PROFESSIONAL PRACTICE

MODULE – 2
TENDER & CONTRACT

What is a Tender?

It is a written offer by one party to another to execute a work/supply material

required for construction/provide service, within a stipulated time under
certain conditions of quotation

Objectives of Tendering

 Provide publicity through newspapers, print media, journals, electronic

media, notice board of client offices, intimation to working contractors
and to contractor’s association.
 To obtain competitive bids from eligible contractors.
 To provide equal opportunity to all contractors eligible to tender.

Article 299 of constitution prescribes a procedure for execution of Govt.

Contracts/tenders. These definite procedures include:
 It must be in writing.
 It must follow a format
 It must be signed by person duly authorized by President of India for
central works/ Governor of state for state works.

For private tenders it is signed by Board of Directors/ Managing Director or

authorized general manager. It is signed by client or any authorized person.

Contents Of A Tender

1. Notice inviting Tender.

2. Instructions for offline/online Bid Submission
3. Annexure-I (General Terms and Conditions)
(Security deposit, bonus/fine, stages of payment, escalation variations,
defective work, arbitration, defect liability period)
4. Annexure-II (Specification)
(Schedule of quantities may have tender drawings and specifications)
5.Annexure-III (Technical BID and Undertaking)
6.Declaration
7.Annexure- IV (Financial BID)
8.Tender Acceptance Letter
Additional Stipulations

1. Owner/client does not pay for the material for tender application work.
2. All documents submitted for tender must be attested.
3. Work should commence within stipulated date from the date of issue of
work order. (LOI)
4. Detailed tender notice is accessed through client’s website/office.
(These are charged)
5. Certificate of familiarization should be furnished by tenderer along with
his tender.
6. Information regarding minimum turn over relating to similar projects
earlier, work experience is attested in the tender documents submitted.

Pre-requisites for tendering (For client)

 Availability of clear site, free from physical and legal obstructions or site
will be made available in parts
 Funds are made available to make payments for mobilization, secured
advance payment for work done.
 Free accessibility to site.
 Statutory clearances to commence work.

Pre-requisites for tendering (For Contractor)

 Site visit for familiarization.

 Market survey for materials, Labor and machinery.
 Seed capital to commence work.
 Funds to pay upfront Performance guarantee (5% of tendered value)
 Resource mobilization
 Arrange for all materials and identify sub-contractors and vendors.

Types of Tenders
Tender notice official letter provided by companies to complete large-scale
services and deliver goods.
 A tender notice is prepared in the form of tabular or serial or paragraph
form.
 The tenders are open to all the parties and are mainly done for pre-
qualification purposes.
 Projects which require heavy technology or sophisticated machinery can
be offered through global
 tenders.
Notice Inviting Tender (NIT)
1. It is the clear brief and must contain the following:
2. Brief description of work. It will help contractors decide and apply for the
project after understanding the timeline, value of work, location.
3. Estimated cost put to tender.
4. Period completion of work
5. Earnest money deposit
6. Cost of tender documents
7. Eligibility criteria for tender tendering
8. Production of documents for obtaining blank tender documents
9. Last date for issue of bank tender forms
10.Placement and period of issue of tender documents
11.Last date of receipt of tenders
12.Validity of tender
Method of Inviting Tender
1. Public tenders- for govt. works, public tenders are invited from registered
contractors of appropriate sections. Stipulation/Pre-requisite is
mentioned in the tender notice regarding work experience, financial
solvency and annual turnover.

2. E-Tendering- electronic tendering is the process of receiving bid tender

and awarding tenders using online procurement platforms. These kind of
tenders offer improved visibility, compliance and decision-making across
source-to-pay (S2P) operations.
 3. Limited Tenders- tender notice is sent to some selected contractors of
repute and no press notice is issued. Lowest tender bid is selected, and
negotiations are done if required. This method is practiced /adopted in
private sector

4. Single Tender- Only one tender is received. There is no response to secure

additional tender . Single tender with approval from higher authority is
accepted. Adopted for small value works.

5. Nomination- Selection of contractor is through nomination. Adopted for

works for small works or emergency works. The contract is awarded
based on prevailing market rates. Such works may also relate to special
skills or construction which are not readily available.

Opening of Tenders

 Justification statement is prepared by the client’s organization to arrive to

a probable justified amount of work.
 Tenders may be received on or before the prescribed date and time
through tender box, post, couriers or digital platforms.
 Competent authority opens the tender on specified date, time and place.
 Sometimes organizations constitute a committee for opening tenders.
This may comprise of owner’s representative, finance representative, a
person related to the project work and may involve consultant in the
committee.
 Tenders are marked in fraction with tender number in numerator and
total number of tenders received as denominator.
 Particulars of all tenders are recorded in the tender register.
 Quoted rates are announced for information and recorded in the
registered signed by representatives of the company/firm and the
organizers present.
Evaluation of Tenders
Arithmetical accuracy is checked. Quantity x Rate = Amount for each item and
sum of tendered amounts for all items is computed.
Consider the effect of conditions. Financial loading is done over the quoted
amount.
Evaluated bids are arranged from LI (First Lowest) L2,L3,L4…and so on.

Award of Tender
 There is no uniformity in practice while awarding tender.
 Tender may be awarded to the lowest evaluated tenderer.
 Tender may be awarded to lowest evaluated tenderer after negotiations.
These negotiations are done with few/all applicants and is kept
confidential. Tenderers do not know the negotiable bid of the
competitors
 Tender may be awarded after giving an opportunity to all or few tenderers
to lower their bids. This is kept confidential and is known only to owner.

Selection Criteria of Consultants

1. Quality Based Selection (QBS) : For specialized assignments and projects
(urban scale planning, executions, dams etc.)
2. Selection under Fixed Budget (FBS) : For simple and precisely defines
assignments.
3. Selection on Basis of Least Cost (LCS) : Adopted for standard or
routinenature assignments (Engineering works)
4. Selection based on Consultants qualifications (CQS) : For small
assignments where evaluation of competitive proposal is not justified.

Architects Role in Tender Process

 Architects suggest in selection of the contractors for different activities of
construction.
  After receiving the tender, the architect carries out a tender analysis
report. These results are compared with the client’s expectations and
budget.
 The architect assists in issuing documents for bid, soliciting bids, holding
pre-bid conferences, providing clarifications, and so on.
 Usually, architect holds the charge of responding to RFI’s (Request for
Information) posed by prospective contractor.

Tender (Technical Terms)

Bank Guarantee
Contract to perform the promise or discharge liability of third person in case of
default.
It is a credit note received by the bank in favor of the person/firm.
Bank Guarantees are on different level and must be allowed to be honored free
from interference by courts.

Letter of Intent
Official notice issued by the owner notifying the contractor that the proposal is
accepted.
After the notice agreement is signed between the parties.

Liquidated Damages
When the agreement between the parties stipulates the sum payable
fornon-performance,the damages hence paid are known as liquidated damages.
Court may award reasonable compensation for damages.
Damages suffered due to non-performance of work done by contractor.

Un- Liquidated Damages

Damages that are claimed for losses unforeseeable are called
Unliquidated Damages from the responsible party.
These damages are commonly awarded for cases involving a breach of contract.
These damages apply to any breach of contract that does not contain a
liquidated damages clause.
Performance bond
 Upfront payment to be made by contractor to the owner to assure him
that he will complete the work within stipulated time and agreement
conditions.
 This is discharged on completion of work
 5% of contract value/estimated cost of work.

Pre-Bid Conference
 For major works owners convene a pre-bid conference.
 It is held to understand what is required and what is offered
 Bidders are expected to study the tender documents and visit site before
pre-bid meeting.
 Bidders seek clarification on scope, stipulations, constraints, time frame,
further assistance in these meetings.
 In case any changes are necessary as a result of pre-bid then they are
issued through corrigenda which becomes part of the tender document.
 Minutes of pre-bid is circulated to all bidders.
 Pre-bid meetings give clarity to bidders which thereby makes it easier for
owners to evaluate the bid.

Bid Rates
These rates are finalized by the bidder after visiting site, doing thorough market
analysis.
Factors such as owner’s promptness in taking decisions and making payments
have effect on bid rates.
Rates are dependent on rates of material, labor charges, hiring of sub-
contractors, profits and overheads.
Provision is made for contingencies to cover unforeseen items and slight
increase in scope of works
Overheads
 Administrative and executive costs related to management supervision or
conduct of the capital.
 These are different from operating costs.
 These charges do not belong exclusively to the particular
service/item/part of the work
 For major works lesser percentage provision is feasible.
 Several factors on which overheads depend include: labor welfare,
litigation, security, mobilization and storage, supervision, Interest and
bank guarantee charges, Infrastructure, Extra escalation, Idle labor and
machinery etc.
 5% for overheads provision seems realistic for large value works and much
more for smaller works.

Market Rate Analysis

 A practice to provide contractor’s profit.
 In private sector these are basically 25% of estimated cost.
 Of this 10 % is contractor’s profit, 10% is profit accounted for sub
contractor’s and vendors and 5% is accounted for overheads.
 These are dependant on factors such as extent of competition, work
commitments etc.

Alternative Design Bids

 With innovation in technology including new materials, optimal design

solutions overpower the basic design. Hence it is desirable to invite
alternative bids based on design.
 Innovative, competitive and economical bids are encouraged.
  Adequate time is given to tenderers to evolve design.
 Conformance to BIS code of practice, Avoiding low capital cost and high
maintenance cost, proof checking of designs may have to be stipulated
before alternative bid is invited.
 These bids are advantageous for the owners as professional experience
and expertise of reputed consultants is availed.

Issues encountered while opening of Tender

 Inadequate documents: client may reject the tender/Refuse issue of

tender in case contractor does not produce required documents
 Late Receipt: Client may return the tender without opening in case of late
submission by contractor.
 EMD not deposited: Client may reject the tender if contractor fails to
deposit EMD.
 Invalid Tender: The tender if not signed by the contractor then it is not
valid for evaluation and acceptance hence shall be rejected.
 Discrepancy in rates and amount: The tender documents issues guidelines
regarding discrepancy and hence action can be taken.
 Withdrawal of Tender before opening: Legally valid to withdraw tender
by contractor.
 Withdrawal before expiry of validity period
 Poor response: Tenders shall be reinvited, and eligibility criteria shall be
liberalized.
 Bids are unbalanced: Rationalizing of tenders is done keeping tendered
amount unaltered
CONTRACT
An agreement enforceable by law is a contract of Indian Contract Act,1872
Agreement is-When two or more persons with common intention
communicate to each other to create some common obligation between
them.
Proposal is a willingness expressed to do or abstain from doing a work. Person
making the proposal is called promiser and person accepting the proposal is
called promise.
Contract is founded upon mutual agreement of the parties with essentials like
consideration, legality, capacity, mutual identity of consent and form.
The guiding principles needed while drawing a contract and its effective
execution must include reasonableness ,fair play, natural justice, equality,
non- discrimination in dealings, public interest, absence or arbitrariness and
elimination of favoritism.
Types of Contracts
Express Contract: Agreement is stated either verbally or in writing
Implied Contract: When agreement is a matter of inference and deduction
implied.
Bilateral Contract: Defined as agreement between two parties who have made
certain promises forming considerations which are enforceable at law..
Simple Contracts: these may be in writing or parole or may be implication of
law from the acts..
Executed Contracts: Where nothing remains to be done by either of the
parties and where transaction is completed at the moment when the
arrangement is made.
Executor Contracts: Where future act is to be done for example where an
agreement is made to build the project.
Entire Contract: is where consideration of which is entire on both sides
Severable Contract: is a contract that is actually composed of several separate
contracts concluded between the same parties, so that failing (breaching) one
part of such a 'severable' contract does not breach the whole contract.
Contingent Contract: contract to do or not to do something if some event,
collateral to such contract does or does not happen.
Contract Management
Contract management is the process of managing agreements, from their
creation through to their execution by the chosen party, and to the eventual
termination of the contract.
The primary objective of contract management is
 To ensure that both parties meet their respective commitments
efficiently.
 To meet the intended outcomes of the contract.
 To complete project work entrusted to the construction agency with
least complications and with specified quality.
 To ensure harmony among key stakeholders.

Management of contract must ensure that the construction/design contractor

or consultant gets what is due to the agency and owner gets full value of
investment all within the bracket of Conditions of Contract
Scope of Contract
Defines the extent, range, coverage, area or space of the contract works.
The basic elements required for the agreement to be a legally enforceable
contract are:
1. Mutual assent
2. Expressed by a valid offer
3. Acceptance
4. Adequate consideration
5. Capacity
6. Legality

Selection of Contractors
This is an important part of contract management. Factors such as quality,
speed, economy and harmony are considered for selection of suitable
contractor.
Selection is done on principles of Equity and Fair play. The client selects the
contractor by any one of the following processes:
1. Public Tenders.
2. Pre-Qualification
3. Post Qualification
4. Limited Tenders
5. Single Tender
6. Nomination

Factors Guiding the selection of contractor include

 Works of similar nature completed
 Financial solvency
 Availability of qualified technical personnel.
 Possession of technical equipment.
 Registration and class as registered with respective Govt. body and
location.
Selection of Contractors
Terms generally used in contracts