Para 9.5.2 - Price Variation Rules | KartavyaDesk
Original Rule Text
9.5.2. Price Variations 1. In case the contract provides for a Price Variation Clause (PVC) or variation on any other account, the price shall be subject to adjustment on a quarterly basis, as per such clauses, only during the original Delivery Period. With the payment of such variations, no additional individual claim shall be admissible on account of fluctuations in market rates, increases in taxes/ any other levies/ tolls, etc. 2. Please refer to para 6.5-2 for provisions of PVC (formula, base date, delivery date, time lag for both base/ delivery dates, lower and upper cap on PVC, applicability of PVC during after original delivery period); 3. Calculations for all variations should be based on the basic price without taxes and duties. Therefore, contracts involving customs duty, foreign exchange fluctuations, GST, duties and taxes, the percentage and element of duties and taxes included in the price should be specifically stated, along with the selling rate of foreign exchange element considered in the calculation of the price of the imported item. Taxes/ duties chargeable and payable advalorem shall be charged at the nett price after variations. 4. In contracts governed by any type of variation (PVC or statutory variations), LDs (if a percentage of the price) will be applicable on the price as varied by the operation of the PVC. For purpose of GST, LD should be shown as deduction on the invoice value by the contractor.
What This Means
Para 9.5.2 of the Manual for Procurement of Non-Consultancy Services deals with how prices can change in a contract after it's been signed. Specifically, it focuses on Price Variation Clauses (PVCs) and other types of adjustments. The rule states that if your contract includes a PVC (allowing for price changes based on market conditions), these adjustments can only be made during the original delivery period agreed upon in the contract. Once the delivery period is over, you can't claim additional money due to market fluctuations or tax increases if you've already received payments under the PVC.
This rule also clarifies how to calculate these price variations. The calculations should be based on the original price, excluding taxes and duties. If the contract involves customs duties, foreign exchange rates, or GST, the contract must clearly state the percentage of these elements included in the price. Finally, if there are penalties for late delivery (Liquidated Damages or LDs), these penalties will be calculated based on the adjusted price after the PVC has been applied. For GST purposes, the LD amount should be shown as a deduction on the contractor's invoice.
This rule primarily affects government departments and agencies involved in procuring non-consultancy services, as well as the contractors providing those services. It ensures transparency and fairness in price adjustments, preventing disputes and ensuring that both parties understand how price variations are calculated and applied.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Price variations (PVC) are only applicable during the original delivery period.
- •No additional claims are admissible for market fluctuations or tax increases once PVC adjustments have been made.
- •PVC calculations are based on the basic price, excluding taxes and duties.
- •Contracts must clearly state the percentage of taxes, duties, and foreign exchange elements included in the price.
- •Liquidated Damages (LDs) are applied to the price after PVC adjustments.
Practical Example
The Ministry of Textiles contracts 'Shree Enterprises' to supply uniforms for Rs. 50 lakhs. The contract includes a PVC based on the Wholesale Price Index (WPI) for cotton. The original delivery period is 6 months. After 3 months, the WPI increases, and Shree Enterprises claims a price variation of Rs. 2 lakhs as per the PVC formula. This claim is processed and paid.
Later, after 7 months (one month after the original delivery period), Shree Enterprises claims an additional Rs. 1 lakh due to a further increase in cotton prices. According to Para 9.5.2, this additional claim is not admissible because the PVC is only applicable during the original delivery period. If Shree Enterprises delivers the uniforms late and LD is applicable, the LD will be calculated on the Rs. 52 lakh (50 lakh + 2 lakh PVC) and for GST purposes, the LD amount will be shown as a deduction on the invoice value by Shree Enterprises.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Can we apply the Price Variation Clause (PVC) after the original delivery period?▼
How should taxes and duties be treated when calculating price variations?▼
If there is a delay in delivery and Liquidated Damages (LD) are applicable, on what price will the LD be calculated?▼
What happens if the market rates increase significantly after the original delivery period?▼
Where can I find the provisions for the PVC formula and other related details?▼
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
According to Para 9.5.2 of the Manual for Procurement of Non-Consultancy Services, during which period can price variations under a Price Variation Clause (PVC) be applied?
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