Para 9.4.6 — NONCONSULT_MANUAL

9.4.6. Liquidated Damages (LD) Compensation of loss on account of late delivery (actually incurred as well as notional) where loss is pre-estimated and mutually agreed to is termed as Liquidated Damages (LD). Law allows recovery of pre-estimated loss provided such a term is included in the contract and there is no need to establish actual loss due to late services. However, it would strengthen

9.4.7. Quantum of LD 1. While granting extension of the delivery period for delays attributable entirely to the contractor , where the delivery of services or any activity thereof is accepted after expiry of the original delivery period, the Procuring Entity may recover from the contractor, as liquidated damages for each week of delay or part thereof until actual delivery or performance, but not as a penalty, a sum equivalent to the 0.5% (half per cent, or any other percentage if prescribed) of the value of delayed portion (that includes variations, taxes and duties) of the Services, subject to a maximum of 5% (Five per cent) of the total contract value. Besides liquidated damages during such a delay, the denial clause shall also apply. The Procuring Entity may deduct liquidated damages from payments due to the contractor. Payment of liquidated damages shall not affect the contractor’s liabilities. For purpose of GST, LD should be shown as deduction on the invoice value by the contractor. 2. In contracts governed by any type of variation (PVC, ERV or statutory variations), LDs (if a percentage of the price) will be applicable on the price as varied by the operation of the PVC. 3. In case of delays for which both procuring entity and contractor may be responsible to a different extent, procuring entity with the approval of CA and concurrence of finance decide a lower quantum of LD, and consider waiver of denial clause on the merit of the case. 4. LDs accrue only in case of delayed services. Where or as far as no services have been delivered under a contract, upon cancellation, recovery of only the loss occasioned by breach of contract can be made, notwithstanding the fact that prior to the cancellation one or more extensions of the delivery period with reservation of the right to LD are granted.

9.4.8. Waiver of LD 1. There should normally be no system of waiver of LDs for delayed services and it may strictly be an exception rather than a rule. For an extension of the delivery date with waiver of LD, approval of the CA with consultation of associated Finance may be taken and justifications recorded. 2. Government establishments/ Departments, as distinct from PSUs, which execute contract should not be dealt with as ordinary contractors and not generally be penalised for late delivery and claims for loss on risk-purchase should not be enforced against them. Serious cases of defaults should, however, be brought to the notice of the Head of Department or the Government Department concerned. 3. As mentioned in para 9.5.3-3-e) below, for purpose of GST, liquidated damages should be shown as deductions on the invoice value by the contractor.

Procuring Entity’s rights, if it is established and kept on record, that inconvenience and loss has been caused due to the delay in services, though the loss cannot be exactly quantified, and hence liquidated damages are applicable as a genuine pre-estimate of the loss.