AUDIT OF CONTRACTS AND MOUs Procurement Execution Materials

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 Procurement is 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 possible cost to 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 competition for their business while minimizing exposure to fraud and collusion.

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 monopoly basis award of Public Private Partnership projects.

ESSENCE OF PUBLIC PROCUREMENT Ø Transparency Ø Fairness Ø Efficiency Ø Economy Ø 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 predetermined performance standards, measurable by the public entity or its representative.

MATERIALS MANAGEMENT Ø Material management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation Ø 5 R’s 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 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 Ø Limited Tender Enquiry Ø Open Tender Enquiry Ø Global Tender Enquiry Ø Single Tender Enquiry ( for Proprietory Items) Ø Single Tender Enquiry ( Non-Proprietory Items)* Ø Repeat Order* Ø 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 (SCC) shall be read in conjunction with the General Conditions of Contract (GCC) also referred to as General Terms & Conditions of Works Contract, Schedule of Quantities, Specifications of work, drawings and any other document forming part of this Contract wherever the context so requires. Where any portion of the GCC is repugnant to or at Variance with any provisions of the Special Conditions of Contract, then unless a different intention appears, the provision(s) of the Special Conditions of Contract shall be deemed to override the provision(s) of GCC only to the extent that such repugnancy or variations in the Special Conditions of Contract are not possible of being reconciled with the provisions of GCC.

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: Manufacturer’s 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 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. to be Party may be invited for discussion in high value cases 7. First, Eligibility to be checked minutely 6.

GENERAL CONDITIONS OF CONTRACT Ø Scope of Facilities Ø Completion Time Ø Contractor’s Responsibilities Ø Employer’s Responsibilities Ø Payment Terms, Taxes and Duties Ø Confidential Information: Patent, Copyright Ø Work Execution Ø Test and Inspection Ø Guarantee and liabilities Ø Dispute Settlement, Risk Distribution

SPECIAL CONDITIONS OF CONTRACT Ø SCOPE OF FACILITIES Ø COMPLETION TIME Ø PAYMENT TERMS Ø WORK EXECUTION Ø TEST AND INSPECTION Ø GUARANTEES AND LIABILITIES

ORDER EXECUTION Ø PO details to be checked by Indenting Group. Discrepancies if any to be informed to MMD Ø Kick off meeting with the Party / Plant/ RDCIS Ø Protocol of the activities to be duly signed Ø Billing schedule to be frozen & approved Ø Back–up documents for LD to be maintained Ø Timely follow-ups for delivery, inspection, I&C, PAC, FAC, etc Ø All correspondences to be made with a copy to MM Ø Commercial issues, to be referred to MM Ø No additional supply / job / alteration to Scope shall be allowed during execution.

ORDER EXECUTION (Contd. ) Ø Nomination of Representative: Employer, Contractor Ø Co-operation with Other Contractors Ø Work Program Ø Progress Report Ø Progress of Performance Ø Manpower Requirement for Operation & Maintenance of Facilities Ø Training Ø subcontracting Ø Design and Engineering Ø Codes and Standards

ORDER EXECUTION (Contd. ) Ø Approval / Review of Technical Documents by Engineer / Consultant Ø Civil Engineering Work Ø Structural Load Test Ø Royalties for the Construction Materials Ø explosives Ø Import License & Export License Ø Packing Ø Transportation Ø Customs Clearance

ORDER EXECUTION (Contd. ) Ø Installation Ø Labour and Labour Rules Ø Compliance with Statutory Laws Regulations of Govt. / Local Authority Ø Site Regulations and Safety Ø Erection Ø Emergency Work Ø Site Clearance Ø Test and Inspection Ø Preliminary Acceptance and Other

ORDER EXECUTION (Contd. ) Ø Commissioning Ø Performance Guarantee Test Ø Final Acceptance

IMPORTANT TERMS / DEFINITION Ø CONTRACT: Contract Agreement entered into between the Employer and the Contractor, together with the Contract Documents constitute the Contract Ø 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 Ø 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. ) Ø CONTRACTOR’S REPRESENTATIVE: Person nominated by the Contractor and approved by the Employer hereof to perform the duties delegated by the contractor. For site work Contractor’s Representative shall also mean the representative of Sub-Contractors and Sub. Contractor’s Sub-Contractors Ø 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. Ø 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. ) Ø INSTALLATION SERVICES/SERVICES: All those services ancillary 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. Ø CONTRACTOR’S 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. Ø SITE: The land 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. ) Ø EFFECTIVE DATE OF CONTRACT: The date of signing of Contract or 30 days from date of Letter of acceptance (LOA), whichever is earlier Ø 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 Ø 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. ) Ø PRELIMINARY ACCEPTANCE CERTIFICATE: The Certificate to be issued by the Employer on successful completion of preliminary Acceptance Tests Ø COMMISSIONING: Operation of the Facilities by the Contractor to a level of output Ø COMMISSIONING CERTIFICATE: The Certificate to be issued by the commissioning Ø 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 (Contd. ) Ø PERFORMANCE GUARANTEE CERTIFICATE: The Certificate to be issued by the Employer upon successful establishment of Performance Guarantee Parameters Ø FINAL ACCEPTANCE: The acceptance by Employer of the Facilities which certifies Contractor’s fulfillment of the Contract the Ø FINAL ACCEPTANCE CERTIFICATE: The Certificate to be issued by the Employer on Final Acceptance of System Ø 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 Ø Memorandum of Understanding (MOU) is a common understanding reached between parties to do or not to do certain things or work or act. Ø Under an MOU obligations are moral but in a contract rights and obligations are legal Ø No legal right flows from MOU unless contents of MOU expressly provides so Ø It is contents of MOU which will determine the nature and character of the documents as to whether it is MOU or contract Ø Mere heading of a document as MOU will not make it MOU

MOUs and PRE ORDER TIE UP Ø Witness should be avoided Ø No legal clauses such as arbitration, force majeure, severability, fee, payment terms, tax clauses, indemnity. Liability, guarantee/warranty etc. should be written in MOU Ø If intention is to create Under an MOU it would be treated as contract and not MOU Ø 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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