 |  | Village Electrification (SKAT, 1992, 128 p.) | ||
 |  | Part 7: Commercial engineering | ||
|  | (introduction...) | ||
| | 1. The initial enquiry | ||
| | 2. Terms and conditions for specification, orders and contracts | ||
| | 3. Limits of responsibility | ||
| | 4. Tender mechanism | ||
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Enquires, Tendering & Contracts
This part was originally written by the Dept. of Mechanical Engineering, Edingburgh University and then edited by Adam Harvey and Andy Brown for the 'Micro Hydro Power Training Course, Design Guide' for IT (Intermediate Technology) and CEB (Ceylon Electricity Board).
The purchase of equipment and service involves large sums of money and therefore considerable financial risk. The risks are reduced and managed by the "commercial engineering" aspects of the project, which are just as important as its technical and economic co-ordination.
The purchasing engineer first prepares the initial specification, as shown in table 1.
This is sent to various potential suppliers, with a note attached to say that a more detailed specification will be negotiated later. Each supplier replies by proposing a system and quoting its cost. Following this, it is essential that all technical matters are clarified. A checklist is given in Table 2.
Some of the items on the list are specified by the supplier, and some by the purchaser. If you are the purchasing engineer, you can use this list as a basis for a letter sent to the supplier in response to the supplier's initial quote, inserting the items as questions where appropriate.
When both parties are satisfied with the specification, it can be considered alongside other finalized quotations, perhaps in a formal tendering procedure as described in section 4.
How tight should this detailed specification be? The supplier will prefer it to be quite general and flexible. This approach leads usually to a greater follow-on cost, because sorting out difficulties with performance and operation becomes very time consuming. If the specification is detailed and the correct paperwork is in order, it is relatively cheap and quick to sort out responsibilities. It is also much easier to monitor the performance of the equipment and evaluate the scheme's viability.
It is not necessary or advisable for the purchasing engineer to attempt to define exactly the equipment supplied by the turbine manufacturer. But it is necessary for the turbine manufacturer to define the equipment in detail in the request of the purchaser, so that the purchaser has a clear and comprehensive specification to refer to.
Note that when specifying an alternator "kVA" is listed as well as "kW". This is because electrical current is a critical design parameter with respect to alternator operation.
In setting specifications, do not underestimate the ability of the seller to identify attractive alternative ways of implementing the scheme. For example, the seller may be able to supply and utilize a reconditioned alternator, with slight modifications to the rest of the scheme. The use of second-hand or available cheaper equipment can significantly improve the return on capital investment. Modifications to a specification in order to accommodate such alternatives can be difficult to assess but may prove worthwhile.
The initial request is made by providing the following information
1. Gross head available.
2. Maximum or Design Flow available.
3. Net Head available at design flow.
4. Minimum Power at the shaft or at the alternator terminals under full flow conditions.
5. Part Flow Efficiency. This can be initially indicated by a single design point. Specify a part flow with corresponding net head and, if necessary, specify a minimum power at this flow. If necessary supply penstock flow & head curves and request turbine performance curves for the complete flow range.
6. Preferred Governor. Specify if a particular method (load or flow control) is preferred or required. Power Demand Characteristic. Describe the loads to be driven and their power factors.
Table I Initial specifications sent to various potential suppliers.
... Items 1-7 in the initial request (table 1) must be included in expanded form.
8. Water Quality Specify whether chemical characteristics of the water are normal or whether it is corrosive.
9. Silt Particle Size Ask the supplier to specify the particle size, which can be accommodated by the turbine and inform the supplier what particle size is achievable by the silt basins.
10. Connection, Water End Specify type and dimensions of joints on penstock end, where the turbine is to be connected.
11 Isolating Valve Clarify whether turbine is fitted with an isolating valve shutting off water supply; type of valve, closing time.
12. Drawings Both schematic sketches and detailed drawings of equipment must be supplied, with dimensions and weights.
13. Drive System Ask supplier:
* whether drive direct or geared - if geared, provide information on all components, working life, and maintenance procedures;
* the characteristics of the bearings supplied with the turbine: whether they are capable of taking side loads (radial loads) and their working life for expected loads and similarly for the altemator if supplied;
* which spares are advisable.
14. Instrumentation Specify a pressure gauge on turbine inlet manifold. If the turbine is the Francis type, request a pressure gauge also on the draught tube. List other instruments required.
15. Spare Parts Request supply of spare parts on short-life components. Examples given here include alternator parts, drive system parts.
16. Tools And Manuals Maintenance procedures must be clearly
described in written manuals. Suitable
special tools must be provided. One
important special tool is a rifling hoist for turbine installation and
maintenance.
17. Governor
* If a governor is supplied, take special care in the case of mechanical governors to procure service support.
* If no governor is supplied, it is likely that you are planning to buy an ELC independently. If so send the same alternator specification to both the ELC manufacturer and alternator supplier (or the turbine supplier if this is the source of the alternator as well). Both sources should approve the specification; ask the alternator supplier to check suitability of the thyristor load of the ELC, the type of AVR, and so on.
18. Alternator
* If the turbine manufacturer is supplying the alternator, provide the alternator specification and protection requirements.
* If the turbine manufacturer is not supplying the alternator, specify the radial load on turbine shaft. Request drawings showing positions of turbine bearings, position of pulley mount.
19. Draught Tube If a reaction turbine is to be supplied, specify suction head for "draught" required.
Request range of suction heads allowed for efficient turbine performance, and power output curves for this range. This allows planning of civil works in the installation of the turbine.
Table 2 Detailed technical specifications.
Our reference: MHOO3
GENERAL SUPPLIES LTD
For the attention of the Sales Department
We would be pleased if you would tender us for the generator detailed below by Friday 28th February 1999.
|
Type of turbine |
Pelton wheel |
|
DErive system |
belt drive |
|
# of units |
one |
|
Turbine input power |
35 kW |
|
Generator rating |
50 kVA |
|
Duty |
Maximum continuous rated |
|
Speed |
500rev/min |
|
Overspeed |
180% continuously |
|
Voltage, phases |
415V, 3-phase |
|
Frequency |
50Hz |
|
Power factor |
0.8 lagging |
|
Mounting |
Vertical shaft, skirt mounted |
|
Type |
Salient pole, synchronous " |
|
Bearings |
Grease lubricated, suitable for radial thrust of 400kg continuously |
|
Excitation |
Shunt with forcing current transformers (CTs) |
|
AVR |
Mounted internally, voltage regulation = +-2.5% with under/over-voltage and under -lover-frequency protection |
|
Electronic switching |
ELC; thyristor action; how many switches/secs? |
|
Ambient temperature |
40°C |
|
Altitude |
500 metres asl |
|
Humidity |
90% |
|
Loading |
Electronic load control (thyristor load) |
The generator should be designed and rated in accordance with BS4999/BS5000, or equivalent, and should be provided with a class F insulation system. Please advise the weight of yourproposed generator, and provide an outline drawing with your tender. The following accessories should be included in the price of the generator: slide rails, holding down bolts. Spares should include rectifier sets, diodes, bearings and AVR. Please show additional prices for: anti-condensation heaters; winding temperature detectors; tropical paint finish; shaft-mounted speed switch.
Your tender should be submitted subject to the following commercial conditions.
CONDITIONS OF SALE: Your tender should be based on 1 Mech E/IKE Model form B2 conditions of contract.
PRICES: Your prices should be firm and fixed for the validity period stated and include works testing, packing for shipment, and delivery CIF Colombo.
Your prices should be quoted in US$ or UK£.
VALIDITY: 120 days from the date of tender.
DELIVERY: Your delivery time CIF Colombo should be quoted from receipt of order.
Our estimated delivery time is 15 weeks.
TERMS OF PAYMENT: 100% of contract value on delivery CIF Colombo.
PENALTY CLAUSE: A penalty would apply at a rate of 0.5% of the contract value per week of delay up to a maximum of 5.0% of the contract value. Please do not hesitate to contact us if you require any further assistance.
CUSTOMS & IMPORT DUTIES: All duties and taxes to be paid by the supplier.
GUARANTEE: All items to be covered by a two-year guarantee to include parts and labour; the guarantee to operate from the date of delivery.
DOCUMENTATION: Supply to include full installation, operation end maintenance manual in triplicate and in English language.
Yours faithfully Purchasing manager
Table 3 Request for tendering for an electrical generator - an example
2.1 Standard Conditions of Sale
Standard conditions of sale, correctly defined and applied, are an effective safeguard against the commercial problems which may occur in a project involving the purchase of engineering equipment. Both the purchaser and the seller should understand, accept and agree to work with the same set of "rules" controlling the contract. In case the purchaser and the seller disagree on a commercial or technical matter, affecting the commercial conditions, they must follow the instructions in the conditions of contract, and may finally have to accept the decision of an external arbitrator nominated in the conditions of contract.
Typical UK conditions of contract that are often applied and accepted throughout the world are listed below:
BEAMA "AK" Conditions of Sale - for the sale of individual items of electrical and in some cases mechanical equipment, exclusive of full delivery to site, or erection. These are published by The British Electrical and Allied Manufacturers Association, of 8 Leicester Street, Leicester Square, London.
IMech. E/IKE Conditions of Contract model form: Bl - for the supply of electromechanical plant
(excluding delivery to site, or erection)
B2 - for the supply of electromechanical plant (excluding delivery to site, but with supervision of erection)
B3 - for the supply of electromechanical plant (excluding delivery to site, but including erection of equipment at site)
These are widely accepted and govern the supply and delivery FOB, but not delivery to site, of equipment. The choice of these is based on the extent of the seller's involvement at site.
Many major sellers seek to apply their own conditions of contract, which puts the responsibility for accepting these conditions on the purchaser. The disadvantage to the purchaseris that the conditions will almost certainly favour the seller, but the advantage is that the price should be slightly lower as the seller should accept his own conditions.
It is best for the purchaser to apply the same commercial conditions to all sellers, as this reduces the variety of contract management required. This may have the effect of increasing the prices slightly as sellers may have to accept commercial conditions they might consider unfavourable to them. There is a balance to be made between commercial rigidity and obtaining minimal prices.
There are many other acceptable conditions of contract, operated by EC, North American, Australian and Asian sellers. A good standard they might be compared with is the equivalent UK set of conditions.
2.2 Limits to the Scope of Supply
To avoid any errors and, even more important, the omission of any item of equipment, it is important to state the limits of the scope of supply of equipment at the beginning. Enquiry documents should state in words (and on drawings if possible) a precise list and brief description of every major item of plant that is to be included in the contract. Where an auxiliary plant is required to be an item of the plant work, it should be stated that the auxiliary plant is also to be provided. A good way of defining the limits of supply is to describe all of the interface points for each major item of plant.
Example: Generator Coupling to water turbine Main terminal box Auxiliary terminal box Mounting feet and bolts
Having detailed the full scope of supply the job of tendering is easier as the seller can decide easily which equipment he has to include. Also, the purchaser can more easily decide whether or not a tender is the same as the enquiry document.
2.3 Prices
Where estimates of prices are required for budgeting purposes, a purchaser may request budget prices from sellers. This type of price is not contractual and is usually accurate within 10% of the actual price of the equipment.
Where a purchaser asks for prices against which to place an order, these are said to be firm prices. These prices are contractually binding if the offeris accepted and would not change unless there are contract variations which are dealt within the conditions of contract.
Firm prices can be given in two different ways: as fixed or with Contract Price Adjustment (CPA). A fixed price is one which does not vary at any time, for example due to the effects of inflation during the period of the contract.
Example: Fixed price
Tender Price: $1000 on 1st January Order
Date: 1st April
Despatch Date: 1st July
Inflation: 5% from 1st Jan to 1st
July
Payment: $1000
CPA (Contract Price Adjustment) takes into account any increases (or decreases) in the costs for the seller (for example materials and labour). A CPA price is declared at the time of tender and given a reference date. The amount paid for the plant is changed by a formula which has a material, a labor and a fixed element. It is important to agree at the enquiry stage on both, the formula and the indices to be used for materials and labor.
Example: CPA price
Tender Price: $1000 on 1st
January
Order Date: 1st April
Dispatch Date: 1st July
Assumed Rise: 5%
from 1st Jan to 1st July
Payment: $1050
2.4 Validity
The validity of a tender is the period of time in which the purchaser can place the order with the seller. The validity may be defined as a number of days/months from the issue date of the tender or from another specific date. Once a tender has passed its validity (expiry) date, it is no longer contractually binding for the seller and any extension in the validity period may increase the prices.
When specifying a validity period, the purchaser should indicate a sufficient time required for checking the received tenders and placing the order.
2.5 Despatch, Delivery and Completion Times
Aspects such as the weather, availability of transport or labour may dictate the programme dates. If you are a purchaser with a specific construction programme, you may wish to indicate in the enquiry the despatch, delivery and completion dates which have to be observed. Where possible, plant despatch periods should be estimated in advance through discussion with the sellers.
Important dates, such as despatch or completion, may be subject to financial penalty if they are not met by the seller. Seeking to impose large penalties for failure to meet these dates may result in fewer tenders being submitted and higher prices from those who do tender.
Estimated despatch and completion dates should always be stated in tenders.
The tender document can encourage better planning by requesting detailed bar charts to show activities and time scales. The tender document should also ask for supervision to be budgeted for in detail.
2.6 Penalties
A penalty clause in a contract is a specific attempt to persuade the seller to complete the contract satisfactorily. Failure to do so would result in the seller paying a specific sum to the purchaser. This sum may not be related to the contract value and may not be in proportion to the actual loss suffered by the purchaser. Note that the seller would receive full payment for the contract.
It is vital to include realistic penalty clauses. Penalty clauses are typically based on potentially lost earnings. A final date should be set for when penalty payments are no longer acceptable and the seller loses the contract. In practice it is very inconvenient to terminate a contract at an intermediate stage as the purchaser would have difficulty in finding someone prepared to finish the job within the required time.
An exception clause should be included for events out of control of seller and purchaser, such as natural desalters, civil unrest or changes in the political setup.
2.7 Contingency
Where the purchaser is bound by complex rules on payments e.g. government body, it is often convenient to include a contingency (say 10%) to cover unforeseen costs. These save expensive delays by allowing the seller to file small claims without lengthy procedures.
2.8 Terms of Payment
The terms of payment decide the dates on which the seller will receive payment. The dates chosen for progress payments usually relate to specific events during or on completion of manufacture. Purchasers should remember that sellers have to buy materials before assembly and, in the case of a small firm, may require part payment either on order or shortly afterwards to finance their purchases.
Care should be taken not to overpay since the contractor loses the incentive to complete. It is necessary to hold back about 10% of the contract value for at least a period of three months after the completion of the work. This gives the purchaser some hold on the seller for unfinished work.
Payments for stock items or low-cost items are usually made 100% on despatch or delivery.
The conditions of contract will make allowances for variations to the payment dates due to delays in the running of the contract.
2.9 Letters of Credit
The purchaser may often find that overseas sellers require that payments are made against Confirmed Irrevocable Letters of Credit. Compliance with this would require the purchaser to instruct his or her bank to issue a credit in favour of the seller; this in turn is confirmed by a bank in the country of the seller. The effect of this is to provide security to the seller that payment will be made and failure to provide a letter of credit may result in the seller withdrawing from the contract. Provision for the costs associated with this should be made by the purchaser and, when implementing a Letter of Credit, the expiry date should make allowance for the issue and transfer of documentation, otherwise the credit may expire before the goods are shipped.
2.10 Currency and Exchange Rates
Sellers, particularly small firms, will prefer to tender in, and receive payment in their own currency. Whenever possible, the purchaser should attempt to make payments in that currency. If this proves difficult, some sellers may accept payment in a currency of a third country, provided that it is a "strong" currency, such as US dollars.
2.11 Taxation
Purchasers should investigate and make allowance for all local taxes which will arise from the installation. Any such taxes which will apply to the seller (and personnel during erection/commissioning) should be made known at the enquiry stage.
Sellers should take account of any taxes for which they are liable in their own country. Any taxes or duties arising through the export of the plant should be identified end the purchaser should be made aware of the resultant additional costs.
2.12 Customs and Import Duties
Where these are applicable, the method of payment and whether they are to be paid by the purchaser or the seller should be stated at the enquiry stage. A seller who is to be responsible for these, may overestimate them at the tender stage thus increasing these and may as well pay the precise sum known at the time of shipping rather than an estimate, which will possibly be high.
The seller must make an effort to establish in advance the cost of customs and import duties.
2.13 Guarantees
As a minimum, the purchaser should obtain from the seller a 12 months guarantee period covering the satisfactory operation of the plant supplied.
Of particular importance is the information given by the purchaser to the seller at the enquiry stage. Equipment can only be designed and manufactured on the basis of the data given at this stage, and it will be on this information that the guarantee will be based. In the event that the equipment is operated under different conditions to that for which it was designed, the guarantee will not be valid. Similar constraints will be placed on the maintenance of the plant to keep the guarantee valid.
Another important point to cover in the pre-contract correspondence is the date from which the guarantee operates; for example, from date of manufacture, date of dispatch or date of completion of erection. Most sellers will limit the final date of expiry in relation to the manufacture date in case there are delays in shipping and installation which are beyond their control.
Equipment is normally guaranteed for a period of 12 months from commissioning but no longer than a period of 18 months from the completion of manufacture.
2.14 Documentation
Most sellers will issue a limited number of copies of arrangement drawings and Operation and Maintenance Manuals. Any particular requirements which the purchaser has in respect to documentation should be made clear in the enquiry document. Requests for large amounts of documentation will probably lead to higher tendered prices and may result in a delay in the completion of the contract.
2.16 Spares
Very often, the raising of money to purchase equipment is a difficult task. It is thus important to make provision for spares to cover commissioning and the first few years of operational life of the plant in the original order. The purchaser may ask the seller to provide the recommended spares for say, two years' operation. If possible, the purchaser should investigate the experiences of similar installations in the region and draw up detailed list of the components which are likely to require replacement.
2.17 Training
The provision of spares cannot guarantee to cover every possible fault which may occur. In order to run the equipment satisfactorily the be trained to operate and maintain the equipment in accordance with the seller's instructions. The operation within the design rating of the plant along with regular routine maintenance should increase the lifetime of the equipment.
The most suitable time for training is usually during or just after commissioning the plant by the seller's skilled engineers. If training is required as a part of the contract, then this should be indicated in the enquiry document.
The completion of a contract is said to be the point where the seller is no longer responsible for the equipment which has been supplied other than under the terms of the guarantee. At this time the purchaser thus directly assumes full responsibility for the equipment.
The most common limits of responsibility are as listed below.
3.1 Ex-Works
"Ex-works" means that the seller's' only responsibility is to make the goods available at their premises (i.e. works at factory). The purchaser bears the full cost and risk involved in bringing the goods from here to the desired destination. This term thus represents the minimum obligation for the seller.
3.2 FOB
FOB means "free on board". The goods are placed by the seller, free of cost to the purchaser, on board a ship at a port of shipment named in the sales contract.
3.3 FOR
FOR and FOT means "free on rail" and "free on truck". These terms are synonymous since the word truck relates to the railway wagons. They should only be used when the goods are to be transported by rail.
3.4 C&F
C&F means "cost and freight". The seller must pay the costs and freight necessary to bring the goods to the named destination.
3.5 CIF
ClFmeans "cost, insurance and freight". This term is basically the same as C&F but with the addition that the seller has to produce insurance against the risk of loss or damage to the goods during carriage. The seller contracts with the insurer and pays the insurance premiums.
3.6 C&F to Site
While C&F is used for goods which are to be carried by sea, the term "freight or carriage paid to. .. " is used for land transport only, including national and international transport by road, rail and inland waterways. The above limits are indicated in Fig 1.
Fig 1 Limits of responsibility
Purchasers must take responsibility for the equipment beyond the limit provided for by the seller and must make provision for the completion of the transport of the equipment to the site. In general, the purchaser will know the transport conditions, route and haulage contractor better than an overseas seller, thus the costs of transport within the purchaser's country will probably be lower if arranged by the purchaser rather than the seller.
The purchaser must also decide how the equipment is to be erected and commissioned once it arrives at site. This will depend on the level of skills of the purchaser's own staff and of the skill and availability of local skilled personnel. If there is a requirement for skilled erection and commissioning engineers from the seller, this should be decided early in the contract period. Normally, sellers can provide erection and commissioning engineers who will supervise labor provided by the purchaser. Altematively, there may be a local firm with the necessary skills that would be able to perform the installation in accordance with the seller's drawings and manuals.
The purchaser must include those items considered important in the previous sections into an enquiry document, which supplements the schedule of equipment and specifications of equipment required for the project. The letter sent with the enquiry, and the enquiry document, should state the correct receiving address for tenders, and the closing date by which tenders are to be received (beyond the closing date, the purchaser has the right to return tenders to the sellers unopened and without consideration). The enquiry should then be sent to as many sellers of equipment as possible (see example in table 3).
It is a good idea to ask sellers to confirm receipt of the enquiry, and their intention to submit their offer by the specified closing date.
During the tendering period it is possible that there will be sellers who will require clarification of the specification or commercial conditions, and who will contact the purchaser to obtain this information. Such questions should be treated professionally and confidentially. There will always be sellers who wish to tender standard equipment, which may not exactly meet the specification. Provided they are prepared to state in their tender where they do not comply with the specification, and that there is commercial or technical advantage in offering other equipment, there is no reason why a seller should be prevented from doing this. Such deviations should be treated confidentially, as they may represent a commercial advantage to both the seller and the purchaser. It is good practice to state in the enquiry and afterwards to assume that "unless clearly stated by the tenderer, the offer will be deemed to be technically and commercially compliant with the specifications and commercial conditions in the enquiry document ". On receipt of all tenders for equipment, the offers must be assessed for technical and commercial compliance. A quick check will establish an order of merit from the most to the least expensive. Those which are clearly too expensive may be set aside at an early stage, provided that this leaves enough cheaper bids from otherwise respectable companies. It is crucial that all of these exchanges of information be kept confidential, in telex or written form. Different sellers should not be able to gain access to detailed information from other tenders. Otherwise, they are able to lower the prices on offer and they will in the longer term simply discourage companies from tendering. There is no harm in going back to all sellers, or those whose bids are otherwise attractive and seeking reductions in price, if if assists the project to proceed. Subject to money being available, the purchaser is then in a position to place an order for the equipment.
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