Para 6.3 - Advance Payments | KartavyaDesk

Original Rule Text

Manual for Procurement of Non-Consultancy Services, 2025 d) In exceptional cases, the competent authority may relax the ceilings mentioned above with prior concurrence of the Associated/Integrated Finance. 3. Interest-free: Since the provision of advance payment leverages the difference in interest rate as argued in sub-para 1) above and considering the additional cost of Bank Guarantee for advances for the bidder, interest-free advance payments may be considered with the approval of competent authority and finance concurrence. Where an interest-free advance is permitted, a clause in the tender enquiry and the contract may be stipulated that if the contract is terminated due to default of the contractor, the advance payment would be deemed as an interest-bearing advance at the interest rate (e.g., the interest rate of the General Provident Fund – GPF) prevailing on the date of release of advance payment, plus 2% to be compounded quarterly. In appropriate cases, the competent authority may stipulate advance payments with suitable interest rates (e.g., the interest rate of the General Provident Fund – GPF) to be recovered along with the instalments of recovery of advance payment. 4. Instalments: The advance payment should not be made in less than two instalments, as per the expected infusion of funds required in the contract, except in exceptional circumstances for the reasons to be recorded. This will keep a check on contractor misutilisation of full advance when the contract is delayed considerably. 5. Recovery: Advance payments, especially interest-free advances, should be recovered (from either running bills or from the Performance/ Advance payment Bank Guarantees) in instalments linked to milestones or specified periods, whichever is earlier. This would ensure that even if the contractor is not executing the work or executing it at a slow pace, recovery of advance could commence, and the scope for misuse of such advance could be reduced. 6. Bank Guarantee: While making any advance payment as above, adequate safeguards in the form of a bank guarantee (or e-Bank Guarantee of at least 110% of advance) should be obtained from the firm. In case the advances are to be paid/ recovered in instalments, an equal number of part BGs (with proportionate amount and validity) may be taken instead of lumpsum BG, with each BG released after a related recovery is made. An Indemnity Bond is not to be considered in place of a Bank Guarantee. However, no Bank Guarantee should be insisted in case advance is being given to Central Ministry/ Department, there attached/ subordinate offices or the Autonomous Bodies attached with them. The BG may also not be taken, wherever a contract has been placed on a CPSE on nomination basis. 7. Milestone/ stage payments or part payments against proof of dispatch documents should not be considered as advance payments for the purpose of this para, as these payments are made after the sinking of funds by the contractor for achieving these milestones/ stage/ dispatches. These should be provisioned in the tender document/ contract, including Bank Guarantee to be taken, if any, in case of milestone/ stage payments. (Rule 172(2) GFR 2017) 8. Provision of advance payment should be anticipated at the procurement planning stage. The quantum of Advance payment and related conditions should be declared in the Tender Documents, with the approval of competent authority and concurrence of associated/ integrated finance. If not so declared, the condition of advance payment for a particular bid should not be agreed to. 9. The Government of India has recently approved a revamped Reform based and Results Linked Power Sector scheme, in which installation of smart pre-paid meters will be done

What This Means

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

Key Points

• •Advance payments require approval from the competent authority and concurrence from the Associated/Integrated Finance.
• •Interest-free advances are possible but come with strict conditions, including a clause for interest accrual if the contract is terminated due to the contractor's fault.
• •Advance payments should be made in at least two installments, except in exceptional circumstances with documented reasons.
• •Recovery of advance payments must be linked to milestones or specified periods to prevent misuse.
• •A Bank Guarantee (BG) of at least 110% of the advance amount is generally required, except for Central Ministries/Departments, their attached/subordinate offices, Autonomous Bodies, or contracts placed on a CPSE on nomination basis.

Practical Example

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

Frequently Asked Questions

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