 Theme Note :: Model Bidding Conditions
Preamble
The system of Contracts has been in vogue since time immemorial. Kautiliya's Arthashastra lays down detailed specifications and performance standards for activities as diverse as construction of forts to the categorization of courtesans.
For the last two centuries, projects of all types - Railways, Roads, Ports, Bridges, Housing - have been executed in India through the system of Contracts.
The cost, speed and quality of construction is influenced to a large extent by the terms in the Contract agreements drawn up between two parties: the Owner and the Contractor. This has been recognized both by Government and the Industry. Quoting from 1968 Report of the Advisor, Construction Economics Division, Planning Commission on Construction Economy,
"General Conditions of contract which are at present in vogue in Government departments were drawn up in pre-independence days when the magnitude of construction was small and the approach to contractors' problems vastly different. Although these conditions have been modified from time to time, the spirit underlying them has not materially altered. The present day developmental activity under which the magnitude of construction is large and more technical in nature, necessitates a different approach and a fuller appreciation of contractors' problems...
"Contract forms in use in Government departments throw on contractors an undue share of risk of unforeseen conditions. Terms of payment and settlement of disputes are not equitable. Capital gets unduly locked up in the form of earnest money and security deposit / retention money. If prices to be quoted by tenderers are to be fair to both parties, conditions of contract must not be unreasonable or vague and open to argument."
Written in 1968, these remarks are equally valid today. The construction agencies have been vociferous in their appeal for speedy reforms.
Contracts
A review of 500 Central Government Projects costing Rs. 200 Crores or more by the Project Monitoring Division of Dept. of Programme Implementation found that:
Only 20% projects were completed within the time schedule; Only 10% projects were completed within the time schedule as well as cost estimates;
Average cost over-run in 10% of projects was 100%
There are instances of cost over-runs of 200% to 500%.
Construction activity to produce a final product - say a building requires team work by groups consisting of owner, architect, engineer and contractor. Each Group looks at the project from a different angle. The Owner insists on his inherent rights/interests to award the contract to an agency he considers suitable, to assume that the work will be completed within the time and the cost stipulated in the contract, and the final product will have no defects. He would like to have stiff penalty clauses to ensure such performance.
The Contractor would like to safeguard his rights to obtain payments and when due, to have clear conditions of contract, and to receive prompt payments for extra work. He would like to have recourse to a redressal mechanism if the owner fails to pay or decides to terminate the contract. He would like to be allowed to use methods, means, techniques, sequences which he chooses within the framework of the Contract, and the right to appeal against decisions of the Owner or his Agent. Complications arise due to the uncertainties in the construction activity which are higher than in a manufacturing Industry.
Each Project is unique and different from others in site conditions, in specifications and in technical requirements of construction. Every Project thus has an identity of its own and has a panorama of unpredictable. With all these imponderables, it is not difficult to visualize the problems of hammering out a Contract document to satisfy all the Team Members.
To the Construction Industry, most of the existing documents are still one-sided, putting all the responsibilities on the Contractor. He is not entitled for compensation even in adverse circumstances and delays due to Government and public authorities whereas he is liable to pay liquidated and general damages for delays and any other shortcomings in the execution of the contract. The Government Dept / Public Sector has all the controlling powers and authority, but shares no risks.
Model Bidding & Contract Clauses :
It was in this background that the CIDC Committee under the Chairmanship of Shri Harish Chandra, former DG, CPWD, undertook to review the existing documents of major Government and Public Sector organizations, and to recommend changes to these documents.
The following 12 "Core Clauses" were selected by the Committee for detailed discussions :
Eligibility Criteria; Earnest Money; Security Deposit; Variations / Extra & Substituted Items; Payment of Running Bills; Payment of Final Bills; Advance Payments; Secured Advances; Liquidated Damages and incentive; Disputed Items & Arbitration; Escalation; Owner's Risks & Compensation Events.
After three years of deliberations, the Committee arrived at a draft document comprising of a model harmonized text of the recommended Core clauses for Bidding and Contracts.
The consensus document was submitted for approval to the Ministry of Statistics & Program Implementation (MOSPI) which took up this matter and obtained observations from several Ministries, PSU's and other Govt. agencies, for adoption of these documents as model gudelines.
After final modifications, the following documents were approved by MOSPI as guidelines for Construction Contracts.
Standard Contract Clauses for Domestic Bidding Contracts &
Standard General Conditions for Domestic Contracts.
These documents are now a priced publication of MOSPI & available through CIDC.
Most of the recommended clauses have now been accepted and incorporated by CPWD in 2003.
Benefits :
Projected benefits of Adoption of 12 Standard Contract Clauses by Public Sector Enterprises and Government Agencies can broadly be summarized as follows :
Uniformity and transparency will provide better management of contracts & reduce incidence of dispute. The documents also provide a standardized vehicle for dispute resolution at a faster pace.
It will provide a framework & complete uniformity for preparation of contract documents and their management. Such harmonization will also make India compliant with requirements under International treaties like GATS.
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