Training programme on Construction
Management & Supervision
CONTRACT PAYMENTS
&
VARIATIONS
28th January 2013
Eng. Rangith Kulanatha
Project Director(WWDP -R/M &J/E)
Before we start
• Contract
• What is your first experience with a
Contract
• Who are we
• Essence of live contract
• For what Contractor’s are
• Roles of the Engineer, Engineer’s Rep and
Other officers in Engineer and Employer
Out Line
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Contract Payments, Types
Authority Levels
Types of Payment
Definition of Variation Orders
ICTAD Document to be refer for VO
Authority for VO and contents of VO
Valuation procedure for VO
NWSDB procedure for VO
Procurement Guile Lines
Contract Payment - Definition
All payment to the ‘Contractor’ for the completion
of entire scope of work(including Variations)
Who has to authority to approve the payments
-‘Engineer’
The Engineer is the person named in the Contract Data( or
any other competent person appointed by the Employer and
notified to Contractor) who is responsible for
administrating and supervising the execution of the work.
Such person may be Engineer, Architect or any other
technical person . In the absence of such appointment the
Employer himself( Defined under A. General, Section 3 of
Condition of Contract ,ICTAD/SBD/01 - page no 36)
Who actually pays: -‘ The Employer’
The Employer is the party named in the Contract Data who
employs the Contractor to carry out the Works ( Defined
under A. General, Section 3 of Condition of Contract,
ICTAD/SBD/01 - page no 36)
Who are we?
- Engineer’s Representative
A Person appointed from time to time by the
Engineer under sub clause 5.1 (ICTAD/SBD/01)
Authority of Engineer’s Representative
- Written authority delegated by the ‘Engineer’
(Clause 5.2, ICTAD/SBD/01)
Obligation of the Engineer
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Being impartial
Fair in determinations
Consistency in affairs
Administrating and supervising the execution of
the work
• Issuing decisions, certificates and orders
Obligation of the Employer
• Employs the Contractor to carry out the
works. (The Contractor is carrying out
works for the Employer)
• Shall give possession of all parts of the site
to the Contractor.
• Timely payment
- Delay Payment
Types of Payment
• Advance Payment
• IPC (monthly)
– On Account Payments
– Need for even ‘0’ IPC for price escalation
• Final Accounts
Advance Payment means
• Interest-free loan for mobilization, when the
contractor submits a guarantee in a form by a
Bank or a Company acceptable to the Employer.
Advance payment(clause 51)
• The Employer shall make advance payment to the contractor in
an amount to 20% of the Initial Contract Price excluding
provisional sums and contingencies, within 14 Days after
furnishing of an unconditional guarantee in a form and by a bank
or company acceptable to the Employer. The guarantee shall
remain effective until the advance payment has been
repaid(clause 51.1, ICTAD/SBD/01).
• The Contractor is used the advance payment only to pay for
Equipment, Plant, Materials and Mobilization expenses required
specially
for
execution
of
Contract(Clause51.2
ICTAD/SBD/01).
• The advance payment shall be repaid by deducting proportions
and repaid in full when total certified value of work reaches
90% of the Initial Contract Price(clause 51.3, ICTAD/SBD/01).
Interim Payment Certificate(IPC)-clause 42
- Reasonable Valuation
-The Contractor shall submit to the Engineer monthly
statements of the estimated value of the work
executed.
- The Engineer shall check and certify monthly
statement within 21 days of the receipt of the
contractor’s statement
The Employer shall pay the amount certified within 14 Days
On Account Payments
– Authority for approval in NWSDB(General
Manager)
Final Certificate(clause 55)
• Upon completion of the Defects Liability Period
the Contractor shall request the Engineer to
issue a “ Final Certificate” and the Engineer
shall issue the “Final Certificate” upon being
satisfied that the Contractor has rectified the
Defects(clause 55.1, ICTAD/SBD/01).
Retention
• Retention money is warranty for hidden defects during
construction, including the 1-year defects liability
period after project completion. Retention money is
therefore released after the end of the 1-year defects
liability period and when the certificate of acceptance
is already issued. If the contractor wants the release of
the retention money before the lapse of the 1-year
defects liability period, replacement by the surety bond
may be allowed.
Retention(clause 48)
• The Employer shall retain from each payment
due to the Contractor the proportion stated in the
Contract Data subject to the limit of retention
stated in the Contract data(clause 48.1,
ICTAD/SBD/01).
When to release?
• On Completion of the whole of the Works,
first half the total amount retained shall be
repaid to the contractor and second half
when the Defects liability Period has
passed(clause 48.2 ,ICTAD/SBD/01).
• Releasing against a Bond at the time of
completion
• Reserving money to pay after D/L period
How they are being practiced in NWSDB
• The Engineer’s Representative has the
authority to the extent what is specified in
the BOQ in the Contract
• Variations (?) and Time extension is not
delegated
– Variations: To be certified by the Engineer and
agreed upon by all parties(Engineer, Contractor
and Employer.
• For the completion of works
• For improvements
What happens when the quantity in the BOQ is not sufficient
or no provision in the BOQ
• Work needed to complete the entire scope(Remeasurements)
• Things that are nice to accompany( Variations)
• Things that improves the long-term
sustainability(Variations)
• Price Escalation & others
There is BOQ provision but needs engineers
approval to proceed
• Provisional sums
– Remember to refer contractual provisions
Definition of Variation
A Variation may be an addition, omission or
substitution
to
the
design
or
specifications,
discrepancy between any two or more contract
documents or any statutory requirements, an error in
or omission in the contract bills etc.
Document to be referred for variation procedure
in local contract
1. Standard Bidding Document for Procurement of Works – ICTAD/SBD/01
• Recommended for use on works contract between Rs. 10 million and Rs.
100 million
• May be used for works of higher which are not of a complex nature
2. Standard Bidding Document for Procurement of Works for Major Contracts –
ICTAD/SBD/02
• Recommended for use on works contracts over Rs. 100 million and for
contracts of a lesser value which are complex in nature
3. Standard Bidding Document for Procurement of Works for Minor Contracts –
ICTAD/SBD/03
• Recommended for use on works contracts up to Rs. 10 million
4. Standard Bidding Document for Procurement of Works for Design and Build
Contracts – ICTAD/SBD/04
• Recommended for use for works contracts where the contractor is
responsible the design and construction of the specified approvals obtained
from the Employer.
Who has the authority(Clause 39 of the ICTAD)
•The variations may initiated by the Engineer at any time
prior to issuing the Certificate of Completion of the works.
As per the clause 39.4 ,ICTAD/SBD/01 each Variation may include;
1. Changes to the quantities of any item of work included in
contract.
2. Changes to quality and other characteristics of any item of work
3. Changes to levels, positions and dimensions of any part of the
Works
4. Omission of any work unless it is to be carried out by others
5. Any additional work, plant, material or services necessary for the
Permanent Works.
Payments for Variations(clause 40)
• The Contractor shall submit quotation for carrying out variation
within 07 Days and the Engineer shall assess the quotation before
the variation is ordered(clause 40.1 ,ICTAD/SBD/01)
• The rate in the BOQ shall be used to calculate the value of
variation(refer clause 40.2 other cases, ICTAD/SBD/01)
• If the Contractor quotation is unreasonable, the Engineer may fix
the price still needs to be proceed with works and then DAB
(clause 40.3, ICTAD/SBD/01).
• The Contractor shall not be entitled to additional payments for
costs that could have been avoided by giving early
warning(clause40.5 ,ICTAD/SBD/01).
The value of work executed shall include the valuation of Variations
and Compensation Events.(clause 42.5 ,ICTAD/SBD/01)
NWSDB Procedure for VO
• The NWSDB consider quantity exceed is also VO
• First the contractor’s quotations assessed and agreed upon with
the contractor
• The agreed VO shall be submitted to variations committee
approved by GM ( or the ‘Engineer’)
• If the committee is approved and forwarded for GM’s approval
• With GM’s approval, it is issued to the contractor to invoice.
• The Engineer, GM of NWSDB shall approve Net variation
within 10% of the Contract Awarded Price. (Procurement
Guide Lines).
Procurement Guide Lines Reference:8.13.4
Variations to Contracts
A: Net variation within 10% of the Contract Award Price:
Head of the Department (HD) or Project Director (PD) may approve the
variation by
revising the TCE, if required and subject to the following:
a) By obtaining explanatory note from the persons involve;
b) By Satisfying that:
i. Change of scope could not have foreseen at the time of award of
contract;
ii. the change of scope is justifiable;
iii. The quantity variation/s are marginal or are due to unforeseen
situation/s;
Procurement Guide Lines Reference:8.13.4
Variations to Contracts
B: Net variation exceeds 10% of the Contract Award Price:
a) HD/PD shall forward all the relevant documents together with a
statement prepared in accordance with a) and b) above to the CAO;
HD/PD shall also submit all the documents required for the revision of
TCE.
b) If the net variation is within 15% of the Contract Award Price and
CAO is satisfied with the HD/PD statement CAO may approve it;
c) If the net variation is more than 15% of the Contract Award Price or
the net variation is below 15% and CAO is not satisfied with the
statement submitted by HD/PD, CAO shall refer it to a the appropriate
PC assisted by the TEC; In this situation the appropriate PC shall be
decide on the basis of increased amount of the contract price and not
necessarily the PC relevant to the revised contract price.
Conclusion
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Contract Payments, Types
Authority Levels
Types of Payment
Definition of Variation Orders
Valuation procedure for VO
NWSDB procedure for VO
Procurement Guile Lines
THANK YOU