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Published byJeffry Atkinson Modified over 7 years ago
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Types of Contracts and Guidelines for their choice
K.N. Venkata Raman Procurement Consultant, World Bank
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Codal Provisions Paragraph 168 of KPWD Code Volume I discusses in brief only two types of contracts, namely Lump-sum and Schedule (Item Rate); Development projects of Government Departments/PSUs and local bodies are sometimes complex and necessitate use of other alternative types of contracts.
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Government Instructions
Circular issued by FD in January 2005; Circular details the various types of contracts and gives guidance for their choice; Choice of type of contract has to be made at the initial stage itself, preparation of P.P.; Type of contract affects the subsequent stages of procurement, the content of tender document,
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Government Instructions (contd)
Factors which affect/influence the choice of type of contract; Nature and complexity of works; Size and duration of contract; Degree of definition of the works and the element of risk/uncertainty; Status of design(preliminary or final); Technical capability, design and supervisory resources of the Employer; Financial resources and budgetary constraints; Previous experience of Employer on the type of contract
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Lump-sum or all inclusive contract
Tenderer quotes a fixed sum for execution of work as per design and specification within stipulated time; Payment is linked to stage of completion of an activity; Relatively easy to administer;Inflexible for design changes Normally used for small, short duration, well defined, detailed works; Example standard housing, bus shelters, primary health centre etc.
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Item rate/unit rate/ad-measurement contract
Most common type of contract; Tenderer quotes unit rates for different items; Unit rates is inclusive of the costs of labour, materials, equipment; Detailed measurements are recorded and payment made at the tendered unit rates; Flexible to handle variations due to changes in design; Higher supervisory costs; Amenable for manipulation
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Percentage rate contract
Contractors to submit the %age above or below the current schedule of rates; Simple to comprehend for the contractor; Decision on tender immediate; Irrational tender, same percentage above or below different category of items; Appropriate for small value contracts, when items of work are few and belong to same category.
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Cost plus contracts Periodic reimbursement of contractor’s costs of inputs plus fee to cover overheads; Fee may be fixed or percentage of measured costs; Early mobilization possible in emergency situations or poorly defined works; If fee is fixed little incentive to produce quality work; If fee is %, limited incentive to be cost effective; Appropriate for open ended emergency situations; Mostly used in private sector.
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Supply and erect/install, commission and test contracts
Single responsibility; Management is simple; Direct cost is likely to be more; Appropriate for power plants, water pumping plants, water treatment and sewerage treatment plants; telecommunication projects etc
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Design and Build Contract
Innovative competitive designs are possible, which result in economy, better design and aesthetics; Pre-qualification is an essential feature; Appropriate for important buildings, major bridges, complex flyover, navigation works, airports and other infrastructure works
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Turnkey contracts Tenders for alternative systems and processes;
Two stage tendering procedure followed; Usually Lump sum with price adjustment; Employer is able to choose the best available processes and thus effect economy; Appropriate for procurement of complex industrial process plants such as steel mills, fertilizer plants, food processing, oil refineries etc.
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Management Contracts Firm acts in the role of a contractor that does not actually perform work directly but manages the work of other sub-contractors; Bears full responsibility and risk for price, quantity and timely performance of contract; Appropriate for major infrastructure projects such as airports, sea ports etc.
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Public Private Participation contracts
BOT, BOO, BOOT contracts; Concessionary turn key type of contract including financing in addition to design and construction, operation and maintenance of public and private revenue earning projects; It is a way of overcoming the budgetary constraints to acquire the needed infrastructure for growth; Appropriate for profit earning projects such as power generation and distribution, toll roads, and other projects.
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