CONTRACT PAYMENTS & VARIATIONS 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 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 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) Final Accounts 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 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

Work needed to complete the entire scope(Re-measurements) What happens when the quantity in the BOQ is not sufficient or no provision in the BOQ Work needed to complete the entire scope(Re-measurements) 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; Changes to the quantities of any item of work included in contract. Changes to quality and other characteristics of any item of work Changes to levels, positions and dimensions of any part of the Works Omission of any work unless it is to be carried out by others 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 Contract Payments, Types Authority Levels Types of Payment Definition of Variation Orders Valuation procedure for VO NWSDB procedure for VO Procurement Guile Lines

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