Para 6.5.5 - Price Variation | KartavyaDesk
Original Rule Text
d) 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; e) 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 applicable on the price as varied by the operation of the PVC; f) No upward price variation will be admissible beyond the original scheduled delivery date for defaults on the part of the supplier. However, a downward price variation would be availed by the purchaser as per the denial clause in the letter of extension of the delivery period; g) Price variation may be allowed beyond the original scheduled delivery date, by specific alteration of that date through an amendment to the contract in cases of force majeure or defaults by Government; h) Where contract execution depends on imported (subject to customs duty and foreign exchange fluctuations) and/or locally sourced goods/ works/ services (subject to customs duty and foreign exchange fluctuations) and/or locally manufactured (subject to excise duty and other 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 taken into account in the calculation of the price of the imported item; i) The clause should also contain the mode and terms of payment of the price variation admissible; and j) 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. k) An illustrative PVC clause is available in Annexure 14. l) Care should be exercised in contracts providing for price variation to finalise the price before final payment is made, after obtaining data and documents in support of claims for escalation, if any. Where no such claims are submitted by the suppliers, an examination of whether there has been a downward trend in the cost, which the contractor may not bring out, is required. At any rate, an undertaking should be obtained from the contractor to the following effect in case it becomes necessary to make the final payment before he has submitted the required data/documents related to the PVC: “It
What This Means
Para 6.5.5 of the Works Manual deals with Price Variation Clauses (PVC) in government contracts. Essentially, it outlines how the price of a project can change after the contract is signed due to factors like fluctuating material costs, taxes, or exchange rates. The rule aims to protect both the government and the contractor from unforeseen economic shifts during the project's lifespan. It ensures that price adjustments are fair, transparent, and based on pre-agreed terms.
This rule applies to all government contracts that include a PVC. It affects everyone involved, from the procuring entity (the government department) to the contractor supplying goods or services. The rule specifies conditions for upward and downward price adjustments, including deadlines, documentation requirements, and the impact of delays. It also emphasizes the importance of clearly defining the elements contributing to the price, such as customs duties and foreign exchange rates, especially for imported goods.
Finally, it mandates that any reduction in price due to the PVC must be passed on to the government. Before making the final payment, the buyer must ensure the price is finalized based on the PVC. If the supplier doesn't submit the necessary data, the buyer should check for downward trends in costs and obtain an undertaking from the contractor if the final payment is made before all PVC-related documents are submitted.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Price variations are admissible based on pre-defined clauses in the contract (PVC).
- •Advance payments or stage payments can affect price variation admissibility.
- •Upward price variations are generally not allowed beyond the original scheduled delivery date if the supplier is at fault.
- •Downward price variations must be passed on to the government.
- •Final price should be finalized before final payment, with supporting documentation.
Practical Example
The Ministry of Infrastructure awards a contract to BuildWell Constructions for building a bridge for ₹50 crore. The contract includes a PVC. The scheduled delivery date is December 31, 2024. Due to a sudden surge in steel prices in June 2024, BuildWell claims a price escalation of ₹2 crore. The Ministry reviews the PVC and finds that the escalation is justified based on the pre-defined formula and supporting documents. However, the project is delayed by three months due to BuildWell's inefficiency. According to Para 6.5.5, the Ministry can deny any upward price variation beyond December 31, 2024, attributable to BuildWell's delay. Conversely, if steel prices fall after December 31, 2024, BuildWell must pass on the downward price variation to the Ministry.
Furthermore, if the bridge construction involved imported components subject to customs duty and foreign exchange fluctuations, the contract would have explicitly stated the percentage and element of these duties and taxes included in the initial price. The PVC would then outline how these elements would be adjusted based on actual fluctuations. Before the final payment of ₹50 crore, the Ministry must ensure that all price variations, both upward and downward, have been accurately calculated and accounted for, based on the PVC and BuildWell's supporting documentation.
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 supplier doesn't submit the required documents for price variation?▼
Can the delivery date be extended to allow for price variation?▼
Does this rule apply to all types of government contracts?▼
What is the significance of Annexure 14 mentioned in the rule?▼
What is the 'denial clause' mentioned in the rule?▼
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 6.5.5 of the Works Manual, what stipulation applies to price variations after advance or stage payments have been made?
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