AuditNet: Internet Web Portal for Auditors!

1.1 In the past the details of the works to be constructed and the requirements of the owners were conveyed verbally to the contractors to be invited to tender for construction of any works. However, with increased pace of development and the scope of construction contracts/projects during the past few decades vastly expanded and became complex in terms of size, scope, complexity, cost, completion periods and compliance of mandatory regulations. Also the projects construction and their implementation could adversely affect third parties. Thus it became imperative that all relevant information pertaining to the works be comprehensive and conveyed in a clear and concise manner to all the prospective contractors. The requirements are conveyed in a document referred to as ‘Instructions to Tenderers’.

1.2 In addition to ensuring that the prospective contractors base their bids on an informed basis, the Client also requires information about the legal status, expertise, experience, resources [organizational structure/financial/logistics], track record, current work load, etc., from the prospective contractors.

2.1 The objective of preparing the Check Lists is to ensure that important documents are not overlooked and that the individual contents are relevant to the scope of works of which the Client and prospective contractors are all aware at the outset.

2.2 Prospective contractors must be aware of their obligations and responsibilities and possess all the information that would be necessary for them to be able to provide reasonably priced bids for the works to be constructed and a level playing field. This will ensure that the works are constructed at the best possible price and thus contribute to effective management of the contract. The ‘TTD’ would enable the prospective contractors to base their bids on an informed basis and thus further avoid/minimize any future claims and disputes that could be attributed to insufficiency of information or its vagueness.

2.3 Similarly the Clients require the contractors’ information as it is necessary for evaluation of the bidders to enable the selection of the best possible bid that is cost-effective and cost-efficient.

2.4 The explanatory notes of the individual documents further highlight and assist in prevention of any financial and legal implications that could be costly. It can also assist in identifying fraudulent opportunities and possibilities that can be prevented or mitigated with appropriate remedial actions from the beginning before the invitation, evaluation, selection and acceptance of any bid.

3.1 The documents listing the information provided to the prospective contractors and information required by the Client and provided to the prospective contractors are generally referred to as ‘Tender/Tender Table Documents’ [‘TTD’]. One set of ‘TTD’ is issued to the participating contractors and another set is displayed in the Client’s office. Listed hereunder are the more commonly used documents that constitute the ‘TTD’.

[iii] Perf Bond/Guarantee/Advance Payment G’tee Financial Security Requirements

- Price Escalation Clause for Selected Materials Building Materials subject to Variances,

- Day work Schedule [Labor/Plant/Equipment] Cost Computation for Usage for Changes

- Employment of Apprentices [Skills & Incentives] Provide practical learning opportunities

- Contractor’s Registration, Classification & Eligibility For Evaluation of Bidders

All Documents/Drawings on display to be stamped ‘Tender Table Documents’ [‘TTD’]

3.2 The above list is not comprehensive as different type of works/implementation methods may require other relevant information that may need to be conveyed to the participating contractors and information that the required by the client. Examples of such works/implementation methods would include specialized works [M&E] or implementation methods [Lump Sum, BOQ, Design & Construct, Built-Operate-Transfer, Drawings & Rates, Turnkey, and Cost-Plus]. It is important that the Client identify in advance the information to be conveyed/required for any contract and select the relevant contents of the ‘TTD’ on which bids are to be invited.

3.3 Standardized Terms & Conditions and contents of other types of documents that form part of ‘TTD’ are generally available to the construction industry in the developed/developing countries.

However these need to be suitably amended/modified for specific types of construction projects.

4.0 Responsibility of the Owner in Selection and Listing of the Relevant ‘TTD’

4.1 This responsibility of identification and selection of the ‘TTD’ is generally delegated by the Client [‘Management’] to a professional who should have the relevant expertise in the type of scope of works, implementation method, type of contract and industry practices, and the laws of the country where the project is to be located. It is good practice and an effective internal control that the contents of the ‘TTD’ be double checked to ensure relevancy, comprehensiveness and accuracy. The person responsible should provide his/her name, position and dates of such checking to ensure accountability and instill a sense of responsibility in those involved in compiling and checking the processes. The ‘TTD’ should be issued within periods that are reasonable vis-a-vis to the scope of works and provide sufficient time to enable the prospective bidders to submit their bids.

4.2 It is important that Owners scrutinize the contents of the Check Lists to ensure that they are compatible with their in-house policies, procedures and practices. These should be reviewed and where appropriate revised periodically together with the internal controls for optimum effectiveness.

5.1 It is agreed that the ‘Owner’ defines the scope of work and prescribes the requirements as listed in the ‘TTD’ pertaining to the specific scope of works. However the prospective bidders should scrutinize the contents of the ‘TTD’. The objective should be to ensure that the contractor is fully aware of his obligations, the financial and legal implications of the scope of works for which he is bidding. Enquiries/clarifications should be sought from the ‘Owner’ and also from his own team of professionals before pricing and finalizing the bid for submission and if successful, acceptance of the Letter of Award and subsequently signing the Formal Contract Document. The clarifications sought and the responses received would form part of the finalized contract document.

6.1 The primary users of ‘TTD’ should be all the Project Management Technical Professionals [including Superintending Officer, appointed Professionals and Site Supervisors] involved in the planning, implementation and monitoring of the construction contracts. Others who are indirectly involved and should use the ‘TTD’ would include the Responsibility of Other Non -Technical Professionals [Including Finance, Legal, Safety and Internal Auditors]. Management should consider obtaining the input of non-technical professionals. Their input could enhance the comprehensiveness and practicability of the ‘TTD’.

7.1 The ‘TTD’ is generally sold to prospective contractors at rates that are dependent on the quantity of the documents. The amount could be a few hundred to tens of thousands. In most cases the payment is either fully non-refundable or partly refundable but subject to return of the undamaged ‘TTD’. Management should ensure that the rate charged is sufficient to cover the cost of preparing the ‘TTD’. It is not considered good practice in the construction industry if the imposed rates are excessive whereas under pricing the rates would not be in the best financial interest of the client.

7.2 The ‘TTD’ is retained until the issue of the award of the contract to the successful bidder. Copies of ‘TTD’ sets returned by the unsuccessful bidders may be retained at the discretion of the client.

8.1 It is emphasized that there are many opportunities for fraudulent practices in the contents and compilation of ‘TTD’. Thus it is important that great care is taken at inception to ensure that the contents of the ‘TTD’ are relevant to the works to be constructed and other aspects. The time spent in the early stages on the contents and compilation of the ‘TTD’ should contribute to the Effective Management of Contracts.

8.2 It has been observed during the audit of some construction contracts that some professionals tend to equate quality with quantity and include documents in ‘TTD’ that may not be relevant to the scope of work. Further they are generally very confident that the Management of Owners/Contractors will not read or be able to understand the purpose of the proposed documents. This situation continues due to several factors such as blind trust and confidence in the professionals assigned to prepare and compile the ‘TTD’ and further absence of interest, lack of self confidence in the ability to vet the contents of these documents and/or unwilling to ask any questions or seek any clarifications. Thus the defective ‘TTD’ continues to exist and the defects surface only when the prospective bidders seek clarifications on the contents of the ‘TTD’ after the bidders collect and scrutinize them. Excessive clarification requests and the responses can be time consuming and tend to increase the bid amounts submitted by bidders.

8.3 The contents of every Check List should be compiled and complied with intelligently and not blindly. It is important that the contents and their function be reviewed regularly and also for all stages including evaluation after completion of the contracted works. They should then be revised as appropriate for future contracts. This will ensure that the Check List continues to retain its usefulness.

8.4 It is further emphasized again that these Check Lists should be used as a guide only. Users should make necessary amendments to ensure compatibility with the scope of works and the type of contract.

Check Lists are important Internal Controls.

Identification & Compilation of ‘TTD’ should be shared responsibility.

Auditors should ensure that ‘TTD’ is comprehensives & relevant for Effective Audits

Note: It is important that Companies involved in the Construction Industry be aware of the various contract documents that would assist in the effective management of the contracts from the inception stage to the stage when the works are completed and used for their intended purpose. The documents relevant to the various aspects would vary but they may be summarized under the following headings:

Articles on the following Check Lists have been published in the earlier ‘AuditNet’ Newsletters.

The writer welcomes comments from readers with the intention of mutual enhancement of knowledge. E-mail address: >gursharan38@gmail.com<>sharwant38@yahoo.com.

Audit Programs Sarbanes-Oxley Center AuditNet Links AuditNet Library AuditNet Newsletter Audit Jobs Partner Discounts Search the Site Sign the Guestbook Advertise Our Sponsors AuditNet Home

Audit Programs
Sarbanes-Oxley Center
AuditNet Links
AuditNet Library
AuditNet Newsletter
Audit Jobs
Partner Discounts
Search the Site
Sign the Guestbook
Advertis e
Our Sponsors
AuditNet Home