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Para 5.7.6 - Contract Rules | KartavyaDesk

WORKS_MANUAL

Original Rule Text

i) Any agreement shall be issued strictly as per approved TC recommendations, be vetted by the Associated/ integrated Finance and approved by CA. The terms of contract must be complete, precise, definite and without any ambiguities. The terms should not involve an uncertain or indefinite liability, except in the case of a cost plus contract or where there is price variation in the contract. In other words, no contract involving an uncertain or indefinite liability or any condition of an unusual character should be entered into without the previous consent of the Associated/ integrated Finance. ii) All contracts shall contain a provision for a) Recovery of liquidated damages (LD) for delay in performance of the contract on the part of the contractor; b) A warranty clause/ defect liability clause should be incorporated in contracts for plant and machinery and works, above a threshold value, requiring the contractor to, without charge, replace, repair or rectify defective goods/ works/ services; c) All contracts for supply of goods should reserve the right of the government to reject goods which do not conform to the specifications; d) Payment of all applicable taxes by the contractor; and e) When a contract is likely to endure for a period of more than two years, it should, wherever feasible, include a provision for an unconditional power of revocation or cancellation by the government at any time on the expiry of six months’ notice to that effect. f) How the appointed day or day of starting of the work shall be determined. iii) Standard forms of contracts should be invariably adopted, except in following cases: a) 43A Ministry or Department may, at its discretion, make purchases of value up to Rupees two lakh and fifty thousand by issuing purchase orders containing basic terms and conditions

What This Means

Para 5.7.6 of the Works Manual outlines crucial guidelines for government contracts. It emphasizes that all agreements must strictly adhere to the approved Technical Committee (TC) recommendations, be thoroughly vetted by the associated finance department, and receive approval from the competent authority (CA). The contract terms must be crystal clear, precise, and leave no room for ambiguity. Avoid uncertain or indefinite liabilities unless it's a cost-plus contract or involves price variations. Any unusual contract conditions require prior approval from the associated finance department. This ensures financial prudence and protects the government's interests.

Furthermore, every contract must include specific clauses. These include provisions for recovering liquidated damages (LD) if the contractor delays the work, a warranty or defect liability clause for plant, machinery, and significant works, allowing the government to reject substandard goods, and ensuring the contractor pays all applicable taxes. For contracts lasting over two years, a clause allowing the government to cancel the contract with six months' notice should be included, if feasible. Finally, the contract must clearly define how the start date of the work will be determined. Standard contract forms should be used unless the purchase is below ₹2.5 lakhs, in which case a simple purchase order with basic terms is sufficient.

This rule applies to all government departments and agencies involved in awarding contracts for works, supplies, and services. It affects government employees responsible for drafting, reviewing, and approving contracts, as well as contractors bidding for government projects. Adherence to this rule is essential for maintaining transparency, accountability, and financial discipline in government procurement processes.

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

Key Points

  • •Contracts must align with TC recommendations, be vetted by finance, and approved by the CA.
  • •Terms must be clear, precise, and avoid uncertain liabilities (except in specific cases).
  • •Contracts must include clauses for liquidated damages, warranty (where applicable), rejection of substandard goods, and tax payment.
  • •Long-term contracts (over two years) should ideally include a cancellation clause with six months' notice.
  • •Standard contract forms should be used except for purchases below ₹2.5 lakhs.

Practical Example

The Ministry of Urban Development is awarding a contract for the construction of a new community hall. The estimated cost is ₹50 lakhs. Mr. Sharma, the project manager, ensures that the contract document is drafted according to the approved TC recommendations, vetted by the Integrated Finance Division, and approved by the Chief Architect. The contract includes a clause for liquidated damages of ₹5,000 per day for any delay in completion beyond the stipulated deadline. It also includes a warranty clause requiring the contractor, M/s Buildwell Constructions, to rectify any defects in the construction for a period of one year after completion. The contract also specifies that M/s Buildwell Constructions is responsible for paying all applicable taxes. The contract clearly defines the appointed day as the date of issuance of the work order.

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 a contract doesn't include a liquidated damages clause?▼
Failure to include a liquidated damages clause can make it difficult to recover losses incurred due to contractor delays. It's a crucial provision to protect the government's interests.
When is it acceptable to deviate from standard contract forms?▼
Standard contract forms should be used in almost all cases. Deviation is permitted only when a Ministry or Department makes purchases of value up to Rupees two lakh and fifty thousand by issuing purchase orders containing basic terms and conditions.
What constitutes an 'uncertain or indefinite liability' in a contract?▼
An uncertain or indefinite liability is a contractual obligation where the amount or extent of the liability is not clearly defined or is subject to future events or conditions that are difficult to predict. For example, a clause promising to pay 'reasonable expenses' without specifying a limit could be considered an uncertain liability.
Who is responsible for ensuring that the contract terms are complete and unambiguous?▼
The responsibility lies with the government employee drafting the contract, the associated finance department vetting it, and the competent authority approving it. All parties must ensure clarity and precision.
What is the purpose of the warranty/defect liability clause?▼
The warranty/defect liability clause ensures that the contractor is responsible for rectifying any defects in the goods or works after completion, providing a safeguard against substandard quality and ensuring long-term performance.

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 5.7.6 of the Works Manual, which of the following is NOT a mandatory provision that must be included in all government contracts?

Related Rules

Para 3.2.4Manual for Procurement of Works, 2022 - Para 3.2.4 - Chapter 3Para 3.5.13Manual for Procurement of Works, 2022 - Para 3.5.13 - Chapter 4Para 3.2.6Manual for Procurement of Works, 2022 - Para 3.2.6 - Chapter 3Para 4.10Manual for Procurement of Works, 2022 - Para 4.10 - Chapter 4Para 4.11Manual for Procurement of Works, 2022 - Para 4.11 - Chapter 4

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