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Para 6.5.3 - Procurement Insurance | KartavyaDesk

Goods Manual

Original Rule Text

6.5.3 Insurance In every case where advance payment or payment against dispatch documents is to be made, or LC is to be opened, the condition of insurance should invariably be incorporated in the terms and conditions. Wherever necessary, the goods supplied under the contract shall be fully insured in a freely convertible currency against loss or damage incidental to manufacture or acquisition, transportation, storage and delivery in the manner specified in the contract. If considered necessary, insurance may cover "all risks", including war risks and strike clauses. The amount to be covered under insurance should be sufficient to cover the overall expenditure incurred by the procuring entity for receiving the goods at the destination. Where delivery of imported goods is required by the purchaser on a CIF/CIP/ DDP basis, the supplier shall arrange and pay for marine/air insurance, making the purchaser the beneficiary. Where

What This Means

Para 6.5.3 of the Manual for Procurement of Goods, 2017, focuses on insurance requirements when the government is buying goods. Essentially, it says that if the government is paying for goods in advance, paying when the goods are shipped, or using a Letter of Credit (LC), the purchase agreement *must* include insurance. This is to protect the government's investment in case something goes wrong during the manufacturing, transportation, storage, or delivery of the goods. The insurance should be in a currency that's easily converted to other currencies.

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

Key Points

  • •Insurance is mandatory when advance payment, payment against dispatch documents, or LC is involved.
  • •The insurance should cover loss or damage during manufacture, acquisition, transportation, storage, and delivery.
  • •The insurance amount should cover the total expenditure incurred by the government to receive the goods.
  • •For imported goods delivered CIF/CIP/DDP, the supplier is responsible for marine/air insurance, with the government as the beneficiary.
  • •Insurance may cover 'all risks,' including war risks and strike clauses, if deemed necessary.

Practical Example

The Ministry of Electronics and Information Technology (MeitY) is procuring 500 high-end servers from a foreign vendor, 'Global Tech Solutions,' for ₹5 crore. They're using a Letter of Credit to facilitate the payment. As per Para 6.5.3, the purchase agreement *must* include an insurance clause. This clause specifies that Global Tech Solutions must insure the servers for ₹5 crore (or its equivalent in USD) against damage during manufacturing, shipping, and delivery to the designated data center in India. The insurance policy should name MeitY as the beneficiary. If the servers are damaged during transit, MeitY can claim the insurance to recover the cost and procure replacements.

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 procurement manual is not followed and insurance is not taken?▼
Failure to include mandatory insurance as per Para 6.5.3 can lead to financial losses for the government if goods are damaged or lost. It can also result in audit objections and potential disciplinary action against the responsible officials.
What does CIF/CIP/DDP mean in the context of imported goods?▼
CIF (Cost, Insurance, and Freight), CIP (Carriage and Insurance Paid To), and DDP (Delivered Duty Paid) are Incoterms (International Commercial Terms) that define the responsibilities of the seller and buyer for the delivery of goods. In these cases, the seller (supplier) is responsible for arranging and paying for insurance until the goods reach the specified destination.
Who decides whether 'all risks' insurance is necessary?▼
The procuring entity (e.g., the Ministry or Department) decides whether 'all risks' insurance, including war risks and strike clauses, is necessary based on the specific circumstances of the procurement, such as the nature of the goods, the geographical location, and the potential risks involved.
Does this rule apply to all types of procurement?▼
Para 6.5.3 specifically applies to the procurement of goods where advance payment, payment against dispatch documents, or a Letter of Credit (LC) is used. Other procurement methods might have different insurance requirements.
What currency should the insurance be in?▼
The insurance should be in a freely convertible currency, meaning a currency that can be easily exchanged for other currencies. This ensures that the government can readily use the insurance payout if needed.

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 6.5.3 of the Manual for Procurement of Goods, 2017, under which of the following payment terms is incorporating a condition of insurance in the terms and conditions MANDATORY?

Related Rules

Para 9.4Manual for Procurement of Goods, 2024 - Para 9.4 - Chapter 9Para 9.5.5Manual for Procurement of Goods, 2024 - Para 9.5.5 - Chapter 9Para 1.8.2Manual for Procurement of Goods, 2024 - Para 1.8.2 - Chapter 1Para 2.2.2Manual for Procurement of Goods, 2024 - Para 2.2.2 - Chapter 2Para 2.2Manual for Procurement of Goods, 2024 - Para 2.2 - Chapter 2

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