Construction Program and Planning Documents PDF

The most important parts of the lesson Construction program A construction program is a comprehensive plan, containing goals, policies and the amount of credits, which is compiled to provide all or part of a type of economic, social, cultural need in the form of medium-term programs. Each program co...

The most important parts of the lesson Construction program A construction program is a comprehensive plan, containing goals, policies and the amount of credits, which is compiled to provide all or part of a type of economic, social, cultural need in the form of medium-term programs. Each program consists of one or more construction projects (such as the road construction program). construction plan A construction plan is a specific set of operations and services based on justification, technical, economic and social studies in a known geographical location and in a predetermined period of time with a certain validity, for the implementation of a specific part of the activities of an economic sector in the form of a construction plan. Supposedly, the Bafaq-Bandar Abbas railway in the road construction program or the Ramin power plant in the energy supply program. In other words, infrastructure and production plans such as dams, irrigation network and agricultural facilities, roads, ports, special large industries and various buildings, etc. are called construction plans. Construction plans are divided into two categories: 1- National construction plans 2- Provincial construction project plans The project is the design and construction services of all or part of a construction plan, which is divided into an independent unit from that plan and is implemented in terms of construction in the form of one or more contracts. General Conditions of Contract: The general conditions of the contract describe the relationship between the employer (Client) and the contractor and the limits of their obligations and powers. this is a good basis for regulating the relationship between the employer and the contractor. The Client and the contractor must be fully familiar with the provisions of the general conditions of the contract. Plan Executor: The plan executor is a government official appointed by a decree of the minister or the highest official of the executive branch and responsible for the duties of the executive branch within the scope of the projects whose implementation is assigned to him. Supposedly, the executor of the Tehran-North Freeway project, who has been appointed by a decree of the Minister of Roads and Transportation. Plan Manager: The plan manager is an expert appointed by a decree of the project executor and responsible for coordinating between the various parts of the project, and the relevant factors in their implementation, and resolving the financial and technical issues of the relevant project. Project Manager: The project manager is an expert appointed by the plan executor and is responsible for regular site visits, preparing reports required by the plan executor, and also technical supervision of the work. The duties of the plan executor, plan manager, and project manager and their organizational positions will be subject to the organizational structure of the relevant executive body. In cases where the size of construction projects related to an executor is small, the project executor can assign the duties of plan manager and project manager to one person. Conversely, in cases where the size and nature of the construction project is larg it may requires several "project managers" who perform their duties under the supervision of a "plan manager". Net Price: The Net price of the work is the price that is obtained based on the amounts of the "work" items and the unit prices of the price list without applying any coefficients". Price coefficients(overhead cost + Floor coefficient + regional factor+…. ): Price coefficients are coefficients that are applied in order to cover overhead costs and create a proportion between the base price of the "work" and the conditions of the execution site, volume, type, technical and construction specifications of the "work" and to compensate for the price during the execution of the "work" and to apply the prices at the time of the start of the work, with the prices determined on the date of the base price list and to obtain the base price in the price estimate. Base price : Base price is the price obtained by multiplying the Price coefficients to the net price of the work depending on the case and conditions. Contract coefficient: It is the percentage of discount or increase that is applied to the base price based on the proposal of the construction company or contractor that wins the job.( Plus and Minus ) Contract price: The contract price is the amount obtained by applying the contract coefficient to the base price and the construction contract is concluded with that amount. There are generally four stages in any development plan: A) The planning and financing stage, including: B: Design stage (consulting services) C - Construction Stage D - Operation Phase Generally, for decision-making, design, and implementation, every civil project consists of three main components: employer, consultant, and contractor, forming a triangle of execution, design, and construction. Employer(Client) Ø The agency or department that, on behalf of the executive department, enters into a contract with the consultant and contractor and follows up on all steps until the work is completed is called the employer.  Ø The employer's legal deputies and representatives are considered employers. The employer delegates part or all of its powers to the following individuals or entities for project design and supervision. Ø The sub-unit of the employer's department, which is responsible for studying, designing, supervising and managing the implementation of projects, consists of consulting engineers, the supervision department, the project executor, the project director and the project manager, as shown in Figure 1. Ø The general definitions and duties of each are explained in the following sections. Ø A complete and detailed explanation of the obligations and powers of the employers is given in Chapter Three of the General Conditions of the Contract. Responsibilities According to the General Contract Conditions, the employer is responsible for: 1. Financing the project 2. Selecting consulting engineers 3. Approving Phase 1 (Preliminary) and Phase 2 (Execution) of the consultant's work 4. Selecting contractors 5. Land delivery 6. Processing of temporary work status forms 7. Reviewing final work status forms 8. Temporary assignment (handover) of the project 9. Final assignment (handover) of the project 10. Payment of the final contract invoice Employer’s authority or employer’s Powers According to general conditions of contract, employers have the following authority: 1-Approval of advance payments 2- Modifying work quantities 3- Adjusting contract duration 4- Assigning new tasks 5- Work suspension 6- Contract termination 7- Imposing delay penalties 8- Contract termination (Contract dissolution, contractor removal). Contractors are divided into the following three categories: 1- General Contractor: A contractor who contracts with the client to build a project and assumes full responsibility for the execution and completion of the work. At the same time, he has the authority to delegate the execution of parts of the project to subcontractors. The general contractor is responsible for supervising and coordinating the entire execution of the parts. The general contractor is allowed to hire specialist contractors to perform specialized work such as electrical work and plumbing. 2- Sub contractor: A sub contractor is part of a contractor with a special expertise who works for a general contractor. 3- Consortium: The consortium is a group of individuals or companies formed for the purpose of carrying out a project or activity that is beyond the capabilities of each member individually. Types of contractors according to the regulations for classifying and determining the qualifications of contractors: Type 1: Real contractors and legal entities of the Iranian private sector whose 100% of the company's shares or shares are owned by real Iranian individuals. Type 2: Contractors whose 100% ownership of the company's shares or shares is owned by the government, municipalities, institutions or institutions and organs of the Islamic Revolution or other public and non-profit institutions. Type 3: Partnership groups and other contractors who do not meet the conditions of type 1 and 2. Such as semi-private and semi-governmental companies. Contractors' Ranking Company ranking is a type of qualification criterion based on defined standards. In other words, the ranking of contracting companies is an examination of the company's ability (based on its personnel and records, work experience, and financial strength), which is carried out in accordance with the rules and regulations approved by Planning and Budget Organization. Contractor companies are ranked from 1 to 5 based on contracts, facilities, and individuals, with 5 being the lowest and 1 being the highest as follows: A- First-rank contractors B- Second-rank contractors C- Third-rank contractors D- Fourth-rank contractors E- Fifth-rank contractors criteria for qualification recognition are as follows: A: Evaluation B: Expertise and Experience C: Financial Capacity Article 9: The score (S) is calculated and determined based on the relationship (1). S = Ce.(0.3E+0.5P) (1) Where: Evaluation Coefficient = Ce Expertise and Experience Score = E Financial Capacity Score = P (Ce) is a number determined based on the procedures and criteria of the evaluation guideline. Until the guideline is announced, the evaluation coefficient is considered equal to 1. Article 11: The expertise and experience score E is calculated based on the following relationship: E = Ep + Ew + Ec in which: Managers and employees score = Ep Works completed score = Ew Contractor continuity score = Ec The scores of managers and employees are calculated and determined based on the following relationship: Where: mi is education score hi is experience coefficient which equal t0 20 for chief executive officer and board of directors and equal to 10 for employees fi is years of experience and N is the number of employees mi calculated from the following table: The financial capacity score (P) is calculated and determined based on the following relationship: P= 0.5Pt+1.5Pc+Pi Where: Pt is turnover which is total income and expenses of the contractor in a one year. Pc is current financial capacity that indicates the contractor's financial capacity for short term investment in projects under implementation and is obtained from the following relationship: Current liabilities - Current assets = Current financial capacity and Pi is long-term financial capacity that indicates the contractor's financial capacity to fulfill its obligations and guarantee its contracts and is obtained from the following relationship: Long-term liabilities - Long-term assets = Long-term financial capacity Contractor Evaluation Criteria for preparing a short list A: Experience in the relevant field B: Having equipment and machinery ready for use C: Efficient management and appropriate management system D: Adequacy of technical staff and key elements in terms of knowledge and experience E: Financial strength and support F: The contractor is local and has experience in the project implementation site G: Good track record in previous works H: Creativity and innovation in similar works T: Quality system for performing work Conditions for renewing the first call announcement The contractor evaluation committee is required to receive the performance evaluation documents from contractors who have a certificate of competency in the field and group listed in the first call, and after calculating the scores of the contractors who have submitted their performance evaluation documents within the specified deadline, it will introduce at least seven contractors who have the highest scores and have obtained at least sixty-five percent (65%) of the points in the table to the employer for invitation to tender. If the number of selected contractors is less than seven, the employer can renew the first call announcement. In the first announcement, all general information about the project, which includes the following items, must be provided to the participants in the contractor evaluation tender. A - A - Introduction of the client, consulting engineering company and project management engineering company (if any) B - Title and general specifications of the project and its location C - Estimated cost of the work D - Field and group of contractors E - Other specific conditions to be determined by the executive body F - Date, deadline and place of receipt of documents for assessing the ability to perform the work Tender for construction contracts According to the Law on Tendering Procedures tendering is a competitive process aimed at securing the required quality, where the contract is awarded to the tenderer who offers the most competitive price while meeting the specified requirements. In essence, tendering refers to the method of selecting the best quality at the lowest price, and it is commonly used in large-scale governmental transactions and projects. The term itself, derived from the Persian language, means "to reduce" or “to compete in reducing the price of something”. Thus, tendering is a procedure that ensures transparency, competition, and fairness in the procurement process, ultimately allowing the selection of a contractor who offers the best value for money while meeting the necessary quality standards. Technical and Commercial Evaluation of Bids: The technical and commercial evaluation of bids is a process in which the technical and commercial specifications of the tenderers' proposals are examined, assessed, and acceptable bids are selected. Tender Documents include the following: 1. Invitation to Tender 2. Agreement Booklet 3. General Conditions Booklet 4. Price list and quantity booklet 5. Particular Conditions Booklet 6. Technical Specifications Booklet 7. Architectural, structural and installation drawings for the execution of the work 8. Circulars from the Management and Planning Organization 9. Tender Guarantee Form 10. All Employer’s Instructions Regarding the Execution of the 11. Work and the Project Schedule  Cost- effectivene ss Non- AccountabilityTranspare ncy Discrimination Objectives of Tendering Efficiency Single-Stage Tendering: A type of tendering in which there is no need for the evaluation of the technical and commercial aspects of the proposals. In this type of tendering, the bid envelopes of the tenderers are opened in a single session, and the winner is determined in that same session. Single-stage and two-stage tender: in the single-stage tender, all information necessary to arrive at a realistic price is used. By this, an employer invites prospective contractors, the tenders are prepared and are returned to the employer after which the most preferred contractor is selected and invited for negotiations. Two-Stage Tendering: A type of tendering in which, at the discretion of the client, it is necessary to evaluate both the technical and commercial aspects of the proposals. In this process, a technical and commercial evaluation committee is formed, and the results of the evaluation are reported to the tender committee. The two-stage tendering process is however used to permit early recognition and actual appointment of a contractor. By this, the critical information to be provided isn’t yet complete, there is no fixed price for the project. However, the first stage permits an exclusive form of appointment which permits project construction to begin without resolving at a price for the project. Classification of Types of Tenders Based on the Method of Inviting Tenderers: 1. Open or Public Tendering This type of tendering involves the publication of an announcement in one of the widely circulated local newspapers, usually two to three times, depending on the importance of the project. If necessary, additional means such as broadcasting the announcement on radio and television, sending notices to relevant individuals, or posting the announcement in public areas can also be used. 2. Limited Tendering (Competitive Tendering from a Selected List) In this form of tendering, only a pre-selected group of contractors, who meet certain criteria, are invited to submit bids. This approach is often used when the project requirements are specific or when the pool of potential contractors needs to be narrowed down to ensure capability or experience. These qualified candidates are listed in the approved contractors list. The invitation must be sent to all contractors whose names appear in the list of qualified candidates. All regulations applicable to open tendering must also be adhered to, provided they do not conflict with the specific regulations governing restricted tendering. 3. Tender Exemption ( Leaving the formalities ) For large public projects, tenders should be conducted through either an open advertisement (open tendering) or an Invitation (limited tendering). Tender Exemption is only allowed under specific circumstances and in accordance with established regulations. This may apply when the standard tendering process is deemed unnecessary or impractical due to special conditions, such as the nature of the project or the urgency of the work. Duties of the Tender Committee The main duties of the Tender Committee are as follows: a) Convening the Tender Committee meetings within the timeframe specified in the tender invitation. b) Reviewing the tenderers' proposals to ensure that the documents are complete, signed, legible, and that the price proposals are unconditional (formal evaluation). c) Evaluating the proposals and determining the acceptable ones in accordance with the conditions and terms of the tender documents. d) Referring the technical evaluation of the proposals to the Technical Committee in the case of two-stage tenders. e) Determining the first and second winners of the tender (according to the provisions of Articles 19 and 20 of this law). f) Preparing the minutes of the tender meeting. g) Deciding whether to re-advertise or cancel the tender. e) Determining the first and second winners of the tender (according to the provisions of Articles 19 and 20 of this law). f) Preparing the minutes of the tender meeting. g) Deciding whether to re-advertise or cancel the tender. Tender Awarding Process in Case of Minimum Price or Insufficient Bidders (based on FIDIC Red Book): If the lowest price obtained in the inquiry (price quotation) is equal to or greater than the minimum price proposed in the tender, or if no one volunteers to participate in the transaction in the inquiry, or if the number of bidders is less than three, the tender commission may either declare the lowest bidder in the tender as the winner or decide to re-tender the process. Implementation of the Tender Commission’s Decision: Ø After the winner is announced by the tender commission to the contracting authority, the contracting authority must notify the winner of the tender result, and the selected contractor should then proceed to carry out the contract. Ø Once the winner is confirmed, the security deposits of the other bidders will be refunded. If the winning bidder does not visit the tendering authority and does not provide the performance bond within seven days (excluding public holidays) after being notified of the result, or if they fail to appear for the execution of the contract, their bid security will be forfeited. The same will be communicated to the bidder whose offer is ranked second. If the second-ranked bidder also fails to visit the tendering authority within seven days, their bid security will also be forfeited. In such cases, at the discretion of the tendering authority, the tender may be re-tendered, or the matter may be referred to the designated commission for decisions in accordance with the Public Procurement Law. The following documents must be provided to the contractor along with the tender documents, according to the FIDIC Red Book: A description of the work and the technical and commercial specifications. 1. Invitation to Tender 2. Agreement Booklet 3. General Conditions Booklet 4. Bill of Quantities and Rates Booklet 5. Particular Conditions Booklet 6. Technical Specifications Booklet 7. Construction Drawings 8. Circulars from the Organization for Management and Planning 9. Tender Security Form 10. All Employer Comments Regarding the Method of Work, Schedule, All tender documents must be provided equally to all bidders. Tenderers are required to submit their tender documents and proposals in separate sealed and signed envelopes, which should include the following: Envelope A: Bid Security Envelope B: Technical and Commercial Proposal Envelope C: Price Proposal Financial Evaluation and Determining the Winning Bidder Ultimately, the bidder who has submitted the most economically advantageous offer will be declared the first winner. The second winner may be announced if the price difference between their bid and the first winner's bid is less than the guarantee amount. After opening the price proposals, the guarantees of the first and second winners will be held by the Employer (the contracting party), while the guarantees of the other bidders will be returned. After the opening of the price envelopes, if there is a need to review the prices and analyze and verify them, the Tender Committee will assign this task to the Technical and Commercial Committee. This committee must report the results of the evaluation to the Tender Committee within a maximum of two weeks. In international tenders, local tenderers are preferred over foreign tenderers. Contract Formation If the first-ranked bidder refuses to sign the contract, their tender guarantee will be forfeited, and the contract will be awarded to the second-ranked bidder. If the second-ranked bidder also refuses, their guarantee will also be forfeited, and the tendering process will be restarted. B. Guarantee Letter: A document provided to confirm the commitments made by the contractor, where a third party (the guarantor) undertakes, upon the contractor's request, and in accordance with the relevant conditions of the primary commitment, to pay a specific amount under certain circumstances or conditions as related to the main contract. This guarantee is intended to secure the primary obligation (the contractor's obligations) and can be provided directly to the employer or a third party. Bank Guarantee For the purchase of goods or services, it is often not easy to conduct a thorough assessment of the technical and financial capacity of the seller or service provider, as well as the project executors. Furthermore, during the course of the work or after the contract has been signed and a letter of credit is opened, unforeseen events may occur, which could lead to the seller failing to fulfill their obligations, either intentionally or unintentionally. Therefore, ensuring the proper performance of the contract by the seller may require requesting a guarantee from them. A bank guarantee is an irrevocable commitment by a bank to pay the guaranteed amount in case of default by a third party (the guarantor). This third party is typically the seller or contractor responsible for performing the contract. A guarantee is usually a separate obligation, independent from the debt or any provisions in the contract between the creditor and the principal debtor. Under the terms of the bank guarantee, the guarantor (the bank) is required to pay the guaranteed amount to the beneficiary upon the first demand. Typically, the laws of the country where the guarantee is issued govern the enforcement of the guarantee’s terms, following the standard procedures and practices in that jurisdiction. Bank guarantees are classified into two categories based on whether they are issued directly by the bank in favor of the beneficiary, or whether they are issued through an intermediary bank: direct and indirect guarantees. 1. Direct Guarantees: In the case of direct guarantees, the bank issues the guarantee directly to the beneficiary after receiving a request for issuance from the applicant (the party requesting the guarantee). Currently, Iranian banks inside the country are authorized to accept and notify direct guarantees in relation to letter of credit and foreign exchange contracts, provided that the beneficiary accepts all associated responsibilities. This is valid for guarantees that are funded from the applicant's foreign exchange. The acceptance of direct guarantees issued by Iranian banks, branches of Iranian banks abroad, and units of Iranian banks is permissible, with the responsibilities associated with the beneficiary being accepted as well. In case customers wish to use direct guarantee, it is recommended to review the views of the Central Bank of the Islamic Republic of Iran regarding the acceptance of direct guarantees. In direct guarantee direct guarantee 2. Indirect Guarantees In some cases, the beneficiary of a guarantee may request that the guarantee be issued through a specific bank, or a bank located in their own country. In such cases, the guaranteeing bank will issue a counter-guarantee in favor of the requested bank and instruct that bank to issue the original guarantee. Naturally, if the requested bank accepts the counter-guarantee, it will proceed to issue the original guarantee. Otherwise, the bank receiving the instruction will notify the issuing bank of its refusal or request modifications to the wording of the guarantee. Types of Valid Guarantees in Government Transactions Article 4: The types of guarantees specified in the guidelines are as follows: A - Bank Guarantee or Guarantee Letters Issued by Non-Banking Financial Institutions that have received permission from the Central Bank of the Islamic Republic of Iran. B - The Original Cash Deposit made to the account of an authorized bank. C - Guarantee Letter Issued by Insurance Companies that hold the necessary license for issuing guarantees, as per the regulations of the Central Insurance of Iran. D - Promissory Note signed by the issuer with an authorized signature, accompanied by a seal for legal entities, equivalent to 80% of the nominal value of the guarantee. E - Clear proof of the final confirmed requirements of previous contracts in that organization that have been approved by the relevant executive bodies. F - Guaranteed partnership bonds of banks and the government with the ability to be redeemed before maturity (subject of the Law on the Procedure for Issuing Partnership Bonds). G - A Property deed equal to eighty-five percent of its official appraisal value. H - Guarantees issued by state guarantee funds that are or will be established pursuant to law and operate in accordance with their statutes. C – Tender Guarantee A Tender Guarantee is part of the tender documents that the contractor submits to the employer along with other documents after deciding to participate in the tender process, typically in the form of a bank guarantee. This guarantee is essentially a commitment from the contractor, ensuring that if they are awarded the contract but fail to fulfill the obligations outlined in the tender proposal, the employer can forfeit the guarantee amount for their benefit. It is understood that if the contractor does not win the tender, the guarantee will be immediately returned to them. Another reason for the necessity of obtaining this type of guarantee is that some tenderers, in an effort to eliminate their competitors, may submit prices that they are completely unable to fulfill. Therefore, if the employer does not take the necessary precautions, not only could an unqualified company win the tender (or auction), but the tenderer may also incur additional costs as a result. Therefore, the tender guarantee is a mechanism that covers the buyer's risk in this regard and, as much as possible, discourages the tenderers from submitting bids that they are unable to execute. A tender guarantee has the following characteristics: 1. The amount of the bid bond is typically between 0.5% and 5% of the total contract value being guaranteed. 2. The validity period or duration of the guarantee extends until the contract is signed, or until the performance guarantee (or guarantee of contract performance) is provided, which usually lasts from three to six months. Based on the above, a claim for the bid bond amount may be made for the following reasons: 2.1. If the bidder, after being awarded the contract, refuses to accept the contract (i.e., refuses to sign the sale or performance contract). 2.2. If the bidder fails to provide the performance bond after winning the tender and before the contract is executed. 2.3. If the bidder withdraws their bid before the bid validity period expires. Article 5: In transactions involving the purchase of goods and machinery, guarantees include the contractor's guarantee in the process of referring work and the account for the guarantee of fulfilling commitments, advance payment guarantees, and performance guarantees. The amounts of these guarantees are determined as follows: a) Contractor’s Guarantee in the Process of Referring Work: The guarantee amount is determined as a percentage of the estimated purchase value, as specified in Table. Performance Guarantee A Performance Guarantee is a commitment from the contractor to the employer (or the beneficiary) to ensure that the work assigned will be completed properly and in accordance with the terms outlined in the contract. This guarantee can be provided by a bank acceptable to both parties. In other words, the bank, on behalf of the contractor, is obligated to pay a specific amount of cash to the employer if the contractor fails to meet their obligations under the contract. Generally, the employer ensures that by obtaining this guarantee, the contractor will fulfill their contractual obligations correctly and in accordance with the agreed terms. How does a Performance Bond Work in Construction? The employer deducts 10% of each payment to the contractor from the payment certificate amount (payment made) as a performance bond guarantee and holds it as a deposit in the contractor’s account. Half of this amount is retained according to Article 52 of the General Conditions of Contract and the other half is refunded after the final completion, in accordance with Articles 42 and 52 of the General Conditions of Contract. Guarantee of performance of obligations: At the time of signing the contract, in order to guarantee the performance of obligations the contractor must submit a performance bond to the employer. This bond shall be in an amount equal to 5 to 10 percent of the Contract amount and issued by a bank acceptable to the employer, in accordance with the form attached to the tender documents. The performance bond shall remain valid until one month after the submission of the final payment certificate, as per Article 37 of the General Conditions of the Contract. If, based on this payment certificate, the contractor is not in debt or the total amount of his debt is less than half of the performance bond, the guarantee will be released. B – Advance Payment Guarantee According to Article 36 of the General Conditions of Contract, the Employer provides an advance payment to the Contractor in order to strengthen the Contractor's financial capacity. The amount, method of payment, and the terms of the advance payment, along with other relevant provisions, are based on a specific instruction that is effective at the time the work is assigned, and the number and date of this instruction are included in the contract documents. Typically, the amount of the advance payment is between five percent (5%) to twenty-five percent (25%) of the initial contract amount, with the exact amount to be specified in the contract documents at the time the work is awarded by the Employer. The amount of the advance payment is divided into three parts as described below, which will be paid in exchange for providing a guarantee letter in favor of the employer without any legal deductions: 1.For construction contractors, the first part of the advance payment is 40% of the total advance payment, which will be paid after the taiking over the construction site. The second part, equal to 30% of the total advance payment, will be paid after the equipment is mobilized, in accordance with the conditions stipulated in the work and contract documents for starting operations. The third part, equal to 30% of the total advance payment, will be paid after the completion of 30% of the work under temporary conditions, without considering any adjustments for works in progress. After the first and second installments of the advance payment are made, 70% of the advance payment will be deducted from the total amount of the advance payment based on the initial contract value, excluding the adjustments for variations (e.g., modifications in rates and payments). After the third installment is paid, 14% of the total advance payment will be deducted from the initial contract value in such a way that the advance payment is fully recovered by the end of the final work or final conditions. Guarantee of performance of obligations performance guarantee 3. Retention Bond Standard form building contracts typically provide for the retention sum to be withheld from each interim payment as a means of protection for the employer where defects are not rectified by the contractor. Usually, half of the retention is released upon practical completion, and the other half is released at the end of the rectification period. Instead of withholding retention monies, the employer may request that the contractor provide a retention bond, which is issued by an independent surety in favour of the employer. Guarantee of performance of obligations: At the time of signing the contract, in order to guarantee the performance of obligations the contractor must submit a performance bond to the employer. This bond shall be in an amount equal to 5 to 10 percent of the Contract amount and issued by a bank acceptable to the employer, in accordance with the form attached to the tender documents. The performance bond shall remain valid until one month after the submission of the final payment certificate, as per Article 37 of the General Conditions of the Contract. If, based on this payment certificate, the contractor is not in debt or the total amount of his debt is less than half of the performance bond, the guarantee will be released. Consultant Engineers Consulting Engineers are a real or legal entity responsible for the tasks of studying, designing, and supervising a project or an engineering plan. They take on these responsibilities by entering into a contract with the executing authority (the client or employer). v Consultant Engineers are classified into five categories based on the regulations of the Planning and Budget Organization and the services they provide: Type 1: Non-Governmental and Non-Public Iranian Consulting Firms A non-governmental and non-public Iranian consulting firm is a non-governmental legal entity registered for the purpose of providing consulting and construction services. The firm is registered with the Companies Registration Office, and 100% of its shares are owned by individuals or non-governmental, non-public Iranian legal entities. The founding members must hold at least a bachelor’s degree Type 2: Iranian Consulting Companies and Institutions in the Public and Governmental Sector This category includes consulting companies and technical offices that provide consulting services within the public and governmental sectors, where 100% of the company shares are owned by the government, government-affiliated institutions and organizations, Islamic Revolutionary entities, or public organizations. The legal duties of these companies include providing consulting services, or a combination of consulting and construction services, simultaneously for other executive organizations. Type 3: Semi-Governmental or Semi-Private Consultancy Companies (Mixed Public or Private Iranian Entities) These companies are established to carry out consultancy services or a combination of consultancy and construction services. The companies' shares are entirely owned by government organizations, public institutions, or entities affiliated with the government, or by companies and organizations that are under the supervision or management of these entities, or by Iranian natural persons. Type 4: Foreign consultancy companies These consultancy companies and institutions are those where a non-Iranian individual, with at least a bachelor's degree and relevant, exceptional experience gained abroad, has registered their company. Type 5: Group Collaboration of Consultancy Services This type of company consists of a partnership between two or more consultancy service units (from the four types mentioned above) that are registered in Iran. It is established for the purpose of providing both consultancy and construction services simultaneously for a specific project. The nature and scope of the project require group collaboration. Qualification of Consultants (Based on the Consultant Qualification Regulations) The qualification of consultants is carried out by the Organization (i.e., the Organization for Planning and Budget). The Organization for Planning and Budget qualifies consultants in the following categories: Rank 3, Rank 2, and Rank 1 in each specialization, as well as the final grade within specialized groups, in accordance with this regulation. Definition of a Construction Contract A construction contract is a document that thoroughly and comprehensively defines the scope of responsibilities, authorities, and rights of the involved parties. It also establishes legal guarantees for compliance. In a construction project, the three main stakeholders are: Client (Employer), Builder (Contractor), Designer (Consultant). In addition to these, the project may also involve separate or combined units for project management or construction management from the aforementioned groups. Signing a construction contract involves dividing tasks and responsibilities, managing risks, and defining relationships among stakeholders. Selecting the type of contract is one of the key decisions in a project, typically made either concurrently with or after the feasibility studies are completed. Principles and Guidelines for Deciding on the Contract Type The following factors generally influence the employer's decision in selecting the type of contract: National laws and regulations Investment and financing methods Project complexity and the employer's resource status Required time for project completion Considering economic factors in design and operational costs Ensuring the project's final cost is reliable and predictable Execution Methods for Projects There are various methods for executing projects, and a few of them are outlined below. Project execution systems can be classified into five main groups: 1. Self-Execution (Employer, Single-Party) (In-House System) 2. Design and Build (Two-Party) (Design-Build System) 3. Conventional (Three-Party) (Design-Bid-Build System) 4. Construction Management (Four-Party) (Construction Management System) 5. Financing, Design, Build, and Operation (Build-Operate-Transfer - BOT) 1- Single-Party or Self-Execution (cost reimbursable contract , Cost plus contract) This method is also known as the self-execution method. It is used when the employer has sufficient skilled personnel and  the necessary machinery. In this approach, most tasks related to design, execution, and project management are carried out by the employer. The employer assumes full responsibility for the project, transferring the highest level of accountability to them. In this method, the contractor's operational components are essentially eliminated. This approach is best suited for simple and small projects. It is feasible for most projects that do not have large- scale dimensions. Disadvantages of the Self-Execution Method Project Delays due to the lack of vested interest from the involved parties. Poor Cost Management. Complex Financial Processes in large organizations and government systems. Increased Material Wastage. Complicated Decision-Making Processes and lack of agility in large organizations. Potential for Financial Misconduct in procurement and subcontractor assignments. Difficulty in Hiring Skilled Personnel for the execution team, leading to weak operational capabilities. Higher Management and Oversight Costs. Inability to Utilize Contractors' Working Capital for financing resources. 2- Design-Build Contract In the Design-Build method, the employer executes the project through a single contract with the designer-builder, who handles both the design and construction services. The employer's responsibility and risk are minimized in this approach, and the single entity (designer-builder) assumes responsibility for all design, procurement, and construction services for the project. In the design-build system, the employer enters into a contract with a general contractor for design and construction services. In such contracts, the design-build contractor may be a joint venture between a general contractor and a professional designer, or it may be an initial design-build contractor who has subcontracted a professional designer as a second-tier contractor. 3- Conventional Method (Three-Party, DBB) The conventional method is not new; it has been used for centuries worldwide and was the only available method for executing projects. In the conventional execution method, the employer executes the project through separate contracts with the designer-consultant and the builder-contractor. The design is completed first, and then the construction of the project is awarded through a tender to one or more contractors who carry out the work based on the prepared design and technical specifications. In this method, the responsibility and risk of coordination between the design and construction, as well as commissioning, rest with the employer. This method is also called the traditional method and is the most common method for executing construction projects. In this method, the employer hires the consultant and contractor through separate contracts. Many employers use this method in projects where the construction start depends on the completion of the design. In this method, the employer is at the top of the triangle, the consultant engineers serve as the design arm of the project, and the contractor serves as the execution arm of the project at the base of the triangle. In the Design-Bid-Build (DBB) method, the main contractor is the execution and supplier agent, while the consultant works as the employer's agent, with no legal relationship between the contractor and consultant. Overall, this method has been successful in practice, and project executors have historically used this approach. However, in recent years, managing large projects such as power plants, refineries, airports, etc., has become very difficult due to technological advancements, from the start of work to commissioning and handover. This method, given its drawbacks (which will be discussed), is not suitable for such projects. Advantages of the Three-Party (Conventional) System Some of the main features of conventional contracts include: In this system, the procedures and workflows are well-known and standardized. Employers have a relatively good understanding of the final project cost before execution. The contractor is selected in a competitive environment through a bidding process. There is a documented commitment from the contractor to complete the work according to the pre-determined time, cost, and quality. There is a good and cordial relationship between the employer and the designer for monitoring the contractor’s work. Disadvantages of the Three-Party (Conventional) System One disadvantage of this method is the difference in perspective between the designer and the contractor. The contractor is not involved in design issues, while the designer (consultant) does not consider construction challenges. The lack of alignment between these two parties threatens the achievement of the project’s goals and the employer’s objectives. The designer, contractor, and employer are often in different positions, which leads to antagonistic relationships. The sequence of processes, due to the lack of overlap between design and construction, results in a longer overall project timeline. The parties involved in this system, having different goals, typically do not have a cordial relationship, leading to an increase in claims. Revisions and updates to the design during construction are time-consuming.  The pressures on the contractor to provide a competitive bid often lead them to transfer cost-cutting pressures to subcontractors, which can result in lower work quality. 5- Financing, Design, Construction, and Operation (Build-Operate-Transfer - BOT) The Build-Operate-Transfer (BOT) system is a method that combines and secures all services related to design, procurement, construction, financing, and operation of a project. This method is primarily used for large-scale infrastructure and civil engineering projects. In this approach, the contractor assumes full responsibility for financing and executing the project, and typically operates the project for a specified period as defined in the financial contracts to repay costs, fees, and contractor profits. Types of Common Construction Contracts 1- Contractual Method In the contractual method, part or all of the work is entrusted to others through the signing of a contract. In this method, the employer, through contracts that ensure the proper execution of the work and the securing of their interests, assigns part or all of the project’s operations to others. Unlike the "self-execution" method, this method involves allocating a significant portion of the risk to the contractor. In government projects, the prevailing understanding in this regard is the delegation of work to the private sector and reducing the role of the state. It is rightly understood that while the government can be a good employer, it cannot effectively function as a contractor or executor. The reasons and advantages of this method, which has been globally accepted and recognized, are as follows: 1- Sufficient expertise of the contractor in project execution 2- Acceleration of project execution due to reduced administrative bureaucracy 3- Proper control and reduction of corruption in the public sector due to indirect spending 4- Emergence of a new generation of contractors who have no ties to previous dependent contractors 5- Economic efficiency in project execution due to competition and specialization in the bidding process 3- Fixed-price contract (Lump sum) In this method, which is one of the subcontracting methods, the work is assigned to the executing agent at a fixed price, also known as subcontracting. The execution of this method means that the employer defines a specific amount of work in exchange for a specified amount of money, and the contractor receives payment only for the specified amount of work. In common execution methods, contractors receive payment based on a standardized price list, receiving payment for each amount of work done upon approval by the employer’s consultant. However, in the fixed-price method, a specific amount of money is allocated for executing a specific part of the work. A prerequisite for using this method is the completion of the design. The way this contract works is that the employer initially defines the scope of work and the basic specifications of the project, based on the preliminary design, and asks the contractor to submit their price proposal to execute the full scope of services. The price specified in the fixed-price contract includes the contractor's profit, so the contractor must estimate all project costs during the project period and then submit their proposed price. Generally, the risk for the contractor in these types of contracts is high. Therefore, fixed-price contracts are suitable for projects with clear and well-defined scopes of work. It is evident that when the actual cost of the project exceeds the fixed contract price, the contractor will incur losses. This type of contract is typically used in standard buildings, such as mass housing, warehouses, workshops, factories, and generally other buildings that have clear dimensions and are not complex to execute. In this type of contract, the employer must be fully aware of what they want because the specifications or functional requirements of the work will not change during the execution. One of the key advantages of this type of contract is the minimal work and administrative involvement required from the employer. The advantages of this method include ease in handling progress claims and payments, as well as reduced disputes during the project execution. Additionally, a prerequisite for using this method is the completion of detailed design and technical specifications, which allows for easy comparison of bidders' prices and enables contractors to offer more realistic prices, thereby reducing their risks. These contracts are typically signed under the following conditions: The employer’s budget is clear and defined. The project is relatively simple and does not have significant complexity. All designs and technical specifications are defined and fully clear in the initial stage. There are no significant risks anticipated in the project. The project timeline is short, so the rate of price fluctuations is minimal. There is little to no chance of significant changes in the project. No adjustments to prices are made. Advantages of Lump Sum Payment Method from the Employer's Perspective: Easy comparison of bids during the tendering stage due to a clear project cost. Reduced need for manpower to supervise and control costs. Reduced risk for the employer, with the transfer of risk to the contractor. Clear final cost of the project. Advantages of this Method from the Contractor's Perspective: Control over the work. Shorter project timeline. Clear project budget. No need for complicated progress billing and reduced communication. Disadvantages of the Lump Sum Payment Method: Due to the complete transfer of risk to the contractor, in times of economic instability, the contractor may not be able to complete the project, which could lead to project suspension. Any changes will face resistance from the contractor. Given that progress payments are based on physical progress percentages, it is challenging for both parties to agree on the breakdown structure and the weighting of activities. 5- Cost Index-Based or Unit Price Contracts The literal meaning of “Fehrest Baha” is "price list." In this method, the amount specified in the contract is the total sum of the amounts that have been individually analyzed or lump-sum listed in the price list. In this contract method, the specifications and details of the work are first determined based on the execution drawings, and the quantities of the work are then estimated. A list of quantities and unit prices for the operations, based on their technical specifications, is prepared in separate sections. Finally, taking into account relevant coefficients, such as costs for setting up and dismantling the site, costs for working at heights, costs for working in floors, site insurance costs, and others, adjustments (minus) or additional proposals (plus) from the contractor are subtracted from or added to the amount. The total amount determined in this way becomes the total contract amount. The price list is prepared based on the type of work being carried out. This price list is developed and compiled by the Organization for Management and Planning, and it serves as the reference for calculating both temporary and final work quantities performed according to the plans, specifications, and terms of the relevant agreement. If a contractor enters into a contract based on the price list, they will not be allowed to make claims regarding the prices listed in the price list or request any price changes after the contract is signed. Advantages of the Unit Price Contract compared to other methods: 1. The amount paid by the employer is always directly related to the amount of work actually performed. 2. If the details of the work are fully and accurately defined, the amount paid by the employer for the execution of the work will be consistent with the amount anticipated in the contract. 3. This method allows for changes to be made during the execution of the work if necessary, and there will always be a clear basis for payments between the employer and the contractor. 4. The price list allows the contractor to make necessary predictions regarding the work that needs to be done, thus reducing the risk associated with the project for them. 5. Due to the existence of circulars, guidelines, and adjustment calculation formulas, this method is highly practical. The experience of using this method is widespread among engineers and contractors.  6. A strong and experienced supervision team can effectively control the operations based on the plans and standards, issuing technical approvals for each part, which enhances the quality of the work. 7. Given the price list, contracts in this type are considered to be at fixed amounts, and the advantage is that the final project cost is known and determined before the project begins. Disadvantages of the Unit Price Contract: 1. In case there is an error in the plans and quantities derived from the phase 1 and 2 studies, after the contract is signed, there is no possibility to adjust the prices. 2. If the consultant and employer are weak, experienced contractors familiar with the price list may increase the quantities when submitting the status reports. 3. Weak supervision results in the project being executed with poor quality, leading to an increase in the amount of work stated in the status reports when settling the contractor’s accounts. 4. If there is a compromise between the consultant and the contractor, irreparable damages may be imposed on the project. 5. Starred figures and new prices in the price list can create an opportunity for contractors to claim additional costs. 6. When preparing status reports and instructions, it is essential for the employer to have an experienced and knowledgeable representative to prevent errors or misuse. The Necessity of Private Sector Investment in Infrastructure Projects Development of quality infrastructure is not only one of the primary responsibilities of governments but also a prerequisite for economic development and one of the key factors in accelerating progress towards inclusive and sustainable development. The limited budgetary resources of governments for financing in large and costly projects have consistently created a significant gap between the needs of infrastructure sectors and the level of investment. Given the high levels of investment required for infrastructure, governments have been compelled to create an environment conducive to increased private investment and participation. The Necessity of Private Sector Investment in Infrastructure Projects In modern financing methods for infrastructure projects, rather than the public sector preparing capital assets and providing public services, the private sector has entered the scene. Through financing, construction, and operation, the private sector provides services to the public and, in return, receives the principal and interest on their capital based on the quality and extent of the services provided, utilizing appropriate contractual arrangements. for the adoption of these modern engineering contracts include: v Securing the necessary funding for large-scale national projects v Creating a foundation to attract significant domestic and foreign investments v Reducing government commitments in funding large-scale projects Modern Engineering Contracts Modern engineering contracts, in various forms, have been defined and recognized internationally, including in Iran. Therefore, to familiarize ourselves with these types of contracts, we will briefly discuss a few common methods based on the general definitions provided for modern engineering contracts. 1. Turnkey Contract This type of contract, also referred to as Design and Construct or Package Deal, places full responsibility for both the design and Execution of a project on the contractor. Under this arrangement, the contractor delivers a fully operational project, such that the client can begin operations simply by "turning a key." The primary goal of this contract type is to minimize the client's involvement in the design and construction processes, entrusting all project phases from design to implementation entirely to the contractor. In this method, the client or their consultants are involved only in the tendering process and high- level supervision of the contractor's work. turnkey approach represents the ultimate delegation of design and execution responsibilities to the contractor. Therefore, when it is determined that a defect in the project (in the event of a defect) has arisen due to incorrect design or is the result of poor execution, as a general rule, the responsibility for any defect occurring within the defined scope of work will lie with the contractor. Considering that all activities of the project, including design, equipment procurement, construction, installation, and commissioning, are the responsibility of the contractor, the employer is relieved of the heavy responsibilities associated with managing and executing these projects, which are often beyond their capacity due to the specialized nature of the work and technological complexity. If the employer choose a turnkey contract only for a part of a project, it is known as a Partial Turnkey or Semi-Turnkey. The use of the turnkey approach significantly reduces the employer's involvement in the design and execution processes compared to other contractual methods, and their role mainly involves contract management and, depending on the provisions of the turnkey agreement, approval of the design work. One advantage of this method is that integrating design responsibilities with execution allows for a reduction in the overall time required to complete the project, or in other words, fast-track construction. Additionally, by enabling the design and execution to be economical, it can slightly reduce project costs. In summary, it leads to a reduction in both cost and time. In the turnkey method, the client’s responsibility during the bidding phase is critical and demands substantial effort and resources to ensure the contractors' capabilities and the quality of their proposed designs meet the project requirements. Typically, the following considerations are accounted for in a turnkey contract: § In the initial design stages, complete and clear technical specifications must be prepared. § The employer must clearly specify their needs and requirements from a technical and contractual perspective.  § After the contract is concluded, the employer will generally have a weak position in discussions and negotiations. § The employer's requests and requirements regarding commissioning should be documented in the contract. The contractor's design costs should also be considered during the bidding phase 2.Engineering, Procurement, and Construction (EPC) Contracts The EPC contract stands for three words: Engineering, Procurement, and Construction. An EPC company is a construction company or a consortium of construction firms that specializes in engineering, procurement, and construction, which project owners consult for the design and construction of complex structures. Most EPC companies work on projects from the beginning of the work until completion. These types of contracts are usually pursued in executing large-scale projects in the country, particularly in the energy sector, following various patterns. In this contract, all responsibilities for advancing a project are entrusted to the contractor. The contractor is responsible for design and engineering, procurement, construction, and delivery of a project from start to finish. All responsibilities for project management execution and quality control lie with the contractor. The contractor initially prepares work packages in the "engineering phase" by drafting a schedule, and allocates materials and equipment in the "procurement phase", then carries out the project operations in the "construction phase" according to these plans. The main responsibility of the employer and their consultant is primarily in the tendering process and high-level supervision throughout the project. As a general rule, any defects or deficiencies that occur within the defined scope of work are the responsibility of the contractor, and the risks and executive responsibilities are transferred from the employer to the contractor. Integrating the procurement of equipment and goods, especially for foreign purchases, makes management significantly easier, allowing for faster project execution and cost-effectiveness. An EPC contractor is a company that, while possessing suitable financial capabilities, also has sufficient experience and competency in the three distinct areas of engineering, procurement, and execution. FEED Phase (Front-End Engineering Design) FEED phase, or Front-End Engineering Design, is a basic engineering phase that takes place before detailed design. The FEED process is one of the most important planning activities prior to a project. Sometimes, the design of basic documents (basic design) is carried out entirely during the FEED phase for EPC contracts. However, these contracts usually do not include the design of basic documents, and the basic design may be completed during the FEED phase before the commencement of the EPC phase. In this phase, the total investment cost estimate is prepared, and then the engineering, procurement, and construction contractor (EPC contractor) is selected. This method consists of three phases: 1.Engineering Phase: In this phase, the documents, records, and drawings necessary for procuring equipment, materials, and their installation and execution are prepared. Project progress is typically planned and monitored based on the design stages and the man-hours required to complete the design. 2.Procurement Phase: In this phase, the items, equipment, and materials required for project execution are purchased and procured. Progress during this phase is generally planned and controlled based on the costs and time required for procurement. 3.Construction Phase: In this phase, the procured equipment is installed and executed. Project progress is tracked and managed based on the quantities and volumes of work required for installation and execution. It is important to note that in this method, the contractor bears full responsibility for any errors. In the Fourth and Fifth National Development Plans, reference has been made to EPC contracts. The use of EPC contracts is becoming increasingly prevalent in major industries such as steel, oil and petrochemicals, power and telecommunications, housing, and real estate. Prerequisites for EPC Contracts The necessary prerequisites for implementing a project using the EPC method are as follows: 1.The ability of the executive organization to precisely and completely define the project and establish mutual understanding between the executive organization and the contractor regarding the scope and objectives of the project. 2.The capability of the executive organization in terms of project management. 3.Securing the required funding and access to it at predetermined deadlines. 4.The presence of a capable contractor with the characteristics of both a general contractor and a consultant (designer). 5.The existence of standard technical specifications and requirements, established at the start of the project. Some of the main features of an EPC contract and the related requirements are as follows: 1.Comprehensive Responsibility: The EPC contractor is solely responsible for the entire project. This includes all tasks and operations related to the project, such as design, engineering, procurement, construction, testing, and commissioning. If an issue arises in the project, the client only needs to report it to the EPC contractor, who will be responsible for resolving the defect, making necessary corrections, and even compensating the client if required. 2.Fixed (Lump Sum) Price Contract: An EPC contract requires the project to be completed at a fixed price. Therefore, EPC contractors must determine their service fees in advance. Each EPC contractor is obligated to complete the project within the agreed price, and any additional costs beyond the specified amount in the contract will be borne by the contractor. However, the EPC contractor may claim additional costs if delays or changes in the work are caused by the client..Performance Guarantee: The performance guarantee of the EPC contractor with respect to their contractual obligations requires ensuring quality. Typically, EPC contracts include provisions obligating the contractor to provide performance guarantees to compensate the client in case of non-fulfillment of their commitments. Thus, in the event of project failure or inability to achieve the desired performance, the contractor is required to compensate for any incurred losses. 4.Project Delivery: In an EPC contract, delivery is of high importance due to its turnkey nature. Given the extensive execution responsibilities of the contractor, they must take all necessary precautions, actions, and tests to ensure proper delivery and commissioning. This ensures that the client can fully and flawlessly operate the project upon handover. 5. Definite and Fixed Project Completion Date: The completion and delivery date of an EPC project is fixed and binding, and the EPC contractor is obligated to complete the project by this date. If the established completion date is not met, the contractor is responsible for compensating any damages incurred. However, the EPC contractor may claim additional costs in cases where delays or changes in the work are caused by the client. 6. Performance Specifications and Subcontracting: Under an EPC contract, the client may permit the EPC contractor to delegate certain operations to subcontractors. In such cases, with the approval of the client, the EPC contractor must ensure that they take full responsibility for the actions and performance of the subcontractors, under any circumstances. In an EPC contract, the following elements are of critical importance: Basic Design: The basic design plays a pivotal role in ensuring the quality of project execution. The client’s main consultant typically undertakes this phase independently. In any case, the basic design must be completed before tendering and awarding the contract. Scope and Specifications of Work: The scope and specifications of work are the most significant risk factors for the EPC unit. If the specifications and details are not adequately addressed during the basic studies, the contractor may face substantial costs for unforeseen risks or include potential risk allowances in their bid pricing, which could ultimately result in financial losses for the client. Project Execution Planning: The execution plan for the project, including testing, commissioning, and operational phases, must be clearly defined. Advantages of EPC Contracts : A single entity is responsible for design and construction - Another benefit of EPC contracts is that it allows the owner to interact with just one contractor, who in turn manages all relationships with subcontractors. This delegation of work can make it easier for the owner to oversee the project and evaluate progress based on the contractor's performance during the execution of the project. This contract model ensures that the contractor is fully accountable from the beginning to the end of the project. Advantages of EPC Contracts - The higher speed of project progress is one of the advantages of EPC contracts. Given that all services related to engineering, procurement, and construction are managed by a single contractor, coordinating the various parts of the project becomes easier. A single entity is responsible for design and execution. - Fixed and defined pricing for project execution is also a notable feature of this type of contract. As a result, significant savings in time and costs can be achieved. An EPC contractor is required to complete the project at a fixed price.  - Therefore, EPC contractors must determine the pricing of their services. Each EPC contractor is obligated to complete the project at the agreed price, and any costs exceeding the specified amount in the contract will be their responsibility. However, an EPC contractor may be able to claim additional costs in situations where the client has caused delays in project completion or has issued change orders. - The project contractor has greater flexibility in selecting equipment, materials, and the execution methods of the project. - EPC contracts are suitable for projects that require precise deadlines and defined quality levels. - This contract structure is also beneficial for contractors who want more control over design and the selection of subcontractors. While contractors bear greater design coordination risks, they can operate more efficiently to reduce construction costs, It promotes domestic manufacturing capabilities and innovation, Financing through this method is more easily facilitated, The contractor enjoys greater freedom in choosing equipment and execution techniques and does not have specific dependencies on the activities of others or adherence to their schedules, The owner is protected against fluctuations in material and labor costs, among other things and The contractor is involved in the design process. - Types of EPC Contracts - a. EPCC Contract EPCC stands for Engineering, Procurement, Construction, and Commissioning. This type of contract is a variation of the EPC contract in which the contractor is also responsible for the commissioning phase. The commissioning phase includes testing, inspection, and verifying that the project complies with operational requirements and standards. In this case, the contractor ensures that the project is ready for handover to the owner and provides training and support for the operation and maintenance of the project. b. EPCM Contract In an Engineering, Procurement, Construction Management (EPCM) contract, the contractor, in addition to handling design, procurement, and construction, assumes an - In EPC contracts, the responsibility for financing the contract generally falls to the employer or the host country. However, sometimes this responsibility is delegated to the contractor for reasons such as insufficient capital in the host country. For this reason, the terms F or +F are sometimes added to EPC. In such cases, two scenarios arise: - The contractor is responsible for financing the project (EPCF). - The contractor is responsible for introducing an investor (EPC+F). In the first scenario (EPCF), which stands for Engineering, Procurement, Construction, and Financing, the contractor also provides the financing for the project. In other words, the contractor assumes all costs related to design, construction, and other project expenses. The contractor recovers these costs, along with their overhead (contract amount), through payments or revenue-sharing arrangements agreed upon with the owner. - In EPC contracts, the responsibility for financing the contract generally falls to the employer or the host country. However, sometimes this responsibility is delegated to the contractor for reasons such as insufficient capital in the host country. For this reason, the terms F or +F are sometimes added to EPC. In such cases, two scenarios arise:  - The contractor is responsible for financing the project (EPCF). - The contractor is responsible for introducing an investor (EPC+F). In the first scenario (EPCF), which stands for Engineering, Procurement, Construction, and Financing, the contractor also provides the financing for the project. In other words, the contractor assumes all costs related to design, construction, and other project expenses. The contractor recovers these costs, along with their overhead (contract amount), through payments or revenue-sharing arrangements agreed upon with the owner. In the second scenario (EPC+F), where the contractor introduces an investor, two separate contracts are established: one between the investor and the owner, and another between the EPC contractor and the owner. These types of contracts are referred to as EPC+F. Commissioning Phase: Ensuring that all stages of design, installation, testing, execution, and maintenance of the systems and components of the project comply with the operational requirements of the client. - Engineering Procurement (EP) Contract - The EP contract stands for Engineering Procurement. Under this type of contract, the contractor is responsible for the design and engineering of the project as well as the procurement of necessary equipment and materials. However, the construction phase is handled by a party other than the contractor. EP contracts are commonly used in industrial projects, particularly in the petrochemical, oil, and gas industries, where complex installations and the procurement of equipment are of significant importance - Procurement and Construction (PC) Contract The PC contract stands for Procurement and Construction. In this type of contract, the design services for phases one and two are carried out by a qualified consultant, and the project is then handed over to the contractor for construction. The contractor is also responsible for procuring the necessary materials and equipment. - Engineering and Construction (EC) Contract The EC contract stands for Engineering and Construction. Similar to EPC contracts, EC contracts exclude the procurement of materials and equipment from the contractor’s responsibilities. Instead, the client is obligated to provide all necessary materials and equipment to the contractor. As a result, the contractor’s primary responsibilities are the design and construction of the project. The main difference between EC contracts and previous contract types lies in the procurement of project equipment, which is managed by the client rather than the contractor. Comparison of EPC and EP Contracts (Similarities and Differences) In EP or EPC projects, whether for quoting or for execution, it is necessary to have the Basic Design, Feasibility Study, along with the Conceptual Design completed. Without conducting such studies, providing a quote at the time of bidding is not feasible. Although EPC contracts have more advantages for the client compared to EP contracts due to the continuity and coherence of the contractor's responsibilities from start to finish, these types of contracts typically have the entire project's costs financed. Comparison of EPC and EP Contracts (Similarities and Differences) Therefore, securing the financial resources in such a manner can be challenging and constrained for the contractor. Hence, the execution phase and related costs may fall outside the financing framework, and the EP model might be considered. However, if the client can arrange for the execution costs independently, the most suitable solution remains the EPC contract model. Considering that in EPC contracts, various engineering responsibilities, procurement, and equipment provision, as well as execution, are centralized and can be carried out within a single contract, this facilitates the shortening of project timelines and ultimately reduces costs. Comparison of EPC and EP Contracts (Similarities and Differences) The main difference between EP and EPC methods lies in the construction operations, where in the EPC contract, the contractor's responsibility is continuous and integrated from start to finish, which is significant for the employer. Given that in the EPC method, the construction responsibility lies with the main contractor (General Contractor), the main contractor can select the most suitable executing contractor (subcontractor) by inquiring with local contractors and engaging in close subsequent negotiations. In the EP contract, where the employer takes on the responsibility for the construction operations of the project, accepting this responsibility can create two issues: 1. The severance of the contractor's responsibility and the creation of additional connection points in the main contractor's workflow until the project commissioning and handover (in other words, the working relationship between the main contractor and the employer is interrupted until commissioning). 2. Potential delays and a decrease in the quality of execution due to the employer's limitations. If during the execution of the project there is a need for supplementary changes, which are inherent to large projects, this process is naturally feasible for contractors under the EPC contract. However, for the employer, making such changes can be more challenging due to regulatory constraints. In an EPC contract, the responsibility for project management, quality control, and project oversight falls to the contractor, while in an EP contract, this responsibility rests with the employer. Selecting subcontractors in the EPC contract is easier, while in the case of the EP method, where government employers typically operate through tendering and selecting based on the lowest prices according to regulations, this process becomes more complicated. In the EP contract, similar to the EPC contract, the responsibility for project commissioning lies with the main contractor. However, because there is a gap between design, execution, and commissioning in the EP contract, it becomes somewhat challenging to establish that the main contractor is responsible for the project's commissioning, as the main contractor may attribute some deficiencies and issues to improper execution. On the other hand, if the project is contracted in the EPC format, since the main contractor is responsible for the construction and installation of the project, the familiarity of the execution team with the installation details ensures that the main contractor's involvement continues during the pre-commissioning phases of the project. This continuity helps prevent the main contractor from shirking responsibility and shifting problems onto others, resulting in higher quality work being completed more swiftly. The BOT (Build-Operate-Transfer) contract consists of three main components: Construction Phase: In this context, it is broadly defined and includes the phases of design and engineering, procurement of goods and equipment, construction, installation, and commissioning. The project design and engineering are carried out initially, followed by ordering the necessary goods and equipment. Finally, the project is constructed, and the equipment is installed and put into operation. Operation Phase: This phase includes aspects such as the daily management of the project, maintenance of facilities and buildings, necessary repairs, provision and replacement of required parts, and supply of necessary consumables. Typically, the private sector addresses the depreciation of the costs incurred during the project's execution in this phase. Transfer Phase: In this phase, upon the completion of the stipulated operation period, the contractor is obliged to transfer the entire project to the client (the government). The transfer includes handing over all facilities, equipment, and necessary licenses to the client so that they can operate the project independently or in collaboration with other companies. In this transfer, the contractor or private sector will retain no further rights, as all rights will be transferred to the government. Subsequently, the public sector will own all project rights. After the transfer stage is completed, the client can operate the project without restrictions and may collaborate with other companies as well. The Build-Operate-Transfer (BOT) contract is a modern financing method that has gained popularity since the early 1980s. This type of contract aims to transfer some governmental responsibilities to the private sector and utilize private sector facilities and resources. It is commonly applied in large infrastructure projects. The main objective of these contracts is to significantly reduce the financial and operational burden on the government, creating a partnership between public entities and the private sector. Turkey was the first country to auction several power plant concessions using this method. The use of BOT contracts, particularly for infrastructure facilities, has gradually developed, and this approach is now widely accepted in developing countries. The Build-Operate-Transfer (BOT) contract is a modern financing method that has gained popularity since the early 1980s. This type of contract aims to transfer some governmental responsibilities to the private sector and utilize private sector facilities and resources. It is commonly applied in large infrastructure projects. The main objective of these contracts is to significantly reduce the financial and operational burden on the government, creating a partnership between public entities and the private sector. Turkey was the first country to auction several power plant concessions using this method. The use of BOT contracts, particularly for infrastructure facilities, has gradually developed, and this approach is now widely accepted in developing countries. In this method, the construction and operation of a project are assigned for a specific period to a company, commonly referred to as the Project Development Company. After a designated period and once the investor has recouped their investment along with the specified profits outlined in the contract, the project is transferred to the client. In the implementation process of the BOT approach, after the formal request from the client or their representatives for the development and construction of a project using this method, private sector investors first review and analyze the tender documents. Then initial negotiations and a reasonable assurance of the investor's capability to successfully execute the project, the investor—who is typically the owner or owners of the company—is selected. The selected company enters into agreements with the client, the executing contractor, the operating company, and financial institutions. This company typically signs a sales and operating agreement with the client based on take-or-pay conditions or other terms that protect it against the risks of reduced demand for the product, consequently safeguarding its revenue. It is important to note that the client does not guarantee the repayment of any loans taken by the investors or project managers, and since the direct investment does not derive from the state budget, the pressure from borrowing is reduced. Additionally, risks associated with construction and new technologies used are transferred to the private sectorOne of the significant advantages of this method is that the government or client gains considerable benefits from the experiences of the private sector, both during the construction phase of the project and while the project is operated by the private company. In summary, the steps for executing this type of contract are as follows: Ø Formation of a private limited liability project company by the project executors. Ø Preparation of a financial document to raise funds through borrowing, bonds, and commitments to secure financial resources. Ø Selling shares of the project company. The project company will be the purchaser-owner and operator of the relevant unit, such as a power plant. Ø Repayment of the loan by the project company. Ø Transfer of the project after the expiration of the borrower's term. BOT contracts have gained increasing popularity as a project financing method. Their advantages include: Reducing the government’s challenges related to foreign borrowing. Transferring project risks to the private sector. Improving the efficiency of project execution. Facilitating technology transfer to the host country. Developing infrastructure. Enabling more effective management by the private sector. Build-Own-Operate (BOO) Contract What is a Build-Own-Operate (BOO) Contract? In a BOO contract, the project company is responsible for the construction and operation of the project without any obligation to transfer the completed project to the government or public sector. The ownership of the project remains with the project company, and it is under no commitment to transfer the project after a certain period. In other words, the project company’s operation of the project is not time-bound, and the company retains legal ownership of the project indefinitely. This model can be considered one of the most advanced and refined methods of delegating responsibilities to the private sector and promoting privatization for infrastructure projectsBOO (Build-Own-Operate) contracts involve three main stages, which include the construction of the project, ownership by the investor, and finally, the operation of the project by the investment company. First Stage of the Contract: In BOO contracts, an investor, often a company or a consortium of powerful foreign private companies, enters into a contract with a client, usually a government entity. The private company commits to construct the subject of the contract, which can be the establishment of infrastructure such as a highway, dam, or refinery, with its own costs and investment. Second Stage of the Contract: After the construction and commissioning of the project, according to the BOO contract, the builder and investor becomes the full owner of the project and has no obligation to transfer ownership to the public sector. Third Stage of the Contract: Finally, the investor, having acquired ownership of the project after construction, begins to operate the project without any time limitations and assumes the maintenance of the project indefinitely. The investor collects tolls, rents, and other charges and revenues resulting from the execution of the project to recover the investment and profit. In this type of contract, the government is at liberty to purchase the products or services resulting from the BOO contract. Since BOO contracts grant ownership and operational rights to the investor after construction, they often raise security and sovereignty concerns. In general, due to the ownership granted to the investor, BOO contracts are more suitable for countries with lower sensitivity to granting such privileges to foreign investors. For developing countries, the economic, political, and even security influence of a powerful foreign company may lead to political and economic instability. This is one of the main drawbacks of this investment method for some countries. This method is considered a type of BOO (Build-Own-Operate) contract with the condition of transferring it to the host government. Additionally, the main difference between this and BOT (Build-Operate-Transfer) contracts may lie in the extent of ownership. Build Own Operater Transfer (B.O.O.T) The term "own" is used in this context because the investor takes ownership of the project for the duration specified in the contract and transfers it to the government after recovering the principal and interest on the investment. This distinction actually pertains to the nature of the contract , whether the investor merely gains the right to use the project during the specified period or actually owns it. In this mechanism, the investor is the owner of the project during its operation. The extent of ownership, which determines the amount of foreign investment and contractual rights, provides full ownership of the project during its operation. The implications of this understanding can include the possibility of transferring ownership to a third party, substitution, setting and adjusting tariffs, increasing prices or reducing investment, etc. However, the commitment to transfer the project to the government at the end of the concession period is an integral part of the contract. Build-Lease-Transfer (BLT) Contract The BLT contract stands for Build-Lease-Transfer, which involves three key stages: construction, leasing, and transfer. In this model, the investor undertakes the construction or financing of the project. Once completed, the project is leased to a government entity or a private institution. The investor receives a fixed lease payment from the host over a specified period defined in the contract as the participation duration. This lease amount is independent of the project’s profitability; in other words, regardless of whether the project generates profit or loss, the investor is guaranteed to receive the agreed-upon lease payment. At the end of the participation period, the entire project is transferred to the host entity. The parties settle any outstanding accounts, and the contract is effectively concluded. Buy-Back Contract This type of contract, which is primarily used for the implementation of oil and gas projects, involves foreign investment companies that typically cover all capital expenditures, including the installation of equipment, commissioning, and technology transfer. After the commissioning, the project is handed over to the host country. The return on investment and profits for the investor are realized through the collection of produced products. This type of contract, which represents investment in exchange for receiving products, falls under the category of service purchase contracts. This type of contract, which is primarily used for the implementation of oil and gas projects, involves foreign investment companies that typically cover all capital expenditures, including the installation of equipment, commissioning, and technology transfer. After the commissioning, the project is handed over to the host country. The return on investment and profits for the investor are realized through the collection of produced products. This type of contract, which represents investment in exchange for receiving products, falls under the category of service purchase contracts. In this contract, the following points are important: a. Foreign companies act as contractors, responsible for providing all the necessary capital for exploration, development, renovation, and reconstruction of the fields. b. All investment costs and the agreed-upon interest rate will be repaid from the revenue generated from the sale of oil or gas. c. The annual return rate on the investment varies based on the project (typically around 20 percent), and it will be paid to the contractor in equal installments. d. After the expiration of the term and the repayment of the principal and interest on the investment, the contractor will have no rights. e. After the completion of the project’s operational phase, the responsibility for launching production and the commencement of production operations will fall on the host country, which will also be responsible for covering the current operational costs. f. The foreign contractor does not hold any shares in this joint investment. In buy-back contracts regarding oil and gas projects, there is no exploration risk because these contracts are made for fields where oil and gas resources are already known to exist. Furthermore, if such a risk does exist, it is transferred to the host country. Key Legal Considerations in Service Contracts and Buy-Back Frameworks a. The full sovereignty and ownership of the host country over the hydrocarbon resource, negating any foreign participation and investment. b. The sovereignty of the host country’s monetary laws over currency exchange relations. c. The sovereignty of the host country’s laws over the contract and jurisdiction in disputes. d. Full control over production. e. Repayment solely through production revenues. f. No provision of bank or government guarantees. g. The exercise of rights for technical and financial oversight. h. Ensuring the highest recovery factor with technical considerations while preserving reservoirs. i. Maximizing the involvement of domestic engineering and construction capabilities. Weaknesses of Buy-Back Contracts The duration of buy-back contracts is significantly shorter than the lifespan of the field. Therefore, these contracts are not suitable for fields that require phased development, as the information related to the next phase may not be clear until the previous phases are fully completed. The short duration of the contract does not align the interests of the contractor and the client effectively. It is essential to make amendments to the contract. For example, it should specify that the execution of the second phase is contingent upon the successful completion of the first phase. In other words, the second phase should only proceed if the client confirms that the first phase has been successfully completed. In this contract, since the contractor's profit margin is fixed, there may be little incentive for them to improve recovery rates for their own benefit or that of the employer. To address this deficiency, a reward and penalty system could be incorporated into the contract. For example, it could state that if the contractor manages to increase the recovery rate, they will be entitled to add up to 2% to their return on investment. Conversely, if they fail to meet their commitments, a 2% deduction from their wages will be applied for each percentage point decrease in production. In these contracts, since foreign companies have a short-term presence, they lack motivation for a long-term perspective on the reservoir. Stages of Concluding Buy-Back Contracts In buy-back contracts, the following stages must be reviewed before the contract is concluded: Review and Preparation of Technical Reports for Proposed Projects Approval of Proposed Projects by the Host Organization Preparation of a Technical-Economic Justification Report for the Project and Submission to the Management and Planning Organization, Government, and Islamic Consultative Assembly for Inclusion in the Law Conducting an International Bidding Receiving Technical Proposals and Sending Them for Evaluation to Technical and Managerial Committees Addressing Financial Matters and Preparing a Combined Financial and Technical Report Engaging in Financial, Technical, and Legal Negotiations with the Winning Contracting Company Reviewing and Approving the Transaction Commission Report by the Highest Responsible Official of the Executive Body Submitting Technical-Economic Reports for Approval to the Supreme Economic Council Sending the Contract for Financial Review and Approval to the Central Bank and Obtaining Necessary Resolutions Key Considerations in Selecting an Appropriate Financing Method for Infrastructure Projects In developing countries, securing financial resources and preparing the necessary budget for implementing infrastructure projects and utilizing their resulting products and services is one of the most significant challenges for governments. Given the unique circumstances of these countries, particularly financial crises, acquiring the required capital for large-scale projects is not easily achievable. Therefore, selecting an appropriate financing method for projects is a crucial matter. For many projects, challenges such as the high volume of required capital, political, economic, and security sensitivities, and the reluctance of foreign entities to invest make financial resource allocation a priority for government authorities. For key infrastructure projects critical to the nation—such as those in the oil, gas, petrochemical sectors, and others—where the government cannot fully fund the project, there is often a need for foreign investors and external financing through banks and international institutions Important Factors in Selecting a Financing Method Determining an appropriate strategy for financing projects is essential. The choice of the financing method for any project requires: Thorough studies and sufficient information, including feasibility assessments. Consideration of the needs and requirements of all stakeholders involved, including the host country, the industry related to the project, contractors, buyers, suppliers, and lending banks. A comprehensive evaluation of risks and the roles of all parties involved. Additionally, it is crucial to recognize that the choice of financing method significantly depends on the laws and regulations of the host country. A method effective in one country may not be suitable in another due to differences in legal frameworks and conditions. The key is selecting the most suitable financing structure tailored to the specific conditions of the project and the host country. A financing contract is one of the most common forms of project funding agreements. Typically, project financing originates from international sources. This type of contract is concluded between the facility provider and the facility user after