ASSIGNMENT

PGPCM-SODE Module 11 NCP 23

CONSTRUCTION CONTRACTS AND MANAGEMENT

SUBMITTED BY: AJEET SINGH REG. NO.: 213-03-11-11416-2153 SODE-PGPCM

ASSiGNMENT NICMAR/CODE Office Name AJEET SINGH 213-03-11-11416-2153 Reg. No. (PGPCM) Course No. Course Title Assignment No. Date of Dispatch Last Date of Receipt NCP 23 Construction Contracts and Contracting

ASSIGNMENT Contract administration and monitoring is the most important area of construction management. Contract administration process start right from the day work is assigned to the contract. Discuss any project contract currently in progress with your company and how administration and monitoring is being done. Draw the organization chart for the activity and explain all the function carried out. Do you think the system is achieving results? Discuss.

Name of project:

Earthwork, Blanketing and Construction of RUBs under Maharjganj Mashrakh new Railway Line Project.

Project Description:

This project requires construction of 59 nos of RUBs to provide safe passage to people in the 36.155 kms stretch of new railway line connecting Maharajganj in Siwan Dist., Bihar to Mashrakh, Chhapra Dist., Bihar. The idea of providing so many RUBs is that if people are not given a grade-separated passage then Level Crossings will have to be provided which is a safety hazard in the first place. Every year, there are thousands of causalities reported due to accidents on Level Crossings. Hence in a new line project it is beneficial to plan ahead and minimise the number of Level Crossings.

Name of company: Name of contractor: Type of contract: Value of contract: Time schedule:

Construction Organisation, N.E. Railway Megotia Construction Pvt. Ltd., Jamshedpur. Works Contract 15.81 crores Contract awarded in May09. Completion period was 15 months

STAGES OF ESTIMATION AND AWARDING OF CONTRACT

1. ALIGNEMENT STUDIES Alignment studies were carried out by a separate agency and the alignment report was submitted 6 months after the start of the work and highlights the approach and methodology to meet the requirements. The surveying agency was required to submit its methodology, type of instruments used and their specifications w.r.t. accuracy, Least Count etc. Also, names and qualifications of authorised staff will be submitted before the start of the work. The Methodology has to be approved by the engineer-in-charge ( Dy.Chief Engineer in this case) before the start of the work. After the primary survey, detailed triangulation survey was carried out. The work began after the final location survey (FLS) and fixing of Control Points/TBMs on the field. The surveying agency completed its task successfully in the month of November2009 and the work for this project started in the same month as the agencies for civil works were finalised by this time.

2.

ESTIMATION Estimation was done in house by Planning and Design Cell of the construction organisation. Firstly, an ABSTRACT ESTIMATE is prepared for lump-sum estimation of total project cost. Allotment of funds from Railway Board is done on the basis of this Abstract Estimate. While process of funds allotment is going on in Railway Board, the scope of work is discussed in detail and exact quantities to be carried out is reached which forms the basis of DETAILED ESTIMATE. Based on Detailed Estimate, tenders are floated and awarded to lowest eligible tenderer.

3.

On the basis of Lowest quote, the contract was awarded to the agency mentioned above in March09.

Important Points from Contractors Point of view

The agency has accepted the work for profit and credentials. Also he is very much concerned with the regular passing of his bills to maintain his cash flow. This is the underlying principle which has to be followed to understand the concerns of the contractor. It has to be kept in mind to facilitate the agency to successfully execute the work: The contractor pays for arranging the labour and machinery. Whether the work is done or not, the cost incurred in arranging the machinery and labour once incurred cannot be recovered. So it is of utmost importance for the contractor that his machinery and labour should not sit idle/be wasted. Any deviations from the agreed work schedule should be communicated to him in time. He should also be made aware of the stage wise goals he has to achieve. In this regard, this contract required the contractor to furnish a work schedule within 15 days of awards of the contract and is required to stick to his schedule. Drawings and permissions from the concerned authorities should be arranged in due time by the CPM. In this contract, it is upon the contractor to submit the drawings and designs to the CPM. CPM is responsible for getting these drawing approved from the concerned authority in Railway. CPM is also responsible for the co-ordination with the Officials of State Government for taking permissions and approvals on their part. Site supervisor should be made available to him in time if need is of such a nature that work can not start in absence of site supervisor. Under this contract, the contractor is required to hire technical staff as per the conditions in the contract.

 Compensation for Price Variation if the delay is not due to the fault of the contractor. This agreement required three activities Earthwork, Blanketing and RUBs. None of these activities can start if the land is not handed over by the State Government to the Railway. However, there may be delays on the part of State Government in acquiring the land causing delay in execution of project. Thus, the machinery allotted for the project and human resources may remain blocked for a period longer than planned by the contractor. Also the cost of materials is bound to rise while in the waiting period due to market factors. Therefore some compensation for unavoidable delays due to unforeseen reasons is warranted. In this contract, there is a clause for PRICE VARATION ESCALATION. Timely Payments to the contractor. This contact is worth 15.81 crores and the agency is required to have successfully executed any work of similar nature for 1/3 of this value. Generally agencies keep their capital circulating among various projects based on the need. Hence it is of utmost importance for any contractor that his capital is not blocked. There is no fixed time schedule in this contract nor there is any provision of payments linked to any specific goals. The payment is completely in discretion of PM and he is empowered to prepare and disburse bills on his satisfaction. The benefit of this system is that it is completely flexible but a major disadvantage is that the PM can cause undue hindrances to the contractor if he wishes so.

Quality Control and Quality Assurance

1. The Quality Assurance Plan (QAP) shall be submitted by the Contractor to the Railway Representative for approval before any work is to be started by the Contractor. The QAP shall identify the personnel, procedures, instructions, records and forms necessary to implement the plan. 2. Railway has standard codes and written procedure w.r.t. sampling on the site. These codes clearly define the frequency and procedure of sampling of each material. The test conducted on the materials as well as procedure for the testing is also given in these codes. The Contractor is responsible for performing all Quality Control (QC) activities associated with their work. He is

required to establish a field lab for testing of materials and specimens as per the above mentioned codes and keep a record of the result obtained. For the overall monitoring and spot checking, Railway representatives are responsible and they regularly check and ensure that these records are regularly maintained. 3. If the contractor executes any work without the knowledge of Railway representatives, he shall remain responsible for the quality of the deliverables. He will be required to furnish all records in this case and arrange for Non-destructive testing of the work. The PM if satisfied can accept or reject his work.

ORGANISATIONAL CHART

Chief Engineer-1

Dy. Cheif Engineer -1 Dy. Cheif Engineer -2 Dy. Cheif Engineer/Design Dy. Cheif Engineer -3 Dy. Cheif Engineer/Planning Dy. Cheif Engineer -4 Dy. Cheif Engineer -5 Dy. Cheif Engineer -6 Dy. Finance Manager

Chief Engineer-2 Chief Administrative Officer / Construction

Responsible for this project

Chief Engineer-3

Chief Engineer-4

Functions of each level are explained below :

At the top of the organisation is Chief Administrative Officer/Construction (CAO/Con.). He is responsible for the overall administration of the Construction Organisation. He allocates work to each Chief Engineer. He is responsible for liasoning with General Manager of the Railway and also Railway Board for demand of additional funds and submission of yearly expenditure report/Funds Demand.

Chief Engineer acts as the CPM for each project. Projects are allotted to the Chief Engineers by CAO/Con and they are responsible for awarding and managing the contracts above 10 crore.

Dy.Chief Engineers works under the Chief Engineer and act as CPM for managing the contracts below 10 crore.

Contract Management authority at various level are independent to manage their contracts regarding time extension, variation in quantities, inclusion of new items, variation in expenditure as allowed by General Conditions of Contract prescribed by Railway Board.

Executive Engineers assist the Dy. Chief Engineer and Chief Engineer in areas of administration on site w.r.t Quality Control and Monitoring of Progress.

All proposals which entail expenditure more than 25% of the stipulate value should first be vetted by Dy. Funds Manager before allocation of additional funds.

CLAIMS, DISPUTES AND ARBITRATION

If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give submit an extension form to the Railway, describing the reasons or circumstance giving rise to the claim. The notice shall be given as soon as practicable and not more than one month after the arising of such situation. if the Contractor fails to give notice of a claim within such period s, the Time for Completion shall not be extended. The Contractor shall also submit any other notices supporting particulars for the claim relevant to such event or circumstances. If the Project Management Authority ( Chief Engineer in this case ) is satisfied that the circumstances mentioned in the claim by the contractor are correct and it was beyond his control to perform then he may grant time extension with PRICE ESCALATION. However, if the PM is not satisfied with the reasons given by the contractor then he may deny the claim and not give time extension. Upon completion of contract period, the security deposit will be forfeited and remaining work will be carried out with balance unspent funds and forfeited security deposit. If the nature of work is urgent and finalisation of new contract takes time then he may grant time extension without any price escalation.

Contractor's Claims Reasonable

Yes

No

Extension with Price Yes Escalation Project Urgent New Contract for No remaining work

Extension without Price Escalation

Termination of Existing Contract + Forfieture of Security Deposit

Arbitration Any dispute arising between the Employer and the Domestic or Foreign Contractor related to any matter arising out of or connected with this contract, the disputes shall be settled in accordance with the Indian Arbitration Act, 1996 and any statutory modification or re-enactment thereof. Further, it is agreed between the parties as under: (i) Number of Arbitrators depends upon the value of arbitration amount involved. (ii) Procedure for Appointment of Arbitrators: The arbitrators shall be appointed as per following procedure: (a) Employer will forward a panel of 10 names to the Contractor and Contractor will give his consent for any name out of the panel to be appointed as one of the Arbitrators as the case may be. (b) In case of more than one arbitrator, Railway will decide the second Arbitrator out of the remaining names in the panel as mentioned in Para (a) above. (c) The third Arbitrator shall be chosen by the two Arbitrators so appointed by the parties and shall act as Presiding Arbitrator. In case of failure of the two Arbitrators appointed by the parties to reach upon consensus within a period of 30 days from the appointment of the Arbitrators subsequently appointed, then, upon the request of either or both parties, the presiding Arbitrator shall be appointed by the General Manager, N.E. Railway. (iii) Neither party shall be limited in the proceedings before such arbitrators to the

evidence nor did arguments previously put before. (iv) Arbitration proceedings shall be held at Gorakhpur, India and the language of the

arbitration proceedings and that of all documents and communications between the parties shall be in English. (v) The decision of the majority of arbitrators shall be final and binding upon both

parties. The expenses of the conciliator/arbitrators shall be as per the scales fixed by the employer from time to time and shall be shared equally by the Employer and the Contractor.

However, the expenses incurred by each party in connection with the preparation, presentation will be borne by it. (vi) All arbitration awards shall be in writing and shall state the reasons for the award i.e

SPEAKING ORDER. However, in case the Contractor is a Public Sector Enterprise/ Govt. Department, the dispute arising between the Railway and the Contractor shall be settled through Permanent Arbitration Machinery (PMA) of the Department of Public Enterprise, Govt. of India as per prevailing rules.

Monitoring Methods
1. 2. 3. Monitoring by financial progress through monthly expense report Monitoring by physical progress through undertaking site inspections Administering by disbursement/Non-disbursement of Contractors Bill as no payment schedule is provided in the contract. 4. 5. Quality control by spot-inspections and non-destructive/partially-destructive testing. Surprise checks by Vigilance Organisation of Railway. Vigilance Organisation is independent of the project and is empowered to scrutinise records/take samples from the site. 6. 7. Debarring the failed contractors from participating in the bidding of any further contracts. Provision of LIQUIDATED DAMAGES @ 0.5% per week delay if the delay is on the contractors part. However, if the delay is on the part of Railway then contractor is entitled to Price Escalation Compensation.

Success and satisfaction level of management

Railway is a 150 year old organisation and the current contracts are based on GENERAL CONDITIONS OF CONTRACT'99 of Railway Board. These conditions are decided and accommodated in the contract schedule after being evolved out of years of experience. However, following improvements are suggested :1. Fine for not employing Technical Staff as per the contract agreement is merely 2000/- per month which is quite meagre. It should be enhanced to 20000/- per month. 2. Often, the Railway is required to grant Price Escalation Compensation to the contractor on account of delays in approval of drawings/designs by Railway. Railway should bring a provision that design should be deemed approved 60 days after the submission of contractor is no objection are raised. 3. Penalties for not meeting the program schedule should be decided along with finalisation of program schedule with mutual agreement. Currently, there is neither any provision of penalty for not meeting the schedule nor any provision of incentives for completion of work before the schedule. If the contractor is not able to complete the work in time then his work can only be terminated at the end of contract period. Penalties/Incentives during the work will ensure that intermediate targets are met and work does not accumulate towards the end of the completion period.

Recommended Reading a. b. c. Contract Management in Construction Industry C.V.J. Varma and Bhupinder Kumar Construction Contracts Administration Charles S. Phillips Arbitration: Essential Concepts - Steven C. Bennet