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Para 4.2.3 - Success Fee Contracts | KartavyaDesk

Non-Consultancy Manual

Original Rule Text

4.2.3. Percentage (Success/ contingency Fee) Contract 1. Percentage (Success/ Contingency Fee) contracts directly relate the fees/ service charge paid to the service provider to the estimated or actual value of assets/ transactions to be handled – e.g., project cost or the cost of the goods procured or inspected. This Type of Contract is based on output admeasurement (value of assets/ transactions handled). Since the payment is made after the successful realisation of objectives, it is also called success (or contingency) fee contract. The payment is made based on the value of assets/ transactions handled during the period. 2. Schedule of Requirement shall indicate the estimated value of assets/ transactions to be handled as well as the contract Period (one year, unless otherwise stipulated) over which such volume shall be availed. However, there shall be no firm commitment to avail the entire value of transactions within the contract period. The final selection is made among the technically qualified service providers who have quoted the lowest percentage (as service charge) while the notional value of assets/ transactions to be handled is fixed. 3. Due to Risks and mitigations discussed below, these contracts are commonly used for appropriate architectural/ engineering services; procurement and inspection agents. 4. Percentage Contracts - Risks and Mitigations: Please also see Risk and Mitigations in Output admeasurement contracts in para 4.1.2-6).

What This Means

Para 4.2.3 of the Manual for Procurement of Non-Consultancy Services explains 'Percentage (Success/ Contingency Fee) Contracts.' These contracts are used when the service provider's fee is directly tied to the value of the assets or transactions they handle. Think of it like this: the more successful they are in managing a project's cost or the goods procured, the more they get paid. This type of contract is based on the output achieved, meaning payment happens after the objectives are successfully met. It's like a 'no win, no pay' arrangement, but for government services.

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

Key Points

  • •Fees are directly linked to the value of assets/transactions handled.
  • •Payment is made only after successful realization of objectives (success/contingency fee).
  • •The Schedule of Requirements estimates the value of assets/transactions and the contract period, but there's no guarantee the entire value will be used.
  • •Selection is based on the lowest percentage fee quoted by technically qualified providers.
  • •Commonly used for architectural/engineering services and procurement/inspection agents.

Practical Example

The Ministry of Urban Development needs to hire an inspection agency to oversee the quality of materials being used in a new affordable housing project. They decide to use a Percentage (Success/Contingency Fee) contract. The estimated cost of materials to be inspected is ₹50 crore over one year. Three firms qualify technically. Firm A bids 0.5%, Firm B bids 0.7%, and Firm C bids 0.6%. Firm A wins the contract. If Firm A inspects materials worth ₹40 crore during the year and finds them to be up to standard, they will be paid ₹20 lakhs (0.5% of ₹40 crore). The Ministry benefits by only paying for the actual value of materials inspected and ensuring quality control.

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 service provider doesn't achieve the estimated value of transactions?▼
The service provider is only paid based on the actual value of assets/transactions handled. There's no commitment to avail the entire estimated value.
How is the service provider selected under this type of contract?▼
The final selection is made among the technically qualified service providers who have quoted the lowest percentage (as service charge).
What are the risks associated with Percentage Contracts?▼
Risks are similar to those in Output admeasurement contracts (refer to para 4.1.2-6). These can include inflated valuations or compromised quality to increase the transaction value. Mitigation strategies are crucial.
Can this type of contract be used for all types of services?▼
No, it's most suitable for services where the value of the service can be directly tied to a measurable outcome, such as architectural/engineering services or procurement/inspection.
Is the estimated value of assets/transactions a guaranteed amount?▼
No, the estimated value is an indication of the expected volume, but there is no firm commitment to utilize the entire amount. Payment is based on actual transactions handled.

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

Under a Percentage (Success/ Contingency Fee) contract, the service provider's fee is primarily linked to what?

Related Rules

Para 3.2Manual for Procurement of Non-Consultancy Services, 2025 - Para 3.2 - Chapter 3Para 4.1.1Manual for Procurement of Non-Consultancy Services, 2025 - Para 4.1.1 - Chapter 3Para 4.4Manual for Procurement of Non-Consultancy Services, 2025 - Para 4.4 - Chapter 3Para 6.8Manual for Procurement of Non-Consultancy Services, 2025 - Para 6.8 - Chapter 6Para 5.2Manual for Procurement of Non-Consultancy Services, 2025 - Para 5.2 - Chapter 5

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