Para 6.5 - Price Variation Clause | KartavyaDesk
Original Rule Text
prior to the last date of submission of bids when the last published price indices would be available. Time lag applies both for the base date and delivery date and must be specified in the Tender Documents; ii) Ignorable Variation: The price variation formula must also stipulate a minimum percentage of variation of the contract price, only above which the price variation will be admissible (for example, where the resultant increase is lower than, say, two per cent of the contract price, no price adjustment will be made in favour of the contractor); iii) Inordinate Variation: In rare cases, prices may go up to such an extent that it may render the contract unviable for either party, thus frustrating the contract. Therefore, the price variation clause should provide for a ceiling (a percentage per annum or an overall ceiling or both, say 20%/ 25% of the original price) on price variations, beyond which the price variation would be capped at this level. As soon as it comes to light that price variations are likely to go beyond this ceiling, and if the Contractor is not agreeable to the price variation being capped at that level, he may notify the Purchaser under ‘Frustration of Contract’ provisions in the Tender Document/ Clause, for short-closing the contract. (Refer para 9.8.5). However, if the short closing is not in the interest of the procuring entity, the competent authority, with the concurrence of associated/ integrated finance, may allow the continuation of the contract by relaxing/ removing the cap on the price variation. iv) Where advance or stage payments are made, there should be a further stipulation that no price variations will be admissible on such portions of the price after the dates of such payment; v) Where deliveries are accepted beyond the scheduled delivery date subject to levy of liquidated damages as provided in the contract. The LD (if a percentage of the price) will be recoverable on the price as varied by the operation of the PVC; vi) No upward price variation will be admissible beyond the originally scheduled delivery date for defaults on the part of the contractor (e.g. when an extension of the delivery date is with denial clause). However, the purchaser would avail a downward price variation as per the denial clause in the letter of extension of the delivery period; vii) Price variation may be allowed beyond the originally scheduled delivery date in case of refixation of delivery date (which is treated like original delivery period – refer para 9.4.3-2 and 9.4.5) through an amendment to the contract in cases of delays attributable to force majeure or defaults by the procuring entity; viii)The clause should also contain the mode and terms of payment of the price variation admissible. ix) The buyer should ensure a provision in the contract for the benefit of any reduction in the price in terms of the PVC being passed on to him. x) An illustrative PVC clause is available in Annexure 10.
What This Means
Para 6.5 of the Manual for Procurement of Non-Consultancy Services deals with how prices can change during a contract due to things like inflation or market fluctuations. This is called a Price Variation Clause (PVC). The rule aims to protect both the government and the contractor from extreme price changes that could make the contract unfair or impossible to fulfill. It sets guidelines for when price changes are allowed, how much they can change, and what happens if prices fluctuate wildly.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Price variation formulas must use publicly available price indices with specified time lags for base and delivery dates.
- •A minimum percentage of price variation (e.g., 2%) must be exceeded before any adjustment is made.
- •A ceiling (e.g., 20% per annum or 25% overall) must be set on price variations; exceeding this may lead to contract frustration.
- •No price variations are allowed on portions of the price for which advance or stage payments have been made.
- •The contract should include provisions for passing on any price reductions to the buyer.
Practical Example
The Ministry of Electronics and Information Technology (MeitY) contracts with 'Secure Data Solutions' for data storage services for three years. The contract includes a PVC based on the Wholesale Price Index (WPI). The clause states that price variations are admissible only if the WPI changes by more than 3% from the base date. It also caps the overall price variation at 20% of the original contract price. After two years, the WPI increases significantly, leading to a calculated price increase of 25%. Since this exceeds the 20% cap, MeitY informs Secure Data Solutions that the price variation will be capped at 20%. If Secure Data Solutions disagrees, they can invoke the 'Frustration of Contract' clause. However, if MeitY deems the services critical, the competent authority, with finance concurrence, can remove the cap and allow the full 25% increase.
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 price variation exceeds the ceiling specified in the contract?▼
Are price variations allowed on advance or stage payments?▼
What happens if the price of the service decreases?▼
What is the purpose of specifying a minimum percentage of variation?▼
Can price variation be allowed beyond the original delivery date?▼
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
As per Para 6.5 of the Manual for Procurement of Non-Consultancy Services, what is a mandatory requirement for a price variation formula?
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