CASE WRITING

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L&T Institute of Project Management, (L&T IPM) Vadodara -390 019 (India)

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 Brook & Calder
Company Background:
Brook & Calder (B&C) is a well-known contracting firm in water supply and distribution
business segment in India and slowly expanding its presence in Asian market. Rahul is the
Head of business strategy in B&C and is one of the senior executives having significant
insights of the market and business of B&C.

Municipal corporations and government departments are the major clients of B&C. Over the
past 20 years, B&C has understood the requirements of its clients and mastered the
nuances of offering solutions ranging from concept to commissioning of water & waste
water treatment and distribution projects. Though B&C has successfully executed many
projects for government clients, there are continuing issues related to timely closing of
projects.

B&C is slowly expanding its business in various parts of the country and now considering to
bid for one of most significant projects of state government called “Mahatma Gandhi Rural
Water Supply” (MGRWS).

About the Bid

The bid being considered by B&C is in response to state government’s tender for setting up
lift canal, water supply line and provide potable water to three districts of Rajasthan. This is
a part of state’s larger programme of series of 10 more districts to follow in the coming
years (2018-2020 Plan). People of these districts have been facing acute water problem &
many of these regions remained backward from development for several years due to acute
water scarcity, saline and fluoride water and looking for solutions. Based on the successful
implementation of the current project the government is going to explore further
expansions as part of its water supply initiative.

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Scope covers tapping water from the source through in-take wells, setting up water
treatment plants, installation of pump houses and transmitting it through pipelines and
distributing it to the end users.

Accordingly, the selected contractor will have to complete facilities that covers pumping
water from canal to Water Treatment Plant (WTP) with the help of Pump House (PH). Water
from WTP is then supplied to Clear Water Reservoir (CWR) and then to the distribution
network. A Raw Water Reservoir (RWR) of 5500 ML capacity is also to be developed by the
contractor. This is a huge capacity RWR that B&C will be doing for the first time if awarded.
RWR will be especially useful during the annual maintenance operation of canal once
commissioned.

When completed the facility is expected to provide potable water to three Districts of
Rajasthan. Client is expecting the EPC contractor to complete the project in 30 months.

Project Site:

Fig 1. Projected Site

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The project is very important for the government as the same when completed will cater to
more than 900 villages and 12 towns covering 3 major districts of the state of Rajasthan. The
districts namely, Nagaur, Bikaner and Charu are the three remote locations that had not
seen much development in the past several years.

The region in most of the locations dominated by mining mafia and known for its influencing
local political groups. Children have to go to other districts for pursuing higher education
and of course most of them don’t return to these villages due to lack of infrastructure
facilities.

Recent study of fluoride concentration of groundwater samples from 100 villages of these
districts revealed that out of 100 villages studied, 77 of them were found to have fluoride
concentration more than 1.8 mg/L. The maximum fluoride concentration was recorded 6.6
mg/L in groundwater of Singhani village. As per the desirable and maximum permissible
limit for fluoride in drinking water, determined by World Health Organization (WHO), the
groundwater of about 80% of villages of the camel hump landscape of these districts are
unfit for drinking purpose. This is another reason why the International Funding Agency
(IFA) has come forward to support the government initiative.

Funding Arrangement & Obligation of Parties

International Funding Agency (IFA) is going to sponsor capital works and client department
has to pay for Operations &Maintenance (O&M) works. Arranging regulatory clearances is in
Contractor’s Scope. Contractor shall apply for the right of way and other regulatory
clearances and employer is expected to facilitate such approvals. All fee pertaining to such
approvals are in the scope of the employer. Tender conditions permitted reimbursement of
statutory variations in taxes and duties. Bidding team reviewed the capacity based on
population projection provided by the client. (Ref-Table-1)

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 Table 1. Projected population & Demand forecast

Population Water Demand

Year
Projection (MLD)

2018 10 Lacs 74.00

2030 34 Lacs 260.05

2045 40 Lacs 309.13

Contractor has to design the components along with procurement of materials and
construction. The electromechanical equipment, Clariflocculator & Filter bed units of water
treatment plant (WTP) are to be designed for the intermediate demand. Pipeline & other
civil structures are to be designed for the ultimate year demand. The project also involved
guaranteeing the power for 10 years. Contract covers “Defects Liability Period” of one year
and 10 Years of Operation & Maintenance (O&M) of Intake, raw water reservoir, water
treatment plant, clear water reservoirs, pump houses and pipeline work.

Release of Tender
Client has released tender for 3 packages. (Ref Table 2) The contract is Engineer, Procure
and Construct (EPC) with variation in pipeline quantity with funding support from
International Funding Agencies (IFA).

The Project once completed will provide access to clean and safe drinking water thereby
fulfilling a vital human need across rural sectors covering
➢ 2 towns and 200 villages of Nagaur District.
➢ 3 towns and 312 villages of Bikaner District.
➢ 7 towns and 413 villages of Charu District.

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 Table 2. Package Details

Package I Package II Package III

Package
(Value in (Value in (Value in
(Scope)
Crores) Crores) Crores)

Design & Build

400 500 550

Operation &
30 50 30
Maintenance

Provisional sum (For

11 23 25
regulatory approvals)

Total 444 553 605

Shaik, Head of Business Unit consults Rahul on various critical decisions and actions. During
the last meeting on 10th Jan 2018, Shaik asked Rahul to explore the prospects of the
“MGRWS” bid that is going to be submitted. The review meeting with Chief Executive
Officer (CEO), Chief Finance Officer (CFO) & Chief Risk Officer (CRO) and the bidding team is
expected on 15th Feb 2018.

5th Feb 2018:

The schematic diagram of MGRWS water supply project is as given in Fig 3 to 5. Rahul
quickly reviewed the tender conditions and scope of the services. He carefully studied the
scope of project and future demand requirement and also the package details as mentioned
in the tender document. Meantime bidding team studied the drawing and other relevant
information and estimated the quantities (Ref: Table 3 to 5)

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 Fig 2. Figure 2: Schematic outline of Package 1
Table 3: Details of Package 1

Sl.No Description UOM Quantity Remarks

MS Pipeline (1900 ID/13 & 11mm

1 Km 52.5 31088 MT.
thick)

2 Link Canal Mtr 100 Capacity - 260 cusec

3 Raw Water Reservoir ML 5310

4 Raw Water Pump House Nos 01

5 Water Treatment Plant MLD 250

6 Clear Water Reservoir ML 27.50 Rectangular shape

7 Clear Water Pump House Nos 02

8 Staff Quarters Nos 03 Each area of 75 Sqm

9 Switchyard & Sub station Nos 02 33/0.433 KV

10 Instrumentation LS 01

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 Figure 3: Schematic outline of Package 2

Table 4: Details of Package 2

Sl. No Description UOM Quantity Remarks
1 MS Pipeline
1800 mm ID 12.5 mm thick 27.75
1800 mm ID,11.0 mm thick Km 17.13 Total length - 129.45 kms
1700 mm ID,10.0 mm thick 05.16 (61659 MT)
1500 mm ID,10.0 mm thick 24.87
1700 mm ID,11.5 mm thick 54.54
2 Clear Water Pump House Nos 02
3 Clear Water Reservoir ML 23.00 & 22.25 2 locations
4 Staff Quarters Nos 05 Each of area 75 sqm
5 Electrical Substation (33/6.6 KV) Nos 02
6 Instrumentation LS 01

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 Figure 4: Schematic outline of Package 3

Table 5: Details of Package 3

1 MS Pipeline
1500 mm ID, 11.0 mm thick Km 23.88 Total length – 75.3 kms (26193 MT)

1200 mm ID, 10.0 mm thick 37.32

14.10
1100 mm ID, 10.0 mm thick

2 Ductile Iron (DI) Pipeline Km 16.00 Total Length: 220 Kms (23982MT)
250 mm – 700 mm 203.80

3 Clear Water Reservoirs ML 17.0, 16.5,9 & 10 4 Nos

4 Clear Water Pump house Nos 08 No. of Pumps – 40
5 Electrical Substation Nos 08 33/6.6 KV
6 Instrumentation LS 01

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Based on inputs shared by bidding team, Rahul discussed with few of the Project Directors
and reviewed lessons learned from previous projects. The discussions revealed that a similar
project that involved MS pipe laying over 210 KMs (Approx. quantity of 80,000 MT) in the
Gujarat State undertaken 2 years ago took almost 38 months against planned 30 months.

B&C’s previous projects had no material import options. Any variations in the rates and
taxes were claimed through not so complex Statutory Variation clauses. However, the
current contract allows procurement as per tender conditions as below. (Ref: Table- 6)

Table-6 Tender Condition

As per Clause 18.5 of Instructions to Bidders (reproduced below), Bidders were advised
to consider certain exemptions in taxes and duties as per the notifications of
Government of India.
“The Bidders are informed that certain tax and duty exemptions are available as per the
following Government of India Notifications. The Bidder shall have to avail all the benefits
available under following Notifications and shall quote his rate accordingly:
Government of India Notification No. 12/2012, Dated 17.03.2012
• Excise Duty exemption is available on specified components of materials used in
Water Supply Projects. Bidder should study notifications carefully and account for
the exemption that is to be availed while preparing their price bid. Necessary
certificates from the District collector shall be arranged by the Employer as and
when requested
• Deemed Exports Benefits available under Chapter 8 of Foreign Trade Policy issued
by Government of India through Notification No. 1 RE-2012/2009-14 dated 5th
June 2012.”

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Though Rahul has done strategic planning for many similar projects in the past, the current
project is different in several aspects.
• Funding is coming from International agency to client
• As per payment terms, the client is paid within 60 days after submission of bill and
contractor’s payment are due 7 days after submission of bills
• As per tender conditions, bidders can finalise their bids depending on their choice of
procurement (Indigenous or import or combinations in specific cases)
• B&C’s Quality Assurance Plan (QAP) considered import of Mild Steel (MS) pipes and
Hot Rolled (HR) Coil and indigenous Ductile Iron (DI) pipe for large diameter pipes
• Full exemption of custom duty, in case the bidder opted for imported materials
• Full exemption of excise duty on Hot Rolled (HR) coil, cement, steel and other locally
procured items, in case the bidder opted for Indigenous materials
• O&M is not core business of B&C but is requirement of the bid
• Contractor must take into account the remote locations, political influences &
Geography and facilities for staff quarters, power station etc. in each of the package
• The project involved supply of MS Pipe to the tune of 120,000 MT of spirally welded
mild steel pipes. Conventionally these pipes are procured from established pipe mills
(capable of producing spirally welded pipes) located across the country (Refer: Map)

In addition to the listed manufacturers (Ref Fig-5), Rahul suggested the bidding team to
explore other options. Based on the market intelligence, bidding team suggested that
M/s Mani Metals Limited (a reputed player in the pipe manufacturing business) had a
spare spiral mill which they had purchased recently from a smaller player. During the
initial discussions with Mani metals the bidding team realised that it can be a challenge
to convince them to set this mill up without knowing for sure whether B&C would win
any of the packages. It is also clear that setting up this plant just for quantities of one
package may not be economical for the supplier.

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 JINDAL TUBULAR

WELSPUN RMTL

JINDAL SAW MAN

INDUSTRIES

ESSAR

Figure 5: Established Pipe mill locations TOPWORTH

Fig-5: Location of Listed Manufacturers

Rahul also studied the details of cost involved in major work packages as indicated in terms
of percentage of contract value of individual packages.
Rahul did his homework and was waiting for the review meeting but could not get the
confirmation as senior colleagues were busy in sorting out various issues related to closing
of 3 major projects. Having the review discussion on time is crucial for taking this project
proposal forward as bids must be submitted to client by 10th March 2018.

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25th Feb 2018:

Rahul finally got the most awaited opportunity for the meeting. Meeting was attended by all
key personnel Mr. Shaik, Business Unit (BU) Head, Mr. Khan, Chief Executive officer (CEO),
Ms. Kathy, Chief Finance Officer (CFO) and Ms. Jasmin, Chief Risk Officer (CRO). Few senior
colleagues from finance and accounts & contracts division of the regional office joined the
meeting. The team was to review both current project status and the new bids to be
considered.

Kannan from accounts raised concern that few of the current projects with other state
government departments are facing issues with timely payments, reporting tough time in
handling long tail and getting the retention money released as envisaged. To make things
difficult, some of the sites are not able to substantiate large variations leading to pending
claims. Kathy also alerted that in many of the lump sum EPC contracts, the cost of input
materials is only moving northwards.

Jasmin, handling both risk and contract management agreed with Kathy and cautioned that
some of the recent cost increase were due to overestimating contractor’s capability in
obtaining right of way, extreme weather, remote location etc. and underestimating tax
implications on domestic procurements. Site team reported delays in laying and jointing of
MS pipe due to increased pipe size. Rahul though aware of most of these issues, carefully
listened to each of the points.

It is now Rahul’s time to present. Rahul started with his observations on tender conditions.
He mentioned that the conditions of contract have specified that obtaining regulatory
approvals, the right of way to ensure work front availability etc. are in the scope of
contractor but client agreed to extend support. Based on site investigation report (SIR), the
quantities were estimated and there were contingencies built to take care of uncertainties.
Contract has flexibility of material to be procured from vendors based outside country. This
however will not have much impact as the projects funded by IFA are exempted from taxes,
explained Rahul. This is an important consideration as the project involves high quantities of
procurement. He also referred to a contract provision that not more than two packages will

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be awarded to the selected contractor. Team reviewed each package closely and advised
that the proposal should take care of cost pertaining to procurement, construction and
other risks identified.

5th March 2018

With only 5 days to go for final bid submission, Rahul must come out with the bidding &
billing strategy that would be a winning proposal keeping in mind the delivery requirement
of the project. (Ref Table 7) The selection will be through competitive bidding. In the recent
past, these types of projects had seen 5 to 6 bidders (competitors) and in some cases the
numbers have gone as high as 12.
Table 7: Milestone Dates
Time Span of full Work to be completed in
Liquidated Damages (LD)
stipulated period terms of money
7.5 Months 12.5% 2.5% of the work remain unexecuted
15 Months 37.5% 5% of the work remain unexecuted
22.5 Months 75% 7.5% of the work remain unexecuted
30 Months 100% 10% of the work remain unexecuted

B&C is like any other contractor and of course with some edge over its engineering
capability. B&C’s strong engineering capability coupled with quick technology adoption
helps in safe and reliable delivery. B&C is quick in responding to digitalization and has
started seeing the benefits and has gained client’s confidence in the past.

Winning this contract is really going to be challenge with M/s Hydrogiants, another EPC
contractor to whom B&C lost 2 of the 4 bids in the recent past. Ironically the margins by
which they lost were also not very high. Challenge for B&C is its increasing overhead costs
making its bid price 2-3% higher in some cases. Considering all the critical issues the final bid
was prepared and submitted to client before the due date.

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Rahul is happy that he could help the bidding team to complete the bidding process in
alignment with the company strategy and make use of favourable tender conditions.

22nd March 2018.

Post two weeks of bid submission, Rahul is eagerly expecting the outcome. As expected, the
list of pre-qualified bidders was announced and both B&C and Hydrogiants were declared to
have cleared the technical bid. Next stage is the price bid opening of qualified contractors
which would be sometime in June 2018.

B&C though happy that it has cleared the technical bid, but more cautious about the
responses it has received from the client on various tender queries and in particular about
the Differing Site Conditions (DSC).

As per drawings shared by client at the time of tender, the average Natural Ground level
(NGL) was at 216.15m, based on which the B&C was to assess the quantum of earthwork.
This was the basis for working out the excavation, embankment formation & other civil
works for RWR.
Indicative Tender RWR levels –

• Full Supply Level (FSL) of RWR = 222 m

• Top bund level of RWR = 223.5 m
• Bottom level of RWR = 214.5 m
• Weir level at discharge / delivery chamber = 226 m

Tender stage estimated quantities are as below:

Excavation quantity : 20 Lac cum

Embankment quantity : 10 Lac Cum
Bund/Road length : 4 KM
Disposal quantity : 10 Lac Cum

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However, the post award survey has brought out the actual NGL is 218.25 m against 216.15
m envisaged in the tender. Further the area of the land, though confirmed as acquired
during the pre-bid meeting, has undergone a drastic change during survey owing to
encroachments, resulting in a major change in layout of RWR. For the aforesaid proposal the
revised quantities are tabulated as under:
Excavation quantity : 35 Lac cum
Embankment quantity : 9 Lac cum
Bund/Road length : 4.5 Km
Disposal quantity : 26 Lac cum

With change in ground levels, all major structures such as WTP, CWR & Pump house may
have to be lowered by 3m from their original levels. With stringent contract conditions,
bidding team had already raised further queries where appropriate and waiting for
clarifications related to financial bid.

Rahul and the bidding team wanted to discuss with Jasmin, Chief Risk Officer who had
handled similar issues in the recent past and therefore fixed up meeting with her on the
subsequent Monday.

25th March 2018.

Rahul along with bidding team reached Jasmin’s office as planned. Bidding team explained
that the actual site data now received is much different from what was provided in the
drawing and following the original plan would mean additional excavation of 15 lac cum and
disposal quantity 16Lac cum without clear idea of land available where the excavated earth
can be disposed. Jasmin could clearly see that the team is heading for both schedule and
cost overrun and the project can turn into nightmare for B&C.

After carefully listening to the concerns shared by the bidding team, Jasmin believed the
risks are too high on the B&C’s Impact Risk matrix (High Probability & High severity). Both
Rahul and Jasmin are aware that the company’s strategy is to mitigate such risks through

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 appropriate timely action including revisiting the plan such as resetting the FSL of RWR to
223.75 m & weir to 226m.

Jasmin could also recollect few of the contract clauses that were pertaining to variations and
tolerances. Jasmin suggested the team to look at the following contractual conditions and
arrive at solution rather than increasing the risk of going with the original plan.

Table-8 Contract Clauses

Contractual Clauses
At clause no. 2.3, Vol (I)
“Various component stated in Employers requirement, General Specifications and Particular
specifications are indicative and are for guiding the bidders except (i) Water Demand/ Discharge of
various components, ( ii ) thickness and size of pipe line ( iii ) internal and external coatings of pipelines
( iv ) capacity of reservoirs and ( v ) capacity of transformers for which no negative tolerance shall be
permissible.”

At clause 1.1, Vol (II)

“In the event of any discrepancy between the provisions of the Standard Specifications and the Particular
Specifications, then the provisions of the Particular Specifications shall prevail”.

At clause no. 1.2.1 of Particular Specifications, Volume – II,

“The Raw Water shall be so designed so as to have a balanced excavation work”.
B&C’s bidding team considered import of MS pipe for maximum of its procurement and indigenous
procurement for ductile iron (DI) pipes and accordingly arrived at the price bid.

1st April 2018

Back in office, Rahul was getting busy with few phone calls and emails as original estimates
were based on site Investigation report. The recent pre-bid conference clarification has
indicated that quantities are subject to significant changes. This would mean that the MS
pipeline quantity may reduce by 30% in package 2 and the DI pipeline quantity increased by
approximately 20% due to change in alignments in package 3.

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It was two weeks to go for financial bid opening and the not so good news came. The news
is that the Benefits (duty exemptions) available under “Deemed Export” for IFA funded
projects were withdrawn with effect from 1st April 2018. (Ref: Table 9)

Table-9 New FTP Circular

Withdrawal of “Deemed Export Benefits: and its specific relevance to IFA Tenders:

Ministry of Commerce & Industry, Government of India, issued a new “Foreign Trade Policy
(FTP) 2018-2020” vide notification 01/2018-2020 New Delhi dated 01.04.2018 amending the
earlier one and the changes came into effect from 1st April 2018.

As per the new FTP vide Appendix XX, against six agencies under erstwhile FTP as per Appendix
XX, which included IFA, the new list of approved funding agencies were the following:
International Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA), Asian Development Bank (ADB). As per the revised policy only
World Bank / ADB funded projects alone would qualify for the benefits under “Deemed
Exports” and projects under IFA funding will not be eligible w.e.f., 1st April 2018.
procurement for ductile iron (DI) pipes and accordingly arrived at the price bid.

Since the bids were submitted on 10th March 2018, bidding team had considered the
exemptions under “Deemed Exports” under Chapter 8 of the erstwhile FTP in its prices, in
line with the tender conditions.

In view of removal of IFA in the new FTP 2018-2020, B&C faced with a significant cost
increase in the project and modality for reimbursement was not clear.

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Rahul wanted to be sure that he is not being fooled on 1 st April and immediately called the
client’s department to reconfirm. It is now confirmed that the government has withdrawn
the tax concessions to projects which were earlier enjoying the tax exemption benefits. This
would mean that the project procurement will be subject to normal taxes.

As anticipated, the client department put on hold the approval of B&C’s Quality Assurance
Plan (QAP) for imported HR Coil insisting on procurement of domestic HR Coil in line with
prime minister’s “Make in India” mission. Pursuant to this, B&C made a clear and concise
representation to the customer, giving a detailed account of the events that had transpired.

Rahul immediately swung into action and discussed over phone with few key persons and
has now realised that the team must quickly mitigate the risks arising out of the new
scenario before the price bids are opened in June 2018. As he was putting the phone down a
message came to his desk that there is an urgent meeting called in the afternoon and all
concerned with the bidding are expected to be present in boardroom.

Questions:

1. Should the contractor B&C bid for the job? What are the opportunities vs risks?
2. What are the considerations B&C shall consider while bidding under international
funding?
3. How shall the B&C respond to a changed scenario few weeks prior to financial bid
opening?
4. What are the innovations possible to ensure that B&C doesn’t lose to Hydrogiants?
5. As the contractor shall bid for any of the two work packages, which two packages
shall be chosen and why?
6. What strategies you think should B&C adopt in ensuring the project is delivered
within time and cost?
7. As B&C does not have O&M in-house capability what strategy to be adopted to
remain profitable during the operation?

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