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Different Contracts Including EPC Contract System

Dr I Satyanarayana Raju, MTech,MBA,MPhil,BL,FIE,PhD.,

Former Chief Engineer,CDO(AP) Hyderabad &
Member, Technical Advisory Council,WRD(AP)&
Expert-Dam Safety Inspection Team &
Past Chairman,IEI-Telangana State Centre & AP State Centre,
Contract And Agreement

• Contract is derived from Latin word ‘Contractum’ means

drawn together. Contract is an agreement enforceable by law.
There shall be two parties between agreement, one who offer
and the other accepting it.
• Agreement = Offer + Acceptance.
• An Agreement is defined as every promise and every set of
promises forming consideration for each other sec2 (e) of
Indian Contract Act, 1872.
• All legal contracts are enforceable by Indian Contract Act,
1872 (Act IX of 1872). An Amended Act 4 of 2013 was come in
force with effect from 18-01-2013
• Clause 2 of Act says-
• When one person signifies to another his willingness to do or abstain from
doing anything with a view to obtaining the assent of that other to such act
or abstinence, he is said to make a proposal.
• When the person to whom the proposal is made signifies his assent there to,
the proposal said to be accepted. A proposal when accepted becomes a
• The person making the proposal is called the ‘proposer’ and the person
accepting the proposal is called the ‘promisee’.
• e) Every promise and every set of promises forming the consideration for
each other is an agreement.
• g) An agreement not enforceable by law is said to be void.
• h) An agreement enforceable by law is contract.
• i) An agreement which is enforceable by law at the option.
• A contract is based on reciprocal promises. Reciprocal promises by the
parties are conditions precedent for a valid contract. A contract furthermore
must be for consideration.
• “Consideration means a reasonable equivalent or other
valuable benefit passed by the promisor to promisee.

• Clause 3 of Chapter 1 of Indian Contract Act, 1872 elaborates

Communication, acceptance, and revocation of proposals:-

• The communication of proposals, the acceptance of

proposals, and the revocation of proposals and acceptances,
respectively are deemed to be made by any act or omission of
the party proposing accepting or revoking by which he intends
to communicate such proposal, acceptance or revocation or
which has the effect of communicating it.
• Clause 10: what agreements are contracts? All agreements are
contracts if they are by free consent of parties competent to
contract for lawful consideration and with lawful object and are
not here by expressing declared to be void.
• Clause11: Who are competent to Contract? Every person is
competent to contract who is of the age of majority according
to the law to which he is the subject ( Indian Majority Act
1875(9 of 1875)) and who is of sound mind and is not
disqualified from contracting by any law to which he is subject.
• Clause 13: Two or three persons are said to consent when they
agree upon the same thing in same sense. Consent is said to be
free when it is not by coercion, undue influence, fraud,
misrepresentation, mistake.
• Clause 20: Agreement is void when both parties are under
mistake as to matter of fact.
Void Contracts:
• Clause 24: Agreements are void of considerations and objects
unlawful in part.

• Clause 25: Agreement without consideration void, unless it is

in writing and registered, or it is promise to compensate for
something done or is a promise to pay a debt barred by a
Limitation law.

• Clause 29: Agreements void of uncertainty: - Agreements, the

meaning of which is not certain, or capable of being made
certain, are void
• Essentials of Contract: According to Section 10 of Indian
Contract, 1872-All agreements are contracts if they are made by
free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not here by
expressly declared to be void.
• “Nothing here in contained shall affect any law in force in India
and not here by expressly repeated by which any contract is
required to be made in writing or in the presence of witness or
any law relating to the registration of documents”.
• Offer: When one person signifies to another his willingness to
do or abstain from doing anything with a view to abstaining the
assent of other, by such act of abstinence he said to make a
proposal or offer. Acceptance of offer must be absolute
unqualified and unconditioned. The Communication of
Acceptance be made by letters, it will be complete at the time
when and at the place, the letter of acceptance is posted
Contracts in Public Works Departments
(State Engineering Depts. for Project Works and maintenance works)

• K2 Contract: The value of contract is very less and meant for piece work of
small item of work. Process will be one time and single payment.
• Lump sum Contract(LS): A LS contract is one to complete the work comprised
it in for an ascertained and specified sum, or for a specified sum subject to it
being increased or diminished by taking into consideration the value of extra
done and omission made in accordance with the contract.
• LS contract is also called Item rate Contract paid based on measured quantity
with rate quoted of that specific item by Contractor as per agreement.
• The State Engineering departments are following LS Contract since inception
even during pre independence Era. and even today 90% contracts are LS
• Turn Key Contract: The Turn key Contract term is used in design and builds
contracts. It may be that it is intended to indicate that upon completion the
Key can be turned and everything will be ready.
Engineering Procurement and Construction Contract (EPC):
• In LS contract after doing Hydrology and Soil investigation, surveying, designing
and drawing, estimating cost, bill of quantities, preparing specification for each
item of work and sub work, and the tenders will be floated.
• The Success full bidder there upon enters in to an agreement with employer.
• He commence work and will be arranged payments as per bill of quantities
periodically according to progress.
• Whereas the EPC contract is similar to a Turn Key contract. The Internal Bench
Mark value of the project or package work will be considered with required
project completion in a certain period of contract.
• The total completion of project will be divided in Mile stones assigning
percentage of progress.
• The tenders will be and lowest tender will be awarded EPC contract. It is the
responsibility of EPC contractor to investigate, submit designs for obtaining
approval (Engineering), Procuring materials at his end and commence, construct,
and complete the work within Agreement period at quoted total cost of Project.
• But all operation by EPC Contractor shall with in frame work of all approvals from
time to time by employer. Instead payment by bill of quantities in LS Contract,
• EPC payments will be made according achieving the Mile stones stipulated
in agreement and satisfying technical and general specifications after
particular percentage completion of work.
• After final and full completion of Project or Package, the full payment will
be arranged safe guarding employer interests of defect liability and
maintenance of work to specified period mentioned in agreement.
• All major project were taken up under EPC contract mode since 2003-2004
in WRD (erstwhile I&CAD Dept) and some were completed with balance in
• The APDSS, Department Code, Accounts Code were basically brought in
suiting LS contracts since a long time.
• After EPC contracts introduced necessary amendments to these codes were
issued by Government from time to time along with guidelines and
amended rules-regulations of state.
• The original clauses of D Code(LS Contract) are very much applicable
subletting, deleting portion work from main contract to entrust to other
contract(clause:63C) and Termination Clause 61 are very much in force
under EPC too.

( Dr.ISNRaju, Former CE,CDO, & Member,TAC-WRD,AP)

• A promise enforceable by law
• Offer acceptance (legally binding)
• To be legally binding as a contract, a promise must be exchanged for
adequate consideration. i.e., benefit a party receives.

• “Every promise and every set of promises forming the consideration for
each other is an agreement ” section 2 (e) of the Indian Contract Act
1872 ( as ammended by Act 1 of 1997).


• An agreement which is enforceable by law is considered to be a
contract – section 2 (h) of the Indian Contract Act.
 Government is, by far, the largest contractor in any country, so too in
India. Supply products (purchases ) and services (consultancy, labour

 Contracts entered into between private persons and the government

are governed by article 299 of constitution of India.

 Article 299 stipulates “all contracts made in exercise of the executive

power of the union or the state shall be expressed to be made by the
president or by the governor of the state as the case may be and all
such contracts and all assurances of property made in the exercise of
that power shall be executed on behalf of the president or the governor
by such person and in such manners as he may direct or authorise”

 Neither the president nor the governor shall be personally


 AP Financial code mentions only 4 forms of

execution of work, vide chapter VIII, Article 163
1) Department execution
2) K2 Contract – Piece Work
3) Lump Sum Contract
4) Schedule Contract

 Only the first 3 forms are in vogue in Government

The Public works are executed departmentally, by
engaging work charged staff.

When several developmental works were taken-up, it
became difficult to manage several works with the
available meagre work charged staff. The system of ‘K2
Contracts’, or piece work agreements have come into
force. This is basically a labour and material supply
agreement and the contractor has to execute the work,
strictly as directed by the Engineer-in-Charge and with no
responsibility fixed on him.
3) L.S. Contracts :

As the number of experienced contractors started raising,

with the passage of time, the ‘Lump Sum’ contracts have
come into force. In this form of contracts, the contractor
has to execute the work as per Designs & Specifications
issued by the Department by duly employing technical
persons. The contractor is also responsible for QUALITY
EXECUTION of work.
Estimates, Administrative Approval and Technical Sanction
(Article 185 of “F” code, para 99, 101, 102, 154, 390 of A.P.P.W. “D”
Code, G.O.Ms.No.94 dt.1.7.2003)

 State Government works are executed following the

specifications, rules and regulations laid down in:

 AP Standard Specifications (APSS)

 ISI, IRC, MOST, CPWD etc specifications
 AP Departmental code
 AP Accounts code
 G.O’s issued from time to time
 In Irrigation department, for every project, estimates are
prepared on 3 different occasions.

 First, at the time of preparation of feasibility report; a very

rough estimate is prepared, based on experience in construction
of similar projects.

 When once Government accords approval to take up detailed

investigation, a detailed project report (DPR) is prepared based
on preliminary designs.

 In the DPR the main canal estimates are prepared on levels

taken at 200 m interval. For the distributor net work and
CM/CD works estimates are drawn from cost curves. There are
bound to be variations when actual construction takes place.
 Government first accords Administrative Approval, based on
DPR estimates.
 When actual execution is taken up, further detailed investigation
is carried out at closer intervals of 25 m, actual quantities are
worked out and then detailed estimates are prepared adopting
Rates as per:
 The common SSR (Standard Scheduled of Rates) of all
Engineering Depts approved by Board of Chief
Engineers every year (which comes into force with effect
from Ist June of every year).
 The Estimated Amount thus arrived will be the ECV
(Estimated Contract Value) of the tender put to bid.

 The technical sanction is accorded by the competent authority

and after technical sanction, tenders are invited.
 It is observed in practice that detailed estimates prepared so
carefully are also revised based on actual at the time of

 Revised Estimates (Article 197, Para 214, Para 215 ).

 A revised technical estimate must be submitted when the

expenditure is likely to exceed the amount of sanctioned
estimate plus such excess as can be passed by the appropriate
authority for any case what ever other than tender premium or
when material developments or deviations necessitate revised
administrative approval.
Flaws in the existing practices
 Abnormal variations in the sanctioned estimates and revised

 Delays due to non-finalization of alignment, non-approval of

drawings, delays due to approval from competent authority for
change in soil classification, Change in leads and lifts and delays in
land acquisition and R & R.

 Prolonged litigation by Arbitration.

 Thus there are both time and cost overruns in conventional

tender system.

 Telugu Ganga Project started in 1983 with an estimated cost of Rs.

640 crores and programmed to be completed in 6 years,
expenditure till 2003 was Rs 1800 crores with stage of completion
@ 60%. Balance works are taken up and nearing completion under
Jalayagnam Programme. The total revised cost of project is about
Rs. 4000 crores with actual completion period of more than 25

Prolonged Litigation by ARBITRATION:
 Arbitration clause as per act, was introduced in L.S. contracts, with a noble
intention to render quick justice.

 The most common factors in the arbitration claims are

Change in quarries and increase in leads,
Reclassification of soils strata,
Delays in processing of Land Acquisition and R & R,
Delays in processing of Project Clearances from different departments and
acquisition of forest areas etc,.

 All these lapses are often attributed to the Department and the Department in
most of the cases put up a meek defense and leads to exorbitant claims used to
be admitted.

 Government, therefore, brought a change in the system in 1986, putting a ceiling

of Rs. 50,000/ for resolution of disputes through Arbitration. For claims above Rs.
50,000 agency has to seek dispute resolution only through civil suit. This has
resulted in bringing down the amounts due to arbitration claims drastically.

Observations of CAG
 CAG in his report ending 31st March, 2004 has reviewed 24
Irrigation projects (10 Major and 14 Medium), out of which
17 were more than 20 years old, taken up in Andhra
Pradesh and has observed that out of 24 projects 13 projects
only giving partial benefits and in respect of 11 projects no
benefits accrued. It was also observed as “Delay in
completion of the projects resulted in huge cost overrun
(583%) and non-achievement of intended benefits (vide
para 1.8.1 of CAG Report for the year ended 31st March ,
2004. )
Concept of
EPC Contracts & Salient Features

 Certain areas of Andhra Pradesh have been under the severe influence of
Drought for many years. Agriculture in those areas were fully dependent
on monsoon.
 The livelihood of farmers in those regions were affected. Many debt
strapped farmers took the extreme step of taking their own lives.

 On one hand more than 2000 TMC of water is wasted into sea every year
and on the other hand in about 800 taluks out of a total of 1128 taluks in
A.P., people suffer for want of water, both for irrigation and drinking
 Thus, urgent need was felt by government for early completion of
Irrigation projects to utilise the dependable waters.

 To stabilise the agricultural sector, I & CAD Department in 2004 has

introduced the “Jala Yagnam” program.

 In these efforts, the State Government has not only
sanctioned projects but is also giving adequate financial
resources to complete the projects. From 2004 onwards till
date, 86 irrigation projects (including major and medium
irrigation, modernization and flood banks) are taken up
with estimated cost of Rs.1,79,891.74 Crores for creating
an additional irrigation potential of 109 lakh acres.


 To carryout the programme in a time bound manner, the Government looked

around the world the existing practices of procurement for Irrigation Projects
to obtain the best practices.

 Breaking up the works into convenient packages and entrusting them to

major construction companies on EPC Turn Key System.

 The EPC system is in vogue in developed countries and in some of the

public sector undertakings in India and successfully adopted in Narmada
Valley project, NTPC, NHPC, NHAI etc.

FIDIC : (French acronym for the International Federation of Consulting
International Federation of Engineering Consultants, Europe – released a
standard tender document.
in 1987 – Red Book (Designs by employer, work by contractor)
in 1995 – Orange Book / Yellow Book (Designs & work by contractor)
in 1999 – Silver Book – EPC Turnkey System (Definite date & definite amount)
As per this document
The Employer
(i) has to obtain all project clearances, land acquisition and R & R.
(ii) make fund arrangements and make payments in time.
The Contractor
(i) has to Investigate & Design (Engineering)
(ii) has to Procure men and materials and
(iii) construct the project
(EPCT Contract)
• More certain final price and time required
– Balance of risk being changed
– Privately financed BOT type
• Contractor asked to cover extra risks
• Employer will have to pay more
• Completely new book – unbalanced risk
• Full open acceptance of risk picture
• Starting point for BOT type projects
(contd….) EPCT Contract

The EPCT Contract is suitable for:

particularly E&M and process plant projects
all types of Employers
civil law jurisdictions
where government employer or private developer
wants a fixed price turnkey basis and two-party

Special Features of the
Silver Book
• Responsibility for design lies with Contractor
• Employer’s Requirements usually a ‘performance
specification’ (functional basis)
• Contractor carries out all engineering,
procurement, construction, ready for operation at
the ‘turn of a key’
• No Engineer - instead the Employer
• Lump Sum Contract Price (but adjustments in
limited specified cases)
(contd…) Special Features

• Testing procedures to demonstrate achievement

of specified end result
• Contractor carries majority of risks, so
Employer pays more
• Final price and time should be more certain
• Small number of tenders with negotiation
• Contractor given freedom to use own methods
and techniques
• Has to prove reliability and performance
(contd…) Special Features
• These Conditions are not suitable in the
following circumstances:
 if time or information is insufficient before Contract
 if considerable work underground or difficult to
 if Employer intends to supervise closely or control or
 if an intermediary certifies interim payments
 where part of the works is designed by the Employer

Mr. Grove, the Eminent Engineer, who was the chairman of
the Engineers team, which executed the Hong Kong Air Port
(1990-1997) pleaded for all risks to be borne by employer.
The winning tenderer, under EPC system, will either be the
gambler or low guesser.

Mr. Christopher Wade, Chairman, FIDIC commented in 2001

that Silver Book is now a reality.

The Silver Book, has become internationally popular and is

now available on U.N. website.

E.P.C (Engineering Procurement Construction) /

Turn Key System is the methodology being
adopted for expeditious completion of the
projects to achieve the targeted goals by
simultaneous Investigation, Exploration, Design,
Estimating, Procurement and Construction and
Completion of Projects in a time-bound manner.


The Agency (Contractor) shall carry out all the related surveys ie.,
Project site, Head Works, Canals and Distributory system etc.

The Agency shall also conduct the exploration of sub soil for
preparation of detailed designs and drawings of various structures.

The Agency shall prepare Hydraulic Particulars of canals and

designs for all Structures (Head Works and CM & CD Works) and
submit to the Department for approval. The Construction will be
taken up after approval by the Department.

The Agency shall also prepare the Land Plan schedules required
for acquisition of land for construction of the project components
including localisation of area to be irrigated and submit to the
Department for further processing and making available the lands
for construction. 38

The agency shall work out the requirement of machinery,

material, men etc for construction and procure them as per
requirement for completion of various components of the
project as per the time frame stipulated.

The agency shall also evolve the construction programme to

complete the whole work in a stipulated period (PERT and
CPM charts) and the Department shall approve the same.


As per the approved Hydraulic Particulars, designs and drawings

for various components of the project, the construction shall be
taken up and completed by the agency as per the milestones agreed.

The agency shall establish a quality control lab and conduct

various tests to specify the quality requirements and standards
specified for each item of work as per the BIS codes.

The agency shall also maintain all the required records of the
materials, test results, mark out, placement, consolidation, and any
other registers that are required for satisfying the Department as
well as the third party quality assurance teams or any other agency.

The agency shall prepare the record of measurements of the work done
and produce to the Department for checking and arranging payment.
The Department shall arrange land to the agency and continuously
monitor and keep a watch on the quality of work, rate of progress,
approval of designs and take necessary actions as per agreement,
payments etc., to ultimately get the whole work completed on turnkey
basis by the agency within the stipulated period.

The agency shall also do the operation and maintenance for a period of
2 years after completion of the project. During the operation and
maintenance period of the system they should ensure water supply to the
whole of the ayacut contemplated under the project.

The contractor will be discharged of his responsibility only after

successful performance of all the above conditions.


The procurement is for completion of the job in totality, but not

for completion of quantities assigned, as per the existing age old


The contract covers investigation, soil/foundation exploration,

preparation of designs & drawings, procurement of materials and

execution of the work to complete the job in all aspects.

Minimization of Project cost due to competitive designs and

latest construction techniques.

Advantages. . .
Contract value is only one fixed amount. No additional payments

either by way of increased quantities, variation of classification of

soils, increased foundation depths, deviations due to leads, change

of quarries etc. will be given.

 This system is followed in Narmada valley project and other

Central Government undertakings and has been completed


 Pre-qualification (RFQ & RFP)
 In case of specialised nature of works, tenders for pre-qualification
will be called for inviting the firms having required experience in
that specialised category of works.
 They will be short listed against some qualification criteria.
 Whenever the tenders are called for that specialized category of
work, only these short listed firms will be eligible to tender.
 Tender (bid) documents
Tender documents are to be approved by the authority who accords
technical sanction.
Tender (Bid) documents comprise off
 NIT (Notice Inviting Tenders)
 Instruction to bidders
 Conditions of contract (General/special)
 Technical Specifications
 Basic Parameters / Project Profiles
 Mile Stones (Annexure – I)
 Payment Schedule (Annexure – II) 44

Mobilisation advance taken for men and materials is

being properly utilised.

 Whether 5% Machinery advance taken is being

properly invested for purchasing new or old machinery
and availability of them at the site of work.

Whether insurance coverage is taken. Verification of

Bank Guarantees regarding genuinety.

 Whether 5% advance on labour, materials, machinery

and its crew is properly utilised.
Whether establishment of Quality Control Laboratory and
Equipment provided is sufficient to conduct various tests
during execution of work.
Deployment of Technical Agents at the site of work.
Whether all the investigations required for the project is
being carried as per agreement conditions.
Like carrying out foundation exploration / bore hole
data / permeability tests / bearing capacity of soil strata
etc., for arriving soil parameters for designing the
project elements.
Whether various tests required for materials as per BIS
Codes and agreement is being conducted. 46
Whether all specifications required as per agreement and
approved drawings are being followed.
Conducting the field test on the day of working
Testing of materials being used on the work like
cement, steel, sand, aggregates etc.
Conducting of Non-destructive tests.
Whether payments made to the contracting agencies are as
per actual execution and drawings and according to the
agreement conditions.
Whether advances paid are being recovered regularly
including interest accrued from the work bills as per
agreement. 47
Whether the work is being executed as per milestones agreed
according to the agreement.
If not, reasons for not achieving the milestones.
Is it due to contracting agency fault or department
If it is due to agency fault, whether liquidated clause is
imposed and recovered as per agreement.
If it is due to departmental delay, whether revised
milestone programme is approved by the competent

Whether recoveries like Siegnorage fee, IT, VAT and other
statutory taxes are being recovered from the work bills.
Whether defects pointed out by various supervising agencies
being rectified or redone.
Whether labour amenities are provided to the working labour
and their families.
Verification of final measurements for the completed works
and comparing with approved drawings.

1. IBM : Through a High Level Technical Committee.
(Eng in Chief, CE/CDO and Concerned Project Chief Engineer)

2. State Level Standing Committee: ENC, CE/CDO,. Commissioner of

Tenders, Chief Engineer (Projects), representative of Finance (DOA).
(Evaluation of Tenders, Price Escalation, Addition / Deletion of work,
Extension of time, Sub-Contracts etc.,)

3. ENCs Committee: To examine agreements, deviations in basic project

parameters and other issues, as directed by the Government.

4(a). High Power Committee: Chief Secretary, Spl. Chief Secretary

(Finance), Secretary, Irrigation. For scrutinizing tenders and recommending
category – I packages, each valued above Rs. 150 Crs.
(b). Committee of Secretaries: Prl. Secretary (Finance), Secretary (W&P)
Finance and Secretary, Irrigation. For scrutinizing Medium Size Packages
(below Rs 150 crores).
Safe Guards
in EPC System

Safe Guards against inflation of estimate

Internal Bench Mark

 ECV (Estimated Contract Value as per detailed estimate) in

conventional LS contract method is replaced by Internal Bench
Mark in EPC mode of contracting.
 IBM is prepared by field Engineers with provisions made based on
the cost of already approved similar items of work, data from the
available DPRs, arriving at prorate cost by detailed survey of some
portion of ayacut / command and scrutinized and approved by the
concerned Chief Engineer.

Safe Guards against inflation of estimate (Contd….)

 To further safe guard the sufficiency of the IBM value i.e. from
eliminating any unnecessary provisions / inflation as well as to
include any missing essential provisions, IBM Committee consisting
of the following Technical
Experts was constituted by the Government
1) Engineer in Chief (of the respective region)
2) Chief Engineer, CDO.
3) Chief Engineer (of the concerned project)
The IBM Committee examines the provisions and finalises the IBM

Designs Safe Guards
 The EPC Agency is not vested with approval of any Designs.

 Approval of all designs is vested only with the Department i.e. Chief Engineer,
CDO, concerned Chief Engineer / Superintending Engineer as per delegation
ensuring compliance of the standards stipulated as per the CWC guidelines,
Bureau of Indian Standards (Formerly IS Codes).

 Detailed design guidelines were also issued from time to time .

 Further guidelines for approval and finalisation of designs of structures were

issued streamlining the whole process vide Government Memo No.
3277/Reforms/2008 Dt: 2-4-2008.

 Foundations of all Earth Dams and major structures, deep cut reaches tunnels
etc, get inspected by the Geological Survey of India and designs are finalized
as per their suggestions irrespective of proposals of the EPC Agency.
Construction Safe Guards

 EPC Agency is not allowed to take up any item of work on his

 Construction work by the EPC Agency either Earth work or
concrete work etc., is permitted only after due checking of the
mark out / passing the area by the field Engineers of the
Department duly ensuring necessary soil explorations, material
testing, design mix for concrete etc.
 Necessary checks are exercised by the respective level of Field

 The measurements recorded are check measured (as per the

percentages stipulated) by the Field Engineers up to level of
Superintending Engineer and certified by the TPQC Agency
before recommending for payment.
Quality Control Safe Guards

 The quality control of all works executed by the EPC Agencies is

checked by the Field Engineers and quality control wing of the
Department / V& E.

 No materials i.e. soils, sand, metal, cement, steel is allowed to be

used in the works without fully satisfying the characteristics of the
material by the Field Engineers of the Department.

 Other tests on the dams, concrete structures, gates, pumps,

Motors, Pressure mains etc., are also carried out regularly by the
field engineers and quality control wing of the department.

Quality Control Safe Guards (Contd….)

 Apart from the above, 3rd Party Quality Control Agencies are
also engaged to carry out necessary tests to assure the quality
of works executed out by the EPC Agencies.

 3rd Party Quality Control independently carry out quality

assurance measures by engaging experts like experienced
engineers and Professors from reputed universities /
Engineering Colleges by establishing their own mobile testing
laboratories, central laboratory and all other equipment

Quality Control Safe Guards
 Detailed guide lines for quality control were issued
vide Engineer-in-Chief, Irrigation Circular Memo No.
DCE-I/OT MP/AEE/29384/2005-3 Dt: 15.6.2006.

 Without the certificate issued by the 3rd party quality

control after fully satisfying quality standards of the
works, no bill is admitted for payment.
 Chief engineers for Quality Control also supervise
quality aspects.

Performance Safe Guards
 Price Adjustment

 Normal full price adjustment clause was not allowed for EPC
contracts .

 As a Safe Guard, Price adjustment of Cement, Steel, Fuels and

electro mechanical components only were allowed for EPC
contract leaving aside other materials and labour which
constitutes major amount in EPC Agreements.

Performance Safe Guards(Contd…)

 Mobilization Advance

 As per earlier procedure works exceeding more than Rs. 1.00 crore
of estimated contract value are permitted to avail mobilization
advance in two installments equivalent to 10% of the contract
amount (5% for labour mobilization and 5% for machinery and

 As a safe guard, mobilization advance of 5% towards Labour

mobilization is paid in two installments i.e. 1% after concluding
agreement and 4% at the time of commencement of work after
completion of investigation, design and survey (clause 49.1 of the
Agreement) as per instructions of Government vide Memo No.
26135/Reforms/06 Dt: 16.9.2006.

Performance Safe Guards (Contd…)
Maintenance Period

 As Safe Guard towards performance of the system after

completion under EPC contract, Maintenance
responsibility is vested with the EPC Agencies for a period
of 2 to 15 years as per system need.

 After completion of the Project, the agency shall take

care of maintenance for a period of 2 years in respect of
gravity canal systems and 5 to 15 years in respect of Lift
Irrigation Schemes.

 The agency shall be responsible for the maintenance of

all components of the project including associated works
in accordance with prudent utility practice (Clause – I of
Section – V of the Agreement). 61
Performance Safe Guards (Contd…)
 Commensurate Bank Guarantees for both performance
guarantee as well as mobilization advance.
Retention amount
 The Department retains from each payment due to the
contractor at the rate of 7.5% of bill amount as FSD until
completion of the whole of the works.
 The retention amount so accumulated will be released to a
tune of 5% against Bank Guarantee in Spells of Rs. 25.00 /
50.00 lakhs. (Clause 47.1 of the Agreement) keeping a balance
of 2.5% (clause 47.2 of the Agreement)
 5% (2.5% from EMD and 2.5% from FSD) of the value of work
will be retained till defect liability period of 2 years.

Performance Safe Guards (Contd…)

Liquidated Damages
 As Safe Guard against delays in exemption of contract, LD are stipulated
in the Agreements.

 If the contractor fails to complete whole of the works or any part thereof
or section of the works within the stipulated periods of individual mile
stones (including any bona fide extensions allowed by the competent
authority without levying liquidated damages), the Superintending
Engineer may without prejudice to any other method of recovery will
deduct one twentieth of one percent (0.05%) of respective mile stone
financial programme value per calendar day or part of the day for the
period of delays subject to a maximum of 10% of the contract value as
damages due from the contractor from any amounts in his hands due or
which may become due to the contractor (Clause – 48.2 of the

Performance Safe Guards (Contd…)


 The contractor shall obtain and maintain in force

including period of maintenance, contractor all risk
insurance for the project providing full coverage on
replacement value basis. Covered peril shall include fire,
flood and allied perils.
 Insurance for workers against injury and death as per
workman compensation act shall also be obtained by
the contractor (Clause – 8 of Section – V of the

Payment Schedules for Civil, Hydro-mechanical and Electro-
mechanical works

 Payment for Earth Work Excavation and lining of gravity

A) The unit length of eligibility for arranging payment for earth work
excavation of canals (excluding CM & CD works) shall be taken as 100 M.
for main canal (discharge more than 10000 Cusecs), 250 M. for main
canal (discharge between 1000 cusecs and 10000 cusecs), 1.0 Km. for
branch canal and distibutaries/majors (discharge between 10 cusecs and
1000 cusecs).
B) In case of deep cuts, the payment schedule shall further subdivided into
components berm wise with a bay length of 25 M. and the berm wise
payments shall be followed duly restricting the berm wise payment to a
maximum length of 1 KM. in a reach (Govt.Memo No.3277/ Major. Irri/
2006-5, Dt.24-2-2007).
C) The unit length for eligibility for arranging payment for lining of canals shall
be taken as 100 M.

 Payment for construction of CM & CD works:
A) In respect of CM & CD works, the intermediate payments shall
be in three stages, i.e., at (a) Completion of foundations
including earthwork, (b) Completion of Sub-structure and (c)
Completion of Super structure including miscellaneous items.
The mode of payment shall be 30% after completion of
foundations, 30% after completion of Sub-structure and balance
40% after completion of individual structure.
B) However, 30% of payment against 40% in the 3rd stage shall
be released after completion of deck slab of the structure (CM
& CD works), other than Aqueducts and super passages and
remaining 10% shall be released after completion of structure
in full shape. (Govt. Memo. No. 31960/ Reforms/2007-1, dt.
C) In case of big structures where ever the length of structure is
more than 40 M. and above on main canal, the Chief Engineer
may revise the payment schedule subject to ensuring that the
over all payment is limited to the agreement value. (Govt.
Memo. No. 37245/ Reforms/2007-1, dt.11.2.2008)
 Payment for Hydro-Mechanical works:

A) 85 % of the quoted price of Hydro-Mechanical works component for

supply of goods including fabrication (for price including all taxes
and duties) shall be paid on receipt at the Project Site based on
certificate prepared by Engineer-in-Charge and Supplier’s
Representative, on the basis of various items received in
accordance with the Contract Agreement.

B) 10 % of quoted price of Hydro-Mechanical Works component shall

be paid on erection, testing and commissioning of equipment, on
pro rate contract value of work completed as per the agreed
construction schedule and on certification by the Engineer-in-
Charge and Supplier’s Representative.

C) Balance 5 % of the quoted price of Hydro-Mechanical Works

component shall be paid at the time of final bill.

Contingent works
Where work can not be proceeded
independently without interfering with the
work let out but have necessarily to be
executed along with the original contract shall
be considered as contingent on the original
Contingent works may be with in the defined
scope or out side.

Non Contingent Works

Wherever additional items not contingent on

the main work and outside the scope of
original agreement which has to be executed
along with the original work are non
contingent works.