Indian Railway Codes and Manuals-General Financial Rules-2017-Chapter- 8 (VIII) GFR-2017.
Chapter – 8
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
selfcontained 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 Te n d e r e r a n d
L e t t e r o f 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. Nonfulfilment 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 duty 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, and of all rate and running contracts entered into by civil
departments of the Government other than the departments like the Directorate
General of Supplies and Disposals for which a special audit procedure exists,
should be sent to the Audit Officer and /or the Accounts officer as the case
may be. 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 c o n t r a c t b e c o m e s
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.
Multiple choice questions:
1.Who is authorized to make
contracts under the orders of the President as per Article 299 (1) of the
Constitution of India?
- (a) Any Government employee
- (b) Any person designated by the Prime Minister
- (c) An authority empowered by or under the orders of
the President
- (d) Any officer above the rank of Joint Secretary
Answer: (c) An authority empowered by or under the orders of the President
2.On whose behalf must all
contracts and assurances of property made in the exercise of the executive
power of the Union be executed?
- (a) The Prime Minister of India
- (b) The Chief Justice of India
- (c) The President of India
- (d) The Finance Minister of India
Answer: (c) The President of India
3.What should follow the
designation appended below the signature of the officer authorized to execute
contracts on behalf of the President?
- (a) “For and on behalf of the Government of India”
- (b) “Authorized Signatory”
- (c) “For and on behalf of the President of India”
- (d) “Under the orders of the President”
Answer: (c) “For and on behalf of the President of India”
4.Which of the following is NOT
one of the general principles to be observed while entering into contracts?
- (a) The terms of the contract must be precise and
definite
- (b) Cost plus contracts should be preferred
- (c) Standard forms of contracts should be adopted
wherever possible
- (d) No work should commence without proper execution of
an agreement
Answer: (b) Cost plus contracts should be preferred
5.What is the recommended action
when a contract document is not executed within 21 days of the issue of the
letter of acceptance?
- (a) Extend the period by 15 more days
- (b) Annul the award and forfeit the Earnest Money
Deposit
- (c) Negotiate new terms with the contractor
- (d) Seek approval from a higher authority
Answer: (b) Annul the award and forfeit the Earnest Money Deposit
6.In which cases can a 'Cost Plus
Contract' be considered?
- (a) For short-term contracts
- (b) When prices are firm and fixed
- (c) When such contracts are unavoidable with full
justification
- (d) When the contract value is below Rs. 2 lakhs
Answer: (c) When such contracts are unavoidable with full justification
7.For what duration of contracts
is a Price Variation Clause typically allowed?
- (a) Less than 6 months
- (b) Between 6 and 12 months
- (c) 18 months or more
- (d) Any duration if required
Answer: (c) 18 months or more
8.What should the Price Variation
Clause specify regarding the base level?
- (a) The profit margin for the contractor
- (b) The month and year to which the price is linked
- (c) The total cost plus percentage
- (d) The minimum quantity required for the contract
Answer: (b) The month and year to which the price is linked
9.When can price variations be
disallowed according to the contract provisions?
- (a) During the first half of the contract period
- (b) For deliveries accepted beyond the Scheduled
Delivery Date due to supplier default
- (c) If the government changes the base level
- (d) If the contractor requests in writing
Answer: (b) For deliveries accepted beyond the Scheduled Delivery Date due to supplier default
10.What is required in contracts
for supply of goods concerning taxes?
- (a) Taxes should be paid by the government
- (b) Contractors can opt out of paying taxes
- (c) All applicable taxes must be paid by the contractor
or supplier
- (d) Taxes are negotiable based on contract value
Answer: (c) All applicable taxes must be paid by the contractor or supplier
11.When should a 'Lump Sum'
contract be entered into?
- (a) For all large projects
- (b) Only in cases of absolute necessity with full
justification
- (c) Whenever possible to simplify the contract
- (d) For contracts with a value less than Rs. 2 lakhs
Answer: (b) Only in cases of absolute necessity with full justification
12.What should be included in
contracts where government property is entrusted to a contractor?
- (a) Provision for periodic market assessment
- (b) Provision for safeguarding government property,
including insurance cover
- (c) Clause for reducing contract value
- (d) Exemption from taxes
Answer: (b) Provision for safeguarding government property, including insurance cover
13.To whom should copies of all
contracts for purchases of the value of Rupees Twenty-five Lakhs and above be
sent?
- (a) The Ministry of Finance
- (b) The Audit Officer and/or Accounts Officer
- (c) The Prime Minister's Office
- (d) The Contractor's Head Office
Answer: (b) The Audit Officer and/or Accounts Officer
14.What should be done if there
is a material variation in the terms or conditions of a contract?
- (a) Ignore the variation if it's minor
- (b) The contract should be re-signed by both parties
without changes
- (c) Obtain specific approval of the authority competent
to approve the revised commitments
- (d) Terminate the contract immediately
Answer: (c) Obtain specific approval of the authority competent to approve the revised commitments
15.What must all contracts
contain regarding liquidated damages?
- (a) A provision for recovery of liquidated damages for
contractor defaults
- (b) An exemption from all liquidated damages
- (c) A clause for reducing liquidated damages based on
negotiation
- (d) A provision to waive liquidated damages for minor
defaults
Answer: (a) A provision for recovery of liquidated damages for contractor defaults
16.What should a warranty clause
in a contract ensure?
- (a) A guarantee for timely payment to the contractor
- (b) The supplier should repair or replace defective
goods at no charge
- (c) A one-year service agreement for the goods supplied
- (d) The supplier can provide defective goods with a
discount
Answer: (b) The supplier should repair or replace defective goods at no charge
17.What rights should the
Government reserve in contracts for the supply of goods?
- (a) To reject goods that do not conform to
specifications
- (b) To increase the price of goods after delivery
- (c) To extend the contract beyond its original terms
without notice
- (d) To exempt the supplier from tax liabilities
Answer: (a) To reject goods that do not conform to specifications
18.After how many years from the
arising of a claim can a contractor's payment claim be entertained?
- (a) One year
- (b) Two years
- (c) Three years
- (d) Five years
Answer: (c) Three years
- What should be done when a breach of contract
provisions occurs?
- (a) Ignore the breach if it’s minor
- (b) Issue notices promptly
- (c) Extend the contract period
- (d) Reduce the contract value
Answer: (b) Issue notices promptly
- What should the monitoring of Bank Guarantees or other
instruments include?
- (a) A daily review of all guarantees
- (b) A monthly review of all Bank Guarantees or other
instruments expiring after three months
- (c) An annual audit by an external agency
- (d) No review is necessary once the contract is signed
Answer: (b) A monthly review of all Bank Guarantees or other instruments expiring after three months
- When should extensions of Bank Guarantees or other
instruments be sought?
- (a) Only if the contractor requests
- (b) Immediately when warranted
- (c) At the end of the contract period
- (d) After consulting the Ministry of Finance
Answer: (b) Immediately when warranted
- What action should be taken if disputes arise during
the implementation of a contract?
- (a) Ignore the disputes to avoid delays
- (b) Seek legal advice before initiating any action
- (c) Immediately file a suit without consulting anyone
- (d) Resolve the disputes through informal negotiations
Answer: (b) Seek legal advice before initiating any action
- What should be done if a contract does not include an
arbitration clause and a dispute arises?
- (a) File a suit immediately
- (b) Add an arbitration clause to the contract
- (c) Refer the matter to conciliation
- (d) Seek legal advice before filing a suit
Answer: (d) Seek legal advice before filing a suit
- What should be vetted by obtaining legal and financial
advice in the event of a dispute?
- (a) The final decision
- (b) The terms of the contract
- (c) The draft of the plaint for arbitration
- (d) The background of the contractor
Answer: (c) The draft of the plaint for arbitration
- What should be carefully scrutinized before filing in
the resolution of a dispute to safeguard government interest?
- (a) The terms and conditions of the original contract
- (b) The contractor’s financial history
- (c) The documents to be filed in the matter of
resolution of dispute
- (d) The scope of work
Answer: (c) The documents to be filed in the matter of resolution of dispute
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