General Guidelines for Entering into Contracts by the DGS&D :

While the ‘various aspects of contract management in the DGS&D are discussed in the respective subject chapters, the following general guidelines for enforcing into contracts have been laid down by the Government of India.

(a) Save in exceptional circumstances, no work of any kind should be commenced without prior, execution of contract documents. Even in cases where a formal written contract is not made, no. order for supplies etc. should be placed without at least written agreement as to the price.

(b) The terms of a contract must be precise and definite and there must be no room for ambiguity or mis-construction thereon.

(c) No contract involving an uncertain or , indefinite liability or any conditions of an unusual character should be entered into without the previous consent of the Ministry of Finance.

(d) Subject to adequate prior scrutiny of terms, general or special, if any, standard forms of contracts should be adopted, wherever possible. The alternatives used in the standard forms, which are not applicable, should be invariably scored out in consultation with the Ministry of Finance and Ministry of Law.

(e) In cases where standard forms of contracts are not used, legal and financial advice should be taken in drafting the contracts and before they are finally entered into.

(f) The terms of a contract once entered into should not be materially varied without the previous consent of the authority competent to enter into the contract as so varied. No payments to contractor by way of compensation or otherwise, outside the strict terms of the contract or in excess of the contract rates may be authorised without the previous approval of the competent authority.

(g) No relaxation of specifications agreed upon in a contract or relaxation of the terms of an agreement entered into by Government should be made without proper examination of the financial effect involved in such relaxation. The interest of the public exchequer should be taken due care of before agreeing to any relaxation of agreement or contract.

(h) In selecting the tender to be accepted, the financial status of the individuals and firms tendering must be taken into consideration in addition to all other relevant factors.

(i) Before entering into a contract or an agreement, all pros and cons should be considered and validity of contractual documents should be ensured. Effective administrative machinery should also be set up to keep a vigil on the performance of parties concerned.

(j) Provision must be made in contracts for safeguarding Government property entrusted to a contractor and the recovery of hire charges, if any, therefor.

(k) When a contract is likely to endure, for a long period or where the contract provides for a clear schedule for the fulfillment of the various stages of the contract, it should include a provision for unconditional power of revocation or cancellation at the discretion of the government at any time on the expiry of reasonable notice to that effect. The period of notice should not’ normally be longer than 6 months.

(l) All contracts should have a provision for recovery of liquidated damages for defaults on the part of the contractor, unless there are any special instructions issued by the competent authority. The terms of contract for the purchase of perishable stores should invariably include a (separate) Warranty Clause a model of which is given in Form G.F.R.I. This form may, however, be modified to suit local conditions.

(m) It should be ensured that in all contracts where a warranty clause is included, the position regarding delivery of goods in replacement of rejected ones is made clear beyond doubt by adding the words “Free of cost at the ultimate destination” after the words “by the purchaser” in the penultimate sentence of the said clause, where the incorporation of such a clause is not in consistent with the other conditions of the contract.

(n) A schedule of quantities with their issue rates of such materials which are supplied departmentally, and are used in the contract work, should form an essential part of the contract. It should also contain an escalation clause pertaining to rates of such materials the prices of which are controlled by Government and which the contractor arranges himself, so that Government may get the benefit of any saving in the quantities of the material actually used in execution.

(o) The question whether any sales tax, purchase tax, octroi and terminal taxes and other local taxes and duties are to be paid and if so, by which party, should be settled and cleared up before entering into any contract, involving transfer of movable property, whatever its nature.

(p) All contracts for purchase involving import of materials from abroad should as a rule provide for purchases on P.O.B. basis and similarly all sales contracts involving transport of materials from India to other countries should be entered into on C.I.F. basis.

(q) Provided that a departure from the procedure prescribed above may be with the prior concurrence of the Ministry of Surface Transport.

(r) No work should be done under an agreement/contract beyond the date of expiry of its tenure. Wherever it is considered that the work has to be continued beyond the date of expiry of the tender timely action should be taken for renewing the contract/agreement for the further period required, after a suitable review of the provisions of the old agreement/contract to see whether any modifications therein are required.

(s) Where escalation in respect of labour, overheads, customs duties, freight etc. is provided for in a contract, the basis for the calculation of the same should be clearly indicated.

(t) ‘Cost Plus’ contracts should be avoided except where they are inevitable.

(u) ‘Lump sum’ contract should not be entered into except in cases of absolute necessity. Whenever such contracts are entered into, all possible safeguards to protect the interest of Government should invariably be provided for in the conditions of the contract.

(v) The Comptroller and Auditor General and under his direction other audit authorities have power to examine contracts and to bring before the Public Accounts Committee any cases where competitive tenders have not been accepted, or where other irregularities in procedure have come to light.