GUIDANCE REGARDING AGREEMENTS FOR CONSTRUCTION WORKS

The purpose of this document is to highlight key issues that have to be considered when entering
into project agreements for works and underlying works contracts.
Please contact the Infrastructure and Project Management Group (IPMG) with any queries you may
have regarding agreements for construction works.
An overarching principle is that engagement agreements and underlying works contracts are
connected. Thus, when negotiating one, please bear in mind the obligations and liabilities UNOPS
will undertake or has undertaken in the other(s).
Note that the templates agreements are templates only and can be adjusted to the particular needs
of your works project. Please contact IPMG for assistance.
Project Agreements for Works1

Implementation Strategy: this is a key element, which will contribute to the success or
failure of your project. It will influence how the engagement agreement should be set out
and must be developed at the very beginning of your discussions with UNOPS counterpart.
It should be developed in collaboration with personnel with technical skills and be based on
a risk analysis and how such risks can be mitigated. Please seek the assistance of IPMG.

UNOPS Added Value: UNOPS added value is to advise our counterparts when the intended
scope of works is too ambitious for the proposed budget and time frame, or when the
technical standards required by our counterparts are not appropriate given the location of
intended works and the technical capacity of local contractors. Do not necessarily accept to
implement projects are initially presented to you by our partners.

Negotiations: personnel with technical expertise (e.g. engineers, architects) should be

involved in the negotiation of engagement agreements for works to make sure that the
negotiated engagement is technically feasible under negotiated conditions.

UNOPS and Partners Responsibilities: project agreements must include a clear definition of
UNOPS and its counterparts respective responsibilities, depending on the role of and
services to be provided by UNOPS e.g. from UNOPS being responsible for design and
construction to providing technical assistance/advisory services only. Please seek the
assistance of IPMG.

Procurement Strategy: this is different from the implementation strategy, which sets out
the overall risk-based approach to implement your project. The procurement strategy sets
out how UNOPS is going to procure the services required to implement the project. Please
seek the assistance of IPMG (in addition to your procurement advisors), especially if you
intend to divide and procure the works through multiple tenders and works contracts.

Cost Contingency:

a cost contingency must be included in the project budget to cover variable costs such as
variations, re-measurement of works, claims, etc.;

While you may contact IPMG for assistance regarding project agreements for works, please note that legal
clearance authority in the Leads system for such agreements rests with your respective legal advisors.

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This must be raised with our counterpart during the negotiation of and included in the
engagement agreement;

By default, a contingency between 6% and 12 % should be allocated to each underlying

works contract. However, this is an indicative threshold only and the contingency should be
determined on the basis of a risk analysis. Also, note that the contingency should not be
indicated in the contract itself. Please seek the assistance of IPMG.

Design Review: take into account costs and time for mandatory design review under
applicable UNOPS design planning manuals. Changes to a design should be made by the
original designers (if they have the capacity) to avoid a shift in design responsibility and
therefore design risk. Please seek the assistance of IPMG.

End Date:

the end of projects agreements should be linked to the final completion of the underlying
works;

If not possible, make sure to allocate enough time to cover the defect notification periods
(DNP) of underlying works contracts and to include provisions regarding the extension of the
engagement agreement in case of extensions of times beyond the original contracted end
date;

See below for more advice regarding DNP.

Template Project Agreements for Works with UNDP: for UNDP works projects, use one of
the template MoU for Works agreed upon at HQ level to be used as project agreements:
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MoU for Works Option 1A (when UNOPS is responsible for design and construction as
the Employer);

MoU for Works Option 1B (When UNDP is responsible for design and UNOPS for
construction as the Employer).

Further template project agreements for Works with UNDP and other counterparts will be
made available soon.
Works Contracts and Service Contracts for Works

Works Project Management: Project Managers of works projects and Employers

Representatives under UNOPS works contracts should be personnel with technical expertise
(e.g. civil engineers, architects) or with substantiated experience with works projects.

Project Team: works projects are implemented by the Project Team. Technical but also
procurement, legal, finance, HR personnel are all part of the Project Team. All are here to
assist the Project Manager to implement the project in accordance with UNOPS regulatory
framework.

Template Contracts: to date, UNOPS has five template works contracts and services
contracts for works:
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Minor Works Contract (for simple works under $250,000 can be used on a measured
price or lump sum basis);

Short Form Contract (for simple works between $250,000 and $1 million can be used
on a measured price or lump sum basis);

Measured Price Contract (for complex works above $1 million);

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Lump Sum Contract (for complex works above $1 million);

Contract for Consultant Services for Works (for design and other technical services).

Monetary Thresholds: monetary thresholds for the selection of appropriate works contracts
are indicative only. Nevertheless, according to the Procurement manual, approval of the
Head of Construction Management (now IPMG) must be sought to use a contract outside
applicable thresholds.

Tender and Contract Schedules: All technical information regarding your project is to be
included in the tender schedules and then transferred into the works contract schedules.
This should be prepared carefully for each project. Please seek the assistance of IPMG.

Contract Price: there is no fixed contract price in works contracts and service contracts for
works. Even if the contract price is a lump sum. Price can change depending on variables
such as variations, re-measurement of the works, claims, etc. Such contract price changes
do not require a contract amendment. They are already contemplated in the contract.

Contract End Date: there is no fixed end date in works contracts and service contracts for
works. End date is linked to the final completion of the (underlying) works. Therefore, the
contracts do not expire and no amendment is required when the works are not completed
by the Date for Substantial Completion. Either it is extended by decision of the Employers
Representative or UNOPS may apply delay damages to the contractor as appropriate.

Date for Substantial Completion, Date of Substantial Completion and Date of Final
Completion:
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the Date for Substantial Completion is the target date by which the works must be
substantially completed.

the Date of Substantial Completion is the date when the works have reached Substantial
Completion. Unless otherwise stated in the contract, this does not mean that the works
must be a 100% completed but that the works must be substantially completed, that is,
ready to be used and handed over to the Beneficiary.

the Date of Final Completion is the date when the DNP has expired and all notified
defects have been rectified satisfactorily by the Contractor.

Taking-Over and Handover of the Works: under UNOPS works contracts, a Taking-over
certificate is to be issued when the works have reached Substantial Completion. Once the
works have been taken over by UNOPS, UNOPS becomes responsible for such works. For
this reason, it is recommended to proceed with handover of the works to the Beneficiary at
the same time as the works are being taken over from the Contractor. Once the works have
been handed over to the beneficiary, the latter becomes responsible for the works, including
for their operation and maintenance (unless agreed otherwise with UNOPS). Note that it is
important to set out the conditions for the handover of the works in the engagement
agreement, especially if the beneficiary is different from the funding source. Seek the
assistance of IPMG.

Works Management Tool: manage works projects in accordance with signed works
contracts. UNOPS works contracts are FIDIC-based and intended to be used as project
management tools. Make sure all project team members have a copy of and have read the
signed contract. Double check and follow the provisions of the signed contract. Do not
assume you remember such provisions
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Written Instructions/Decisions: it is fine and necessary to discuss issues orally at the site,
but confirm instructions and decisions in writing (a/k/a CVI Confirmations of Verbal
Instructions). This can be done directly on site (e.g., by using a notebook with carbon
copies) or subsequently by sending a formal letter to the contractor, which can be sent as an
attachment to an email. But try to avoid informal communications by email. Instruct
contractors to do the same.

Contractual v. Internal Requirements: when managing a works project, be aware of what

you can do contractually, and what you must do internally to comply with UNOPS rules.

Advance Payments: advance payments under $250,000 or 25% (whichever the lesser) do
not have to be made against a bank guarantee. It is a matter of risk analysis to be
undertaken by the Project Team. Advance payments may be required for mobilization
purposes and/or to help contractors with cash flow issues. An alternative is to make more
payments over shorter time frames, but must be supported by is a cash flow
forecasting (CFF) planning, which must be done during the engagement stage and following
the development of the procurement strategy.

Retention, Bank Guarantee or Insurance Bond for Performance:

All are forms of security for performance.

it is recommended to have an overall 10% security for performance, e.g. 5% retention

and 5% bank guarantee or 5% insurance bond. However, it can be higher (check with
IPMG).

it is not required to have all of them; can be 10% retention or 10% bank guarantee or
10% insurance bond.

retention is usually preferred over bank guarantees (or insurance bond), which may be
difficult to enforce and expensive for contractors to obtain. The timeframe and number
of payments required to achieve total retention should be clearly define in the schedule
for payment.

50% of the retention (and/or any other form of security) will be released upon
substantial completion of the works, and 50% upon final completion. However, the
parties can also agree to release retention (and/or other form of security) progressively
upon satisfactory performance of the works.

Variations:
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contractually, variations (unilateral instructions to the contractor) are different from

amendments (contractual change mutually agreed upon between UNOPS and the
Contractor). Variations can be issued by the Employers Representative, within the
scope of the authority contractually delegated to him/her by the Employer, within the
scope of works and before the works reach Substantial Completion.

internally, variations must be approved by UNOPS personnel with appropriate DOA. See
Procurement Manual. A variation can be issued without going back to the Procurement
Authority for approval if the variation is (i) within the scope of works, (ii) based on rates
already approved by the Procurement Authority, and (iii) within the contingency
approved by the Procurement Authority.

Payments:
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payments are made in the form of interim payments requested by the contractor and
approved (after required corrections) by the Employers Representative;
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internally, payments can be processed based on copy of invoices submitted to finance by

email;

copy of the contract does not need to be submitted to finance for each payment; just
make sure to provide a copy to finance with your first request for payment. Then it
should be filed with finance for future payments under the same contract. Also make
sure that each request for payment refers to the contract under which the payment
should be made.

Insurance: insurance requirements for contractors should be determined on a case by case

basis, depending on the nature of the works, risk of failure, as well as insurance market
availability and conditions. Please contact IPMG for assistance.

UNOPS v. Contractors Responsibilities: as the Employers Representative, UNOPS is

responsible to ensure that the Contractor complies with its obligations, including in terms of
safety and security of the site and works;

Delay Damages: while you may use them as an incentive for the contractor to complete the
works on time, check with IPMG before applying delay damages to contractors, as it may be
counter-productive, in particular given our mandate to build local capacities.

Defect Notification Period:

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The defect notification period (DNP) is a key element of works contracts. It is required
to ensure that the works are free of defects before being handed over to the
beneficiary;

The need for an appropriate DNP must be raised with our counterparts during the
negotiation of and included in the engagement agreement; it should not be used as a
possible trade-off for negotiation purposes;

the DNP is 12 months, by default. This is the time usually required to go through a full
seasonal cycle and ensure that the works are free of defects before being handed over
to the beneficiary;

It may be longer or shorter (in some cases, a DNP may not even be required but replaced
by a maintenance period, e.g. for short term dirt roads) depending on the nature of the
works and special circumstances. Please consult IPMG before adopting a shorter or
longer DNP.

the DNP is a defect notification period. Thus, defects notified on the last day of the DNP
must be rectified by the contractor at their own cost, even after the end of the DNP.

the DNP starts on the date Substantial Completion of the works has been reached and
notified as per the Taking-over Certificate (see above bullet point on Taking-Over
Certificate and Handover of the Works);

defects are different from operation and maintenance of the works. Unless agreed
otherwise, defects are the responsibility of the contractor while operation and
maintenance are the responsibility of the beneficiary. As noted above, however, it may
be appropriate to request the contractor to be responsible for a maintenance period.
Please seek the assistance of IPMG.

Management of the DNP should not be transferred to the beneficiary as it may not have
the technical capacity to do it and may confuse defects with operation, maintenance and
additional works;

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If our counterpart refuses to cover the DNP under the engagement agreement, a
transfer of the DNP management to the beneficiary may be considered as a last resort
solution; in this case, assistance from IPMG must be sought.

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