for PMsCONTRACTS
and REs
DIVISION
PART
Variation/ Change Orders (VO)

Supervisory Staff Salary Costs
Regularly Consumed Materials
General Expenses (stationery, printing, lighting charges, etc.)
Equipment & Plant Ownership Costs
Equipment Operation & Maintenance Costs
Warehouse Inventory Financing Costs
Insurance and Bond Costs
Head Office Overheads
Escalation
56

for PMsCONTRACTS
and REs
DIVISION
PART
By Negotiation
88%
By Mediation/ Amicable Settlement
05%
Through Arbitration
05%
Through Litigation
02%
57

CONTRACTS
and REs
DIVISION
PART
End of Part 4
58

for PMs and REs
59

CONTRACTS
and REs
Introduction
DIVISION
PART
5. Dispute Resolution
Every project involves some kind of dispute between the

Employer and the Contractor
Provides Mechanism for resolving disputes between the
Parties
Engineer is approached for dispute resolution i.e.,
Engineers Decision (ED)
If ED not accepted, then dispute may be settled by:
Amicable Settlement; or
Arbitration
Pakistan Arbitration Act, 1940

UNCITRAL Model
60
Dispute

CONTRACTS
and REs
DIVISION
PART
The dispute can be of any kind whatsoever arising :

in connection with the contract/ works including any:

opinion,
instruction,
determination,
certificate, or
valuation of the Engineer;
arising during execution or after completion of works; or

arising before or after termination of the contract
The request for ED to be made in writing by either party
with reference to Sub-Clause 67.1 of CoC
61

CONTRACTS
and REs
Introduction to ED
DIVISION
PART
A chance for the Engineer to Review his previous Stance on

the Issue
ED may be different from ERs previously Stated Position
ED to be made pursuant to Sub-Clause 67.1 of the Contract
ED to be given within eighty-four (84) days
ED shall be final and binding (resolved) if not challenged
Arbitration can commence only if a party gives notice to
If dissatisfied with ED, Parties may settle the dispute (after 70
days notice) through:
Amicable settlement
Arbitration under Arbitration Act 1940

62

CONTRACTS
and REs
Documents/ Record
DIVISION
PART
Relevant documents may be required from:

Employer
Contractor
Engineers Representative
Project Manager
63

CONTRACTS
and REs
Format of ED
DIVISION
PART
Engineers Decision should cover the following:

The Dispute : The Partys contention (+ Notice to other Party)
Introduction/Background : A short history of dispute & Parties
contentions
Relevant Contract Provisions
Discussion and Review by the Engineer: Parties stance, relevant
Contract Clauses, overall scenario, Engineers viewpoint
Conclusion: ED should be based strictly on the merits of the case
Engineers Decision : A clear-cut/crisp decision by the Engineer
- No justification
- Only answer to the problem statement
Right of Appeal : Appeal for Arbitration by either party
64

CONTRACTS
and REs
DIVISION
PART
End of Part 5
65

for PMs and REs
66

for PMsCONTRACTS
and REs
6. Liquidated Damages
DIVISION
PART
LIQUIDATED
DAMAGES
Under Clause 47
[PEC STANDARD BIDDING DOCUMENTS
(CIVIL WORKS) BASED ON FIDIC CONDITIONS]
67

for PMsCONTRACTS
and REs
DIVISION
PART
Liquidated Damages is the sum to be paid by the

Contractor to the Employer, if the Contractor fails to
comply with:
the Time for Completion for the Works
for the day which elapses between the Time for

Completion and Taking-Over Certificate
It is the pre-estimate of all the losses which are likely

to be incurred by the Employer as a result of late
completion of the works.
68

for PMsCONTRACTS
and REs
DIVISION
PART
Sub-Clause 47.1 makes it clear that:

The Employer may deduct the amount of the LDs
from any monies due or to become due to the
Contractor
This, however, is without prejudice to any other
method of recovery
Payment of the LDs shall not relieve the Contractor
from his obligations to complete the works
69

for PMsCONTRACTS
and REs
DIVISION
PART
To compensate the Employer for the losses incurred, due to the

Contractor, in not completing the Works on the specified date
It helps the Contractor to concentrate on finishing the project on

time
LDs act as an exhaustive remedy for damages for late completion
70

for PMsCONTRACTS
and REs
DIVISION
PART
The amount of the damages must roughly approximate

the damages likely to be incurred by the Employer
The amount (%) of damages must be known at the
time of signing of Contract
Normally not to exceed 10% of the Contract Price
The Employer who receives late completion does not
have to prove his losses due to such delay
71

for PMsCONTRACTS
and REs
DIVISION
PART
It makes the contract price more certain

the Bidder can price the level of LDs into his tender bid
If project is behind schedule, the Contractor can
decide whether to:
pay LDs on late completion or
devote more resources (Accelerate) to the project to bring it
back on Schedule
Equitable
treatment
calls
Bonus (@ 50% of Total LDs)
for
including
72

for PMsCONTRACTS
and REs
DIVISION
PART
The daily amount of LDs should be based on a

reasonable assessment of the actual damages which
he would suffer
It is usual to put a limit to daily Rate of LDs (0.3% to
0.4 %)
In general practice , at tender stage, LDs are
calculated according to the following formula:
LDs/day = 10% of Estimated Contract Price
F x Time for Completion in days
Where; F is the factor as a fraction of the Completion Period
(F= 0.25 to 0.33)
73

CONTRACTS
and REs
DIVISION
PART
End of Part 6
74

for PMs and REs
75

for PMsCONTRACTS
and REs
For a Construction Contract:
(51 & 52)
7. Procedure for Variation Orders
DIVISION
PART
is a change to the Works required under

theA Variation
Contract
Variation Order (VO) is a written instruction issued
byAthe
Engineer to the Contractor to vary the Works by
the way of:
Adding (A)
Removing (R) or
Modifying (M)
76

for PMsCONTRACTS
and REs
Methodology for Processing a Variation Order
DIVISION
PART
Major steps generally followed in processing a

variation order are: [HYPER LINKS]
1.Determination of Variation by the Engineer
(Ref Sub-Clause 51.1)
2.Issuance of written instruction(s) by the Engineer (Ref
Sub-Clause 51.2)
3.Notice by the Contractor to the Engineer or vice versa
of his intention to claim extra payment or a varied
rate/price
4.Valuation of Variations by the Engineer
77

for PMsCONTRACTS
and REs
1. Determination of Variation by the Engineer
DIVISION
PART
Engineer shall determine variation by instructing the

Contractor to do any of the following regarding any
work:
Increase or decrease the quantity in the Contract
Omit/ Delete any such work (D)
Change/ Modify the (M)
character
- quality
kind
- levels
lines
- positions
dimensions
- specified sequence
timing of construction
(A/D)
Carry out additional work of any kind necessary for

completion of the Works (A)
78

for PMsCONTRACTS
and REs
2. Issuance of Written Instruction(s) by the Engineer
DIVISION
PART
Engineer shall issue written instruction to the

Contractor to carry out the varied work
Contractor not to make a variation without the
written instruction of the Engineer
Contractor not to claim the cost of variation
performed without the written instruction of the
Engineer
No instruction shall be required for the change in
quantity(ies) exceeding or being less than those
given in the BoQ
79

for PMsCONTRACTS
and REs
3. Notice of intention to claim
DIVISION
PART
requirement for valuation of varied work under

Basic
Sub-Clauses 52.1 & 52.2
instruction by the Engineer
notice shall be given within 14 days of the date of
instruction by:
Contractor to the Engineer of his intension to claim
extra payment or a varied rate or price, or
Engineer to the Contractor of his intension to vary a
rate or price
Valid notice of intension to claim is a condition
precedent to any additional payment
notice is not required where the variation entails

Such
an instruction to omit work
80

for PMsCONTRACTS
and REs
4. Valuation of Variations by the Engineer
DIVISION
PART
Evaluate variation using the rates or prices set out in the Contract, to
the extent of their applicability
When there are no applicable rates or prices, use the existing
(reasonable) rates as a basis for valuation
Determination of provisional rates to enable on-account payments in
any certificate issued under Clause 60
Agreement of suitable rates or prices with the Employer and the
Contractor by the Engineer
If no agreement is reached, the Engineer shall fix such rates or prices
what he considers appropriate
For supplied items, the rates/prices shall be developed on the basis of
quotations of at least three suppliers
81

for PMsCONTRACTS
and REs
Applicable Clauses/Sub-Clauses [HYPER LINK]
DIVISION
PART
Sub-Clause 2.1
Engineers Duties and Authority
Sub-Clause 17.1
Setting-out
Sub-Clause 18.1
Boreholes and Exploratory Excavation
Sub-Clause 27.1
Fossil
Sub-Clause 31.2
Facilities for Other Contractors
Sub-Clause 36.5
Engineer's Determination where Tests not

Provided for
Sub-Clause 40.2
Engineer's Determination following Suspension
Sub-Clause 42.2
Failure to Give Possession
Sub-Clause 44.1
Extension of Time for Completion
Sub-Clause 58.2
Use of Provisional Sums

82

CONTRACTS
and REs
DIVISION
PART
End of Part 7
83

for PMs and REs
84

for PMsCONTRACTS
and REs
Rule &
Plain Meaning
Contextual vs. Textual meaning
DIVISION
PART
8. GUIDELINES FOR CONTRACT

INTERPRETATION
Plain Meaning Rule

In clear and unambiguous language:
Express meaning will be given higher priority
Implied meaning will have lower priority
Contextual vs. Textual meaning

Meaning of Words and Phrases without reference
to the Context should be discouraged
Context of words and phrases shall be given due
consideration while determining their meaning
85

for PMsCONTRACTS
and REs

INTERPRETATION
Standard Terms
Specific provisions have precedence
DIVISION
PART
Standard Terms
Defined Terms will have the specific meaning throughout the
document
Standard Terms consistently used throughout the document
Ordinary meaning will be given to words other than Defined Terms
and Standard Terms
Specific provisions have precedence

Specific language will usually Supersede more general clauses
Specific language will have Higher Priority
More General clauses will have Lower Priority
86

for PMsCONTRACTS
and REs

INTERPRETATION
Items not explicitly covered are excluded

Disadvantage to the Drafter
DIVISION
PART
Items not explicitly covered are excluded

Mention of certain items and not others usually means that the
excluded items were not meant to be covered
Disadvantage to the Drafter

An adhesion contract is a contract drafted by one party and
Reduced to a form agreement that generally presents no
opportunity for negotiation
In adhesion contracts, ambiguous language may be construed
against the drafter
Headings not part of the interpretation
87

for PMsCONTRACTS
and REs
Negotiated Terms

INTERPRETATION
Gap-filling
DIVISION
PART
Negotiated Terms
Negotiated Terms are to be given greater weight than
Standard Terms
Gap-filling
If there is a gap (that is if the contract does not address the
contingency that caused the dispute), the person
interpreting/ arbitrator may apply a default/ standard rule
88

for PMsCONTRACTS
and REs

INTERPRETATION
Role of Knowledge-Base
DIVISION
PART
If the contract is silent or unclear the interpreter will try

to determine what the parties meant when the contract
was written
To make interpretation/ determinations, History of
negotiations may be studied as an aid, including:
Minutes of Meeting
Oral authentication and
Past experience
89

for PMsCONTRACTS
and REs

INTERPRETATION
Spirit of Contract
DIVISION
PART
Contract as a whole will be examined, while

considering:
That all parts have some meaning and effect
(Read Together!)
Priority of Various Documents
Defined Terms
Standard Terms
90

for PMsCONTRACTS
and REs

INTERPRETATION
Standards of Preference
DIVISION
PART
An interpretation which gives a reasonable/rational and effective

meaning to terms
is preferred to an interpretation which
imparts an unreasonable or null effect
Priority of the documents for the purpose of interpretation,
considering order of their significance and weight, is:
express terms
course of performance
course of dealing and
trade usage
Negotiated terms are to be given greater weight than standard

terms
In adhesion contracts, ambiguous language may be construed
against the drafter
91

for PMsCONTRACTS
and REs
Reasonable Person Rule
DIVISION
PART

INTERPRETATION
Reasonable results are sought

Not ones that lead to:
Harsh results or
Nonsensical results
A well balanced use of the preceding rules is

warranted
Sound/ Prudent Engineering Practice
Extensive use of Logic
Augmented by Experience
Never Interpret to meet a demand
92

CONTRACTS
and REs
DIVISION
PART
End of Part 8
93

for PMs and REs
94
9. Introduction to PPRA Rules- 2004
Contents

for PMsCONTRACTS
and REs
DIVISION
PART
1. Overview of PPRA Act & Rules

2. Application of PPRA Rules
3. Salient Provisions of PPRA Rules
95

for PMsCONTRACTS
and REs
9. Introduction to PPRA Rules-2004
1. Overview of PPRA Act and Rules
DIVISION
PART
World Bank prepared CPAR [Define] in the year 2000

PPRA Ordinance promulgated in 2002 (Authority to make Rules)
PPR 2004 made by Federal Government
(Section 26 of the PPRA Ordinance, 2002 (XXII of 2002))
Finance Division (Admn. and Coord. Wing) vide S.R.O.

432(I)/2004 published these Rules on June 09, 2004
PPRA having jurisdiction to Federal procurement only
Provincial PPRAs Coming up
Application of PPRA Rules 2004 needed basic
Procurement Documents with the embedded rules
PEC Harmonised its Documents with PPRA in 2008
96

for PMsCONTRACTS
and REs
2. Application of PPRA Rules
DIVISION
PART
Applicable to all procurements of GOODS, SERVICES and WORKS

made by all procuring agencies* of the Federal Government whether
within or outside Pakistan.
* Procuring Agencies means any:
Ministry
Division
Department or
any Office
of the Federal Government.
Authority
Corporation
Body or
Organization
established by or under a Federal law or which is owned or
controlled by the Federal Government.
97

for PMsCONTRACTS
and REs
9. Introduction to PPRA Rules- 2004
3. Major Theme of PPRA Rules
DIVISION
PART
Curb/Minimise Corruption
Fair and Transparent (Rule 4)
Ensure Best Value for Money (VFM) (Rule 4)
Open Competitive Bidding (Rule 21)
Award to the Lowest Evaluated Bidder (Rule 38)
Negotiation(s) Not Permitted (Rule 40)
Redressal
98

for PMsCONTRACTS
and REs
4. Provisions of PPRA Rules
DIVISION
PART
Part 1: General Provisions

Rule 1: Title and Commencement
Rule 2: Definitions
Rule 3: Scope and Applicability
Rule 4: Principles of Procurement (Fair & Transparent, VFM)
Rule 5: International Treaties and Commitments of the
Government excepted
Rule 6: Language (Urdu & English in Pakistan, Local
Language elsewhere)
Rule 7: Integrity Pact required for Contracts valuing
Rs. 10 m & above
99

for PMsCONTRACTS
and REs
DIVISION
PART
Part 2: Procurement Planning

Rule 8: Procurement Planning (within 1 Year of these Rules)
Rule 9: Limitation on Splitting and Regrouping
Rule 10: Specifications (Generic, encourage competition)
Rule 11: Approval Mechanism (Powers to be delegated in
advance)
Part 3: Procurement Advertisement

Rule 12: Methods of Advertisement
(Ad on PPRA website for Rs. 0.1 m-2m, Ad in Newspapers-one in English and Urdu and PPRA website)
Rule 13: Response Time (min. 15 days for LCB & 30 days for ICB)
Rule 14: Exceptions (Risks: National security & Disclosure of Information)
100

for PMsCONTRACTS
and REs
DIVISION
PART
Part 4: Prequalification, Disqualification of

Suppliers and Contractors
Rule 15: PQ of Suppliers and Contractors
(for expensive and technically complex procurement)
Rule 16: PQ Process

(Instructions for Preparation and submission of PQ documents and
Evaluation Criteria)
Rule 17: Qualification of Suppliers and Contractors

(Professional, Technical, Financial, Legal and Managerial competence)
Rule 18: Dis-qualification of Suppliers and Contractors (False,

incomplete information)
Rule 19: Black-Listing of Suppliers and Contractors

(Consistently Failing in satisfactory Performance, Fraudulent Practices)
101

for PMsCONTRACTS
and REs
DIVISION
PART
Part 5: Methods of Procurement

Rule 20: Principal Method of Procurement (OCB except Rule 42)
Rule 21: Open Competitive Bidding (OCB)
(for Value exceeding Rs. 1,00,000)
Rule 22: Submission of Bids (In sealed Packages)

Rule 23: Bidding Documents (Precise and Unambiguous)
Rule 24: Reservations and Preference
(Free from Discrimination: NCB and Domestic preference allowed+ ICB)
Rule 25: Bid Security (Not to exceed 5% of Estimated Bid Price)

Rule 26: Bid Validity (depending upon Nature of Procurement,
Extension <= Original Bid Validity Period)
Rule 27: Extension of Time for Submission of Bids

(Reasons to be Recorded, Ad/Letter in the same manner)
102

for PMsCONTRACTS
and REs
DIVISION
PART
Part 6: Opening, Evaluation and Rejection of Bids

Rule 28: Opening of Bids (Same day of Submission, Min. 30 Minute gap,
in Public)
Rule 29: Evaluation Criteria (to be provided in the Bidding Documents)

Rule 30: Evaluation of Bids
(based only on the evaluation criteria given in the bidding documents)
Rule 31: Clarification of Bids

(No Change after Bid Opening, Change in Substance not Permitted)
Rule 32: Discriminatory and difficult Conditions

(Ordinary Practice in specific Trade)
Rule 33: Rejection of Bids

(PAs require to give grounds for rejection, but no justification)
103

for PMsCONTRACTS
and REs
DIVISION
PART
Contd.
Part 6: Opening, Evaluation and Rejection of Bids
Rule 34: Re-Bidding

Rule 35: Announcement of Evaluation Report
Rule 36: Procedures of Open Competitive Bidding
(in case of Rejection of Bids (Rule 33), Reasons of Re-Bidding to be removed)

(10 days prior to Award)
Single stage-one envelop procedure;

Single stage-two envelop procedure;
Two stage bidding procedure;
Two stage-two envelop bidding procedure
Rule 37: Conditions for Use of Above Bidding Procedures

104

for PMsCONTRACTS
and REs
DIVISION
PART
Part 7: Acceptance of Bids and Award of Contracts
Rule 38: Acceptance of Bids (To Awarded Lowest Evaluated Bid)

39: Performance Guarantee
Rule
(Not to exceed 10% of the contract amount)
Rule 40: Limitation on Negotiation (Negotiation are Prohibited)
41: Confidentiality
Rule
(Confidentiality to be ensured until the time of the announcement)
43: On Account Payments
Rule
(Running Bill Payments to be made within 30 days)
44: Entry into Force of the Procurement Contract
Rule
(Acceptance Notice, Within Reasonable Time, Signing of Contract)
45: Closing of Contract
Rule
(Issuance of delivery Certificate, Defects Liability Certificate, Final Bill to
be paid within 60 days of Arbitral Award)
105

for PMsCONTRACTS
and REs
DIVISION
PART
Contd.
Part 7: Acceptance of Bids and Award of Contracts
Rule 42: Alternate Methods of Procurement
Petty Purchase (for less than Rs. 25,000)

Request for Quotations (for less than Rs. 100,000)
Direct Contracting for:
Spare Parts, Single Manufacturer/Supplier

Technical difficulties in O&M, Repeat Orders up to 15%
Emergency, Price Fixed by Govt.,
Vehicles from Local Manufacturers
Negotiated Tendering for:
Specific Research/ Experiment, Technical/Artistic Reasons

Extreme Urgency
106

for PMsCONTRACTS
and REs
DIVISION
PART
Part 8: Maintenance of Record and

Freedom of Information
46: Record of Procurement Proceedings
Rule
(To be kept for 5 Years)
47: Public Access and Transparency
Rule
(All Information regarding Award to be made Public, except it is against
Public Interest)
107

for PMsCONTRACTS
and REs
DIVISION
PART
Part 9: Redressal of Grievances and

Settlement of Disputes
Rule 48: Redressal of Grievances by Procuring Agency
Rule 49: Arbitration
(Written Complaint within 15 Days and Committee to Dispose of within

15 Days, Appeal in Relevant Court)
(Dispute Settlement Through Arbitration, Not Inconsistent with
Pakistani Law)
Rule 50: Mis-Procurement

(Any Un-Authorised Breach of these Rules)
Rule 51: Over-Riding Effect

(These Rules shall Prevail upon other Provisions)
Distribute Ready Reckoner
108
Introduced five methods of selection of consultants:

Quality based (QBS)
Quality and Cost based (QCBS)
Least Cost
Single Source or direct selection
Fixed budget
Eligibility under Section 4 to avoid conflict of interest
EOI requires 15 days notice to National and 30 days for

International
109
Differentiated between short listing and pre-qualification of

consultants
Components for RFP:

Letter of Invitation
Instructions to consultants
TOR
Evaluation criteria
Type of contracts
110
Proposed contract format

Special provisions, if any
Selection Committee composed of three relevant persons
Negotiation is limited to clarification and no changes in rates
Professional liability equal to remunerations up to twice
111

CONTRACTS
and REs
DIVISION
PART
End of Part 9
112

for PMsCONTRACTS
and REs
DIVISION
PART
Extremely Important
BASICS of Contracts and
Contractual Procedures
for PMs and REs to know:
11

CONTRACTS
and REs
Feedback
DIVISION
PART
How you want it to be?

What is not applicable?
What should be included?
What exactly are YOUR REQUIREMENT(S)?
MUST frankly give your feedback
114

CONTRACTS
and REs
DIVISION
PART
Discussion
Q&A Session
115

CONTRACTS
and REs
DIVISION
PART
Thank You
116

Contract Management

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Contract Management

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Mahmood A.

Throwing a Stone in Still Water

SALIENT ASPECTS of CONTRACT ADMINSTRATION

Salient Aspects of Contract Administration for PMs

Evolution of Agreements / Contracts

Two parties and witness(es)

Salient Aspects of Contract Administration for PMs

Evolution of Agreements / Contracts

Further Clauses added with experience and specific

Salient Aspects of Contract Administration for PMs

Project, Tender and Bid

PROJECT is an activity, performed to achieve

Salient Aspects of Contract Administration for PMs

Project, Tender and Bid

TENDER is a formal offer to undertake Works, supply

Salient Aspects of Contract Administration for PMs

What is Engineering Contract

Agreement = Offer / Proposal + Acceptance

Salient Aspects of Contract Administration for PMs

What is Engineering Contract

Salient Aspects of Contract Administration for PMs

Preparation of Detailed Design, Drawings and BOQ

Salient Aspects of Contract Administration for PMs

Salient Aspects of Contract Administration for PMs

SALIENT ASPECTS of CONTRACT ADMINSTRATION

Salient Aspects of Contract Administration for PMs and REs

2. Role of The Engineer

Engineer means the person:

Salient Aspects of Contract Administration for PMs and REs

2. Role of The Engineer

Engineers Representative means:

responsible to the Engineer

Salient Aspects of Contract Administration for PMs and REs

2. Role of The Engineer

The Engineer has an extensive role in the

Salient Aspects of Contract Administration

2. Role of The Engineer

Duties of the Engineer

The Engineer has three prime and distinctive

Salient Aspects of Contract Administration

Administrative Duties of the Engineer

2. Role of The Engineer

To fulfill his Administrative duties, The Engineer Shall:

Salient Aspects of Contract Administration

Technical Duties of the Engineer

2. Role of The Engineer

To fulfill his Technical duties, The Engineer Shall:

Salient Aspects of Contract Administration

Managerial Duties of the Engineer

2. Role of The Engineer

To fulfill his Managerial duties, The Engineer Shall:

Coordinate with the Contractor and the Employer

Salient Aspects of Contract Administration for PMs

2. Role of The Engineer

SALIENT ASPECTS of CONTRACT ADMINSTRATION

Salient Aspects of Contract Administration for PMs

Significance of Price Adjustment

on Civil Construction Projects

If price adjustment provisions do not exist,

Salient Aspects of Contract Administration for PMs

Significance of Price Adjustment

on Civil Construction Projects

Employer receives a balanced bid