Para 3.7.2 — MSO (Audit)
Original Rule Text
3.7.2 The Union Government has laid down the following fundamental principles for the guidance of authorities authorised to enter into contracts or agreements involving expenditure from the Consolidated Fund of India:
(i) The terms of a contract must be precise and definite, and there must be no room therein for ambiguity or misconstruction.
(ii) Standard forms of contracts should be adopted wherever possible, the terms being subjected to adequate prior scrutiny.
(iii) As far as possible, legal and financial advice should be taken in the drafting of contracts before they are finally entered into.
(iv) No contract involving an uncertain or indefinite liability or any condition of an unusual character should be entered into without the prior consent of the competent financial authority.
(v) Similarly, terms of a contract once entered into should not be materially varied without the prior consent of the competent financial authority.
(vi) Contracts should invariably be placed only after inviting open tenders and the lowest tender accepted. In cases where it is not considered practicable to invite open tenders or to accept the lowest tender, the reasons for the deviations should be recorded.
(vii) In selecting the tender to be accepted, the financial status of the tendering individuals and firms must be taken into consideration, in addition to all other relevant factors.
(viii) Even in cases where a formal written contract is not entered into, no order for supplies should be placed without at least a written agreement in regard to price.
(ix) Provision must be made in contracts for safeguarding government property entrusted to contractors.
(x) When a contract is likely to endure for a period of more than five years, it should include, wherever feasible, a provision for its unconditional revocation or cancellation by Government at any time after the expiry of six months’ notice to that effect.
Though these guiding principles are primarily in the nature of financial rules, they are nevertheless of relevance from the audit perspective as well.
What This Means
The Union Government has established ten fundamental principles that govern all contracts involving expenditure from the Consolidated Fund of India. These principles require that contract terms be precise and unambiguous, standard forms be used, legal and financial advice be sought, uncertain liabilities get prior financial approval, contract variations need competent authority consent, open tenders be invited with the lowest accepted (deviations recorded), financial status of tenderers be considered, written price agreements exist even without formal contracts, government property be safeguarded, and long-term contracts (over 5 years) include a revocation clause with 6 months' notice.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Contract terms must be precise with no room for ambiguity or misconstruction
- 2Open tenders are mandatory; lowest tender should be accepted with recorded reasons for any deviation
- 3Uncertain or indefinite liabilities require prior consent of competent financial authority
- 4Even without a formal contract, a written agreement on price is mandatory
- 5Contracts exceeding 5 years should include an unconditional revocation clause with 6 months' notice
Practical Example
A central ministry wants to procure cloud computing services through a 7-year contract. The Audit Officer checks whether the contract includes an unconditional revocation clause allowing government to cancel it after giving 6 months' notice, as required for contracts exceeding 5 years. She also verifies that open tenders were invited and the lowest bid was accepted, or if not, that proper reasons were recorded for choosing another vendor.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Are these principles only financial rules or do they have audit significance?▼
Can a contract be entered into without inviting open tenders?▼
What if a contract has an indefinite liability?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.