There are many conditions for successful project execution under the turnkey contract system. We now discuss them briefly.
• Proper Packaging: This means breaking the total project scope into independent packages in such a way so as to attract maximum response from the bidders. For example, construction of a new substation and renovation and modernization of the existing substation can be combined to form a package while construction of new lines and renovation of existing lines can form another package.
• Qualifying Requirements for Bidders: Depending upon the project schedule and complexities, the post or pre-qualification route of bidders can be decided. Post-qualification route is most prevalent and calls for lesser pre-award time. Once the packaging is finalized, laying down the qualifying requirements for the prospective bidders is the next important aspect of the tendering process. This becomes more significant in turnkey execution because in the turnkey concept, the overall progress of the work depends upon the capabilities of the contractor.Qualifying requirement must be laid down judiciously and clearly (no scope for subjective interpretation) in terms of
− technical expertise and experience,
− financial soundness − annual turnover, liquid assets, etc.
− past performance record in terms of timely execution and litigation history,
− allowing joint venture bids.
Preparation of NIT (Notice Inviting Tender) Cost Estimates: In government and PSU organizations there is an established way of (last awarded price) cost estimate preparation which is not designed andgeared for incorporating market dynamics and certain essential but hidden costs associated with turnkey contracts. Although last awarded price concept does take care of some of the hidden costs, for the first timers it is essential to know these costs. Generally the working capital cost, cost of utility tilted payment terms, cost of uncertainties (fixed price contract while the market is volatile), cost due to project completion time (lower the schedule completion, higher will be the cost), cost due to location of project, etc., are seldom accounted for while preparing the NIT cost estimates.
• Publication of NIT and Time for Submission of Bids: For better response, it is imperative that NIT be published in all leading newspapers and website of the utility in addition to sending the copies of NIT topreviously known agencies. Since the bidder has to collect inputs from various sources, a reasonable time must be given for bid submission. A period of 45-60 days can be a reasonable time between NIT and the date for Opening of Bid Document (OBD).
• Comprehensive Bid Documents: This is perhaps the most important aspect of turnkey project execution. The bid documents must be comprehensive and devoid of ambiguity and subjectivity. The scope of services to be performed by the contractor should be clearly defined. There is a general misconception among utilities that whatever is written in the Bid Document becomes binding on the contractor.
It should be ensured that only those clauses are kept which are practically feasible. Putting unreasonable clauses even if agreed by the contractor is open for Judicial Review and redress. The technical and functional requirement should be clearly defined to avoid any conflict at a later stage. Performance guarantee of the total project, variation in scope of the work, penalty in case of delayed completion, payment conditions,guaranteed technical parameters of the equipment, price variations are some areas which need special care while formulating the terms of the contract. General terms and conditions and also the conditions specific to the particular package by which the project shall be governed should form an integral part of the bid documents (Box ).
Box : What Should a Turnkey Bid Document Include?
− Scope of the Package/Contract.
− Detailed Technical Specifications.
− Bill of Quantity.
− Guaranteed Technical Particulars of Various Equipments.
− General Conditions of Contract.
− Special Conditions of Contract, Quality and Reliability.
Clarification of Bidders’ Queries, Issue of Amendments and Pre-Bid Conference: In turnkey execution, the scope of the contractor is much wider compared to the unit rate contract. Therefore, a dedicated technical and contract team of the utility must be in place to clarify the doubts the bidders may have and to issue necessary amendments. As a practice and for the sake of transparency, the clarifications along with the queries are sent to all the parties who have purchased the bid documents. Turnkey execution in distribution being a recent development, it is desirable that a pre-bid conference is convened by the utility to discuss and clarify all the doubts of the bidders.
•Project Information: A detailed, comprehensive and realistic planning of the work intended to be done is the key of any turnkey project. The scope of the work should be spelt out very clearly. Technical details of the work intended to be done must be finalized by the utility before the bids are invited. For example, for construction of a new line, this means that the documents need to spell out the
− approximate length of the line,
− its starting point and the tentative route,
− type of conductor to be used and its configuration,
− type of insulators to be used,
− type of poles and pole foundations,
− poles earthing arrangement,
− major topological details like river, road and rail crossings, etc.
For renovation of the existing lines this means spelling out the
− present pole conditions, i.e., locations of the poles to be replaced,
− foundations to be strengthened/re-done and their type,
− sections where re-conductoring is to be done and the new conductor to be used,
− type of insulators required for replacing the defective insulators, and
− methodology to handle the old material.
• Technical Specifications: Technical specifications of equipment and material, and the installation process should be clearly described in the bid documents. Before finalizing the equipment parameters, interaction with the manufacturers can be very helpful in selecting the technology and prescribing the optimum parameters. Apart from specifications the Bid Document may contain Guaranteed Technical Parameters (GTP) for all major items in a format. As an alternative, the utility can specify the GTP and the bidder has to simply say yes/no to the utility specified GTP. The second option has many advantages apart from requiring less bid evaluation time. To make it easier for the bidders, the utility may furnish the list of its approved vendors/manufacturers in the bid document.
• Efficient and Responsive Utility’s Project Execution Team: The distribution projects are normally multi-location in nature and their progressdepends upon a number of local factors which may sometime adversely affect the work. Under such situations, immediate actions/decisions, both technical and administrative in nature, become necessary. Further, day to day planning, supervision, quality control of the work are also equally important. For this purpose, an efficient and responsive Utility’s Project Execution Team along with a similar team from the contractor should be formed and kept at appropriate places. This team acts as interface between the management and site and prepares and keeps them apprised about the project deliverables. This team must be empowered to take decisions at site in the interest of the project. All requisite logistic supports should be available to the project execution and supervision teams.
•Project Monitoring Team: Overall project monitoring is done at the head quarter level. The HQ based project monitoring team acts as interface between the top management and the site offices and has many responsibilities (Box).
• Proper Packaging: This means breaking the total project scope into independent packages in such a way so as to attract maximum response from the bidders. For example, construction of a new substation and renovation and modernization of the existing substation can be combined to form a package while construction of new lines and renovation of existing lines can form another package.
• Qualifying Requirements for Bidders: Depending upon the project schedule and complexities, the post or pre-qualification route of bidders can be decided. Post-qualification route is most prevalent and calls for lesser pre-award time. Once the packaging is finalized, laying down the qualifying requirements for the prospective bidders is the next important aspect of the tendering process. This becomes more significant in turnkey execution because in the turnkey concept, the overall progress of the work depends upon the capabilities of the contractor.Qualifying requirement must be laid down judiciously and clearly (no scope for subjective interpretation) in terms of
− technical expertise and experience,
− financial soundness − annual turnover, liquid assets, etc.
− past performance record in terms of timely execution and litigation history,
− allowing joint venture bids.
Preparation of NIT (Notice Inviting Tender) Cost Estimates: In government and PSU organizations there is an established way of (last awarded price) cost estimate preparation which is not designed andgeared for incorporating market dynamics and certain essential but hidden costs associated with turnkey contracts. Although last awarded price concept does take care of some of the hidden costs, for the first timers it is essential to know these costs. Generally the working capital cost, cost of utility tilted payment terms, cost of uncertainties (fixed price contract while the market is volatile), cost due to project completion time (lower the schedule completion, higher will be the cost), cost due to location of project, etc., are seldom accounted for while preparing the NIT cost estimates.
• Publication of NIT and Time for Submission of Bids: For better response, it is imperative that NIT be published in all leading newspapers and website of the utility in addition to sending the copies of NIT topreviously known agencies. Since the bidder has to collect inputs from various sources, a reasonable time must be given for bid submission. A period of 45-60 days can be a reasonable time between NIT and the date for Opening of Bid Document (OBD).
• Comprehensive Bid Documents: This is perhaps the most important aspect of turnkey project execution. The bid documents must be comprehensive and devoid of ambiguity and subjectivity. The scope of services to be performed by the contractor should be clearly defined. There is a general misconception among utilities that whatever is written in the Bid Document becomes binding on the contractor.
It should be ensured that only those clauses are kept which are practically feasible. Putting unreasonable clauses even if agreed by the contractor is open for Judicial Review and redress. The technical and functional requirement should be clearly defined to avoid any conflict at a later stage. Performance guarantee of the total project, variation in scope of the work, penalty in case of delayed completion, payment conditions,guaranteed technical parameters of the equipment, price variations are some areas which need special care while formulating the terms of the contract. General terms and conditions and also the conditions specific to the particular package by which the project shall be governed should form an integral part of the bid documents (Box ).
Box : What Should a Turnkey Bid Document Include?
− Scope of the Package/Contract.
− Detailed Technical Specifications.
− Bill of Quantity.
− Guaranteed Technical Particulars of Various Equipments.
− General Conditions of Contract.
− Special Conditions of Contract, Quality and Reliability.
Clarification of Bidders’ Queries, Issue of Amendments and Pre-Bid Conference: In turnkey execution, the scope of the contractor is much wider compared to the unit rate contract. Therefore, a dedicated technical and contract team of the utility must be in place to clarify the doubts the bidders may have and to issue necessary amendments. As a practice and for the sake of transparency, the clarifications along with the queries are sent to all the parties who have purchased the bid documents. Turnkey execution in distribution being a recent development, it is desirable that a pre-bid conference is convened by the utility to discuss and clarify all the doubts of the bidders.
•Project Information: A detailed, comprehensive and realistic planning of the work intended to be done is the key of any turnkey project. The scope of the work should be spelt out very clearly. Technical details of the work intended to be done must be finalized by the utility before the bids are invited. For example, for construction of a new line, this means that the documents need to spell out the
− approximate length of the line,
− its starting point and the tentative route,
− type of conductor to be used and its configuration,
− type of insulators to be used,
− type of poles and pole foundations,
− poles earthing arrangement,
− major topological details like river, road and rail crossings, etc.
For renovation of the existing lines this means spelling out the
− present pole conditions, i.e., locations of the poles to be replaced,
− foundations to be strengthened/re-done and their type,
− sections where re-conductoring is to be done and the new conductor to be used,
− type of insulators required for replacing the defective insulators, and
− methodology to handle the old material.
• Technical Specifications: Technical specifications of equipment and material, and the installation process should be clearly described in the bid documents. Before finalizing the equipment parameters, interaction with the manufacturers can be very helpful in selecting the technology and prescribing the optimum parameters. Apart from specifications the Bid Document may contain Guaranteed Technical Parameters (GTP) for all major items in a format. As an alternative, the utility can specify the GTP and the bidder has to simply say yes/no to the utility specified GTP. The second option has many advantages apart from requiring less bid evaluation time. To make it easier for the bidders, the utility may furnish the list of its approved vendors/manufacturers in the bid document.
• Efficient and Responsive Utility’s Project Execution Team: The distribution projects are normally multi-location in nature and their progressdepends upon a number of local factors which may sometime adversely affect the work. Under such situations, immediate actions/decisions, both technical and administrative in nature, become necessary. Further, day to day planning, supervision, quality control of the work are also equally important. For this purpose, an efficient and responsive Utility’s Project Execution Team along with a similar team from the contractor should be formed and kept at appropriate places. This team acts as interface between the management and site and prepares and keeps them apprised about the project deliverables. This team must be empowered to take decisions at site in the interest of the project. All requisite logistic supports should be available to the project execution and supervision teams.
•Project Monitoring Team: Overall project monitoring is done at the head quarter level. The HQ based project monitoring team acts as interface between the top management and the site offices and has many responsibilities (Box).
Box: Responsibilities of the Project Monitoring Team
• Preparation of macro and micro level work schedules.
• Apprising the top management about the project milestones achieved based on the reports received from the site offices.
• Highlighting critical points and bottlenecks.
• Advising the site as per the decision of the management.
• Arranging project review meeting with the top management of both the parties at regular intervals by this team.
• Facilitating decision making on critical issues to ensure smooth execution of work at site.
Quick and Efficient Engineering, Quality Assurance and Inspection Team: This team of the utility performs the most critical project input jobs and its success or failure decides the fate of the project (Box).
Box : Functions of the Inspection Team
• Approving Manufacturing Quality Plan (MQP) of the suppliers of various equipment, and assessing their manufacturing capabilities to supply quality product and approving them as vendors for the project.
• Approving the engineering drawings/document submitted by the contractor and ensuring that all the specifications are met and releasing the same to the site for execution.
• Tackling all unforeseen and other engineering issues.
• Drawing the comprehensive testing and inspection plan for various equipment.
• Witnessing the testing and carrying out pre-dispatch inspection of material.
•Efficient and Expeditious Payment Mechanism: In turnkey project execution, since it is the contractor who is responsible for all activities including the procurement of material, it is essential that the contractor gets regular payment to maintain the pace of the work. The payment terms, should be clearly defined in the contracts backed by proper payment release mechanism.
In sum, turnkey or single point responsibility contracts are essential for the overhaul of the country’s massive distribution system. However, a lot of home work is required to be done by the utilities as well as the industry.There are issues of scalable equipment manufacturing capacities and vendor development to be addressed by the industry. Service providers have also to look into developing project execution system which provides for fast decentralized decision making.
The turnkey contractors also have to understand the sensitivities of the utilities and not take this just as an opportunity to expand business and earn profits. At the same time utilities have to understand that in the era of global outsourcing it is futile to continue with the age old practices of departmental unit rate contract execution.
We now discuss a case study for demonstrating the benefits that are measurable and quantifiable and hence the utility of turnkey contracts for such schemes/projects.
• Preparation of macro and micro level work schedules.
• Apprising the top management about the project milestones achieved based on the reports received from the site offices.
• Highlighting critical points and bottlenecks.
• Advising the site as per the decision of the management.
• Arranging project review meeting with the top management of both the parties at regular intervals by this team.
• Facilitating decision making on critical issues to ensure smooth execution of work at site.
Quick and Efficient Engineering, Quality Assurance and Inspection Team: This team of the utility performs the most critical project input jobs and its success or failure decides the fate of the project (Box).
Box : Functions of the Inspection Team
• Approving Manufacturing Quality Plan (MQP) of the suppliers of various equipment, and assessing their manufacturing capabilities to supply quality product and approving them as vendors for the project.
• Approving the engineering drawings/document submitted by the contractor and ensuring that all the specifications are met and releasing the same to the site for execution.
• Tackling all unforeseen and other engineering issues.
• Drawing the comprehensive testing and inspection plan for various equipment.
• Witnessing the testing and carrying out pre-dispatch inspection of material.
•Efficient and Expeditious Payment Mechanism: In turnkey project execution, since it is the contractor who is responsible for all activities including the procurement of material, it is essential that the contractor gets regular payment to maintain the pace of the work. The payment terms, should be clearly defined in the contracts backed by proper payment release mechanism.
In sum, turnkey or single point responsibility contracts are essential for the overhaul of the country’s massive distribution system. However, a lot of home work is required to be done by the utilities as well as the industry.There are issues of scalable equipment manufacturing capacities and vendor development to be addressed by the industry. Service providers have also to look into developing project execution system which provides for fast decentralized decision making.
The turnkey contractors also have to understand the sensitivities of the utilities and not take this just as an opportunity to expand business and earn profits. At the same time utilities have to understand that in the era of global outsourcing it is futile to continue with the age old practices of departmental unit rate contract execution.
We now discuss a case study for demonstrating the benefits that are measurable and quantifiable and hence the utility of turnkey contracts for such schemes/projects.
The best Article that I have never seen before with useful content and very informative.Thanks for sharing info. Trunkey Project Contractor In lucknow
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