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Para 9.6.7 - Contractor Default | KartavyaDesk

Goods Manual

Original Rule Text

a) Any default, failure, or neglect on the part of the contractor in the fulfilment or performance of the contract under reference or any other contract with the Procuring Organisation; b) for any loss or damage recoverable from the contractor which the Procuring Entity may suffer or be put to for reasons of or due to the above defaults/ failures/ neglect; c) and in either of the events aforesaid to call upon the contractor to maintain the said performance security at its original limit by making further deposits, provided further that the Procuring Entity shall be entitled, and it shall be lawful on his part, to recover any such claim from any sum then due or which at any time after that may become due to the contractor for similar reasons.

What This Means

Para 9.6.7 of the Manual for Procurement of Goods, 2017, essentially protects the government (the 'Procuring Entity') when a contractor messes up. It says that if a contractor defaults on their obligations, fails to perform as agreed, or is negligent in fulfilling the contract (or any other contract with the same government organization), the government can take action to recover any losses or damages caused by the contractor's mistakes. This applies to all contracts governed by this manual.

Specifically, the government can demand that the contractor replenish their 'performance security' (a deposit meant to ensure they fulfill the contract) back to its original amount if it has been used to cover losses. More importantly, the government is legally allowed to deduct any money owed to them due to the contractor's failures from any payments that are currently due or may become due to the contractor in the future for similar work. This ensures the government isn't left footing the bill for a contractor's errors or negligence.

This rule directly affects contractors who do business with the government and the government employees responsible for managing and overseeing these contracts. Government employees need to understand this rule to protect public funds and ensure contractors are held accountable for their performance.

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

Key Points

  • •Applies when a contractor defaults, fails, or is negligent in fulfilling a contract.
  • •Allows the government to recover losses from the contractor due to their failures.
  • •The government can demand the contractor restore the performance security to its original limit.
  • •The government can deduct owed amounts from any payments due or becoming due to the contractor.
  • •Protects the Procuring Entity from financial losses due to contractor non-performance.

Practical Example

Imagine the Ministry of Textiles awarded a contract to 'WeaveWell Industries' for supplying 10,000 meters of specialized fabric for ₹50 lakhs. WeaveWell provided a performance security of ₹5 lakhs. After delivering only 5,000 meters of substandard fabric, WeaveWell stops responding to the Ministry's communications. The Ministry incurs additional costs of ₹10 lakhs to procure the remaining fabric from another vendor and to rectify the defects in the initial delivery.

Under Para 9.6.7, the Ministry can use the ₹5 lakhs performance security to offset the losses. Furthermore, if WeaveWell is also contracted to supply uniforms to the Ministry of Education and is due to receive a payment of ₹15 lakhs for that contract, the Ministry of Textiles can legally claim an additional ₹5 lakhs (to cover the remaining losses) from the payment due to WeaveWell from the Ministry of Education. WeaveWell would also be required to replenish the performance security for the textiles contract back to ₹5 lakhs.

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

Frequently Asked Questions

What constitutes a 'default' under this rule?▼
A 'default' refers to any failure by the contractor to meet the terms and conditions of the contract, including but not limited to failing to deliver goods or services as agreed, delivering substandard goods, or breaching any other contractual obligation.
What is 'performance security' and why is it important?▼
Performance security is a financial guarantee (usually in the form of a bank guarantee or fixed deposit) provided by the contractor to the Procuring Entity. It serves as a safeguard to ensure the contractor fulfills their contractual obligations. If the contractor fails, the Procuring Entity can use the performance security to cover losses.
Can the Procuring Entity recover losses beyond the performance security amount?▼
Yes, Para 9.6.7 allows the Procuring Entity to recover losses beyond the performance security amount by deducting it from any other payments due or becoming due to the contractor from the same organization.
Does this rule apply to all types of government contracts?▼
This rule specifically applies to contracts governed by the Manual for Procurement of Goods, 2017. Other procurement manuals or specific contract terms may have similar clauses, but this particular rule is limited to goods procurement under this manual.
What documentation is required to invoke Para 9.6.7?▼
The Procuring Entity needs to maintain thorough documentation of the contractor's default, the losses incurred as a result, and the steps taken to mitigate those losses. This documentation should include communication with the contractor, inspection reports, and cost estimates for rectifying the default.

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 9.6.7 of the Manual for Procurement of Goods, 2017, under what circumstances can a Procuring Entity demand that a contractor maintain their performance security at its original limit?

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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