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Para 9.3.8 - Liquidated Damages | KartavyaDesk

Goods Manual

Original Rule Text

9.3.9 Quantum of LD 1. While granting an extension of the delivery period, where the delivery of stores or any instalment thereof is accepted after the expiry of the original delivery period, the CA may recover from the contractor, as agreed, as LD a sum equivalent to 0.5 (half) per cent of the delivered price (including elements of GST, freight and variations as per sub-para 2) below) of the delayed Goods and/ or incidental Works/ Services for each week of delay or part thereof until actual delivery or performance, subject to a maximum deduction of the 5% (or any other percentage if prescribed in the contract) of the total contract value. In case of inordinate delay (para 9.3.3-2 above) this maximum deduction shall be 10% of the total contract value. 2. In contracts governed by any variation (PVC, ERV or statutory variations), LDs (if a percentage of the price) will be applicable on the price as varied by the operation of the PVC. LDs accrue only in case of delayed supplies. Where or as far as no supplies have been made under a contract, upon cancellation, recovery of only the loss occasioned thereby can be made, notwithstanding the fact that prior to the cancellation, one or more extensions of the delivery period with reservation of the right to LD are granted. 3. As mentioned in para 9.5.2-3-e) below, for purpose of GST, liquidated damages should be shown as deductions on the invoice value by the contractor.

What This Means

Para 9.3.8 of the Manual for Procurement of Goods, 2017, deals with Liquidated Damages (LD), which are basically penalties charged to a contractor for delays in delivering goods or services. If a government department grants an extension to the delivery deadline but the goods are still delivered late, the department can deduct LD from the contractor's payment. This deduction is a percentage of the price of the delayed items. The rule ensures that contractors are incentivized to deliver on time and that the government can recover some losses due to delays.

The amount of LD is calculated as 0.5% of the delayed goods' price (including GST, freight, and any approved variations) for each week of delay. However, there's a maximum limit to how much can be deducted. Generally, this limit is 5% of the total contract value, but it can be higher (up to 10%) if the delay is considered unusually long. Importantly, if the contract is canceled due to non-delivery, the government can only recover the actual loss incurred, even if extensions with LD clauses were previously granted. The contractor must show liquidated damages as deductions on the invoice value for GST purposes.

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

Key Points

  • •Liquidated Damages (LD) are penalties for delayed delivery of goods/services.
  • •LD is calculated at 0.5% of the delayed goods' price per week of delay.
  • •Maximum LD is generally 5% of the total contract value, but can be 10% for inordinate delays.
  • •If the contract is canceled, only actual losses can be recovered, regardless of prior extensions with LD clauses.
  • •Contractors must show LD as deductions on the invoice for GST purposes.

Practical Example

The Ministry of Electronics and Information Technology (MeitY) awarded a contract to 'Tech Solutions Pvt. Ltd.' for supplying 1000 laptops at a total contract value of ₹1 crore. The original delivery date was June 1, 2024. Due to unforeseen circumstances, MeitY granted an extension until July 1, 2024. However, Tech Solutions delivered the laptops on July 15, 2024, a delay of two weeks after the extended deadline. The delivered price of the delayed laptops (including GST and freight) was ₹80 lakhs. MeitY can recover LD at 0.5% per week for two weeks, totaling 1% of ₹80 lakhs, which is ₹80,000. This amount will be deducted from Tech Solutions' final payment. Since the total LD (₹80,000) is less than 5% of the total contract value (₹5 lakhs), the deduction is valid.

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 delay is due to circumstances beyond the contractor's control?▼
The contract usually contains clauses addressing Force Majeure events. If the delay is genuinely due to such an event, LD may not be applicable, subject to proper documentation and approval by the competent authority.
What is considered an 'inordinate delay'?▼
An 'inordinate delay' is not rigidly defined but generally refers to a delay that significantly impacts the project or procurement's objectives. Para 9.3.3-2 of the manual provides further context. The decision to classify a delay as 'inordinate' rests with the competent authority.
Can the percentage for maximum LD be different from 5%?▼
Yes, the contract can specify a different percentage for maximum LD. The rule states '5% (or any other percentage if prescribed in the contract)'. Government employees should always refer to the specific contract terms.
How does GST impact the calculation of LD?▼
GST is included in the 'delivered price' on which the LD is calculated. The contractor must show the LD as a deduction on their invoice for GST purposes, ensuring proper accounting and compliance.
If the contract is cancelled, can we still recover LD accrued before cancellation?▼
No. Upon cancellation, recovery is limited to the actual loss occasioned by the breach, even if LD was accruing before the cancellation. The department cannot recover both the actual loss and the accrued LD.

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 9.3.8 of the Manual for Procurement of Goods, 2017, what is the standard percentage of the delayed goods' price that can be charged as Liquidated Damages (LD) for each week of delay?

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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