FIDIC guidelines for EPC / Turn Key System of Contracting

FIDIC (Federation Internationale des Ingenieurs Consells) OR International Federation of Consulting Engineers

FIDIC was founded in 1913 with six companies Expanded in 1945 with 40 national associations Published first book on conditions of contract in 1957. In 2004 the strength of Members rose to 64.

Head Quarters in Switzerland. Pre 1957 – no internationally recognised contract conditions. In 1983, FIDIC appointed a committee to update the conditions of contract. This was released in 1987, known as RED BOOK

RED BOOK (1987): Employer to issue designs and drawings. Contractor to execute. ORANGE BOOK (1995): Contractor to design & execute. Increased risks and responsibilities to the Contractor. SILVER BOOK (1999): To execute the projects under EPC/Turn Key system to eliminate Cost and Time Over runs.

MAIN FEATURES OF EPC CONTRACT SYSTEM (SILVER BOOK) Contractor furnishes the designs and drawings and offers to complete the work by the due date for a definite price. Contractor provides for all unforeseen risks/events in the bid. Employer to make available the land and permissions required. Employer furnishes to the Contractor the financial arrangements made and interest for delayed payments. In the event of failure to comply, either party can cancel the contract.

BIDDING PROCESS Bids are presented with designs and drawings prepared based on - the information furnished by the Owner - site inspection First most competitive and technically appropriate bids are identified Financial matters next.

RESPONSIBILITIES OF EMPLOYER Compensation to contractor by way of extension of time and costs if possession is delayed. Permissions of any type if required, the employer assists the contractor. Within 28 days of submission of bill payment should be made. Employer may issue instructions to contractor as per clauses of agreement Contractor on disagreement may approach DAB (Disputes Adjudication Board).

RESPONSIBILITIES OF CONTRACTOR Contractor shall design, execute the work till completion. Defects if any be rectified and makes the work “fit for the purpose” Any work requiring for proper operation shall be carried out All machinery and men as per agreement shall be deployed. Contractor may propose sub-contract giving 28 days notice with credentials of the proposed sub-contractor and on approval shall employ sub-contractor.

COMMENCEMENT OF WORK–TIME FRAME With in 28 days of acceptance of the bid, contractor shall submit construction programme. Employer reviews and approves within 21 days.

EXTENSION OF TIME On order of variations contractor is eligible for extension of time and price adjustment. For impediments or Force de Majeure contractor shall inform the owner within 28 days of occurance of the event. Contractor is levied liquidated damages for delays as per programme. If the employer suspends work, contractor is eligible for extension of time and payment of cost.

TESTS TO BE CONDUCTED Contractor assures the quality by conducting the tests frequently during or after execution of work. Defect if detected, contractor remedies at his cost. If asked for by employer, the contractor shall carryout tests. If they do not reveal defect, the cost of tests to be borne by the Employer

PAYMENTS TO CONTRACTOR Mobilisation Advance – interest free. Intermediate payments Deductions as per agreement Interest for delayed payment 50% retention money release after taking over of the work After Final bill, release of performance security & balance retention amount Any disputes to DAB.

TERMINATION OF CONTRACT Employer terminates if the Contractor Doesnot maintain the progress. abandons the work. Sub-contracts the whole work. Becomes bankrupt. Indulges in corrupt / fradulent practices and takeover plant, machinery, records and material available at site Employer gets the balance work executed through some other agency,at the cost of contractor

Contractor is entitled to terminate the contract if He doesnot receive reasonable evidence of financial arrangement Prolonged suspension of work is ordered Employer fails to discharge obligations Employer becomes bankrupt

DISPUTE ADJUDICATION BOARD (DAB) Contractor presents a claim to the employer. Employer rejects the claim. Contractor issues notice to refer to DAB. DAB shall be appointed within 28 days of issue of notice. DAB may be with one or three members. One from Employer, one from contractor, Chairman by both members. DAB shall give reasoned award within 84 days. If no notice of dissatisfactions, within 28 days, DAB decision is final. On disagreement, reference is made to Arbitration.

PAYMENT PROCEDURES UNDER EPC CONTRACTS

Payment Schedule The bid price is divided among the different components of work as a percentage of bid value and incorporated under “Schedule of payments“. The payment for each of these components shall be limited to the respective amounts. The components/costs shown in the “Schedule of payments” can further be sub-divided into appropriate sub-components by the contractor and get approved by the employer and the same shall form part of the Schedule of payment for regulating the intermediate payments. Payment shall be released only after the respective component / sub-component of work has been completed.

Preparation of Bills. The contractor shall prepare monthly work bills in the Measurement Books/Level field books, supplied by the department based on the measurements of work done, and submit to Engineer–in–charge for arranging payment. The work done will be check measured by the departmental officers along with the Q.C certificates issued by the third party Q.C.agency.

Intermediate payments: All payments to contractor have to be regulated as per approved schedule of payment only. Schedule of payment should stipulate, the cost as percentage of the bid price, in respect of each component /sub component for releasing the payment. In respect of any item, sub component / sub component, if its cost is not specified in the approved schedule of payment, its cost should be worked out on proportionate basis considering the total cost of the main component/ item, listed in the schedule of payment, to determine the amount payable to contractor.

RECOVERIES TO BE MADE FROM BILLS; 1) VAT at 2.8% (4% of 70%) 2) Income tax at 2.24% 3) Seigniorage charges- where ever applicable 4) Labour welfare cess at 1% 5) Chief Minister relief fund and NAC at 0.25% 6) Service Tax @ 4.12% on items that are applicable. The quoted bid amount shall be inclusive of service tax. Note.1:Any increase of above recoveries as amended during agreement period will be reimbursed. Note.2:Central sales tax and Excise duty @ the rate of 16.25% are placed beyond the scope of this bid. It will be reimbursed on the production of evidence of payment.

Recovery towards Security 7½% of the bill amount will be withheld from all the running bills and retained as security deposit. On completion of the entire work 5% from out of the 7.5% withheld will be released while retaining the 2.5% as further security which will be released along with EMD, only after completion of defect liability period.

Escalation in prices: No escalation on prices and wages will be paid. However escalation on cement, steel, lubricants is allowed, if the prices of these items increase by more than 5% of base rates. in accordance with the formula stipulated in the agreement. Escalation will not be allowed where liquidated damages are levied and extension of time granted for reason attributable to contractor. As per GO 94 TR&B Dt:18-4-08 The price escalation is to be allowed every month, based on the rates approved and published by the Board of CE's, every month

Liquidated Damages: If the contractor fails to complete whole of the works or any part thereof within the stipulated periods of individual mile stones the SE will deduct, one twentieth, of one percent, of respective mile stone value, per calendar day, for the period of delay, subject to a maximum of 10% of the contract value.

Mobilization Advance: Mobilization advance in two installments equivalent to 10% of the contract amount (5% for Labour and 5% for machinery is payable against BG. First installment of 5% is a) 1 % after concluding Agreement b) 4 % at the time of commencement of work (After completion of investigation,survey &designs) Second installment of 5% is to be paid,(with in a period 9 months, for purchase of machinery / equipment and with in one year in case the M & E is imported), for the M & E procured and brought to site, assessed at 100% for new machinery and 50% for old machinery brought to site and in working condition.

Employment of Technical persons: Recovery of Mobilization Advance; The Mobilization advance paid shall carry interest Recovery of the advance together with interest, shall commence, in the next interim payment, following that, in which the total of all such payments have reached 10% of the contract amount, and shall be made at the rate of 20% of amount of the interim payments. Employment of Technical persons: If the contractor does not employ technical persons agreed to on the work a fine of Rs.25,000/- shall be imposed. If he does not employ for 30 days, there after it becomes a fundamental breach of contract.

Insurance: Sub-letting of Contract: The value of works awarded on subletting shall not exceed 50% of contract value. Insurance: The contractor shall provide insurance cover from the start date to the end of the Defects Liability period or two kharif crop Seasons which ever is more for the following events. a. Loss of or damage to the works, plant and materials. b. Loss of or damage to the equipment. c. Loss of or damage of property in connection with the contract, and d. Personal injury or death of person employed for construction.

CHECK MEASUREMENT In case of Earthwork excavation embankment the field staff have to check and record the pre levels 25% of the pre levels taken by the E.P.C. Agency. In case of cut-off and foundations the field staff have to check and record 100%. Field Engineer have to check and record 25% of pre levels and 100% for final levels, Field Engineer have to check measure 100% of final measurements. Field Engineer/Engineer-in-Charge have to check measure as per codal provisions and rules in vogue. The department, QC staff have to check 25% of the final levels.

Check Measurement. (contd.) The Construction Engineers have to check the pre levels of Earth work Excavation, Embankment. a) 1/3 of the pre levels taken by EPC Agency. b) 100% levels in case of cut off and foundation Construction Engineers have check 25% for pre levels and 100% of final levels and measurements recorded by EPC Agency. Engineer-in-Charge have to Test check 25% measurements spread over the entire work. Engineer-in-Charge have to check measure as per codal provisions and rules. QC staff shall check 25% of the final levels/measurements of earth work, revetment, levelling, concrete, linear dimensions of important structures,gates etc.

Sources of disputes Sources of disputes could be: Inconsistencies/discrepancies in contract provisions Delay in giving possession of site Denial of extension, Liquidated damages Rejection of work, Cancellation of contract, Foreclosure Variations, Fixing rates, Delays and denial of payments, etc. Delays in execution and failure of contractor Non adherence to contract conditions and specifications by contractor

Disputes will be resolved as per UNCITRAL 1) Partner Ship Act - 1932 2) Contract Act – 1872 3) Arbitration & Conciliation Act - 1996 i) Mediation ii) Conciliation iii) Arbitration

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