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SUCHARITA SHARMA Roll No.

510920854

PM0009 – CONTRACTS MANAGEMENT

SET – 1

Q 1: List and explain in brief the methods of selection of consultants.

A.1

The methods of selection have been designed to achieve the objectives of quality, efficiency,
and economy, fairness and transparency in selection process and to encourage competition.

The methods of selection of consultants are:

 Quality and Cost Based Selection (QCBS)


 Quality Based Selection (QBS)
 Selection under a Fixed Budget (FBS)
 Least Cost Selection (LCS)
 Selection Based on Consultant’s Qualification (CQS)
 Single Source Selection (SSS)

Quality and Cost Based Selection (QCBS):

(a) Features: QCBS is a method based on the quality of the proposals and the cost of the
services provided. It is the most commonly used method of selection for most of the types of
services. Under QCBS the technical and financial proposals are submitted simultaneously in
separate sealed envelopes (Two-cover system). Proposals received after the deadline is
rejected. Evaluation of the proposals is done in two stages-Quality and cost.

The envelopes containing the technical proposals are opened by a committee of officials of
the Client immediately after the closing time for submission. The financial proposals
envelopes remain sealed.

The evaluation of the technical proposals is done as per criteria set out in the
RFP. Technical scores of the technical proposals are notified publicly. The financial
envelopes of those consultants who score more than the stipulated minimum qualifying
score are opened in the presence of the consultants or their representatives wishing to
attend. The financial proposals are then evaluated and the technical and financial scores are
then combined according to the weights indicated in the RFP.

The consultant obtaining the highest combined score is selected for award. He is then
invited for negotiations. Because price is a factor of selection, the staff rates and other unit
rates are not to be negotiated.

(b) Where appropriate: This method of selection is appropriate when:

 The type of services required is common and not too complex;


 The scope of the work of the assignment can be defined with precision and the TOR is
clear and well specified;
 We (Client who hires the consultant) as well as the consultant can estimate with
reasonable precision the staff time, the assignment duration and the other inputs and
costs required of the consultants;
 The risks of downstream impacts are quantifiable and manageable;

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 The capacity building aspect of the assignment can be estimated with regard to duration
and staff time effort;

To ensure receipt of responsive proposals, the RFP under QCBS shall indicate the level of
key staff inputs (in staff time) estimated by us (the Client) to carry out the assignment or the
estimated cost of the services, but not both. However the consultants shall be free to
determine their own estimates of staff time to carry out the assignment and to offer the
corresponding cost in their proposals.

(c) Type of assignments for which this method of selection is adopted:

QCBS is adopted for the following assignments:

o Feasibility studies and designs where in the assignment is simple and well defined;
Preparation of bidding documents and detailed designs;
o Supervision of the construction of works and installation of equipment;
o Technical, financial or administrative services of a noncomplex nature;
o Procurement and inspection services;

QCBS may not be appropriate for complex or specialized assignments in which the scope of
the assignment is not well defined and staff time are difficult to estimate. Since cost is a
factor in selection under QCBS consultants may propose conventional approaches and
tested methodologies to keep the costs low. This may ultimately affect the quality of the
assignment especially if the downstream impacts are complex, large or unknown.

Quality Based Selection (QBS):

(a) Features: QBS is based on the evaluation of the proposal quality without any initial
consideration of cost. As in the case of QCBS, the technical and financial proposals are
received in two separate envelopes. The technical proposals are evaluated. The financial
proposal of that consultant who has scored the highest technical score (which should of
course be more than the stipulated minimum score) shall be opened for evaluation of
financial proposals. Because the TOR of the assignments under QBS are generally more
complex and less defined than under QCBS, contract negotiations with the winning
consultant may be lengthy and complicated, we may need the assistance of a Technical
advisor.

(b) Where appropriate:

QBS is appropriate when:

 The downstream impact of the assignment can be so large that the quality of the
services is of overriding importance for the success of the project as a whole;
 The scope of the work, the duration of the assignment, and the TOR require a degree of
flexibility because of the novelty or complexity of the assignment, the need to select
among innovative solutions, or the particular physical, environmental, social or political
circumstances of the assignment; The assignment itself can be carried out in
substantially different ways such that cost proposals may not be easily or necessarily
comparable;
 The introduction of cost as a factor of selection makes competition unfair;
 The need exists for an extensive and complex capacity building program;

The RFP under QBS shall also indicate the level of key staff inputs (in staff time) estimated

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by the Client to carry out the assignment or the estimated cost of the services, but not both.
However the consultants shall be free to determine their own estimates of staff time to carry
out the assignment and to offer the corresponding cost in their proposals. The staff time
indicated by the consultants or the cost may differ considerably from our (Client’s) estimates,
depending on the particular methodology adopted by the consultant. The proposals should
not be rejected on this account.

(c) Type of assignments where this method of selection is adopted:

o QBS shall be adopted for assignments such as the following: Complex sector and
multidisciplinary studies of a complex nature; Important and far reaching strategy
studies;

o Complex master plans, pre-feasibility and feasibility studies, or design of large and
complex projects;
o Assignments in which consultant organizations with different cost structures (for example
traditional consultants, nongovernmental organizations (NGOs) are required to compete;
o In situations of strong uncertainty or risk for the project;
o Design contests in which consultants present a plan or design based on concept or
criteria provided by the Client examples being:
o Railway Stations, Ports, Airport Terminals,
o Public buildings such as hospitals, theatres, concert halls, university campuses, arts and
sports centres, exposition and fair complexes, Malls, Multiplexes and government
buildings;
o Rehabilitation of large, obsolete, or abandoned structures and areas to create
multipurpose centres for public use;

Selection under a Fixed Budget (FBS):

(a) Features: In this method, the available budget is disclosed in the RFP to the invited
consultants. The budget indicated in the RFP should be reasonable, compatible with the
TOR and the consultants should be able to perform within the budget. Under the FBS, the
consultants to whom the RFP is issued are requested to submit their technical and financial
proposals in separate envelopes. Technical proposals are evaluated first using the same
procedures as for QCBS and QBS and the financial proposals of those consultants who
score more than the minimum are opened in public. Because Lump sum form of contract no
corrections shall be made to the financial proposals. Activities and items described in the
technical proposals but not priced or quantified differently in the financial proposal from the
technical proposal shall be assumed to be included in the prices of other activities or items.
That means the financial proposals will not be altered. We discard the proposals that exceed
the indicated budget and select the consultant who has submitted the highest ranked
proposal within the budget.

(b) Where appropriate: FBS is appropriate only when:

 The budget cannot be exceeded;


 The objective and the TOR including the scope of work are very precisely defined;
 The time and the staff month effort required from the consultants can be assessed with
precision;
 Capacity building is limited to a simple transfer of knowledge, that can be very easily
estimated;

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(c) Negotiations:

Because the budget is fixed, the consultant’s TOR cannot be changed substantially and
technical negotiations cover only minor aspects. Financial negotiations will not include
discussions of remuneration rates and of other unit rates, but only of minor rearrangement of
activities and staff for compatibility with the work plan and clarification of tax liability.

(d) Type of assignments for which this method of selection is adopted:

FBS is likely to result in better quality proposals than under QCBS, because it is easier for
consultants to maximize quality under a fixed budget than under simultaneous quality and
cost competition. FBS also requires a shorter time than QBS for negotiations. FBS is
convenient for consultants because the pre-established budget allows them to determine in
advance whether they are interested in competing for the proposed assignment and to
develop the best proposal consistent with budget. More so than with QBS and QCBS, FBS
requires the TOR to be consistent with the established budget and to contain a well specified
scope of work for consultants to present clear and responsive proposals. The main risk of
using the FBS is under budgeting the TOR and in doing so discourage good consultants
from participating and then receiving poor performances
from the awarded consultant.

Least Cost Selection (LCS):

(a) Features:

Under LCS a minimum qualifying mark for quality is fixed and indicated in the RFP. Shirt
listed consultants are requested to submit their proposals (technical and financial) in two
separate envelopes.

Of the consultants who have scored more than the minimum technical score, the consultant
with the lowest price is selected. LCS shall not normally used as a substitute for QCBS.
Because quality is to be ensured, we should set a mark that is higher than usual (for
example 75 or 80 percent) to ensure quality and avoid the risk of selecting low cost
proposals of poor or marginally acceptable quality.

(b) Where appropriate:

The LCS method is appropriate only for small assignments of a standard or routine nature
wherein the intellectual component is minor, well established practices and standards exist.

(c) Type of assignments for which method of selection is adopted:

The LCS method of selection is adopted for the following assignments:

 Standard accounting or simple audits;


 Engineering designs or supervision of simple projects;
 Repetitive operations, maintenance work and routine inspections;
 Simple surveys;

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Selection Based on Consultant’s Qualification (CQS):

(a) Features:

Under CQS, we first request expression of interest (EOI) and qualification information
relating to the experience and competence of the consultants relevant to the assignment.
We then evaluate the information, establish a shortlist and then select the firm with the best
qualifications and references among those who confirm to be willing to
submit a proposal if selected. The RFP is then sent to the selected consultant and asked to
submit technical and financial proposals and then invited to negotiate the contract if the
technical proposal proves acceptable.

(b) Where appropriate:

CQS method is appropriate for assignments for which the cost of a full fledged selection
procedure would not be justified. CQS method can substantially reduce the process cost for
us as well as the consultants and the time required to hire a consultant as
well. This method is particularly suitable when the past qualifications and experience of the
consultant are crucial to the choice while the technical proposal itself is not likely to reveal
much additional or decisive information on the suitability of the consultant for the proposed
assignment.

(c) Type of assignments for which this method is adopted:

CQS is usually adopted for the following assignments:

o Evaluation studies at critical decision points in the project implementation such as


review of alternative solutions with large downstream effects;
o Executive assessments of strategies and programs;
o High level, short term, expert advice;
o Participation in project review panels;

Single Source Selection (SSS)

(a) Features:

Under this method, we request the already identified consultant to prepare technical and
financial proposals which are then negotiated.

(b) Where appropriate:

Because there is no competition, we should use this method, only when it offers obvious
advantages over a competitive method, as in the following cases:

 The assignment represents a natural or direct continuation of a previous one awarded


competitively and the performance of the consultant has been good or excellent;
 The consultant’s prompt • availability is essential (for example in emergency operations
following a natural disaster, a financial crisis etc.);
 The contract value is very small;

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 Only one consulting organization has the qualifications or experience required to carry
out the assignment

(c) Type of assignment for which this method of selection is adopted:

Good or excellent performance in the first assignment has to be a precondition for contract
continuation. In such cases, we should weigh the importance of continuing with the same
technical approach, the experience acquired and the continued professional liability of the
incumbent consultant against the benefits of competition, such as fresh technical
approaches and competitive remuneration rates. In theses cases we have to consider and
account for the time and cost of a competitive round, because it may weigh considerably on
our decision. SSS should not normally be adopted when the downstream assignment is
substantially larger in value than the initial one.

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Q.2 Describe six channels that can be used for communication, giving the salient
advantages/disadvantages of each and the situation each is best suited for.

A.2

Medium Advantages Disadvantages Best used for


Face-to- 1. Promotes trust 1. Expensive 1. Recruiting
face 2. Content & level of 2. Time consuming 2. Team building
meeting formality can be 3. Brainstorming
adjusted during the 4. Developing new
meeting business
3. Disagreements can 5. Confidential and
be negotiated sensitive personal
issues
Phone call 1. Requires immediate 1. interrupts work flow 1. Social interaction
response 2. Can extend for a long 2. Quick fact -
2. opportunity to time checking
restate or clarify if the 3. No record
listener does not 4. Hard to judge the
understand emotional component

Video 1. Can be used for a 1. Substantial 1. Meetings required


conference ‘milestone ’ interaction organization to arrange a to be conducted
e.g. finalizing an video Conference periodically when
important drawing to (especially across time participants are
be issued for zones geographically
construction 2. Limited possibility of a dispersed
2. Relatively breakthrough if
inexpensive compared participants have not
to face-to face meeting previously met face -to
-face

e-mail 1. Easy and quick 1. Impersonal and lacks Normal


especially across time emotional issues and communication
zones hence liable for between co-workers
2. Easily copied to misinterpretation
several people
simultaneously
3. Can be saved and
printed
4. recipient can access
the message at any
time
Memo Quasi-formal Routine
announcements

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Medium Advantages Disadvantages Best used for


Letter 1. Permits time for 1. One -sided 1. Statement of
analysis of proposals 2. Response may terms & conditions
2. Can be the basis of be delayed of a business deal
a formal contract 3. It takes time to 2. Formal
3. Can be formal or prepare a good instructions
informal as per the letter 3. Formal warnings
intended message to 4. Documenting
be conveyed items agreed in
face-to -face
meetings

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Q.3. Explain International competitive Bidding, its requirements and steps followed
for ICB

A.3

International Competitive Bidding (ICB) from an international financial institution to meet the
foreign currency payments involved in the contract;

Requirements for ICB

(a) Advertisement: we (as Employer or Purchaser)[2] have to publish the Invitation for Pre
-qualification of works/Invitation for Bids (IFB) in widely seen websites such as United
Nations development Business online (UNDB online)[3], and in the Development Gateway’s
dgMarket[4] to attract the attention of the foreign contractors and suppliers,. The Invitation
for pre-qualification/IFB shall contain details regarding the scope of the ICB, the address and
telephone numbers of the officer from whom details could be got (or the/pre qualification /
bidding documents are available), the website where the detailed Invitation for pre-
qualification /IFB and pre-qualification/bidding documents are available, the last date and
time, the place for submission of the pre-qualification applications/bids. To ensure further
wide publicity, we could also send copy of the Invitation for pre-qualification/IFB to the
Embassies and Trade representatives of the countries from where we can expect
participation in the bid. All the countries have their Embassies and Trade representatives in
New Delhi. We should also publish the Invitation for pre-qualification/IFB in national news
paper(s) having wide circulation in metros and principal cities of India and also in the region
where the procurement is being made. We should also publish the Invitation for pre-
Qualification/IFB in appropriate Trade Journals published in the country. These actions will
ensure adequate publicity and we could expect better competition and thus economic and
efficient procurement.

(b) Pre-qualification document (for works): The pre -qualification document shall include
sufficient details regarding eligibility, method of submission of pre -qualification documents,
details of documents/ information to be furnished, qualification criteria to be satisfied,
evaluation methodology, preparation of the list of pre-qualified applicants and notification of
the list of approved pre-qualified bidders.

(c) Period for submission of pre-qualification documents: The pre-qualification


submission period, that is the period from the date of publication of the Invitation for pre-
qualification in the press or the date of making available the document for sale (whichever is
later) shall be sufficiently large, depending on the size and complexity of the proposed
contract to enable the prospective applicants to obtain the pre-qualification document, study
the field conditions, collect field data, compile the qualification and other required information
and then submit pre-qualification applications. A period between 45 to 60 days depending on
the size and complexity of contracts is considered reasonable.

(d) Bidding document (for works and goods): The bidding document shall include
sufficient details regarding eligibility, method of submission of bids, bid security (amount and
currency) to be furnished, period for submission of bids, qualification criteria to be satisfied,
evaluation methodology, securities to be submitted, award of contract etc. It shall also
include internationally accepted Conditions of Contract, such as those developed by
Federation Internationale Des Ingenieurs -Conseils (FIDIC) and Institution of Engineers, U.K.

(e) Bidding period (for works): The bidding period, that is the period from the date of issue
of the bid document to pre-qualified bidders to the last date stipulated for the submission of
the pre -qualification document, shall be sufficiently large, depending on the size and
complexity of the proposed contract to enable the prospective bidders to obtain the bidding

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document, study the field conditions, collect field data, work out reasonable rates and then
submit meaningful bids. A period between 45 to 60 days or even more in case of large and
complex contracts is considered reasonable.

(f) Bidding period (for goods): The bidding period, that is the period from the date of
publication of the IFB in the press or from the date of making available the document for sale
(whichever is later) to the last date for submission of bids, shall be sufficiently large,
depending on the size and complexity of the proposed contract to enable the prospective
bidder to obtain the bidding document, study the same, work out the reasonable rates and
then submit meaningful bids. A period between 45 to 60 days is considered reasonable.

Steps for ICB

(a) Works with pre-qualification:

We, as the Employer, have to take the following essential steps:


· Notification and advertising for submission of pre -qualification applications;
· Issue/sale of pre-qualification documents to prospective bidders;
· Submission of pre -qualification applications by the prospective bidders;
· Opening of pre-qualification applications;
· Evaluation of pre-qualification applications;
· Preparation of the list of pre-qualified bidders;
· Issue the bidding document to the pre-qualified bidders;
· Submission of bids by pre -qualified bidders;
· Evaluation of the bids;
· Selection of lowest evaluated responsive bid;
· Contract award and signing of the contract with the Contractor;
· Contract performance by the Contractor;

(b) Works and goods without pre-qualification (post -qualification):

We, as the Employer/ Purchaser, have to take following essential steps:


· Notification and advertising;
· Issue/sale of the bidding document to the prospective bidders;
· Submission of bids by prospective bidders;
· Evaluation of the bids;
· Selection of lowest evaluated responsive bid based on post-qualification;
· Contract award and signing of Agreement with the Contractor/ Supplier;
· Contract performance by Contractor/Supplier.

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PM0009 – CONTRACTS MANAGEMENT

SET – 2

Q.1 Write short notes on:

a. Lump-sum contract
b. Cost reimbursable contract
c. E-procurement

A.1

a. Lump-sum contract
In a lump-sum or fixed price contract, the prime contractor agrees to complete the project, as
described in the contract documents, for a fixed price. For firm fixed-price contracts, once a
contract is in place the contractor is responsible for any cost overruns. In this case, the
buyer is responsible for providing a complete definition of what is required and schedule for
delivery. The price provided by the seller is going to include an estimate of its costs and its
profit.

If the seller’s costs are less than the costs included in its fixed price, the seller earns
additional profit. If the seller’s costs are more than the costs included in its fixed price, the
seller earns less profit. Fixed-price contracts are adopted and are effective when the scope
of work is well-defined. Fixed-price contracts shift at least some of the uncertainty associated
with a project to the contractor. The evident advantage of a Fixed -price contract is that it
encourages efficiency in the contractor’s work since the level of profit realized depends on a
contractor’s ability to control costs. Fixed-price contracts are among the easiest to administer
if change orders are not required. However, they can result in relatively inflexible project
activities, with significant institutional disincentives to modifying activities once work has
commenced as per the contract.

b. Cost reimbursable contract


Cost-reimbursable are those in which the owner pays the contractor the costs necessarily
incurred in the construction plus a fee. The latter portion viz. the fee can be fixed in a
number of ways which we will discuss later in this section. The main reasons for adopting
this mode of contracting are:

– At the time of contracting, the scope of the work is indeterminate or highly uncertain
and the kinds of labor, material and equipment needed are also uncertain.
– At the time of contracting, the owner is unable to finalize the plans and specifications
for the project
– At the time of contracting, the owner is not certain whether the construction project
will be completed in full.
– Cost-reimbursable contracts offer an easy response to unexpected conditions arising
during project implementation.
Under this arrangement complete records of all time and materials spent by the contractor
on the work must be maintained. (These types of contracts are also called Time and Material
contracts or Cost-plus contracts) Evidently the risk of increase in the project cost in this
mode of contracting is entirely to the owner. The most important question that should be
resolved for finalizing cost-reimbursable contracts is to identify the following costs:

• Reimbursable costs (Costs that are reimbursable to contractor i.e. costs that are
necessarily incurred in the performance of the work)

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• Non-reimbursable costs (Costs that are not reimbursable to contractor)


• Costs that are included in the base figure which is agreed as the basis for determining
the fee

(The first and the third figures are not necessarily identical)

Typically these costs comprise the following elements:

1. Reimbursable costs (i.e. costs that are necessarily incurred in the performance of the
work)
• Wages, payroll taxes and fringe benefits
• Cost of all materials, supplies and equipment incorporated in the work including the
costs of transportation, unloading thereof
• Payments to subcontractors
• Rental and maintenance charges for all equipment, trucks and hand tools
• Cost of salaries of all contractor ’s staff stationed at the field office
• Cost of salaries of contractor’s staff utilized for expediting of supplies, supervising of
transportation etc. calculated for time specifically spent on the project
• Cost of travel and travel incidentals of contractor ’s staff directly incurred on the
project
• Premiums of all bonds and insurances incurred by contractor for the work
• Permit fees
• Cost incurred for communication i.e. telephone, electronic communication etc. and
for stationery etc. at site
• Cost of temporary site facilities, removal of debris
• Losses and expenses not compensated by insurance which result from causes other
than the fault or negligence of the contractor.

c. E-procurement
In this era of globalization, public procurement has become a specialized function. Today’s
environment calls for efficient, responsive and transparent procurement procedures. IT has
converged in almost every area of public procurement and has revolutionized the process of
public buying.

E-procurement provides the advantages of reduced tender processing time, reduced costs
for the government, transparency of and access to the tendering process, increased
competition as evidenced by the increase in the average number of bidders per tender and
discouraging cartelization.

The number of people buying on line is growing rapidly in repetitive, low cost transactions.
Such transactions are enabled in high volumes through e-procurement systems. It is
therefore necessary for today’s and future procurement managers to develop their familiarity
and skills with the latest technologies of internet and electronic communication. E-
procurement’s infiltration into industry implies that contracting / procurement professionals
who have not established a track record with e-commerce and e -procurement will definitely
lag behind others who develop these skills. However, in project contracting, contract
management skills involving people skills and negotiation skills (discussed in Unit 7) will
continue to play a very important role.

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Q.2 Explain contracting and the benefits of contracting.

A.2

Definition:

Webster’s New World College Dictionary, 4th edition:


An agreement between two or more people to do something, especially one formally set
forth in writing and enforceable by law; compact; covenant American Heritage Dictionary of
the English language: An agreement between two or more parties, especially one that is
written and enforceable by law

Webster Dictionary, 1913:


1. (Law) The agreement of two or more persons, upon a sufficient consideration or cause, to
do, or to abstain from doing, some; an agreement in which a party undertakes to do, or not
to do, a particular thing; a formal bargain; a compact; an interchange of legal rights.

2. A formal writing which contains the agreement of parties with the terms and conditions,
and which serves as a proof of the obligation

Cambridge Dictionary of American English:


A legal document that states and explains a formal agreement between two different people
or groups, or the agreement itself

The Free Dictionary by Farlex: An agreement with specific terms between two or more
persons or entities in which there is a promise to do something in return for a valuable
benefit known as consideration. Consideration implies something of value such as money or
personal services in exchange for an act or promise.

Business dictionary.com:
‘A voluntary, deliberate and legally enforceable (binding) agreement between or more
competent parties ’.

Here,
• Agreement implies evidence of mutual accord between two or more legally
competent parties about their relative duties and rights regarding current or future
performance
• Legally competent party implies party having the required legal capacity to enter into
a binding contract. This legal capacity is the power provided to the party under law to
enter into binding contract and to sue and be sued in its own name. The following
persons are incompetent to contract.
1. Minors
2. Persons of unsound mind
3. Persons disqualified by law to which they are subject.
• Duty implies the accountability owed to someone who has the corresponding right to
demand satisfaction of an obligation

For an agreement to become a contract, it must contain three basic elements:

· Offer and acceptance


· Consideration
· Intention to create legal relations

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The existence of a contract has the following factual elements:


1. An offer
2. An acceptance of that offer which results in a meeting of minds
3. A promise to perform
4. A value consideration (which can be a promise or payment in some form
5. A time or event when performance must be made (meet commitments)
6. Terms and conditions for performance; including fulfilling promises
7. Performance

Contracts for illegal purposes are not enforceable by law

Theoretically, contracts can be written or oral, but oral contracts are difficult to prove. A
contract can also consist of a series of letters, offers, counter offers and orders. Some
varieties of contracts are:
• Conditional (i.e. on an event occurring)
• Joint and several (several parties combine to make a joint promise to perform;
however, each is responsible)
• Implied (i.e. whether there is a contract will be decided by the court basing on the
circumstances)

In reality, there are innumerable variations of contract and the varieties given above are only
some examples.

Contracts are agreements, but not all agreements are legally enforceable contracts.

Terms like void contracts, void able contracts etc. are also used. We address this by
comprehending the legal effects of agreements as falling into four categories:

a) Valid contracts:
– Agreements which are completely binding and enforceable
– Parties to valid contracts gain rights and responsibilities
– The courts will make sure that the parties follow these rights and responsibilities if there
is an argument

b) Void contracts:
– In fact, these are not contracts at all

Benefits of contracting:

1. Companies (Business owners) require known and capable contractors to carry out works
necessary for operating their business. This is an advantage that the business owner has in
that a general contractor is available to him (invariably one among a group of general
contractors, who is selected based on competitive bidding), thereby enabling the business
owner to concentrate his time, money and energy on his core competence of running his
business.

Similarly, general contractors make a living working with known subcontractors. An


established general contractor will have established relationships that will outlast a specific
construction project or specific projects which he is presently engaged in.

The subcontractors will acknowledge this with their cooperation. This is an advantage which
a general contractor has, and the owner does not have, since most subcontractors
recognize the risk of working with a one time client with higher bids.

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2. For the business owner, work is started and completed quickly, thereby enabling him to
realize his revenues early.

3. Contracting lowers the overall cost of the service to the business owner by reducing
scope, defining quality levels, re-pricing, re-negotiation.

4. Business owner can focus on developing core business.

5. Cost restructuring – contracting reduces the ratio of fixed costs to variable cost by offering
a move from fixed to variable cost and also by making variable costs more predictable.

6. Improve quality – The contractor or his subcontractor as applicable will have specialists
(the business owner will ensure that the contractor is capable of ensuring quality during the
prequalification process to ensure quality of specific works, since these works will be their
core business)

7. Knowledge – access to intellectual property, wider experience and knowledge of the


contractor specializing in the work

8. Existence of a contract – since there is a contract (which is legally binding) legal redress /
financial penalties are possible to prevent / correct non performance or substandard
performance, which may not be possible with internal services

9. Access to a larger talent pool and sustainable source of skills with the contractor

10. Reduce time to market – development of a product can be speeded through the
additional capacity brought by the supplier

11. Risk management – this is one of the main benefits of contracting especially in large,
complex projects where the risks are distributed to parties most capable of managing the
risks applicable to the work of each party

12. Contracting for low cost labor – an example is R & D projects which can be outsourced
by the high labor -cost countries to expertise available in low labor -cost countries like India
and China

The term ‘subcontracting’ is used to imply the next level of contracting resorted to by a
general contractor. If a contracting firm takes up the total project of constructing a building,
the firm itself may have the core competence of carrying out the civil works, but it will usually
award subcontracts for components of the total work like electrical works, air-conditioning
works, fire protection system works etc. to respective subcontractors specializing in such
works – the contracting firm, however is accountable to the building owner for the
performance of the total work. Since the 1980’s the term ‘outsourcing’ has also come into
use. It implies essentially the same as contracting or subcontracting. Outsourcing is the
transfer of management and / or day-to -day execution of a specific business function to an
external source provider. The contractual agreement should define the transferred services.
Business segments that are outsourced are:

• IT
• HR
• Facilities management
• Accounting
• CAD drafting
• Market-research

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SUCHARITA SHARMA Roll No. 510920854

• Manufacturing
• Designing
• Web-development
• Content writing
• Engineering

Subcontracting or outsourcing thus essentially results in a division of labor, whereby each


agency executes a part of the total project requiring specific skills applicable to that part.

The term ‘off shoring ’, which is also extensively used these days, is the type of outsourcing
in which the buyer organization belongs to another country. As an extension of this usage for
the term, even if the work is not outsourced i.e. the work stays within the same corporation /
company, the transfer of an organizational function to another country is now understood as
off shoring. The distinction between outsourcing and off shoring will become less clear over
time, because of increasing globalization of outsourcing companies. Outsourcing involves
contracting with a supplier, which may or may not involve some degree of off shoring.

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SUCHARITA SHARMA Roll No. 510920854

Q.3 Write short notes on the following bringing out their essential features and their
applicability in procurement for works and goods:

(a) Pre and Post qualification of bidders;

(b) Single and Two stage bidding;

(c) Single cover and two or more cover bidding systems;

(d) E-procurement for government requirements

A.3

(a) Pre and Post qualification of bidders;

Pre-qualification:
For large value contracts and complex projects (for example custom designed equipment or
design and build contracts or turn key contracts or management contracts) the bidders are
usually pre-qualified. Pre-qualification is done with the intention of inviting bids only from
those bidders who have adequate capabilities, and resources and are determined to be
competent to execute the works or supply the equipment, for which bids are to be invited.
You will appreciate that in the case of open bidding all the prospective bidders will have to
incur heavy expenditure for preparation of bids, which may discourage competition. You
could pre-qualify the prospective bidders for a single work or supply or for a group of works
or supply to be made during a specified period of say one year.

The pre-qualification process involves invitation of applications from prospective bidders by


issue of pre-qualification documents in which you should detail the scope of works or supply,
eligibility, qualification and financial requirements. After the receipt of the applications and
the requisite information, you will have to evaluate them and prepare a list of qualified
bidders. You have to do the Pre-qualification based entirely upon the capability and
resources of prospective bidders to perform the contract satisfactorily, taking into account
their (a) experience and past performance on similar contracts, (b) capabilities with respect
to personnel, equipment and construction or manufacturing facilities, and (c) financial
position. You should then issue the bidding documents to the pre -qualified bidders and
invite the bids from them only.

When the bidders are pre-qualified for groups of works or supply, you should take into
consideration the available bid capacity before award of the contracts. Also you should
periodically update the list of pre -qualified bidders. Before awarding the contracts you
should get confirmed from the pre-qualified bidders, the information they provided at the time
of submission of pre-qualification applications to ensure that they still meet the qualification
requirements. If the selected bidder does no longer meet the specified qualification criteria, it
should not be awarded the contract.

Post -Qualification:
When the bidders are not pre -qualified, bids are received by open bidding and evaluated as
per provisions in the bid document. In respect of single cover system, the technical
information as well as financial/commercial offer is received together in a single cover. You
should make preliminary checks with regard to the technical and commercial responsiveness
as per provisions contained in the bid document and determine the lowest evaluated
responsive bidder. You should then check as to whether the lowest evaluated responsive
bidder as determined by you meets the technical specifications as well as the qualification
criteria (including available bid capacity) as specified in the bidding document. If the bidder is

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SUCHARITA SHARMA Roll No. 510920854

substantially responsive and fully meets the specified criteria, you should award the contract
to the selected bidder. In case the selected bidder does not meet the specified criteria, you
should reject its bid and make a similar determination in respect of the next lowest evaluated
responsive bidder and award the contract to the responsive bidder who meets fully the
stipulated criteria.

In respect of two cover system of tenders, the technical information and the commercial
information to determine responsive ness and the price offer or bid price are received in two
separate covers. You should open the first covers of bidders containing the technical and
commercial information to determine the responsiveness of bids. You shall evaluate the bids
as per provisions in the bid document and prepare a list of responsive (both technical as well
as commercial) bidders who meet the specified qualification criteria. You should reject the
bids which are non -responsive to the technical and commercial conditions and not open
their bid price or financial offers. You should open the price offers of the responsive (both
technically and commercially) bids and evaluate them as per provisions contained in the
tender document. You should award the Contract to the lowest evaluated responsive and
qualified bidder. This process is called post -qualification.

(b) Single and Two stage bidding

Single stage contracts:


In single stage contracts for works or supply of equipment detailed designs and
specifications are drawn and bids are invited either from pre-qualified bidders as detailed in
paragraph above or open bids are invited in single or two cover system and the bidders are
post qualified.

Two stage contracts:


However in respect of turn key contracts or contracts of large complex facilities or works of a
special nature or complex information and communication technology or industrial plants
involving different manufacturing processes, it may not be practically possible or undesirable
on your part to prepare complete detailed specifications while inviting bids. In such cases
you should usually adopt two stage bidding procedure. You should issue the bidding
documents to the pre -qualified bidders (if bidders are already pre -qualified) or invite open
bids by sale of the bidding documents to intending prospective bidders. In the first stage you
should invite technical proposals only without the bidders indicating the costs, based on the
conceptual designs or performance specifications.
After opening of the first stage bids you should seek technical and/or commercial
clarifications from the bidders, who have submitted the first stage bid. You should then make
adjustments in the technical requirements as required and also make amendments to the
bidding document and in the second stage invite fresh bids from those who have submitted
the first stage bids, containing the final technical proposals as well as priced bids. You
should then evaluate the bids and award the contract to the lowest evaluated responsive
bidder who is determined to perform the contract satisfactorily.

(c) Single cover and two or more cover bidding systems;

Single cover bid system:


This has been discussed in paragraph above. In case of single cover system, you should
receive the technical information as well as financial/commercial offer together in a single
cover. You should evaluate the bids and award the contract as explained in paragraph
above.

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SUCHARITA SHARMA Roll No. 510920854

Merit of the single cover bid system: In this system we would be able to evaluate the bids
and award the contracts in a relatively shorter period. This is because we would be making
the detailed technical evaluation and checking the qualification criteria for the lowest
evaluated responsive bidder only. In case the lowest evaluated responsive bidder fails to
deposit the requisite security deposit and sign the contract we would be required to make
the technical evaluation and check of qualification information for the second lowest
evaluated responsive bidder.

Demerits of the single cover bid system: In this system we would be opening the financial
bids of all the bidders irrespective of the fact whether they meet the technical specifications
and meet the stipulated qualification criteria or not. The award decision may get biased in
respect of a bidder who has offered a lower price but has some minor shortcomings in the
technical specification and/or does not meet the stipulated qualification by a small margin.
There could be some outside pressure to consider the bid of this bidder, because of lower
cost, by overlooking the marginal deficiency.

Two or more cover bid system:


This has also been discussed above. In case of two cover bid system the technical
information and the essential commercial information (such as bid security, validity of bid,
manufacturer’s authorization form etc.) to determine responsive ness and the price offer or
bid price are received in two separate covers.

In some cases the bid security (earnest money deposit) is received in a separate cover (third
cover). The cover containing the bid security is opened first and if adequate bid security in
the form and validity as required in the bidding document has not been submitted by a
bidder, that bid is rejected and the other two covers are not opened at all. If the bid security
is in order, you should evaluate and award the bids.

(d) E-procurement for government requirements

E-procurement makes use of the electronic media – the internet for the various procurement
activities with the intention of expediting the procurement of works, goods and services, for
achieving better competition resulting in economy and also checks the malpractices of
manual procurement.

E-procurement has traditionally been used by the manufacturing enterprises to ensure


reliable supply chain of raw materials and other inputs at best prices to meet the production
schedules. Typically E-procurement website allows qualified and registered users to look for
buyers or sellers of goods and services. Depending on the approach buyers or sellers may
specify costs or invite bids. Companies participating in E-procurement expect to be able to
control parts inventories more effectively, reduce purchasing agent overheads and improve
manufacturing cycle.

E-procurement software includes special features such as:

Enterprise Resource Planning (ERP) – creating and approving purchase requisition, placing
purchase orders, electronic payment’s-sourcing – identifying suppliers for a specific category
of purchasing requirements;

e-reverse auctioning – to buy goods and services from a number of known or unknown
suppliers; etc.

Recently, E-procurement is being used for public procurement for procurement of works and
goods. The invitation for bid and the bidding documents are posted on the web sites of the

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SUCHARITA SHARMA Roll No. 510920854

Department or public sector organization. The contractors submit their bids electronically
before the stipulated date and time. The bid security (earnest money deposit) is also made
electronically. The electronic box is opened at a specified time and the bids are opened. The
bids are evaluated as per provisions contained in the bidding document and contract
awarded in a usual way. The processes of approvals are made electronically. E-procurement
results in better competition and cuts down costs, (since the bidders need not purchase the
documents, bidder submits the bid electronically from their own office without having to
travel to the office of the Employer/Purchaser) and ensures confidentiality, prevents
collusion practices (since the identity of the bidders are not known to any body in the
organization). It also prevents physical obstruction, bid fouling by criminal elements (a usual
malady of manual bidding in out of the way places).

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