KartavyaDesk

Para 8.7.5 - Contract Clauses | KartavyaDesk

Consultancy Manual

Original Rule Text

2. All contracts shall contain a provision for a) Recovery of liquidated damages (LD) for delay in performance of the contract on the part of the contractor; b) Payment of all applicable taxes by the contractor; and c) for an unconditional power of revocation or cancellation by the Procuring Entity at any time on the expiry of six months’ notice to that effect, when a contract is likely to endure for a period of more than two years, it should, wherever feasible, include a provision. 3. Standard forms of contracts should be invariably adopted, except in following cases: a) Authorities competent to make purchases may, at their discretion, make purchases of value up to Rupees Five (5) lakh by issuing purchase orders containing basic terms and conditions; b) With respect to contracts for purchases valued from Rupees One Lakh to upto Rupees Ten lakhs, where tender documents include the GCC, SCC, and schedule of requirements, the letter of acceptance will result in a binding contract, provided no performance security is called for or due to be submitted. All delivery liabilities would be counted from the date of LoA. (Rule 225 iv)b) GFR 2017). c) In cases where standard forms of contracts are not used or where modifications in standard forms are considered necessary in respect of individual contracts, legal and

What This Means

Para 8.7.5 of the Manual for Procurement of Consultancy Services outlines essential clauses that *must* be included in all consultancy contracts. These clauses protect the government's interests and ensure fair dealings. Firstly, the contract *must* include provisions for recovering liquidated damages (LD) if the consultant delays project completion. This acts as a penalty and incentivizes timely performance. Secondly, the consultant is responsible for paying all applicable taxes related to the contract. Finally, for contracts lasting over two years, the government retains the right to cancel the contract with six months' notice. This provides flexibility if the project's needs change or the consultant's performance is unsatisfactory.

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

Key Points

  • •All consultancy contracts *must* include a clause for recovery of liquidated damages (LD) for delays.
  • •The consultant is responsible for paying all applicable taxes.
  • •For contracts exceeding two years, the government has the right to cancel with six months' notice.
  • •Standard contract forms should be used whenever possible.

Practical Example

The Ministry of Rural Development hires 'Vision Consultants' for a five-year project to improve rural infrastructure. The contract, valued at ₹50 lakhs, *must* include clauses stating that Vision Consultants will pay all applicable taxes (GST, etc.). It *must* also specify that if Vision Consultants delays the project's completion, they will be liable to pay liquidated damages at a rate of 0.5% of the contract value per week of delay, up to a maximum of 10%. Furthermore, since the contract is for five years, the contract *must* include a clause allowing the Ministry to terminate the contract after giving six months' notice, should the project's scope change significantly or Vision Consultants fail to meet performance benchmarks.

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

Frequently Asked Questions

What are liquidated damages (LD)?▼
Liquidated damages are pre-agreed sums payable by the consultant to the government for delays in completing the project. They are meant to compensate for losses incurred due to the delay.
Who is responsible for paying taxes on consultancy contracts?▼
The consultant is solely responsible for paying all applicable taxes, such as GST, income tax, and any other relevant taxes, as per the prevailing laws.
Why is the government given the power to cancel contracts exceeding two years?▼
This provision allows the government flexibility to adapt to changing circumstances, project requirements, or unsatisfactory consultant performance. It protects the government's interests in the long term.
What happens if the consultant refuses to include these clauses in the contract?▼
The procuring entity should not award the contract to the consultant if they refuse to include these mandatory clauses. These clauses are essential for protecting the government's interests.
Are there any exceptions to using standard contract forms?▼
Yes, authorities can make purchases up to ₹5 lakhs with purchase orders containing basic terms. For purchases between ₹1 lakh and ₹10 lakhs, a letter of acceptance can form a binding contract if no performance security is required.

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 8.7.5 of the Manual for Procurement of Consultancy Services, what must all consultancy contracts include regarding delays in performance by the contractor?

Related Rules

Para 8Manual for Procurement of Consultancy Services, 2025 - Para 8 - Chapter 10 - Annexure 18Para 9Manual for Procurement of Consultancy Services, 2025 - Para 9 - Chapter 10 - Annexure 18Para 1.10.2Manual for Procurement of Consultancy Services, 2025 - Para 1.10.2 - Chapter 1Para 1.11Manual for Procurement of Consultancy Services, 2025 - Para 1.11 - Chapter 1Para 1.13Manual for Procurement of Consultancy Services, 2025 - Para 1.13 - Chapter 1

Need help understanding this rule?

Ask Niti — your AI assistant for Consultancy Manual and other government rules