Para 9.9.11 — GOODS_MANUAL

GOODS_MANUAL

9.9.11 Challenging Arbitration/ Judicial Awards 1. ln matters covered by arbitration/ court decisions123, the guidance contained in ‘General Instructions on Procurement and Project Management’ dated 29.10.2021124 should be kept in mind. In cases where there is a decision against the government/ public sector enterprise, the decision to challenge/ appeal should not be taken routinely, but only when the case genuinely merits going for challenge/ appeal and there are high chances of winning in the court/ higher court. 2. In cases where the Ministry/ Department has challenged an arbitral award and, as a result, the amount of the arbitral award has not been paid, 75% of the arbitral award (which may include interest up to date of the award) shall be paid by the Ministry/ Department to the contractor/ concessionaire against a Bank Guarantee (BG). The BG shall only be for the said 75% of the arbitral award as above and not for the interest, which may become payable to the Ministry/ Department should the subsequent court order require a refund of the said amount. 3. The payment may be made into a designated Escrow Account with the stipulation that the proceeds will be used first for payment of lenders’ dues, second for completion of the project and then for completion of other projects of the same Ministry/ Department as mutually agreed/ decided. Any balance remaining in the escrow account after settlement of lenders’ dues and completion of projects of the Ministry/ Department may be allowed to be used by the contractor/ concessionaire with the prior approval of the lead banker and the Ministry/ Department. If otherwise eligible and subject to contractual provisions, and other amounts withheld may also be released against BG.125 4. Arbitration /court awards should be critically reviewed. In cases where there is a decision against government / public sector enterprise (PSE), the decision to appeal should not be taken routinely, but only when the case genuinely merits going for the appeal and there are high chances of winning in the court/ higher court. There is a perception that such appeals, etc., sometimes resorted to postpone the problem and defer personal accountability. Casual appeals in arbitration / court cases have resulted in the payment of heavy damages / compensation / additional interest cost, thereby causing more harm to the exchequer, in addition to tarnishing the image of the Government.
9.10. Contract Management – Risks and Mitigations
Risk Mitigation 1. Advance payments: This is an area of risk in public procurement with undue and unintended benefits to the contractor, which vitiates the original selection criteria. Any mobilisation or other advance payments should be as per the tender document/ Contract (refer to para 6.5.1) and only for justifiable cases. Terms of such advances should be expressly stated in the NIT/tender documents. The advance payment may be released in not less than two stages, depending upon the progress of the contract. The advance should be progressively adjusted against bills cleared for payment. Interest should be charged on delayed recoveries irrespective of the reason stated. 2. Contract changes and renegotiations: This is also a risk area where the procuring entity may not get what it contracted and paid for or may pay for Contract modifications and renegotiations should not substantially alter the nature of the contract. It should not vitiate the basis of the selection of the contractor. It should not give
5. The Organisation should monitor the success rate of appealing against arbitration awards. There should be a clear delegation to empower officials to accept arbitration / court orders. A special board / committee may be set up to review the case before an appeal is filed against an order. Arbitration /court awards should not be routinely appealed without due application of mind to all facts and circumstances, including realistic probability of success. The board / committee or other authority deciding on the matter shall clarify that it has considered both legal merits and the practical chances of success and, after considering the cost of, and rising through, litigation / appeal / further litigation as the case may be, it is satisfied that such litigation / appeal / further litigation cost is likely to be financially beneficial compared to accepting the arbitration / court award.
6. Statistics have shown that in cases where the arbitration award is challenged, a large majority of cases are decided in favour of the contractor. In such cases, the amount becomes payable with interest at a rate that is often far higher than the government’s cost of funds. This results in huge financial losses to the government. Hence, in the aggregate, it is in the public interest to take the risk of paying a substantial part of the award amount subject to the result of the litigation, even if, in some rare cases of insolvency, etc., recovery of the amount in case of success may become difficult.
7. The only circumstances in which such payment need not be made are when the contractor declines or is unable to provide the requisite bank guarantee and/or fails to open an escrow account as required. Persons responsible for not adhering to this are liable to be held personally accountable for the additional interest arising in the event of the final court order going against the procuring entity126.
Risk Mitigation what it has not received. On the other hand, the contractor may not get timely or proper amendments due to changes asked by the procuring entities. undue or unintended benefits to the contractor. However, for any changes caused by the procuring entity, the contractor should be adequately and timely compensated within the contractual terms. 3. Supervising agencies/individuals are unduly influenced to alter the contents of their reports, so changes in quality, performance, equipment, and characteristics go unnoticed. A contract management manual or operating procedure should be prepared for large-value contracts. There should be built-in systems for checks and balances. All large contracts should be formally reconciled for closure to ensure that the scope of the work and warranty/defect liability period is completed. This should include the dispute resolution forum for resolving disputes in a fixed timeframe with the provision of escalation level. All payments/recoveries should also be reconciled. It should also be ensured that material/assets loaned to him, including security passes, are accounted for. 4. The contractor’s claims are false or inaccurate and are protected by the person in charge of revising them. 5. Payment to the contractor is delayed intentionally or otherwise. 6. The contractor gets the final payment, but contract closure has not been formally done. As a result, material/assets loaned to him are not accounted for. 7. Every dispute lands up in arbitration or court cases since the procuring entity is reluctant to grant compensation for its lapses to the contractor. 8. Agents/ Sub-contractors and partners, chosen in a non-transparent way, are unaccountable or are used to channel bribes. Agents should only be as per the terms of the contract. Sub-contracting of the contract should normally not be allowed in the procurement of goods.
10.2. Classification and Categorisation It is important to categorise the scrapped items under different trade groups based on the use to which the scrap purchaser can put it for commercial use, for example, melting, re-rolling, burning, recycling, e-Waste (electronic Waste), hazardous waste and so on. Properly grouped and sorted scrap is likely to attract better value, help keep historical data of prices, and facilitate the fixing of reserve prices.
10.3. Survey of Materials for Classifying as Scrap for Disposal 1. Competent Authority to declare and dispose off Scrap Material, based on its assessed value128, may be laid down in the SoPP. Before any item of stores can be sold as ‘scrap,’ it should be declared as such by the Survey Committee (SC) appointed by the Head of Office and the sanction of the CA obtained for such a sale. The CA may relax this need for a survey by SC, as a standing order, in the case of a list of known items of scrap like Newspapers, containers, etc., of small value (Rs. 15,000 – Rupees Fifteen Thousand). Lots of small values may also not require to be condemned by SC, on which the Head of Office may be given powers to declare such materials as scrap without a survey committee. However, this dispensation is subject to the furnishing of a certificate by the concerned departmental officer as laid down in the SoPP, stating that the items being offered have been inspected by him and found unserviceable and unfit for any further use.
2. Survey of Scrap: Items may be identified as scrap in any of the following cases: a) Whether the item has completed its expected useful life or not, factors such as norms for maintenance cost, norms for utilisation of such equipment, and usability in the organisation or any other office must also be considered before deciding on scrapping the equipment and b) The item has a limited shelf life, exists in surplus quantities, and there is likely to be no future use of the item during the remaining period of its useful life.
Chapter 10: Disposal of Scrap Goods 10.1. Scrap for Disposal There accumulates, in every organisation, a large quantity of ‘Goods’ that is neither usable for the purpose for which it was originally procured nor of any other operational value. Such ‘Goods’ is generally called “scrap” and should be distinguished from other ‘Goods’ that can be utilised after repair or renovation. Occasionally, scrap may consist of second-hand or in excellent repair, even new ‘Goods’ that is surplus to the need of the organisation or its allied organisations and may command a fair price in the market not normally associated with scrap. This chapter is applicable to disposal of such Scrap Goods and is not applicable to disposal of assets that are not127 covered by the definition of ‘Goods’ as given in the ‘Procurement Glossary’ section of this Manual.
c) The reasons for declaring the item surplus obsolete or unserviceable should be recorded by the SC. A standard format for SC’s recommendations for disposal of goods is provided in Annexure 26. d) SC may seek the approval of the CA with the concurrence of the Associated/Integrated Finance.

GOODS_MANUAL

9.9.11 Challenging Arbitration/ Judicial Awards 1. ln matters covered by arbitration/ court decisions123, the guidance contained in ‘General Instructions on Procurement and Project Management’ dated 29.10.2021124 should be kept in mind. In cases where there is a decision against the government/ public sector enterprise, the decision to challenge/ appeal should not be taken routinely, but only when the case genuinely merits going for challenge/ appeal and there are high chances of winning in the court/ higher court. 2. In cases where the Ministry/ Department has challenged an arbitral award and, as a result, the amount of the arbitral award has not been paid, 75% of the arbitral award (which may include interest up to date of the award) shall be paid by the Ministry/ Department to the contractor/ concessionaire against a Bank Guarantee (BG). The BG shall only be for the said 75% of the arbitral award as above and not for the interest, which may become payable to the Ministry/ Department should the subsequent court order require a refund of the said amount. 3. The payment may be made into a designated Escrow Account with the stipulation that the proceeds will be used first for payment of lenders’ dues, second for completion of the project and then for completion of other projects of the same Ministry/ Department as mutually agreed/ decided. Any balance remaining in the escrow account after settlement of lenders’ dues and completion of projects of the Ministry/ Department may be allowed to be used by the contractor/ concessionaire with the prior approval of the lead banker and the Ministry/ Department. If otherwise eligible and subject to contractual provisions, and other amounts withheld may also be released against BG.125 4. Arbitration /court awards should be critically reviewed. In cases where there is a decision against government / public sector enterprise (PSE), the decision to appeal should not be taken routinely, but only when the case genuinely merits going for the appeal and there are high chances of winning in the court/ higher court. There is a perception that such appeals, etc., sometimes resorted to postpone the problem and defer personal accountability. Casual appeals in arbitration / court cases have resulted in the payment of heavy damages / compensation / additional interest cost, thereby causing more harm to the exchequer, in addition to tarnishing the image of the Government.
9.10. Contract Management – Risks and Mitigations
Risk Mitigation 1. Advance payments: This is an area of risk in public procurement with undue and unintended benefits to the contractor, which vitiates the original selection criteria. Any mobilisation or other advance payments should be as per the tender document/ Contract (refer to para 6.5.1) and only for justifiable cases. Terms of such advances should be expressly stated in the NIT/tender documents. The advance payment may be released in not less than two stages, depending upon the progress of the contract. The advance should be progressively adjusted against bills cleared for payment. Interest should be charged on delayed recoveries irrespective of the reason stated. 2. Contract changes and renegotiations: This is also a risk area where the procuring entity may not get what it contracted and paid for or may pay for Contract modifications and renegotiations should not substantially alter the nature of the contract. It should not vitiate the basis of the selection of the contractor. It should not give
5. The Organisation should monitor the success rate of appealing against arbitration awards. There should be a clear delegation to empower officials to accept arbitration / court orders. A special board / committee may be set up to review the case before an appeal is filed against an order. Arbitration /court awards should not be routinely appealed without due application of mind to all facts and circumstances, including realistic probability of success. The board / committee or other authority deciding on the matter shall clarify that it has considered both legal merits and the practical chances of success and, after considering the cost of, and rising through, litigation / appeal / further litigation as the case may be, it is satisfied that such litigation / appeal / further litigation cost is likely to be financially beneficial compared to accepting the arbitration / court award.
6. Statistics have shown that in cases where the arbitration award is challenged, a large majority of cases are decided in favour of the contractor. In such cases, the amount becomes payable with interest at a rate that is often far higher than the government’s cost of funds. This results in huge financial losses to the government. Hence, in the aggregate, it is in the public interest to take the risk of paying a substantial part of the award amount subject to the result of the litigation, even if, in some rare cases of insolvency, etc., recovery of the amount in case of success may become difficult.
7. The only circumstances in which such payment need not be made are when the contractor declines or is unable to provide the requisite bank guarantee and/or fails to open an escrow account as required. Persons responsible for not adhering to this are liable to be held personally accountable for the additional interest arising in the event of the final court order going against the procuring entity126.
Risk Mitigation what it has not received. On the other hand, the contractor may not get timely or proper amendments due to changes asked by the procuring entities. undue or unintended benefits to the contractor. However, for any changes caused by the procuring entity, the contractor should be adequately and timely compensated within the contractual terms. 3. Supervising agencies/individuals are unduly influenced to alter the contents of their reports, so changes in quality, performance, equipment, and characteristics go unnoticed. A contract management manual or operating procedure should be prepared for large-value contracts. There should be built-in systems for checks and balances. All large contracts should be formally reconciled for closure to ensure that the scope of the work and warranty/defect liability period is completed. This should include the dispute resolution forum for resolving disputes in a fixed timeframe with the provision of escalation level. All payments/recoveries should also be reconciled. It should also be ensured that material/assets loaned to him, including security passes, are accounted for. 4. The contractor’s claims are false or inaccurate and are protected by the person in charge of revising them. 5. Payment to the contractor is delayed intentionally or otherwise. 6. The contractor gets the final payment, but contract closure has not been formally done. As a result, material/assets loaned to him are not accounted for. 7. Every dispute lands up in arbitration or court cases since the procuring entity is reluctant to grant compensation for its lapses to the contractor. 8. Agents/ Sub-contractors and partners, chosen in a non-transparent way, are unaccountable or are used to channel bribes. Agents should only be as per the terms of the contract. Sub-contracting of the contract should normally not be allowed in the procurement of goods.
10.2. Classification and Categorisation It is important to categorise the scrapped items under different trade groups based on the use to which the scrap purchaser can put it for commercial use, for example, melting, re-rolling, burning, recycling, e-Waste (electronic Waste), hazardous waste and so on. Properly grouped and sorted scrap is likely to attract better value, help keep historical data of prices, and facilitate the fixing of reserve prices.
10.3. Survey of Materials for Classifying as Scrap for Disposal 1. Competent Authority to declare and dispose off Scrap Material, based on its assessed value128, may be laid down in the SoPP. Before any item of stores can be sold as ‘scrap,’ it should be declared as such by the Survey Committee (SC) appointed by the Head of Office and the sanction of the CA obtained for such a sale. The CA may relax this need for a survey by SC, as a standing order, in the case of a list of known items of scrap like Newspapers, containers, etc., of small value (Rs. 15,000 – Rupees Fifteen Thousand). Lots of small values may also not require to be condemned by SC, on which the Head of Office may be given powers to declare such materials as scrap without a survey committee. However, this dispensation is subject to the furnishing of a certificate by the concerned departmental officer as laid down in the SoPP, stating that the items being offered have been inspected by him and found unserviceable and unfit for any further use.
2. Survey of Scrap: Items may be identified as scrap in any of the following cases: a) Whether the item has completed its expected useful life or not, factors such as norms for maintenance cost, norms for utilisation of such equipment, and usability in the organisation or any other office must also be considered before deciding on scrapping the equipment and b) The item has a limited shelf life, exists in surplus quantities, and there is likely to be no future use of the item during the remaining period of its useful life.
Chapter 10: Disposal of Scrap Goods 10.1. Scrap for Disposal There accumulates, in every organisation, a large quantity of ‘Goods’ that is neither usable for the purpose for which it was originally procured nor of any other operational value. Such ‘Goods’ is generally called “scrap” and should be distinguished from other ‘Goods’ that can be utilised after repair or renovation. Occasionally, scrap may consist of second-hand or in excellent repair, even new ‘Goods’ that is surplus to the need of the organisation or its allied organisations and may command a fair price in the market not normally associated with scrap. This chapter is applicable to disposal of such Scrap Goods and is not applicable to disposal of assets that are not127 covered by the definition of ‘Goods’ as given in the ‘Procurement Glossary’ section of this Manual.
c) The reasons for declaring the item surplus obsolete or unserviceable should be recorded by the SC. A standard format for SC’s recommendations for disposal of goods is provided in Annexure 26. d) SC may seek the approval of the CA with the concurrence of the Associated/Integrated Finance.

Para 9.9.11 — GOODS_MANUAL

Original Rule Text

Para 9.9.11 — GOODS_MANUAL

Original Rule Text