AUDIT OF CONTRACTS

AND MOUs

Procurement, Execution & Materials

Management. General and special Conditions
of Contracts,pre Order tie-ups and MOUs
V K Mathur
Dy. General Manager I/c (MM)
Steel Authority of India Limited
R & D Centre for Iron & Steel

PROCUREMENT
Procurementis the acquisition of
goods, services or works from an
external source. It is favorable that
the goods, services or works are
appropriate
and
that
they
are
procured at the best possiblecostto
meet the needs of the purchaser in
terms of quality and quantity, time,
and location. Corporations and public
bodies
often
define
processes
intended to promote fair and open

PUBLIC PROCUREMENT
Public Procurement can be defined
as the procurement of goods, works
and services by all Govt. Ministries,
Departments, Agencies, Statutory
Corporations and Public Sector
Undertakings in the Centre and the
States, Municipal Corporations and
other local bodies and even by
private Public Sector Undertakings
providing
public
services
on

ESSENCE OF PUBLIC PROCUREMENT

Transparency
Fairness
Efficiency
Economy
Adherence to laid down procedures

PUBLIC PRIVATE
PROCUREMENT

"Public Private Partnership" means, an

arrangement
between
the
Central
Government, statutory entity or any other
Government owned entity on one side and a
private sector entity on the other, for the
provision of public assets or public services
or both, through investments being made or
management being undertaken by the
private sector entity, for a specified period
of time, where there is defined allocation of
risk between the private sector and the
public entity and the private entity receives
performance linked payments that conform
(or are benchmarked) to specified and

MATERIALS MANAGEMENT
Material management is an approach for

planning, organizing, and controlling all those

activities principally concerned with the flow of
materials into an organisation
5 Rs of Materials Management:
Of Right Quality
In Right Quantity
At Right Time
At the Right Cost
From the Right Source

PROCUREMENT FLOW
DIAGRAM
Raising of
Indent

Finance

Screening
Committee

Budget
Clearance

MMD

Tender
Opening

Issue of
Enquiry

Enq. Proposal
& Approval

Scrutiny of
Indent

Indent
Registration

Techno-comml

Purchase
Proposal

Issue of
Order

Follow up with

Evaluation

Clarification
From Parties

Issue
of Materials

Storage
of Materials

Acceptance

Inspection

Supplier

Receipt of
Material

MODE OF TENDERING

Limited Tender Enquiry

Open Tender Enquiry

Global Tender Enquiry

Single Tender Enquiry ( for Proprietory Items)

Single Tender Enquiry ( Non-Proprietory Items)*

Repeat Order*

Emergency Purchase*

GENERAL AND SPECIAL CONDITION

OF CONTRACT

The General Conditions of Contract

(GCC)
shall
apply
to
all
procurement contracts done by the
oganisation.
These
General
Conditions are intended primarily
for use in lump sum contracts but
may be applied to other categories
of contract and as modified with
the Special Conditions of Contract

ESTIMATE PREPRATION
Indent Estimate should be judiciously prepared

For frequently purchased items Last Purchase Price (LPP)

should be taken into consideration.
For Slow moving / new items estimate should be prepared
taking into consideration the input cost of material and
technology cost etc. w.r.t to budgetary quotations obtained.
For proprietary items: Manufacturers price list / rates with
discounts, if any , should be taken into consideration.
For Labour oriented Jobs , the latest rate of wages should be
taken into consideration while preparing estimate.
For Job contracts, if L-1 price is less as compared to the lower
range of estimated price, the L-1 party will be asked to justify the
rates quoted which is to be examined by Indentor. On nonacceptance of justification, the party will be asked to furnish PGB
of differential amount

TCS PREPARATION
1.

All tech. points offered by party viz a viz TS

requirement to be examined

2.

All items/services as per BOM to be examined

3.

Avoid using phrases like offered as per TS or

specs offered by party

4.

All models/makes offered by party to be examined

& acceptability to be indicated

5.

Final TCS to be prepared after examining & taking

into consideration of all the clarifications giving
reference in TCS too.

Party may be invited for discussion in high value

cases
7. First, Eligibility to be checked minutely
6.

GENERAL CONDITIONS OF
CONTRACT
Scope of Facilities

Completion Time
Contractors Responsibilities
Employers Responsibilities
Payment Terms, Taxes and Duties
Confidential Information: Patent, Copyright
Work Execution
Test and Inspection
Guarantee and liabilities
Dispute Settlement, Risk Distribution

SPECIAL CONDITIONS OF CONTRACT

SCOPE OF FACILITIES
COMPLETION TIME
PAYMENT TERMS
WORK EXECUTION
TEST AND INSPECTION
GUARANTEES AND LIABILITIES

ORDER EXECUTION
PO

details to be checked by Indenting Group.

Discrepancies if any to be informed to MMD

Kick off meeting with the Party / Plant/ RDCIS

Protocol of the activities to be duly signed
Billing schedule to be frozen & approved
Backup documents for LD to be maintained
Timely follow-ups for delivery, inspection, I&C, PAC,

FAC, etc
All correspondences to be made with a copy to MM
Commercial issues, to be referred to MM
No additional supply / job / alteration to Scope shall be

allowed during execution.

ORDER EXECUTION (Contd.)

Nomination of Representative: Employer, Contractor
Co-operation with Other Contractors
Work Program
Progress Report
Progress of Performance
Manpower Requirement for Operation & Maintenance

of Facilities
Training
subcontracting
Design and Engineering
Codes and Standards

ORDER EXECUTION (Contd.)

Approval

/ Review of Technical Documents by

Engineer / Consultant

Civil Engineering Work

Structural Load Test
Royalties for the Construction Materials
explosives
Import License & Export License
Packing
Transportation
Customs Clearance

ORDER EXECUTION (Contd.)

Installation
Labour and Labour Rules
Compliance

with Statutory Laws

Regulations of Govt. / Local Authority

Site Regulations and Safety

Erection
Emergency Work
Site Clearance
Test and Inspection
Preliminary Acceptance

and

Other

ORDER EXECUTION (Contd.)

Commissioning
Performance Guarantee Test
Final Acceptance

IMPORTANT TERMS / DEFINITION

CONTRACT: Contract Agreement entered into between

the Employer and the Contractor, together with the

Contract Documents constitute the Contract
TECHNICAL

SPECIFICATIONS/CONTRACT
TECH.
SPECIFICATION: Technical Specifications, schedules,
detailed designs, statements of technical data,
performance characteristics value and all other technical
particulars of the Contract

CONTRACTOR: The person(s) whose bid to perform the

Contract has been accepted by the Employer and is

named as such in the Contract Agreement, and includes
the legal successors or permitted assigns of the
Contractor. In case Contract is with Consortium of two
or more members then the contractor shall mean one or
more members of Consortium as the case may be.

IMPORTANT TERMS/DEFINITION
(Contd.)
CONTRACTORS REPRESENTATIVE:
Person nominated
by the Contractor and approved by the Employer hereof
to perform the duties delegated by the contractor. For
site work Contractors Representative shall also mean
the representative of Sub-Contractors and SubContractors Sub-Contractors
SUB-CONTRACTOR:

Including vendors, means any

person to whom execution of any part of the Facilities,
including preparation of any design or supply of any
Plant and Equipment, is sub-Contracted directly or
indirectly by the Contractor, and includes its legal
successors or permitted assigns.

FACILITIES:

The
work
specified
in
Technical
Specification, including General Technical Specification
and all supply & services to be carried out by the
Contractor under the Contract.

IMPORTANT TERMS/DEFINITION
(Contd.) All those services ancillary
INSTALLATION SERVICES/SERVICES:
to the supply of Plant and Equipment for the Facilities, to be
provided by the Contractor under the Contract; e.g., design &
engineering, supervision work, Customs & Port clearance,
loading & unloading, dismantling & modification, intermediate
storage, transportation & provision of insurance, inspection, site
preparation works, installation, testing, commissioning,
demonstration of performance guarantee tests, training, etc.
CONTRACTORS EQUIPMENT: All plant, equipment, machinery,
tools, apparatus, appliances or things of every kind required in or
for installation completion and maintenance of Facilities that are
to be provided by the Contractor, but does not include Plant &
Equipment, or other things intended to form or forming part of
the Facilities.
SITE: The land and other places upon which the Facilities are to
be installed, and such other land or places as may be specified in
the Contract as forming part of the site.

IMPORTANT TERMS/DEFINITION
(Contd.)
EFFECTIVE DATE OF
CONTRACT: The date of signing of
Contract or 30 days from date of Letter of acceptance
(LOA), whichever is earlier
TIME FOR COMPLETION: The time specified in the

Contract Agreement within which Completion of the

Facilities as a whole (or of a part of the Facilities where a
separate Time for Completion of such part has been
prescribed) is to be attained in accordance with the
stipulations made in the Contract Agreement and the
relevant provisions of the Contract
PRELIMINARY ACCEPTANCE OF THE FACILITIES: The

Facilities have been completed operationally and

structurally and put in a tight and clean condition, and
that all work in respect of pre-commissioning of the
Facilities have been completed; in other words, that the
Facilities are fit for Start-up & Commissioning.

IMPORTANT TERMS/DEFINITION
(Contd.) CERTIFICATE:
PRELIMINARY ACCEPTANCE

The
Certificate to be issued by the Employer on successful
completion of preliminary Acceptance Tests

COMMISSIONING: Operation of the Facilities by the

Contractor to a level of output

COMMISSIONING CERTIFICATE: The Certificate to be

issued by the
commissioning
PERFORMANCE

Employer

on

completion

of

GUARANTEE TEST: The test(s)

specified in the Technical Specifications to be carried
out to ascertain whether the Facilities are able to
attain the Performance Guarantees specified in the
Contract

IMPORTANT TERMS/DEFINITION
PERFORMANCE (Contd.)
GUARANTEE CERTIFICATE:

The
Certificate to be issued by the Employer upon
successful establishment of Performance Guarantee
Parameters

FINAL

ACCEPTANCE: The acceptance by

Employer of the Facilities which certifies
Contractors fulfillment of the Contract

the
the

FINAL ACCEPTANCE CERTIFICATE: The Certificate to

be issued by the Employer on Final Acceptance of

System
DEFECT LIABILITY PERIOD: The period of validity of

the Warranties given by the Contractor commencing

from the date of Commissioning of the Facilities,
during which the Contractor is responsible for defects
with respect to the Facilities

MOUs and PRE ORDER TIE UP

Memorandum of Understanding (MOU) is a common

understanding reached between parties to do or not to

do certain things or work or act.
Under an MOU obligations are moral but in a contract

rights and obligations are legal

No legal right flows from MOU unless contents of

MOU expressly provides so

It is contents of MOU which will determine the nature

and character of the documents as to whether it is

MOU or contract
Mere heading of a document as MOU will not make it

MOU

MOUs and PRE ORDER TIE UP

Witness should be avoided
No legal clauses such as arbitration, force majeure,

severability, fee, payment terms, tax clauses,

indemnity. Liability, guarantee/warranty etc. should be
written in MOU
If intention is to create Under an MOU it would be

treated as contract and not MOU

If intention is not to create legal rights, then at the end

of MOU it should be expressly written that parties

shall within specified time sign a legally enforceable
contract

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