A PROJECT REPORT To Study Contract Lifecycle Management For Construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha.

A
PROJECT REPORT
To study contract lifecycle management for construction of 1200 TPD
Oxygen Plant at Bhushan Steel Limited, Meramandali-Odisha.
Under the guidance of

Ms Smruti Rekha Sahoo
Sr. Management Faculty
Submitted by:
Name - Khan Mohd Saadullah
Regd No 1308003641
In partial fulfillment of the requirement

For the award of the degree
Of
MBA
In
Project Management
DECLARATION
I hereby declare that the project report entitled To study contract lifecycle
management for construction of 1200 TPD Oxygen Plant at Bhushan Steel
Limited, Meramandali-Odisha, submitted in partial fulfillment of the requirement
for the degree of Masters of Business Administration to Sikkim Manipal
University, India, is my original work & not submitted for the award of any other
degree, diploma, fellowship or any other similar title of prizes.
Place: Angul
Khan Mohd Saadullah
Date: 17th May, 2015
Regd No.: 1308003641
EXAMINERS CERTIFICATION
The project report of Mr. Khan Mohd Saadullah, title To study contract lifecycle
Limited, Meramandali-Odisha is approved and is acceptable in quality and form.
Internal Examiner
External Examiners
BONAFIDE CERTIFICATE
Certified that this project report titled To study contract lifecycle management for
construction of 1200 TPD Oxygen Plant at Bhushan Steel Limited, MeramandaliOdisha is a Bonafide work of Khan Mohd Saadullah who carried out the project
under my supervision.
SIGNATURE
HOD
ACKNOWLEDGEMENET
I wish to acknowledge my indebtedness to my project guide Ms Smruti Rekha

Sahoo, Senior Management Faculty, without whose sincere guidance and support
this project would not have been a success. Thanking her is a small gesture for the
generosity shown.
I am also grateful to Mr. Prodipta Chandra (Asst. Manager-Contracts, L&T
Construction) for helping me and providing me useful information. I am also
indebted to all the employees of the L&T Construction and Bhushan Steel Limited
for their sincere help and cooperation.
This project is a satisfactory outcome of several days hard work. I am thankful to
the respondents who have given me sample feedback and co-operation during the
preparation of this project.
Finally, I take this opportunity to thank the entire senior executives team and every
associate of the organization, who have helped me directly and indirectly during
this period of project preparation.
Khan Mohd Saadullah

Regd No: 1308003641
UNIVERSITY STUDY CENTRE CERTIFICATE
This is to certify that the project report entitled To study contract lifecycle
Limited, Meramandali-Odisha submitted in partial fulfillment of the requirement
for the degree of Masters of Business Administration of Sikkim-Manipal
University of Health, Medical and technological sciences.
Mr. Khan Mohd Saadullah has worked under my supervision and guidance and that
no part of this report has been submitted for the award of any other degree ,
diploma , fellowship or other similar titles or prizes and that the work has not been
published in any journal or magazine.
Regd No: 1308003641
Certified by
DIRECTOR
COMPANY CERTIFICATE
This is to certify that Mr. Khan Mohd Saadullah; MBA student of Creative
Institution Of Management, Sikkim Manipal University has successfully
completed the project as partial fulfillment of the MBA program from 16th Aug,
2014 to 15th April, 2015. The report entitled: To study contract lifecycle
Limited, Meramandali-Odisha. is his original work and the same has not been
submitted prior to this in any form.
During the above period we found him to be sincere and hardworking. He followed
the rules and regulations of the organization and was punctual in his attendance.
His performance and conduct was good. He possesses the ability to transform
conceptual knowledge to practical situations.
Mr. Hare Ram

(Project Manager)
L&T Construction
BSL Site, Angul.
CONTENTS
Description
Page No.
1. Executive Summary
1.
2.
3.
4.
5.
6.
Introduction
Objectives
Methodology
Analysis
Conclusion
Recommendation
9
9
10
10
11
12
2. Company Profile
1. Introduction
2. Brief History
13
15
3. Project Overview
1.
2.
3.
4.
5.
6.
Introduction
Objectives
Methodology
Analysis
Conclusion
Recommendation
4. Bibliography
5. Reference
6. Glossary
18
49
55
81
91
100
109
110
111
EXECUTIVE SUMMARY
1.1 INTRODUCTION
Contract management is the process that enables both parties to a contract to meet
their obligations in order to deliver the objectives required from the contract. It
also involves building a good working relationship between customer and provider.
It continues throughout the life of a contract and involves managing proactively to
anticipate future needs as well as reacting to situations that arise.
Contract life cycle management is the process of systematically and efficiently
managing the contract creation, execution and analysis for maximizing operational
and financial performance and minimizing risk.
Taking an example of a project for construction of 1200 & 1120 TPD Oxygen
Plant at Bhushan Steel Plant by L&T Construction, I had tried to study the contract
and the phases that took place in contract management from the initiation of the
project to its completion.
1.2 OBJECTIVES
The project aims to study and understand the various contractual conditions and
clauses agreed between the two parties at the time of creation of contract, the
variations that came into effect at the time of execution, the procedure for
pursuance and providence of amendments in line with the actual contractual terms,
the various complications and conflicts arising due to uncertain clauses and their
counteractive measures taken by the parties in consideration.
The central aim of contract management is to obtain the services as agreed in the
contract and achieve value for money. This means optimizing the efficiency,
effectiveness and economy of the service or relationship described by the contract,
balancing costs against risks and actively managing the customerprovider
relationship. With the mentioned case study and learning, the aim is to establish the
guidelines for preparation of a balanced and effective contract document and
appropriate implementation of the contract clauses throughout the project life

cycle.
1.3 METHODOLOGY
The communication held between the employer and the contractor during the
execution of the contract to incorporate the variation and changes which took place
and their consequential actions is one of the most important aspects of the contract
management. Therefore the letters exchanged between the two parties are compiled
in their original form to get the exact knowledge of the events which happened
during the course of time.
The important clauses of the original contract are mentioned and the use of these
clauses by the employer and the contractor are also studied and mentioned.
1.4 ANALYSIS
Contract management consists of a range of activities that are carried out together
to keep the arrangement between customer and provider running smoothly. They
can be broadly grouped into three areas.
Service delivery management ensures that the service is being delivered as
agreed, to the required level of performance and quality.
Relationship management keeps the relationship between the two parties open
and constructive, aiming to resolve or ease tensions and identify problems early.
Contract administration handles the formal governance of the contract and
changes to the contract documentation.
After a contract has been signed there are a number of matters that should be
addressed to provide the foundation for successful contract management. An early
step is to ensure that sufficient resources and senior management support are
available to manage the contract. It is equally important to understand both the
contract provisions and contractual relationships at the outset.
1.5 CONCLUSION
Managing the contract in an efficient manner is very important for the commercial
success of the project.
During the execution of the contract for construction of Oxygen Plant, it was found
that the client was posing difficult conditions for payment of the executed works as
well as delaying the payment of already certified invoices. So is should be kept in
mind during the negotiation of the contract that the contractor should try to form
clause regarding interest paid for the delay payment after a certain period of time.
Also the escalation clause should be crafted carefully and the works or items for
which escalation amount will be paid should be mentioned clearly.
Contract management is successful when:
Service delivery continues to be satisfactory to both client and contractor

Expected business profits and value for money are realized
Parties involved are co-operative and responsive
Parties know their roles and responsibilities under the contract
There are no disputes
There are no surprises for either party
1.6 RECOMMENDATION
The roles and responsibilities should be distributed to competent people in the

initial phase of the project so that the contractual obligations are dealt in proper
and controlled manner.
Contract management should aim for achieving continuous improvement over the
life of a contract. It is necessary for ensuring that contract objectives are achieved
and the best value of money is attained as specified in the contract. The roles and
responsibilities of project parties should be clearly defined. A proactive approach
should be used for anticipating the future needs of the contract. The contract
strategy should be prepared in accordance with contract characteristics.
Not only the Contract Manager and the Planning Engineer but all the personnel
involved in the execution of the contract should have proper knowledge of the
contract. The Site In-charges and the Site Engineers should know exactly what the
scope of the work and should do the additional work after consultation with the
contract manager so that the extra claims should be made to the client.
COMPANY PROFILE
2.1 INTRODUCTION
Bhushan Steel Ltd. was formerly known as Bhushan Steel & Strips Ltd. is one of
the leading companies in Steel Industry. Backed by more than two decades, of
experience in Steel making, Bhushan Steel is now Indias 3rd largest Secondary
Steel Producer Company with an existing steel production capacity of 2 million
tones per annums (approx.).
It was the vision of the founder Mr.Brij Bhushan Singal, that the first stake was
driven into the soil of Sahibabad (Uttar Pradesh) in 1987. His vision helped BSL
overcome several periods of adversity and strive to improve against all odds.
The company has three manufacturing units in the state of Uttar Pradesh
(Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali
unit) in India and sales network is across many countries.
The company is a source for vivid variety of products such as Cold Rolled Closed
Annealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Colour Coated
Coils, Galume Sheets and Coils, Hardened & Tempered Steel Strips, Billets,
Sponge Iron, Precision Tubes and HFW/ERW Pipe.
As one of the prime movers of the technological revolutions in Indian Cold Rolled
Steel Industry, BSL has emerged as the countrys largest and the only Cold Rolled
Steel Plant with an independent line for manufacturing Cold Rolled Coil and Sheet
up to a width of 1700mm, as well as Galvanized Coil and Sheet up to a width of
1350 mm.
In due course of time, BSL has grown incredibly its turnover and production
capacity by successive expansions as well as improved realizations with these
manufacturing units. The dynamic reason of awesome and unparallel growth of
BSL, is rapid integration on the Steel value chain; conceivably, it would be its
unwavering focus on acquiring the latest technology, also the BSLs commitment
to provide its customers with the best quality products.
Given a vibrant Steel industry dynamics in India, we are on a course to become a
fully Integrated Steel & Power Company with market leading offerings in value
added Steel in Automotive and White Good Segment with the quality
been
approved by ISO 9001:2008 & ISO 14001:2004.

Larsen & Toubro is a USD 14 billion technology, engineering, construction,
manufacturing and financial services conglomerate, with global operations. One of
the largest and most respected companies in India's private sector, L&T's products
and systems are marketed in over 30 countries worldwide. A strong, customerfocused approach and the constant quest for top-class quality have enabled L&T to
attain and sustain leadership in its major lines of business over seven decades.
L&T Construction is the construction arm of Larsen & Toubro. Ranked 28th
among the top 225 global contractors by Engineering News Record in 2013, L&T
Construction offers EPC solutions with single-source responsibility for executing
large industrial and infrastructure projects from concept to commissioning.
L&T Construction has over the past seven decades been transforming cityscapes
and landscapes with structures of immense size and grandeur. India's largest
construction organization and ranked among the world's top 30 contractors, the
company's capabilities span the entire gamut of construction - civil, mechanical,
electrical and instrumentation engineering and its services extend to all core sector
industries and infrastructure projectsSeveral of the country's prized landmarks edifices, structures, airports, industrial projects, flyovers, viaducts, pipelines - are a
result of the considerable skills of L&T Construction. Today, more and more
structures beyond India's boundaries are standing tall thanks to L&T Construction.
L&T Construction offers a broad spectrum of Engineering, Design, Research and
Consultancy services, ranging from concept to commissioning for all types of

projects at its AR Centre located at Chennai.
2.2 HISTORY
The company was incorporated on 7thJanuary 1983, under the name of Jawahar
Metal Industries Private Limited for the manufacture of cold rolled steel strips and
steel ingots at Sahibabad Industrial Area, District Ghaziabad. On 14th January
19870, Brij Bhushan Singal and his sons Sanjay Singal and Neeraj Singal and
associate companies took over the management of the company by acquiring the
entire share capital of the company.
In 1989,the company undertook the setting up of a new plant for the manufacture
of wide width Cold Rolled Steel Strips with integrated plant facilities.The
company became a deemed public limited company under Section 43-A (I-A) of
the Companies Act, 1956 with effect from 14th July. The name of the company
was changed to the present name of Bhushan Steel & Strips Limited in 1992 and
fresh Certificate of Incorporation was issued.
The galvanizing plant was commissioned in January 1994. Presently the company
has facilities for the manufacture of 1,20,000 tonnes per' annum of wide width cold
rolled steel strips and 1,00,000 tonnes per annum of galvanized sheets.
The contractor, Larsen & Toubro was incorporated on 7th February 1946. Larsen &
Toubro carries on business as civil mechanical electrical chemical & agricultural
engineers as manufacturers as importers & exporters & as contractors. The
Company represents a large number of overseas manufactures, notably
manufacturers of tractors, agricultural machinery, dairy machinery, film cooling
towers and general industrial and engineering plants and coal mining machinery.
During the year 1996, the Company has two subsidiary companies namely, L&TMcNeil Limited and L & T Finance Limited, and seven associate companies
namely, Audco India Limited, Ewac Alloys Limited, Tractor Engineers Limited,
L&T- Niro Limited, L&T-Chiyoda Limited, L&T-Sargent & Lundy Limited and
Larsen & Toubro (Oman).
In 2009, Larsen & Toubro has received a Rs 2,000-crore order from GMR Energy
for commissioning a 2x384 MW gas-based power plant at Vemagiri near
Rajahmundry, Andhra Pradesh. Larsen & Toubro's buildings and factories
operating company, part of its construction division, has bagged new orders
aggregating Rs. 1513 crore for the construction of high rise tower, luxury hotel,
hospital and factory building projects from DB Hospitality, ITC group, NBCC and
Arshiya International.
Larsen & Toubro (L&T) has secured the BOP contract valued at Rs 1635.30 crore
from Madhya Pradesh Power Generation Co. Ltd, (MPPGCL) for 2 x 600 MW
MALWA Coal Fired Power Plant, The project was won against stiff competition
from domestic BOP bidders.
Larsen & Toubro (L&T) is readying to cash in on the sunrise sector-nuclear power
as L&T will team up with the Nuclear Power Corporation of India Limited
(NPCIL) to make parts for atomic units.
Larsen & Toubro's (L&T) Infrastructure Operating Company - a part of its
Construction Division (ECC), has secured one of the single largest construction
orders in India's Nuclear Power sector by winning a contract valued at Rs. 844
Crores from Nuclear Power Corporation of India Limited (NPCIL) for construction
of the Main Plant Civil works of Reactor 3&4 at Kakrapar Atomic Power Project,
Tapi (Gujarat).
PROJECT OVERVIEW
3.1 INTRODUCTION
According to Indian Contract Act-1872 section 2(h),An agreement enforceable by
law is a Contract. In other word, a contract is a legal agreement between two or
more people or companies for an exchange of goods or services.
A project contract is a legally binding agreement between two or more project
parties for achieving a certain goal, i.e., creating a unique product, service or result.
Parties involved in a project are legally bound to fulfill their roles and
responsibilities, specified in their respective contracts.
Project contract covers the following:
Contract conditions, commercial terms and pricing arrangements
Scope of work (technical)
Project execution plan
Some of the advantages of a project contract are as follows:
It allows the project company and the client to get a clear idea about what
the project entails.
It acts as a tool to make both project parties work as per the agreement and
minimizes the chances of getting misunderstood by any of the parties.
It clearly defines the payment terms, the project timeline and the expected
project deliverables.
It helps in avoiding scope creep, which describes the phenomenon of
undefined increase in scope a very common feature in projects.
It helps to understand the scope of the project, as it is mentioned in the
contract clearly.
It helps in managing changes in the scope of the project.
It provides legal protection in case of any dispute.
It helps in fostering a healthy client relationship.
Contract management is the process that enables both parties to a contract to meet
their obligations in order to deliver the objectives required from the contract. It
also involves building a good working relationship between customer and provider.
It continues throughout the life of a contract and involves managing proactively to
anticipate future needs as well as reacting to situations that arise.
The central aim of contract management is to obtain the services as agreed in the
contract and achieve value for money. This means optimizing the efficiency,
effectiveness and economy of the service or relationship described by the contract,
balancing costs against risks and actively managing the customerprovider
relationship. Contract management may also involve aiming for continuous
improvement in performance over the life of the contract.
Good contract management goes much further than ensuring that the agreed terms
of the contract are being met this is a vital step, but only the first of many. No
matter what the scope of the contract, there will always be some tensions between
the different perspectives of customer and provider. Contract management is about
resolving or easing such tensions to build a relationship with the provider based on
mutual understanding, trust, open communications and benefits to both customer
and provider a win/win relationship.
A key concept is the relationship that is documented in the contract, not just the
mechanics of administering the contract. Agreements, models and processes form a
useful starting point for assessing whether the contract is underperforming, but
communication, trust, flexibility and diplomacy are the key means through which it
can be brought back into line. Adversarial approaches will only increase the
distance between customer and provider.
Contract life cycle management is the process of systematically and efficiently
managing the contract creation, execution and analysis for maximizing operational
and financial performance and minimizing risk.
The initial phase of the Contract Management includes the invitation to tender and
tendering. An invitation to tender is a stipulated document sent to the various
suppliers / contractors to obtain an offer of goods or services. Tendering is the

process of making an offer, bid or proposal to an invitation for tender.
Tendering passes through numerous steps. The process of tendering is explained as
follows:
1. Organizations requesting the tender will determine the type of tender that
will be used.
2. Request for tender is prepared. It outlines the contractual requirements.
3. The invitation for tender is floated to the required public. The type of the
public depends upon the value, complexity and category of business.
4. Suppliers respond to the queries. They have to complete all the
documentation. They also attend any pre-tender briefing sessions that help in
clarifying any doubts.
5. Submission of tenders by the suppliers.
6. Evaluating and selecting the tender, the tenders will be verified for any
compliance. The documentation is checked and tender that offers the best
value is selected.
7. Contracts are established and managed. The Tenderer will be requested
about the outcome of the contract in writing.
3.1.1 Criteria for evaluation of tenders

The criteria for evaluation of tenders are decided in the early stage only, which
ensures that it is based on objective criteria. The tender is evaluated against the
following aspects:
Technical aspects
Execution aspects
implementation
Commercial aspects
Contractual aspects
3.1.2 Contract Documents
such
as
design,
procurement,
installation
and
Tender Notice
General Instructions and Directions
Form of contract
Conditions of Contract
List of Materials if any
Bill of Quantities
Specifications-General/particular
Drawings
3.1.3 Types of Contract
Competitive Bidding
Negotiated contracts
Unit-price contract
Fixed-price - Lump sum
Cost-plus
Man- hour Contract
Competitive bidding
In this type of contract a formal advertisement is provided for the public work and
in case of private work selective invitation is given to the parties which the
employer thinks are competent for the particular project.
The awarding of the contracts is by:
Lowest responsible bid
Mostly in public works the lowest bidder L1 is provided the contract.
Best value i.e.: technical score
In projects which are critical in nature and requires certain specialized technical
skills or which are larger in magnitude, the technical score of the bidders is
compared based on their history and available resources and the contract is
awarded to the party with best value.
Negotiated contracts
These contracts are negotiated for construction of an asset. The benefits of this type
include flexibility of pricing arrangement. These are often used on projects of large
size and great complexity. The owner may value expertise and integrity of a
particular contractor and can award contract without competition that may
otherwise exclude that contractor from the work.
Unit-price contract
This type of contract is used by employer who had the resources and wanted to be
involved in the execution of the contract. Prices of specified units of work are fixed
or predetermined. Actual cost to the owner will vary with actual quantities placed
at site.
It is best used when details and general character of the work are known, but
quantities are subject to variation. The employer may provide the material or not
based on which the rates are decided.
Fixed-price - Lump sum
Traditional, single fixed price
Predetermined price that includes profit, overhead
Greatest risk to contractor resulting in a higher markup (the greater the risk, the
higher required rate of return)
Generally called as LSTK- Lump sum Turnkey.
Cost-plus Contract
Contractor agrees to perform the work for a fixed or variable fee covering profit
and home office costs (general overhead)
Field costs are reimbursable at actual cost
Used when:
natures of the work or physical conditions are unpredictable
scope is unknown or difficult to define
Man Hour Contract
These contracts are mostly used in IT services and in design services. In it the
payment is based on the Man-Hours employed in the project, schedule or
combination of both.
Example: EDRC man hours spent is booked in BU/ SBG
3.1.4 Contract Structure

The main elements of a contract structure are:
Preamble: The Preamble is an introductory statement of facts or assumptions upon
which a contract is based. It covers information such as:
Title of the agreement (for example, Supply Contract, Non-Disclosure
Agreement, Agreement for Design, Supply, Installation and Commissioning
of an industrial plant, Professional Services Agreement etc.)
Information about the parties (the buyers and sellers names and addresses)
Date on which the agreement was entered into
Recitals/Introductions: The recitals give the background information about the
parties, the context of the agreement and an introduction to the agreement. The
different kinds of recitals are as follows:
Party related recitals: They involve the relevant business activities of each
party.
Context or background recitals: These describe those events or

circumstances that the project will follow. For instance, a context may
explain the particularities of sale; specify trademarks, terms and conditions;
etc.
Compliance related recitals: They involve certain requirements or prerequisites for entering into an agreement.
Body of the contract: The body of a contract is the heart of the agreement,
because it includes the reason for entering into the contract. The set up of the body
of the contract is as follows:
Definitions and provisions related to the interpretation of the agreement

The conditions of the agreement or the closing of the transaction
Purchase price adjustments and payment
Warranties, indemnities and limitations of liability
Terms and termination conditions of the agreement, confidentiality of the
information and miscellaneous provisions
3.1.5 General Conditions of a Contract

During the execution of the contract some of the important clauses are to be kept in
mind as their reference will be used the most. Following are these clauses:
Statement of Work (SOW): Statement of Work (SOW) includes, besides the
scope, the implementation schedule as well as specific exclusions from the scope,
roles and responsibilities of each party, assumptions, dependencies, constraints,
etc.
Payment Term
Payment Clause states the conditions through which the payment for the executed
work will be made to the contractor. Example in EPC projects it may be on
milestone achievement, in Unit Rate contract it will be on Running Accounts Bills
monthly made on the basis of the BOQ.
Escalation Clause
Escalation Clause states the extra amount of payment which may be made by the
employer in case of delaying of the project if the project is delayed due to
liabilities of the employer.
Extension Clause
Extension Clause states the conditions in which the contractor will be entitled to
time extension after the closing of the actual date of completion of the contract.
Insurance
The Insurance Clause contains the insurance of people, machinery and materials as
well as structures of which the employer or the contractor is responsible.
Settlement of Dispute
Disputes may arise during the execution of the contract, so settlement of these
disputes by proper authority is important for smooth functioning and without
escalating tension between the parties.
Defect Liability
Defects liability period is the period after the completion of the project in which
the contractor will be responsible for any defects arising in the structures and the
contractor will take care of the maintenance without any extra payment from the
employer.
Liquidated damages
Liquidated Damages can be defined as a mutually agreed predetermined monetary
compensation, recoverable by one of the parties to the contract for the loss or
detriment deemed to have been suffered by it on account of late or nonperformance on the part of the other or others. Liquidated damage is the penalty
imposed on the contractor in case of the delaying of the project without any
reasonable explanation and prior notification to the employer.
Earnest Money Deposit (EMD)
It is the deposit to be furnished by bidders in accordance with the relevant clause in
the bid document. Earnest Money Deposit (EMD) is the security money the
contractor deposits as bank guarantee in favour of the employer to show his
willingness to execute and complete the project. In case the contractor is unable to
complete the project within the stipulated time frame due to reasons not mentioned
in the contract, or the project is terminated by the contractor, this money will go to
the employer.
Taxes & Duties
This clause mentions the tax and duties applicable to the particular contract which
the contractor is entitled to pay on account of the work executed. Examples are
VAT, Sales Tax, Work Contract Tax, Service Tax etc.
Force Majeure
Force Majeure means an exceptional event or circumstance which is beyond a
Partys control; which party could not reasonably have provided against before
entering into the contract; which having arisen, such party could not reasonably
have avoided or overcome; and which is not substantially attributable to the other
Party.
Indemnification
It is the clause which has the conditions to compensate for the loss or damage and
to provide security for financial reimbursement to the employer as well as the
contractor in case of dispute between the parties.
Mobilization
Mobilization Clause states the number of days after receiving the Letter of Intent
or Contract signing before which the contractor has to mobilize the workforce and
machinery to the project site. It also mentions the advance payment which the
employer will pay to the contractor as mobilization advance to the contractor to
meet the early expenses. Example 15% of the contract value was paid as
mobilization advance by Bhushan Steel to L&T Construction to mobilize its
workforce.
Labor Laws
Labor laws are implemented by the government. The Labor Commissioner is
responsible for the welfare of the labors working on the project. The contractor and
the employer has to make sure that the labors are working in good conditions and
are provided all the basic necessities and are well paid. The law is Contract Labour
Act (Regulation and Abolition Act, 1970).
Differing site conditions
The site conditions are unpredictable and may be different as compared to the
conditions stated by the employer and on basis of which the contractor prepares its
bid documents. This clause incorporates such changes which may arise during the
execution of the project.
Delays and Extension of Time
Due to unforeseen conditions or availability of resources the project may be
subjected to delay. This clause states the liabilities of the employer which if not
met, the contractor will be entitled to extension in time.
Warranties and guarantees
The contractor has to provide certain warranties and guarantees to assure the
employer that the standards will be maintained and the project will be completed as
per the requirements.
Consequential damage
Consequential damages are the damages which may happen to the local
environment and people due to the execution of the project at that place. Proper
tools and techniques should be used and methods should be employed to minimize
such affects.
Occupational safety and health of workers
Every occupation comes with some health problems if proper measures are not
taken in the beginning to ensure the safety of the workers. The workers working in
hazardous environment have to take extra precautionary measures while working
apart the personal protective equipments. This clause makes sure that the
contractor as well as employer takes such needs into account.
Permits, licenses, and regulations
In order to execute the contract, permits and licenses are required by the local
authorities, statutory bodies and government agencies and regulations are to be
followed. All these are mentioned in this clause and it is the duty of the contractor
to make sure that all the requirements are fulfilled before starting the execution of
the contract. Examples of laws to be followed are: Contract Labour Act
(Regulation and Abolition Act, 1970), Minimum Wages Act, 1948, Payment of
Wages Act, 1936, Workmen Compensation Act, 1923.
Termination for default by contractor
This Clause mentions the conditions in which the employer may terminate the
contract as the contractor was unable to fulfill the requirements of the contract.
Suspension of work
This Clause states the circumstances and conditions in which the work may be
suspended and the remaining work may be completed on later stage by entering
into a new contract.
3.1.6 FEDERATION INTERNATIONAL DES INGENIEURS CONSEILS

(FIDIC)
FIDIC was founded in 1913 in Belgium and the original founding countries were
France, Belgium and Switzerland, having a chequered history with the intervening
war years. The United Kingdom signed up in 1949 and the United States in 1958,
some of the newly industrialized countries becoming members in1970s, thus
becoming truly international.
3.1.6.1 FIDIC Conditions of Contract
General Conditions
Conditions of general application that may require modifications in certain
legal jurisdictions or for the practical purposes or to take account of the
circumstances and locality of the works
Particular Conditions
A guide/aide memoire suggesting modifications in order to provide further
or supplementary information, to meet local conditions or to comply with
local law
3.1.6.2 Basic Principles behind all FIDIC Contracts

To achieve optimum results by not expecting contractors to quote for risks which
could not be reasonably foreseen or evaluated.
For the Employer to assume responsibility for costs arising from events which may
never occur, which lie outside the Contractors control or which cannot be covered
by insurance at a reasonable premium (i.e. Employers Risks)
Close cooperation and teamwork between Employer/Contractor and Engineer
within the framework of the Contract, with a mutual desire to produce a
satisfactory end product
To remove mistrust or lack of confidence with all parties performing their duties
under the Contract responsibly and correctly
The use of independent Engineer, who is required to exercise his discretion with
impartiality, even if he is an employee of the Employer
3.1.6.3 THE NEW FORMS OF CONTRACT
In August-September, 1998, FIDIC published Test Editions of four new standard
forms of contract, the first three of which are referred to as the New Books.
Conditions of Contract for Construction (The Red Book)
Conditions of Contract for Plant and Design Build (The Yellow Book)
Conditions of Contract for EPC Turnkey Projects (The Silver Book)
Short Form of Contract (The Green Book)
Contract for Dredging and Reclamation Works
Conditions of Contract for Construction

Which are recommended for Building or Engineering Works designed by the
Employer or his Representative, the Engineer. Under the usual arrangements for
this type of contract, 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.
From the above description, it can be seen that the scope of the Construction
Contract is indistinguishable from that of the previous Red Book, in that the
employer pays the contractor on a measure-and value basis for constructing the
works which have been designed by or on behalf of the Employer. This contract is
intended to be applicable to a wider variety of contracts and it is now more
common place for contracts to contain a significant proportion of works designed
by the Contractor, so the Construction Contract contains more provisions which
would be applicable in such a case. E.g.: Clauses 4.1, 13.2 and 9.
Conditions of Contract for Plant and Design-Build

Which are recommended for the provision of electrical and/or mechanical plant,
and for the design and execution of building and engineering works. Under the
usual arrangements for this type of contract, the Contractor designs and provides,
in accordance with the Employers requirements, plant and for other works; which
may include any combination of civil, mechanical, electrical and/or construction
works.
Although this book has been referred to as the Plant Contract, it is also suitable
for the design and construction of building and engineering works and will thus,
replace the Orange Book. On the lines of the Construction Contract, this contract
requires the Employer to appoint the engineer to administer the Contract,
although (as described below) the Engineer is not now required to exercise
discretion impartially.
Conditions of Contract for EPC Turnkey Projects
Which are recommended where one entity takes total responsibility for the design
and execution of an engineering project. Under the usual arrangements for this type
of contract, the entity carries out the Engineering, Procurement and Construction;
providing a fully equipped facility ready for operation (at the turn of a key). This
type of Contract is usually negotiated between the parties.
Whilst the basic principles of the Construction and the Plant Contracts are being
adopted for many projects, many other projects are being procured by one major
contracting entity to take total responsibility for the entire design and execution of
the project, including all the engineering, procurement and construction (EPC).
Such Contracting party would need to have a greater freedom to satisfy the
requirements of the end user which are specified in the contract, would enter into
the Contract with the expectation that it would be more profitable than under the
traditional procurement principles and would be prepared to accept a greater
degree of risk and less entitlement subsequently to claim increases in contract
price.
From the Contracting Partys point of view, the Tenderer will wish to fully appraise
the site in order to limit the degree of risk of unforeseen conditions. Tendererss
investigations will be subject to the constraints of time and cost and also by the
factors itself on site, especially when there is occupation by others in terms of
access during the tender period and after award of contract.
On the other hand, the Employer will have the advantage of being able to budget
his expenditure with greater confidence based on contracting entitys undertaking
to be bound to his price to a greater extent than more traditional procurement
principles. EPC procurement may therefore be preferred by the people who finance
major infrastructure projects and who place greater importance on the
predictability of the financial outcome of such projects. They will also be less
concerned about such procurement being more expensive because of the
contracting partys attempt to ensure that the agreed price for the project is
sufficient to cover all the risks that eventuate as well as those that do not.
EPC may also be preferred by private financing organizations which provide
finance to a BOT Employer organization established at the instance of a
contracting firm who participate as members of the construction joint venture for a
major engineering project. However the EPC contract makes no direct reference to
these private financing organizations or to their likely requirements.
Short Form of Contract

This 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.
FEATURES OF THE NEW RED/YELLOW BOOKS

In both these books the administration of the Contract and the supervision and
execution of the works is carried out by the Engineer, employed for this purpose.
In the Red Books, the payments are on the basis of measurements by applying the
rates and prices in the BOQ, with an option of lump sum payment.
In the Yellow Book, payments will usually be according to an agreed schedule of
payments perhaps based on milestone events and on a lump sum basis.
The Engineer has powers of effecting a dispute settlement, decision making and
eventual referral to a Dispute Adjudication Board.
FEATURES OF THE ORANGE BOOK

One of the main features of this book is the departure from the traditional role of
the Engineer. Most of the Engineers duties are to be carried out by an Employers
Representative, who may be a consulting engineer and the book also does not
expressly require the Employers Representative to be impartial, 0nly that he act
fairly in matters of time and money and in accordance with the Contract (Clause
3.5)
In cases of dispute resolution the Engineers role is taken over by the DAB but
the Particular Conditions do offer the option of the Engineer acting as an
Adjudicator, but in such cases there is the express requirement of being
impartial.
Despite the updating of the existing books and bringing out new revised editions
along with the Orange Book it was felt that the these books were lacking in that
they still did not take into account the modern practices of tendering and award of
contracts, where due to the private sector financing, there is a two party approach.
The approach now seems to be that proposals are invited from various pre-selected
companies, examined, the most preferred bid determined, final technical and
commercial conditions discussed and agreed and contract then awarded, which as
we have considered earlier, led to the drafting of the Silver Book.
FEATURES OF THE SILVER BOOK

The contractor has a much stricter obligation to take on more risks and complete
in time with less chance of being granted time extensions or costs.
The contractor also takes on greater responsibility for design defects, (including
checking parts of the Employers Requirements)
Responsibility for site data and sub surface conditions and unexpected
underground obstructions, placing more emphasis on the tender phase.
Employer retains responsibility for the intended purpose of the works and for the
criteria for the testing and performance, (assuming special importance), of the
works.
All securities are to be on-demand guarantees
Retention money may be withheld to ensure that the performance criteria are
actually reached
Payments linked to mile stones
Developer/Financiers must expect to pay more in the case of such contracts due
to increased risks adopted by the Contractor
There is no provision for an Engineer and disputes are to be handled by a DAB.
3.1.6.4 FIDIC NEW FORM OF CONTRACT IMPORTANT CLAUSES

Contract Price and Payment - Clause 14
Contract Price to be agreed to and determined under Sub-clause 12.3 and subject
to adjustments under the contract
Inclusive of all taxes, duties and fees and not be adjusted except for the reasons
as stated in Clause 13.7 (Adjustments for Changes in Legislation)
Quantities are estimated quantities
Employer to make advance payment in the form of an Interest Free loan for
mobilization
The Engineer shall issue the first Interim Payment Certificate after receiving the
application for the same and the Performance Security and guarantee for advance
payments, such advance payments to be repaid through percentage deductions.
Engineer to issue to the Employer an Interim Certificate of Payment within 28
days of receiving a Statement and supporting documents, which shall stipulate an
amount which the Engineer fairly determines to be due, with supporting
documents.
Withholding of the Interim Payment Certificate shall not be done, but in cases
where anything supplied or work done by the Contractor is not in accordance with
the contract, the cost of rectification or replacement may be withheld till it has
been completed and if the Contractor has been failing to perform any obligation
under the Contract and has been notified earlier, the value of work or obligation
may be withheld until performed.
Variation Clause 13
Variations may be initiated at any time prior to the issue of the Taking over
Certificate, either by an instruction or request to the Contractor to provide a
proposal. The Contractors are to be bound by each variation unless proving that it
is not possible to do so along with supporting particulars, upon which Engineer
may cancel, confirm or vary the instruction.
The Contractor may at any time submit a proposal to the Engineer, which in the
Contractors opinion if adopted, will accelerate completion, reduce the cost to the
Employer of executing, maintaining, operating the works, improve the efficiency
to the Employer of the completed works or otherwise be of benefit to the
Employer.
Proposal to be prepared at the cost of the Contractor and shall include the items
on the Variations procedure: 13
If the proposal envisages a change in the design of the permanent works, then
unless agreed to, the Contractor shall design this part, Clause 4.1 (Contractors
General Obligations) shall be applicable.
If the change results in a reduction in the contract value, resulting from the
change, excluding adjustments under 13.7 (Adjustments for Changes in
Legislation) and 13.8 (Adjustment for Changes in Cost), the Engineer shall
proceed in accordance with 3.5 to agree or determine a fee, which shall be included
in the Contract Price and the fee shall be 50% of the difference between;
1. Such reduction in contract value resulting from the change, excluding
adjustments under 13.7 and 13.8and the
2. Reduction (if any) in the value to the Employer of the varied works, taking
account of any reductions in quality, anticipated life or operational
efficiencies
However, if the first is less than the second then there shall not be such a fee.
Variations are to be evaluated in accordance with Clause 12 (Measurement and
Evaluation), unless the Engineer instructs or approves otherwise in accordance
with this Clause.
Adjustments will be made for changes in Legislation and the Contractor suffering
any delay and/or incurring any additional cost as a result of these changes, shall
give notice to the Engineer and shall be entitled to, subject to Clause 20.1, to an
EOT and payment of such costs. Following such notice, the Engineer will make a
determination under Sub-clause 3.5.
Measurement and Evaluation: Clause 12

The Engineer is to proceed in accordance with Sub-clause 3.5 (Determinations) to
agree or determine the Contract Price by evaluating each item of work, applying
the measurement agreed or determined in accordance with 12.1 and 12.2 and the
appropriate price for each item.
Allocation of Risks: Clauses 17.2 to 17.4

The Contractor is required to take full responsibility for the care of the Works,
materials and Plant from the Commencement Date until the Taking-Over
Certificate is issued for the works.
If any loss or damage happens to the Works or materials and Plant, other than due
to Employers Risks (as defined), the Contractor must rectify this loss or
damage at the Contractors cost
Employers Risks are generally events or circumstances over which neither
party will have any control (e.g. war, hostilities and the like) or events or
circumstances caused by the Employer, directly or indirectly.
Contractors risks cover not only Works, materials and plant but also:
Goods - new concept and includes Contractor s equipment whether on or off
site and
Contractors Documents - new term - includes software and documents of a
technical nature supplied by the Contractor
The Employers Risks do not cover those related to the use, occupation by the
Employer, design by the personnel and operation of the forces of nature, keeping it
in line with the risk allocation principle of the Book
Limitation of Liability: Clause 17.6

Red Book: no limitation of liability of the C because there was little or no design
Yellow Book: provided for a limitation of liability, to the sum stated in the
Contract or to the Contract Price and excluding liability for defects etc after the
expiry of the DLP, except in cases of gross misconduct.
Orange Book: also limited liability on the same fines as the Yellow Book but did
not exclude liability for defects etc after expiry of the DLP.
Termination by the Employer: Clause 15

All the New Books have the provision of the Employer for the Termination of the
Contract by specified defaults by the Contractor.
Notice Period of 14 days but no notice required in cases of bankruptcy of the
Contractor or bribery
Termination for Convenience clause operates but precludes the Employer from
terminating the Contract in order to execute the Works himself or arrange for the
Works to be executed by another Contractor
Suspension or Termination by Contractor: Clause 16

Contractor may suspend the works where the Employer fails to pay a Certificate,
fails to certify a Payment Certificate, when he should do so, and where the
Employer fails to provide reasonable evidence that financial arrangements have
been made and are being maintained to enable the Employer to pay the Contract
Price in accordance with the Payment Schedule.
Contractor may terminate the Contract where the Contractor does not receive
reasonable evidence of the Employers financial arrangements within 42 days after
giving a notice to suspend on this account and
In the case of the New Construction Contract where the Engineer fails within 56
days of receiving a payment application and supporting documents to issue the
relevant payment certificate.
Claims of the Contractor Sub-Clause 20.1
Contractor to give notice of claim not later than 28 days after the Contractor
became aware, or should have become aware, of the event or circumstance giving
rise to the claim
If the Contractor fails to do so, Time for Completion not to be extended and the
Contractor not entitled to additional payment.
Requirement for keeping contemporary records
Submission of fully detailed claim including full supporting particulars of the
basis of the Claim/EOT and any additional payment claimed, within 42 days,- if
the event or circumstance has a continuing effect then procedure as perClause20.1
(a)(b)(c)
Within 42 days of receiving such claim or any further particulars or within such
other period as may be proposed by the Engineer or Employer and approved by the
Contractor, the Engineer/Employer must respond with approval/ disapproval and
detailed comments. May request further particulars but shall give his response on
the principle of such claim within such time.
If the Contractor fails to comply with this provision or any other provision in
relation to the claim procedure, such shall be taken into account.
3.1.6.5 PROBLEMS RELATED TO FIDIC NEW BOOKS

The intention of the New Books is to achieve early resolution of the disputes,
however, the difficulties in practice are:
The Engineer who pressures the Contractor not to submit claims at all and adopts
an oppressive application of other contract provisions, if claims are submitted
The Employer who pressures the Engineer to adopt such attitude.
The Engineer who abuses the power to request further particulars
The difficulty of maintaining voluminous contemporary records relating to the
claims and events of delay and devoting all resources to the efficient progressing of
the works.
The Engineer may also instruct the keeping of any contemporaneous records he
wishes, as opposed to the earlier restriction in the 4th Edition, which was limited to
the keeping of those records as are reasonable and material to the claim.
The time limit for substantiating the claim has been shortened, in the sense that in
the 4th Edition, 28 days after giving notice of the claim, while the new edition, it is
42 days after the event giving rise to the claim. Thus, the Contractor will have to
give notice within 28 days and then substantiate within a further 14 days.
Claims of the Employer: Clause 2.5

If the Employer considers himself to be entitled to any payment under any Clause
of these conditions or otherwise...and/or any extension of the DLP, the Employer
or Engineer shall give notice and any particulars to the Contractor -Notice to be as
soon as practicable and those related to the DLP, before the expiry of such Period
The Employer may only set off against or make any deductions from an amount
certified in a Payment Certificate, or otherwise claim from a Contractor, in
accordance with the procedure laid down in Clause 2.5.
This is the first time that the FIDIC Contracts have protected the Contractor from
unilateral action by the Employer.
3.1.7 DISPUTE ADJUDICATION BOARDS

Under the General Conditions of all the New Books, there is a provision for
adjudication of disputes by a DAB, however, the Particular Conditions of the
Construction and the Plant Contracts, which provide that they shall be
administered by an Engineer, offer the option of adjudication by an Engineer as the
first step.
The Guidance notes to the use of the Red and Yellow Books suggest that the
parties use an Engineer as a DAB, which may be contradictory given that some of
the disputes may involve the Engineers determinations themselves.
In the absence of a DAB Member, then two may proceed and decide
unanimously.
A new development is that the decision of the DAB is now admissible as evidence
in Arbitration, thereby causing a much heavier burden on a party challenging such
a decision, causing reservations amongst some people.
3.1.8 DISPUTE RESOLUTION

However positive may be the approach of the two parties but still disputes may
arise and hence to resolve these disputes there is s proper procedure.
Source of Dispute
Poor contract drafting
Unclear risk allocation
Incomplete design / specification
Improper execution of contract

Where contractors bid at negative margin and tries to find means to raise a claim
in order to survive in the competitive market.
The Need for Arbitration
To provide means for expeditious resolution
To get exclusive remedy for the disputes
To lessen burden on courts
To avoid cumbersome process of litigation
To have procedural flexibility, save time and avoid the stress of conventional trial
by courts
Alternate Dispute Resolution (ADR)
Dispute Review Board (DRB)
Conciliation
Arbitration
Dispute Review Board (DRB)
DRB contains panel of normally experienced with type of construction involved,
respected and impartial reviewers.
DRB is organized before the contract is executed.
DRB has the following principal responsibilities.
To visit the site periodically.
Keep abreast of job activities and developments.
Encourage the resolution of disputes by the parties.
Upon a dispute being referred, to conduct hearings, enter into deliberation, and
prepare recommendations in a professional and timely manner.
The parties are free to accept or reject the recommendations of DRB members
and they are not binding on them.
Upon commencement of hearing the contractor, the employer and the engineer to
have full opportunity to be heard and evidence offered.
Board to hear all parties by giving equal opportunities and recommendations to
be given within the period prescribed in the contract.
If the recommendations of the board is not rejected by the parties within a
specified
time
limit
(normally
given
in the
contract
agreement)
the
recommendations become final and binding on parties.
Conciliation
Parties to try for amicable settlement before going for arbitration.
Amicable settlement is by way of appointment persons called as conciliators.
The procedure for conciliation is contained in sections 61 to81 of the arbitration
and conciliation act, 1996.
Party initiating conciliation has to invite the other party to conciliate.
Proceedings are deemed to commence when the other party accepts the invitation
in writing.
Conciliators are appointed by parties who help the parties to arrive at a settlement
agreement.
Conciliators to assist parties in an independent and impartial manner and are to be

guided by the principles of objectivity, fairness and justice.
Proceedings can be terminated at any time by any party.
Conciliators cannot impose decision on the parties.
Cost of conciliation to be shared by parties equally.
When an amicable settlement is reached, conciliators help the parties to draw
terms of settlement agreement.
Once the terms of settlement agreement is signed by the parties and conciliators it
is final and binding on the parties and it precludes any party to initiate further
proceedings.
The terms of settlement is equivalent to the award rendered by the Arbitral
Tribunal.
Arbitration
Chronological events in a normal arbitration are as follows:
Upon formation of tribunal, preliminary meeting is held to discuss the following.
Sitting fees and other miscellaneous expenses to be paid to the arbitrators.
Procedure to be followed viz. filing of claim statement, reply statement and
counter claim if any, rejoinder and reply to the rejoinder.
Time for submission of the aforesaid statements.
Further hearing dates to be fixed in advance.
Venue for the arbitration.
Upon completion of the aforesaid procedure, arguments to be advanced by the
parties.
Upon hearing the submissions/evidence given by the parties, the arbitral tribunal
renders a reasoned award.
The award to be signed by all the members of the tribunal and also to be stamped
as per the stamp act prevailing in the state concerned.
The award should state the reasons in detail upon which the decision has been
arrived at.
In case of a three member tribunal the majority of the decision is taken into
account and in case of a sole arbitrator his decision shall be final and binding on
the parties.
After receipt of the award the aggrieved party can challenge the award only on
the following limited grounds:
If the party furnishes proof that a party was under some incapacity
If the arbitration agreement is not valid under the law to which the parties
have subjected it or under the law for the time being in force.
If a party was not given proper notice of appointment of arbitrator or arbitral
proceedings or was otherwise unable to present his case.
The arbitral award deals with a dispute not contemplated/falling within the terms
of submission to arbitration. Such irrelevant matters in the award may be set aside.
If the composition of the arbitral tribunal / procedure was not in accordance with
the agreement of the parties or
If the court finds that the subject matter of the dispute is not capable of settlement
by arbitration under the law.
If the arbitral award is in conflict with the public policy.
The award rendered by the tribunal carries the status of the decree of the court.
To enforce, the successful party has to file execution proceedings for realizing the
award amount.
Execution proceedings to be filed before the district courts having jurisdiction
over the award.
3.2 OBJECTIVES
The project aims to study and understand the various contractual conditions and
clauses agreed between the two parties at the time of creation of contract, the
variations that came into effect at the time of execution, the procedure for
pursuance and providence of amendments in line with the actual contractual terms,
the various complications and conflicts arising due to uncertain clauses and their
counteractive measures taken by the parties in consideration.
3.2.1 Contract Lifecycle Management
Increases contract visibility

Streamline Business processes
Eliminate risks
Ensure compliance
Improve profitability
The contract for civil works for construction of 1200 TPD Oxygen Plant of
Bhushan Steel Plant Phase-III at Meramandali Site, Orissa was offered on 15 th
March, 2011 with work order reference number 8/4029/10-11/023 to L&T
Construction. The contact person for M/s Bhushan Steel Ltd was Mr. B.B.Saha
(A.V.P Project Monitoring) and for M/s L&T Construction was Mr. Tinanjan Mitra
(Project Manager).
The main clauses mentioned in the contract are as follows:
1. Scope of Work: The scope of work shall include for civil work for 1200
TPD Oxygen Plant, Phase-III at our Meramandali Site, Orissa.
2. Total Contract Value: The total Contract value of the order for civil work
for 1200 TPD Oxygen Plant, Phase-III at our Meramandali Site, Orissa will
be on Unit Rate Basis.
The contractor has to ensure that the completion of work will be within 6
months from the date of receipt of this work order. In case the completion of
work goes beyond 6 months period due to reasons attributable to L&T then
no escalation for the extended period will be given.
In case the delay is attributable to BSL, the matter will be discussed
mutually and then it will be settled out for escalation.
3. Contract Price and Payment
3.1 Valuation of Work
3.1.1 The works shall be valued as provided for in the Bill of Quantities.
3.1.2 Terms of Payment
15% of the contract value as advance (10% immediate and 5% of
contract value on Mobilization at site) against submission of bank
guarantee.
Running Accounts Bill of the balance 85% will be invoiced monthly and
90% of the invoice shall be paid within 7 days of submission and balance
payment within 30 days of the bill submission.
The payment shall be made as an LC Payment through a reputed bank
authorized by RBI, where BSL opens an irrevocable and reversible LC
account.
For all works scheduled in the BOQ and Price Schedule, the payment for
the quantity completed and certified by the engineer in charge shall be
paid as per the terms of payment stated above.
On award of the contract, L&T will deposit with BSL a Bank Guarantee
2.5% of contract value towards retention and Security Deposit and
release of these guarantee shall be 1.25% of Bank Guarantee returned on
completion of work and 1.25% will be returned after immediate
completion of the Defects Liability Period (6 months). No retention will
be deducted from L&Ts Running Accounts Bill.
3.1.3 Liquidated Damage
Time and date of completion of the project shall be the essence of the
contract. No Liquidity damage are levied/ deducted to/ from the
contractor on account of the delay.
3.2 Monthly Statements
3.2.1 The contractor shall be entitled to be paid at monthly intervals the value
of work executed.
3.2.2 The contractor shall submit each month to the employer a statement
showing the amount to which he considers himself entitled.
3.3 Payments
3.3.1 Within 30 days of delivery of each statement, the employer shall pay to
the contractor the amount shown in the contractors statement at the rate
stated in the BOQ, and less any amount for which the employer has
specified his reasons for disagreement. The employer shall not be bound
by any sum previously considered by him to be due to the contractor.
3.4 Retention
3.4.1 No retention shall be deducted by the employer to the contractor as a sum
of 2.5% of the contract value in the form of Bank Guarantee valid up to
the completion / Defects Liability Period.
3.5 Final Payment
3.5.1 Within 30 days of the latest events listed above, the contractor shall
submit a final account to the employer together with any documentation
reasonably required to enable the employer to ascertain the final contract
value.
3.5.2 Within 28 days after the submission of this final account, the employer
shall pay to the contractor any amount due. If the employer disagrees
with any part of the contractors final account, he shall specify his
reasons for disagreement when making payment.
3.6 Delayed Payment
3.6.1 The Contractor shall be entitled to interest at the rate applicable as per
prevailing bank interests for each day the employer fails to pay beyond
the prescribed payment period.
4. Escalation on Labour
4.1 If during execution of the works including the extended period, minimum
wages payable to the minimum rated workers (unskilled workers) as
declared by Labour Department, Govt. of Orissa are increased, the variation
in contract price shall be payable to the contractor as per the following
formula:
VL=50 x CV (L1-L0)/L0 x100%
Where
VL=Amount payable due to Labour wage escalation
CV=Value of work executed w.e.f the date of increase in minimum wages
L0 = Minimum wages payable to minimum rated workers
(Mazdoor/unskilled workers) as per minimum wages rule of Orissa Govt.
according to Minimum Wages Act 1948 as applicable to project site and as
valid on 18.10.2008.
L1 = Increased minimum wages payable to the minimum rated workers
(Mazdoor/unskilled workers) due to Govt. Intervention, Tribunal Awards
under section 10A of Industrial Dispute Act 1947, Legislative Enactment ,
Conciliation by Central/State Govt. Labour Officer, Contract Labour
(Regulation and Abolition) Act subsequent to the date of contractors bid.
5. Completion Schedule
6 months from the date of receipt of the work order.
6. Service Tax
The contractor shall raise Cenvat Invoice showing Service Tax amount to
avail Cenvat Credit by BSL. Service Tax shall be reimbursed to the
contractor on the basis of Cenvat invoice raised to BSL.
7. Deduction of Income Tax
As required by Income Tax Act 1961, with latest revision BSL shall deduct
appropriate Income Tax from all payments due to the contractor. In case the
contractor obtains a certificate from the Income Tax Officer certifying
Income Tax deduction at a lower Rate or no deduction of Income Tax,
relaxation will be made by BSL accordingly.
8. Sales Tax on Works Contract
Deduction of tax at source under sub-section (1) of section 54 of the Orissa
Value Added Tax 2004, BSL shall deduct WCT/Odisha VAT from all
payments due to the contractor. In case the contractor obtains an exemption
certificate (under clause (a) of sub-section (5) of section 54 of the Odisha
Value Added Tax 2004) from the Sales Tax Officer certifying deduction of
tax at lower rate or no deduction of tax, relaxation will be made by BSL
accordingly.
9. Insurance of Personnel
Before commencing the execution of work, the contractor shall take out an
insurance policy to cover his liability under Workmens Compensation Act,
1923 and its subsequent amendment. The policy shall be taken as to cover
the total number of workers to be employed by the contractor at the site at
any time during the execution of work.
10.Provident Fund
Contribution towards P.F., if any is required to be made for this contract for
contractors workmen /staff; the same shall be on contractors account.
11.Compliance with Statutory Laws and other Regulations
The Contractor shall throughout the performance of this order comply with
all the laws, rules, regulations and statutory requirements, obligations of
Govt. of India/State Govt. of Orissa/ Local Authorities of Meramandali and
any other statutory bodies applicable at site for this contract work and BSL
shall not be liable for any action of the statues applicable due to nonfulfillment of statutory obligations by the Contractor including:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Employee Provident Fund Act, 1952

Contract Labour Act (Regulation and Abolition Act, 1970)
Minimum Wages Act, 1948
Payment of Wages Act, 1936
Workmen Compensation Act, 1923
Factories Act, 1948, if applicable
Apprenticeship Act, 1961
Family Pension Act, 1952
ESI and Bonus Rules as applicable
Labour Insurances
3.3 METHODOLOGY
The primary data had been obtained in due course of time by way of experience as
working as a planning engineer for the contractor at mentioned site and also
through consultation and discussions with the colleagues involved in contract
management at site.
The communication held between the employer and the contractor during the
execution of the contract to incorporate the variation and changes which took place
and their consequential actions is one of the most important aspects of the contract
management. Therefore the letters exchanged between the two parties are compiled
in their original form to get the exact knowledge of the events which happened
during the course of time.
Secondary data: The data for various correspondences between the employer and
the contractor regarding the contractual terms and conflict resolution had been
collected by interviewing the senior officials from both parties. For further
evaluation and research on the topic, guidance had been taken from FIDIC books
and other domestic and international journals and books.
The contract is a negotiated type contract. The contractor L&T Construction was
already working with the employer Bhushan Steel Limited for the construction of
Integrated Steel Plant. So for the construction of Oxygen Plant, BSL asked L&T to
submit the rates according to the BOQ.
The contract was awarded and work order was issued to L&T construction. Below
is the letter from L&T to BSL regarding some issues of drawings after getting the
work order.
LARSEN & TOUBRO LIMITED

ECC DIVISION (ENGINEERING, CONSTRUCTION & CONTRACTS)
Site Office: BHUSAN STEEL LTD., MERAMANDALI, DHENKANAL DIST-759121, Orissa. Tel: (06764) 9238773152
Ref: LTCD//BSL/SMS-III/277
10.11.2011
To
AVP, Project Monitoring
M/s Bhushan Steel Limited,
Meramandali,
Orissa-759122
Kind Attn: Mr. B.B.Saha
Sub: - 1200 TPD Oxygen Plant.
Date
Ref:
1. Discussion held on 08.02.2011 with EVP/BSL at site.

2. Letter No BSL/Proj-Monitoring/2011/247, Dtd: 08-02-2011,
Dear Sir,
This has reference to the subject work and letter cited above. We thank BSL
Management for their consent on us to proceed with the construction for the subject
civil and structural works. We request your good self to issue a separate order / LOI
with BOQ and unit rates for the same in line with the same terms & base date of our
earlier civil and structural work order no.- 8/4012/09-10/020 dtd-14.11.2009.
Also, vide letter referred above, we have received only one copy of drawing which is
not sufficient for execution. We request a minimum of three copies of drawings for
execution and request henceforth to issue the same.
Thanking you and assuring our best services at all times.
Yours faithfully,
For Larsen & Toubro Limited
ECC Division
(TINANJAN MITRA)
Project-Manager
CC:
Mr. Rahul Sengupta, EVP

Mr M M Prasad, A.V.P (Contracts)
Headquarters: Mount Poonamallee Road, Manapakkam, P.B.No.979, Chennai 600 089, Tel.:2492747 / 2493318 Fax: +044-2493317
Regional Office :- PARKPLAZA 2nd Floor , 71, Park Steet, Kolkata 700016 Tel:- 033-2255-0000 Fax:- +033-22499705
After the execution of work was started and construction of 1200 TPD Oxygen
Plant was in process, BSL decided to increase the scope of work and an additional
area 1120 TPD Oxygen Plant was given to L&T. Following is the order
amendment copy.
Since the contract is a Unit Rate Contract without material, so the material will be
provided by the client. Following is a letter stating requirement of Galvanized Iron
(GI) pipes.

Ref: LTCD//BSL/SMSIII/286
Date: 17.02.2011
To,
The AVP (Project Monitoring), BSL

Meramandali,
Orissa.
Kind Attn. Mr. B B Saha

Sub: G.I. pipe requirement for Oxygen Plant.
Ref: Construction of 1200 TPD Oxygen Plant at BSL site.
Dear Sir,
With reference to the subject matter cited above, we are furnishing

herewith the requirement of G.I. pipe of medium duty as per IS-1239
for Oxygen Plant as follows.
1. 50mm Dia
190 Rm.
2. 25mm Dia
45 Rm.
Kindly arrange to supply the same at the earliest.

Thanking you and assuring you of our best services at all times.
Yours faithfully,
ECC Division
(Tinanjan Mitra)
Project Manager
Regional Office: - PARKPLAZA 2nd Floor, 71, Park Street, Kolkata 700016 Tel: - 033-2255-0000 Fax: - +033-22499705
There was a shortage of reinforcement steel bars, so letter was sent to BSL for
urgent requirement of reinforcement steel bars so that the execution will not get
hindered

Date: 21.02.2011
The AVP (Project Monitoring), BSL

Meramandali,
Orissa.
Kind Attn: Mr.B B SAHA,
Sub: Reinforcement steel requirement.
Ref: Construction of 1200 TPD Oxygen Plant at BSL site.
Dear Sir,
In line with the above job, we would like to furnish our reinforcement steel
requirement pertaining to civil works at Oxygen Plant as follows:
08mm Dia
10mm Dia
12mm Dia
16mm Dia
40 MT
20mm Dia
50 MT
25mm Dia
75 MT
32mm Dia
20 MT
20 MT
20 MT
20 MT
Kindly arrange to issue the same at the earliest.

Thanking and assuring you of our best services at all times.
Yours faithfully,
ECC Division
(Tinanjan Mitra)
Project Manager
Regional Office: - PARKPLAZA 2nd Floor, 71, Park Street, Kolkata 700016 Tel: - 033-2255-0000 Fax: - +033-22499705
The Payment Clause states the payment will be made monthly as per the Running
Accounts bill raised by L&T. Following is a letter attached with the measurements
of running accounts bill sent for certification.

Date 02.03.2011
To
The AVP-Project Monitoring
Meramandali,
Orissa.
Kind Attn: Mr. B B Saha
Sub: Construction of 1200 TPD Oxygen Plant at BSL Site
Dear Sir,
With reference to the above job, we are enclosing herewith our civil
works measurements pertaining to the month of February-11 in Oxygen
Plant area for your necessary review and certification.
We request you to release the certified measurements at the earliest.
Yours faithfully,
ECC Division
(TINANJAN MITRA)
Project Manager
Encl:
a/a
Due to variance of scope and increase in scope from time to time it was getting
difficult for L&T Construction to complete the project within the stipulated time
frame. Following is the letter sent to raise the issue of retention money and time of
completion of the project.

Ref: LTCD/BSL/SMS-III/348
Date: 08.04.2011
To
The A.V.P (Contracts),
F Block, 1st Floor,
International Trade Tower,
Nehru Place,
New Delhi 110 019
Kind Attn: Mr. M. M. Prasad
Ref: your work order no 8/4029/10-11/023 dated 15/03/2011.
Sub: Amendment for work order for civil work for 1200TPD Oxygen Plant,
Phase-III at BSL Site, Meramandali.
Dear Sir,
We are thanking you for issuing the above reference work order for civil work of
oxygen plant. The following points mention in work order is not acceptable by us.
1. Period of work: 6 months from the date of receipt of order

Due to non-mention of any quantum of civil work involved in this area, period of
completion cannot be predicted /agreed.
2. Payment terms for Balance 10% contract value
As agreed, this order is same as order no 8/4012/09-10/020 dated 14.11.2009, we
shall not agree any variation in payment terms.
Hence we are requesting your good office to issue the amendment order
considering the above points.
Thanking you and assuring you of our best services at all times.
Yours faithfully,
ECC Division
(Tinanjan Mitra)
Project Manager
CC: Mr B.B.Saha, A.V.P (Project Monitoring)
In reply to the above query raised, BSL awarded an order amendment to the
contract giving a time extension up to 30th September, 2013.
Because of further increase in scope due to additional drawings received by

L&T Construction, L&T again asked for time extension.
Following is the order amendment given by BSL for time extension.

Ref: LTCD/BSL/SMSIII/1149
Date 18-02-2014
To
Meramandali,
Odisha.
Kind Attn: Mr. B B. Saha (VP-Project Monitoring)

Sub: Time extension for Civil work in 1200 TPD & 1120 TPD Oxygen plant.
Work Order No: 8/4029/10-11/023 dtd 15.03.2011.
Dear Sir,
With reference to the above mentioned order, the scope for balance civil works had
been provided, so as discussed with your project team and considering present site
condition, we would like to request you to consider an order extension up to 31st
August2014 to complete the balance work at site and commission the plant
successfully.
Yours faithfully,
(HARE RAM)
Project Manager
Encl:-Work order copy.
Headquarters: TECHNOPOLISH, 6th Floor, Block-BP, Plot No. 4, Sector V, Salt Lake, Kolkata 700091, Tel:- +91-33-4408 8100
Cluster Office:-11th Floor, Godrej Water Side Tower II, Sector V, Salt Lake, Kolkata 700 091 Tel: - 033-44141095
While asking for time extension from the client, it should be kept in mind that the
reasons mentioned for seeking the time extension should comes under the clients
liability, otherwise the time extension clause would not be valid and the client may
or not provide the extension.
Even after completion of the works, the client has the authority to inspect the
works by a third party and the contractor will be liable to clear the punch points
provided by the consultant. This time L&T has asked for time extension citing the
reason for delay in receiving the punch points.

Date 19.08.2014
To
Meramandali,
Odisha.
Kind Attn: Mr. B B. Saha (VP-Project Monitoring)

Sub: Time extension for Civil works in 1200 TPD & 1120 TPD Oxygen plant.
Work Order No: 8/4029/10-11/023 dtd 15.03.2011.
Dear Sir,
With reference to the above subject, we would like to inform you that due to delay
in receiving clear work front for balance jobs in hand as on date, the overall job
could not be completed and handed over to BSL on time.
Also, we are yet to receive the punch points from your end which will take few
months to attend.
Considering the above conditions and present scenario of job, we would like to
request
you
to
extend
the
completion
time
from
31 st
August2014
31stMarch2015.
Yours faithfully,
(HARE RAM)
Project Manager
Encl: Work Order Copy
Head Office: Godrej Water Side, Tower 2, 11th Floor, DP 5, Sector V, Salt lake City, Kolkata 700091, INDIA
Registered Office: L&T House, N. M. Marg, Ballard Estate, Mumbai - 400 001. INDIA
CIN - L99999MH1946PLC004768
L&T Metallurgical & Material Handling is a brand of Larsen & Toubro Limited
to
In the Payment Clause, it is mentioned that the 10% retention money will only be
released after the certification of final bill. So the final measurements of all the
structures were submitted for certification.

Ref: LTCD/BSL/SMSIII/1335
Date 08-09-2014
To
Meramandali,
Odisha.
Kind Attn: Mr. Mr. D K Singh-VP-Billing & Audit
Sub: Final Measurement of 25 Nos. Structures of 1120 & 1200 TPD Oxygen Plant.
Work order No:-8/4029/10-11/023 dtd. 15.03.2011
Dear Sir,
With reference to the above work order, we are submitting final measurements of all
structures for 1120 & 1200 TPD Oxygen Plant for your necessary checking &
certification.
We request you to kindly release the certified measurement at the earliest
Yours faithfully,

(HARE RAM)
Project Manager
Enclo:- List of the Structures.

Measurements
.
Head Office: Godrej Water Side, Tower 2, 11th Floor, DP 5, Sector V, Salt lake City, Kolkata 700091, INDIA
Registered Office: L&T House, N. M. Marg, Ballard Estate, Mumbai - 400 001. INDIA
CIN - L99999MH1946PLC004768
L&T Metallurgical & Material Handling is a brand of Larsen & Toubro Limited
3.3.2 Contract Closure

The contract was in closing phase and the date of completion was 31.03.2015.
Contract closure is defined as the process for "completing and settling each
contract, including the resolution of any open items and closing each contract
applicable to the project or project phase. A part of this process is to verify that all
work and deliverables were acceptable. The important steps taken for closing the
contract are as follows:
1. Collecting contract documentation: In order to close a contract successfully, it is
important to collect all the relevant documents for review. This may include
collecting all the documents regarding the original contract, variations, schedules
and performance reports.
2. Completing contractor final review: It includes a complete review of all
contracts and verifying that all the requirements and outputs specified in the
contracts have been met. It also aims to ensure that all the variations to the contract
requirements have been documented with a clear tracking system, approved and
completed.
3. Drafting formal acceptance letter: It is the next step in the contract closure
process that involves drafting the formal acceptance letter, on behalf of the client,
regarding the acceptance and verification of all the contractual obligations. It
provides the contractor a formal notice that the contract is complete from the
clients side. In projects involving the construction of industrial plants, this is
usually split into two stages: preliminary acceptance and final acceptance.
4. Starting administrative closure: At this step, the project manager starts the
administrative closure activities by preparing the closure documentation of the
project outcome to ensure that the projects and their assets are redistributed.
5. Completing financial closure and audit: This step involves completing and
terminating the financial and budgetary aspects of the project, including the release
of final payments.
6. Archiving documents: This step ensures that all the documentation related to
project closure has been properly archived. This includes the Lessons Learnt
document. As we have noted earlier, we are bound to face uncertainties in every
project, and thus, every project is likely to witness some mistake or the other by the
people implementing it. Therefore, there are always lessons to be learnt from every
project. These have to be recorded meticulously, as they can be very valuable
reference for future.
7. Moving personnel and facilities: This step involves the reassignment and
reallocation of human resources and other equipment that have been used during
the project.
8. Completing closeout phase, review and lessons learnt: It the final phase, where
lessons learnt session is held for the entire team involved in the project. It offers
the members to exchange their observations regarding the project performance for
helping in future projects of a similar nature.
3.4 ANALYSIS
3.4.1Contract management consists of a range of activities that are carried out

together to keep the arrangement between customer and provider running
smoothly. They can be broadly grouped into three areas.
Service delivery management ensures that the service is being delivered as
agreed, to the required level of performance and quality.
Relationship management keeps the relationship between the two parties open
and constructive, aiming to resolve or ease tensions and identify problems early.
Contract administration handles the formal governance of the contract and
changes to the contract documentation.
All three areas must be managed successfully if the arrangement is to be a success:
that is, if the service is to be delivered as agreed, the formal governance properly
handled, and the relationship between customer and provider maintained. Although
possibly handled by different figures or departments within the customer
organization, the various areas of contract management should not be separated
from each other, but form an integrated approach to managing service delivery,
relationship and contract together.
In addition, the arrangement must be flexible enough to accommodate change, and
the process of change must be prepared for and managed. A key factor in all these
areas is intelligent customer capability: the knowledge of both the customers and
the providers business, the service being provided, and the contract itself.
Figure 1 shows how contract management functions with intelligent customer

capability form the link between those who need and use the service and those who
provide it that is, between demand and supply.
DEMAND
INTERFACE
SUPPLY
Business Area
Intelligent Customer
Provider
Business Needs
Business
Manager
Users
Communication Flows
Service Management
Relationship
Management
Service Delivery
Management
Relationship
Management/Accou
nt Management
Contract
Administration
Service Delivery
Figure 1: Contract management functions, in the centre of this diagram, form the
link between business managers and users on the customer side and the provider
organization.
The business manager identifies and articulates the business needs that the service
should meet. Users of the service provide feedback on how the service and the
relationship are going, and may also request the contract manager to make changes
to the service.
In the centre of the diagram, providing the functional layer that supports the
customers business and the service provider, contract management activities keep
the arrangement running smoothly. Intelligent customer capability (see right) in all
three areas provides an expert interface between the customer and its providers.
The lifecycle begins with setting direction: high-level objectives and policies for
the organization. This leads to the identification of business needs that can be
fulfilled by acquiring a service. Once the service is acquired, a period of transition
leads into contract management. There is an ongoing analysis of business needs, to
routinely ensure that the service provides what the business really needs.
When the contract ends, for whatever reason, the re-competition process includes
are-examination of business need, the performance of the existing arrangement,
any new requirements, and the options for sourcing. Thinking from this stage may
feed back into high-level direction setting as well as into the process of acquiring
anew service: a process that mirrors the original acquisition but with the benefit of
all the lessons learnt from acquiring and managing the previous contract. Contract
management issues do not suddenly become relevant at the moment the contract is
signed; they need to be considered at an early stage. Ideally, they should be
considered before the creation of the output based specification that forms the basis
for the procurement process.
Figure 2: The contract management lifecycle, from setting direction through

acquiring and managing a service, round to re-competition and a return to the
origin
Service acquisition
Setting
Directions
Policies
Objectives
Business model
Formal contract terms
Selecting quality measurements
Service legal agreements
Contract management requirements
Information needs
Re-competition
Requirements
Business needs
Past performance
Sourcing options
Service/contract management
Managing service delivery
Contract administration
Managing the relationship
Ensuring value for money
Seeking improvements
Managing changes
Analysis of ongoing business need
Transition/handover
Implement processes
Knowledge transfer
Establish team
Internal business change
3.4.2 Management of Contract Start Up

After a contract has been signed there are a number of matters that should be
addressed to provide the foundation for successful contract management. An early
step is to ensure that sufficient resources and senior management support are
available to manage the contract. It is equally important to understand both the
contract provisions and contractual relationships at the outset. In the case where the
contract manager has been involved in earlier procurement phases, we expect that
the contact manager will already have knowledge of issues relevant to
implementation.
The following checklist should assist the contract management team with
providing a better understanding of the contract and can be used as a basis for
developing an effective working relationship with the service provider.
Analyze the contract and agree the service provider's understanding of the
contract
Identify deliverables and how their achievement will be measured.
Ascertain timeframes, particularly any critical deadlines.
Understand payment arrangements, including links between payments and
performance.
Identify the roles and responsibilities of both parties and allocate
responsibilities within the customer organization.
Confirm agreement with the service provider, especially in relation to any
sensitive matters.
We expect that many customers may have certain procedures that must be followed
before and during contract negotiation and prior to execution of contracts. The
procedures may vary depending on the contract terms, the service provider and
project type.
Gain an understanding of the background to the contract and the relationship

that has been developed with the service provider
Discuss the relationship that has developed with the service provider over
the preceding phases of the contracting cycle.
Meet with the service provider as necessary to further develop the
relationship and address issues that may impinge on effective contract
management.
Obtain or confirm licenses in relation to intellectual property that have not
already been obtained
Ensure that relevant confirmation has been obtained.
Confirm all documentation is up-to-date.
Store evidence of these matters appropriately.
Brief any team members or stakeholders
Set out meeting arrangements for the life of the contract.

Confirm stakeholder involvement and their requirements for information.
Set up and/or brief any committees or working groups.
Brief any members of the contract management team regarding their roles
and responsibilities.
3.4.3 Management of unresolved issues

In many instances, not all issues are resolved at the time of contract signature.
These need to be addressed in a timely way during contract start up. These issues
can create problems when managing a contract if not properly dealt with at the
correct time.
In situations where there are issues that have not been fully resolved at contract
signature, the contract manager should:
Identify and record any agreements or arrangements made by the parties

relating to this when the contract was negotiated;
Identify and record aspects of the contract which have been potentially left
for future development; and
Identify and record aspects of the contract which will be subject to some
other process, for example, third party approvals.
Transition
For some contractual arrangements there will be a transition phase. The duration of
this phase can range from a few days to several months. The objectives of this
phase are to:
Ensure a smooth transition to the new service provider by minimizing the
risk of a reduction or loss of services and the impact on end-users and other
stakeholders;
Establish relationships and systems and procedures that will be used during
the life of the contract, and
Complete the transfer of information and/or assets to the new service
provider.
For straightforward contracts there may be a number of one-off tasks that need to
be appropriately planned and resourced. In complex contractual arrangements the
transition phase may require a detailed plan or some other formal documentation to
ensure all relevant matters are considered and addressed. The way the customer
manages the transition phase will generally be an indication to the service provider
about the way the whole contract will be managed. If, for example, the customer
adopts a lenient approach in respect of the non-achievement of transition targets,
the service provider may take this as a signal of how the customer will deal with
under-performance generally.
Post- transition review
At the end of the transition phase it is important that a formal assessment is

undertaken of overall contract performance. The extent and method adopted will
depend on the complexity of contract deliverables and how important the results of
the transition are to the success of the contract over its life. For example, where the
transition is being used to finalize details of contract deliverables and performance
measures, the outcome of the transition will dictate the final form of the contract
and how it will operate in practice.
The post-transition review should also be used to review the customer's contract
management arrangements, including resource requirements.
Governance arrangements
There
is
no
one
prescribed
governance
structure
for
managing
the
contract/relationship. The structure depends largely on the size and scope of the
deal and the organizational structure of both the customer and service provider.
The names of the groups/committees within the governance structure are also deal
or client specific.
A common structure is for the establishment of a hierarchy of working
groups/committees with representatives from the service provider and the
customer, whose roles and remit are clearly spelt out to ensure progress is reviewed
through plenty of interaction. There will usually be committees at executive,
service management, operational/project management levels.
The parties need to understand and comply with the governance arrangements and
in particular the following issues should be considered:
The time frames for establishing the meetings of the committees;
The agenda for each meeting and the timing for the distribution of that
agenda prior to the meeting with any reading material;
The role of the chairperson;
The process for documenting the minutes of the meetings. All actions,
responsibilities and accountabilities should be tracked and managed if the
contract is to be managed effectively; and
Notification to the other party of any change in the committee
representatives.
3.4.4 Contract Variations
Provisions to allow and regulate contract variations should be a standard feature of
all contracts. The ability to vary the contract should be directed or controlled by the
customer and should only occur in defined circumstances. It is accepted practice
for the variation mechanism to provide for variations to be agreed between the
customer and the service provider in writing through a formal amendment of the
contract.
In some circumstances it is possible to inadvertently amend a contract by oral
agreement or conduct, even where there is a contract provision expressly requiring
a formal process to be followed. It is therefore important that those involved in
managing and administering the contract do not agree to informal contract
amendments.
The reasons for the variation should be clearly documented. 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 may require the same degree of input and effort involved in
developing the original contract. They should therefore be planned accordingly.
Customers should be alert to the risk that multiple changes made to a contract over
a period of time may shift the overall allocation of contract risk or transfer
particular risks to the customer. It is important to analyze all consequences of a
proposed contract amendment and make sure there are no unintended effects of the
change.
For public sector projects, contract managers also need to ensure that the contract
variations are not of such a level that they significantly change the contract
requirement and/or substantial parts of the original transaction. If this is the case, it
may be necessary to undertake another procurement process because the revised
arrangements are substantially different to those selected through the original
procurement.
3.5 CONCLUSION
3.5.1The Contract Manager is responsible for the contractual and commercial

success of the project.
The primary duties of the Contract manager are as follows:
Valuation of the works for Payment applications

Preparation of Final Account
Remeasurement (subject to contract requirements)
Costing reconciliation
Cost and Value Forecasting
Contractual Correspondence
Measure, value and agree S/C accounts
Measuring and valuing variations
Day-work accounts
Increased Cost assessment
Record and value Variation Orders/Change Orders
Request VO/COs when not issued (stating why and contract clauses)
Preparation of Contractual Claims
Request with reasons and particulars (stating contract clauses)
Preparation of Loss and Expense Claims (stating why and contract clauses)
Valuation/Interim Payment Applications
Cost Reconciliation
Cost and Value Forecasting
SubContractor Accounts
Measure & Value CO/VOs Day works
Measure & Value CO/VOs at Bill Rates
Measure & Value CO/VOs at Pro Rata Bill Rates
Measure & Value CO/VOs at New Rates
Preparation of Contractual Claims
At the end of the project the Contract Manager has to:

Preparation of Final Account
SubContractor Final Accounts
Contract Close out

Final Cost & Value Reconciliation
3.5.2 The following factors are essential for good contract management:
Good preparation: An accurate assessment of needs helps create a clear outputbased specification. Effective evaluation procedures and selection will ensure that
the contract is awarded to the right provider.
The right contract: The contract is the foundation for the relationship. It should
include aspects such as allocation of risk, the quality of service required, and value
for money mechanisms, as well as procedures for communication and dispute
resolution.
Single business focus: Each party needs to understand the objectives and
business of the other. The customer must have clear business objectives, coupled
with a clear understanding of why the contract will contribute to them; the provider
must also be able to achieve their objectives, including making a reasonable
margin.
Service delivery management and contract administration: Effective
governance will ensure that the customer gets what is agreed; to the level of quality
required. The performance under the contract must be monitored to ensure that the
customer continues to get value for money.
Relationship management: Mutual trust and understanding, openness, and
excellent communications are as important to the success of an arrangement as the
fulfillment of the formal contract terms and conditions.
Continuous improvement: Improvements in price, quality or service should be
sought and, where possible, built into the contract terms.
People, skills and continuity: There must be people with the right interpersonal
and management skills to manage these relationships on a peer-to-peer basis and at
multiple levels in the organization. Clear roles and responsibilities should be
defined, and continuity of key staff should be ensured as far as possible. A contract
manager (or contract management team) should be designated early on in the
procurement process.
Knowledge: Those involved in managing the contract must understand the
business fully and know the contract documentation inside out (intelligent
customer capability). This is essential if they are to understand the implications of
problems (or opportunities) over the life of the contract.
Flexibility: Management of contracts usually requires some flexibility on both
sides and a willingness to adapt the terms of the contract to reflect a rapidly
changing world. Problems are bound to arise that could not be foreseen when the
contract was awarded.
Change management: Contracts should be capable of change (to terms,
requirements and perhaps scope) and the relationship should be strong and flexible
enough to facilitate it.
Pro-activity: Good contract management is not reactive, but aims to anticipate
and respond to business needs of the future.
3.5.3 If contracts are not well managed from the customer side, any or all of the
following may happen:
The provider is obliged to take control, resulting in unbalanced decisions that do
not serve the customers interests
Decisions are not taken at the right time or not taken at all
New business processes do not integrate with existing processes, and therefore
fail
People (in both organizations) fail to understand their obligations and
responsibilities
There are misunderstandings, disagreements and underestimations; too many
issues are escalated inappropriately
Progress is slow or there seems to be an inability to move forward
The intended benefits are not realized.
Opportunities to improve value for money and performance are missed.
3.5.4 There are several reasons why organizations fail to manage contracts
successfully. Some possible reasons include:
Poorly drafted contracts
Inadequate resources are assigned to contract management
The customer team does not match the provider team in terms of either skills or
experience (or both).
The wrong people are put in place, leading to personality clashes
The context, complexities and dependencies of the contract are not well
understood
There is a failure to check provider assumptions
Authorities or responsibilities relating to commercial decisions are not clear
A lack of performance measurement or benchmarking by the customer
A focus on current arrangements rather than what is possible or the potential for
improvement
A failure to monitor and manage retained risks (statutory, political and
commercial).
3.5.5 Behaviors are the manifestations of the attitudes of those involved in a
contractual relationship. The right attitudes will lead to the right kind of behavior.
In general, it is helpful to develop attitudes and behaviors that:
Respect the contribution of others
Do not emphasize the power of formal authority
Take a longer term view, with attention to long term as well as short term benefits
Look for benefits for all parties and focus on gains for the group
Recognize the interdependence in the relationship and that the customer may
directly influence the providers ability to meet its objectives.
Are collaborative and inclusive rather than adversarial
Are concerned with the success of the relationship rather than achieving one
sides objectives in isolation
Are built on openness about strategies, plans, concerns and opportunities
Empower of the provider to undertake certain activities, rather than persisting in
close hands-on supervision
Proactively seek to anticipate change and make improvements, rather than
passively meeting existing needs and monitoring performance
Create a pervasive relationship that operates on many levels, rather than confined
to operation through a single interface.
3.5.6 Why Each and Every Person Involved in the Project Needs to Have the
Knowledge of Contract Management
Contract information will be made known
Contractual correspondence will be issued or replied to within contract
timings
Claims will be identified early and not lost through neglect
Payment applications will be made fully and on time and followed up if
late
Extension(s) of Time will be claimed to avoid the liability of Liquidated
Damages
3.5.7At the commencement of any project, it is necessary to set up the various
systems that will be required for an efficient administration of the project contract
management. These are as follows:
Record and photograph obstructions and hindrances and their clearances

Record of Land released for construction
Schedule of Price Cost Indices
Schedule of delays in the issue of drawings
Schedule of delays in the issue of information
Record of Change Orders
Record of Payment Applications
Record of Subcontractor payments
3.5.8 Claim and its Importance

A claim is a request for payment for work, which is not in the original contract
scope.
Some items are recoverable by the issue of a Change Order/Variation Order and
they will be evaluated as above, i.e. Day-works, works measured at BOQ rates,
prorata BOQ rates, or new rates. Each will have its appropriate measure(s)
multiplied by its agreed rate(s).
Other claims are for Loss and Expense incurred and cannot be reimbursed by any
other term or condition of the contract.
The common claims include:
1. Claim against clients relating to a delay or change in the work: A
contractor may claim against the client for extra time and money (in both the
cases of loss and expense) and for the cost of changes in the work. The
parties usually mutually decide a completion date in their contract. However,
in case of variation, the contractor may claim for extra time to accomplish
the work. A contractor may also claim when the employer alters the
contractor's scope of work. In some cases, it is difficult to identify what
caused the delay in contract accomplishment and whose fault it was. If the
contractor caused the delay, the client may have a right to claim liquidated
damages from the contractor. On the other hand, a contractor can also claim
for the loss and expense that occurred in implementing the variations.
2. Claim against the contractor for a delay or defect in the work: The client
may also claim against the contractor if the work is of poor quality or
defective. The client may also claim against the contractor if the project is
delayed by the contractors end. A defect is generally considered as a breach
of the contract by the contractor. Similarly, a defect that is caused by
negligent design, poor workmanship and poor materials also permits the
client to make a claim against the contractor.
3.5.9 Importance of Records and Backup

Unfortunately, the contractor always seems to be at the disadvantage. He does not
have control over the money he receives, or when he receives it. Instructions
received often seem to be biased in avoiding the responsibility for paying for the
changes. He is often at the whim of the Engineer some of whom often do not act in
a fair manner and first words in any claim submission are not accepted.
In such a biased environment accurate correspondence and impeccable records are
essential. Inadequate records can lose a claim, which otherwise may be totally
legitimate. Vigilance at all times can identify a potential problem before it becomes
effective. If the problem can be resolved before it becomes serious then that must
be a saving to the company.
If it cannot be resolved amicably then there will be the backup and support of the
meticulous project records.
The following is a list of documents that may need to be created and retained
during the contract management phase:
Risk assessments
Contract management plan or checklists
Analysis of contract conditions
All substantive communications with the contractor
Evidence of insurances, indemnities, deeds and/or licenses required under
the contract
Records of briefings of stakeholders and/or management team members
Transition plans
Record of minutes, meetings, discussions relating to the contract
Contract lists, schedules of tasks and meetings
Records of payments
Records of performance reports, analysis, discussions, performance
assessments, feedback and of any non-compliance or under or non
performance
Variations to the contract
Records of any disputes and related discussions or negotiations
Assistance or expert advice received
3.6 RECOMMENDATION
3.6.1The roles and responsibilities should be distributed to competent people in the

initial phase of the project so that the contractual obligations are dealt in proper
and controlled manner. Following are some of the specialized persons required:
Senior Manager for both employer and contractor: There should be a Senior
Responsible Owner (SRO) who is responsible for the successful outcome of the
contract, which includes overall responsibility for the relationship as well as for
individual projects or programmes to be delivered through the contract. This
individual must be a senior manager, with authority to take major decisions on
behalf of the customer organization. Note that the title of the role is generic; in
construction projects it is referred to as Project Owner; the title Programme
Director is another application of exactly the same role in a programme
management context.
There should be a correspondingly senior role on the provider side, often referred
to as the Industry Executive. This individual should have similar responsibilities
for the success of the contract from the provider perspective and a senior level of
authority in their organization.
Contract Manager for employer side: For smaller contracts, a single individual
may be enough to carry out all contract management responsibilities. For larger
contracts, a contract management team may be required. It will be necessary to
assess the management structures proposed for each contract to be managed, and
ensure adequate staff resources are available to make them work.
The size of the contract management team may have to change over the life of the
contract. The early stages are often more demanding in terms of management time.
The main functional responsibilities of the contract manager (or contract
management team) on the customer side are to:
Track the interpretation of business requirement into contractual provisions
Act as a single point of contact for all formal and legal correspondence relating to
the contract
Maintain the specification of contract performance metrics
Monitor contract performance and report at overall service or business outcome
level
Monitor subordinate performance metrics as appropriate
Represent the customers interests to the provider at contract level
Oversee operation of the contract(s)
Determine and take remedial actions by agreement with the provider
Negotiate remedies with the provider
Escalate contract problems as necessary

Maintain/develop contract specifications.
Contract Manager for contractor side: The main functional responsibilities of
the contract manager on the provider side are to:
Track the interpretation of the business requirement into contractual provisions
Monitor contract performance and report at service/business outcome level as
appropriate
Monitor subordinate performance metrics
Identify and manage exceptions
Represent the providers interests to the customer
Respond to changing customer needs
Marshal and apply the providers resources
Determine and take remedial actions by agreement with the customer
Negotiate remedies with the customer
Escalate problems as necessary
Operate the contract to specification
Operate subordinate services/contracts
Maintain/develop service components
Set/maintain/develop infrastructure strategy according to the contractually
allocated responsibilities
Maintain/develop supporting infrastructure according to the contractually
allocated responsibilities.
Relationship Manager for both employer and contractor: The main functional
responsibilities of the relationship managers on the customer and provider side are
identical. They are:
Encourage an atmosphere of trust, openness and communication and an attitude
based on working together and shared objectives.
Proactively look for ways to improve the relationship wherever possible.
Ensure that all stakeholders in the arrangement feel that they are involved, that
their views are important and that they are acted upon.
Establish and manage a communication framework and ensure that it is used
effectively.
Establish and manage communication flows between customer and provider, and
ensure that they are used.
Ensure that communications at all levels are peer-to-peer.
Manage the dispute resolution process.
Resolve soft tensions between customer and provider, that is, situations where
tension is felt or perceived but no formal issue has yet arisen.
Manage upwards to ensure that senior management are informed about issues
before they escalate, and can intervene as appropriate.
Establish regular reporting procedures, both formal and informal, and ensure that
they are used.
Organize forums, working groups, seminars, road shows, training sessions, and
other information-sharing activities involving staff from both the customer and the
provider side.
Promote understanding of each others business practices and common

techniques.
3.6.2 Checklist for contract management
The following checklist is suggested for effective contract management:
1. Analyze the contract and agree to the service providers understanding of the
contract:
Identify what needs to be delivered
Ascertain the deadlines of project tasks
Understand payment arrangements
Know the roles and responsibilities of parties
2. Gain understanding of the background of the contract:
Discuss a relationship that has been developed with the service provider
Solve issues that may impinge on effective contract management
3. Establish processes and systems for monitoring and communication
Identify processes for better communication
Develop procedures for evaluation
4.
Brief the team members

Plan meetings for contract discussion
Check the involvement of every party
Discuss roles and responsibilities
5.
Administration of the contract

Develop and maintain contact details of parties involved
Schedule meetings and other actions needed
Maintain all the records on a daily basis
Make payments on time
Maintain contract documentation
3.6.3 The following factors can be kept in view from contracting to completion in
respect of disputes - 23 dos & donts:
1. When Contractors are faced with lack of work and the idle overheads they
tend to under quote and take up jobs at cut throat rates which will land them
in a soup. Contractors are so afraid of dying that they commit suicide.
2. Better to avoid remarks I never heard of a contractor who lost money on a
job he did not get.
3. Good claims-management practice means:
Eliminating risks before entering into contract to the best extent possible,
and
During the course of work to have variation orders settled without elevating
them to the status of claims.
4. Be careful how the law of the land interprets no damages clause in favour
of the owner.
5. United States has a civil law system which has spawned the highest number
of lawyers which makes claims settlement difficult, the common law system
is better.
6. Dont throw good money after bad money in pursuing bad claims.
7. Dont set up ego-barriers in settling disputes during the course of work.
8. Negotiated contracts have fewer claims than lump sum contracts.
9. Most owners engineers tend to assume that the contractors have covered all
risks while quoting. Enumerate areas not covered in your quotation.
10.Study contract conditions and local law thoroughly.
11.Educate your staff to act early at the lower level so that disputes do not
escalate and rise to the highest decision making level.
12.Do not pile up claims to the end which result in the owners engineer also
getting hemmed in. Have them settled in the early stages before the amount
looks big.
13.Provide analysis and documentation early and not at the end.
14.Relate every claim to the project schedule drawn up in the beginning. This
base plan should be prepared right at the beginning of the contract and this
should not be lost sight of either mentally or physically. Keep a copy of the
original schedule in your cash box or bank locker so that it is not lost.
15.Concurrent delays cannot be seen from bar chart. It is better to use CPM
network so that the floats are known. Do the CPM network right in the
beginning of the project. You can build a project without CPM but you
cannot build delay-claim without it. Update the CPM network by
periodical monitoring so that you can prove delays, as the onus of proof is
on the contractor.
16.Claim is a three-legged table:
Liability - which means contractual facts
Causation - which means connection, and
Damages -which means claims presented.
17.Submission of claims should be subject to IRAC test as follows:

A) Issue - are we entitled to recovery?
B) Review - contractual and factual right to recover.
C) Analysis - if necessary get expert opinion and judgement available
D) Chronology - perspective to be drawn up.
18.Submissions should be understandable by the arbitrator. If available enclose

periodical progress photographs which can speak volumes.
19.Do not lose credibility by submitting untenable or exorbitant claims.
20.Have your submissions examined by your own people, or experts. You
never have a second chance to make the first impression.
21.Have your claims settled during the course of execution when you have
leverage.
22.While negotiating international contracts, suggest a formula from outside
the country preferably a neutral country to settle the disputes.
23.Also suggest mediator from neutral country to advise during the course of
contract.
3.6.4 Practices which should be implemented in Contract Management

1. Establish a central repository for your contracts, so they are easy to track and
manage.
2. Meet deadlines and savings opportunities by setting up alerts and reminders.
3. Integrate your contract management tools to increase visibility throughout
your company.
4. Establish version control of your contracts to avoid data errors.
5. Use audit trails to ensure compliance and be prepared for an audit at all
times.
6. Automate your approval process to limit bottlenecks and quickly recognize
revenue.
7. Integrate your systems for a seamless contract management process.
8. Create a template library with your companys standard language, terms and
clauses.
9. Collaborate with your team to ensure accuracy of your agreements.
10.Establish custom reports for quick and easy access to information you need.
BIBLIOGRAPHY
Contract Management Training Power Point Presentation by Mr.

S.Subramanyan at L&T Construction Training
Contract Life Cycle Management by Douglas K Macbeth at bookboon.com
Contract management Case Study by Graham Collins at
graham.collins@proquest-consulting.co.uk
Contract Management Slides by dar-al-handsah, Nov 2006
REFERENCES
A Practical Guide to Successful Contract Management by Taylor Walton

Technology & Outsourcing Group, 2009
Best Practices in Contract Management Slides at www.contractlogix.com
Contract Management Guidelines pdf from Office of Government
Commerce (OGC)
Contract Management SLM, Sikkim Manipal University-Directorate of
Distance Education
Contract Management Implementation slides at www.Selectica.com
Contract Management Predictions Slides at www.ContractAnalyst.com
Effective Contract Management Slides by Dr. J. Gordon Murray
FIDIC (Fdration Internationale Des Ingnieurs-Conseils) Books
http://www.bhushan-group.org/about.asp
http://www.lntecc.com/
GLOSSARY
Arbitrator: It refers to a sovereign person or body formally appointed to resolve a

dispute.
Arbitration: It is a conflict resolution technique in which the parties involved in
the conflict present their cases in front of an arbitrator who makes decisions,
binding on the parties.
Bid: an offer made by a contractor/ client to grab a project/ work
Bill of quantities: A document in which material and labour costs are itemized. It
enables the contractor to price the work.
Conflict resolution: It is a process of resolving a dispute or conflict by addressing
the interests of the parties involved in the contract.
Contract: It refers to an agreement made between two parties and enforceable by

law.
Contractor: An individual who is given a project contract by the client.
Contract management: It refers to managing a contract by maximizing its
performance.
Contract negotiation: A discussion between the parties to reach an agreement.
Contract strategy: A strategy for managing contracts, their negotiations, risk
factors, and other contractual issues.
Contract termination: It refers to a phase when the work of the project has ended
or reached to such a point where further progress is no longer possible.
FIDIC (The International Federation of Consulting Engineers, French name:
Fdration Internationale Des Ingnieurs-Conseils): It is aninternational standards
organization for the construction industry.
Feasibility Study: An evaluation of a proposed project is called feasibility study
Force Majeure: It implies an unexpected and disturbing event that may affect
someones ability to do something.
Indemnity: It is a sum paid by party A (Indemnitor or Indemnifier) to party B
(Indemnitee or Indemnified)) in case of loss. The indemnitor may or may not
be responsible for the loss suffered by the Indemnified. The indemnity could take
various forms, like cash payments, repair, replacement, or re-instatement.
Lump-sum contract: It is the contract in which the contractor agrees to do all the
work included in the contract within a specified period of time and on a certain
price given to him/her by the client.
Negotiation: It is the process in which the parties seek a solution through

discussion, without taking the assistance of outsiders.
Project contract: It is an agreement between two or more parties for achieving a
certain goal in a certain way.
Project parties: Project parties refer to individuals or entities directly or indirectly
involved in the formation of a project contract and ultimately in the completion of
a project.
Project scope: It is the most important element of a project plan, which defines the
main purpose of selecting a particular project, its validity and importance.
Requisition: It is the formal demand for some task that needs to be done.
Subcontractor: An individual who is given a portion of a project contract by the
contractor.
Stakeholder: Any individual or group that could impact or get impacted by the
Project.
Tender: It is an offer in writing by the Tenderer to complete the specified
work/task.
Tender Notice: An invitation for the bids is called tender notice,
Unit price: It is a contract in which there is a clear division of the project in
different units, and each unit is charged separately.
Variation: It refers to an agreement reinforced by consideration to alter some
terms of the contract.

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A

Under the guidance of

In partial fulfillment of the requirement

Khan Mohd Saadullah

Date: 17th May, 2015

Regd No.: 1308003641

I wish to acknowledge my indebtedness to my project guide Ms Smruti Rekha

Khan Mohd Saadullah

UNIVERSITY STUDY CENTRE CERTIFICATE

Regd No: 1308003641

Mr. Hare Ram

appropriate implementation of the contract clauses throughout the project life

Service delivery continues to be satisfactory to both client and contractor

The roles and responsibilities should be distributed to competent people in the

approved by ISO 9001:2008 & ISO 14001:2004.

Consultancy services, ranging from concept to commissioning for all types of

suppliers / contractors to obtain an offer of goods or services. Tendering is the

3.1.1 Criteria for evaluation of tenders

3.1.3 Types of Contract

3.1.4 Contract Structure

Context or background recitals: These describe those events or

Definitions and provisions related to the interpretation of the agreement

3.1.5 General Conditions of a Contract

3.1.6 FEDERATION INTERNATIONAL DES INGENIEURS CONSEILS

3.1.6.2 Basic Principles behind all FIDIC Contracts

Conditions of Contract for Construction

Conditions of Contract for Plant and Design-Build

Conditions of Contract for EPC Turnkey Projects

Short Form of Contract

FEATURES OF THE NEW RED/YELLOW BOOKS

FEATURES OF THE ORANGE BOOK

FEATURES OF THE SILVER BOOK

3.1.6.4 FIDIC NEW FORM OF CONTRACT IMPORTANT CLAUSES

Measurement and Evaluation: Clause 12

Allocation of Risks: Clauses 17.2 to 17.4

Limitation of Liability: Clause 17.6

Termination by the Employer: Clause 15

Suspension or Termination by Contractor: Clause 16

3.1.6.5 PROBLEMS RELATED TO FIDIC NEW BOOKS

Claims of the Employer: Clause 2.5

3.1.7 DISPUTE ADJUDICATION BOARDS

3.1.8 DISPUTE RESOLUTION

Improper execution of contract

recommendations become final and binding on parties.

Conciliators to assist parties in an independent and impartial manner and are to be

Increases contract visibility

7. Deduction of Income Tax

Employee Provident Fund Act, 1952

LARSEN & TOUBRO LIMITED

1. Discussion held on 08.02.2011 with EVP/BSL at site.

Thanking you and assuring our best services at all times.

Mr. Rahul Sengupta, EVP

LARSEN & TOUBRO LIMITED

M/s Bhushan Steel Limited,

Kind Attn. Mr. B B Saha

With reference to the subject matter cited above, we are furnishing

Kindly arrange to supply the same at the earliest.

LARSEN & TOUBRO LIMITED

The AVP (Project Monitoring), BSL