Para 9.8.3 - Contract Termination | KartavyaDesk
Original Rule Text
1. After placement of the contract, there may be an unforeseen situation compelling Procuring Entity to terminate the contract, in whole or in part for its (the Procuring Entity’s) convenience, by serving written ‘Notice for Determination of Contract’ on the contractor at any time during the currency of the contract. The notice shall indicate inter-alia, that the termination is for the convenience of the Procuring Entity or the frustration of the contract and also the extent to which the contractor’s performance under the contract is terminated, and the date with effect from which such termination shall become effective. 2. Such termination shall not prejudice or affect the rights and remedies accrued and/ or shall accrue after that to the Parties. 3. Unless otherwise instructed by the Procuring Entity, the contractor shall continue to perform the contract to the extent not terminated. 4. All warranty obligations, if any, shall continue to survive despite the termination. 5. Determining the contract by Procuring Entity for its convenience is not its legal right – and the contractor must be persuaded to acquiesce. Depending on the merits of the case, the contractor may have to be suitably compensated on mutually agreed terms for terminating
What This Means
Para 9.8.3 of the Manual for Procurement of Non-Consultancy Services deals with situations where the government (the 'Procuring Entity') needs to end a contract before its scheduled completion, not because the contractor did something wrong, but because the government's needs have changed or the project is no longer feasible. This is called 'termination for convenience'. The rule outlines the process for formally notifying the contractor and specifies that such termination doesn't automatically erase any existing or future rights either party might have. The contractor is expected to continue performing the parts of the contract that haven't been terminated, and any warranties related to the work already done still apply.
Importantly, the rule emphasizes that the government doesn't have an automatic right to terminate for convenience. The contractor needs to agree to the termination. This often involves negotiating a fair settlement to compensate the contractor for any losses they might incur due to the early termination, such as costs already spent or lost profits. This ensures fairness and encourages contractors to work with the government in the future.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •The Procuring Entity can terminate a contract for its convenience by issuing a 'Notice for Determination of Contract'.
- •Termination doesn't affect accrued rights and remedies of either party.
- •The contractor must continue performing the non-terminated parts of the contract unless instructed otherwise.
- •Warranty obligations survive the termination.
- •Contractor's acquiescence is required for termination for convenience, and compensation may be necessary.
Practical Example
The Ministry of Textiles contracted 'WeaveWell Pvt. Ltd.' for supplying 50,000 handloom sarees for a government gifting program at a cost of ₹500 per saree. After WeaveWell delivered 20,000 sarees, the program was cancelled due to a change in government policy. The Ministry, under Para 9.8.3, issued a 'Notice for Determination of Contract' to WeaveWell for the remaining 30,000 sarees.
Since WeaveWell had already procured raw materials and started production for the remaining sarees, they negotiated with the Ministry. Both parties agreed on a compensation of ₹50 per saree for the 30,000 sarees not delivered, covering WeaveWell's raw material costs and a portion of their lost profits. The Ministry paid WeaveWell ₹15,00,000 as compensation, ensuring a fair resolution and maintaining a positive relationship for future collaborations.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What does 'termination for convenience' mean?▼
Does the government have an automatic right to terminate a contract for convenience?▼
What happens to warranties if a contract is terminated for convenience?▼
What should the 'Notice for Determination of Contract' include?▼
If a contract is partially terminated, does the contractor stop all work?▼
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 9.8.3 of the Manual for Procurement of Non-Consultancy Services, what document must the Procuring Entity serve on the contractor to initiate termination of a contract for the Procuring Entity's convenience?
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