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Contract Award, Performance, and Administration

Contract Award, Performance, and Administration. Award of Contract Contract Documents. Documents should clearly define: THE SCOPE OF WORK TO BE PERFORMED THE GOODS TO BE SUPPLIED THE RIGHTS AND OBLIGATIONS OF THE PURCHASER AND OF THE CONTRACTOR OF SUPPLIER AND.

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Contract Award, Performance, and Administration

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  1. Contract Award, Performance, and Administration

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

  3. Award of Contract Contract Documents (cont’d) • IN ADDITION TO THE GENERAL CONDITIONS OF CONTRACT ANY SPECIAL CONDITIONS APPROPRIATE TO THE NATURE AND LOCATION OF THE PROJECT SHOULD BE INCLUDED

  4. CONTRACTS FORTHE INTERNATIONAL SALE OFGOODS SHOULDBE PREPARED ON THE BASIS OFEQUALITY AND MUTUAL BENEFIT

  5. Contract Definition A CONTRACT ISAN AGREEMENT BETWEENTWO OR MORE PARTIES WHEREBYEACH PARTY PROMISES TO DO,OR NOT DO DO, SOMETHING:A TRANSACTION INVOLVINGTWO OR MORE INDIVIDUALS,WHEREBY EACH HASRECIPROCAL RIGHTS TODEMAND PERFORMANCE OFWHAT IS PROMISED (Friedman, Jack. P.,Dictionary of Business terms, page 123)

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

  7. Applicable Law A CONTRACT COMES INTOBEING WHENTHE PARTIES HAVE REACHED AGREEMENT ONALL ESSENTIAL POINTS INTHE FORM REQUIRED BY THE APPLICABLE LAW

  8. Applicable Law (cont’d) • WORLD BANKSTANDARD DOCUMENTS • A CONTRACT WILL BE INTERPRETEDIN ACCORDANCE WITH THE LAWS OF THE PURCHASERS COUNTRY • UNTIL A FORMAL CONTRACTIS SIGNED, THE BIDDER’S OFFER TOGETHER WITH THE NOTIFICATION OF AWARD WILL CONSTITUTEA BINDING CONTRACT

  9. Contract Format • CONTRACT FORM • BID FORM • PRICE SCHEDULE • SCHEDULE OF REQUIREMENTS • TECHNICAL SPECIFICATIONS

  10. Contract Format (cont’d) • GENERAL CONDITIONSOF CONTRACT • SPECIAL CONDITIONSOF CONTRACT • AMENDMENTS TO THEBIDDING DOCUMENTS, IF ANY • PURCHASERNOTIFICATION OF AWARD

  11. Preparation of Contract • EACH CONTRACT IS UNIQUE • BUYER AND SELLER MUST AGREE • PREPARE ON THE BASIS OF EQUALITY AND MUTUAL BENEFIT • PREPARE IN LINE WITHTHE APPLICABLE LAW

  12. Preparationof Contract (cont’d) • AVOID CONFUSION ANDLEGAL GAPS (by adhering to standard documents, such as those included in the World Bank’sSample Bidding Documents) • MAKE SURE YOU KNOW YOUR CONTRACT

  13. Contract Performance and Administration

  14. Contract Performance and Administration • Contracts for Goods/Equipment • INCOTERMS • Use of Letter of Credit • Contracts for Works • Securities • Common Problems

  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

  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

  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)

  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)

  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)

  20. EX WORKS (EXW) • DELIVERY: • SELLER PLACES THE GOODS AT BUYER’S DISPOSAL • AT SELLER’S PREMISES • NOT CLEARED FOR EXPORT • NOT LOADED ON ANY VEHICLE

  21. EX WORKS (EXW) DELIVERY BUYER’S RISK SELLER’S RISK SITE S B SELLER’S COST BUYER’S COST

  22. FREE ON BOARD (FOB) • DELIVERY: • WHEN GOODS PASS SHIP’S RAIL • IN PORT OF SHIPMENT • SELLER CLEARS GOODS FOR EXPORT • FOB ONLY FOR SEA AND INLAND WATERWAY TRANSPORT

  23. FOB DELIVERY SELLER’S RISK BUYER’S RISK SITE S B SELLER’S COST BUYER’S COST

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

  25. CIF DELIVERY SELLER’S RISK BUYER’S RISK SITE S B SELLER’S COST BUYER’S COST

  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 TO NAMED PLACE OF DESTINATION

  27. CIP BORDER SITE DELIVERY BUYER’S RISK S B SELLER’S COST

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

  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. LETTER OF CREDIT: 1 1. Contract BUYER SELLER 5. Goods on Board 12. GoodsDelivered CIF 10.Documents 4. 11.Money 2.Credit AdviseL/Cissued 6.Doc.s 7. 3. Letter of Credit 8. Documents 9. Money 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

  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

  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

  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

  35. SECURITIES, BONDS AND GUARANTEES (cont’d) • PERFORMANCE SECURITY • BOND OR BANK GUARANTEE • BORROWER SPECIFIES INBIDDING DOCUMENT • BOND -- 30% - 50% • PERFORMANCE BANK GUARANTEE -- 10%

  36. SECURITIES, BONDS AND GUARANTEES (cont’d) • 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!

  38. Common Problems (cont’d) • 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

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

  40. Contract Management Monitoring and Evaluation

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

  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

  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

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