Para 10.2.4 - Performance Security | KartavyaDesk
Original Rule Text
8. Performance Security: a) The Contractor must maintain the Performance Security of the required amount in specified format during the currency of the Contract. In the event of any amendment issued to the contract, the contractor shall furnish suitably amended value and validity of the Performance Security in terms of the amended contract within twenty-eight days of issue of the amendment. b) If the contractor during the currency of the Contract fails to maintain the requisite Performance Security, it shall be lawful for the Procuring Entity at its discretion at its discretion to either terminate the Contract for breach of contract and avail any or all contractual remedies, or without terminating the Contract, recover from the contractor the amount of such security deposit by deducting the amount from the pending bills of the contractor under the contract or any other contract with the Procuring Entity or the Government or any person contracting through the Procuring Organisation or otherwise. c) The Procuring Entity shall be entitled, and it shall be lawful on his part, to deduct from the performance securities or to forfeit the said security in whole or in part in the event of: i) any default, or failure or neglect on the part of the contractor in the fulfilment or performance in all respect of the contract under reference or any other contract with the Procuring Organisation or any part thereof; ii) for any loss or damage recoverable from the contractor which the Procuring Entity may suffer or be put to for reasons of or due to above defaults/ failures/ neglect; iii) and in either of the events aforesaid to call upon the contractor to maintain the said performance security at its original limit by making further deposits, provided further that the Procuring Entity shall be entitled, and it shall be lawful on his part, to recover any such claim from any sum then due or which at any time after that may become due to the contractor for similar reasons.
What This Means
Para 10.2.4 of the Manual for Procurement of Consultancy Services deals with Performance Security. Think of Performance Security as a guarantee. The consultant (or 'Contractor') provides this to the government (the 'Procuring Entity') to ensure they fulfill their contractual obligations. This security, usually a bank guarantee or fixed deposit, protects the government if the consultant doesn't do what they promised in the contract. It's like an insurance policy for the government, ensuring they aren't left high and dry if the consultant fails.
This rule outlines what happens if the consultant doesn't maintain the required Performance Security. It gives the government the power to either terminate the contract and seek other remedies, or to recover the security amount from pending payments to the consultant. It also allows the government to deduct from or forfeit the security if the consultant defaults on the contract, causes losses, or fails to perform their duties. The consultant is then responsible for replenishing the security to its original amount.
Essentially, this rule ensures that the government has a financial safety net in case the consultant doesn't hold up their end of the bargain. It applies to all consultancy contracts where a Performance Security is required and affects both the government agency procuring the services and the consultant providing them.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Contractor must maintain the required Performance Security throughout the contract duration.
- •If the contractor fails to maintain the security, the Procuring Entity can terminate the contract or recover the security amount from pending bills.
- •The Procuring Entity can deduct from or forfeit the security for contractor defaults, failures, or neglect.
- •The contractor is responsible for replenishing the Performance Security to its original amount if it's deducted or forfeited.
- •This rule ensures the Procuring Entity has a financial recourse in case of contractor non-performance.
Practical Example
The Ministry of Rural Development hires 'TechSolutions Pvt. Ltd.' for a consultancy project worth ₹50 lakhs. The contract requires a Performance Security of ₹2.5 lakhs. After six months, TechSolutions faces financial difficulties and fails to update the validity of their bank guarantee, which is about to expire. The Ministry, under Para 10.2.4, issues a notice to TechSolutions. Since TechSolutions doesn't rectify the situation within 28 days, the Ministry decides to deduct ₹2.5 lakhs from their next payment installment of ₹10 lakhs. TechSolutions is then required to replenish the Performance Security to ₹2.5 lakhs. If they fail to do so, the Ministry could potentially terminate the contract and pursue further legal action to recover any losses incurred due to TechSolutions' non-performance.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What happens if the contract is amended? Does the Performance Security need to be updated?▼
What forms can the Performance Security take?▼
Can the Procuring Entity forfeit the entire Performance Security even for a minor default?▼
What recourse does the contractor have if they believe the Procuring Entity has unfairly forfeited the Performance Security?▼
Does this rule apply to all types of government contracts?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to Para 10.2.4 of the Manual for Procurement of Consultancy Services, within how many days of an amendment to the contract must the contractor furnish suitably amended value and validity of the Performance Security?
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