Para 7.6.6 - Price Reasonableness | KartavyaDesk

Original Rule Text

7.6.6 Reasonableness of Prices 1. In every recommendation of the TC for an award of contract, it must be declared that the rates recommended are reasonable. If the rates received are considered abnormally low or unreasonably high, action may be taken as per para 7.6.7 and 7.6.9, respectively, or as per para 7.6.11, reject any or all Bids; abandon/ cancel the Tender process and issue another tender for the identical or similar Goods. 2. In large value tenders, blind reliance on the cost estimate is not recommended for assessing reasonableness. More than one method of estimation of cost may be used to triangulate a reasonable price. For more details on judging the reasonableness of prices, please see para 2.1-2-f) above. 3. Where there is no estimated cost, a comparison with the Last Purchase Price (LPP - the price paid in the latest successful contract) is the basis for judging the reasonableness of rates. The following points may be kept in mind before LPP is relied upon as a basis for justifying rate reasonableness: a) The basic price, taxes, duties, transportation charges, Packing and Forwarding charges should be indicated separately, and the comparison should be on basic price. b) Where the firm holding the LPP contract has defaulted, the fact should be highlighted, and the price paid against the latest contract placed prior to the defaulting LPP contract, where supplies have been completed, should be used; c) Where the supply against the LPP contract is yet to commence, that is, delivery is not yet due, it should be taken as LPP with caution, especially if the supplier is new; the price paid against the previous contract may also be kept in view; d) Where the price indicated in the LPP is subject to variation or if it is more than a year old, the updated basic LPP as computed in case of the Price Variation Clause (PVC) may also be indicated; e) In the case of wholly imported stores, the comparison of the last purchase rate should be made with the net CIF value at the current foreign exchange rate; f) It is natural to have marginal differences in prices obtained at different cities/offices for the same item due to their different circumstances. The prices obtained are greatly influenced by quantity, delivery period, and terms of the contract; these may be kept in view, and g) Prices paid in emergencies or prices offered in a distress sale are not accurate guidelines for future use. Such purchase orders and TC proceedings should indicate that “these prices are not valid LPP for comparison in future procurement.”

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

• •The Tender Committee (TC) must declare recommended rates are reasonable before awarding a contract.
• •Abnormally low or high prices require further investigation and potential rejection of bids.
• •Blindly relying on cost estimates in large tenders is discouraged; use multiple estimation methods.
• •Last Purchase Price (LPP) is a key benchmark, but must be carefully evaluated (taxes, defaults, age of contract).
• •Prices from emergencies or distress sales are not valid for future LPP comparisons.

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.