Rule 225 - Contract Agreements | KartavyaDesk
Original Rule Text
(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. Non - fulfilment 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,
What This Means
Rule 225 of the General Financial Rules (GFR) 2017 lays down important guidelines for contracts in government. It emphasizes the need for a formal agreement *before* any work starts. Think of it like this: you wouldn't build a house without a blueprint, right? Similarly, the government needs a signed contract to protect everyone involved. This rule also sets a deadline of 21 days for signing the contract after the initial acceptance letter. Failing to meet this deadline can lead to the contract being cancelled and the earnest money being forfeited. Finally, it discourages 'cost plus' contracts (where the price is based on actual cost plus a profit margin) unless absolutely necessary, and it dictates when price variation clauses are allowed.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •No work should commence without a properly executed agreement.
- •Contract documents must be executed within 21 days of the letter of acceptance.
- •Failure to execute the contract within the stipulated time can lead to annulment of the award and forfeiture of the Earnest Money Deposit (EMD).
- •Cost-plus contracts should be avoided unless unavoidable, with full justification required.
- •Price Variation Clauses are generally allowed only in long-term contracts (delivery period exceeding 18 months).
Practical Example
The Ministry of Textiles wants to procure 10,000 meters of specialized fabric for a new project. They issue a tender, and M/s WeaveWell Textiles wins the bid. The letter of acceptance is issued on January 1st, 2024. According to Rule 225, M/s WeaveWell Textiles must execute the contract document by January 22nd, 2024. If they fail to do so, the Ministry can cancel the award and forfeit the Earnest Money Deposit (EMD) that M/s WeaveWell Textiles submitted with their bid. Alternatively, if the Ministry is undertaking a large infrastructure project with a projected completion time of 3 years, a price variation clause can be included in the contract to account for fluctuations in the cost of raw materials.
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 contractor refuses to sign the agreement within 21 days?▼
What is a 'cost plus' contract, and why is it discouraged?▼
When can a Price Variation Clause be included in a contract?▼
What is the purpose of having a formal agreement before starting any work?▼
If a cost-plus contract is unavoidable, what precautions should be taken?▼
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 Rule 225 of GFR 2017, what is the consequence if a contractor fails to execute the contract document within the stipulated timeframe after receiving the letter of acceptance?
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