GFR-2017: Contract Management
CONTRACT MANAGEMENT
Rule 224: Contract Management"
Rule 224 (1) All contracts shall be made by an
authority empowered to do so by or under
the orders of the President in terms of
Article 299 (1) of the Constitution of India.
Rule 224 (2) All the contracts and assurances of
property made in the exercise of the
executive power of the Union shall be
executed on behalf of the President. The
words "for and on behalf of the President
of India" should follow the designation
appended below the signature of the
officer authorized in this behalf.
Note 1: The various classes of contracts
and assurances of property, which may be
executed by different authorities, are
specified in the Notifications issued by the
Ministry of Law from time to time.
Note 2: The powers of various authorities,
the conditions under which such powers
should be exercised and the general
procedure prescribed with regard to
various classes of contracts and
assurances of property are laid down in
Rule 21 of the Delegation of Financial
Powers Rules.
Rule 225: General principles for contract"
The following general principles should be
observed while entering into contracts:
(i) The terms of contract must be
precise, definite and without any
ambiguities. The terms should not
involve an uncertain or indefinite
liability, except in the case of a
cost plus contract or where there is
a price variation clause in the
contract.
(ii) Standard forms of contracts should
be adopted wherever possible,
with such modifications as are
considered necessary in respect of
individual contracts. The
modifications should be carried out
only after obtaining financial and
legal advice.
(iii) In cases where standard forms of
contracts are not used, legal and
financial advice should be taken in
drafting the clauses in the contract.
(iv)
(a) A Ministry or Department
may, at its discretion, make
purchases of value up to
Rupees two lakh and fifty
thousand by issuing purchase
orders containing basic terms
and conditions:
(b) In respect of Works Contracts, or Contracts for purchases
valued between Rupees one
lakh to Rupees ten lakhs,
where tender documents
include the General
Conditions of Contract (GCC),
Special Conditions of Contract
(SCC) and scope of work, the
letter of acceptance will result
in a binding contract.
(c) In respect of contracts for
works with estimated value of
Rupees ten lakhs or above or
for purchase above Rupees
ten lakhs, a Contract
document should be
executed, with all necessary
clauses to make it a self-contained contract. If
however, these are preceded
by Invitation to Tender,
accompanied by GCC and
SCC, with full details of scope
and specifications, a simple
one page contract can be
entered into by attaching
copies of the GCC and SCC,
and details of scope and
specifications, Offer of the
Tenderer and Letter of
Acceptance.
(d) Contract document should be
invariably executed in cases
of turnkey works or
agreements for maintenance
of equipment, provision of
services etc.
(v) No work of any kind should be
commenced without proper
execution of an agreement as
given in the foregoing provisions.
(vi) Contract document, where
necessary, should be executed
within 21 days of the issue of letter
of acceptance. Non-fulfilment of
this condition of executing a
contract by the Contractor or
Supplier would constitute sufficient
ground for annulment of the award
and forfeiture of Earnest Money
Deposit.
(vii) Cost plus contracts should
ordinarily be avoided. Where such
contracts become unavoidable, full
justification should be recorded
before entering into the contract.
Where supplies or special work covered by such cost plus
contracts have to continue over a
long duration, efforts should be
made to convert future contracts
on a firm price basis after allowing
a reasonable period to the
suppliers/contractors to stabilize
their production/ execution
methods and processes.
Explanation
: A cost plus contract
means a contract in which the
price payable for supplies or
services under the contract is
determined on the basis of actual
cost of production of the supplies
or services concerned plus profit
either at a fixed rate per unit or at a
fixed percentage on the actual cost
of production
(viii)
(a) Price Variation Clause can be
provided only in long
-term
contracts, where the delivery
period extends beyond 18
months. In short
-term
contracts firm and fixed prices
should be provided for. Where
a price variation clause is
provided, the price agreed
upon should specify the base
level viz, the month and year
to which the price is linked, to
enable variations being
calculated with reference to
the price levels prevailing in
that month and year.
(b) A formula for calculation of
the price variations that have
taken place between the Base
level and the Scheduled
Delivery Date should be
included in this clause. The
variations are calculated by
using indices published by
Governments or Chambers of
Commerce periodically. An
illustrative formula has been
appended to these rules at
Appendix
- 11 for guidance.
(c) The Price variation clause
should also specify cut off
dates for material and labour,
as these inputs taper off well
before the scheduled Delivery
Dates.
(d) The price variation clause
should provide for a ceiling on
price variations, particularly
where escalations are involved. It could be a
percentage per annum or an
overall ceiling or both. The
buyer should ensure a
provision in the contract for
benefit of any reduction in the
price in terms of the price
variation clause being passed
on to him.
(e) The clause should also
stipulate a minimum
percentage of variation of the
contract price above which
price variations will be
admissible (e.g. where
resultant increase is lower
than two per cent, no price
adjustment will be made in
favour of the supplier).
(f) Where advance or stage
payments are made there
should be a further stipulation
that no price variations will be
admissible on such portions of
the price, after the dates of
such payment
(g) Where deliveries are
accepted beyond the scheduled Delivery Date
subject to levy of liquidated
damages as provided in the
Contract, the liquidated
damages (if a percentage of
the price) will be applicable on
the price as varied by the
operation of the Price
variation clause.
(h) No price variation will be
admissible beyond the original
Scheduled Delivery Date for
defaults on the part of the
supplier.
(i) Price variation may be
allowed beyond the original
Scheduled Delivery Date, by
specific alteration of that date
through an amendment to the
contract in cases of Force
Majeure or defaults by
Government.
(j) Where contracts are for
supply of equipment, goods
etc, imported (subject to
customs duly and foreign
exchange fluctuations) and/or
locally manufactured (subject
to excise duty and other
duties and taxes), the
percentage and element of duties and taxes included in
the price should be
specifically stated, along with
the selling rate of foreign
exchange element taken into
account in the calculation of
the price of the imported item.
The mode of calculation of
variations in duties and taxes
and Foreign exchange rates
and the documents to be
produced in support of claims
for such variations should also
be stipulated in the Contract.
(k) The clause should also
contain the mode and terms
of payment of the price
variation admissible.
(ix) Contracts should include provision
for payment of all applicable taxes
by the contractor or supplier.
(x) "Lump sum” contracts should not
be entered into except in cases of
absolute necessity. Where lump
sum contracts become
unavoidable, full justification
should be recorded. The
contracting authority should ensure
that conditions in the lump sum
contract adequately safeguard and
protect the interests of the
Government.
(xi) Departmental issue of materials
should be avoided as far as
possible. Where it is decided to
supply materials departmentally, a
schedule of quantities with the
issue rates of such material as are
required to execute the contract
work should form an essential part
of the contract.
(xii)
(a) In contracts where
government property is
entrusted to a contractor
either for use on payment of
hire charges or for doing
further work on such property,
specific provision for
safeguarding government
property (including insurance
cover) and for recovery of hire
charges regularly, should be
included in the contracts.
(b) Provision should be made in
the contract for periodical
physical verification of the
number and the physical
condition of the items at the contractor's premises. Results
of such verification should be
recorded and appropriate
penal action taken where
necessary.
(xiii) [Copies of all contracts and
agreements for purchases of the
value of Rupees Twenty-five Lakhs
and above entered into by civil
departments of the Government,
should be sent to the Audit Officer
and or the Accounts officer as the
case may be.]Amended vide DoE OM No. F.1/26/2018-PPD dated 02.04.2019.
(xiv)
(a) The terms of a contract,
including the scope and
specification once entered
into, should not be materially
varied.
(b) Wherever material variation in
any of the terms or conditions
in a contract becomes
unavoidable, the financial and
other effects involved should
be examined and recorded
and specific approval of the
authority competent to
approve the revised financial
and other commitments
obtained, before varying the
conditions.
(c) All such changes should be in
the form of an amendment to
the contract duly signed by all
parties to the contract.
(xv) Normally no extensions of the
scheduled delivery or completion
dates should be granted except
where events constituting force
majeure, as provided in the
contract, have occurred or the
terms and conditions include such
a provision for other reasons.
Extensions as provided in the
contract may be allowed through
formal amendments to the contract
duly signed by parties to the
contract.
(xvi) All contracts shall contain a
provision for recovery of liquidated
damages for defaults on the part of
the contractor. Only in exceptional
circumstances to be justified by
procuring entity in writing, an
exemption from such provision can
be made.
(xvii) A warranty clause should be incorporated in every contract,
requiring the supplier to, without
charge, repair or rectify defective
goods or to replace such goods
with similar goods free from defect.
Any goods repaired or replaced by
the supplier shall be delivered at
the buyers premises without costs
to the buyer.
(xviii) All contracts for supply of goods
should reserve the right of
Government to reject goods which
do not conform to the
specifications.
(xix) No claim for the payment from
contractor shall be entertained
after the lapse of three years of
arising of the claim.
Rule 226: Management of Contracts"
(i) Implementation of the contract
should be strictly monitored and
notices issued promptly whenever
a breach of provisions occurs.
(ii) Proper procedure for safe custody
and monitoring of Bank
Guarantees or other Instruments
should be laid down. Monitoring
should include a monthly review of
all Bank Guarantees or other
instruments expiring after three
months, along with a review of the
progress of supply or work.
Extensions of Bank Guarantees or
other instruments, where
warranted, should be sought
immediately.
Rule 227: Legal Advice
Wherever disputes arise during implementation of a contract, legal advice should be sought before initiating action to refer the dispute to conciliation and/or arbitration as provided in the contract or to file a suit where the contract does not include an arbitration clause. The draft of the plaint for arbitration should be got vetted by obtaining legal and financial advice. Documents to be filed in the matter of resolution of dispute, if any, should be carefully scrutinized before filing to safeguard government interest.
Rule 227A: Arbitration Awards
(i) In cases where the Ministry/
Department has challenged an
arbitral award and, as a result, the
amount of the arbitral award has
not been paid, 75% of the arbitral
award (which may include interest
up to date of the award) shall be
paid by the Ministry/ Department to the contractor/ concessionaire
against a Bank Guarantee (BG).
The BG shall only be for the said
75% of the arbitral award as above
and not for the interest which may
become payable to the Ministry/
Department should the subsequent
court order require refund of the
said amount.
(ii) The payment may be made into a
designated Escrow Account with
the stipulation that the proceeds
will be used first, for payment of
lenders' dues, second, for
completion of the project and then
for completion of other projects of
the same Ministry/ Department as
mutually agreed/ decided. Any
balance remaining in the escrow
account subsequent to settlement
of lenders' dues and completion of
projects of the Ministry/
Department may be allowed to be
used by the contractor/
concessionaire with the prior
approval of the lead banker and
the Ministry/ Department. If
otherwise eligible and subject to
contractual provisions, retention
money and other amounts withheld
may also be released against
BG.] 8 Inserted vide DoE OM No. F./1/9/2021-PPD dated 29.10.2021