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

 

  1. 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
  1. 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
  1. 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
  1. 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
  1. 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
  1. 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
  1. 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

****** 


Comments

Popular posts from this blog

Indian Railway Codes and Manuals-THE RAILWAY SERVANTS (DISCIPLINE & APPEAL) RULES, 1968 (D&AR)

Indian Railway Codes and Manuals-The Railway Servants Conduct Rules 1966.

Indian Railway Codes and Manuals-Accounts code- Vol-II-Chapter-34 (XXXIV)

Indian Railway Codes and Manuals-Accounts Code-Chapter-8 (VIII)

Indian Railway Codes and Manuals-Accounts code- Vol-II-Chapter-32 (XXXII)

Indian Railway Codes and Manuals-Accounts code- Vol-II-Chapter-33 (XXXIII)

Indian Railway Codes and Manuals-Establishment code- Vol-I-Chapter-5 (V)

Indian Railway Codes and Manuals-Accounts Code-Chapter-9 (IX)

Indian Railway Codes and Manuals-Stores code- Vol-II-Chapter-19 (XIX)

Indian Railway Codes and Manuals-Accounts Code-Chapter-1 (I)