Para 6.5 - Price Variation Clause | KartavyaDesk

Original Rule Text

d) Essential elements of PVC: i) Base Date & Time Lag: The price agreed upon should specify the base date, that is, the month and year to which the contract/ bid price is linked, to enable variations to be calculated with reference to the price indices prevailing in that month and year. This base date should be a few weeks/ months (the period is called time-lag) prior to the last date of submission of bids when the last published price indices would be available. Time lag applies both for the base date and delivery date and must be specified in the Tender Documents; ii) Ignorable Variation: The price variation formula must also stipulate a minimum percentage of variation of the contract price, only above which the price variation will be admissible (for example, where the resultant increase is lower than, say, two per cent of the contract price, no price adjustment will be made in favour of the contractor); iii) Inordinate Variation: In rare cases, prices may go up to such an extent that it may render the contract unviable for either party, thus frustrating the contract. Therefore, the price variation clause should provide for a ceiling (a percentage per annum or an overall ceiling or both, say 20%/ 25% of the original price) on price variations, beyond which the price variation would be capped at this level. As soon as it comes to light that price variations are likely to go beyond this ceiling, and if the Contractor is not agreeable to the price variation being capped at that level, he may notify the Purchaser under ‘Frustration of Contract’ provisions in the Tender Document/ Clause, for short-closing the contract. (Refer para 10.8.5). However, if the short closing is not in the interest of the procuring entity, the competent authority, with the concurrence of associated/ integrated finance, may allow the continuation of the contract by relaxing/ removing the cap on the price variation. iv) 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; v) Where deliveries are accepted beyond the scheduled delivery date subject to levy of liquidated damages as provided in the contract. The LD (if a percentage of the price) will be recoverable on the price as varied by the operation of the PVC; vi) No upward price variation will be admissible beyond the originally scheduled delivery date for defaults on the part of the contractor (e.g., when an extension

What This Means

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

• •Base Date & Time Lag: The contract must specify a base date and time lag to link the price to a specific point in time for accurate variation calculations.
• •Ignorable Variation: A minimum percentage of price variation must be stipulated, below which no price adjustment will be made.
• •Inordinate Variation: A ceiling (percentage per annum or overall) should be set on price variations to prevent contracts from becoming unviable.
• •Advance/Stage Payments: No price variations are allowed on portions of the price already paid as advance or stage payments.
• •Liquidated Damages (LD): If deliveries are delayed and LD is applied, the LD is calculated on the price after variation.

Practical Example

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.