WORKSHOP ON ENFORCEMENT OF
CONTRACT CLAUSES AND TIMELY RECOVERY
IRREGULARITIES IN ENGINEERING WORKS
By Sanjay Jain, GM(Vig)
DATE: 23rd February’ 2012
PUBLIC PROCUREMENT...
The process of Public Procurement can be categorized
in three distinct Stages
Pre-tender
Stage
(Project
formulation,
Appointment
of
Consultants, Preparation of Detailed Project Report/ Detailed
Estimate)

Tender Stage (Preparation of tender documents, inviting &
opening of tenders, prequalification, tender evaluation & award of
work, Integrity Pact)

Execution Stage (Compliance of agreement conditions, making
payments, ensuring quality & timely completion)
2
PRE-TENDER STAGE...Shortcomings
PROJECT FORMULATION
 Details of need and possibility of upgrading the available
existing facility not explored fully;
 Projects planned without ensuring the availability of land /
free from encumbrances;
 Scope of work not finalized considering the total requirement
for commissioning of the project / facility;
 Need of various user agencies / departments not explored
properly during conceptualization stage.
3
PRE-TENDER STAGE...Shortcomings
APPOINTMENT OF CONSULTANTS:
 Should be need based and for specialized jobs
only;
 Appointment to be transparent and through
competitive bidding;
 Consultant’s fee should be based on some fixed
value of the contract.
5
PRE – TENDER STAGE: Shortcomings
 APPOINTMENT OF CONSULTANTS…contd.:

Consultant
appointed
responsibilities.
without
well
defined

Consultancy fee given (on % basis) for the
packages wherein there is no input required from
consultants. Also, no ceiling limits stipulated.

Payment not linked to the actual progress of work /
site requirement and final completion etc.

Penal clause for deficiency in services by the
consultant not stipulated in the contract agreement
or inadequate provision.
PRE – TENDER STAGE: Shortcomings
 Preparation
estimate
of
DPR
/
detailed
 Not based on actual soil condition;
 Detailed site survey not conducted resulting into large
scale deviations during execution;
 Tenders invited without confirming the acquisition /
possession of land;
 Necessary site approvals and statutory clearances
from local authorities not initiated in time resulting
into delays and disputes.
 Gross over–provision in capacity of new DG sets,
chillers etc. procured for power house affecting
system efficiency.
PRE – TENDER STAGE: Shortcomings
 Tender specifications are tailor made to
suit particular firm/select firms inviting
allegations of favoritism and bias from
the competing firms.
 Introduction of restrictive eligibility
criteria in NIT resulting into inadequate
response / competition.
 Casual approach in attending / dealing
with vital queries from firms.
TENDER STAGE: Shortcomings
 Firm pre-qualified on the basis of their experience
in on-going work/work in progress as against the
requirement of completed work as per NIT.
 Firms prequalified based on experience of a work
executed in Joint Venture without verification of
the individual firm’s share / partnership.
 Tenders splited so as to bring them within the
approval limit of local authorities.
 Two firms who had produced same completion
certificate were qualified without verification.
TENDER STAGE: Shortcomings
 Interest free ‘Mobilization Advance’ stipulated in
one of the tenders in violation of CVC guidelines.
 Post bid relaxation of the qualification criteria.
(Had the relaxation been included in the NIT more
firms would have participated with a competitive
response).
 Price variation clause – Fixation of star price (the
price considered to be of TS stage/ justification
stage and what would be the supporting
documents).
Contd…
TENDER STAGE: Shortcomings…..
 Condition for vetting of structural designs by
IIT/ Engineering College not clear in certain
tenders.
 Design Based tender called for HVAC, PA system
without stipulating design experience.
 Tender evaluated in deviation to the Ambiguity
Clause/ NIT conditions.
 Adequate Safeguard not taken for supply of
spares & technological support for the design life
of the system.
Contd…
TENDER STAGE: Shortcomings
 Repeat order placed to a firm without ensuring
fulfillment of relevant DoP conditions.
 Abnormally long time taken to decide and award
the work which is against compliance of the
directions issued by the Chairman for time
bound processing i.e. award of contract within
30- days of opening of tenders vide letter dt.
30.08.07 are not being complied.
 Unrealistic time frame considered for projects
without proper analysis.
Contd…
TENDER STAGE: Shortcomings
 Time period increased and tender condition(s)
changed during negotiations, thereby denying level
playing field to the other bidders.
 Evaluation criteria/exclusion criteria followed to
decide L-1 bidder not made part of the tender/
agreement.
 Contract
awarded
without
establishing
reasonability of the offer. Also, there is no
uniformity in calculation of justified cost.
 Inflated justification statement prepared by
including unjustified components and loading
factors.
Contd…
TENDER STAGE: Shortcomings
 Budgetary offers received for procurement of
(insecticides and weedicide) chemicals were
considered as commercial offers leading to
procurement at high rates.
 Improper provisioning
of store purchases
without
taking
into
consideration
the
available stock, past consumption pattern
and shelf life of the item etc.
 Pre-constructional anti-termite treatment
considered in works / projects (Item
banned).
Contd…
TENDER STAGE: Shortcomings
 Technical evaluation not done objectively
on equitable basis. (Without considering
the extent of deviations, when the offers
suffer from deficiencies, equal opportunity
should be given to all).
 Splitting of award in a supply contract after
techno-commercial evaluation, although
multi sourcing not stipulated in NIT .
 Export items being substituted
indigenous make during execution.
with
EXECUTION STAGE : Shortcomings
 BGs accepted with conditional stipulation and not
verified from the Issuing Bank / controlling branch.
 Use of departmental machinery was allowed for use
by cargo agents without recovery of charges as per
contract provisions.
 In small airports / works vendors are allowed to use
AAI quarters / land for contractors use as site office,
laboratory, labour camp, store etc. but no provision
made in agreement nor any recovery made on
account of rent, electricity and water charges.
 Payment of substituted
financial adjustments.
item
without
making
EXECUTION STAGE : Shortcomings
 Recoveries reported consequent to the observations
of CTEO / Vigilance inspection.(CVC’s circular No.
TE(NH)/2011/Recoveries/144262 dt. 12.09.11)
 Organizations
while
effecting
the
recoveries
from
contractor’s bill indicates
that the recoveries are
consequent to the observation by CTEO.
 As the contract is between the organization and the
contractor, any endorsement mentioning that the recoveries
are at the instance of third party could weaken the
arbitration / court case at later stage.
 Therefore, observations / advise are to be considered in
terms of relevant contract clause and are to be enforced as
per the conditions of that contract.
 Justifications / reasons for recovery in-line with the relevant
contract clauses should be recorded while notifying /
effecting recovery.
 Recently, CVC vide circular dt. 13.01.12 issued
guidelines regarding consideration of bid by Indian
Agent on behalf of OEMs.
EXECUTION STAGE : Shortcomings
 Acceptance of tack
specified continuous
fabrication work.
welding
welding
in place
in steel
 Filing system adopted in project was not in
order. Part files are opened as and when
new action are initiated, but subsequently
not merged with the main file. No
pagination.
 Payment of secured advance against
certain items without obtaining requisite
insurance cover.
EXECUTION STAGE : Shortcomings
 Non/part implementation of contract clauses
related to Insurance policy (CAR), Workmen
Compensation, ESI, labour licenses.
 Defective
contract
management:
Not
maintaining mandatory site records/registers.
Various registers maintained at site are not at
all being checked / signed by visiting officers.
 Large scale sub contracting by the main agency
without approvals of the competent authority.
EXECUTION STAGE : Shortcomings
 Inordinate delay in processing of EOT and final bill.
 Liquidated damages not levied despite time overrun attributed to the contractor because site order
books not maintained properly (contractor’s
signature not obtained).
 Shortfall in mandatory tests on items reflecting
slackness in supervision and possibility of
acceptance of sub-standard material/work.
 Mobilization
advance/secured
advance
recovered as per provisions of the contract.
not
EXECUTION STAGE : Shortcomings
 Wide cracks, low density values, settlement in
portions of flexible runway noticed within 3months of execution.
 Non submission of documents like excise duties
pass, custom duty receipts for imported items –
Bill cleared.
 Order for supply of equipment was placed on
FOR destination, locations of consignees
changed without freight adjustments.
 Exchange of correspondence with the Contract
Agency after expiry of time period and without
extension of time to keep contract alive.
EXECUTION STAGE : Shortcomings
 Over payment in running bills and recovery in
final bill.
 Interest on over payment not deducted properly.
 Over payment on A/c of party payment of extra
items / secured advance considering extra
material.
FINALLY…….. We may have
to add one more stage
i.e. COMMISSIONING
(to put into operation)
Some additional observations
 CVC’s instruction regarding posting
summary details of contracts awarded
during the month on web site not being
complied fully.
 Complete tender document not available
on web site in downloadable format.
 E-payment through ECS or RTGS not
fully implemented.
Inference……….
 Negligence
in
management
administration.
supervision,
project
and
contract
 Willful acts of omission and commission
with possible malafide for extending
undue benefit to the contractor.
 Contractors
queries
not
attended
properly resulting to disputes / loss to
AAI.
Consequences……….
 Additional
time
and
cost
rectifications
and
remedy
Maintenance Stage
 Audit observation
 CTE paras
 Vigilance Cases
 Departmental enquiries
for
at
VIGILANCE INITIATIVES FOR
EFFECTIVE PROCUREMENT IN AAI
 Leveraging Technology (e-payment, ebilling, e-receipt, e-procurement)
 Time
bounded
processing
of
procurement / tenders
 Introduction of ‘Integrity Pact’
 Project
management
and
clean
procurement workshops
 Introduction of ‘Integrity Pledge’ in all
tenders.
 E-tendering
 CTE - Type Inspections
Common Points to be discussed
 If application received and tender not
issued the application fee to be refunded or
not.
 Similar Experience – Work of DG/HVAC set
installation to be accepted for O&M.
 In a tender – three makes are given
 Agency is free to choose any make.
or
 First priority on the product mentioned first.
Common Points to be discussed….
 Consideration of experience certificate with
levy of Penalty for the completed work.
 What is the standard method for calculation
of star prize / basic rate during tender?
 If contractor writes/ specifies one of the
approved makes out of those than is it a
conditional tender or not.
 If tender is conditional whether EMD to be
forfeited or not. If yes, how much?
HOW TO VERIFY EMD….
 In EMD, DD is valid for 90 days and BG is
valid for 180 days. If BG is valid for 179
days whether we should accept it as tender
is valid only for 90 days.
Yes or No
-
Why?
 How to verify the BG for EMD before tender
opening?
 What to do when tender is Tie in item rate /
% rate? (Two parties became lowest)
FINANCE
A CHECK MECHANISM
 BUILT IN CHECK SYSTEM
 INCONSISTENCY IN FINANCIAL
SCRUTINY
 NEED FOR FINANCE MANUAL
 DUTIES AND
RESPONSIBILITIES
Role of Finance Officer?
 Financial Concurrence (AA&ES Stage)
 Budget Allocation;
 Monitoring of utilized budget to check the
balance available;
 Assessment of need/ viability of project;
 Phasing of proposed expenditure in-line
with progress of work.
Role of Finance Officer?
 Tender Opening
 Check justification of cost available;
 Ensure numbering of tender;
 Ensure opening of Cover No. 1 of all firms
first;
 Checking of EMD(DD/BG);
 Ensure CIO properly;
 Ensure cellophane tape fixed on all cuttings/
insertion and total amount
 Signing of each paper in tender
 Check rates quoted in figure/ words
 Entry in register
Role of Finance Officer?
 Tender Processing
 Check comparative statement (Calculate
rebate etc.);
 Verification of quoted rates with
comparative statement available;
 Check A/A & E/S, TS issued by
appropriate authority.
 Any other requirement
Role of Finance Officer?
 WAB/ WAC/ RCAC proposals
 WAB note be processed through Finance
Directorate;
 Finance Officers shall ensure all the
parameters of concurrence have been
followed;
 Any adverse remark/ important issue
must be recorded upfront.
Role of Finance Officer?
 Billing
Check agreement signed or not;
Check Measurements;
Test Check statement;
Completion Certificate;
Part rate statement/ Theoretical
statement;
 Check Stock Entry/ MAS/ Challan etc.;
 Check deduction (Statutory + contract);
 Check deviation so that relative position
of L1 does not change.





Role of Finance Officer?
 Billing…..
 Monitoring of BG/ DD etc.;
 Ensuring timely recovery of various
advances (Mobilization/ secured etc.);
 In case of over payment, recovery of
interest as applicable;
 Check EOT, approval of Competent
Authority.
List of Documents required at
Various Stages of Contracts







Preliminary Estimate;
Detailed Estimate;
Technical Sanction (TS);
Draft NIT (DNIT);
Tender Document;
Agreement;
Bill.
Be a Positive
Contributor in
achieving
Organizational Goal
Issues emerged out of the workshop held at
Ahmedabad Airport on 18-19th Feb., 2011
 Financial Issues

Need for detailed order regarding the implementation of mandatory
deduction for ESI / PF. (Whether the contractor should have valid
ESI/ PF registration at the time of tendering? How to implement ESI/
PF for construction workers? Whether to load contractor's profit on
ESI/ PF components in AMC works? Where this deducted amount is to
be deposited directly if contractor does not deposit to ESI/PF
Department?)

AAI is exempted from service tax liability and Worker’s tax (cess) is
also not yet applicable in some States. Therefore, instructions need to
be issued regarding payment of Service Tax, Worker’s tax and
handling of deducted tax amount etc.

Performance Guarantee (PG) should be made valid only for three
months after completion of project instead of existing provision of six
months period. Because it has financial impact, which is ultimately
loaded on AAI. Also, the responsibility for the safe custody and
monitoring of Bank Guarantee needs to be specified.
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Financial Issues
 In case of imported items, there should be provision in
contract, of taking break-up of payment details from the
agency i.e. basic rate + custom duty + service tax +
cartage etc. and the payment terms to be made
accordingly.
 It is observed that there is lack of clarity amongst Finance
Officers regarding their roles and responsibilities while
according Financial Concurrence & releasing the payments
etc. Accordingly, a ‘FINANCE MANUAL’ must be prepared
clearly describing the procedures, roles & responsibilities
of executives at each level.
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Technical Issues:

Most of the participants expressed their concern regarding nonfinalization of drawings by the Consultant/ Architect till the final
phase of the project implementation.
Delay in finalization of
drawings was attributed as a major cause for delay in projects
implementation. All drawings need to be finalized upto a certain
stage of project execution so as to avoid adverse effect on the
progress of the project.

Most of the CTE observations are related to EOT due to time
overrun.
The general view was that the stipulated project
completion duration need to be derived on scientific & realistic
approach based on local site conditions.

General Condition of Contract (GCC) has been approved by AAI
Board and, therefore, any change in GCC shall be allowed only with
the approval of Board and not by Technical Sanctioning Authority
as per prevailing practice, which sometimes results into vigilance
related complaints.
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Technical Issues: Contd…

In case LOI/ Award letter are issued on two different dates and
subsequently, agreement is signed on 3rd date. Therefore, each letter
has different time frame for submitting the BG/ PG which are
mismatching.

CPWD has discontinued the practice of preparation of justification
cost. In non-Engineering contracts also i.e. IT/CNS, no justification
cost is being worked out. Shall AAI continue the existing practice of
preparation of ‘justified cost’ in Engineering works or amend the
practice?

As per stipulation in contract agreement, EOT is to be withheld @
0.5% per week, which is not practically applicable at some places as
the same may have adverse effect on the progress of the work. A
technical instruction issued in the matter covers release of EOT
amount against Bank Guarantee, but it is also not a sufficient
measure. Some participants suggested that the interim EOT shall be
processed and approved during different stages of contract.
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Technical Issues: Contd….
 There is a need to develop the system of generating
Project Closure Report by Project-In-Charge as a feedback
mechanism which need to be considered for future projects
to avoid the recurrence of shortcomings observed in
previous projects.
 It is observed in AMC contracts that different prequalification criteria is adopted. What should be the
experience / financial criteria for contracts of same value
having completion period of 6 months or 2 years?
 It is observed that while executing the work, due to
deviation in items / scope of work, sometimes L-1 position
changes or L-2 becomes L-1. How can L-1 agency be
restricted to L-2 rates?
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Technical Issues: Contd….
 The methodology of deriving the rates i.e. the components
to be taken should be standardized and specified in the
tender for calculating the extra/substituted items.
 In case of non-issuance of tender due to any reason,
tender fee to be refunded or not?
 Can we issue tender to a firm who is registered with
autonomous body like DDA, NDMC, MCD but not with
Central/ State Govt./ PSUs?
 There was an instance quoted in which, main contractor
and sub-contractor both have applied for issue of tender
for the same work. What should be the proper approach
in such a situation?
Issues emerged out of the workshop held at Ahmedabad
Airport on 18-19th Feb., 2011
 Technical Issues: Contd….

In case of poor/non-performance of an agency, whether we
have to go for rescinding the work on risk and cost basis only
or any change in contract clause is required? In case the work
is rescinded, if re-tendering takes place and the same agency
applies again, whether we have to issue the tender to him or
not, as the process of debarring the contractor takes time?

There was difference of opinion among the participating
finance officers that in case of contracts having supply of
material only, after opening of tenders, can the splitting on
the basis of lowest quoted rates in each item be allowed or
not?

Since more than 70 Technical Instructions have been issued
and some are contrary to the Works Manual provisions, thus,
Engineering Works Manual is required to be updated.
Issues emerged out of the workshop held at
Guwahati Airport on 8-9th September, 2011

Technical issues:

Our contract stipulates about levy of compensation only.
In case of delay in execution of work, we cannot levy
the penalty without justifying the direct loss to the AAI.
Therefore, it was of considered view that there should
be a suitable penalty clause in this regard in the
contract.

It is observed that in AMC contracts, work is awarded
for ‘X’ amount and completed for an amount of 2 ‘X’ or 3
‘X’ after getting revised A/A & E/S which should be
avoided as far as practicable & possible.

If a contractor submits the experience certificate with
levy of compensation in any work, whether this
experience is to be considered for future works or not?
Issues emerged out of the workshop held at
Guwahati Airport on 8-9th September, 2011

Technical issues:
 If NIT specifies three makes of a particular item ‘X’,
‘Y’ & ‘Z’ and the contractor mentions that he will
supply ‘X’ make in the tender itself at the time of
quoting the tender. Whether it is to be considered as
a conditional tender or not and / or whether it needs
to be cancelled or accepted?
 If some amount is withheld due to defects at the time
of preparation of final bill, whether the completion
certificate can be issued or not?
 Consultancy contract documents need to be finalized
and circulated at all stations/ Regions.
Issues emerged out of the workshop held at
Guwahati Airport on 8-9th September, 2011

Financial Issues:

In tenders having EMD more than Rs. 1.0 lac, the
contractor submits the BG. How can the authenticity of BG
be verified prior to opening of the tender or should it be in
the form of DD only?

Dte. of Finance should maintain the record of budget
expenditure head wise and monitor the expenditure based
on A/A & E/S only.

There is a need for preparation of Financial Manual clearly
mentioning the role of Finance Officer, for accord of
concurrence, billing, payment, maintaining BG and time
frame for each activity, in line with Engg. Works Manual to
have uniformity on these areas / issues at the field
stations to avoid unnecessary delay in decision making.
The Issues emerged out of the various vigilance
workshops are being forwarded to respective
HoDs / Management for suitable remedial /
corrective measures.
Conclusion……….
 Excellence is a moving target
 Vigilance in project management
brings Quality Assurance and cost
savings – deterrent against corrupt
and inappropriate practices
Need of the hour is a rejuvenated approach to
achieve excellence in project management and
implementation. Let us strive for it.
Thanks
For future queries please contact at gmvig@aai.aero