Para 4.1 — CONSULT_MANUAL

5. Lump Sum Contracts - Risks and Mitigations

4.1.1 Lump Sum (Firm Fixed Price) Contract: 1. The lump sum (firm fixed price) contract is the simplest form of contract and wherever feasible; the Procuring Entity shall use this form of contract. In this type of contract consultants are required to quote a lump sum fixed price figure for completing the Consultancy services in accordance with the given terms of reference. Consultant’s proposal is deemed to include all prices - no arithmetical correction or price adjustments are allowed during evaluation. This Terms of Reference shall indicate the scope and quantum of Services required.

Risk Mitigation 1. The quality and Scope of the Output/ deliverables is not linked to the payment. There may be tendency for the consultant/ consultant to cut corners on quality and scope of the output/ deliverables by saving on resources Lump sum service contracts should be used mainly for assignments in which the quality, scope, and the timing of the required output of the consultants are clearly defined. The contract should include provision for evaluation of quality and scope of deliverables

2. Each type of contract is described briefly in subsequent paras, and criteria are suggested for their adoption along with risks and mitigation measures. Mostly used types of contracts are:

a) Lump sum (Firm Fixed Price) contract; b) Time based (Retainer-ship) contracts; c) Percentage (Success Fee) contract; d) Retainer-ship cum Success fee-based contract; e) Indefinite delivery contract.

2. Lump sum consultancy contracts are easy to administer because there is fixed price for a fixed scope and payments are linked to clearly specified outputs/ milestones/ deliverables such as reports, documents, drawings, bills of quantities, software programs and so on. Bidders quote lump sum price for the required quantum of services. They may also be asked to quote unit rate for the consultancy output, to be used in case of variation etc.

3. Schedule of Requirement shall indicate the quantum of the Consultancy outputs, its performance standards, and the timeline/ milestones of its delivery. Contract may specify parts of payments to be released at specified timelines/ milestones.

4. In view of Risks mentioned below this type of contracts are widely used for simple planning and feasibility studies, environmental studies, detailed design of standard or common structures, preparation of data processing systems, and so forth.

4.1 Types of Contracts 1. There are various alternative basis for linking payments to the performance of a quantum of services (called types of contracts) – each having different risks and mitigation measures. Bids are called and financial evaluation is based on the type of contract. The choice of the type of contract should be based on Value-for-Money (VfM) with due regard to the nature of requirement. BOQ of the financial bid is designed specifically for each type of contract. Adoption of an inappropriate type of contract could lead to a situation of lack of competition, contractual disputes, and non-performance/ failure of the contract.

Chapter 4: Bidding Design for Consultancy Services

Risk Mitigation employed. Disputes may arise due to different possible interpretations of quality and scope of assignment. and certificate for its acceptability may be recorded. Payment should be made only against certificate of acceptance of deliverables. 2. Time over-run: As time is not linked to the payment. There may be tendency for the consultant to save on deployment of resources which may result in time-overrun. While the payments are not linked to time, the assignment should be monitored per month to ensure that the output per month is in line with planned and estimated time-line.