Para 4.1.2 — CONSULT_MANUAL

5. Time-Based Contracts - Risks and Mitigations

Risk Mitigation 1. The quality and Scope of the Output/ deliverables as in Lump-sum Contracts, is not linked to the payment. There may be tendency for the consultant to cut corners on quality, scope, and timing of the output/ deliverables by saving on resources employed. Disputes may arise due to different possible interpretations of quality and scope of assignment. The contract should include provision for evaluation of quality and scope of deliverables and certificate for its acceptability may be recorded. Payments should be released only against such certificates.

2. Schedule of Requirement shall indicate the quantum of inputs required (Man-hours of different key and non-key personnel), qualifications of key-personnel, reimbursable items, and the timeline/ milestones of its deliverables. Contract may specify parts of payments to be released at specified timelines/ milestones.

3. Both time-based contracts and indefinite delivery contracts are used when Lump sum contract is not feasible due to difficulties in specifying the scope/ length of consultancy services or the quantum of individual activities either because the inputs required for attaining the objectives of the requirement is difficult to assess or because the services are tied up to contracts/ activities by others for which the completion period may vary. As differentiated from the Indefinite Delivery type of contracts (discussed below), Time-based contracts are suitable for consultancy services that are continuously needed, while Indefinite Delivery type of contracts is suitable for services which are infrequently needed but the consultant is needed to be always on beck and call.

4. Because of risks and mitigations mentioned below, this type of contract is widely used for complex studies, supervision of construction, advisory services, and most training assignments etc.

4.1.2 Time-Based (Retainer-ship) Contract 1. In Time-based (Retainer-ship) contracts payments are based on agreed hourly, daily, weekly, or monthly rates for staff (who in consultancy contracts are normally named) and on reimbursable items using actual expenses and/or agreed unit prices. These are also called as retainer ship contracts since the consultant are retained for a pre-decided contract period. The rates for staff include salary, social costs, overhead, fee (or profit), and, where appropriate, special allowances.

Manual for Procurement of Consultancy Services, Second Edition, 2025

4.1.3 Percentage (Success/ contingency Fee) Contract 1. Percentage (Success/ Contingency Fee) contracts directly relate the fees paid to the consultant to the estimated or actual project cost, or actual value of assets/ transactions to be handled – e.g., project cost or the cost of the goods procured or inspected. Since the payment is made after the successful realisation of objectives, it is also called success (or contingency) fee contract. The payment is made based on the value of assets/ transactions handled during the period.

4. Percentage Contracts - Risks and Mitigations

Risk Mitigation 2. Performance in each time period is not linked to the payment. There may be tendency for the consultant to use paid staff in a dilatory and un-productive manner. Contracts need to be closely monitored and administered by the 'Procuring Entity' to ensure that the progress of assignment is commensurate with the time spent and that the resources for which payment is claimed have actually efficiently and productively been deployed on the assignment during the period. A system of monthly reporting of payouts and quantum of work achieved by the consultant to CA should be instituted to enable supervision. 3. Time and Cost over-run is a major risk in Time-based contracts, as the payment is based on time and delay may result in unanticipated benefit to the consultant and the assignment may get delayed. This type of contract should include an upper limit of total payments to be made to the consultants for the assignment to safeguard against excessive prolonging of time and payments. After this limit is reached, or the period of completion is exceeded, CA should review justification for extension of the contract.

Risk Mitigation 4. The quality and Scope of the Output/ deliverables as in Lump-sum Contracts, is not linked to the payment. There may be tendency for the consultant to cut corners on quality and scope of the output/ deliverables by saving on resources employed. The contract should include provision for evaluation of quality, scope and the timing of deliverables and certificate for its acceptability may be recorded. Payment should be made only against certificate of acceptance of deliverables.

2. Schedule of Requirement shall indicate the estimated value of assets/ transactions to be handled as well as the contract Period (one year, unless otherwise stipulated) over which such volume shall be availed. However, there shall be no firm commitment to avail the entire value of transactions within the contract period. The final selection is made among the technically qualified consultants who have quoted the lowest percentage while the notional value of assets is fixed.

3. Due to Risks and mitigations discussed below, these contracts are commonly used for appropriate architectural services; procurement and inspection agents.

Chapter 4: Bidding Design for Consultancy Services

3. Retainer-ship and Contingency Fee Contracts - Risks and Mitigations

4.1.4 Retainer and Success (Contingency) Fee Contract 1. In Retainer and Success (Contingency) fee contracts the remuneration of the consultant includes a retainer (time based, monthly payment) and a success fee (Percentage based), the latter being normally expressed as a percentage of the estimated or actual Project cost. Thus, this type of contract is a combination of Time Based and Percentage Contracts.

Risk Mitigation 5. 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. 6. Bias against Economic solutions: Since the percentage payment is linked to the total cost of the project, in the case of architectural or engineering services, percentage contracts implicitly lack incentive for economic design and are hence discouraged. Therefore, the use of such a contract for architectural services is recommended only if it is based on a fixed target cost and covers precisely defined services.

Risk Mitigation All Risks as applicable to both Percentage Contracts and Time-Based contracts are encountered in this case Same mitigation strategies as in both Percentage and Time-Based contracts may be adopted in this case.

2. Due to risks and mitigations discussed below, Retainer and contingency fee contracts are widely used when consultants (banks or financial firms) are preparing companies for sales or mergers of firms, notably in privatization operations. It can also be used for assignments related to organisational restructuring/ change.