Para 10.5.2 - Price Variation | KartavyaDesk
Original Rule Text
6. If there is a downward price trend, the Contractor may tend to hide this fact. Therefore, while claiming payments where such variations are applicable, the contractor must submit its calculations for each invoice, even if the payment on account of these variations is zero. Price reductions due to such variations must be passed on to the Procuring Entity. Care should be exercised to finalise the price before final payment is made and after obtaining data and documents in support of claims for escalation, if any. Where the contractors submit no such claims, an examination of whether there has been a downward trend in the cost, which the contractor may not bring out, is required. At any rate, an undertaking should be obtained from the contractor to the following effect in case it becomes necessary to make the final payment before he has submitted the required data/documents related to the PVC:
What This Means
Para 10.5.2 of the Manual for Procurement of Consultancy Services focuses on ensuring fair pricing and transparency when dealing with price variations, especially downward trends. It essentially says that even if the contractor isn't claiming any extra money due to price increases, they still need to show their calculations for each invoice. This is because sometimes prices of materials or services might go down, and the contractor might not readily point this out. The government, as the procuring entity, is entitled to benefit from these price reductions.
This rule applies throughout the project lifecycle, from the initial stages to the final payment. It affects both the government employees managing the contract and the consultancy firms providing the services. The goal is to prevent contractors from unfairly profiting from price decreases and to ensure that the government gets the best possible value for its money. Before making the final payment, the government should carefully review all price variation calculations and, if necessary, obtain an undertaking from the contractor confirming they will provide all relevant data even after the final payment is made.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Contractors must submit price variation calculations with each invoice, even if the net effect is zero.
- •Price reductions due to downward trends must be passed on to the Procuring Entity (Government).
- •The Procuring Entity should scrutinize price variation claims and supporting documents before final payment.
- •If final payment is needed before complete documentation, an undertaking should be obtained from the contractor.
- •The rule aims to ensure transparency and prevent contractors from hiding downward price trends.
Practical Example
The Ministry of Urban Development hired 'Sustainable Solutions Pvt. Ltd.' for a city planning consultancy. The contract included a Price Variation Clause (PVC) linked to the cost of cement. During the project, the price of cement decreased. Even though Sustainable Solutions didn't claim any extra payment due to price increases, the project manager, Mr. Verma, insisted they submit calculations showing the impact of the cement price decrease on each invoice.
Sustainable Solutions initially hesitated, but Mr. Verma explained Para 10.5.2. They then provided the calculations, which showed a total saving of ₹50,000 due to the cement price drop. This amount was then deducted from the final payment, ensuring the Ministry benefited from the market price reduction. Before the final payment, Mr. Verma also obtained an undertaking from Sustainable Solutions that they would provide any further documentation related to PVC, if required, even after the final payment was processed.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is the purpose of Para 10.5.2?▼
Does this rule apply even if the contractor isn't claiming any extra money?▼
What should the Procuring Entity do if they suspect a downward price trend that the contractor hasn't reported?▼
What is an 'undertaking' in this context?▼
What happens if the contractor refuses to provide the necessary calculations or an undertaking?▼
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 10.5.2 of the Manual for Procurement of Consultancy Services, what must a contractor do when claiming payments where price variations are applicable, even if the payment on account of these variations is zero?
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