NNPCL SCM_Contract Management.pdf

NNPC Limited SCM Processes and Procedures 15.0 Contract Management This process is designed to provide an efficient process for vendor contract creation, execution, and review in order to maximize operational and financial performance at NNPC Limited while minimizing financial risk. Objectives The...

NNPC Limited SCM Processes and Procedures 15.0 Contract Management This process is designed to provide an efficient process for vendor contract creation, execution, and review in order to maximize operational and financial performance at NNPC Limited while minimizing financial risk. Objectives The objective of Contract Management process is to ensure: • • • Standards for an efficient and effective process that enables NNPC Limited SCM and suppliers to meet procurement obligations. Compliance with the required specifications, standards, and quality. Value is created for NNPC Limited for every contract awarded. 15.1 Contract Management Policies S/N Description 1. Contract Plan The contract plan shall detail the contracts for the procurement of goods, works and services. 2. Monitoring and Review of Performance Against Plan Quarterly contract progress meetings shall take place between each SBU/CSU and SCM division to monitor and review performance against the plan. SCM shall update the plans accordingly to ensure that performance aligns with the plan. SCM shall update the contract plan annually based on the progress reported at the quarterly meetings. 3. Appointment of a Contract Manager A Contract Manager shall be appointed for contracts covered by this Policy. The Contract Manager shall be a member of the SCM unit with appropriate skill and experience to carry out the responsibilities of the contract management. 116 NNPC Limited SCM Processes and Procedures 15.1 Contract Management Policies S/N Description The Contract Manager may delegate or assign to another staff member, various functions or a task regarding the contract, but the manager shall remain the responsible manager. 4. Planning for Contract Creation In preparing for the content of a contract, the following shall be considered: a. b. c. d. e. 5. Needs assessment. Clear procurement objectives and purpose. Cost estimates. Procurement method. Type of contract. Drafting of Contract The contract shall fully describe the actual agreement between NNPC Limited and the vendor(s). There are several types of provisions that are usually included in contracts, including: a. b. c. d. e. f. g. 6. Administrative provisions. Financial provisions. Risk allocation provisions. Scope of work (including deliverables). Contract term, termination, and dispute resolution provisions. Payment Terms. Work product and intellectual property ownership and rights provisions. Award and Signing of Contract The respective Tenders Committee having considered the report of the Evaluation Sub-Committee or direct from relevant User Department (head) shall then approve either Award of Procurement or Award of Contract to the successful Bidder/Contractor. Prior to contract award, relevant Tenders Committee shall ensure that budgetary provision is confirmed to meet the cost of the contract. Once NNPC Limited has evaluated the tenders, determined the Most Economically Advantageous Tender (MEAT), and a decision been made about the award, it shall: a. Not require the selected bidder to provide performance more than that specified in the Tendering Documents. 117 NNPC Limited SCM Processes and Procedures 15.1 Contract Management Policies S/N Description b. Send notification of the award, and a contract form to the successful bidder in a manner and within the time specified in the tendering documents. c. Request the bidder to return the signed contract together with the required performance security within the time specified in the tendering documents, and d. Notify unsuccessful bidders as soon as possible after receiving the signed contract and the performance security (where applicable) from the successful bidder. However, during the contract performance review process of an on-going contract, a negotiation procedure may be triggered by either party to the contract. 7. Execution of Contract Agreement Following the acceptance of a bid submitted by a bidder, a formal letter of acceptance shall be issued forthwith to the bidder. This shall be followed by the execution of a formal contract. 8. Mobilization Fees In addition to any other regulations as may be prescribed, a mobilization fee of no more than 15% of contract value may be paid to a Supplier or Contractor supported by the following: a. In the case of National Competitive Bidding - an unconditional Bank Guarantee issued by an institution acceptable to NNPC Limited. b. In the case of International Competitive Bidding - an unconditional Bank Guarantee issued by a banking institution acceptable to NNPC Limited. Once a mobilization fee has been paid to any Supplier or Contractor, no further payment shall be made to the Supplier or Contractor without an Interim Performance Certificate issued in accordance with the contract agreement. 9. Retention Money Security Retention money on the other hand is a portion of the payments due under the contract which is retained to ensure performance by the Supplier/Contractor; when used as a guarantee, it shall not exceed 10% of the contract value. 118 NNPC Limited SCM Processes and Procedures 15.1 Contract Management Policies S/N Description Instead of NNPC Limited retaining part of the due payments, the Supplier/Contractor may also provide a money retention security in form of a Bank Guarantee or irrevocable Letter of Credit. If the contract provides for both a performance security and retention fees, the total amount of both performance security and retention fee shall not exceed 20% of the contract sum. 10. Variation of Contract To minimize variations due to change of scope, NNPC Limited shall ensure that the detailed scope of work (including design and drawings where applicable) is ready prior to the award of contract for major projects. Likewise, to minimize variations in contract due to inaccurate quantities or omission in the Bill of Quantities (BOQ)/ Bill of Engineering Measurement and Evaluation (BEME), NNPC Limited shall obtain a certificate from the persons who have prepared the BOQ/BEME. In addition, the certificate shall include a confirmation that a second person has checked the BOQ/BEME for accuracy and completeness. Despite all the above, if the aggregate amount of the variations (due to quantity changes and extra works orders issued) is within the contingency provision (which shall be 15% maximum) the relevant Tenders Committee may approve the change. When the aggregate amount of the variations in cumulative terms exceed the contingency provision of 15% maximum of the initial contract award sum, GMD's approval shall be obtained before presentation to the appropriate Tenders Committee. 11. Contract Performance Guarantee The provision of a Performance Guarantee shall be a precondition for the award of any procurement contract upon which any mobilization fee is to be paid. However, it shall not be less than 10% of the contract value, or an amount equivalent to the mobilization fee requested by the Supplier or Contractor - whichever is higher. 12. Contract Administration-Payment of Value Added Tax (VAT) In respect of VAT registered Contractors, Vendors or Suppliers, the amount of VAT on the value of goods supplied, value of work done, or value of services 119 NNPC Limited SCM Processes and Procedures 15.1 Contract Management Policies S/N Description provided, shall be paid by NNPC Limited, provided such goods or services are not exempted or not excluded from VAT. VAT payment shall apply in respect of advance payments as well When retention money is paid, relevant value of VAT shall also be paid by NNPC Limited. 13. Contract Review Contracts shall be reviewed and approved by the Contract Manager to ensure compliance with the established policies. The performance of work, ordering of goods, or contracting of services established by a contract between NNPC Limited and a Vendor must never commence prior to the review and approval of a formal Contract as set forth in this policy. 14. Compliance with National Withholding Tax (WHT) Policy Every certificate of work done at different stages of a contract shall be subjected to WHT. However, the amount of WHT being deducted at source from the mobilization fee paid at the inception of the contract shall be adjusted (deducted) from the WHT due on the next payment in respect of the certificate of work done issued and the balance should be remitted to the relevant tax authority. Transactions WHT Rate (%) Contract of supplies 5 Contract of construction on road, buildings, bridges and power plants 2.5 Other construction works 5 Technical Service 10 Professional Service 10 Consultancy 10 Management Service 10 120 NNPC Limited SCM Processes and Procedures 15.1 Contract Management Policies S/N Description 15. Indemnity For all vendor contracts, the supplier shall indemnify NNPC Limited in full against all liability, loss and expenses incurred by NNPC Limited as a result of supplier’s breach, negligence or any act/omission of the supplier’s representatives in relation to the contract. 15.2 Contract Management Procedures Responsible Party Description Job Aid 1. Contract Manager (N-5) Provide input in preparation of contract plans. ERP Ensure the timely initiation of requests for new contracts or variations to existing contracts. ERP 2. Contract Manager (N-5) S/N 3. 1 Contract Manager / Legal (N-5) 4. Contract Manager Prepare a term sheet/ draft contract and ensure it contains the following: a. b. c. d. The date. The name of the winning bidder. The title of the Contract. The description of the goods, service or works to be provided. e. The tender reference number. f. The final agreed price. g. Must be signed by either the Tenders Committee Chairman, or the Head of the Procuring Entity (according to monetary threshold. (N- Negotiate contract with supplier/vendor. 121 NNPC Limited SCM Processes and Procedures 5. 5), SCM Rep, User Department Rep Note: Legal (N-5) Where Contract is to be developed by the NNPC Limited Legal Team, go to Prepare Own Contract Process. Details are listed in Negotiation Process. Vendor Contract Where Contract is to be developed by External Party, go to Review 3rd Party Contract Process. 6. User Department (N-3) Endorse contract for approval. 7. Tenders Committee Approve and award contract /variation. Note: For material & work variations within contingency provision (<=15% of contract value), relevant Tenders Committee may approve. For material and work variations above contingency provision (>15% of contract value), GMD approval is needed before presentation to Tenders Committee. 8. Contract Manager (N-5) Request performance guarantee. 9. Contract Manager (N-5) Review contract compliance. 15.3 S/N 1. and monitor vendor Contract Management Input & Output Documents Document Description Type Frequency Source Recipient Draft Vendor Contract Input As required Contract Manager, Legal User Department Head 122 NNPC Limited SCM Processes and Procedures 2. 15.4 Approved contract vendor Output As required Contract Management Indicators S/N Performance Measure Key CEO/MD/GED Contract Manager Performance Basis of Measurement Timeframe Target 1. Accuracy of Draft Contract Number of material errors, omissions, and misrepresentations in the contract. Monthly Zero error 2. Timeliness of contract initiation request Latest date for completion of request. As required Two weeks 123 NNPC Limited SCM Processes and Procedures 124