Para 4.4.1 — GOODS_MANUAL

4.4.1 Terms and Conditions 1. Conclusion of Rate Contracts, including Parallel Rate Contracts a) Any organisation can enter a rate contract for items amenable to the Rate Contract (refer to para 4.4-2 above) for its procuring entities' use (e.g., in different geographical regions/ subsidiaries). A central purchase organisation can also enter a rate contract for several organisations that require the subject goods. No indents are required to enter a rate contract; only an estimate of the annual requirements of different ultimate users is needed. Inspection and testing of such goods or services, wherever required, may be arranged by the agency entering into the rate contract. The agency entering the Rate Contract should post the descriptions, specifications, prices and other salient details of the entire rate contracted goods or services, appropriately updated, on its website for use by the Procuring Entities. b) Rate contract enquiries should preferably be through eProcurement or Open Tender Enquiry, but Limited Tender Enquiry/ Single Tender Enquiry can also be used if justified by the nature of the requirement. Specific special terms and conditions (please refer to sub-para 4.4.1-3 below; MTD for Goods also has these provisions) for the Rate Contract should be added to the Tender Documents. c) Performance against earlier/current rate contracts of past/ current rate Contract holders shall be critically reviewed before they are considered for award of new rate contracts. Specific performance and achievement criteria as on a selected cut-off date are to be evolved for this purpose and incorporated in the tender enquiry document. The tenderers will be asked to furnish the relevant details (along with their bids) to enable the purchaser to judge their performance and achievement against the past/current rate contracts. d) Procedures stipulated in Chapter 7 for evaluation of bids and award of contract shall be applicable mutatis mutandis in the finalisation of rate contract, including provisions for negotiations/ counter-offer and splitting of contracts (parallel contracts). Please refer to para 7.5.3 for the evaluation of Rate Contract tenders.

Chapter 4: Modes of Procurement and Tendering Systems e) Depending on the anticipated demand of the item, location of the users, capacity of the responsive bidders, reasonableness of the prices quoted by the responsive bidders, etc., parallel rate contracts may be awarded to more than one (preferably at least three) Supplier. For transparency and to avoid criticism, all such parallel rate contracts are to be issued simultaneously, as far as feasible.

2. Period of Rate Contract: A Rate Contract should typically be for one year for stable technology products. However, in exceptional cases, a shorter or longer period of not more than two years may be considered. As far as possible, the validity period of rate contracts should be fixed in such a way as to ensure that new budgetary levies would not affect the price and thereby frustrate the contracts. Attempts should also be made to stagger the period of rate contracts for different items throughout the year.

3. Special Conditions Applicable for Rate Contract: Some conditions of rate contracts differ from the usual conditions suitable for ad hoc contracts. Some such critical special conditions of the rate contract are given below:

a) The Procuring Entity may prescribe the amount of Bid Security in the Tender Document. b) No quantity is mentioned in the Schedule of Requirement; only the anticipated drawable quantity is mentioned without commitment. c) The purchaser reserves the right to conclude one or more than one rate contract for the same item. d) The purchaser and the Supplier may short-close the rate contract by serving suitable notice to each other. The prescribed notice period is generally fifteen to thirty days. e) The purchaser can renegotiate the price with the rate contract holders, even during the validity, if market conditions change significantly or undertake repeat competitive bidding through open/ advertised tenders on the same terms and conditions, including specifications during the validity period of existing valid R/Cs. In such cases, the existing R/C holders can bid, apart from the new eligible bidders, and equal and fair opportunity would be provided. If the prices received are found lower than the existing R.C. prices, new R/Cs may be awarded at reduced prices and existing R/Cs at higher prices may be short-closed, giving adequate notice if they do not match such reduction in prices under the fall clause. f) In an emergency, the purchaser may purchase the same item through an ad hoc contract with a new supplier. g) The purchaser and the authorised users of the rate contract are entitled to place supply orders up to the last day of the validity of the rate contract, and though supplies against such supply orders will be delivered beyond the validity period of the rate contract, the terms & conditions of the rate contract will guide all such supplies. h) Fall Clause: The fall clause is a price safety mechanism in rate contracts. The fall clause provides that if the rate contract holder reduces its price or sells or even offers to sell the rate contracted goods or services following conditions of sale similar to those of the rate contract, at a price lower than the rate contract price, to any person or Organisation during the currency of the rate contract, the rate contract price will be automatically reduced with effect from that date for all the subsequent supplies under the rate contract and the rate contract amended accordingly. Other parallel rate contract holders, if any, are also to be allowed to reduce their price by notifying the reduced price to them, giving 07 (seven) days to intimate their revised prices, if they so desire, in a sealed cover to be opened in public on the specified date and time and further action taken as per standard practice. On many occasions, the parallel rate contract holders attempt to grab more orders by unethical means by announcing a price reduction (after getting the rate contract) under the guise of the Fall Clause. As mentioned in the preceding paragraph, this situation must be handled similarly. It is, however, very much necessary that the purchase organisations keep a particular watch on the performance of such rate contract holders who reduce their prices on one pretext or another. If their performances are not up to the mark, appropriately severe action should be taken against them, including deregistering them, suspending business deals with them, debarring them for upto two years from participating in the tender enquiry floated by the concerned purchase organisation, etc. The provisions of the fall clause will, however, not apply to the following:

i) Export/Deemed Export by the Supplier; ii) Sale of goods or services as original equipment prices lower than the price charged for routine replacement; iii) Sale of goods (such as drugs) which have expiry dates; iv) Sale of goods or services at lower prices – 1) on or after the date of completion of placement of order of goods by the procuring entity, under the existing or previous Rate Contracts 2) under any previous contracts entered with the Central or State Government Departments, including new undertakings (excluding joint sector companies and/or private parties) and bodies.

i) The Rate Contract holder shall furnish the following certificate to the concerned Paying Authority along with each bill for payment of supplies made:

“ I/We certify that there has been no reduction in the sale price of the goods of description identical to the goods supplied under this contract and such goods have not been offered/sold by me/ us to any person /organisation including the purchaser or any department of Central Government or any as the case may be upto the date of bill/ the date of completion of supplies against all supply orders placed during the currency of the Rate contract at a price lower than the price charged under the contract.”

4. Performance Security: Depending on the anticipated overall drawable annual quantity against a rate contract and the anticipated number of parallel rate contracts to be issued for an item, the Department may consider obtaining Performance Security (@ 3% to 5%) as per para 6.1.2 below of the value of supply order in the supply orders issued against rate contracts on the rate contract holder.

c) The Procuring Entity may stipulate an upper threshold of value for supply orders received against the rate contract by the RC holder. Except with prior approval of the Procuring Entity, the Contractor shall not comply with the supply orders received from the DDOs exceeding such threshold amount.

d) All parallel RCs for an item, even at differential rates, are assumed to be at reasonable rates. The Procuring Entity can select any RC holder, following transparent and equitable criteria. For selecting the one rate contract holder in case of parallel Rate Contracts for ordering, the following factors may be kept in view:

i) The rate contract price. ii) The past performance of firms with reference to their capacity, quality of supplies as well as timely delivery of the goods. Procuring Entities should maintain suitable records for past performance with respect to timely delivery and quality. iii) There is a need for reputed brands in the case of sensitive, critical, and vital requirements. iv) The proximity of the rate contract holder where proximity is considered crucial for timely delivery, ease of progressing and from the point of view of logistics and contract management, etc. v) The delivery dates committed by various Rate Contract holders with respect to the delivery requirements of the Procuring Entities.

e) In rate contracts, if the time for delivery is not fixed by mutual agreement, it is not the essence of the contract and is not binding on the supplier. Therefore, no liquidated damages can be levied for non-supply or delay in supply against such orders. That being so, under section 46 of the Contract Act, the goods are only to be delivered within a reasonable time- which is a rather vague concept. But where there has been an unreasonable delay in delivery, the Direct Demanding Officer (DDO) has the right to give the Contractor notice, fixing a reasonable time for delivery of the goods and stipulating that delivery within the time specified shall be the essence of the contract. If the goods are not delivered within this period, the supply order can be cancelled by the Agency that finalised the Rate Contract (since he alone, not the DDO, is a party to the Rate Contract), and deficient performance is noted for future Rate contracts.

f) However, in cases where the delivery date stipulated in the relevant order has been expressly agreed to by the supplier in writing before placing the relevant order, liquidated damages can be recovered (by the Agency that entered into rate Contract) from the supplier on account of delay in delivery beyond the stipulated delivery date, provided the Agency that finalise the Rate Contract has not in any way interfered with the supplier's discretion to meet the said supply order by directing the supplier to give priority to some other supply orders. Therefore, it is advisable that, before placing the supply order on a rate Contract holder, a commitment is obtained from him for the delivery period.

g) Before creating the supply order, approval of the CA (depending on the value of procurement) may be taken by submitting information about all the available parallel RCs and justifying the selection of a particular RC holder.

5. Placement of Supply Orders: a) Procuring entities nominated (called Direct Demanding Officers – DDO) in the Rate Contract can place supply/ withdrawal orders in terms of the rate contract during the validity period of the rate contract on the Supplier for the supply of definite quantities. An indent with required administrative and financial approvals is required before a supply order can be placed. Alternatively, the organisation managing the Rate Contract can centrally administer the placement of withdrawal orders against indents from the constituents. b) Once a Rate Contract is available, all nominated Procuring Entities (DDOs) must mandatorily procure the item only through supply orders on the rate contract holders. In case of an emergency, if a Procuring Entity directly procures rate contracted goods or services from the suppliers, the prices to be paid for such goods or services shall not exceed those stipulated in the rate contract, and the other salient terms and conditions of the purchase should be in line with those specified in the rate contract. However, they may be permitted to procure a small value of their requirements directly (say up to Rs. One Lakhs at one time and not more than Rs 5 lakhs annually) following relevant procedures.

4.4.2 RC - Risks and Mitigations

Risk Mitigation 1. A rate contract is not the right mode of procurement for critical, strategic, and vital requirements since the buyer-seller relationship is tripartite, and the timely supply of requirements and penalties thereof cannot be strictly enforced as in other modes of procurement. In situations where items have inadequate annual or seasonal capacities in the market, the RC holders may dump material on the Procuring entity during the wrong seasons and starve them during working seasons. This happens in, say, cement, when government buyers are likely to be saddled with huge supplies during the rainy season, but RC holders may divert the bulk of supplies RCs may be avoided for critical/ strategic and vital requirements. For seasonal and short-supply items, Procuring Entities may monitor and provide clauses to prevent dumping and starving of supplies. In technologically fast-changing products, the procuring entity may keep an eye on market prices and renegotiate them as soon as market prices fall significantly due to new arrivals.

h) A supply order should generally contain the following essential details: i) Rate Contract No. and date; ii) Quantity. (Where there is more than one consignee, the quantity to be despatched to each consignee is to be indicated.); iii) Price; iv) Date of Delivery by which supplies are required. (In the supply order, a definite delivery date based on the delivery period stipulated in the rate contract is to be provided), v) Provide the full address of the purchase organisation along with the telephone number. No., Fax No., and e-mail address; vi) Complete and correct designation and full postal address of the consignee(s)/goods receiving officer

(s) along with telephone No., Fax No., and Email address; vii) Nearest Railway Siding (NRS) of the consignee(s), if applicable; viii) Despatch instructions; ix) Designation and address of the inspecting officer, if any; x) Designation and address of the paying authority to which the Supplier will raise the bills. Copies of supply orders are to be endorsed to all concerned.

6. Renewal of Rate Contracts: It should be ensured that new rate contracts are made operative right after the expiry of the existing rate contracts without any gap for all rate contracted items. In case it is not possible to conclude new rate contracts for some special reasons, timely steps are to be taken to extend the existing rate contracts with the same terms, conditions, etc., for a suitable period, with the consent of the rate contract holders. Rate contracts of the firms who do not agree to such extension are to be left out. Also, while extending the existing rate contracts, it shall be ensured that the price trend is not lower.

Chapter 4: Modes of Procurement and Tendering Systems

Risk Mitigation to the private market during the working season. RC Purchase is not suitable for requirements of dynamic Technological and price changes, e.g., PCs, Laptops, Tablets, Servers, and Mobile Phones – where the price of older models may crash as soon as a new model is announced. RC holders may slow down supplies initially but dump suppliers when prices crash in the market. 2. The existence of RCs may not be adequately made known to possible users. Moreover, the reverse risk is that many different offices may keep procuring the same item independently, thus missing the potential benefits of bulk prices and simplified processes if such items were brought under an RC. The descriptions, specifications, and other salient details of all RCs should be appropriately updated and made available on the Procuring Entity website as well as the eProcurement portal. The e-procurement system should be able to offer alerts about the availability of RC if an attempt is made to float a tender for the same item. To derive benefit from bulk prices in RC, all offices should furnish to the RC agency their annual requirement of items to enable the finalising of RCs after inviting quotations. 3. RC procurements are at risk of being ordered more than actual requirements since the procurement scrutiny may not be as intense as in the case of other modes of procurements. The quantity being ordered should be subject to the same level of scrutiny as in other modes of procurement to ensure that there is no abnormal, unexplainable trend in procurement. 4. Wherever there are parallel RCs for the same item from several firms, there may be intense and often unhealthy lobbying (including corrupt practices) from them to seek orders. Procuring Entities must put in place adequate guidelines to handle RC procurements, including a transparent system of choosing the RC holders by rotation in a transparent manner in case of parallel RCs. Suggested criteria are given in para 4.4.1-5-d). The delegation of powers in this regard should also be restricted, keeping these risks in view. 2. The Procuring Entity should maintain suitable records of RC firms for past performance with respect to timely delivery and quality. 3. Wherever there are failures against the rate contract in terms of timely delivery

Risk Mitigation and quality of goods, such failures should be reported to the agency that entered the Rate Contract, and direct alternate procurement action may be taken to ensure the timely availability of quality materials to meet the needs of the Procuring Entity.