1 CONTRACT AND CONTRACT MANAGEMENT IN SSID

1.1 DEFINITION OF CONTRACT

According to the PMBOK guide (2008), a contract is a mutually binding legal agreement that
obligates the seller (the Consultant/Contractor/Supplier) to provide the specified products, services
or results and obligates the buyer (Client) to compensate the seller (the Consultant/
Contractor/Supplier).

Irrigation development contract is a binding legal agreement that obligates the Consultant, the
Contractor and sometimes the Supplier to provide service (study and design, contract
administration, supervision or other service), works and material or equipment supply respectively
and obligates the client to compensate them.

In general contracts in small scale irrigation development can be categorized in to three:

I. Consultancy Services Contracts

II. Construction (Works) contracts
III. Supply contracts

1.2 TYPES OF CONSULTANCY SERVICES CONTRACTS

There are five types of contracts for consultancy services used in small scale irrigation
development as discussed here.

1.2.1 Lump-sum contract

This type of contract is used mainly for assignments in which the scope and the duration of the
services and the required output of the consultants are clearly defined. It is widely used for
planning and feasibility studies, environmental studies, detailed design of standard or common
structures, preparation of data processing systems, and so forth.

It is commonly used for undertaking of feasibility study and detail design of small scale irrigation
development preparation. Payments are linked to outputs (deliverables) in the agreed stages: such
as inception, interim, draft feasibility study and design, and final feasibility study and detail
engineering design report stages.

The contract shall include a fixed price for the activities to be carried out by the consultant and
shall not be subject to any price adjustment, except extras or change orders that affect the scope
and methodology in the contract. Lump-sum contracts are easy to administer because they
operate on the principle of fixed price for a fixed scope, and payments are due on clearly specified
outputs and milestones.

1.2.2 Time-based contract

This type of contract is appropriate when it is difficult to define or fix the scope and the duration of
the services. Definition and fixation of the scope and the duration of the services may be difficult
as the result of either of the followings but not limited to: -
 When the services are related and/or dependent to activities carried out by others for
which the completion period may vary, or
  When the input of the consultants required for attaining the objectives of the assignment
is difficult to assess.
It is widely used for complex studies, contract administration and supervision of construction,
advisory services, and training assignments.

Payments are based on agreed hourly, daily, weekly, or monthly rates for experts (who are
normally named in the contract) and on reimbursable items using actual expenses and/or agreed
unit prices. The rates for experts include remuneration, social costs, overhead, profit, and, where
appropriate, special allowances.

Time-based contract shall include a ceiling amount of total payments to be made to the
consultants. It needs to be closely monitored and administered by the client to ensure that the
assignment is progressing satisfactorily and that payments claimed by the consultants are
appropriate.

1.2.3 Retainer and/or Contingency (Success) Fee Contract

Retainer and contingency fee contracts are widely used when consultants (banks or financial
firms) are preparing companies for sales or mergers of firms, notably in privatization operations.

The remuneration of the consultant includes a retainer and a success fee, the latter being normally
expressed as a percentage of the sale price of the assets.

1.2.4 Percentage contract

These contracts are commonly used for procurement and inspection service providers.
Percentage contracts directly relate the fees paid to the consultant to the estimated or actual
project construction cost, or the cost of the good procured or inspected.

The contracts are negotiated on the basis of market norms for the services and/or estimated
person-month costs for the services, or competitively bid. It should be borne in mind that in the
case of architectural or engineering services, percentage contracts implicitly lack incentive for
economic design and are hence discouraged.

Therefore, the use of such a contract for architectural services is recommended only if it is based
on a fixed target cost and covers precisely defined services (but not, for example, works
supervision).

1.2.5 Indefinite Delivery Contract (IDCs) or price agreement

Indefinite delivery contracts are used when borrowers need to have quick and continuing access to
“on call” specialized advisory services for a particular activity, the extent and timing of which
cannot be defined in advance.

Indefinite delivery contracts are commonly used to retain “advisers”, expert adjudicators, members
of panels, or experts to participate in the design or implementation of sub-projects or complex
tasks during the execution of Bank-financed projects (for example, dam panel, dispute resolution
boards, institutional reforms, procurement advice, technical troubleshooting, evaluation of
safeguard issues, and so forth), normally for a period of at least a year.
The services are offered by qualified firms through a list of proposed experts they commit to make
available in letters of intent in response to a REOI setting selection criteria focusing on the relevant
qualifications and expertise of the required experts.
Borrowers shall then establish a long list of qualified experts. The borrower and the firms agree on
pre-established fee rates to be paid for the experts and on standard conditions of contract, and
payments are made on the basis of the time actually spent.

Experts shall be selected from the long list on the basis of a “call off” request with specific TOR for
the assignment, based on the qualitative evaluation/comparison of the CVs of the proposed
experts or the fees level, and a specific contract is signed for each assignment.

1.3 TYPES OF CONSTRUCTION CONTRACTS

According to Article 2610 of Ethiopia civil code, a construction contract as “a contract of work and
labor is a contract whereby one party, the contractor, undertakes to produce a given result, under
his own responsibility, in consideration of a remuneration that the other party, the client,
undertakes to pay him”.

There are many different types of construction contracts, distinguished primarily by the method of
determining the final contract price. The type of contract chosen may depend on several factors,
including the identity and relationship of the owner and contractor (if any); the completeness of the
design and its complexity; the type of work being done; and the need or desire for competitive
pricing.

Construction contract broadly classified as (1) Fixed-Price Contracts, (2) Cost-Reimbursable

Contracts, and (3) Guaranteed Maximum Price Contracts. The details of each construction
contracts are presented below.

1.3.1 Fixed-price contracts

Fixed-Price Contracts categorized as (i) Lump Sum Contract, (ii) Unit-Price Contract (Measured
contract), and (iii) Fixed-Price Incentive Contracts. The details of each type of fixed-price contracts
are as presented below.

1.3.1.1 Lump sum contract

Lump Sum Contract is one form of Fixed-Price Contract in which the contractor agrees to do
specified construction for a fixed price set forth in the contract. The only changes allowed to the
fixed price are for extras or change orders. It is commonly used in small scale irrigation works
contract in conjunction with Unit-Price Contract (Measured Contract).

1.3.1.2 Unit-price contract

Unit-Price Contract is another form of Fixed-Price Contract in which it sets for the price for each
unit of works constructed. The unit may be, for example, a square meter of clearing, a cubic meter
of excavation, a cubic meter of masonry, a cubic meter of concrete. The contract may specify a
particular number of units needed. For example, if the contract is for excavation, it might state that
the excavator will be paid 45 ETB per cubic meter of normal soil excavated to a depth not
exceeding 150cm from the site. Anything can be measured in units can be the basis of a unit-price
contract. Unit-Price Contract can be called Measured Contract.
Unit-Price Contracts or Measured Contracts are most often used in small scale irrigation
construction contracts, such as earthworks, masonry works, concrete works, pipelines, and other
activities where it is difficult to calculate actual quantities in advance.

1.3.1.3 Fixed-price incentive contract

Fixed-price incentive contract is a fixed-price contract that provides for adjusting profit and
establishing a final contract price by application of a formula based on the relationship of total final
negotiated cost to total target cost. The final price may be subject to a price ceiling, negotiated at
the time of entering into contract. The concept can be structure in either of two forms, example,
firm target price or successive target prices. A fixed-price incentive contract is appropriate when a
firm-price contract is not suitable.

1.3.2 Cost-reimbursable contracts

Cost-reimbursable contracts are cost-plus contracts in which the contractor is paid its actual costs
of the construction plus a specified markup to cover overhead and profit. Typically, the contract
defines costs including all expenses incurred in the construction, including expenses for materials,
wages for labor, temporary facilities, and subcontractors and suppliers. The contract may specifies
what are not eligible costs for reimbursement purposes.

Cost-plus contracts are appropriate where, due to an incomplete or very complex design, a
contractor would be unable to give a lump-sum price without including a large contingency for
unknown factors.

Cost-Reimbursable Contracts comprises (a) Time and Materials or Cost-Plus-Percentage-of-cost,

(b) Cost-plus-Fixed-Fee, and (c) Cost-Plus-Incentive-Fee. The details of each type of cost-
reimbursable contracts are as presented below.

1.3.2.1 Time and materials or cost-plus-percentage of cost contract

In this type of contract, the contractor is paid its actual costs plus a specified percentage of those
costs for overhead. Thus, the contract would specifically exclude actual overhead expenses from
the definition of eligible costs. The total costs and the overhead is then added a specified
percentage for profit.

1.3.2.2 Cost-plus-Fixed-Fee Contract

In this type of contract, the contractor is paid its actual costs plus a fixed fee that is set in advance.
The contract may or may not specify that costs include a set daily rate for overhead.

1.3.2.3 Cost-plus-incentive-fee contract

In this type of payment structure, the contract specifies time and quality criteria. If the contractor
meets those criteria, it is paid its costs plus a set fee. If the contractor exceeds those criteria,
perhaps by completing the job early, the contractor is paid an additional fee based on a scale set
forth in the contract. If the contractor does not meet those criteria, the fee is less. This type of fee
arrangement encourages early, quality work.

1.3.3 Guaranteed maximum price contracts

A guaranteed maximum price contract is a variation of the cost-plus contract. In this type of
contract, the owner and contractor agree that the project will not cost the owner more than a set
price, the guaranteed maximum. The contractor is paid on a cost-plus fixed fee or percentage of
cost basis, but in no even more than the set maximum price.

For instance, assume that a contract specifies a guaranteed maximum price of 5,000,000.00ETB
and the cost-plus basis turns out to be 4,000,000.00ETB. Under a 50/50 percent split, the
contractor would be entitled to 4,500,000.00ETB for its work.

Guaranteed maximum price contracts give contractors great incentive to keep costs as reasonable
as possible to ensure themselves as much profit as possible. They also encourage contractors to
value engineer to the project.

1.4 TYPES OF SUPPLY CONTRACTS

Currently, there are eleven contract types available to professional purchasing personnel. These
are(1) Firm Fixed Type Contract, (2) Fixed Price Escalation Contract, (3) Fixed Price Incentive
Contract, (4) Fixed Price Redetermination Contract, (5) Cost/Cost Sharing Contract, (6) Cost plus
Incentive Contract, (7) Cost plus Award Fee Contract, (8) Cost plus Fixed Fee Contract, (9) Time
and Materials Contract, (10) Letter Subcontract, and (11) Indefinite Delivery Contract.

The firm fixed price contract is used more often than any other type. Many buyers are
uncomfortable with most any other type of contract. On occasion another type of contract can be
used to better advantage for both the buyer and the supplier.

This section meant to explain what contract types are available in order that a good choice for
each individual situation is made. Here, the contracts discussed starting with the one over which
the buyer has the most control and ending with the one which provides the least contractual
protection.

1.4.1 Firm fixed type contract

Firm Fixed Type Contract is the type of supply contract used for items purchased which are easily
defined and have established pricing when using a firm fixed contract, the buyer agrees to pay a
fixed price for a fixed quantity of goods (i.e. 27 Birr each for 100 units). In this example the buyer is
obligated to pay 2,700 Birr once the goods are delivered and deemed to be correct and of
acceptable quality. This type of contract provides the buyer with the most control of supply contract
than another types discussed in this guideline.

1.4.2 Fixed price escalation contract

Fixed price escalation contracts are typically used when purchasing material which will be
delivered over a period of several years. The agreed upon escalation clause will protect both the
buyer and the supplier from material and labor fluctuations and can deal with cost decreases as
well as increases. An escalation clause usually is an agreement that the contract will be adjusted
once a year to reflect the difference in labor or material or some percentage of the unit price of
each element. For example, the buyer and the supplier agree upon labor and material indices as
shown by certain economic indicators (i.e. labor could be those shown on the Bureau of Labor
Statistics (BLS) Report). Material fluctuations might be noted by current market costs on an agreed
upon date or those published by some agency measuring such data. Additionally, the contract
might note that 60% of the unit price would be adjusted for labor and 40% for material.
Agreements can vary from that discussed in the preceding paragraph to a simple statement noting
that the contract will be adjusted 3% per year for its duration. The important concept to remember
in using this type of contract is to be sure that the adjustment factors are fair and will allow both
buyer and seller an opportunity for a reasonable contract arrangement. The adjustment clause
must be clearly written and utilize appropriate indices. For instance, if you are using labor indices
for a machine shop contract the indices should reflect labor rates for machine shop personnel
rather than labor rates for utility workers.

1.4.3 Fixed Price Incentive Contract

This type of contracting arrangement should be used for purchasing any item which is difficult to
define or has never been produced in the past. It will protect the buyer from contracting at a very
high price to cover any and all of the supplier's areas of uncertainty. It requires that the buyer and
the supplier establish the following contract criteria:

1. A maximum contract price.

2. A target contract price.
3. A fee.
4. A sharing formula.

An example of a fixed price incentive contract could be as follows:

1. Maximum price – 1100 Birr

2. Target price – 900 Birr
3. Fee – 90 Birr
4. Sharing formula - 50/50

The supplier does not get any part of the fee until the costs fall below the maximum. Overruns and
under runs of the target are shared per the sharing formula and added to or subtracted from the
fee. Resulting payments for various cost results would be as shown below:

COST FEE PRICE

1200 Birr --- 1100 Birr
1100 Birr --- 1100 Birr
1000 Birr 40 Birr 1040 Birr
900 Birr 90 Birr 990 Birr
800 Birr 140 Birr 940 Birr
700 Birr 190 Birr 890 Birr

As you can see once the supplier can produce the item at a cost of 800 Birr she/he will realize a
profit of 17.5% and at 700Birr she/he profit becomes 27.5%. This provides a good incentive to
become more efficient and control costs.

When utilizing this type of contract, it is important that agreed upon costs are included as part of
the contract negotiation. Also, the supplier must agree to demonstrate all costs with invoices and
time cards as well as be able to allow validation of hourly wages paid and overhead calculations.

1.4.4 Fixed price redetermination contract

This type of contract is used more often by government agencies than private industry. It is
employed when the initial procurement of goods can be priced but due to material or labor
fluctuation subsequent deliveries cannot be firm priced. It provides for negotiated upward or
downward adjustments at stated times during the contract. A second type of contract usage allows
the renegotiation to be done after contract completion. Its use is discouraged because the supplier
might not control costs carefully when s/he will be allowed to demonstrate actual "after the fact"
and be reimbursed. It requires special approval for use by government agencies.

1.4.5 Cost/cost sharing contract

Cost and cost sharing contracts are appropriate when a new product will be developed which the
supplier may be able to market elsewhere. This allows the supplier to have all their costs paid
while developing a new product. Cost contracts are also often accepted by universities or other
non-profit organizations. A cost sharing contract might be used when the supplier is not assured of
a future market for the product or the supplier is not sure how large the market will be.

As with the fixed price incentive contract, the buyer must negotiate which costs will be covered.
The supplier must allow the buyer to verify all costs and overhead rates. Close monitoring of this
type of contract is essential to assure that waste is kept to a minimum.

1.4.6 Cost plus incentive contract

Sometimes it is impossible to agree on a fixed price incentive contract because the item is so
loosely defined that even a maximum price cannot be determined. The buyer may then agree to
pay all costs but would like to have some incentives for the supplier to operate efficiently. This can
be done by agreeing to pay all agreed upon costs. The contract will include all the elements of the
fixed price incentive contract. It provides the supplier with assurance that all their costs will be
covered and still provides some incentive to reduce such expenditures. As with all cost type
contracts agreed upon costs and a method of rate verification must be negotiated prior to contract
agreement.

1.4.7 Cost plus award fee contract

Not a popular type contract. This type contract allows the buyer to pay all agreed upon costs and
add an amount of money as an "award" or fee at contract completion. The amount is completely
decided by the buyer "after the fact."

1.4.8 Cost plus fixed fee contract

This is the final type of cost contract. The supplier will again be reimbursed for all agreed upon
costs. At the time of negotiation, a fixed amount of money is negotiated which will be paid in
addition to verified costs. This type of contract is used when the supplier has some idea of what
costs will be but is unwilling to take a firm fixed contract without putting a large amount of fee in the
contract to cover various contingencies that might occur.

1.4.9 Time and materials contract

A time and material contract is usually used for repair contracts. Until recently it was customary to
include a "not to exceed" amount on the contract. Many firms used half the cost of a new unit to
calculate the "not to exceed" value of the contract. Currently, it is more common to only place an
amount on the contract that covers repair evaluation costs. A note is included which requires that
the supplier contact the buyer and obtain approval prior to the repair being completed. This allows
the buyer to decide if the repairs should be done or if the unit should be scrapped.
On occasion a time and materials type contract is utilized by an independent contractor hired to
complete a particular activity. In this case it is a fine line as to whether to utilize time and material
or a cost type contract. Either would have the same effect. Profit in this type of contract is usually
built into the contractor's hourly rate.

1.4.10 Letter subcontract

On occasion a large contract must be started before final negotiations are complete in order to
assure delivery to a particular time schedule. When this situation arises it may require the use of a
letter subcontract. Such a contract essentially releases initial work with a "not to exceed figure."
The "not to exceed" amount is typically no more than 40% of the proposed price. It also contains a
number of important contractual clauses such as an agreement to complete negotiations prior to
completion of 40% of the total effort. Other special clauses as deemed necessary are included to
protect both the supplier and the buyer. The contract effort at the time of placement is usually well
defined and often completion milestones and preliminary progress payments are included.

1.4.11 Indefinite delivery contract

An indefinite delivery contract is employed when the buyer is not sure of the production schedule
or the quantity of material needed. There are three types of contracts employed:

1. Definite Quantity Contract

2. Requirements Contracts
3. Indefinite Quantity Contract

When using the definite quantity contract delivery is not specified. Requirements contracts are
those where your requirements are placed showing only a minimum quantity, which is guaranteed.
This type of contract cannot be terminated at no charge as long as performance is acceptable.
Indefinite quantity contracts provide that during a given period of time the buyer will place
requirements with a specific supplier. Quantities and delivery dates are unknown, however
minimum and maximum quantities are specified.

Often we find management most uncomfortable with any but firm fixed price contracts even when
other types of contracting might allow us advantageous price and delivery. The choice should be
advantageous to both the buyer and the supplier. It is our job as good buyers to alert them to all
the possible alternatives.
1.5 PROJECT CONTRACTING STRATEGY

There are four processes in project contracting strategy using FIDIC conditions of contract for
construction that determines how services are to be provided. These processes are: -
 Engineering (E),
 Procurement (P),
 Construction (C), and
 Management (M).
Decisions on how services are to be provided, and the legal and commercial arrangement for their
provision, should be made as early in the project life cycle. The way in which the engineering,
procurement, construction and management services are grouped and provided to a project is
called the delivery vehicle that determines the project contracting strategy to which commercial
and contractual terms and conditions can be applied. Examples of Delivery Vehicles include:
 Engineering, Procurement and Construction (EPC),
 Engineering, Procurement and Construction Management (EPCM),
 Project Management Contractor (PMC), and
 Combinations of EPC and EPCM.

1.6 STANDARD FORMS OF CONTRACT

According to FIDIC there are four new standards form of contracts used in construction as
discussed here under.

1.6.1 Contract for construction

It is recommended for building or engineering works designed by the employer or by s/his

representative, the engineer. Under the usual arrangements for this type of contract, the contractor
constructs the works in accordance with a design provided by the employer. However, the works
may include some elements of contractor-designed civil, mechanical, electrical and/or construction
works. It is the most commonly used contract form used for irrigation construction.

1.6.2 Contract for plant and design-build

This is recommended for the provision of electrical and/or mechanical plant, and for the design
and execution of building or engineering works. Under the usual arrangements for this types of
contract, the contractor designs and provides, in accordance with the employer’s requirements,
plant and/or other works: which may include any combination of civil, mechanical, electrical and/or
construction works. It is advisable for pressurized irrigation system such as sprinkler and drip
Irrigation System that uses pump for water abstraction system.

1.6.3 Contract for EPC/turnkey projects

This may be suitable for the provision on a turnkey basis of a process or power plant, of a factory
or similar facility, or of an infrastructure project or other type of development, where (i) a higher
degree of certainty of final price and time is required, and (ii) the contractor takes total
responsibility for the design and execution of the project, with little involvement of the employer.
Under the usual arrangements for turnkey projects, the contractor carries out all the Engineering,
Procurement and Construction (EPC), providing a fully-equipped facility, ready for operational (at
the “turn of the key”). It can be used for fast truck project implementation with experienced
Contractors familiar with sophisticated risk management techniques.
 1.6.4 Short form of contract

It is recommended for building or engineering works of relatively small capital value. Depending on
the type of work and the circumstances, this form may also be suitable for contracts of greater
value, particularly for relatively simple or repetitive work or work of short duration. Under the usual
arrangements for this type of contract, the contractor constructs the works in accordance with a
design provided by the employer or by s/he representative (if any), but this form may also be
suitable for a contract which includes, or wholly comprises, contractor-designed civil, mechanical,
electrical and/or construction works.

1.7 CONTRACT ADMINISTRATION

Contract administration in this guideline is defined as administrative activities that usually

associated with handling of contracts, such as invitation to tender, tender evaluation, award of
contract, contract implementation, measurement of work completed, and computation of
payments. It also includes monitoring contract relationship, addressing related problems,
incorporating necessary changes or modifications in the contract, ensuring both parties meet or
exceed each other's expectations, and actively interacting with the consultant/contractor to
achieve the contract's objective(s). Contract administration is also called contract management.

1. Tender Document

2. Invitation to tender

3. Tender evaluation

4. Award of contract

5. Contract implementation

6. Measurement of work completed/service delivered

7. Computation of payments

8. Contract close out

Figure 1-1: List of contract administration activities with respect to their order
1.8 CONTRACT MANAGEMENT PRINCIPLES

Generally, Contract Management is about ensuring both parties to fully satisfy their respective
obligations in efficient and effective manner so that they can attain the objectives demanded by the
contract.

Ethiopian draft public procurement guideline (2011) states “Effective management of contracts is
essential to ensure that the objectives of the procurement process are achieved and that all
contractual obligations and activities are completed efficiently by both parties to the contract”.

There are basic principles for successful contract management. The major principles are illustrated
below:
Probity

Specifications Attainment

Financial Compliance

Legal Responsiveness
Basic Priciple of Good
Contract Management Due Time Delivery

Sound Communication

Risk Identification & Managment

Equal Opportunity

Figure 1-2: Major contract management principles

Case 1 Contract Type Selection

Suppose X SSIP is identified in one of National Regional State of Ethiopia located at

remote area. According to the identification and reconnaissance level study, the project is
proposed to have the following system components: -
 Three surface pump for irrigation water abstraction;
 Generator;
 Pipe for conveyance system;
 Civil works for delivery, distribution, and other irrigation and social structures;
 Earth works;
 Access roads; and
 Etc.
As an engineer in that region, the sector manager required your piece of advice, how to
select and establish contract to materialize the above project. What are the issues you are
going to give attention and propose the contract(s)?

Possible Advice

The client is advised to establish and implement the following contracts one after the other
in the course of the aforesaid project life. These are: -
1. Lump Sum Contract for detail study and engineering detail design service that has
to be concluded between the client and the selected Consultant/The Engineer.
2. Time Based Contract for Contract Administration and Construction Supervision
Service that has to be concluded between the client and the selected
Consultant/Engineer.
3. Measured Contract (including Lump Sum Contract as required for some item) for
construction works of project that has to be concluded between the client and the
selected contractor.
4. Lump Sum Contract for supply, installation, testing and commissioning of surface
pumps and its accessories, generator and its accessories, pipe and fittings, and
other goods designed and recommended for the project that has to be concluded
between the client and the selected contractor/supplier. It can be a part of the
above contract mentioned under 3 or it can be stand-alone contract as mentioned
here.
2 PROCUREMENT IN SMALL SCALE IRRIGATION DEVELOPMENT
2.1 DEFINITION OF PROCUREMENT

It is the act of obtaining goods, works, consultancy or other services through purchasing, hiring or
by any other contractual means.

It is the process of need identification, purchase planning, standard determination, specification

development, supplier selection, forming contract, contract execution & management insuring that
all goods are delivered/works completed/services rendered by project completion date.

2.2 BASIC PROCUREMENT POLICES

The basic procurement policies are the following but not limited to: -
 To ensure that goods and services needed are procured with due attention to economy
and efficiency;
 To ensure that public fund is used to buy only those goods and services needed for
national development;
 To give all qualified bidders an equal opportunity to compete for contracts;
 To encourage development of local contractors and manufacturers; and
 To ensure that the procurement process is transparent.

2.3 TYPES OF PROCUREMENT

There are a minimum of three types of procurements as discussed here in below.

2.3.1 Procurement of goods

Goods can be defined as all of the equipment, machinery, commodities and/or other materials
which the supplier is required to supply to the purchaser under the contract.

2.3.2 Procurement of consultancy services

Consultant means a particular type of contractor who is engaged to provide recommendations or

specialist or professional advice (or more generally non-manual services) to assist or influence
Government’s decision making.

Services means the professional, technical, advisory, or maintenance obligations of the Supplier
under a Contract for the provision of Services. Types of consulting services may be grouped as
follows.

Project Services
Advisory Services
Preparation Services Implementation Services
Sector studies Tender documents Strategy and policy
Master plans Procurement assistance Regulation
Feasibility studies Construction supervision Institutional reform
Design studies Project management Capacity building
Specialist studies Integrated solutions Management and leadership
Training Information technology
In this guideline, feasibility studies and design studies, and tender document preparation services
are considered in Study and Design Service. Construction supervision and project management
are considered in Contract Administration and Construction Supervision Service.

2.3.3 Procurement of works

Works means the construction, installation, maintenance, refurbishment, repair and related
activities required under a contract for the provision of works as defined in the contract.

2.4 COMMON PROCUREMENT PROCESS

The following is the common procurement process adapted in irrigation development.

Step-1 Procurement List Databases

Choice of method of procurement

Step-2 Procurement Plan

National Competitive Bidding (NCB) Direct Contracting (DC)

Step-3 Preparation of Bidding Documents Simple Request

Open Tender Publication Limited Tender

Step-4 Invitation to Bid

Bids Opening Session

Step-5

Step-6 Evaluation of Bids Evaluation of Quotes

Step-7 Evaluation Review and Approval

Step-8
Notification of Award of Contract Purchase Order

Step-9 Contract Management & Execution

Figure 2-3: Flow chart-procurement process for the acquisition of goods, services and works
2.5 METHODS OF PROCUREMENT

There are six methods of procurement according to “The FDRE, Ministry of Finance and Economic
Development Procurement Directives, 2010”. These are

1. Open bidding
2. Two-stage bidding
3. Request for proposals
4. Restricted bidding
5. Request for quotations; and
6. Direct procurement

For detail refer the Procurement Directives and Guidelines of The FDRE, Ministry of Finance and
Economic Development as well as International Financing Institution such as Multilateral
Development Partners and Bilateral Development Partners as appropriate.
3 CONTRACT AGREMMENTS IN SMALL SCALE IRRIGATION
DEVELOPMENT
There are different types of contract agreements that small scale irrigation development
owner/employer/client enter with project implementer's consultant, contractor and/or supplier.
These are: -

4. Contract Agreements in Small Scale Irrigation Development

4.1. Consultancy Service 4.3. Supply Contract

42. Works Contract Agreement
Contract Agreement Agreement

4.1.2. Contract Administration and

4.1.1. Study and Design
Construction Supervision Service
Service Contract Agreement
Contract Agreement

Figure 3-4: List of different types of contract agreements in small scale irrigation project life

3.1 CONSULTANCY SERVICE CONTRACT AGREEMENT

Consultancy Service Contract Agreement is an agreement entered into between Client and
Consultant/Engineer to undertake either project preparation or implementation services. Generally,
consultancy service contract agreement in small scale irrigation development lays on the following
two contract agreements namely: -
 Study and Design Service Contract Agreement (during project preparation phase), and
 Contract Administration and Construction Supervision Service Contract Agreement
(during project implementation phase).

3.1.1 Study and design service contract agreement

Study and design service contract agreement is project preparation service contract made
between client and consultant/engineer for undertaking of pre/feasibility study and detail design of
small scale irrigation development preparation. Here, the assignment of the consultant includes
preparation of reports, design drawings, bills of quantities, tender documents as per term of
reference.

It is mostly lump-sum type of contract. Payments are linked to outputs (deliverables) in the agreed
stages: such as inception, interim, draft feasibility study and design, and final feasibility study and
detail engineering design report stages. The milestones or stages in SSIP study and design and
the respective deliverables are as tabulated below.

Study and Design Sage Deliverables with payment request Remarks

  Field assessment report
Inception  TOR amendment proposal if any
 Work schedule
 Field work accomplishment Client is expected to assign
completion report expert(s) for quality
Interim
 Primary and secondary data assurance during data
 Work schedule collection.
Draft Feasibility Study  Draft report of all discipline
and Preliminary  Draft design drawings
 Draft specification and bill of quantity
Engineering Design  Work schedule
 Final report of all discipline
Final Feasibility Study  Final design drawings
and Detail Engineering  Final specification and bill of quantity
Design Report  Tender document
 Construction schedule

3.1.2 CACS service contract agreement

Contract Administration and Construction Supervision Service Contract agreement is project

implementation service contract agreement made between client and consultant/engineer for
undertaking of contract administration and construction supervision of small scale irrigation
development implementation.

It is mostly a type of Time-Based Contracts. Payments are based on agreed monthly rates for
experts (who are normally named in the contract) and on reimbursable items using actual
expenses and/or agreed unit prices.

3.2 WORKS CONTRACT AGREEMENT

Works Contract agreement is project implementation contract agreement made between client and
contractor for undertaking of construction of small scale irrigation development implementation.
Works contract agreement comprises both measured contract and lump sum contract types
most commonly in small scale irrigation construction.

Measured contract, in works contract, is the contract in which the client and contractor agree on
only the unit rate. In measured contract, project is broken down to activity items, with quantities
and unit rate against each item. The Contractor’s tender will be based on unit rates and prices
against each item and the contractor will be paid against measured work done item by item. The
total works will be quantified upon the completion of the work. The unit price provides less
certainty to the owner as to the final project cost but also reduces the prospect of windfall to the
contractor. The contractor on his part will focus on productivity, since the risk of unknown has been
substantially reduced. Payments are based on agreed unit rate on priced bill quantity.

Lump sum contract, in works contract, is contact under which the project owner/client agrees to
pay a contractor a specified amount, for completing an agreed scope of work (e.g. involving a
variety of items of work which are based on drawings and specifications set out in the contract)
without requiring a measurement of quantities involved. Here the Contractor is entitled to be paid a
fixed price for completing all works described in the tender. The Contractor’s obligation is taken to
include all work considered incidental to the completion of the contract, whether or not such item of
work is included in the contract document. Payments are based on priced bill of quantity.
It is not preferable for civil engineering works because of the following drawbacks, which may
substantially change the scope of the work to be carried out by the Contractor.
 Un avoidable unforeseen incidental items may occur in the tender,
 Lump sum contract may not allow to cover risks such as enforceable conditions, and
 Existence of errors in the contract documents.
In lump sum contract, low productivity rates, rising prices and unforeseen conditions are the
contractors risk and not the employers. Hence, due to this high risk involved, contractors are
generally reluctant to carry out works under this type of contract.

Even, owners are as a common practice are not well served by lump sum contracts due to the
likelihood of endless disputes following disagreements on how to interpret the various stipulations
presented in the contract documents.

In case of construction of small scale irrigation project, lump sum contract can be used as
along with measured contract for specialized item of works such as: -
 allowance for resources mobilization and demobilization;
 dewatering of open trench and excavation using pumps;
 supply and erection of the specified project indicator post; and
 Provision of as built drawings.

3.3 SUPPLY CONTRACT AGREEMENT

Supply Contract agreement is project implementation contract agreement made between client
and contractor/supplier for undertaking of construction of small scale irrigation development
implementation. It is lump sum contract type of contract for the supply of electro-mechanical
equipments (Pumps and Accessories, Generators, Transformer, Pipes and fittings, etc),
construction materials, and machineries (rental base), and others. In Supply Contract the final
payment effected up on delivery of goods as per specification and the contract should be closed
accordingly.

Based on type and location of water source as well as water application method, a given
small scale irrigation development may have supply components in addition of civil works. It
is highly advisable to outsource the whole project activities (Civil Works and Supply) for a
competent single contractor as usual.
Table 3-1: Summary Table for the Most Commonly Used Standard Contract Forms in SSID
Standard
Applicability Specific Requirement
Contract Forms
 Defined Scope of assignments
Study and Design Service  Defined duration
 Clearly defined output of the consultants
Contract
 Payments are linked to deliverables
 Can be fixed price
 a fixed sum for execution of defined work in
stipulated time according to the drawing, design &
Lump-Sum specifications
Works Contract
Demerits
 Work must be defined accurately; specifications must
be fully specified
 Defined specification and drawings for the required
goods.
 Defined Scope of assignments
Supply Contract
o Supply, installation, testing, commissioning,
and others
 Defined duration and location
 Difficult to define or fix the scope
 Difficult to fix the duration of the services because
they are related to activities carried out by a
Contract Administration contractor.
Time-Based
and Construction  Payments are based on agreed monthly rates for
Supervision Service experts (who are normally named in the contract)
Contract and on reimbursable items using actual expenses
and/or agreed unit prices.
 The contract shall include a ceiling amount of total
payments that has to be made to the consultants.
 Unit Price / Schedule Contract
 Based on items of the Works described in the Bill of
Admeasurements Quantities.
Works Contract  Payment is based on detailed measurement of
executed works
Demerits
Unbalanced tender (flawed high/ low unit rate)
4 CONTRACT MANAGEMENT PLANNING AND ENACTMENT IN SSID
4.1 PLANNING CONTRACT MANAGEMENT

Contract management planning is not something to be started after an agreement is entered into,
instead it is something to commence in the procurement planning phase and continues right
through evaluation and contract negotiation. It is advised always to involve or consult contract
managers in procurement process.

During planning phase, consider the following vital concerns:

 Review of procurement/award outcome
 Contract Establishment
 Determining Contract Management Approach
 Identifying & Managing Risks

4.1.1 Review of procurement outcome

Under the planning phase reviewing of the procurement using check points listed below.
 If there is substantial errors or issues (unit, quantity, specifications, TOR that may create
Contractual problem,
 Appropriate time allocation for the works/service, and
 Expiry date of the bid security to plant the contract agreement day.
Note: - use Appendix Part IV/GL 27/A-1: Procurement Outcome Review Format.

4.1.2 Contract establishment

Contract establishment is a process of entering into “an agreement made between two or more
parties which is enforceable by law to provide something in return for something else from a
second party”. The following should be fulfilled before any contract establishment and signing.
 Understand the type of Contract (Lump-sum/ Admeasurements/Time Based),
 Organize the contract document,
 Agreement,
 Letter of Acceptance,
 Contractor’s evaluated Bid,
 Particular Conditions of Contract,
 General Conditions of Contract,
 Specifications/TOR,
 Drawings,
 Priced Bill of Quantities, and
 Any other document listed in the PCC as forming part of the Contract.
 Collect Performance Security from the contractor, and
 Collect revised & approved Schedule from the contractor/consultant.

The following work flow assists contract establishment:

 Letter of Acceptance

Performance Security Cancelation of award and forfeit of the bid security

Agreement Document

Signing of
Agreement

Binding Agreement Document Issue of the agreement document

Figure 4-5: Agreement establishment flow chart

4.1.3 Determining the contract management approach

The contract management approach or modality can be by independent consultant, own force,
freelancer individual or other based on the complexity, budget/cost, scale of risk and other
determining issues. Always it is advisable to decide critically on the modality. Especially for small
scale irrigation, if the contract management is outsourced it is advised to do it in cluster approach-
grouping a number of projects in to one cluster and outsource it.

In addition, it is advisable to establish clear communication modality (Letter, email, Fax, tele, diary,
reporting format & duration) for better contract management placement.

4.1.4 Contract management risk identification

Identify potential risks of the contract (like front loading, unsound rates, financial capacity,
experience related risk, etc.) and arrange risk mitigation plan for identified contract risks before
and in course of contract establishment and implementation.
4.2 CONTRACT MANAGEMENT ENACTMENT

The main contract management implementation subjects or procedures mainly include the
following:

i. Managing Contract Mobilization

ii. Managing Contract Documentation and Record Keeping
iii. Managing Conditions of Contract
iv. Managing Roles and Responsibilities
v. Managing Relationships and Communication
vi. Managing Costs
vii. Managing Contract Variations
viii. Managing Contract Disputes
ix. Managing Contract Performance
x. Contract Monitoring
xi. Managing Ethics in Contract
xii. Managing Contract Completion

4.2.1 Managing contract mobilization

Contract mobilization is a move from the paper agreement stage to materializing or objectivising
the agreement at ground level. Successful contract mobilisation can ensure that the ‘building
blocks’ for a successful contract are created. While the written contract is a record of each party’s
obligations and responsibilities, it is not designed as a day to day operational management
document for the contract.

The Contract manager/expert is demanded to prepare a day to day operational contract

management document that can assist the project contract management to be easy and
piecemeal. This document guides the client, contractor/consultant and the contract manager.

Table 4-2: Contract mobilization checklist (office use)

When done make a
Mobilisation Action Remark
mark (X)
Distribute Contract documents to Contractor /
Client (Region. Zone, District - Legal section,
Relevant departments)
Document Establish Contract file in the name of the project
Organize the Contract file - Collate received
Securities (Performance, Advance and others
documents
Site handover format preparation
• Beneficiary and locally area administrative &
line office courtesy call
Site Handover • Camp site handover
• Headwork and Main structure
• Bench Marks
• Access road if applicable
• Establish reporting structure and formats
• Contractor contract management personnel
Communication acceptance
& Relationship • Establish meeting schedules
• Establish communication protocols (diary,
memos, letters, email. FAX, telephone calls etc.)
 4.2.2 Managing documentation and record keeping

In contract administration the hub is documentation and updating record keeping. Documentation
covers collecting, collating, and updating. Each and every formal communication between or
among client, contractor, consultant and contract manager has to be collected and organized.
Formats and checklists assist this indispensable work (Appendix Part IV/GL27/A-5: Documentation
and Record Summary Keeping Format). In documentation and record keeping the following
documents and records need unique accentuates:
 Contract (changes, amendments and finish): This is about when the contract started,
ordered delay or accelerated, when and why amendments are done, intended
completion date.
 Cost: Contract price, Advance and interim payments, variations, compensation events,
retentions, liquidated damages and securities
 Time:(Delay and extension)
 Dispute: When the parties are in disagreement in interpretation of contract,
deliverables, payment approved and is not able to resolve it without resorting to a formal
mechanism.
 Quality: This is an input from the technical supervisor (Engineer) about the quality in
attaining the contract specification, working methodology, workmanship even person
power quality as mentioned in the contract.
 Report: Contract management reports are mandatory; whether there are significant
issues or not Contract management report should be issued every month with the
project progress report.
Note: -The following foddering system can be adapted.

Contract Sub folder

Cost sub folder

Main folder

Time sub folder

Dispute sub folder

Quality subfolder

Report subfolder

4.2.3 Managing conditions of contract

Sometimes it is difficult to understood and manage all conditions of contract for complex projects,
whereas in small irrigation development the GCC & PCC are not that much difficult if properly
monitored. The following flow shows methodology in understanding the GCC and PCC conditions:
 1. Collect & Organize Contract Document

2. Review & Study the Contract

Systematically

3. Extract Roles & Responsibilities

4. Consolidate them in the form of Roles and responsibilities sheets

5. Record and Refer throughout the Project Life Time

Figure 4-6: Flow diagram main contract item extraction flow

Tool to extract Responsibilities:

Read the contract again & again from cover to cover in order to identify certain key
responsibilities, called “control responsibilities,
Mark responsibilities allocated to each participant with colored pen/markers in which
one colour of marker should be used to denote each responsibility of a given party.
Consolidate each party responsibility to one place.

4.2.4 Managing roles and responsibilities of parties

In contract management, one of the main challenges is to assign and demarcate roles and
responsibilities of contract mangers and experts. Unless this is done in explicit way, the contract
management will fail. The roles and responsibilities depend on complexity, risk, budget and other
factors. The contract manager (or team) must:
 Have a detailed knowledge of the governing contract and other relevant issues
 Actively participate in the tender process or have a full handover from the staff
responsible for the tendering/contract award.
 Have the appropriate contract management skills, budget oriented, and professional
expertise to manage the contract and resolve any issues.
 Hold the necessary delegated authority to monitor the financials and ensure variations
are appropriately approved by Procurement and in accordance laws, regulations and
directives.
Table 4-3: Contract manager role

Area of Contract Manager Role

Responsibility

Preliminary stage  Ensure signed contract is in place between both parties

 Ensure a contract file is maintained
 Review the bid result to understand risks and challenges (arithmetic check,
unit rate, specification, and its completeness of bid document)
 Study the contract systematically (understand, identify supersede-
consecutives, inconsistencies, and glaring error)
 Understand responsibilities of the parties
 Build a confidence on the assignment and the contract issues by reading
and consulting experienced personnel on the subject matter.

Management  Day to day management of the Consultant/ Contractor

 Perform regular operational meetings with Consultant/Contractor
 Resolve operational issues as they arise
 Monitor performance data and Address non-conformance
 Ensure payment certificates comply with contracted rates
 Ensure payment is made to Consultant/ Contractor within payment terms
 Ensure two-way communication with the supplier. Facilitate resolution of
unresolved issues that occur in between review meetings by:
 Facilitate strategic contract review meetings to determine future of contract
at expiry (e.g.: contract extension, new tender process etc.)

Contract  Participate in the establishment of and understand the operation of the

Administration Contract and Consultant/ Contractor Plan
 Check each job order compliance to Contract
 Organise Contract Request and facilitate response
 Advise the supervision team of any changes in
scope/specification/deliverables
 Negotiate changes in scope/product/service and associated terms and
pricing in consultation with the contract manager
 Bringing the client & Supplier together to solve issues
 Ensuring agreement on action plans
 Facilitate improvement plans stemming from regular contract review
meetings to ensure Supplier performing at expected levels

Compliance and  Comply with contract terms

Monitoring  Monitor deliverables
 Engage with Consultant/ Contractor to resolve community generated
complaints

Continuous  Formulate, implement and monitor improvement plans stemming from

Improvement regular contract review meetings and noncompliance issues to ensure
Consultant/ Contractor is performing at expected levels

Contract Review –  Participate in strategic contract review to determine future of contract at

Lessons Learnt expiry

4.2.5 Managing relationships and communication

Relation is about concern, dealing, contacts, connections and interactions about the project
contract. This relationship should have a modality and system. Managing relationship commences
at the early stage of the contract establishment. The relationship may not be the same for all
contractors/consultants, but the following are the main:
 Table 4-4: Relationship management and communication
Main Activities in Relationships Description
Formulate Relationship Modality Person –Person, electronically, paper work
Brief the Communication method  Report – official format & time limit
 Payment – Official format
 Letter – Official procedures
 E-mail – information exchange & briefing – not binding,
it should be followed by official letter within four days
from issuance of the e-mail.
 Telephone- emergency, information exchange – not
binding - it should be followed by official letter.
 Memos –internal notice
Contact personnel  Officially assigned by the contractor/ consultant/client
 Known office address
 Known telephone, email - registration
Mandate/responsibility  Clearly understood

4.2.6 Managing costs

One of the key elements in contract administration is cost control. Cost is based on the contract
type. Almost all of Ethiopian SSI construction projects belong to the admeasurements category.
Costs in this category requires an understanding of contract price, changes in the contract price,
variations, payment, compensation events, retention, liquidated damages, advance payments,
securities, and others.

4.2.6.1 Management of advance payment

This payment, most of the time, is the first payment from the client to the contractor/consultant.
Advance payment effecting procedures, time, and prior requirements should be well understood by
all parties. Monitoring the advance payment utilization of the contractor/consultant by the client is
very essential.
For example, according to the GCC-contract or agreement document taken regarding advance
payment it states: “The Contractor is to use the advance payment only to pay for equipment, plant,
materials, and mobilization expenses required specifically for execution of the Contract. The
Contractor shall demonstrate that advance payment has been used in this way by supplying
copies of invoices or other documents to the Project Manager.” Accordingly, advance payment
utilization should be one of the monitored items.

4.2.6.2 Management of interim payment

Payments paid based on the executed work/service in the midst of the assignment are called
interim payments. Interim payments request, approval and effecting should have a standard flow
procedure in managing a cost. This flow should be effective to hasten the project efficiency.

An agreed and accepted method would be established with the contractor/consultant for carrying
out the necessary measurements, calculations and certifications required for interim.

Interim Payment Certificates are useful in maintaining liquidity for the contractor. Therefore, the
contract manger is not expected unnecessarily to reject whole sections of works claimed by the
Contractor, but make amendments in accordance to the agreement.

Note that interim payment can be effect up to the agreed proportion of the total contract price
minus the agreed proportion for retention and liquidation damage. For example, if the agreed
retention money is 5 percent and liquidation damage up to 10 percent of the total contract amount,
interim payment can be effect up to the 85 percent of the total contract price

4.2.7 Managing contract variations

Provisions to allow and regulate acceptable contract variations (based on the funding agency
policy) should be a standard feature of all contracts. The ability to vary the contract should be
controlled by the Client at early stage before entering into a contract, else it will craft contract
management predicament. Contract variations are expected to occur in defined and unseen
circumstances. It is an accepted practice to entertain variations based on agreement entered
between the client & Contractor/ Consultant/ Supplier. Variation Order and approval form is shown
in the list of Variation request and Approval Form.

Any proposed variations should be assessed to ensure that they do not breach legislation,
procurement policy and financial delegation of supervisors, responsible personnel & managers.
The reasons for the variation should be clearly documented. Managers should be involved in
negotiating significant variations.

Variations should not be used to mask poor performance or serious underlying problems and the
effect on original timeframes, deliverables and value for money should be assessed. If the effects
are significant, senior management and other stakeholders may need to be consulted and/or
advised.

Changes to contractual arrangements have the potential to affect the scope and viability of the
contract for either or both parties and making substantive variations to a contract will require some
of the actions and issues involved in developing the original contract. They should therefore be
planned accordingly.

A variation is a formal amendment to the terms and conditions within or outside the intent of the
Contract. A variation is a change to the original scope of work which has been agreed by both
parties. The effect of the variation will have implications on time, cost and quality.
Variations may include the following to Contract will be required for the following:
 Change in scope of work including Volume (positive and negative)
 Change in execution of the work– Methodology & method statements
 Change in resources or facilities required
 Revision of rates
 Extension of the duration of the contract
 Settlement of a claim arising from the contract
Before deciding Contract Variations Check the followings:
 Understand the source of variation and as much as possible agree with the client &
contractor
 If it is not an imitable variation, think way of minimizing its risk on the project cost, time,
quality and intended goal.
 Think critically in the overall project context and mind design change/modification can
solve the problem, if not mind omission of other uncritical structures before ordering or
approval.
 Don’t delay critical variation decisions so that it incurs cost on the client.

4.2.8 Managing contract disputes

During the contract management phase, a disagreement becomes a dispute when it is not
possible for the parties to resolve it without resorting to a formal resolution mechanism. Generally,
what a dispute is and when it’s deemed to have occurred is defined in the contract, often in a
dispute resolution clause.

Many disagreements and disputes arise when the parties cannot agree on issues related to the
interpretation of contract provisions, the definition of deliverables, meeting performance standards
and/or the effect of unexpected events. It is important that any possibility of dispute or an actual
dispute be recognized at an early stage and addressed as quickly as possible amicably. Avoiding
the escalation of disagreements can impact on contract deliverables and reduce the costs to both
parties especially the client (b/s the end users benefit will be delayed or hampered).

However, where a dispute arises, the Contract Manager’s role is to protect the Client interests in
all cases. There should be clear governance processes in place to manage contract disputes,
including the roles and responsibilities of the Contract Manager, Procurement and Senior
Management. The forms of dispute resolution can include the following:

Table 4-5: Forms of dispute resolution

Negotiating between the Client and the Contractor/Consultant is the most common
approach to resolving disagreements and disputes. The intention of the negotiation
is to reach a mutually acceptable solution, where both sides consider they have
Negotiation gained the best possible result in the circumstances. It is important that one party
does not consider they have been unduly pressured to agree to a particular solution
as a result of the negotiation as this can lead to an escalation or reappearance of
the dispute at a later stage.

Mediation involves the use of a neutral third party to assist in resolving the dispute.
The mediator does not impose a decision on the parties in the way a court or
Mediation arbitrator does, but instead seeks to help the parties resolve the dispute
themselves. Mediation is usually regarded as a faster, less formal and less costly
process than court proceedings or arbitration.

The aim of arbitration is to obtain a final and enforceable result without the costs,
Arbitration
delays and the formalities of litigation.

Litigation is the act or process of contesting a lawsuit or seeking redress through

the courts. It can be an expensive and time consuming procedure and is generally
taken when other avenues of dispute resolution have not been successful or are
Litigation
not available. Other approaches to resolving disputes or Supplier defaults should
therefore be considered prior to litigation. Ethiopian Chambers of commerce is
widely adapted arbitral tribunal organ.

4.2.9 Managing contract performance

Contract manager should ensure the contract is well understood and attained by the parties. In
addition, S/he has to ensure whether the parties are on the right truck of their roles and
responsibilities of the contract. The following checklist enables to track the performance
management (Table 4-5). The performance assessment result should be communicated if possible
per month if not per quarter for the parties.
Table 4-6: Contract performance management checklist
Checklist Indicators
Compliance or noncompliance documentation (Example: specification of
Standards
materials, quality, mix ratio, drawing etc.)
Documenting the acceptable deviation on each deliverable – structurally,
Tolerance
hydraulically (dimensions, velocities, slopes etc.), cost, time
Review meetings Conducted or not, evaluating encouraging feedbacks
Reports Timeliness, completeness, quality

Besides, the following key indicators listed in Table 5.6 shall be used while monitoring & control of
contract performance in small scale irrigation development.

Table 4-7: Contract performance management key indicators by contract type

Type of Contract Key Indicators
 Timely delivery of key outputs
Consultancy
 Responsiveness to reasonable requests
Services Contract
 The quality services of services provided
 The timeliness of delivery
Supplies Contract  Quantity delivered
 Compliance with specifications
 Timeliness of each stage of the works
 Compliance with the specifications, drawings, bill of works, and intended
Works Contract
purposes.
 The quality of the works

4.2.10 Contract monitoring

Contract monitoring focuses on collecting and analyzing information to provide assurance to the
Client that progress is being made in line with agreed timeframes and towards providing the
contract deliverables. Key Performance Indicators (KPIs) should be clearly set within the contract
and then measured, reported and monitored on a regular basis.

Regardless of how the contract monitoring is performed, accountability for accepting contract
deliverables remains with the Client. Information provided by a contractor/consultant for monitoring
purposes should be reviewed and audited, as necessary, to ensure its accuracy and reliability. It
can also often be tested by capturing feedback from end-users regarding the quality of the works
and services they have received.

It is important to focus monitoring activity on key deliverables; very detailed monitoring can be both
costly and unnecessary and unduly shift the focus away from achieving contract outcomes. This
may mean establishing priorities for what will be measured at specific time intervals. Collecting too
much information is also costly and the Client may not have the resources to analyze it to assess
performance adequately. Some of the deliverables that should be monitored include headwork,
canals, structure, Night storage, electro mechanical equipment etc.

The main indicators for monitoring can be:

 Cost – Actual in relation to the Contract
 Time – Planned in relation to the actual
 Compliance to Specification – Design/Contract in relation to the actual
 Construction methodology and method statement –
 Construction materials – machinery, equipment, tools and instruments.
 Workmanship – Actually mobilized contractor & consultant staff Vs with tender offer/
  Dimensions – drawing/design in relation to the actual
 Shape – Drawing/design in relation to the actual
 Compliance with Drawing/ specification in relation to the actual
 Compliance with the bill of works
 Operation (user satisfaction) – Functionality, efficiency.
Contract Monitoring Format can be used for monitoring:

Size

Specifi
cation

Time Cost

Shape Other

Opera
Quality Type
tion

Figure 4-7: Contract monitoring indicators

4.2.11 Managing ethical contract business conduct and conflict of interest

The relationship between/among client/consultant/contractor is a critical element of achieving the

required outcomes and issues associated with ethical behavior are most likely to arise in this
context.

Judgments on ethical issues will often involve a number of potentially competing considerations
including the need to comply with client procurement policy and legislative guidelines while
maintaining a constructive working relationship with the contractor/consultant.

In line with the contract agreement and procurement policy, the recommended approach is to
decline all offers of gifts or benefits, no matter how small or seemingly harmless. Some
organizations have code of conduct on this matter.

4.2.12 Managing contract completion

The most common way a contract ends is where each party performs according to the terms of the
contract, that is, the contract is discharged through due performance. Acceptance implies that the
works delivered have met the agreed contract.

Contracts for the provision of services may specify an end date when all contract deliverables
have to be provided. The contract ends through due performance if the services are delivered in
line with contract standards by the due date. In works contracts, contract closure should be
completed as soon as defect liability is completed. The following check list guides the contract
completion:
No Checklist Yes/No Remark
1 Deliverables review
Documents required for contract completion (as built
2
drawing, O&M, diary & others)
3 Unsettled claim
4 Advance deduction completed
5 Defect liability security on place
6 Site handover/takeover
7
8
9
10 Retention managed
11 Contract closing meeting & minutes
12 Final payment addressed
5 STUDY AND DESIGN SERVICE CONTRACT ESTABLISHMENT
Study and design service comprises project initiation, identification and investment prioritization,
feasibility study and detail design activities. Here the client shall prepare term of reference (TOR)
based on the nature of identified project and finally establish Study and Design Contract.

The Three are different procurement approaches for study and design service such as open bid,
short list, and others. During the procurement process invitation or request for expression of
interest should be one of the requirements to assist the pre-qualification assessment.

Pre-contract activities for study and design service are as discussed hereunder in small scale
irrigation preparation phase.

1. Preparation of Tender Document

2. Review of Tender Document

3. Invitation for Expression of Interest

4. Evaluation of Expression of Interest of bidders

5. Issuance of RFP

6. Check the Bid Document for Its Completeness

7. Evaluation of the Bids

8. Award Letter for Successful Bidder

9. Negotiation on the Bid Offer

10. Contract Preparation and Signing

11. Issuance of Contract

12. Binding Contract

Figure 5-8: Procedure for study and design service contract establishment

1. Preparation of Tender Document

The standard bid document for the procurement of Study and Design Service divided into three
parts and nine separate sections. Generally, it is structured as: -

Part 1- Bidding Procedures

Section 1 – Instructions to Bidders
Section 2 – Bid Data Sheet
Section 3 – Evaluation Criteria
Section 4 – Bidding Forms
Section 5 – Eligible Countries

Part 2 - Schedule of Requirement

Section 6 – Terms of Reference
Part 3 - Contract
Section 7 – General Conditions of Contract
Section 8 – Special Conditions of Contract
Section 9 – Contract Forms

It should be made either of the following and the latest version based on the nature of the fund.
 The Federal Democratic Republic of Ethiopia, Standard Bid Document (SBD), For
Procurement of Consultancy Service, For National Commutative Biddings (NCB)
prepared by Public Procurement Agency (PPA), January 2006, Addis Ababa, Ethiopia.
 Consulting services manual 2006: a comprehensive guide to the selection of
consultants at the World Bank.
 Guidelines Selection and Employment of Consultants under IBRD Loans and IDA
Credits & Grants by World Bank Borrowers, January 2011.

2. Review of Tender Document

The contract engineer should review the tender document for its completeness of each part and
sections contents, the detail of each sections and conformity to the procurement procedure and
methods. Special attention shall be given while reviewing terms of reference that clearly describe
the scope, approach, methods, staffing, deliverables, scheduling and mode of payments.

3. Invitation for Expression of Interest

The procuring entity may advertise the opportunity to invite consultancy firms to express interest in
being invited to bid. This can be done with a letter, News Paper, and other legal forms according to
the PPA or World Bank Procurement Directives. Use Standard Format for Notices seeking
Expressions of Interest attaché in the annex.

4. Evaluation of Expression of Interest of bidders

The client should review the qualification of consultants who submitted expression of interest and
gives first consideration to those processing the best qualifications for the proposed assignment.
The client should develop a short list based on the funding agency procurement directives
(Example, PPA 2006 advices 3 to 7 bidders, whereas, World Bank advices the first 6 short listed
consultants). Detail evaluation should be undertaken according to evaluation of the bids stated
below.
5. Issuance of RFP
The procuring entity should prepare and send RFP to short listed consultants. During the
preparation of RFP, the client, should use funding agencies SRFP. The SRFP consist letter of
invitation, information to consultant including data sheet, technical proposal, and financial
proposal, TOR, and standard forms of contracts.

The client should give enough time for selected bidders to prepare their proposal. (Example, WB
advises 4 weeks for very simple assignment and up to 3 months for complex assignment).

6. Check the Bid Document for Its Completeness

The procuring entity should check the completeness of the bid document submitted by the
consultant; legal registration (Business License, Professional Registration, VAT and TIN
Registration), Relevancy, Eligibility, Tax Clearance from Inland Revenue Authority.

7. Evaluation of the Bids

For Consultancy Services different selection procedures can be used and each requires slightly
different information in Section 3 of tender document. According to PPA 2006, the four selection
procedures permitted are Quality & Cost Based Selection, (QCBS), Quality Based Selection,
(QBS), Fixed Budget Selection, (FBS), and Least Cost Selection, (LCS). Whereas, World Bank
additional recommends Selection Based on Consultant’s Qualification (CQS), Single Sources
Selection (SSS), and Selection for Individual Consultant (IC).

The Procuring Entities should evaluate the bid offer based on evaluation criteria forming the bid
document and finally prepare evaluation report.
The evaluation criteria for procurement of Study and Design Service shall consider the followings
company profile information but not limited to: -
 Working capital and annual turnover (Audited Financial Statement),
 Grade,
 Years in the business,
 Lend and litigation,
 Debarring (Black listed),
 Person power,
 Vehicle,
 Instruments, and
 Certificate of performance.

8. Award Letter for Successful Bidder

Upon completion of the tender evaluation, the Tender Evaluation Committee shall be requested to
make a Contract Award recommendation to the head of the Procuring Entity. Decision should be
made by the general manager of the procuring entity based on the evaluation report whether bid
process and the selected bid offer is accepted or rejected.
The following procedure is required before award decision is made:
 The head of the Procuring Entity makes a contract award decision.
 The Procuring Entity notifies all Bidders of the results of the evaluation.
 After a period of specified working days (Example, 5 working days according to PPA
2006), if no complaint has been received by the Procuring Entity, the PE awards the
contract by either issuing a Letter of Acceptance to the successful bidder or signing a
contract (which is often done following the successful conclusion of any negotiations).
9. Negotiation on the Bid Offer

For consultancy services, negotiations are often held with the recommended Bidder, to finalize all
technical details, prior to placing the contract. Negotiations are normally held with the
recommended Bidder to settle any minor matters arising from the proposal or clarifications (if
required) based on the rule and regulation of the procurement directives.

10. Contract Agreement Preparation and Signing

The procuring entity shall prepare contract agreement document and both the client and
consultant should sign by the respective official delegates and stamp by the respective archives.
Witnesses from the client and consultant sides should sign accordingly. Both the client and
consultant legal advisers shall endorse its compatibility with the set conditions of contract by
signing on the contract document. Both client and consultant delegates shall put their initials on
each contract document pages.

11. Issuance of Contract

The signed contract document should be issued by the client to the contractor and any other
stakeholders.

12. Binding Contract

The signed and distributed contract agreement document form binding contract between client and
consultant starting from the date of its issuance. It should be referred throughout the project life so
that the contract can be practiced accordingly.

The following Types of Guarantee/Security shall be fulfilled before signing Study and Design
Service Contract. These are: -
a. Bid Security CPO
 CPO (fixed amount, two (2) percent of the offered total amount, or amount specified in
the Bid Data Sheet, BDS)
b. Performance Security
 CPO (10 % of the offered total amount, or amount specified in the Bid Data Sheet,
BDS)
c. Advance Payment Guarantee
 Equivalent of the advance payment in the form of Bank Guarantee.
d. Provisional Indemnity
 Unconditional insurance bond from certified financial institution.
6 STUDY AND DESIGN SERVICE CONTRACT IMPLEMENTATION
6.1 GENERAL

The main contract administration activities at study and design phase is to make sure the
consultant firm is responding according to the entered agreement to provide the deliverables in
intended quality within the agreed time frame and agreed budget.

The client strictly follows the approach and method, timeliness and quality of deliverables such as
inception report, interim report (mainly focused on collected data quality, sufficiency, and type),
draft report, and final report including technical specifications, final design drawings, construction
plan and schedule according to the TOR. In addition, the client should collect and evaluate
monthly progress report. The client should conduct review workshop at inception, interim (if
required), and draft reporting stages.

It should be implemented in accordance to Part III: Feasibility Study and Detail Design Guidelines
for SSID.

The client should effect the payment in accordance to the agreed payment modality. The study
and design service contract should be concluded after final approval of the following deliverables
but not limited to:
 Feasibility study report for different disciplines,
 Detail engineering design report,
 Technical specification,
 Drawings,
 Tender document, and
 Construction plan and schedule
The project should closeout by effecting the final payment and issuing certificate of assignment
completion to the consultant.
 Contract for Study and Design Service

Inception Report Preparation and Submitted by the consultant

Review and Approval of Inception Report by the Client

No

Is Inception Report

Yes
Yesand Submitted by the consultant
Interim Report Preparation

No
Review and Approval of Interim Report by the Client

Is Interim Report Approved?

Yes
Draft Feasibility Study and Detail Design Report Preparation and Submitted by the consultant

No Review and Approval of Draft Feasibility Study and Detail Design Report by Client

Is Draft Feasibility Study and Detail Design

Report Approved?

Yes
Final Feasibility Study and Detail Design Report Preparation and Submitted by the consultant

Review and Approval of Final Feasibility Study and Detail Design Report by the Client

No
Is Final Feasibility Study
and Detail Design Report
Approved?
Yes
 Feasibility Study Report for different disciplines,
 Detail Engineering Design Report,
 Technical Specification,
 Drawings,
 Tender Document, and
 Construction plan and Schedule.

Figure 6-9: List of activities in managing study and design service contract
6.2 PLANNING STUDY AND DESIGN CONTRACT MANAGEMENT

The general contract management planning for small scale irrigation development preparation and
implementation is discussed in detail under chapter 6 above. Contract management planning
particular to study and design contract is discussed here.

6.2.1 Review study and design contract establishment

The contract manager shall review contract prior to enactment based on the following checklist but
not limited to: -.
 Understand the type of contract
 Organize the contract document
 Agreement,
 Letter of Acceptance,
 Consultant’s evaluated Bid,
 Particular Conditions of Contract,
 General Conditions of Contract,
 TOR, and
 Any other document listed in the PCC as forming part of the Contract.
 Collect revised & approved Schedule from the Consultant

6.2.2 Designing study and design contract management strategy

Understanding of the contract, the contract manager should design strategy how to manage the
contract according to the agreement entered in to. For example, client head office can delegate
Zone and or District Office or can assign a team or an individual expert for managing the
implementation of study and design contract.

6.2.3 Study and design contract management risk identification

Identify potential risks of the contract (data quality and quantity, delay, mobilization of key
personnel as per the agreement, etc.) and arrange risk mitigation plan for identified contract risks
before and in course of contract implementation.

6.3 STUDY AND DESIGN CONTRACT MANAGEMENT ENACTMENT

The main study and design contract management implementation subjects or procedures mainly
include the following:

i. Managing Study and Design Contract Mobilization

ii. Managing Study and Design Contract Documentation and Record Keeping
iii. Managing Conditions of Study and Design Contract
iv. Managing Roles and Responsibilities in Study and Design Contract
v. Managing Relationships and Communication in Study and Design Contract
vi. Managing Costs in Study and Design Contract
vii. Managing Study and Design Contract Variations
viii. Managing Study and Design Contract Disputes
ix. Managing Study and Design Contract Performance
x. Study and Design Contract Monitoring
xi. Managing Ethics in Study and Design Contract
xii. Managing Study and Design Contract Completion
 6.3.1 Managing study and deign contract mobilization

Contract mobilization is a move from the paper agreement stage to materializing or objectivizing
the agreement at ground level. Successful contract mobilization can ensure that the ‘building
blocks’ for a successful contract are created. While the written contract is a record of each party’s
obligations and responsibilities, it is not designed as a day to day operational management
document for the contract.

The contract manager/expert is demanded to prepare a day to day operational contract

management document that can assist the project contract management to be easy and
piecemeal. This document guides the client, consultant and the contract manager.

Table 6-8: Contract mobilization checklist (office use)

When done make a
Mobilisation Action Remark
mark (X)
Distribute Contract documents to Consultant/ Client
(Region. Zone, District - Legal section, Relevant
departments)
Document
Establish Contract file in the name of the project
Organize the Contract file - Collate received Securities
(Advance and others documents)
Site handover format preparation
•Beneficiary and locally area administrative & line
Site Handover office courtesy call
•Proposed water source
•proposed commendable area
•Establish reporting structure and formats
•Consultant contract management personnel
Communication acceptance
& Relationship •Establish meeting schedules
•Establish communication protocols (diary, memos,
letters, email. FAX, telephone calls etc.)

6.3.2 Managing study and deign contract documentation and record keeping

Managing documentation and record keeping for study and design contract is as discussed in
chapter 6. Particular to this contract the following deliverables shall be documented and recorded
properly.
 Progress Report
 Inception Report,
 Design Criteria,
 Interim report including primary and secondary data,
 Draft feasibility report for different disciplines and engineering design reports and
drawings,
 Final feasibility report for different disciplines and engineering design reports and
drawings
 Tender document, and
 Construction plan and schedule.
 6.3.3 Managing conditions of study and deign contract

Managing study and design contract needs an understanding in main conditions of contract, cost,
claims &disputes, reports and deliverables.

6.3.3.1 Managing main & particular conditions of study and design contract

Sometimes it is difficult to understood and manage all conditions of contract for complex projects,
whereas in small irrigation projects study and design the GCC & PCC are not that much difficult if
properly monitored. Use the main contract item extraction flow and tool for extraction of
responsibilities explained above under chapter 6.

6.3.3.2 Understanding conditions of study and design contract

The role of the conditions of contract is to clearly state the duties and responsibilities of each of the
parties during the implementation of the service. It is a part of contract agreement in study and
design of small scale irrigation. There are two forms of conditions of contract namely General
Condition of Contract (GCC) and Specific Condition of Contract (SCC).

The General Condition of Contract, sometimes called the General Provisions, specifies the
manner and the procedures for implementing the provisions of the service contract according to
the accepted practices within the construction industry. The General Conditions are intended to
govern and regulate the requirements of the formal contract or agreement. It is a part of contract
agreement.

The Special Conditions of Contract supplement the GCC by modifying conditions applicable to an
individual contract, such as payment terms, the name of the Engineer, amount of security, etc. It is
also a part of contract agreement.

Funding agencies prefer different standards of General Conditions of Contract produced by

different firms. The most commonly used document is that prepared by the FIDIC (Federation
Internationale des Ingénieurs-Conseils) the International Federation of Consulting Engineers.

Currently Ethiopia uses Conditions of study and design Contract of the following: -
1. The Federal Democratic Republic of Ethiopia, Standard Bid Document (SBD), For
Procurement of Consultancy Services, Request for Proposals (RFP), For National
Commutative Biddings (NCB) prepared by Public Procurement Agency (PPA), July 2011,
Addis Ababa, Ethiopia.
2. The FIDIC Client/Consultant Model Agreement, Fourth Edition 2006.
Standard Bidding Document for the Procurement of Consultancy Services, Request for Proposals
(RFP) issued by the PPA (Version 1, July 2011) comprises 70 Clauses categorized standard
provisions as A. General: - Clause 1 up to Clause 6; B. The Contract: -Clause 7 up to Clause 30;
C. Obligations of the Public Body: -Clause 31 up to Clause35; D. Payments to the Consultant: -
Clause 36 up to Clause 42; E. Obligations of the Consultant: -Clause 43 up to Clause 55, F.
Performance of the Contract: -Clause 56 up to Clause 68, and G. Fairness and Good Faith: -
Clause 69 and 70.

The FIDIC Client/Consultant Model Agreement, Fourth Edition 2006 has twenty clauses covering
major topics by numerous sub-clauses. Claus 1 deals with general provisions; Clause 2 deals with
the client; Clause 3 deals with the consultant; Clause 4 address the commencement, completion,
variation and termination; Clause 5 deals with payment; Clause 6 liabilities; Clause 7 deals with
insurance, and Clause 8 deals with disputes and arbitration.

Currently PPA 2011 is used for irrigation project implementation founded by capital budget of the
country, whereas, The FIDIC Client/Consultant Model Agreement, Fourth Edition 2006 is widely
used for those irrigation project implementation funded by the following Multilateral Development
Banks.
 African Development Bank
 Asian Development Bank
 Black Sea Trade and Development Bank
 Caribbean Development Bank
 European Bank for Reconstruction and Development
 Inter-American Development Bank
 International Bank for Reconstruction and Development (The World Bank)
 Islamic Bank for Development Bank
 Nordic Development Fund

In the course of project implementation, the contract engineer of the client expected to understand
conditions of contracts as part of contract and make use of it as required. He/she has to
familiarize him/herself with the recent version of conditions of contract (PPA Version 1, January
2011 and The FIDIC Client/Consultant Model Agreement, Fourth Edition 2006). He has to read
again and again the general and specific conditions made as part of contract agreement of a
specific project. Finally, he/she is expected to refer the clause number while dealing and
communicating with a respective issue.

6.3.4 Managing study and design contract management roles and responsibilities

In contract management, one of the main challenges is to assign and demarcate roles and
responsibilities of contract mangers and experts. Unless this is done in explicit way, the contract
management will fail. The roles and responsibilities depend on complexity, risk, budget and other
factors. The contract manager (or team) should:
 Have a detailed knowledge of the TOR, governing contract and other relevant issues
 Actively participate in the tender process or have a full handover from the staff
responsible for the tendering/contract award.
 Have the appropriate contract management skills, budget oriented, and professional
expertise to manage the contract and resolve any issues.
 Hold the necessary delegated authority to monitor the finance and ensure payments are
appropriately approved by procurement and in accordance laws, regulations and
directives.

Table 6-9: Contract administration role

Area of Responsibility Contract Manager Role
•Ensure signed contract is in place between both parties
•Ensure a contract file is maintained
•Review the bid result
Preliminary stage •Study the contract systematically (understand, identify supersede –
consecutives, inconsistencies, and glaring error)
•Understand responsibilities of the two parties
•Build a confidence
Contract Administration •Day to day management of the Consultant
•Perform regular operational meetings with Consultant
•Resolve operational issues as they arise
•Monitor performance data and Address non-conformance
Area of Responsibility Contract Manager Role
•Ensure payment certificates comply with contracted rates
•Ensure payment is made to consultant within payment terms
•Facilitate resolution of unresolved issues that occur between the parties
•Facilitate strategic contract review meetings to determine future of contract at
expiry (e.g.: contract extension, new tender process etc.)
•Participate in the establishment of and understand the operation of the
Contract and Consultant Plan
•Check each job order compliance to Contract
•Organise Contract Request and facilitate response
•Advise the consultant of any changes in scope/design criteria/deliverables
•Ensuring agreement on action plans
•Facilitate improvement plans stemming from regular contract review meetings
to ensure consultant performing at expected levels
• Comply with contract terms
Compliance and
• Monitor deliverables
Monitoring
• Engage with Consultant to resolve community generated complaints
• Formulate, implement and monitor improvement plans stemming from regular
Continuous
contract review meetings and noncompliance issues to ensure Consultant is
Improvement
performing at expected levels
Contract Review – • Participate in strategic contract review to determine future of contract at
Lessons Learnt expiry

6.3.5 Managing relationships and communication in study and deign contract

Regarding to Managing Relationships and Communication of study and design contract refer
above in chapter 5.

6.3.6 Managing costs in study and deign contract

Almost all of Ethiopian SSIP study and design service contracts belong to the Lump Sum category.
Costs in this category require an understanding of contract price, payment modality in association
with deliverables, advance payment, payment certificate based on deliverables, Payments, and
others.

Payments in Lump Sum contracts are based on agreed milestones for special deliverables such
as Inception report, Interim report, Draft reports, and Final reports.

Advance Payment Management

This payment, most of the time, is the first payment from the client to the consultant. The amount
of advance payment, effecting procedures, time, and prior requirements should be well understood
by all parties.

The contract manager is expected to make sure:

 Advance payment request is accompanied by an acceptable bank guarantee for the
advance payment.
 The period of validity of the Advance Payment Guarantee is within acceptable period of
the agreement - at least 30 days longer than the anticipated period for offsetting the
advance payment.
 Ensure that any Advance Payment specified in the contract is paid immediately when
the Advance Payment Security is received from the Consultant.
 Accordingly, advance payment utilization should be one of the monitored items.
 1. Application for Advance Payment by Consultant

2. Check and verify the requested

advance payment

3. Approval and preparation of payment order

4. Effect the payment to the consultant

5. Record invoiced advance payment requested document

Figure 6-10: Flow diagram advance payment flow

Interim payment

A payment paid based on the executed service in the midst of the assignment (lump sum in this
condition) is called interim payments. Each contract has its own drafted payment schedule in the
agreement. Interim payments request, approval and effecting should have a standard flow
procedure in managing a cost. This flow should be effective to hasten the project efficiency. In
interim payment supporting documents to effect the payment and deductions should follow the
agreement entered into.

The following theme assists the interim payments:

 Understand the Payment terms for the service contract made according to the contract
agreement,
 Understand and ensure the document required to support the payment request, like
 Actual inputs provided,
 Timesheets,
 Reports or other deliverables,
 Evidence of reimbursable,
 other criteria as specified in the contract,
 Understand & implement deduction,
 Agreed deductions like repayment for any advance payments, and
 Loss recovery if any.
 1. Interim Valuation

2. Deliverable valuation

3. Check documents for

completeness and computation

No
5. Is Document is in proper order?

Yes

6. Issuance of Interim Certificate

7. Record the payment

Figure 6-11: Flow diagram Interim payment flow

Final payment

The final payment modality of study and design service should be clearly articulated in the contract
document.

The final payment for study and design service contract should be effected after final approval
deliverables stated under 7.3.2 above in this guideline.

Note that before effecting final payment, ground truth in the process of site hand over shall be
concluded in the presence of representatives from client, consultant, local administrative bodies
and beneficiary farmers using appropriate format (Appendix Part IV/GL 27/F-2 Studied and
Designed Project Handover Format).
 Example

The payment schedule modality for study and design service may be considered as: -
 Payment No. 1 (Advance Payment): Twenty (20) percent of the lump-sum amount to be
paid up on the signing of contract.
 Payment No. 2: Twenty (20) percent upon submission & approval of Inception Report;
 Payment No. 3: Twenty (20) percent upon submission & approval of Interim Report;
 Payment No. 4: Twenty (20) percent upon submission & approval of Draft Final Feasibility
and Detail Design Report;
 Payment No. 5 (Final Payment): Twenty (20) percent upon submission and acceptance of
Final Feasibility and Detail Design Report.

6.3.7 Managing study and design contract variations

Regarding to managing contract variations in contract of study and design service contract refer
above in 5.2.7.

Generally, contract variation in study and design service contract may be scope change that leads
variation on cost and or extension of time for completion of the service.

6.3.8 Managing study and design contract disputes

Regarding to managing contract disputes in contract of study and design contract refer above in
5.2.8.

6.3.9 Managing study and design contract performance

Regarding to managing contract performance in Contract of study and design contract refer above
in 5.2.9. Some of performance indicators for study and design contract are: -
 Timely delivery of key outputs
 Responsiveness to reasonable requests
 The quality services of services provided

6.3.10 Managing study and design contract monitoring

Regarding to managing contract performance in Contract of study and design contract refer above
in 5.2.10.

6.3.11 Managing ethics in study and design contract

Regarding to managing ethics in contract of study and design contract refer above in 5.2.11.
Generally, there should be code of ethics that guides the relation between client and consultant
study and design contract.

6.3.12 Managing study and design contract closure

Regarding to managing contract closure or completion of study and design contract refer above in
5.2.12.
7 CACS SERVICE CONTRACT ESTABLISHMENT
Per-contract activities at project construction phase comprise the pre-condition for establishment
of contract administration & construction supervision service contract.

The contract administration and construction supervision service contract establishment is similar
to the contract establishment for study and design service. For detail refer chapter 7 of this
guideline.

Similar to Study and Design Service Contract, the following Types of Guarantee/Security shall be
fulfilled before signing Contract Administration and Supervision Service Contract. These are: -
i. Bid Security CPO
 CPO (fixed amount, two (2) percent of the offered total amount, or amount
specified in the Bid Data Sheet, BDS)
ii. Performance Security
 CPO (10 % of the offered total amount, or amount specified in the Bid Data Sheet,
BDS)
iii. Advance Payment Guarantee
 Equivalent of the advance payment in the form of Bank Guarantee.
iv. Provisional Indemnity
 Unconditional insurance bond from certified financial institution.
8 CACS SERVICE CONTRACT IMPLEMENTATION
During implementation of contract administration and construction supervision service contract, the
client should focus on mobilization of the consultant team and logistics as per the contract entered
in to.

It should be implemented in accordance with GL 28: Construction Supervision Guideline for SSID.

8.1 PLANNING CACS SERVICE CONTRACT MANAGEMENT

The general contract management planning for small scale irrigation development preparation and
implementation is discussed in detail under chapter 6 above. Contract management planning
particular to contract administration & construction supervision service contract is discussed here.

8.1.1 Review CACS service contract establishment

The contract manager shall review contract prior to enactment based on the following checklist but
not limited to: -.
 Understand the type of contract
 Organize the contract document
 Agreement,
 Letter of Acceptance,
 Consultant’s evaluated Bid,
 Particular Conditions of Contract,
 General Conditions of Contract,
 TOR, and
 Any other document listed in the PCC as forming part of the Contract.
 Collect revised & approved schedule from the consultant

8.1.2 Designing CACS service contract management strategy

Understanding of the contract, the contract manager should design strategy how to manage the
contract according to the agreement entered in to. For example, client head office can delegate
Zone and or District Office or can assign a team or an individual expert for managing the
implementation of contract administration & construction supervision service contract.

8.1.3 CACS service contract management risk identification

Identify potential risks of the contract (delay, mobilization of key personnel and logistics as per the
agreement, etc.) and arrange risk mitigation plan for identified contract risks before and in course
of contract implementation.
8.2 CACS SERVICE CONTRACT MANAGEMENT ENACTMENT
Similar to study and design contract, the main management implementation CACS service
subjects or procedures mainly include the following:

i. Managing CACS Service Contract Mobilization

ii. Managing CACS Service Contract Documentation and Record Keeping
iii. Managing CACS Service Conditions of Contract
iv. Managing Roles and Responsibilities in CACS Service Contract
v. Managing Relationships and Communication in CACS Service Contract
vi. Managing Costs in CACS Service Contract
vii. Managing CACS Service Contract Variations
viii. Managing CACS Service Contract Disputes
ix. Managing CACS Service Contract Performance
x. Contract Monitoring in CACS Service Contract
xi. Managing Ethics in CACS Service Contract
xii. Managing CACS Service Contract Completion

8.2.1 Managing CACS service contract mobilization

Contract mobilization is a move from the paper agreement stage to materializing or objectivizing
the agreement at ground level. Successful contract mobilization can ensure that the ‘building
blocks’ for a successful contract are created. While the written contract is a record of each party’s
obligations and responsibilities, it is not designed as a day to day operational management
document for the contract.

The contract manager/expert is demanded to prepare a day to day operational contract

management document that can assist the project contract management to be easy and
piecemeal. This document guides the client, consultant and the contract manager.

Table 8-10: Contract mobilization checklist (office use)

When done make
Mobilisation Action Remark
a mark (X)
Distribute Contract documents to Contractor / Client
(Region. Zone, District - Legal section, Relevant
departments)
Document
Establish Contract file in the name of the project
Organize the Contract file - Collate received Securities
(Advance and others documents)
Site handover format preparation
Beneficiary and locally area administrative & line office
courtesy call
Camp site handover
Site Handover
Headwork and Main structure
Bench Marks
Quarry sites
Access road
Establish reporting structure and formats
Consultant contract management personnel
Communication acceptance
& Relationship Establish meeting schedules
Establish communication protocols (diary, memos,
letters, email. FAX, telephone calls etc.)
 8.2.2 Managing CACS Service Contract Documentation and Record Keeping

Managing documentation and record keeping for study and design contract is as discussed in
chapter 6. Particular to this contract the following deliverables shall be documented and recorded
properly.

In this service contract, the following major deliverables should be managed in the accordance of
the contract agreement:
 Inception/mobilization report,
 Monthly progress report (narrative plus photograph),
 Progress photograph that shows construction progress, material supplied, machinery
mobilized and assigned staff if required,
 Quarterly progress report (narrative plus photograph),
 Annual report (narrative plus photograph),
 Change or modification of design, specification, work methodology and others
 Special advices or recommendation
 As built drawing,
 As built photograph focusing major structures of the project,
 Operation and maintenance manuals,
 Test and commissioning report,
 Works contract completion report, and
 Consultancy service completion report.

8.2.3 Managing conditions of CACS service contract

It is similar to managing conditions of contract for study and design contract. For detail refer
section 7.2.3 above in this guideline.

8.2.4 Managing CACS service contract management roles and responsibilities

It is similar to managing contract management roles and responsibilities of study and design
contract. For detail refer section 7.2.4 above in this guideline.

8.2.5 Managing relationships and communication in CACS service contract

Regarding to Managing Relationships and Communication of CACS Service contract refer above
in chapter 5 and section 7.2.5 above in this guideline.

8.2.6 Managing costs in CACS service contract

Almost all of Ethiopian SSIP CACS service contracts belong to the time based category. Costs in
this category require an understanding of contract price, payment modality in association with
deliverables, advance payment, payment certificate based on deliverables, Payments, and others.
Generally, payment for contract administration and construction supervision service fee commonly
requested by the consultant and effected by the client in monthly base. Consultancy service fee
may include the agreed expenses like: -

1. Professional staff fee,

2. Perdiem cost,
3. Expenses for vehicle rent for supervision work,
4. Expenses for equipment rent for surveying work,
5. Office (equipment, Furniture, & Computers) expenses,
6. Communication costs, and
7. Report production expenses.
 8.2.7 Managing CACS service contract variations

Regarding to managing contract variations in contract of CACS service contract refer section 5.2.7
and 7.2.7 above in this guideline.

Generally, contract variation in CACS service contract go with contract variation of works contract
that leads variation on cost and or extension of time for completion of the service.

8.2.8 Managing CACS service contract disputes

Regarding to managing contract disputes in contract of CACS service contract refer above in
section 5.2.8 above in this guideline.

8.2.9 Managing CACS service contract performance

Regarding to managing contract performance in Contract of CACS service contract refer section
5.2.9above in this guideline.

8.2.10 Managing CACS service contract monitoring

Regarding to managing contract performance in Contract of CACS service contract refer section
5.2.10above in this guideline.

8.2.11 Managing ethics in CACS service contract

Regarding to managing ethics in contract of CACS service contract refer section 5.2.11above in
this guideline. Generally, there should be code of ethics that guides the relation between client and
consultant study and design contract.

8.2.12 Managing CACS service contract closure

Regarding to managing contract closure or completion of CACS service contract refer section
5.2.12 above in this guideline. The following check list guides the contract completion:

No Checklist Yes/No Remark

1 Deliverables review
2 Documents required for contract completion (as
built drawing, O&M, diary & others)
3 Unsettled claim
4 Advance deduction completed
5 Defect liability security on place
6 Site handover/takeover
7
8
9
10
11 Contract Closing meeting & minutes
12 Final Payment addressed
9 WORK CONTRACT ESTABLISHMENT
Per-contract activities at project construction phase comprise the pre-condition for establishment
of works contract. In most case both civil works and supply contracts are established by the
contract made between client and contractor.

This part discusses the establishment of works contract starting from collecting and organizing of
tender document prepared for the intended purpose up to establishing of binding works contract
document.
1. Tender Document

2. Review of Tender Document

3. Tendering

4. Bid Submission
and Opening

5. Evaluation of the Bids

6. Decision & Award

7. Letter of Acceptance for Successful Bidder

8. Contract Preparation and Signing

9. Issuance of Contract

10. Binding Contract

Figure 9-12: Procedure for works contract establishment

The description of Works Contract Establishment procedure and major activities are: -
1. Tender Document
Tender Document for the procurement of Works comprises: -
Part 1 - Bidding Procedures
Section 1 – Instructions to Bidders
Section 2 – Bid Data Sheet
Section 3 – Evaluation and Qualification Criteria
Section 4 – Bidding Forms
Section 5 – Eligible Countries

Part 2 - Schedule of Requirements

Section 6(A) – Scope of Works
Section 6(B) – Technical Specifications
Section 6(C) – Drawings
Section 6(D) – Bills of Quantities (or Activities Schedule)

Part 3 - Contract
Section 7 – General Conditions of Contract
Section 8 – Special Conditions of Contract
Section 9 – Contract Forms

It should be made either of the following based on the nature of the fund.
 The Federal Democratic Republic of Ethiopia, Standard Bid Document (SBD), For
Procurement of Works, For National Commutative Biddings (NCB) prepared by Public
Procurement Agency (PPA), January 2006, Addis Ababa, Ethiopia.
 Standard Bidding Document for procurement of small works, 2015, World Bank.

3. Review of Tender Document

The contract engineer should review the tender document for its completeness of each part and
section contents, the detail of each sections and conformity to the procurement procedure and
methods. During reviewing the tender document, the procurement entity should insure qualification
criteria set can assist in fair and treat all bidders in the same manner.

In addition, it should clearly indicate the requirement such as working capital and annual turnover
(Audited Financial Statement), Grade, Years in the business, Lend and litigation, Debarring (Black
listed), Person power, Machineries, and Performance Certificate for fair selection of the
companies.

Special attention shall be given while reviewing schedule of requirements that needs to clearly
describe the scope of the works, technical specifications, drawings, and bills of quantity.
4. Tendering
Tendering should be based on the latest version of either “The Ministry of Finance or Economic
Development Procurement Directives” or “World Bank Directives” or others based on the fund of
the project implementation.

5. Bid Opening
The bid opining shall be done in accordance to the funding agency procurement directives. The
bid opening should be executed by officially delegated bid opening committee at specified place,
date and time in the bid document. If there is any change on the bid opening place, date and time
the procurement entity shall notify the bidders prior to bid opening.

6. Evaluation of the Bids

The evaluation of the bids should take place according to evaluation criteria forming the bid
document. The evaluation methodology may differ based on the latest version directives of the
funding agency. For example, currently: -
 WB demands submission of both technical and financial bids offers with one single
envelop (“Original”, “Copy”).
 WB demands compliance (responsive) and noncompliance (nonresponsive) approach,
whereas, PPA and others use merit (evaluation point) approach,

6. Award Decision
Upon completion of the tender evaluation, the Tender Evaluation Committee shall be requested to
make a Contract Award recommendation to the head of the Procuring Entity. Decision should be
made by the general manager of the procuring entity based on the evaluation report whether bid
process and the selected bid offer is accepted or rejected.

The following procedure is required before award decision is made:

 The head of the Procuring Entity makes a contract award decision.
 The Procuring Entity notifies all Bidders of the results of the evaluation.
 After a period of specified working days (Example, 5 working days according to PPA
2006), if no complaint has been received by the Procuring Entity, the PE awards the
contract by either issuing a Letter of Acceptance to the successful bidder or signing a
contract (which is often done following the successful conclusion of any negotiations).
7. Letter Acceptance for Successful Bidder

Before issuance of letter of acceptance, the procuring entity should notify bidders of the result of
the evaluation. Client shall notify the results on notice board identifying the bid number and the
following information: (a) name of each bidder who submitted a bid; (b) bid prices as read out at
bid opening; (c) name and evaluated prices of each bid that was evaluated; (d) name of bidders
whose bids were rejected and the reasons for their rejection; and (e) name of the winning bidder,
and the price it offered, as well as the duration and summary scope of the contract awarded.

After doing this, the procuring entity shall prepare and issue letter of acceptance to the successful
bidder if no compliant has been received from bidders or after solving bidders compliant.

8. Contract Preparation and Signing

The procuring entity shall prepare contract agreement document and both the client and contractor
should sign by the respective official delegates and stamp by the respective archives. Witnesses
from the client and contractor sides should sign accordingly. Both the client and contractor legal
advisers shall endorse its compatibility with the set conditions of contract by signing on the
contract document. Both client and contractor delegates shall put their initials on each contract
document pages.
9. Issuance of Contract
The signed contract document should be issued by the client to the contractor and any other
stakeholders.

10. Binding Contract

The signed and distributed contract agreement document form binding contract between client and
consultant starting from the date of its issuance. It should be referred throughout the project life so
that the contract can be practiced accordingly.

The following Types of Guarantee/Security shall be fulfilled before signing Work

Contract. These are: -
1. Bid Security CPO
 The bid security shall be a demand guarantee in any of the following forms at the
Bidder’s option: -
 an unconditional guarantee issued by a bank or financial institution
(such as an insurance, bonding or surety company),
 certified check,
 an irrevocable letter of credit,
 another security specified in the BDS.
2. Performance Security

 Performance Security shall be delivered by the contractor to the employer as

stated in ITB of
 Within the specified date
 Specified amount
 Specified currency
 Forms
o an unconditional guarantee issued by a bank or financial institution
(such as an insurance, bonding or surety company),
o certified check,
o an irrevocable letter of credit,
o Another security specified in the BDS.
 Remain valid and enforceable until the contractor has executed and
completed the works and remedied any defects.
 Prior to the expiry date, the Contractor shall extend the validity of the
Performance Security until the Works have been completed and any defects
have been remedied.
3. Advance Payment Guarantee
 Advance payment guarantee shall be acceptable types:
 Unconditional bank guarantee
 Certified check;
 Unconditional insurance bond
4. Provisional Indemnity
 Unconditional insurance bond from certified financial institution.
10 WORK CONTRACT IMPLEMENTATION
During implementation of work contract, the client/engineer should focus on mobilization of the
contractor team and logistics as per the contract entered in to.

It should be implemented in accordance with GL 29: Construction Guideline for SSID.

10.1 PLANNING WORK CONTRACT MANAGEMENT

The general contract management planning for small scale irrigation development preparation and
implementation is discussed in detail under chapter 6 above. Contract management planning
particular to work contract is discussed here.

10.1.1 Review work contract establishment

The contract manager shall review work contract prior to enactment based on the following
checklist but not limited to: -.
 Understand the type of contract
 Organize the contract document
 Agreement,
 Letter of Acceptance,
 Contractor’s evaluated Bid,
 Particular Conditions of Contract,
 General Conditions of Contract,
 Specifications,
 drawings,
 Priced Bill of Quantity, and
 Any other document listed in the PCC as forming part of the Contract.
Collect revised & approved schedule from the Contractor

10.1.2 Designing work contract management strategy

Understanding of the contract, the contract manager should design strategy how to manage the
contract according to the agreement entered in to.

The work contract management approach or modality can by independent consultant, own force,
freelancer individual or other based on the complexity, budget/cost, scale of risk and other
determining issues. Always it is advisable to decide critically on the modality. Especially for small
scale irrigation, if the work contract management is outsourced it is advised to do it in cluster
approach-grouping a number of projects in to one cluster and outsource it.

In the case of own force work contract management modality, client head office can delegate zone
and or district office or can assign a team or an individual expert for managing the implementation
of work contract.

10.1.3 Work contract management risk identification

Identify potential risks of the contract (delay, mobilization of key personnel and logistics as per the
agreement, etc) and arrange risk mitigation plan for identified contract risks before and in course of
contract implementation.
10.2 WORK CONTRACT MANAGEMENT ENACTMENT
Similar to work contract, the main management implementation subjects or procedures mainly
include the following:
i. Managing Work Contract Mobilization,
ii. Managing Work Contract Documentation and Record Keeping,
iii. Managing Work Conditions of Contract,
iv. Managing Roles and Responsibilities,
v. Managing Relationships and Communication,
vi. Managing Costs,
vii. Managing Work Contract Variations,
viii. Managing Work Contract Disputes,
ix. Managing Work Contract Performance,
x. Work Contract Monitoring,
xi. Managing Ethics in Work Contract, and
xii. Managing Work Contract Completion.

10.2.1 Managing work contract mobilization

Work contract mobilization should be within the period specified in SCC forming the contract. The
project client with or without delegated engineer must utilize the mobilization period to finalize
arrangements, which could not be completed before signing of the contract or are still outstanding.
The following checklist provides an overview of the mobilization task to be carried out by the client
based on the work contract entered into.

MOBILISATION TASKS BY THE CLIENT

Task Purpose Checks and Requirements
Advance Payment Bond,
Effect Advance Payment Enable contractor to mobilize
money available
Communities to be briefed on start
Information to local Contractor’s mobilization and of construction, employment
conditions, access, location and
communities contract execution
boundary of both permanent and
temporary structures, etc.
Prepare and issue construction Design, details etc. not provided
Contract execution
drawings on standard or tender drawings
Qualifications, terms of
Mobilize project staff Project management
employment, camping, transport.
Open separate Project Bank Provide two authorized and
Control of project funds
Account backup signatories
Limit the number of steps and
signatories, provide backup
Ensure sufficient cash flow,
Efficient contract execution signatories. Set up internal
streamline payment procedures
management reports to avoid
queries and delays.
System must capture the costs
Review or set up accounting Control of project funds and for each individual contract as
system payments under each contract well as related costs for
consultants etc.
Set up filing system Accessibility and safekeeping of One file number per contract divided
all contract related in sections as required. To be kept
correspondence, documents and in locked cabinet.
 MOBILISATION TASKS BY THE CLIENT
Task Purpose Checks and Requirements
records.
Reporting and Monitoring Control of project management Internal and external reporting
and monitoring to capture all
System and contract execution
aspects of project.
Dissemination of information, Project co-ordination meetings,
Schedule of meetings discussion and resolution of
site meetings, staff meetings,
problems
Acquire equipment and recruit
Quality control procedures Control of contract execution staff, arrange for testing at
laboratory.
Roles and functions of staff Efficient project management Draft and approve job descriptions
Transport Supervision Buy or hire pick-ups, motorbikes
Standard office inventory,
Office space Project management communications, PC(s),
copier, stationary
Site facilities Supervision Store, tools and equipment
Quarry acquisition, handing over site
Access to site and quarries Contract execution
to contractor

Similarly, the project contractor must utilize the mobilization period to finalize arrangements, which
could not be completed before signing of the contract or are still outstanding. The following
checklist provides an overview of the mobilization task to be carried out contractor in accordance
with the work contract entered into.

MOBILISATION TASKS BY THE CONTRACTOR

Task Purpose Checks and Requirements
Provide Advance Payment Enable mobilization Insurance policies, dedicated bank
Bond account
Provide Insurance Policies Enable mobilization Information to insurance company,
money for payment
Finalize cash flow analysis and Enable mobilization and All requirements taken into account:
financing arrangements construction Overheads, staff, labor, materials,
tools, equipment, transport, interest
payments, equipment lease/hire etc.
Take possession of site Enable site establishment Ensure that client has fulfilled his
obligations
Mobilize office and site staff Project and site management Qualifications, terms of employment,
housing, transport
Recruit labourers Contract execution Information to local leaders
Open dedicated Project Bank
Control of contract proceedings Provide authorized signatories
Account
System must capture all costs and
Review or set up accounting Control of contract proceedings
enable cost breakdown on bill items
system and payments
and costs components
Accessibility and safekeeping of
One file number per contract divided in
all contract related
Set up filing system sections as required. To be kept in
correspondence, documents and
locked steel cabinet.
records.
Internal and external reporting and
Reporting and Monitoring Control of project management
monitoring to capture all aspects of
System and contract execution
project.
Dissemination of information,
Project co-ordination meetings, site
Schedule of meetings discussion and resolution of
meetings, staff meetings,
problems
 MOBILISATION TASKS BY THE CONTRACTOR
Task Purpose Checks and Requirements
Acquire equipment and recruit staff,
Quality control procedures Control of contract execution arrange for testing at laboratory as
required.
Roles and functions of staff Efficient contract management Draft and approve job descriptions
Acquire equipment, transport Contract execution and Finalize arrangements for
supervision procurement, lease or hire
Contract execution and
Purchase tools, materials Finalize arrangements for supply
supervision
Standard office inventory,
Office space Contract management communications, PC(s), copier,
stationary
Contract execution and
Site facilities Site camp, office, store
supervision

10.2.2 Managing work contract documentation and record keeping

Managing documentation and record keeping for work contract is as discussed in chapter 6.
Particular to this contract the following deliverables shall be documented and recorded properly.

In this service contract, the following major deliverables should be managed in the accordance of
the contract agreement:
 Inception/mobilization report,
 Monthly progress report (narrative plus photograph),
 Progress photograph that shows construction progress, material supplied, machinery
mobilized and assigned staff if required,
 Quarterly progress report (narrative plus photograph),
 Annual report (narrative plus photograph),
 Change or modification of design, specification, work methodology and others,
 Special advices or recommendation,
 As built drawing,
 As built photograph focusing major structures of the project,
 Operation and maintenance manuals,
 Test and commissioning report,
 Works contract completion report, and
 Consultancy service completion report.

10.2.3 Managing conditions of work contract

Conditions of contract are a part of work contract agreement in small scale irrigation construction
implementation. The role of the conditions of work contract is to clearly state the duties and
responsibilities of each of the parties during the implementation of the works. So the contract
manager shall understand the conditions of work contract and manage it accordingly.

There are two forms of conditions of work contract namely General Condition of Contract (GCC)
and Specific Condition of Contract (SCC).

The general condition of work contract, sometimes called the general provisions, specifies the
manner and the procedures for implementing the provisions of the construction contract according
to the accepted practices within the construction industry. The general conditions are intended to
govern and regulate the requirements of the formal contract or agreement. It is a part of contract
agreement.
The special conditions of work contract supplement the GCC by modifying conditions applicable to
an individual contract, such as payment terms, the name of the Engineer, amount of security, etc.
It is also a part of contract agreement.

Funding agencies prefer different standards of General Conditions of Contract produced by

different firms. The most commonly used document is that prepared by the FIDIC (Fédération
Internationale des Ingénieurs-Conseils) the International Federation of Consulting Engineers.

Currently Ethiopia uses Conditions of Contract for construction of the following: -

1. The Federal Democratic Republic of Ethiopia, Standard Bid Document (SBD), For
Procurement of Works, For National Commutative Biddings (NCB) prepared by Public
Procurement Agency (PPA), January 2006, Addis Ababa, Ethiopia.
2. The FIDIC Suite of Contracts, RED BOOK (MDB edition): Condition of Contract for
Construction, For Building and Engineering Works designed by the Employer, Multilateral
Development Banks (MDB) Edition 2005.
Standard Bidding Document for the Procurement of Works issued by the PPA (Version 1, January
2006) comprises 62 Clauses categorized standard provisions as A. General: - Clause 1 up to
Clause 26; B. Time Control: -Clause 27 up to Clause 32; C. Quality Control: -Clause 33 up to
Clause36; D. Cost Control: -Clause 37 up to Clause 54; and E. Finishing the Contract: -Clause 55
up to Clause 62.

The new Red Book (MDB Edition 2005) has twenty clauses covering major topics by numerous
sub-clauses. Claus 1 deals with general provisions; Clause 2 addresses the role of the Employer;
Clause 3adresses the position of the engineer; Clause 4 covers the contractor’s general
obligations including the requirement that in respect of contractor designed works; Clause 5
addresses nominated subcontractor; Clause 6 and 7 address the requirement of personnel, and
for contract; Clause 9 deals with test on completion, Clause 10 addresses Employer taking over
issues; Clause 11 deals with defect liability; Clause 12 deals with measurement and evaluation;
Clause 13 addresses variation and adjustments for changes in legislation and in cost; Clause 14
deals with contract price and payment issues; Clause 15 and 16 provide for termination by the
employer and suspension and termination by the contractor respectively. Clause 17 and 18 deal
with risk and responsibility, and insurance respectively; Clause 19 is dedicated to force majeure
including its definition; and finally the provisions concluded with Clause 20 that deals with claims,
disputes and arbitration.

Currently PPA 2006 is used for irrigation project implementation founded by capital budget of the
country, whereas, FIDIC Red Book (MDB edition 2005) is widely used for those irrigation project
implementation funded by the following Multilateral Development Banks participated in the
preparation of this edition of the red book.

 African Development Bank

 Asian Development Bank
 Black Sea Trade and Development Bank
 Caribbean Development Bank
 European Bank for Reconstruction and Development
 Inter-American Development Bank
 International Bank for Reconstruction and Development (The World Bank)
 Islamic Bank for Development Bank
 Nordic Development Fund

In the course of project implementation, the supervisor engineer expected to

understand conditions of contracts as part of contract and make use of it as required.
S/he has to familiarize himself with the recent version of conditions of contract (PPA
Version 1, January 2006 and FIDIC Red Book (MDB edition 2005)). S/he has to read
again and again the general and specific conditions made as part of contract
During disparity, the documents forming the works contract shall be interpreted in the following
order of priority:

1st Works Contract Agreement

2nd Letter of Acceptance

3rd Contractor’s Bid

4th Special Conditions of Contract

5th General Conditions of Contract

6th Specifications

7th Drawings

8th Bill of Quantities or Activity Schedule

9th Any other document listed in the Special Conditions of

Contract as forming part of the Contract

Figure 10-13: Flow chart for interpretation of works contract documents in order of priority

10.2.4 Managing work contract management roles and responsibilities

In contract management, one of the main challenges is to assign and demarcate roles and
responsibilities of contract mangers and experts. Unless this is done in explicit way, the contract
management will fail. The roles and responsibilities depend on complexity, risk, budget and other
factors. The contract manager (or team) should:
 Have a detailed knowledge of the technical specification, drawing, priced bill of quantity,
governing contract and other relevant issues
 Actively participate in the tender process or have a full handover from the staff
responsible for the tendering/contract award.
 Have the appropriate contract management skills, budget oriented, and professional
expertise to manage the contract and resolve any issues.
  Hold the necessary delegated authority to monitor the finance and ensure payments are
appropriately approved by procurement and in accordance laws, regulations and
directives.

Table 10-11 Work contract administration role

Area of
Contract Manager Role
Responsibility
 Ensure signed contract is in place between both parties
 Ensure a contract file is maintained
 Review the bid result
Preliminary stage  Study the contract systematically (understand, identify supersede – consecutives,
inconsistencies, and glaring error)
 Understand responsibilities of the two parties
 Build a confidence
 Day to day management of the Contractor
 Perform regular operational meetings with Contractor
 Resolve operational issues as they arise
 Monitor performance data and Address non-conformance
 Ensure payment certificates comply with contracted rates
 Ensure payment is made to Contractor within payment terms
 Ensure two-way communication with the supplier. Facilitate resolution of unresolved
issues that occur in between review meetings by:
 Facilitate strategic contract review meetings to determine future of contract at expiry
(e.g.: contract extension, new tender process etc.)
Contract
 Participate in the establishment of and understand the operation of the Contract and
Administration
Contractor Plan
 Check each job order compliance to Contract
 Organize Contract Request and facilitate response
 Advise the supervision team of any changes in scope/specification/deliverables
 Negotiate changes in scope/product/service and associated terms and pricing in
consultation with the contract manager
 Bringing the client & Supplier together to solve issues
 Ensuring agreement on action plans
 Facilitate improvement plans stemming from regular contract review meetings to
ensure supplier performing at expected levels
 Comply with contract terms
Compliance and
 Monitor deliverables
Monitoring
 Engage with Contractor to resolve community generated complaints
 Formulate, implement and monitor improvement plans stemming from regular
Continuous
contract review meetings and noncompliance issues to ensure Contractor is
Improvement
performing at expected levels
Contract Review
 Participate in strategic contract review to determine future of contract at expiry
– Lessons Learnt

The following flow shows methodology in understanding the main and PCC conditions so as to
extract the role and responsibilities of parties in work contract: -

The control responsibility summary sheet in work contract should have six columns whose
headings should be (1) contract section, (2) description, (3) contractor responsibility (4) employer
responsibility, (5) engineer responsibility, and (6) interaction responsibility. Table 11-2 illustrates a
blank control responsibility summary sheet.
 1. Collect & Organize Contract Document

2. Review &Study the Contract Systematically

3. Extract Roles & Responsibilities

4. Consolidate them in the form of Roles and responsibilities sheets

5. Record and Refer throughout the Project Life Time

Figure 10-14: Contract role & responsibility identifying conceptual frame

Table 10-12: Work contract role & responsibility recording format

CONTROL RESPONSIBILITY SUMMARY SHEET

PROJECT ____________________________
CONTRACTOR __________________________
Employer __________________________
ENGINEER ________________________ _ SHEET ___ OF ____

(1) (2) (3) (4) (5) (6)

Contract Description Contractor Employers Engineer Interaction
Sub-Clause Responsibility Responsibility Responsibility Responsibility

Note that: -
 The first column should note the section of the contract which defines the responsibility,
 the second column should describe the responsibility in detail sufficient so as not to
require reference back to the contract to define it;
 Check-mark the third column if the responsibility is a single responsibility of the
contractor;
 The fourth column, a single responsibility of the employer;
 The fifth column, a single responsibility of the engineer; and
 The sixth column, an interaction responsibility of two or more participants.

Transfer all the extracted scattered aggregate of key duties (responsibilities) of project participants
to the Control Responsibility Summary Sheet.

10.2.5 Managing relationships and communication in work contract

Regarding to managing relationships and communication of work contract refer above in chapter 6
above in this guideline.

10.2.6 Managing costs in work contract

Almost all of Ethiopian SSIP work contracts belong to the measured category. Costs in this
category require an understanding of contract price, agreed unit rate, priced bill of quantities,
changes in the contract price, variations, approved measurement recorded on takeoff sheet,
advance payment, payment certificate based on approved work performed, Payments,
compensation events, retention, liquidated damages, deliverables (like as built drawings, operation
and maintenance manuals, tools, equipment and machineries), and others.

Generally, payment for work contract commonly requested by the project contractor approved by
contract administrator/construction supervisor/ consultant (based on the contract administration
and construction service modality) and effected by the client in monthly base. The work contract
payment might be made for the agreed activities like: -
 i. Provision of services,
ii. Civil work executed by contractor and approved by the supervisor,
iii. Pipe and fittings supplied by contractor and approved by the supervisor/inspector,
iv. Electro-mechanical equipment and accessories supplied by contractor and approved by
the supervisor/inspector,
v. Hydro-mechanical equipment and accessories supplied by contractor and approved by the
supervisor/inspector,
vi. Submission of as-built drawings prepared by construction engineer and approved by the
supervisor engineer, and
vii. Submission of operation & maintenance manual prepared by construction engineer and
approved by the supervisor engineer.

Advance payment management

This payment, most of the time, is the first payment from the client to the contractor. Advance
payment effecting procedures, time, and prior requirements should be well understood by all
parties. Monitoring the advance payment utilization of the contractor by the client is very essential.

According to the GCC- contract or agreement document taken regarding advance payment it
states “The Contractor is to use the advance payment only to pay for Equipment, Plant, Materials,
and mobilization expenses required specifically for execution of the Contract. The Contractor shall
demonstrate that advance payment has been used in this way by supplying copies of invoices or
other documents to the Project Manager.” Accordingly, advance payment utilization should be one
of the to be monitored item.

Before paying the Advance Payment, the Contractor has to furnish an Advance Payment Security.
The maximum amount of the Advance Payment Security is stated in the Bidding Date, which form
part of the Instructions to Bidders. However, the Advance Payment Security obeys to conditions
specified in the Conditions of Contract. Such conditions concern the form of the guarantee, the
duration of the guarantee and the amounts by which the Advance Payment shall be repaid.

1. Application for Advance Payment by Contractor

2. Check documents for Completeness

3. Verification of advance payment request?

4. Approval and preparation of attachment letter

5. Sending approved payment to the client

6. Record invoiced advance payment requested document

Figure 10-15: Procedure for approval of advance payment

Interim payment
Payments paid based on the executed work in the midst of the work are called interim payments.
Interim payments request, approval and effecting should have a standard flow procedure in
managing a cost. This flow should be effective to hasten the project efficiency.

1. Interim Valuation

2. Site valuation

3. Check documents for completeness and computation

4. Prepare supporting documents for payment

No 5. Document is in proper order?

Yes

6. Issuance of Interim Certificate

7. Recording Payment Details & Prepare Payment Voucher

Figure 10-16: Flowchart – interim payment

Description of works contract interim payment approval tasks

1. Interim Valuation

Interim valuations must be carried out at least once a month, unless a Payment Schedule is
included in the Contract.

2. Site Valuation

The supervisor shall make Interim Valuation at Site based on the works which have been executed
by the Contractor.

3. Check documents for completeness, and computation

Check the attachment of takeoff sheet signed by supervisor engineer, billed item in the bid
document, whether there is variation or not, etc.
4. Prepare supporting documents for payment

Upon completion of the valuation, the supervisor should prepare the payment documents. It
includes but not limited to: -
 Payment certificate that shows detail works executed with respect to the bill item in the
bid offer, and
 Summary of payment certificate that shows amount executed, deductions (retention
money of specified amount, specified amount of advance payment to be repaid by the
contractor, others if any), and total due to paid for the contractor including VAT.

5. Document is in proper order?

The supervisor finally check that each document is complete and/or in order. Refer to the Checklist
for Preparation of Interim Payment. If it is not complete (and/or in order) please repeat Step-4 to
prepare the complete document. If it is complete and/or in order, follow Step-6.

6.Issuance of Interim Certificate

If the Interim Payment document is duly completed, and the documents checked and endorsed by
the relevant officers, the client empower shall sign and issue the Interim Certificate.

7. Recording Payment Details & Prepare Payment Voucher

Ensure that the correct amount is entered into the vote book. Check that the documents are in
order, and ensure that the payment voucher is signed. Payment voucher and supporting
documents should be submitted to the relevant to finance department of issuance of payment.

Note that the following documents must form part of 1st payment’s documents (unless already
submitted under the application for Advance Payment):
i. Letter of Acceptance duly signed and witnessed
ii. Performance Bond, or Letter of Confirmation using Performance Guarantee Sum
iii. Insurance Policies and receipt for insurance policies issued by the insurance company
iv. Contractor’s letter stating bank details, and signed by authorized person.
v. Consultant’s certification of works done (if using Consultant).
Supervisor engineer shall issue the subsequent interim certificate within specified days from the
date of such valuation stating the due amount to the contractor i.e. estimated total value of works
executed. Variation of Price (if any) shall be included in the valuation.

Note that where Advance Payment was made, check and ensure that the amount to be recouped
is stated in the payment certificate as a contractual deduction. Refer to the Special Provisions to
the Conditions of Contract for the recoupment formula to be applied.

Generally, the recoupment of Advance Payments shall be made when the value of works reaches
on the agreed percentage of works completed. But as advice it is better to fully recapture before
85%.

An agreed and accepted method would be established with the Contractor for carrying out the
necessary measurements, calculations and certifications required for interim.
At monthly intervals or based on the agreement after some progress, the contractor submits to the
supervisor or Supervising Consultant a statement or valuation based on the agreed
measurements. The statement or valuation must show the estimated value of the measured works
executed up to the end of the previous period as well as the estimated value of work completed
during the payment time. The valuation once checked and amended by the supervisor or
Supervising Consultant, where necessary, is used by the Supervising Consultant to prepare the
Interim Payment Certificate. When the Contractor will submit its payment applications with all the
measurements, costing calculations and supporting documentation to the supervisor, then the
Contract manager verifies the application on the basis of the documentation submitted and site
inspection records.

Interim Payment Certificates are useful in maintaining liquidity for the contractor. Therefore, the
contract manger is not expected unnecessarily to reject whole sections of works claimed by the
Contractor, but make amendments in accordance to the agreement.

The contract manger is not expected to do the whole work of the construction supervisor or the
consultant, rather the manager is expected to check if the interim payment is aligning with the
contract or not.

Interim payment can be effected up to 85% of the total agreed project cost considering 5%
and 10% of the total project cost for retention and liquidated damages respectively. The
next payment shall be effected as final payment.

Contract Price Adjustment (CPA)

In projects of reasonably long duration (say > one year) undertaken in areas which suffer from
persistent inflation, Employers consider it reasonable to compensate contractors for losses which
they might suffer as a result of increases in the prices of labor, materials, fuel, plant etc. There are
a number of methods of calculating such CPA. Whichever method is used, it usually provides for
both increases and decreases in prices and can accordingly result in either an increase or a
decrease in the contract price. Unfortunately, the norm is that CPA tends to be an escalation of the
contract price.

Adjustments for changes in legislation

The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting
from a change in the Laws of the Country (including the introduction of new Laws and the repeal or
modification of existing Laws) or in the judicial or official governmental interpretation of such Laws,
made after the Base Date, which affect the Contractor in the performance of obligations under the
Contract.

If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result
of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor
shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's
Claims] to:
a) an extension of time for any such delay, if completion is or will be delayed, under Sub-
Clause 8.4 [Extension of Time for Completion], and
b) payment of any such Cost, which shall be included in the Contract Price.

After receiving this notice, the Engineer shall proceed in accordance with Sub Clause 3.5
[Determinations] to agree or determine these matters.
Adjustments for changes in cost

In this Sub-Clause, "table of adjustment data" means the completed table of adjustment data
included in the Appendix to Tender. If there is no such table of adjustment data, this Sub-Clause
shall not apply.

If this Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or
falls in the cost of labour. Goods and other inputs to the Works, by the addition or deduction of the
amounts determined by the formulae prescribed in this Sub-Clause. To the extent that full
compensation for any rise or fall in Costs is not covered by the provisions of this or other Clauses,
the Accepted Contract Amount shall be deemed to have included amounts to cover the
contingency of other rises and falls in costs.

The adjustment to be applied to the amount otherwise payable to the Contractor, as valued in
accordance with the appropriate Schedule and certified in Payment Certificates, shall be
determined from formulae for each of the currencies in which the Contract Price is payable. No
adjustment is to be applied to work valued on the basis of Cost or current prices. The formulae
shall be of the following general type:

Pn = a + b * Ln + c * En + d * Mn + ......
Lo Eo Mo

where:

"Pn" is the adjustment multiplier to be applied to the estimated contract value in the
relevant currency of the work carried out in period "n", this period being a month unless
otherwise stated in the Appendix to Tender;

"a" is a fixed coefficient, stated in the relevant table of adjustment data, representing
the non-adjustable portion in contractual payments;

"b", "c", "d", ... are coefficients representing the estimated proportion of each cost element
related to the execution of the Works, as stated in the relevant table of adjustment data;
such tabulated cost elements may be indicative of resources such as labour, equipment
and materials;

"Ln", "En", "Mn", ... are the current cost indices or reference prices for period "n",
expressed in the relevant currency of payment, each of which is applicable to the relevant
tabulated cost element on the date 49 days prior to the last day of the period (to which the
particular Payment Certificate relates); and

"Lo", "Eo", "Mo", … are the base cost indices or reference prices, expressed in the relevant
currency of payment, each of which is applicable to the relevant tabulated cost element on
the Base Date.

The cost indices or reference prices stated in the table of adjustment data shall be used. If their
source is in doubt, it shall be determined by the Engineer. For this purpose, reference shall be
made to the values of the indices at stated dates (quoted in the fourth and fifth columns
respectively of the table) for the purposes of clarification of the source; although these dates (and
thus these values) may not correspond to the base cost indices.
In cases where the "currency of index" (stated in the table) is not the relevant currency of payment,
each index shall be converted into the relevant currency of payment at the selling rate, established
by the central bank of the Country, of this relevant currency on the above date for which the
index is required to be applicable.

Until such time as each current cost index is available, the Engineer shall determine a provisional
index for the issue of Interim Payment Certificates. When a current cost index is available, the
adjustment shall be recalculated accordingly.

If the Contractor fails to complete the Works within the Time for Completion, adjustment of
prices thereafter shall be made using either (i) each index or price applicable on the date 49 days
prior to the expiry of the Time for Completion of the Works, or (ii) the current index or price:
whichever is more favorable to the Employer.

The weightings (coefficients) for each of the factors of cost stated in the table(s) of adjustment
data shall only be adjusted if they have been rendered unreasonable, unbalanced or inapplicable,
as a result of Variations.

Generally, the two most common methods of calculating CPA are the following:

Proven cost method

In which the contractor is required, at tender stage, to detail those elements of his costs which he
requires to be subject to CPA. These details include the actual cost and supplier of the various
elements upon which the tender was based. The contractor is then reimbursed the difference
between these “Basic Costs” and the "Actual" invoiced cost of those same items when they are
purchased. Although this is the method generally used on EU funded projects it is not the
preferred method as it is easily open to abuse.

A typical month's CPA calculation using the Proven Cost Method might be as follows:

Basic Current Difference

Description Unit Qty CPA
Price Price (This IPC)
Cement pquintal 200 55.00 61.00 6.00 1,200.00
Diesel l 5000 4.50 5.50 1.00 5,000.00
Total CPA for this Month (Birr) 6,200.00

Formula method

With this method the works, to be undertaken, are mathematically described in a formula. The
formula contains a number of factors representative of the various elements of the project at the
time of tender and a number of similar factors for the various elements of work at the time that the
works are undertaken. By using these factors in the formula a percentage increase in the tendered
value of work done is calculated and the amount resulting from this represents the CPA due to the
Contractor. This is the preferred method, where indices are available.

The payment of CPA is effectively a correction of the unit rates to reflect the market prices of
materials at that time of purchase/construction. As such, the CPA represents a part of or an
addition to the value of work done.

Example Interim Payment Certificate Nº 2 (Single Currency)

 Description This Certificate, Birr Previous, Birr Total, Birr
Work Done as per Bill of 250.000,00 500.000,00 750.000,00
Quantities
Add: Variation Orders 0,00 125.000,00 125.000,00
Add: Contract Price Adjustment 12.500,00 25.000,00 37.500,00
Total Payable to Date 262.500,00 650.000,00 912.500,00
Less: Amounts Previously Claimed 650.000,00
Amount Due on this Certificate 262.500,00

Price adjustment can be approved for construction projects having duration greater than 18
months (1 year and 6 months). Most of small scale irrigation projects have less than one (1)
year duration as the result it is impossible to make price adjustment. But, if there is any
Force Major it can be consider with the consent of all parties using the above methods.

Retention
In addition to the performance security the Employer usually retains a small percentage of all
payments made to the Contractor as a further, more readily available or liquid, security. The
reason for this additional security is that the performance security is provided by a third party and
is considered to be available for “more serious” failures by the Contractor e.g. where the Employer
is required to undertake the completion or rectification of the works.

The value of the retained payments is usually limited to between five and ten percent of the
contract price. However, in order to create a sizeable fund of retained payments as early in the
project as possible it is usual to deduct five per cent of all payments until such time as the limit is
reached.

50% of the retention is released when the taking-over certificate is issued and the final 50% when
the defects liability certificate is issued. The certificate format easily accommodates this release of
retention which is effected by simply reducing the total amount of retention by 50%.

The retention on each IPC is calculated as a percentage of the total value of work done (including
variations, day works and CPA) as shown in the example payment certificate below.

Example Interim Payment Certificate Nº 2

This Certificate,
Description Previous, Birr Total, Birr
Birr
Work Done as per Bill of 250.000,00 500.000,00 750.000,00
Quantities
Add: Variation Orders 0,00 125.000,00 125.000,00
Add: Contract Price Adjustment 12.500,00 25.000,00 37.500,00
Sub-Total 262.500,00 650.000,00 912.500,00
Less: Retention (say) 5% 13.125,00 32.500,00 45.625,00
Total Payable to Date 249.375,00 617.500,00 866.875,00
Less: Amounts Previously Claimed 617.500,00
Amount Due on this Certificate 249.375,00
Liquidated damages
Most contracts have fixed durations to allow the client to plan ahead for the use of the particular
thing being constructed. However, if the construction of small scale irrigation project is not
completed on time, the client may well be liable for the costs incurred by the losses. The type of
losses likely to be suffered by the Employer of irrigation projects would be:
 The additional cost of supervision consultant fee;
 Additional costs of the Employer’s project engineers traveling to site;
 The interest payable on monies loaned for the project, and
  The benefits that would have been gained by the beneficiaries from expected irrigation
development.
It is, therefore, common to include a provision (New FIDIC Clause 8.7) in construction contracts to
the effect that if the works are not completed on time the contractor will be held liable for any costs
incurred. The files of every project must therefore contain a calculation and explanation of how the
liquidated damages have been determined.

Liquidated damages are applied for the period between the contractual completion date and the
actual completion date as defined by the taking-over certificate. If the delay in completion does not
affect the whole of the Works, the liquidated damages are usually reduced in proportion to the
value of work completed. New FIDIC Sub-Clause 8.7 caters for this.

The actual amounts payable for liquidated damages are usually expressed in terms of an amount
per day for every day that the completion of the works is delayed. Any such amounts payable for
liquidated damages are deducted from the “bottom line” of the payment certificate. It is important
to note that the FIDIC conditions of contract allow the Client to deduct these damages without any
reference to the Engineer or the Contractor. Obviously, in order to avoid any confusion, the Client
should advise both the Engineer and the Contractor when they do deduct these damages.

The Value of Liquidation Damage shall compensate the following losses of irrigation projects
because of delay beyond its agreed project completion date:
 The additional cost of Engineer;
 Additional project management costs of the Employer’s project engineers traveling to site;
 The interest payable on monies loaned for the project, and
 The benefits that would have been gained by the beneficiaries from expected irrigation
development.
Specific condition of contract for each agreement must contain a calculation and explanation of
how the liquidated damages have been determined. In general, 0.1% of the total project cost per
day up to 10% of the total project cost per day (for about 100days) exercised as compensate for
liquidated damages.

10.2.7 Managing work contract variations

Provisions to allow and regulate acceptable contract variations (based on the funding agency
policy) should be a standard feature of all contracts. The ability to vary the contract should be
controlled by the Client at early stage before entering into a contract, else it will craft contract
management predicament. Contract variations are expected to occur in defined and unseen
circumstances. It is an accepted practice to entertain variations based on agreement entered
between the client & Contractor/Consultant/Supplier. Variation Order and approval form is shown
in the list of Appendix X.
Any proposed variations should be assessed to ensure that they do not breach legislation,
procurement policy and financial delegation of supervisors, responsible personnel & managers.
The reasons for the variation should be clearly documented. Managers should be involved in
negotiating significant variations.

Variations should not be used to mask poor performance or serious underlying problems and the
effect on original timeframes, deliverables and value for money should be assessed. If the effects
are significant, senior management and other stakeholders may need to be consulted and/or
advised.
Changes to contractual arrangements have the potential to affect the scope and viability of the
contract for either or both parties and making substantive variations to a contract will require some
of the actions and issues involved in developing the original contract. They should therefore be
planned accordingly.
A variation is a formal amendment to the terms and conditions within or outside the intent of the
Contract. A variation is a change to the original scope of work which has been agreed by both
parties. The effect of the variation will have implications on time, cost and quality.

Variations may include the following to Contract will be required for the following:
 Change in scope of work including Volume (positive and negative)
 Change in execution of the work – Methodology & method statements
 Change in resources or facilities required
 Revision of rates
 Extension of the duration of the contract
 Settlement of a claim arising from the contract
 Before deciding Contract Variations Check the followings:
 Understand the source of variation and as much as possible agreement should be
reached between client & contractor
 If it is not an omittable variation, think way of minimizing its risk on the project cost, time,
quality and intended goal.
 Think critically in the overall project context and mind design change/ modification can
solve the problem, if not mind omission of other uncritical structures before ordering or
approval.

Don’t delay critical variation decisions so that it incurs cost on the client.

Cause, effect and contractual requirements of variation made as the result of new works and
excess in quantity is summarized in the following table.

Variation as the
Causes Effect Contractual Requirement
result of:
New Works Arises of previously New price quotation. Variations of this nature are
unforeseen or unwarranted required to be formally “included”
works during the course of a in the contract by means of a
contract. variation order, which is a
document which describes the
nature, details, cost and timing of
the additional works.
Excess in Invalidity of the tender as A revision of the Variations of this nature are
quantity quantities either increase or billed rates/contract formally “included” in the contract
decrease substantially in the price by means of a variation order
event that the quantities of following an exchange of
work vary by more than a correspondence. The final
specified percentage. correspondence is the Engineer's
approval of the revised rates.

The variation approval mandate for a given project shall be specified and presented in
specific condition of contract clause 13: Variation and Adjustments according to “The
General Conditions of Contract published by FIDIC First Edition in 1999” for each contract
agreement document. But, the following variation approval mandate is commonly adapted
on most contract documents of SSID: -
a. For variation value of each agreed billed item less than 25%, and it is less than 5%
of the total project cost, project engineer has mandate to approve variation work and
can give work instruction to the contractor. But, the engineer shall notify it to the
client.
b. For variation value of each agreed billed item greater than 25% and it is also greater
than 5% of the total project cost, it should be first approved by the client.
 10.2.8 Managing work contract disputes

During the contract management phase, a disagreement becomes a dispute when it is not
possible for the parties to resolve it without resorting to a formal resolution mechanism. Generally,
what a dispute is and when it’s deemed to have occurred is defined in the contract, often in a
dispute resolution clause.

Many disagreements and disputes arise when the parties cannot agree on issues related to the
interpretation of contract provisions, the definition of deliverables, meeting performance standards
and/or the effect of unexpected events. It is important that any possibility of dispute or an actual
dispute be recognized at an early stage and addressed as quickly as possible amicably. Avoiding
the escalation of disagreements can impact on contract deliverables and reduce the costs to both
parties especially the client (b/s the end users benefit will be delayed or hampered).

However, where a dispute arises, the Contract Manager’s role is to protect the Client interests in
all cases. There should be clear governance processes in place to manage contract disputes,
including the roles and responsibilities of the contract manager, procurement and senior
management. The form of dispute resolution for work contract is as discussed in 5.2.10 above in
this guideline.

1. Disagreement or difference of opinion or conflict or dispute

2. Determine if there is a ‘dispute’.

3. To use best endeavor to resolve the

‘issue’ amicably.

4. Issue(s) are settled?

5. Refer the dispute to the
No
Authorized Party for decision

6. Parties to give effect to Authorized

Party’s decision.
 Yes

Figure 10-17: Flowchart - dispute management and resolution

Description of tasks for Dispute Management and Resolution

Please refer Flowchart - Dispute Management and Resolution

1. Disagreement or difference of opinion or conflict or dispute?

Disagreement or difference of opinion or conflict or dispute often occurs in projects. The best form
of dispute avoidance is the ensure that the appropriate procurement method and form of contract
is used, and that the scope of works is clearly and accurately set out in the tender and contract
documents.
If practicable, all disagreements or differences of opinion or conflicts should be resolved as soon
as possible to avoid any escalation of the issues into a ‘dispute’. In dispute management,
contemporaneous and complete records are of utmost importance. Therefore, the PT must ensure
that records are properly kept and updated, and available when required.

For the purpose of this Manual, a ‘dispute’ is deemed to have occurred when the disagreement or
difference of opinion etc has been formally referred by the Contractor to the Authorized Party
under the terms of the contract. All other issues (i.e. disagreements or differences of opinion or
conflicts) should be resolved by way of negotiation or amicable settlement as soon as practicable.

2. Determine if there is a ‘dispute’

Ascertain if there is in actuality a “dispute”, whereby the parties must comply with the contractual
procedures and arbitration clause. If there is no dispute, follow Step 3 for Amicable Settlement. If
there is a determined go to Step 5.
3. To use best endeavor to resolve the ‘issue’ amicably

Unless the ‘dispute’ is formally referred for a decision in accordance with the contract, the PM
should use its best Endeavour to resolve the matter by way of negotiation or amicable settlement.
Check whether it is amicable settled or not following Step 4.

4. Issue(s) are settled?

Upon settlement, record the agreement reached by the parties. This avoids future disagreement
on the same issue. Follow up with the relevant adjustment (if any) to the contract by way of
extension of time, Variation or adjustment to the Contract Sum, etc, as the case may be.

If parties are not able to make an amicable settlement, then any party may refer the matter to the
Authorized Party under the Contractor for a decision. In this case go to Step 5.

5. Refer the dispute to the Authorized Party for decision

Referral of Dispute for Decision if either party has submitted a formally referred the ‘dispute’ to be
decided by the Authorized Party:
(a) Upon receipt of the Contractor’s formal request to refer the dispute to the Authorized Party,
the supervisor shall refer the dispute to the officer authorized under the contract
(Authorized Party) to make a decision. the supervisor where appropriate to do so, shall
advise and assist the Authorized Party in the dispute resolution process.
(b) The Consultant shall prepare the documents setting out the background of the dispute, with
sufficient details for the Authorized Party to make a decision.
(c) The Authorized Party is required to make a decision within the time frame stipulated in the
contract.
(d) The Authorized Party may refer the dispute to the Claim Committee for a decision.
6. Parties to give effect to Authorized Party’s decision

Comply with the decision of the Authorized Party. (If the Contractor is dissatisfied with the
Authorized Party’s decision, he must nevertheless comply with the decision but may refer the
dispute for arbitration.)

Follow up with the relevant adjustment (if any) to the contract by way of extension of time,
Variation or adjustment to the Contract Sum, etc., as the case may be. Follow Step 7 to get
contractor reaction.

7. Is there new information or substantiation from the Contractor?

Authorized Party May review its own Decision if: -

 the Contractor is dissatisfied with the decision of the Authorized Party, and
 new information or substantiation has come into the attention of the Authorized Party,
 then the Authorized Party may review its earlier decision, or refer such review (of earlier
decision) to the Claim Committee for confirmation.
 If there is no information or substantiation from the contractor follow Step 8 for notice of
Arbitration. If there is information or substantiation from the contractor go to Step 5 for
review of earlier decision.

8. Contractor gives notice to refer dispute to arbitration?

If the contractor doesn’t give notice to refer dispute to arbitration, record the agreement reached by
the parties and act accordingly.

The Contractor may refer the dispute for arbitration if

 The Authorized Party fails to give a decision within specified days after being requested
to do so; or
 The Contractor is dissatisfied with the decision of the Authorized Party. In this case
follow Step 9.

9. Refer the dispute to Legal Adviser as specified

Upon receipt of the Contractor’s notice to refer a dispute for arbitration (whether or not prior
reference was made to the Authorized for a decision), the consultant must notify the client
immediately.
The client shall refer the matters to the Legal Adviser at the client office for further advice and
action. The matter may then be referred to the Attorney by the Legal Adviser. The consultant shall
compile the records and supporting documents relevant to the dispute and as may be required for
the arbitral proceedings.

10.2.9 Managing work contract performance

Contract manager should ensure the contract is well understood and attained by the parties. In
addition, s/he has to ensure whether the parties are on the right truck of their roles and
responsibilities of the contract. The following checklist enables to track the performance
management. The performance assessment result should be communicated if possible per month
if not per quarter for the parties.

Table 10-13: Performance management checklist

 Checklist Indicators
Standards Compliance or noncompliance documentation (Example: specification of
materials, quality, mix ratio, drawing etc.)
Tolerance Documenting the acceptable deviation on each deliverable – structurally,
hydraulically (dimensions, velocities, slopes etc.), cost, time
Review meetings Conducted or not, evaluating encouraging feedbacks
Reports Timeliness, completeness, quality

10.2.10 Managing work contract monitoring

Regarding to managing work contract performance refer section 5.2.10 above in this guideline.

10.2.11 Defects management

Defects Management during Defect Liability Period

1. Receive report from end-user

2. Establish defects for which the Contractor is responsible

3. Issue Instruction to rectify defects

4. Contractor complies to instruction?

No

5. If Contractor fails to comply, appoint third party to

rectify defective works
Yes

6. Deduct from money due to Contractor, or from Performance Bond / Performance Guarantee Sum
End

Figure 10-18: Flowchart – defects management during defect liability period

Description of tasks for Defects Management during Defect Liability Period

Please refer Flowchart – Defects Management during Defect Liability Period

1: Receive report from end-user

End-user (e.g. Client-agency, WUA members, Beneficiary Farmers) expected to report the
observed defect(s) immediately to supervisor engineer.

2: Establish defects for which the Contractor is responsible

Supervisor engineer shall determine if defects had occurred.
3: Issue instruction to rectify defects
Supervisor engineer shall immediately issue instruction to the Contractor to rectify the defects, with
a fair and reasonable time frame to complete the making good of defects. He may issue
instructions to rectify defects as many times as necessary during the Defects Liability Period.

4: Contractor complies to instruction?

If the contractor complies to instruction follow his performance in accordance to the contract. If not,
follow Step 5.

5: If Contractor fails to comply, appoint third party to rectify defective works

If the contractor refuses or fails to make good the defects within the time stipulated in the
supervisor engineer instruction or within reasonable time if none is stated, then the supervisor
engineer may appoint third party to rectify the defective works.

6: Deduct from money due to Contractor, or from Performance Bond/Performance

Guarantee Sum

If third party executed the defect works, the cost incurred in making good defects due to the failure
of the contractor must be recovered from Contractor:
 From monies due or payable to Contractor or
 As deduction of Performance Bond or Performance Guarantee Sum
 1. Joint inspection towards end of Defect Liability Period

2. Further defects?

Yes
3. Identify further defects and issue Schedule of
Defects

No

4. Instruct Contractor to Rectify the Defects

5. Joint re-inspection (on expiry of time given to make

good or upon expiry of 3 months whichever is earlier)

6. Further defects?

Yes

7. Issue Certificate of Making Good Defects

No

8. Issue of Final Certificate

Figure 10-19: Flowchart - defects management at end of defect liability period

Description of tasks for Defects Management at End of Defect Liability Period

Please refer Flowchart - Defects Management at End of Defect Liability Period

Step 1: Joint inspection towards end of Defect Liability Period

Carry out joint inspection together by the representatives from Client, Contractor, beneficiary
farmers and other parties involved.
Step 2: Further defects?
Identification of Further Defects (if any) by the parties involved on joint inspection should be done
with clear conclusion and recommendation.

Step 3: Identify further defects and issue Schedule of Defects

If there are defects at the end of Defects Liability Period, the supervision engineer prepares the
Schedule of Defects and issue it to the Contractor within the specified days after the expiry of DLP.

Step 4: Instruct Contractor Rectify the Defects

Issue the instruction to rectify all defect works completely within a reasonable time. Ensure the
duration given to the contractor must not exceed the specified months from the date of issuance
the Schedule of Defects.

Step 5: Joint Re-inspection

Carry out the joint re-inspection by the representatives from Client, Contractor, beneficiary farmers
and other parties involved on the date of the expiry of rectification period given to Contractor or
upon the expiry of period of specified months, whichever is the earlier.

Step 6: Further defects?

Identification of Further Defects (if any) by the parties involved on joint inspection should be done
with clear conclusion and recommendation.

Step 7: Issue Certificate of Making Good Defects

Issue the certificate of completion of making good defects if there are no further defects. Ensure
the date in such certificate is the date of Contractor completed the rectification of defective works.
Ensure the copies to be distributed to:
 Contractor (original)
 Other parties named in certificate (copies)
The client then returns the Performance Bond/Performance Guarantee Sum to the Contractor.

Step 8: Issue of Final Certificate

The supervisor engineer prepares the Final Certificate upon the issuance of Certificate of
Completion of Making Good Defects.

10.2.12 Managing ethics in work contract

Regarding to managing ethics in work contract refer section 5.2.11 above in this guideline.
Generally, there should be code of ethics that guides the relation between client /consultant and
contractor in work contract.

10.2.13 Managing work contract closure

The most common way a contract ends is where each party performs according to the terms of the
contract, that is, the contract is discharged through due performance. Acceptance implies that the
works delivered have met the agreed contract.

Contracts for the provision of services may specify an end date when all contract deliverables
have to be provided. The contract ends through due performance if the services are delivered in
line with contract standards by the due date. In works contracts, contract closure should be
completed as soon as defect liability is completed. The following check list guides the contract
completion:
 No Checklist Yes/No Remark
1 Deliverables review
2 Documents required for contract completion (as
built drawing, O&M, diary & others)
3 Unsettled claim
4 Advance deduction completed
5 Defect liability security on place
6 Site handover/takeover
7
8
9
10
11 Contract Closing meeting & minutes
12 Final Payment addressed

Case 2 Claim resoultion based on contract document intrpritation priority

The Contract is for the construction of the civil works for SSI project. The Conditions of Contract
are the WB/PPA, 2006 Procurement of small works Designed by the Employer. The works include:
(i) Diversion Weir; (ii) Night Storage Reservoir; (iii) main canal; (iv) secondary canals, and V) canal
Structures. While reviewing the contract, the following discrepancies have been observed after the
Contractor has started the construction works.

i. The specification indicates the main irrigation canal to be trapezoidal in shape and shall be
constructed with Stone Masonry structure. It also indicated that the measurement is in linear
meter measured along centerline of the canal from the weir to end of the main canal.
ii. The drawing indicates the main irrigation canal to be trapezoidal in shape with a minimum
bottom width of 0.3m, height of 0.6m, 0.3m thickness and shall be constructed with masonry
structure. It also indicated that design discharge, Q and longitudinal slope of the canal are
308l/s and 1:1500m/m respectively.
iii. In the priced bill of quantity (PBOQ) it has been provided that the width of the main irrigation
canal shall be 0.6m width, 0.8m height, and 0.35m thickness.
iv. In the design document it is also indicated that the main canal design discharged is 308l/s to
irrigate 200-hectare command area.

The measurement and payment clause of the specification indicates the unit of measurement is in
linear meter measured along centerline of the canal from the weir to end of the main canal. You
are assigned as the Engineer and the contractor has submitted his claim for your recommendation
indicating that the rates quoted in the BOQ is applicable for 0.3m width, 0.55m height, and 0.3m
thickness rectangular canal made with Stone Masonry structure.
 What would be your recommendation for the Contractor’s argument?
 What would be your technical recommendation/advice to the Employer?
Answer
In order to draw sound recommendation, we have to extract the existing contractual matters and
made analysis based on the agreed conditions of contract step by step.

Step-1: Extracting the existing contractual matters

The existing contractual matters are as tabulated under.

Descriptions of Main Irrigation Contract Documents
 Canal Specification Drawing BOQ
Design Discharge, Q 308l/s
Longitudinal Slope, m/m 1/1500
Shape Trapezoidal Trapezoidal Rectangular
Bottom width 0.3m 0.6m
Height 0.6m 0.8m
Wall Thickness 0.3m 0.35m
Material Stone Masonry Stone Masonry Stone Masonry
Unit of measurement Linear Meter
Other Dimensions

Step-2: Checking the design

We have to check specially the hydraulic design of the main canal for the given design data.
Hydraulic design parameters based on the data on the drawings.

Design Calculated
n b d m A P R S V
Discharge, l/s discharge, l/s
1.99
0.308 0.018 0.3 0.6 1 0.54 7 0.270398 1500 0.6 0.324

Hydraulic design parameters based on the data on the priced bill of quantity

Design Discharge, Calculated Discharge,

n b d m A P R S V
l/s l/s
0.308 0.018 0.6 0.8 0 0.48 2.20 0.218182 1500 0.52 0.250

The hydraulic deign check depicted that the design parameters presented in the design drawing
meet the requirement of the specific project. Whereas, the descriptions in the priced bill of quantity
doesn’t meet the requirement as the result of the calculated discharge is lower than the design
discharge.

Step-3: Draw the determinant maters based interpretation priority of the agreement document

Accordingly, the following documents that constitute the Contract Document should be checked
and reviewed in the order of its priority.

1. The Contract Agreement,

2. Letter of Acceptance
3. Tender, Appendix to Tender, and Addenda,
4. Conditions of Particular Application,
5. General Conditions of Contract,
6. Particular Specifications,
7. Standard Specification,
8. The Drawings,
9. Priced Bill of Quantities, and
10. Other Documents (Minutes of pre-contract award discussion, etc)
Hence, based on the contract document priorities the determinant contractual matters are as
tabulated here.
Descriptions of main irrigation canal Priority
Design Discharge, Q 308l/s
Longitudinal Slope, m/m 1/1500
 Shape trapezoidal
Bottom width 0.3m
Height 0.6m
Wall Thickness 0.3m
Material Masonry
Unit of measurement linear meter

Therefore, the following lesions can be draw from the above case: -

1. Even though, the contractual issue may come as a big deal the main objective of the
contract and the structure has to get priority. If you meet the contract to be smooth but
failed to attain the objective of the project at last it is loss.
2. In the above case based on contract priority the specification and the drawing prevail the
PBOQ, hence, the contractor is obligated to perform the main canal as per the above
Table.
3. Whenever contract document is prepared due diligence and attention should be given for
more sensitive areas like specification, drawings, and description in the BOQ (Unit of
dimension, coherence of description that fits the whole works).
11 SUPPLY CONTRACT ESTABLISHMENT
Per-contract activities at project construction phase comprise the pre-condition for establishment
of supply contract. In most case both civil works and supply contracts are established by the
contract made between client and contractor.

This part discusses the establishment of supply contract starting from collecting and organizing of
tender document prepared for the intended purpose up to establishing of binding supply contract
document.

1. Tender Document

2. Review of Tender Document

3. Pre-Qualification Criteria Setting

4. Tendering

5. Evaluation of Pre-qualified Tenderer’s

6. Instruct the Selected Bidders to Present Their Technical and Financial Offers

7. Check the Bid Document for Its Completeness

8. Evaluation of the Bids

9. Award Letter for Successful Bidder

10. Negotiation on the Bid Offer

11. Contract Preparation and Signing

12. Award Letter for Contract

13. Binding Contract

Figure 11-20: Procedure for supply contract establishment

Description of Supply Contract Establishment Activities

1. Tender Document

Tender Document for the procurement of Goods comprises: -

Part 1 - Bidding Procedures
Section 1 – Instructions to Bidders
Section 2 – Bid Data Sheet
Section 3 – Evaluation and Qualification Criteria
Section 4 – Bidding Forms
Section 5 – Eligible Countries

Part 2 - Statement of Requirement

Section 6 – Statement of Requirements

Part 3 - Contract
Section 7 – General Conditions of Contract
Section 8 – Special Conditions of Contract
Section 9 – Contract Forms

2. Review of Tender Document

The contract engineer should review the tender document for its completeness of each part and
section contents, the detail of each sections and conformity to the procurement procedure and
methods. Special attention shall be given while reviewing statement of requirements that needs to
clearly describe technical specifications, drawings, and bills of quantity.

3. Pre-Qualification Criteria Setting

Pre-qualification criteria for procurement of goods shall be the followings but not limited to:
 Annual turnover (Audited Financial Statement),
 Years in the business,
 Pervious status,
 Lend and litigation, and
 Debarring (Black listed).
4. Tendering

Tendering should be based on the latest version of either “The Ministry of Finance or Economic
Development Procurement Directives” or “World Bank Directives” based on the fund of the project
implementation.

5. Evaluation of Pre-Qualified Bidders

Evaluation of pre-qualified bidders for procurement of goods shall be done based on the followings
company profile information but not limited to:
 Annual turnover (Audited Financial Statement),
 Years in the business,
 Pervious status,
 Lend and litigation, and
 Debarring (Black listed).
6. Instruct the Selected Bidders to Present Their Technical and Financial Offers
After evaluating the pre-qualified tenders, the contract engineer shall give instruction to submit
their technical and financial offers based on the term of reference.

7. Check the Bid Document for Its Completeness

The contract engineer should check the completeness of the bid document submitted by the
contractor/supplier.

8. Evaluation of the Bids

The procurement committee and Ad-hoc Technical Evaluation Committee evaluate the bid offer
based on evaluation criteria forming the bid document and finally prepare evaluation report.
Decision should be made by the general manager of the procuring entity based on the evolution
report whether bid process and the selected bid offer is accepted or rejected. After delivery
service, availability of deliverables and associated spare parts on stoke, and conformity with the
technical specification should have to have relatively higher weight while setting evaluation criteria
for the case of electro-mechanical equipment (Pumps and Generators).

9. Award Letter for Successful Bidder

The contract engineer shall prepare and issue award letter for successful bidder after it is
approved by the general manager of the procuring entity.

10. Negotiation on the Bid Offer

The procuring entity shall negotiate on the bid offer with the selected bidder (if required) based on
the rule and regulation of the procurement directives.

11. Contract Preparation and Signing

The procuring entity shall prepare contract agreement document and both the client and
supplier/contractor should sign by the respective official delegates and stamp by the respective
archives. Witnesses from the client and supplier/contractor sides should sign accordingly. Both the
client and supplier/contractor legal advisers shall endorse its compatibility with the set conditions
of contract by signing on the contract document. Both client and supplier/contractor delegates shall
put their initials on each contract document pages.

12. Award Letter for Contract

The employer shall award the contract, within the period of the validity of bids, to the bidder who
meets the appropriate standards of capability and resources and whose bid has been determined
(i) to be substantially responsive to the bidding documents and (ii) to offer the lowest evaluated
cost. A bidder shall not be required, as a condition of award, to undertake responsibilities for work
not stipulated in the bidding documents or otherwise to modify the bid as originally submitted.

Client shall notify the results on notice board identifying the bid number and the following
information: (a) name of each bidder who submitted a bid; (b) bid prices as read out at bid
opening; (c) name and evaluated prices of each bid that was evaluated; (d) name of bidders
whose bids were rejected and the reasons for their rejection; and (e) name of the winning bidder,
and the price it offered, as well as the duration and summary scope of the contract awarded.
13. Binding Contract

The signed and distributed contract agreement document form binding contract between client and
supplier/contractor. It should be referred throughout the project life so that the contract practiced
accordingly.

Example of Supply Contract Establishment Procedure

1. Bid document
2. Invitation for bid. It may be by News Paper, Radio, TV Media, and Website.
3. Selling of bid document. The following care should be taken while selling the bid document but
not limited to: -
 Check trade/business license (photocopy),
 Register the bidder on the form, and
 Selling the bid document for the prequalified bidder by the price announced
4. Supplier submits their bid proposal of: -
 Technical, Non-technical and legal documents (Trade License, VAT Certificate, TIN
(Tax Identification Number) Certificate, Tax Clearance from Inland Revenue Authority,
Financial Capability, Letter of Authorization from The Manufacturer, Warranty, Original
Brochure, Price Validity Period, etc.), and
 Financial Proposal.
5. Bid closing usually 4:00 o’clock at local time by executing the following activities but not limited
to: -
 Register all suppliers submitted the bid proposal (on bid collection form), and
 Closing the bid box by procurement committee.
6. Bid opening usually 4:30 o’clock at local time by executing the following activities but not limited
to: -
 Opening meeting by procurement committee. The following activities should be done
during bid opening meeting but not limited to: -
 Check the supplier submitted their proposal against their list bought,
 Registration of bidder’s representative on attendance sheet including signature,
 Opening technical proposal,
 Signing on each technical proposal documents page by page by procurement
committee,
 The procurement committee Check whether the technical proposal is according to
ITB, and
 Finally, minute of meeting should be prepared by procurement committee, and
submitted to the general manager or his delegate for decision.
 Formation of Ad-hoc Technical Evaluation Committee by the general manager or his
official delegate by official letter.
 Based on minute of bid opening meeting and decision of the general manager,
procurement committee transfer only responsive technical proposals to technical
evaluation committee by memo. The memo should be signed and recorded.
 Evaluation of responsive technical proposal by Ad-hoc technical evaluation committee
based on the evaluation criteria set on the bid. The weight of technical proposal usually
80%.
 Technical evaluation committee prepares and submits evaluation results to procurement
committee. Technical evaluation result report should be signed by each member and
recorder accordingly.
  Procurement committee notify technical evolution results to the supplier (either on notice
bored or via letter of notification) requesting to submit claim if any within five working
days starting from the notification date.
 If the clam is acceptable evaluation of technical proposal will be done again by technical
committee, otherwise, the pervious technical evaluation results intact.
 Procurement committee then calls technically fit suppliers to open financial proposals.
 Financial proposal opening meeting will be held by procurement committee. During this
meeting the following activities should be done but not limited to: -
 Undertake attendance sheet of the representatives and their signature,
 Read out technical evaluation results to the bidder,
 Opening financial proposal and read out the offered price,
 Preparing minute of meeting and should be sign by all participants.
Evaluation of financial proposal by procurement committee. Here the following should be analyzed
but not limited to: -
 Arithmetic check,
 Determination of evaluation point using the following formula
Financial Evaluation Point = X/Y*Z
Where,
X = Least Price Offered
Y = Price under Consideration = Price offered by the considered
supplier
Z = Financial Weight set in the bid criteria (usually 20%)
 Procurement committee prepares final evaluation consolidating the technical and
financial proposals results and submits to the general manager for decision.
 Based on the decision of the general manager prepare awarded letter if it is acceptable
 If it is rejected by the general manager rebidding will be executed following the
aforementioned procedures.
7. Preparation and signing of contract by the procuring entity.
 Authorized persons from both client and supplier sides should sign in the presence of
witness. The signed and stamped contract agreements should be issued by the client.
The following Types of Guarantee/Security shall be fulfilled before signing Supply Contract.
These are: -
1. Bid Security CPO
 The bid security shall be a demand guarantee in any of the following forms at the
Bidder’s option: -
 Fixed
 2%
 Amount specified in the BDS.
2. Performance Security
 Usually performance bond 10% of the offer price used as guarantee.
3. Advance Payment Guarantee
 Advance payment guarantee shall be acceptable types:
 Unconditional bank guarantee
 Certified check;
 Unconditional insurance bond
4. Provisional Indemnity
 Unconditional insurance bond from certified financial institution.
12 SUPPLY CONTRACT IMPLEMENTATION
Supply contract implemented in such a way that the goods shall be supplied in accordance to
specification and the offer of the selected bidder. Technical Inspection Committee may be
assigned by general manager during deliver period to control the conformity of supplied goods with
the requirement in the bid.

Finally, the contract shall be closeout after the good supplied in accordance to the requirement
and offered specification, and the client provide performance certificate to the supplier and effect
the final payment accordingly. The supplier is responsible within warranty period to rectify the
defect or replace the good, otherwise, forfeit the guarantee. In doing so the contract is closeout.

During implementation of supply contract, the client/engineer should focus on mobilization of the
contractor/supplier team and logistics as per the contract entered in to.

12.1 PLANNING SUPPLY CONTRACT MANAGEMENT

The general contract management planning for small scale irrigation development preparation and
implementation is discussed in detail under chapter 5 above. Contract management planning
particular to supply contract is discussed here.

12.1.1 Review supply contract establishment

The contract manager shall review supply contract prior to enactment based on the following
checklist but not limited to: -.
 Understand the type of contract
 Organize the contract document
 Agreement,
 Letter of Acceptance,
 Contractor’s/Supplier’s evaluated Bid,
 Particular Conditions of Contract,
 General Conditions of Contract,
 Specifications,
 drawings,
 Priced Bill of Quantity, and
 Any other document listed in the PCC as forming part of the Contract.

Collect revised & approved delivery schedule from the Contractor/Supplier.

12.1.2 Designing supply contract management strategy

Understanding of the contract, the contract manager should design strategy how to manage the
supply contract according to the agreement entered in to.

The supply contract management approach or modality can by independent consultant, own force,
freelancer individual or other based on the complexity, budget/cost, scale of risk and other
determining issues. Always it is advisable to decide critically on the modality. Especially for small
scale irrigation, the supply contract management is outsourced for the contractor together with the
civil works or independent supplier.
 12.1.3 Supply contract management risk identification

Identify potential risks of the contract (delay, quality, compliance with specification, etc) and
arrange risk mitigation plan for identified contract risks before and in course of supply contract
implementation.

12.2 SUPPLY CONTRACT MANAGEMENT ENACTMENT

In supply contract, the main management implementation subjects or procedures mainly include
the following:
i. Managing Supply Contract Mobilization,
ii. Managing Supply Contract Documentation and Record Keeping,
iii. Managing Supply Conditions of Contract,
iv. Managing Roles and Responsibilities in Supply Contract,
v. Managing Relationships and Communication in Supply Contract,
vi. Managing Costs in Supply Contract,
vii. Managing Supply Contract Variations,
viii. Managing Supply Contract Disputes,
ix. Managing Supply Contract Performance,
x. Supply Contract Monitoring,
xi. Managing Ethics in Supply Contract, and
xii. Managing Supply Contract Completion.

12.2.1 Managing supply contract mobilization

Contract mobilization is a move from the paper agreement stage to materializing or objectivising
the agreement at ground level. Successful contract mobilisation can ensure that the ‘building
blocks’ for a successful contract are created. While the written contract is a record of each party’s
obligations and responsibilities, it is not designed as a day to day operational management
document for the contract.
The Contract manager/expert is demanded to prepare a day to day operational contract
management document that can assist the project contract management to be easy and
piecemeal. Care should be taken while communicating the sample (if any), warehouse location,
etc while managing supply contract mobilization.

12.2.2 Managing supply contract documentation and record keeping

It is discussed above on section 5.2.2.

12.2.3 Managing conditions of supply contract

Currently Ethiopia uses Conditions of Contract of the following: -

1. The Federal Democratic Republic of Ethiopia. Standard Bidding Document (SBD)For
Procurement of Goods and Related Services. Public Procurement Agency (PPA). January
2006, Addis Ababa, Ethiopia.
2. STANDARD BIDDING DOCUMENTS for Procurement of Goods. The World Bank. March
2013.
The contract management team member shall have understanding of the general conditions of
supply contract written on these standard bidding documents. Besides, s/he has to understand the
specific condition on a particular supply contract agreement and act accordingly.
 12.2.4 Managing roles and responsibilities of parties in supply contract

It is similar to section 5.2.4 and 11.2.4 presented above in this guideline.

12.2.5 Managing relationships and communication in supply contract

It is similar to section 5.2.5 and 11.2.5presented above in this guideline.

12.2.6 Managing costs in supply contract

Management of supply contract cost shall be in accordance with the payment section of general
condition of supply contract entered into.

12.2.7 Managing supply contract variations

It is similar to section 5.2.7 and 11.2.7 presented above in this guideline.

12.2.8 Managing supply contract disputes

It is similar to section 5.2.8 and 11.2.8 presented above in this guideline.

12.2.9 Managing supply contract performance

It is similar to section 5.2.9 and 11.2.9 presented above in this guideline. Some of performance
indicators for supply contract are: -
 The timeliness of delivery,
 Quantity delivered, and
 Compliance with specifications.

12.2.10 Supply contract monitoring

It is similar to section 5.2.10 and 11.2.10 presented above in this guideline.

12.2.11 Managing ethics in supply contract

It is similar to section 5.2.11 and 11.2.12 presented above in this guideline.

12.2.12 Managing supply contract completion

It is similar to section 5.2.12 presented above in this guideline.

13 EXTRACTING CONTROL RESPONSIBILITIES
The main function of the engineer in works contract is to increase the probability that the project is
built by the contractor or contractors in compliance with the contract documents.

He has to control of quality, time and cost of the project equally depend on effective allocation of
responsibilities among participants and their performance of their respective duties as clearly
stated in the contract document. To do so, the engineer required to identify and extract control
responsibilities which either:
 Require action (i.e., require something to be done) by some participant,
 Require interaction by two or more participants, and
 Necessitate the keeping of records to properly record its discharge.

In other words, to evaluate realistically the proposed construction work programmed and the
itemized bill of quantities including lump sum breakdown submitted by the contractor, the engineer
should concentrate on breaking down the contract documents by abstracting the contractual
responsibilities of each participant and determining the construction components of the project
sequentially. In breaking down the contract documents, the resident engineer will gain a thorough
knowledge and become familiar with the construction details of the project.

Hence, the engineer has to be familiar with a simple, but effective, technique by which the
responsibilities set out in the contract be understood, refined, and tabulated according to who is
required to act to discharge those responsibilities.

1. Collect Contract Document

2. Study the Contract Systematically

3. Extract Control Responsibilities from the Contract

4. Consolidate Them in the Form of Control Responsibilities Summary Sheets

5. Record and Refer throughout the Project Life Time

Figure 13-21: Flow chart for procedure of extracting control responsibilities

Detail descriptions of Procedure of Extracting Control Responsibilities:

1. Collect Contract
Engineer has to collect all contract documents.

2. Study the Contract Systematically

Read the conditions of the entire contract reputedly at least a minimum of two times for:
 Understanding how the parts of the contract documents fit together, i.e., which parts
supersede other parts in the event of inconsistencies, which parts deal with which
subjects,
 Understanding the general role of each participant, i.e., how and where the
responsibilities of the participants are set out and how the responsibilities of the
employer and resident engineer - as set out in the contract - agree with their respective
responsibilities as set out in the resident engineer’s agreement for services
 Understanding the documents and confirmation - that there is no glaring error in the
contract which would impair the success of the Project.

The urge to “quit reading and get on with the project” should be suppressed at all cost, for the
engineer; this is the most important stage of the project.

3. Extract Control Responsibilities from the Contract

 Read the contract a final time from cover to cover in order to identify certain key
responsibilities, called “control responsibilities,
 Noting responsibilities allocated to each participant with high lighter markers in various
colours in which one colour of marker should be used to denote each responsibility of a
given participant.
 If, for example, the only participants are the employer, the engineer, and the contractor,
each should be assigned a marker colour.
 Next to a responsibility of the engineer, should be highlighted in the engineer’s colour;
the same procedure should be followed for the other participants.
 Having a scattered aggregate of key duties of project participants.
4. Consolidate them in the Form of Control Responsibilities Summary Sheets
 Prepare Control Responsibilities Summary Sheets
The Control Responsibility Summary Sheet should have seven columns whose headings should
be (1) contract section, (2) description, (3) contractor responsibility (4) employer responsibility, (5)
engineer responsibility, and (6) interaction responsibility.
Table 13-14: Illustrates a blank control responsibility summary sheet

CONTROL RESPONSIBILITY SUMMARY SHEET

PROJECT ____________________________
CONTRACTOR __________________________
Employer __________________________
ENGINEER ________________________ _ SHEET ___ OF ____

(1) (2) (3) (4) (5) (6)

Contract Description Contractor Employers Engineer Interaction
Sub-Clause Responsibility Responsibility Responsibility Responsibility

Note that: -
 The first column should note the section of the contract which defines the responsibility,
 the second column should describe the responsibility in detail sufficient so as not to
require reference back to the contract to define it;
 Check-mark the third column if the responsibility is a single responsibility of the
contractor;
 The fourth column, a single responsibility of the employer;
 The fifth column, a single responsibility of the engineer; and
 The sixth column, an interaction responsibility of two or more participants.
Transfer all the extracted scattered aggregate of key duties (responsibilities) of project participants
to the Control Responsibility Summary Sheet.

5. Record and Refer throughout the Project Life Time

 The final control responsibility summary sheet that organized key duties (control
responsibilities) should be recorded and referred to facilitate construction project
administration.

Table 13-15: Some responsibilities of parties in works contract

(1) (2) (3) (4) (5) (6)
Contract Description Contractor Employers Engineer Interaction
Sub-Clause Responsibilit Responsibility Responsibilit Responsibility
y y
Security Bond: -
Contractor shall provide
10.1 x
security bond within 28
days.
Work Program: - The
contractor shall submit for
14.1 1 2 x
approval work program
within 28 days.
Cash flow: - The
contractor shall submit for
14.3 1 2 x
approval cash flow within
28 days.
Insurance: - Contractor
shall provide evidence of
25.1 1 2 3 x
insurance before start of
work at site
41.1 Notice to commence: - x
(1) (2) (3) (4) (5) (6)
Contract Description Contractor Employers Engineer Interaction
Sub-Clause Responsibilit Responsibility Responsibilit Responsibility
y y
The Engineer shall issue
notice to commence
work.
Possession of site: - The
42.1 employer to provide x
possession of site
Lump sum breakdown -
The contractor shall
57.2 submit breakdown of 1 2 x
lump sum items within 28
days.
Notices of claim: - The
contractor submits written
53.1 1 2 x
notice of claim within 28
days.
Details of claim - The
contractor shall submit
53,3 1 2 x
detail account of claim
within 28 days.
56.1 Measurement of work 2 1 x
Contractor’s submission
of Monthly Interim
60.1 payment: - The contractor 1 2 x
shall submit monthly
statements.
Engineer’s submission of
The engineer shall submit
60.2 contractor’s monthly 1
statements to the
employer within 28 days
The employer shall pay
60.10 the contractor within 28 x
days
Variations: - The
51.1 2 1 x
Engineer shall make
51.2 Instructions for variations 2 1 x
2.5 Field instructions 2 1 x