Para 4.2.3 — NONCONSULT_MANUAL

Risk Mitigation a) The quality and Scope of the Output/ deliverables as in Lump-sum Contracts, The contract should include provision for evaluation of quality, scope and the timing of

4.2.3. Percentage (Success/ contingency Fee) Contract 1. Percentage (Success/ Contingency Fee) contracts directly relate the fees/ service charge paid to the service provider to the estimated or actual value of assets/ transactions to be handled – e.g., project cost or the cost of the goods procured or inspected. This Type of Contract is based on output admeasurement (value of assets/ transactions handled). 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. 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 service providers who have quoted the lowest percentage (as service charge) while the notional value of assets/ transactions to be handled is fixed. 3. Due to Risks and mitigations discussed below, these contracts are commonly used for appropriate architectural/ engineering services; procurement and inspection agents. 4. Percentage Contracts - Risks and Mitigations: Please also see Risk and Mitigations in Output admeasurement contracts in para 4.1.2-6).

Chapter 4: Bidding Design for Non-Consultancy Services

Risk Mitigation is not linked to the payment. There may be a tendency for the service provider to cut corners on the quality and scope of the output/ deliverables by saving on resources employed. deliverables and certificate for its acceptability may be recorded. Payment should be made only against certificate of acceptance of deliverables. b) Time over-run: As time is not linked to the payment. There may be tendency for the service provider to save on deployment of resources which may result in time-over-run. 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. c) Bias against Economic solutions: Since the percentage payment is linked to the total cost of the transactions, (say architectural or engineering or procurement services) percentage contracts implicitly lack incentive for economical transactions and are hence discouraged. Therefore, the use of such a contract for architectural or engineering or procurement services is recommended only if it is based on a fixed target cost and covers precisely defined services.