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• 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
Contracts.
• 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
progress.
• 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.
EPC CONTRACT SYSTEM
(ENGINEERING PROCUREMENT CONSTRUCTION)
AGREEMENT
• “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).
2) K2 CONTRACTS :
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 :
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Prolonged Litigation by ARBITRATION:
Arbitration clause as per act, was introduced in L.S. contracts, with a noble
intention to render quick justice.
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.
23
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. )
24
Concept of
EPC Contracts & Salient Features
NEED FOR EARLY COMPLETION OF IRRIGATION PROJECTS
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
needs.
Thus, urgent need was felt by government for early completion of
Irrigation projects to utilise the dependable waters.
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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.
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CHOICE OF PROCUREMENT
28
FIDIC : (French acronym for the International Federation of Consulting
Engineers)
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
THE SILVER BOOK
(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
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(contd….) EPCT Contract
31
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)
32
(contd…) Special Features
34
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.
37
ENGINEERING
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 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
PROCUREMENT
39
CONSTRUCTION
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.
40
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.
41
ADVANTAGES OF EPC SYSTEM
practice.
successfully.
43
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
AREAS TO BE INVESTIGATED IN
EPC SYSTEM
48
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.
49
INSTITUTIONAL ARRANGEMENTS:
1. IBM : Through a High Level Technical Committee.
(Eng in Chief, CE/CDO and Concerned Project Chief Engineer)
51
Safe Guards against inflation of estimate
52
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
value.
53
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).
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.
54
Construction Safe Guards
56
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.
57
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.
58
Performance Safe Guards
Price Adjustment
Normal full price adjustment clause was not allowed for EPC
contracts .
59
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
equipment).
60
Performance Safe Guards (Contd…)
Maintenance Period
62
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
Agreement).
63
Performance Safe Guards (Contd…)
Insurance
64
Payment Schedules for Civil, Hydro-mechanical and Electro-
mechanical works
65
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.
27.5.2008)
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.
66
Memo. No. 37245/ Reforms/2007-1, dt.11.2.2008)
Payment for Hydro-Mechanical works:
67
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
work.
Contingent works may be with in the defined
scope or out side.
68
Non Contingent Works
69
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