Estimation and Costing - Contracts
- 1. TENDER It is an invitation from the owner to the contractor to execute some work at specified cost in specified time. It is published in the form of tender notice in news papers, notice boards, gussets, etc. according to the cost of works.
- 2. 1. Open tender– An oral talk or written document between the Engineer and the Contractor for certain small jobs to be performed. Sometimes it is advertised. 2. Sealed tender—Invited for important or huge projects; wide publicity is given; always written documents are made. Classification of tenders:-
- 3. 3. Limited tender—Only a selected no. of contractors are invited to quote their rates 4. Single tender—Invitation is given to only one firm to render a service by quoting their rates. If the quoted rates are high, it will be negotiated to the agreement of the contract. 5. Rate contract—usually adopted for supply of materials, machine, tools & plant, etc. (items to the store). It specifies the supply at a fixed rate during the period of contract. The quantities are not mentioned in type of contract and the contractor is bound to accept any order which would be placed before him.
- 4. Tender Form • Tender form is printed standard form of contract giving standard conditions of contract, general rules and directions for guidance of contract. • there is also a memorandum for giving 1) general description of work 2) Estimated cost 3) earnest money 4) security deposit 5) time limit in months 6) column for signature of contract before submission of tender, signature of witness to contractor’s signature and signature of the officer by whom accepted. • The price of the tender form is given on the form.
- 5. Tender Documents • The notice inviting tenders is a standard approved form of a department • Schedule of quantities of work to be done and materials, tools and plants to be supplied by the department if any • Complete specification of work • One set of approved drawings where necessary
- 6. • All the documents are signed by the contractor page by page, forwarding letter head of a contractor with blank (or other form of earnest money) are put in closed cover. • Then the cover is closed and dropped on the tender box within the time limit for tender. • The name of the work and the name of the contractor are mention on the cover.
- 7. Information to be given in a tender notice :- 1. Name of the department inviting tender 2. Name of work and location 3. Designation of officer inviting tender 4. Last date and time of receipt of tender 5. Period of availability of tender document 6. Cost of tender document 7. Time of completion and type of contract 8. Earnest Money Deposit to be paid 9. Date, time and place of opening the tender 10. Designation of the officer opening the tender
- 8. Information to be given in a tender document:- 1. The notice inviting tender in specified form like PWD 6 2. Layout plan, location of work 3. Division in which location is situated 4. Schedule of quantities of work 5. Nearest road/railway link 6. Set of drawings including working drawings 7. Availability of materials in the vicinity 8. Detailed specifications or reference to standard specifications for each item of work 9. Complete architectural and structural drawings
- 9. 10. Schedule of tools & plant and other facilities to be made available by the owner, indicating the conditions, hire charges and place of delivery 11. Rate of supply of power and the point of supply 12. Location of water supply point 13. Time for completion and the progress to be made at intervals of time 14. Conditions regarding employment of technical personnel 15. Weather conditions in the area 16. Amount of EMD and the form in which it is to be paid
- 10. 17. Insistence on Income tax and sales tax clearance certificate 18. Amount of Security deposit to be paid/ deducted from running bills of contractors should be notified in the tender call notice 19. Mode of payment for work done 20. Penalty conditions for slow progress and delay in the completion of work 21. Designation of arbitration authority in case of disputes
- 11. QUOTATION • For small jobs, the owner/engineer gives an offer to the contractor for quoting rates for works and supplies required. • No EMD is required with a quotation.
- 12. EARNEST MONEY DEPOSIT • It is the amount of money to be deposited along with the tender document to the department by the contractors quoting a tender. This money is a guarantee against the refusal of any contractor to take up the work after the acceptance of his tender. In case of refusal, this amount is forfeited. • EMD of contractors whose tenders are not accepted will be refunded. • 1% - 2% of the estimated cost of work is the Earnest Money Deposit.
- 13. SECURITY DEPOSIT • Security deposit is the amount the contractor has to deposit with the owner before awarding a work, after his tender is accepted. This amounts to generally 5% to 10% of estimated cost of the project and is inclusive of the EMD already deposited by the contractor along with the tender. This will be refunded to the after the completion of the project. No interest is paid on SD. • The contractor has to fulfill all the terms and conditions laid down in the contract and maintain quality and speed satisfactorily. If he fails to do so, a part or whole of the SD is forfeited by the department. If there is any fault in the construction and the contractor refuses to demolish and reconstruct then the department will carry out that work using the SD.
- 14. QUALIFICATIONS OF THE CONTRACTORS Registration of contractors:- The contractor must get himself registered in the departments ( or Government - govt. Contractor) for which he is interested to take up works. Government contractors are entitled to do govt. jobs if awarded. Contractors are classified according to the registration and registration fees and depending on this they can undertake works up to certain amount. To get a contractor to be registered under certain class, he has to apply to the competent authority.
- 15. The application should contain the following documents: 1. Current income tax certificate 2. Work certificates for all the works performed during the last three years and those in progress 3. Solvency certificate for an appropriate amount 4. Attested copy of deed of partnership and power of attorney on stamp paper if needed 5. Undertaking for employment of the Class I & II staff 6. Application in duplicate with all documents 7. Attested photos of all the partners if any
- 16. • Refund of deposits: The money is deposited under the concerned head of account. • They will be refunded to the contractor within ‘6 months’ after the completion of the work after satisfying the rectification of defects if any.
- 17. Opening of tender • All the tenders should be sealed and submitted to the respective officer, before the time and date as mentioned in the tender note. • At the described date, time and place all the received tenders will be opened in the presence of intending tenderers or their authorised agents. • The rates quoted by the various tenders shall be read out by the officer.
- 18. Scrutiny of tender • After tender have been opened, a comparative statement is prepared in the office of the tender opening authority and signed by him. • Then compare the rates of various tenders in respect of each item against the estimated rate. • Verify whether contractor has agreed to all the tender conditions.
- 19. Acceptance of tender • Based on the comparative statement, usually the lowest tender is accepted, while accepting the tender, the tender accepting authority shall satisfy the following regarding the tenderers. 1) the financial capacity of each tenderer. 2) capacity to do the work 3) past record as contractor such as experience, procurement of labourer etc.
- 20. • For valid reason, a tender other than the lowest can be accepted . The fact is to be recorded with full reasons. A report on this to be submitted to the next higher authority. A suitable reason is also mention in the comparative statement. The tender accepting authority himself has to sign the comparative statement and record his remarks. • Two tenders have quoted the same lowest rates, • When all the tenderers have quoted abnormally high rates, • Sometimes only one tenderer may respond to the tender call.
- 21. CONTRACT • For a CONTRACT to be valid, there must be an offer from the owner in the form of tender notice to get some specified work to be executed and there must be an acceptance from the contractor to execute the work, both the offer and the acceptance must be definite and legal.
- 22. CONTRACT DOCUMENTS When the tender of a contractor is accepted, an agreement between the contractor and the owner takes place and the documents defining the rights and obligations of he owner and the contractor are attached to the agreement bond and this is called a contract document. Each page of the contract document bears the signature of the contractor and the accepting authority and any correction in it is initialed.
- 23. The contract document must contain 1. Title page – name of work, name of owner, name of contractor, contract agreement no., contents, etc. 2. Index page – contents of the agreement with reference pages 3. Tender notice – brief description of work, estimated cost of work, date and time of receiving tender, amount of EMD and security deposit, time of completion, etc.
- 24. 4. Tender form – the bill of quantities, contractor’s rate, total cost of work, time of completion, amount of security deposit, etc. 5. Schedule of issue of materials – list of materials to be issued by the owner/department to the contractor with the rates and place of issue. 6. Drawings – complete set of drawings including plan, elevation, sections, detailed drawings, etc. all fully dimensioned. 7. Specifications – (a) General Specifications which specify the class and type of work, quality of materials, etc. (b) Detailed specifications – detailed description of each item of work including material and method to be used along with the quality of workmanship required.
- 25. a) Rates of each item of work inclusive of materials, labour, transport, plant/equipment and other arrangements required for completion of work b) Amount and form of earnest money and security deposit c) Mode of payment to contractor including running payment, final payment and refund of security money, etc. d) Time of completion of work e) Extension of time for completion of work f) Engagement of sub contractor and other agencies at contractor’s cost and risk g) Penalty for poor quality and unsatisfactory work progress h) Termination of contract i) Arbitration for settlement of disputes 8. Conditions of contract
- 26. 9. Special conditions – depending upon the nature of work taxes and royalties included in the rates, labour camp, labour amenities, compensation to labour in case of accidents, etc. 10. Deed of pledge
- 27. Classification of Contracts 1. Lump-sum contract 2. Cost plus a fixed percentage contract 3. Cost plus a fixed fee contract 4. Percentage rate contract 5. Item rate contract 6. Turn-key contract 7. Cost plus sliding scale of fees 8. Negotiated contracts
- 28. Here the contractor gets the payment depending on the rate at which he has quoted every item of the work. It was rather difficult to scrutinize the tenders submitted by various bidders and the system was hence modified and now the department quotes the items of work along with their quantities and the bidders are required to quote the percentages at which he can execute the various items. 5. Item rate or unit price or schedule contract
- 29. Advantages • Early start is possible. • Saves the heavy cost of preparing many bills of quantities by the contractors. • Fair basis for competition. • In comparing with lump-sum contract, changes in contract documents can be made easily by the owner. • Lower risk for contractor.
- 30. Disadvantages • Final cost not known from the beginning (BOQ only is estimated) • Staff needed to measure the finished quantities and report on the units.
- 31. 4.Percentage rate contract In this system the contractors are required to quote single percentage either higher or lower at which he wants to execute the job. Here scrutiny of the tenders become easier and as cement and steel is usually supplied by the department chances of manipulation is less. This the most commonly adopted system of contract in the different departments of our state.
- 32. Advantages Disadvantages profitable for the contractor No incentive to finish job quickly Owner does not know total price Larger the cost of the job, the higher the fee the owner pays • Fee = percentage of the total project cost • (Cost = 5,00,000/-, Fee = 2%)
- 33. 1. Lump-sum contract In this system, the contractor undertakes the execution of a specific work for a definite lump-sum amount within a specified time period. On completion of the work, it is checked as per drawings and specifications and if approved the amount is paid to the contractor. The quantities of various items is not measured. For decorative works this system is adopted.
- 34. Advantages • Low risk on the owner, Higher risk to the contractor • Cost known at the beginning • Contractor selection is easy.
- 35. Disadvantages • in this it is essential that the work be accurately and completely shown on the drawings in the specifications and the full information about the site condition should be available other wise it will leads to disputes. • Contractor is free to use the lowest cost of material equipment, methods. • Difficulty arises in making any intermediate payment.
- 36. 3. Cost plus a fixed fee contract In this system a fixed fee is given as contractor’s profit irrespective of the total cost of work. This is to control the tendency of the contractor to increase the cost of the project unnecessarily. Smaller the completion time more is the profit and hence the contractors hurry to complete the work and the quality of workmanship is not maintained. This system is not generally used.
- 37. 7.Cost plus sliding scale of fees contract • In this type of contract the contractor is paid by the owner the actual cost of construction plus an amount of fee inversely variable according to the increase or decrease of the estimated cost agreed first by both parties. thus the higher the actual cost, lower will be the value of fee and vice versa.
- 38. • Advantages: in this case the contractor shall not try to increase the actual cost. The actual cost is lower and lower so both the owner and the contractor will be benefited. • Disadvantages: estimated cost should be accurate. Other wise the contractor get profit if the actual cost is much higher than the estimated cost.
- 39. 8.Negotiated contract • When the work is awarded on contract by mutual negotiation between the parties with out call of tenders, it is said to be negotiated contract.
- 40. 6.Turn-key contract In this system all the works related to a project including designing, planning, execution etc. are to be done by the contractor. Once the project is completed it is handed over to the owner. The owner has to complete the transaction works and occupy the structure by simply turning the key, ie. opening the door.
- 41. Competitive bidding • A step in the initial public offering process whereby an underwriter submits a sealed bid to a company that is making its first issue of stock. After collecting competitive bids from several underwriters, the issuer awards the contract to the underwriter with the best price and contract terms.