2023

2023
Government Tenders &

Contract Management
SANJAY KUMAR SHUKLA, IAS
Government Tenders & Contract Management
Table of Contents
1 INFLUENCE OF CONTRACTS ____________________________________________________________ 1
2 CONTRACTS: HISTORY ________________________________________________________________ 1
2.1 JAHANGIR AND THE MOST EXPENSIVE CONTRACT IN INDIAN HISTORY ___________________________________ 1
2.2 CONTRACT THAT HERALDED EUROPEAN EXPANSIONISM – THE TREATY OF TORDESILLAS ______________________ 2
2.3 THE BARGAIN OF THE CENTURY – LOUISIANA PURCHASE ___________________________________________ 3
3 WHAT IS A CONTRACT? _______________________________________________________________ 4
4 RFP AND TENDERING _________________________________________________________________ 5
4.1 HISTORY OF GOVERNMENT TENDERING IN INDIA ________________________________________________ 5

4.2 GOVERNING POLICIES / GUIDELINES FOR PUBLIC PROCUREMENT _____________________________________ 6
4.3 TYPES OF PROCUREMENT _______________________________________________________________ 7
4.4 TERMS ___________________________________________________________________________ 7
4.5 WHY IS TENDERING NEEDED? ____________________________________________________________ 8
4.5.1 Reason for Tendering __________________________________________________________ 8
4.5.2 Reason for Tendering __________________________________________________________ 8
4.5.3 Alternatives of Tendering _______________________________________________________ 8
5 INDIAN CONTRACT ACT, 1872 __________________________________________________________ 9
5.1 CASE OF BADRI PRASAD V. STATE OF MADHYA PRADESH & ANR. (CIVIL APPEAL NO. 18 OF 1966) _____________ 10
5.1.1 Facts ______________________________________________________________________ 10
5.1.2 Issue ______________________________________________________________________ 10
5.1.3 Contentions from Appellant (Badri Prasad) ________________________________________ 10
5.1.4 Decision by Supreme Court (Dt. 11.10.1968) _______________________________________ 10
5.2 PERCEPT D’MARKR (INDIA) PVT. LTD. V. ZAHEER KHAN & ANR. (APPEAL (CIVIL) 5573-5574 OF 2004) _________ 10
5.2.1 Facts ______________________________________________________________________ 10
5.2.2 Issue ______________________________________________________________________ 11
5.2.3 Contention _________________________________________________________________ 11
5.2.4 Decision Held by Supreme Court (Dt. 22.03.2006) ___________________________________ 11
6 TYPES OF CONTRACTS _______________________________________________________________ 11
6.1 LUMP-SUM CONTRACT________________________________________________________________ 12

6.2 ITEM RATE CONTRACT ________________________________________________________________ 12
6.3 PERCENTAGE RATE CONTRACT ___________________________________________________________ 12
6.4 PIECE WORK CONTRACT _______________________________________________________________ 12
6.5 EPC AND PPP CONTRACTS _____________________________________________________________ 12
6.6 FIRM FIXED PRICE SERVICE CONTRACT ______________________________________________________ 14
6.7 TIME-BASED RETAINERSHIP SERVICE CONTRACT _______________________________________________ 14
6.8 PERCENTAGE (SUCCESS/ CONTINGENCY FEE) SERVICE CONTRACT ____________________________________ 15
6.9 RETAINER AND SUCCESS (CONTINGENCY) FEE SERVICE CONTRACT ___________________________________ 15
6.10 INDEFINITE DELIVERY CONTRACT (PRICE AGREEMENT) _________________________________________ 15
7 INNOVATIVE CONTRACTS_____________________________________________________________ 15
7.1 SWISS CHALLENGE ___________________________________________________________________ 15

7.2 SMART CONTRACTS __________________________________________________________________ 16
7.3 MULTI-PARTY CONTRACTS _____________________________________________________________ 16
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7.4 VIRTUAL CONTRACTS _________________________________________________________________ 17

7.5 FORMAL RELATIONAL CONTRACT _________________________________________________________ 17
8 DESIGNING A BID DOCUMENT _________________________________________________________ 17
8.1 REQUIREMENT OF THE CONTRACT ________________________________________________________ 17

8.2 PROPER DRAFTING OF A BID’S TITLE ________________________________________________________ 17
8.3 IDENTIFICATION OF ALL COMPONENTS OF THE PROPOSAL __________________________________________ 17
8.4 SCOPE OF WORK ____________________________________________________________________ 18
8.5 ELIGIBILITY OF PROSPECTIVE BIDDERS ______________________________________________________ 18
8.5.1 Case of Tablet Supply for Navodaya School ________________________________________ 19
8.6 EVALUATION METHODOLOGY (LCM V QCBS V QBS) ___________________________________________ 19
8.6.1 Case of NHSRCL v Monte Carlo __________________________________________________ 20
8.6.2 Case of Airport Privatization of Delhi & Mumbai ____________________________________ 21
8.7 PAYMENT CONDITIONS ________________________________________________________________ 21
9 OTHER IMPORTANT CLAUSES _________________________________________________________ 21
9.1 MOBILIZATION ADVANCE ______________________________________________________________ 21

9.2 PRICE VARIATION ___________________________________________________________________ 21
9.3 EARNEST MONEY DEPOSIT (EMD) ________________________________________________________ 22
9.4 RETENTION _______________________________________________________________________ 22
9.5 PERFORMANCE SECURITY ______________________________________________________________ 22
9.5.1 Case of Vidarbha Irrigation Development Corporation _______________________________ 22
9.6 DEFECTS LIABILITY PERIOD (DLP) _________________________________________________________ 22
9.7 LIQUIDATED DAMAGES / PENALTY TO DELAY _________________________________________________ 23
9.8 INCENTIVE ________________________________________________________________________ 23
9.9 FORCE MAJEURE ____________________________________________________________________ 24
9.10 EXTENSION OF TIME _______________________________________________________________ 25
9.11 CASE OF MUNDRA UMPP ___________________________________________________________ 25
10 IMPORTANT CONSIDERATIONS DURING FORMATION OF A BID DOCUMENT ____________________ 26
11 DISPUTE RESOLUTION _______________________________________________________________ 26
12 TERMINATION _____________________________________________________________________ 27
12.1 TERMINATION BY CONTRACTOR – CASE OF DMRC V DAMEPL __________________________________ 27

12.2 TERMINATION BY CLIENT – DFFCIL V CRSC _______________________________________________ 28
13 AGREEMENT DESIGN ________________________________________________________________ 29
14 POST-CONTRACTING ________________________________________________________________ 29
15 CONTRACT MANAGEMENT ___________________________________________________________ 30
16 CLAIMS MANAGEMENT ______________________________________________________________ 31
17 BLACKLISTING / DEBARMENT / BID HOLIDAY _____________________________________________ 32
17.1 CASE OF GORKHA SECURITY SERVICES VS. DELHI GOVT. ________________________________________ 32

17.2 PROCEDURE_____________________________________________________________________ 32
18 LITIGATION ________________________________________________________________________ 34
19 PROJECT CLOSURE __________________________________________________________________ 35
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20 PREMATURE CLOSURE / SHORT CLOSURE ________________________________________________ 36
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1 Influence of Contracts
Contracts have existed for a long time in civilization, whether in the form of a barter system or
the current organized complex contracts. Contracts have become the backbone of procurement
in the public sector. Outsourcing through contracts has become a significant procurement
method for public entities’ goods and services.
Everything is contractual – labour, computers, equipment, stationery, office locations,
employment, etc. A contract influences all aspects of the life of an individual. Without even
knowing it, we are surrounded by contracts in our everyday life. Every time we make an online
booking or trade a share on an online platform, we are involved in a contract.
India’s rank has improved substantially in the World Bank’s Ease of Doing Business index
(from the 140s to 50s), but we are still lagging in the Enforcement Contract indicator (163 out
of 197 nations). The rank directly depends on a country’s ability to provide an effective dispute-
resolution system. Improving this is directly dependent on our understanding of contract
conditions.
2 Contracts: History
2.1 Jahangir and the most expensive Contract in Indian History
Sir Thomas Roe was an English diplomat and adventurer who was sent by King James I of
England as an emissary to the Mughal court in the early 17th century.
In 1615, Sir Thomas Roe arrived in the Mughal Empire with the intention of establishing better
trade relations between England and the Mughal Empire. He sought permission to establish a
trading post and secure commercial privileges for the English East India Company. Jahangir,
the Mughal Emperor, received Roe at his court in Agra.
Roe's mission was challenging because he had to navigate the complex and intricate court
etiquette of the Mughal Empire. Through his interactions with Jahangir and his court, Roe
managed to secure certain trading privileges for the English East India Company, although the
terms weren't as favourable as he had hoped.
This event is notable because it marked one of the earliest diplomatic and trade interactions
between England and the Mughal Empire. It laid the groundwork for future British involvement
in India and the establishment of British colonial rule in the region.
The interaction between Sir Thomas Roe and Jahangir wasn't formalized as a modern contract
in the way we might think of it today, but it did involve negotiations and agreements that could
be seen as forming the basis of a diplomatic and trade relationship. Some of the key elements
of the negotiations are summarized below:
1. Offer:
Offeror: In this case, Sir Thomas Roe represented the English East India Company and England
itself. He offered to establish a trading relationship between England and the Mughal Empire.
Offeree: Jahangir, the Mughal Emperor, was the offeree who received Roe's proposal.
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2. Acceptance:
Unambiguous Acceptance: Jahangir's acceptance of the proposal was evident in his willingness
to receive Roe in his court, grant him an audience, and engage in negotiations.
Express Acceptance: The personal audience between Jahangir and Roe could be seen as an
express acceptance of the proposal, as it signified Jahangir's willingness to engage with Roe's
diplomatic mission.
3. Consideration:
Reciprocal Benefits: The consideration in this case can be seen as reciprocal benefits. England,
represented by Roe, sought trading privileges and the establishment of a factory in the Mughal
Empire. In return, the Mughal Empire would benefit from increased trade, potential revenue
from taxes and tariffs, and potentially gaining access to European goods.
4. Intention to Create Legal Relations:
While this might not have been explicitly discussed, the intention to create legal relations can
be inferred from the nature of the negotiations. Both parties were discussing matters of trade
and commerce, which implies a legal and binding intention.
5. Capacity and Legality:
It can be assumed that both parties had the legal capacity to enter into such agreements.
However, it's worth noting that the concept of "legality" might differ from modern contract law
due to the historical context and differences in legal systems.
6. Certainty and Completeness:
The terms of the agreement might not have been as detailed or specific as modern contracts,
but the discussions between Roe and Jahangir revolved around specific trading privileges,
taxes, and other key elements of their future relationship.
2.2 Contract that heralded European Expansionism – The Treaty of Tordesillas
The Treaty of Tordesillas, signed in 1494, is an interesting historical event that can be examined
through the lens of contract law. The treaty's elements can be broken down using modern
contract terms in the following way:
1. Offer:
Offeror: The offeror in this case were the two Catholic monarchs, King John II of Portugal and
King Ferdinand II of Aragon and Queen Isabella I of Castile (representing Spain). They jointly
proposed a division of newly discovered lands outside of Europe to prevent conflicts over
territorial claims.
Offeree: The offerees were Portugal and Spain themselves, as they were the parties considering
the proposed division.
2. Acceptance:
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Unambiguous Acceptance: Both Portugal and Spain accepted the terms of the treaty. By
signing the treaty, they indicated their agreement to the division of the world into separate
spheres of influence.
3. Consideration:
Reciprocal Benefits: The consideration in this case was reciprocal. Portugal and Spain agreed
to respect the demarcation line established in the treaty. Each nation gained exclusive rights to
territories on their respective sides of the line. This division allowed both countries to explore,
colonize, and trade in their designated areas without direct competition from the other.
The intention to create legal relations is evident from the fact that both Portugal and Spain
negotiated, agreed upon, and formalized the treaty. The parties intended to avoid conflicts and
disputes over their overseas possessions.
Both Portugal and Spain had the legal capacity to enter into such agreements as sovereign
nations. The legality of the treaty, however, could be debated from a modern standpoint due to
the concept of one nation dividing up lands that were inhabited by indigenous populations
without their consent.
The terms of the treaty were relatively clear and specific. It established a demarcation line
located 370 leagues west of the Cape Verde islands. Territories discovered to the east of the
line belonged to Portugal, and those to the west belonged to Spain.
The treaty had far-reaching consequences, shaping the colonization of the Americas and the
expansion of Portuguese and Spanish influence.
2.3 The Bargain of the Century – Louisiana Purchase
1. Offer:
Offeror: France, under the leadership of Napoleon Bonaparte, offered to sell the vast Louisiana
Territory to the United States.
Offeree: The United States, represented by President Thomas Jefferson, was the offeree that
received the offer.
2. Acceptance:
Unambiguous Acceptance: The United States accepted the offer by signing the Louisiana
Purchase Treaty on April 30, 1803, formalizing the acquisition.
3. Consideration:
Reciprocal Benefits: The consideration was asymmetric. The United States agreed to pay
France $15 million for the Louisiana Territory. In return, the U.S. gained control of a vast area
of land, doubling the size of the country.
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The intention to create legal relations is evident from the negotiation, drafting, and signing of
the treaty. Both parties intended to establish a binding agreement for the transfer of territory.
Both France and the United States had the legal capacity to enter into agreements. However,
the legality of the treaty might be debated in historical and geopolitical contexts.
The terms of the Louisiana Purchase Treaty were clear and specific. The treaty outlined the
boundaries of the acquired territory and the agreed-upon payment.
The Louisiana Purchase had profound consequences, as it significantly expanded the territorial
holdings of the United States, providing land for westward expansion, economic development,
and the growth of the young nation. The agreement was historic, contributing to the United
States' emergence as a major global power.
3 What is a Contract?
Contracts are governed by Indian Contract Act, 1872. The Indian Contract Act, 1872, provides
the legal framework for contracts in India. For a contract to be valid under this Act, it must
fulfil several essential components. These components are as follows:
1. Offer and Acceptance: A valid contract begins with a clear and definite offer made by
one party (the offeror) to another (the offeree). The offer must be communicated and
accepted by the offeree without any ambiguity. Acceptance must be in the manner
prescribed or implied by the offeror.
2. Lawful Object: The purpose or object of the contract must be lawful. It cannot involve
activities or goals that are illegal or against public policy.
3. Consideration: Consideration is something of value exchanged between the parties to the
contract. Both parties must provide something of value to the other. It can be in the form
of money, goods, services, or any other valid consideration.
4. Capacity of Parties: The parties entering into the contract must have the legal capacity to
do so. This means they must be of sound mind, and they should not be disqualified by law
from entering into contracts.
5. Free Consent: The consent of the parties must be freely given, without any coercion,
undue influence, fraud, misrepresentation, or mistake. If consent is obtained through any
of these means, the contract may be voidable.
6. Certainty and Possibility of Performance: The terms of the contract must be clear and
certain, and the performance of the contract must be possible. Vague or uncertain terms
may render the contract unenforceable.
7. Not Declared Void or Illegal: The contract must not be one of the types explicitly
declared as void or illegal by the Indian Contract Act. Contracts related to gambling,
wagering, and certain other prohibited activities are considered void.
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Void agreements as per Indian Contract Act, 1872:

1. Agreement without Consideration: An agreement without consideration is void, except
in certain specified cases. For example, if you promise to make a gift, and there is no
consideration involved, it may be void.
2. Agreement in Restraint of Trade: Agreements that put an unreasonable restraint on trade
are void. For instance, a contract preventing a person from working in a particular trade or
profession may be void if it is found to be excessively restrictive.
3. Agreement to Defeat the Provisions of Law: Agreements that have the purpose of
defeating the provisions of any law are void. This includes illegal agreements that aim to
circumvent legal requirements.
4. Agreement of Uncertain Meaning: An agreement with terms that are uncertain or
incapable of being made certain is void. If the terms of the contract are vague and not
determinable, the contract may be void.
5. Wagering Agreements: Wagering agreements, also known as gambling contracts, are
void. These agreements involve bets on uncertain events, the outcome of which is beyond
the control of the parties involved.
6. Agreement to Commit a Crime: Agreements to engage in illegal activities or commit
crimes are void. For example, a contract to engage in a criminal act would be void.
7. Agreement with a Minor: Contracts with minors (persons below the age of 18) are
voidable at the option of the minor. However, certain contracts with minors, such as
contracts for necessities, are valid.
8. Agreement by a Person of Unsound Mind: Agreements made by persons of unsound
mind, who are incapable of understanding the terms and consequences of the contract, are
void.
9. Agreement with a Person Disqualified by Law: Contracts with individuals disqualified
by law, such as an insolvent person, are void.
10. Agreement Obtained by Coercion or Undue Influence: Agreements obtained through
coercion or undue influence are voidable. If a party is forced or influenced to enter into
the contract against their free will, it may be void.
4 RfP and Tendering

4.1 History of Government Tendering in India
In 1850, the British colonial administration invited tenders for the construction of the Great
Indian Peninsular Railway, connecting Bombay to Thane. The contract for the segment from
Bombay to Tannah was handed to the contractors Faviell and Fowler, while the next segment
from Tannah to Callian (today's Kalyan) to contractors George Wythes and William Jackson
along with Jamsetjee Doranji Naegamwalla. This railway project marked the beginning of the
railway network in India and beginning of tendering process in India.
1. Indian Railways (1850s-1870s): The construction of railways in India, such as the Great
Indian Peninsular Railway, involved government tenders for various aspects of railway
construction and operation.
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2. Mumbai Municipal Corporation (BMC) Projects (late 19th century): BMC, one of the
oldest municipal bodies in India, invited tenders for various infrastructure projects,
including water supply, sewage systems, and public buildings in Mumbai.
3. Irrigation Projects in Madras Presidency (now Tamil Nadu) (late 19th century): The
British government initiated several irrigation projects in the Madras Presidency, inviting
tenders for the construction of canals and dams to manage water resources.
4. Public Works Department (PWD) Projects (19th century): The PWD in various Indian
states, under British rule, regularly invited tenders for road construction, bridge building,
and other public infrastructure projects.
4.2 Governing Policies / Guidelines for Public Procurement
There is no comprehensive or any specific legislation that governs public procurement
contracts in India. The legislative framework on public procurement (which mostly takes place
through a tender process for large procurements) is presently based on guidelines contained in
rules, procedures and manuals formulated by the Government, which apply to government
departments and public sector undertakings (PSUs). These are, namely:
1. General Financial Rules (GFR), 2017 by Department of Expenditure: The General
Financial Rules are a set of comprehensive guidelines issued by the Ministry of Finance that
govern the financial management and procurement processes of the Central Government.
GFR are a set of financial regulations and guidelines issued by the Ministry of Finance,
Government of India, providing a comprehensive framework for financial management,
budgeting, procurement, and accounting for government departments and organizations.
They play a crucial role in regulating procurement processes and financial procedures across
government departments in India.
2. Public Procurement (Preference to Make in India) Order, 2020 by Department for
Promotion of Industry and Internal Trade: This order promotes the use of domestically
manufactured goods in government procurement to boost the manufacturing sector in India.
3. Delegation of Financial Powers Rules (DFPR) by Department of Expenditure: These
rules delegate financial powers to different levels of authorities within government
departments and ministries for the purpose of procurement and expenditure. DFPR are a set
of rules and guidelines that define the authority and limits of financial powers delegated to
various officials within government departments. These rules outline who within the
government can make financial decisions, authorize expenditures, and approve financial
transactions.
4. Manual for Procurement of Goods, 2022 by Department of Expenditure: The Central
Government has issued a manual that provides detailed guidance on the procurement
process for goods, including tendering, evaluation, and contract award.
5. State Purchase / Procurement Rules: Similar to the GFR for the Central Government,
State Purchase / Procurement Rules provide guidelines for financial management and
procurement processes at the state level.
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4.3 Types of Procurement

Open Tendering: This is the most widely used method where a public notice is issued inviting
interested suppliers or contractors to submit their bids. The bids are opened in public, and the
contract is awarded to the lowest responsive and responsible bidder.
Limited Tendering: Under this method, a select list of suppliers or contractors is invited to
submit bids. It is typically used when there is a limited number of potential suppliers or when
there is an urgent need.
Single Source Selection: In exceptional circumstances, a contract can be awarded to a single
supplier or contractor without inviting competitive bids. This is subject to strict scrutiny and
approval from the competent authority.
GeM (Government e-Marketplace): GeM is a dedicated online platform for government
procurement that streamlines the purchasing process and encourages transparency and
competition.
4.4 Terms
Request for Proposal (RfP):
A Request for Proposal (RfP) is a formal document issued by a buyer, often a government
agency or organization, to solicit proposals from potential suppliers or contractors for the
procurement of goods, services, or works. An RfP outlines the buyer's requirements,
specifications, evaluation criteria, and terms and conditions. It allows potential suppliers to
submit their detailed proposals outlining how they intend to fulfill the buyer's requirements.
Request for Qualification (RfQ):
RfQ is primarily used to prequalify and shortlist potential suppliers, vendors, or contractors for
a specific project or type of work. It is not about seeking detailed project proposals but
assessing qualifications and capabilities. After evaluating responses to the RfQ, the
organization creates a shortlist of qualified bidders. These shortlisted entities are then invited
to participate in subsequent phases of the procurement process.
Expression of Interest (EOI):
Similarity: An EOI is a preliminary solicitation document that invites potential suppliers to
express their interest in participating in a specific project or procurement opportunity.
Difference: Unlike an RfP, an EOI doesn't necessarily require detailed proposals. It's used to
gauge interest, capabilities, and potential solutions before moving to the formal tendering
process.
Invitation to Bid (ITB) or Invitation for Bids (IFB):
Similarity: An ITB/IFB is similar to an RfP in that it's a formal solicitation document. It's used
in competitive bidding scenarios where the buyer seeks sealed bids from potential suppliers.
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Difference: The primary difference is that an ITB/IFB focuses on price and technical
specifications, often in a straightforward manner. It's commonly used for procurement of
goods, services, or construction contracts.
Request for Information (RFI):
Similarity: An RFI is a document that seeks information from potential suppliers about their
capabilities, solutions, and experiences.
Difference: Unlike an RfP, an RFI doesn't typically result in a formal proposal or bid. It's used
to gather information for market research, supplier identification, or requirement clarification.
Tender:
Similarity: The term "tender" is often used as a broader concept that encompasses various types
of solicitation documents, including RfPs, RFQs, and ITBs/IFBs.
Difference: While "tender" includes RfPs, it's a more general term that refers to the entire
process of inviting bids or proposals from suppliers.
4.5 Why is Tendering Needed?
4.5.1 Reason for Tendering
Govt. is the largest service provider
Govt. is the largest infrastructure creator
4.5.2 Reason for Tendering
Efficiency
Specialized capacity
4.5.3 Alternatives of Tendering
Govt. does everything: Huge manpower deployed by government
Govt. creates more administrative: Impossible to manage all services by itself
Transparency and Fairness: Tendering ensures transparency in the procurement process. By
inviting bids from multiple suppliers, government departments can demonstrate that contracts
are awarded based on fair and competitive grounds, reducing the likelihood of favouritism or
bias.
Competition: Tendering encourages healthy competition among suppliers. This competition
drives suppliers to offer competitive prices, better quality, and innovative solutions, ultimately
benefiting the government in terms of cost savings and improved service quality.
Efficiency in Procurement: The tendering process allows government departments to specify
their requirements clearly and comprehensively. This reduces the chances of
misunderstandings and disputes later on, leading to more efficient procurement processes.
Value for Money: Through competitive bidding, government departments can achieve better
value for money. Suppliers are incentivized to provide cost-effective solutions while meeting
the required quality standards.
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Best Technical Solutions: Tendering allows government departments to evaluate proposals

from suppliers who have the technical expertise and capabilities to fulfill their requirements.
This ensures that the selected solution is the most suitable for the project.
Mitigation of Risks: By soliciting proposals through a formal process, government
departments can identify potential risks and challenges early on and require suppliers to provide
mitigation strategies.
Public Accountability: Government departments are accountable to the public for their
spending. Tendering provides a documented record of the procurement process, making it
easier to demonstrate responsible and accountable use of public funds.
Encouraging Local Industry: Through preferences and guidelines, government tenders can
promote the use of domestic goods and services, supporting local industries and contributing
to economic growth.
Legal Compliance: Government procurement often involves significant financial transactions.
Following a formal tendering process ensures compliance with legal and regulatory
requirements, reducing the risk of legal challenges.
Innovation: Tendering can encourage suppliers to propose innovative solutions and
technologies. This can lead to the adoption of new and efficient methods in government
projects.
Standardization: Tendering promotes standardization in procurement practices, making the
process consistent across various government departments and ensuring uniformity in the
evaluation and selection criteria.
Reduction of Corruption: Transparent tendering processes can help reduce corruption and
unethical practices by minimizing opportunities for bribery or undue influence.
5 Indian Contract Act, 1872

Indian Contract Act 1872, is the law governing contracts and their implementation in India. To
invoke it in a Contract, there has to be an express or implied reference to this in the Agreement.
A clause for Applicable Law or Saving Clause should be used in the agreement to ensure that
in case of any claims or issues, the Contract can be interpreted through the lens of the Indian
Contract Act 1872.
What agreements are contracts — All agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void. Contracts and agreements are often used
interchangeably, but Indian Contract Act 1872 defines them and provides a subtle difference.
Every promise and every set of promises, forming the consideration for each other, is an
“agreement”. An agreement enforceable by law is a “contract”. Thus, all contracts are
agreements but not all agreements are contracts.
Some examples of tender agreement issues are discussed below:
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5.1 Case of Badri Prasad v. State of Madhya Pradesh & Anr. (Civil Appeal No. 18 of
1966)
5.1.1 Facts
The appellant (A) entered into a contract regarding particular forests and became entitled to cut
teak trees with some specifications. After the enactment of legislation vesting the estate in the
State, A was prohibited from cutting timber in the exercise of his rights under the contract. On
Feb 1, the State said that A’s claim to cut trees would be considered only if he gave up his
claim to a sum of Rs. 17,000, which he had already paid under the contract, and was willing to
pay a further sum of Rs. 17,000 to the state. On February 5, 1955, A expressed his willingness
to pay the additional sum but reserved his right to claim a refund of the first sum. The State
rejected A’s right to cut trees. A then filed a Suit claiming specific performance of the contract.
5.1.2 Issue
Whether the property was vested in the state by the Act or transferred to the Appellant?
5.1.3 Contentions from Appellant (Badri Prasad)
1. The forest and trees did not vest in the State under the Act
2. Even if they vested, the standing timber, having been sold to A, did not vest in the State
3. In any event, a new contract was completed on February 5, 1955, and the appellant was
entitled to its specific performance.
5.1.4 Decision by Supreme Court (Dt. 11.10.1968)
1. The forest and trees vested in the State under the Act.
2. Under the contract, A had not become the owner of the trees as goods. The property in
the timber could pass to A only when the trees were felled, but before they were felled,
the trees were vested in the State.
3. Under the terms of the contract, there was no sale of the whole of the trees, and it had
to be ascertained which trees fell within the description of trees which the appellant was
entitled to cut. Till that was done, they were not ‘ascertained goods’ within s. 19 of the
Sale of Goods Act 1930.
4. Even if the letter of Feb 1 could be treated as an offer, there was no unconditional
acceptance of the offer because there was a reservation by the appellant of his right to
claim a refund in his letter dated 5th Feb, and hence there was no concluded contract.
5.2 Percept D’Markr (India) Pvt. Ltd. v. Zaheer Khan & Anr. (Appeal (civil) 5573-5574
of 2004)
5.2.1 Facts
Defendant (Zaheer Khan) entered into a contract for managing his media affairs with the
plaintiff company on the term that the plaintiff would have the ‘right of first refusal’ regarding
any offer for the management of media affairs services received by the defendant. It was
designed such that the defendant cannot accept any third-party offer without offering the
plaintiff the opportunity to match the offer on the same terms. However, the defendant entered
into an agreement with a third party after terminating the said agreement, and the plaintiff
claimed permanent injunction.
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5.2.2 Issue
Is the covenant in restraint of trade u/s 27 (Agreement in restraint of trade, void) and hence
void?
5.2.3 Contention
If the plaintiff failed to match the third-party offer, the defendant was free to negotiate with the
third party; if the plaintiff, however, matched the offer, the defendant suffered no detriment. In
either case, the defendant was not restrained and was not suffering. Further, the contract was
one of agency and not of employer-employee relationship such that it was unaffected by
unequal bargaining power.
5.2.4 Decision Held by Supreme Court (Dt. 22.03.2006)
The contract of agency, as one entered here between the parties, is personal in nature, such that
forcing the negative covenant will mean compelling the defendant to get his affairs managed
by the plaintiff company even after the initial agreement has not been breached and has been
lawfully terminated. This will restrain his right to trade with any person in any manner he
chooses. So long as it is sought to enforce the covenant during the subsisting of the agreement,
it is valid, but the moment it is sought to be enforced after the contract has been terminated, it
will be violative of S.27 and hence, void and unenforceable.
6 Types of Contracts
A contract can be for procuring goods, works, or services.
Earlier, the two major categories (Works and Services) remained mutually exclusive. Contracts
were designed solely based on Work components or Service components. Gradually, contracts
came into the picture that started adding some service components to the Works contracts.
Consider a contract for the construction of a highway. The contract for engineering,
procurement, and construction of the asset is Works contract, but the additional 10 years of
O&M is a Services component.
Nowadays, major components of Services contracts are added to Works contracts, and a
majority of Works contracts have some component of Services included in them. For instance,
a contract for the installation and maintenance of streetlights has a small Works component
(installation of lights) but a larger Services component (maintenance of lights for 2-5 years).
Similarly, a contract to appoint one private entity to build and maintain the public infrastructure
of a specific sector for a whole district would have an equal cost impact for Works and Services
components.
Contracts have evolved in a short period of time. Take an example of construction of a bridge.
Earlier, material and equipment were supplied by the Client, and Contractor had to construct
the bridge. Then came lumpsum contracts for building a bridge, based on design provided by
Client, including all the material, equipment and manpower. Later, EPC contracts for building
a bridge were introduced, where contractor had to design and execute that design, including all
the material, manpower and tools. Now, PPP contracts for design and execution of a bridge are
in vogue, along with maintenance of the bridge and collection of toll from the bridge for a
defined certain period for full /partial cost recovery. Increasing complexity of projects has led
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to increasingly complex contracts. Obligations, risk, liabilities and capital are being
reapportioned.
The standard types of contracts that exist for both these procurement methods have been
explained in Procurement Module. Here, we shall try to envisage why each contract is different
and which contract should be used in different situations.
6.1 Lump-Sum Contract
This type of contract has payment linked to the completion of work only, not to specific
elements of work. The additional cost is borne by the Contractor.
6.2 Item Rate Contract
The contractor agrees to complete the project or provide a specific set of deliverables at a price
per item or unit. The scope of work has to be clear and precise. The contractor procures all
materials required for the project and the department pays the contractor based on the actual
quantity of work done and the rates agreed upon in the contract. If the project is delayed or the
cost exceeds the agreed-upon rates, the contractor bears the additional costs and penalties.
6.3 Percentage Rate Contract
Specify the scope of work and other project requirements. Bidders submit their bids, which
include a percentage rate that they would charge on the estimated cost of the project. The
percentage can be above or below the estimated cost of the project.
6.4 Piece Work Contract
Here, the Contractor is paid based on the number of tasks completed / pieces completed.
Deliverables and milestones are set and the Contractor is paid based on the completion of each
milestone/deliverable. For instance, if the an organization wants to procure a set of uniforms
for its employees, the owner would issue a tender for the project, which would specify the
number of uniforms required and other project requirements. The owner would pay the
contractor based on the number of uniforms produced and the price per uniform agreed upon
in the contract. For example, if the contractor agreed to produce 10,000 uniforms at INR 500
per uniform, the owner would pay the contractor INR 50 lakh once the uniforms are delivered.
6.5 EPC and PPP Contracts
Apart from these standard contract types, many more contracts exist; in just the PPP modality,
there can be different types of contracts based on the level of public and private involvement.
These can range from fully public investment to lease options to fully privately operated.
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Figure 1: Levels of Private Involvement in PPP
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Figure 2: Spectrum of Public to Private Options - Allocation of Responsibilities according to Modality
6.6 Firm Fixed Price Service Contract

The contractor agrees to provide a specific service at a predetermined price. For example, if
the Department of Telecommunications (DoT) issues an FFP service contract to a
telecommunications company to provide internet services for a period of one year, the contract
could specify that the company will provide a certain level of service, such as a minimum
internet speed and uptime, at a fixed price of Rs. 50 lakh per month. The contractor would
agree to provide the services as specified in the contract, and the government would agree to
pay a fixed price for the entire duration of the contract.
6.7 Time-Based Retainership Service Contract
The contractor would provide ongoing services for a fixed period at a pre-negotiated rate. The
team deployed by the Contractor could be paid a fixed monthly retainer for the entire duration
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of the contract. The contractor agrees to be available for consultation whenever needed, and
the government agrees to pay the fixed retainer amount for the entire duration of the contract.
6.8 Percentage (Success/ contingency Fee) Service Contract
The contractor’s payment is contingent on the success of the project or outcome. Consider
Ministry of Finance has entered into a Percentage Service Contract with a financial advisory
firm to help sell government-owned companies to private investors. The contract would specify
that the contractor will receive a fee equal to 1% of the sale price of each company sold. The
contractor is incentivized to achieve a high sale price, as their payment is directly tied to the
outcome. The government agrees to pay the contractor the specified percentage of the sale price
for each company sold.
6.9 Retainer and Success (Contingency) Fee Service Contract
The contractor receives a fixed monthly retainer fee for ongoing services, as well as a success
fee contingent on achieving a specific outcome.
6.10 Indefinite Delivery Contract (Price Agreement)
The buyer and the seller agree on a set of terms and conditions for future transactions, but the
exact quantity and delivery schedule of the goods or services to be provided are not specified
at the time of contract award. The quantity and delivery schedules are not specified in the
contract, but the terms and conditions are agreed upon in advance. This allows the government
to quickly and easily order specified delivery as needed, without the need for lengthy
negotiations or competitive bidding processes.
7 Innovative Contracts
7.1 Swiss Challenge
Innovative contracts like the Swiss Challenge method are also being implemented in India. The
technique was used for the development of Mega Film City Venture by the Jaipur Development
Authority (JDA). JDA planned to fund the venture using the Swiss Challenge philosophy. In
2017, the Swiss challenge was adopted by Indian Railways for inviting tenders for the
renovation of 23 railway stations.
Innovation and creativity are the prerequisites for using the Swiss Challenge method. But its
use has to be regulated carefully.
Innovative Contracts in pharma: In the pharmaceutical industry, innovative contracts are
being used which have flexible payment arrangements. These payment arrangements could be
result-based, which are agreements between biopharmaceutical companies and payers that link
payment for a specific medicine to how well it works for patients. It encourages companies to
invest in treatments and cures that have a higher rate of success, while the insured patient has
to pay lower out-of-pocket costs.
Alternate Financing Agreements: Another contract being used in the pharma sector is based
on alternative financing agreements. A model of pay-over-time allows patients to pay for a
selected medicine across an extended duration. Another model limits the per-patient cost of a
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medicine to a threshold. In subscription models, a type of expenditure cap, the potential cost
for payers is averaged across the population covered, and payers agree to pay a prospective per
member per month cost to buy therapeutic coverage for their members. Under increasingly
popular expenditure cap models, such as those used by some states to treat hepatitis C, the
payer pays a fixed sum for an unlimited supply of the medicine.
7.2 Smart Contracts
Smart contracts are self-executing contracts with the terms of the agreement written into code.
Smart contracts use blockchain technology to create a tamper-proof and transparent system for
executing contracts. This innovation has the potential to reduce the need for intermediaries in
contract execution and increase efficiency. Bitcoin is a famous example of smart contracts,
done on blockchain technology. A smart contract could be created to automate the payment
process for a freelance project. The contract would be programmed to pay the freelancer when
they complete the project to the client's satisfaction. A government department could use smart
contracts to automate payment processes for agencies and contractors. This would help
streamline the payment process, reduce administrative costs, and increase transparency. For
example, Home Depot uses smart contracts on blockchain to quickly resolve disputes with
agencies. Through real-time communication and increased visibility into the supply chain, they
are building stronger relationships with suppliers, resulting in more time for critical work and
innovation
AI-Powered Contract Review
AI-powered contract review tools use natural language processing (NLP) and machine learning
(ML) algorithms to analyze and extract relevant data from contracts. These tools can help speed
up the contract review process and improve accuracy, reducing the risk of errors and disputes.
For example, a company could use an AI-powered contract review tool to extract key terms
and clauses from contracts and compare them to industry standards. This would help the
company identify any potential risks or issues in the contract. A government department could
use AI-powered contract review tools to analyze contracts and identify potential risks and
issues. For example, a department could use these tools to review contracts with agencies and
suppliers to ensure compliance with regulatory requirements.
7.3 Multi-Party Contracts
Multi-party contracts are contracts involving more than two parties. These contracts are
becoming more common as businesses collaborate on complex projects that require input from
multiple stakeholders. Multi-party contracts require innovative contract drafting and
management techniques to ensure all parties interests are protected. For example, a
construction project might involve a contractor, a client, and several subcontractors. A multi-
party contract would be created to outline the responsibilities and obligations of each party. A
government department could use multi-party contracts to manage complex projects that
involve multiple stakeholders. For example, a department could create a multi-party contract
to manage a public-private partnership project involving several private companies.
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7.4 Virtual Contracts

Virtual contracts are contracts executed entirely in a digital environment, without the need for
physical signatures or paper documents. Virtual contracts can improve efficiency and reduce
the need for physical storage and retrieval of contracts. For example, an e-commerce platform
might use virtual contracts to set out the terms and conditions of a sale. The buyer and seller
would both agree to the terms of the contract electronically, without the need for a physical
signature. A government department could use virtual contracts to improve the efficiency of
contract execution and management. For example, a department could use virtual contracts to
set out the terms and conditions of a grant agreement, with applicants agreeing to the terms and
conditions electronically.
7.5 Formal Relational Contract
This type of agreement specifies mutual goals and establishes governance structures to keep
the Parties’ expectations and interests aligned over a longer time. This could be used in complex
relationships where future scenarios are tough to predict. Dell, Intel, AstraZeneca, and more
have started using this approach1.
8 Designing a Bid Document

8.1 Requirement of the Contract
i. The requirement of the contract, the “Why” of the procurement method, has to be
carefully and thoroughly discussed. It is the guiding principle of the bidding
strategy, and it should be clear and precise from the first day.
ii. Food for Thought: If a parcel of land in a 1 km radius of a national park is going
to be leased to a private institution to create a tourism spot/hotel/restaurant, what
should be the guiding principle behind it? Why is it needed?
8.2 Proper drafting of a bid’s title
i. Drafting the title of the bid document is the first step towards gaining and showing
clarity in the procurement process. The bid title should be exhaustive, should have
a clear scope, and should show the scope of work in brief.
ii. The choice of words has to be clear and careful. If the contract is for procurement
only, then only the word ‘procurement’ should be used.
8.3 Identification of all components of the proposal
i. Continuing on the journey of clarity, all the components and sub-components of
the proposal have to be identified. These components are the ones that are
mentioned in the bid title.
ii. For instance, a standard EPC contract has the following components – design,
procure, and build. In the case of O&M, it has the components of operation,
maintenance, etc.
1
A New Approach to Contracts (hbr.org)
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8.4 Scope of Work

i. Scope of work should be based on the requirement of the contract. The guiding
principle of bidding strategy should be reflected in the Scope of Work.
ii. The detailed scope of work should have all the specifications of the above-
mentioned components. It explains, in detail, every task that has to be performed
by the agency. In the case of Works components, an exhaustive list should be
prepared to include all the assets which would form part of the contract. The scope
could also dictate the process of executing these works.
iii. In the case of Service contracts, the scope should clearly show all the activities and
tasks that have to be performed for the duration of the contract.
iv. In an example from Power Sector, new types of metering were being encouraged
to be used, like Digital Metering, RF/Smart Metering, etc. For its use, several bids
had been prepared by various electricity boards all over the country in the last 10-
15 years to improve efficiency. To that effect, a clause was added in the agreements
which bound the contractors to ensure T&D loss reduction. This kind of contract
showed 100% failure all over the country (except where electricity boards were
privatized).
v. Reason for failure: There was a lack of clarity on the responsibilities of both Parties.
Electricity Boards put the onus of T&D loss reduction on Contractors, while the
Contractors had no power or authority to take punitive action on any of the
consumers. Thus, the loss reduction couldn’t be achieved.
vi. Possible Remedies: It is important to know the repercussions of each contract
condition and the responsibility of all the Parties involved. As the Electricity
Boards had the power to take action on consumers (like cutting the power), they
should have kept the T&D loss reduction under their ambit. Or, they could have
privatized the whole or part network to give this authority to the Contractor. As it
was a new concept for many of the public departments, the contract could have
been taken up on a pilot basis first, to establish all the issues, challenges, and
advantages. After ironing out the kinks, it could have been rolled out on a larger
scale.
vii. Having accurate Scope of Work, thus, is important to achieve expected outcomes.
If not, then negative outcomes are often achieved, with a loss of time and
resources.
8.5 Eligibility of Prospective Bidders
i. Market assessment should be done to check the availability of bidders for the
said procurement components as well as their capability. Eligibility criteria should
be designed to ensure healthy competition.
ii. A contract should be based on the type of situation that it is remedying. Thus, it
becomes important to ensure that only the right bidders can participate in
competitive bidding.
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iii. If procurement is being done for the provision of locally manufactured goods, it
would not be ideal to let a multinational corporation enter the bidding. By the same
principle, if procurement is being done for supplying manpower at an office
location, it would be important for the participating bidders to have a certain
number of employees to ensure it can provide the required manpower. A firm with
lots of labour at construction sites but lacking experience managing office workers
would be unfit to participate in such a bidding process.
iv. Evaluation Criteria should be designed on the same principle as that for PQ
Criteria. Expanding on that principle, Evaluation Criteria can be designed as
Inclusionary (to allow bidders with required capacity), Exclusionary (to
disallow/discourage bidders with parameters that are strictly not required).
v. Level of Stringency: How tough should the barrier to entry be? How many
prospective bidders are there? Whether new players should enter?
vi. During the drafting of evaluation criteria, it is important to note the market
conditions of the industry/sector for which the bid document is being prepared. For
example, if you are procuring a new technology that has not been used in the
country before, logic would dictate that no Indian company would have such
expertise. Thus, its evaluation criteria should be designed such that it would allow
joint ventures (JV) or associations of Indian companies with foreign companies
that have the requisite experience. This helps in two ways – improves the quality
of prospective bidders but also ensures that local companies can gain experience
in the said technology for the future.
vii. Based on the market conditions, if a sector has too many prospective bidders, the
evaluation criteria should be kept stringent so that only the top bidders are eligible
to participate. On the other hand, if a sector does not have many prospective
bidders, and there is a need to encourage participation from more bidders, then the
evaluation criteria should be kept lenient to allow new bidders to explore the
market.
viii. Tweaking the eligibility criteria based on the guiding principle is the basis of a
good bid document. And a good bid document goes a long way in ensuring that the
procurement process goes as smoothly as possible in the latter stages
8.5.1 Case of Tablet Supply for Navodaya School
Navodaya (NVS) issued tender for procurement of tablets for its schools. Eligibility criteria
required past performance in supply of “same or similar Category Products”. NVS disqualified
a bidder as it had submitted experience of supplying smartphones. The matter went to Supreme
Court. Supreme Court allowed evaluation to stand, as it was shown that GeM portal had Tablets
and Smartphones in different categories. It also observed that interpretation by author of tender
document is given priority.
8.6 Evaluation Methodology (LCM v QCBS v QBS)
i. Evaluation can be done based on Least-Cost Method (LCM), Quality-Cost Based
Selection (QCBS), or Quality-Based Selection (QBS).
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ii. The methodology should be chosen based on the requirement of the procurement
components.
iii. Evaluation should be objective, not subjective.
iv. There should be clarity in the language required for the submission of various forms
(Bank Guarantee, Financial Proposal, etc.). The contract should contain formats as
part of Annexures to make the submissions easy and reduce ambiguity.
v. Evaluation of a bid’s responsiveness should not be done to kill competition but
to foster quality competition. For example, when scrutiny of the nomination forms
of an election candidate is done, if the rejection is done based on small errors, then
it could lead to a higher number of rejections, which would lead to small
participation.
vi. Exclusionary parameters could be used to allow only the right bidders to enter the
financial bidding stage. These parameters could be:
a) Based on Financial Competency (Bid Capacity, Annual Turnover, Working
Capital, Net Worth)
b) Based on Technical Competency (minimum no. of works executed)
c) Human Resource Capability
d) Based on legal issues in the past (blacklisting, termination, debarment)
e) Based on past performance with the same Client (incomplete works, major
defaults)
f) Related to Conflict of Interest
g) Related to compliance with policies and regulations
h) Based on any other criteria such as maximum cost of works to be awarded or
maximum number of works to be awarded
8.6.1 Case of NHSRCL v Monte Carlo
Monte Carlo was declared non-responsive due to non-signing of Pending Litigation and
Litigation History technical forms. The reasons for disqualification were not declared to the
Bidder. Monte Carlo filed a case in High Court. High Court quashed the disqualification order
and directed NHSRCL to evaluate the proposal of Monte Carlo. High Court made observations
that the goal posts cannot be changed during the bid evaluation process and that authority could
deviate from terms, but has to maintain “level playing field”. NHSRCL filed appeal in Supreme
Court, and appealed that due process for evaluation of tenders was followed, including
evaluation by the consultants JICC and approval by Tender Committee of NHSRCL and JICA
(funding agency). Supreme Court ruled in favour of NHSRCL and advised High Courts to
exercise caution while entertaining writ petitions challenging the tender process midway,
especially for foreign-funded projects of national importance. Supreme Court also advised that
High Courts should be extremely careful and circumspect in exercise of its discretion while
entertaining such petitions and/or while granting stay in such matters.
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8.6.2 Case of Airport Privatization of Delhi & Mumbai

Airports Authority of India (AAI) had the responsibility of selecting a private company for
modernization and maintenance of two airports – Delhi and Mumbai – on DBFOT (Design,
Build, Finance, Operate & Transfer) basis. Tender for the works received 5 & 6 bids,
respectively. Initial technical evaluation held 2 bidders eligible for both airports – GMR &
Reliance. Later, a new committee GETE (Group of Eminent Technical Experts) was
constituted, and revised evaluation had only GMR qualifying as technically responsive. GMR
was given the option to match the bids for one of the airports. Financial bids were opened, and
Reliance was H-1 for Delhi and GVK was H-1 for Mumbai. GMR chose Delhi, so Mumbai
was given to GVK. Reliance went to Court. Supreme Court ruled in favour of Airport Authority
of India.
Both of these cases show that it is important to keep the evaluation methodology objective,
clear and fair.
8.7 Payment Conditions
i. Payment Terms of the contract should be designed in a manner that the Contracting
Agency does not have any issue with cash flow. It should mirror the cash flow of
the Contractor’s expenses on the Contractual Obligations.
ii. It should also be noted that all components of the work are given the appropriate
cost and the contractor should be incentivized to complete all the activities.
Payment Conditions should not have front-loading (i.e., the majority of the
payment is done initially)
a) Sometimes, contractors may create a work plan in which they only fulfill the
profit-making components to achieve a profit on their overall planning and
leave the cost-intensive low-profit components unfinished. Payment Terms of
a bid document need to be devised so that such practices are kept to a
minimum, and all the important components of the contract are fulfilled to
achieve break-even for the contractor.
b) Food for Thought: In the earlier exercise, what should be the Payment Terms?
Should the payment be duration-based (monthly/quarterly/annual), milestone-
based (no. of tasks completed), or component-based (completion of
construction/maintenance)?
9 Other Important Clauses

9.1 Mobilization Advance
• To give or not to give; one-time or in instalments
• Helps in faster implementation in the beginning
• Recovery method of the advance should be clearly specified
9.2 Price Variation
• A provision for price variation should be provided in contracts for all large projects.
• Formula for price variation for selected items to be provided in the agreement.
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• There should be a clear mention of the dates/duration of CPI/WPI/Sectoral Index to be

used for the calculation of price adjustment of selected components and the source of
this information.
9.3 Earnest Money Deposit (EMD)
• Make a decision on which forms of payment are to be allowed for EMD - Cheque, Bank
Guarantee, FDR
• The type of bank from which the Bank Guarantee or other forms are signed should be
specified (Nationalized, Scheduled Commercial, Cooperative)
• Procedure for release of EMD in case of non-acceptance of Bid should be clearly
defined in the bid document.
9.4 Retention
• An amount of 5% or 10% can be retained from each Running Bill as Retention Money.
• This is done to assure the Client that issues during Construction, till Commissioning
will be resolved by the Contractor.
• It also incentivizes the Contractor to work as per the defined scope and specifications.
9.5 Performance Security
• Ensures that work done by the Contractor performs, on the whole, as per the intended
purpose.
• Can be seized in case of termination or work of poor quality.
• Released only after the completion of the Defects Liability Period.
9.5.1 Case of Vidarbha Irrigation Development Corporation
Vidarbha Irrigation Development Corporation issued a tender, which had a clause that any
Bidder quoting below a certain threshold had to submit a performance bank guarantee
alongwith their bid proposal. One such Bidder submitted BG for 6 months (at time of proposal
submission) instead of 40 months, which was the duration mentioned in the bid document.
Client allowed the bid to be evaluated, as bidder had submitted another extended BG for 34
months one day after bid opening and was adjudged to be L-1 bidder. L-2 bidder filed a case
against L-1 bidder and won in Supreme Court. Supreme Court observed that lower duration of
BG validity was a material deviation from the bid document. L-2 bidder offered to execute the
work at the rate of L-1 bidder, so Supreme Court ordered the Client to give the contract to L-2
Bidder.
9.6 Defects Liability Period (DLP)
• After completion of the contract period, a provision for some time to ensure the
functioning of the Work, on the whole, as intended is provided in the Contract, known
as the “Defects Liability Period”.
• Ensures Client that the problems and issues arising during DLP will be corrected and
remedied by the Contractor at no extra cost.
• Defects Liability Period starts after the completion of Works / Services under the
contract.
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9.7 Liquidated Damages / Penalty to Delay

• Penalty can be levied for each unit delay. The unit can be in days, weeks, or several
milestones.
• It is important to note that only delays attributable to Contractor can be penalized. Thus,
it is important to have clear documentation of delays attributable to the Contractor;
notices to the Contractor, warnings, letters, etc.
9.8 Incentive
Apart from risk management and mitigation, some conditions in bid documents are also kept
to incentivize the contractor to build social capital and to use the power of the public entity to
improve the lives of the people impacted through the use of that contract. Incentives could be
a part of Eligibility (Scoring Criteria).
1. Incentives to the contractor –
a. In projects that require early completion, incentives can be provided in the contract to
encourage the contracting agency to complete early
b. Incentive Clause could be introduced as a separate condition for early completion of
the contract.
2. Incentives to build Social Capital: Public entities, through the power of spending, can
influence the lives of people. But they can also influence private entities through the use of
contracts to positively impact the social conditions of the stakeholders.
a. A prime example is the existence of the Resettlement and Rehabilitation (R&R) clause
in megaprojects like metro construction, high-speed rail, etc. A standard R&R clause
binds the Contractor to focus on the resettlement of impacted stakeholders, to attempt
to compensate them for the disruption to their regular lives.
b. But there can be improvements in this standard R&R clause. A contract may encourage
additional payment to the bidder to buy a certain percentage of raw material from the
local markets, or a contract could bind the bidder to add 10-20% of impacted
stakeholders from the region in their labour force. A hospitality contract could specify
that 20% of the working staff in the kitchen should be filled with people who lived in
the acquired land and are in the age group of 18-35, thus providing those people with
an employment opportunity, improving their chances of future employability and
giving them a meaningful rehabilitation.
c. In the same manner, there could be many other types of incentives that a contract can
contain to influence the bidder to focus on the social impact as well. These incentive
clauses could be a part of the Eligibility Criteria (number of projects completed in time),
Technical Proposal (additional marks for timely execution), Approach & Methodology
section (Measures to complete the project before time) or they could be introduced as a
separate condition during the execution of the contract.
d. Food for Thought: In the earlier example, what could be the incentives provided to
contractors to complete the work early and to build social capital? Who are the
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impacted stakeholders? How will their lives be impacted by the contract and how will
the planned incentives benefit them?
9.9 Force Majeure
• Definition of Force Majeure: The definition of Force Majeure should be clearly
defined in the contract to include events that are beyond the control of both parties, such
as natural disasters, war, civil unrest, or any other unforeseeable event that makes it
impossible to fulfill the contractual obligations.
• Notification Requirements: The contract should specify the notification requirements
for the parties in case of a Force Majeure event. The notice period and the information
required to be provided should be clearly stated in the contract. Failure to comply with
the notification requirements can lead to disputes and may impact the validity of the
Force Majeure claim. Any Party claiming an event to be a Force Majeure event, should
notify the other Party as per the notification requirements specified in the Contract.
• Impact on Contractual Obligations: The impact of the Force Majeure event on the
contractual obligations should be specified in the contract. The parties should agree on
the extent to which the obligations are affected and the duration of the suspension of
the obligations. The parties should also agree on the actions to be taken to mitigate the
impact of the Force Majeure event on the contractual obligations.
• Compensation: The contract should specify the compensation arrangements in case of
a Force Majeure event. The parties should agree on the allocation of the risks and the
extent of the compensation that may be payable. The compensation may include costs
incurred due to the Force Majeure event, as well as the costs of restarting the project or
resuming the contractual obligations.
• Dispute Resolution Mechanism: The contract should specify the dispute resolution
mechanism in case of a dispute arising out of a Force Majeure event. The parties should
agree on the jurisdiction, the applicable law, and the arbitration or mediation
mechanism to be used to resolve the dispute.
• Future Pandemics: The Force Majeure clause should also consider the possibility of
future pandemics and how they may affect the contractual obligations. The parties
should agree on the impact of pandemics on the contractual obligations and how they
can mitigate the risks.
• Case of COVID-19: During the pandemic, the business suffered huge losses and
several contracts were affected. Termination of a contract due to impossibility or force
majeure was very common. The fundamental question was whether the situation of the
pandemic would be considered force majeure. This question was answered differently
around the globe. After the onset of the pandemic, notifications were released by the
government stating that as COVID-19 is a natural calamity, the force majeure clause
could be invoked which would suspend the performance of the contract for a certain
period.
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9.10 Extension of Time

• Provision should be provided in Contract
• Parameters on which extension can be granted
• Process of granting extension of time
• Should be for a specified time (cannot be unlimited)
• Cost implication of extension
9.11 Case of Mundra UMPP
The Mundra Ultra Mega Power Project (UMPP) case pertains to a dispute between the Tata
Power Company and the government of Gujarat in India over the price of coal used in the
project.
In 2006, Tata Power was awarded the Mundra UMPP project by the government of India. The
project was designed to generate 4,000 megawatts of electricity using imported coal. To ensure
a steady supply of coal, Tata Power entered into a long-term contract with Indonesia's PT
Kaltim Prima Coal (KPC) to import coal at a fixed price.
However, in 2010, Indonesia changed its mining laws, which led to an increase in the price of
coal. Tata Power requested the Gujarat government to allow it to pass on the increased cost to
the consumers, but the government refused, citing that it would be unfair to the consumers.
The matter was taken to the Central Electricity Regulatory Commission (CERC) and the
Appellate Tribunal for Electricity (APTEL), who both ruled in favour of Tata Power, allowing
it to pass on the increased cost to the consumers.
However, in 2017, the Supreme Court of India set aside the decision of the APTEL and upheld
the Gujarat government's decision, stating that the change in the Indonesian mining laws was
a known risk and that Tata Power should have factored it in while bidding for the project.
In 2018, Tata Power filed a petition with the CERC seeking compensation for the increase in
the cost of coal, which it claimed was beyond its control. The CERC, in 2019, ruled in favour
of Tata Power and directed the Gujarat government to compensate the company for the increase
in the cost of coal.
However, in 2020, the Appellate Tribunal for Electricity (APTEL) set aside the CERC's order,
stating that the compensation cannot be granted as the increase in the cost of coal was due to a
change in the law, which was beyond the control of both Tata Power and the Gujarat
government.
Tata Power has challenged the APTEL's decision in the Supreme Court, and the matter is
currently pending. The specific clause of the Power Purchase Agreement (PPA) that Tata
Power relied upon in their defense in the Mundra UMPP case is Clause 12.2 of the PPA, which
deals with "Change in Law".
"Change in Law: If, after the date of this Agreement, there is a change in any Law or in the
interpretation, application, or enforcement of any Law or regulation or judicial pronouncement,
Page | 25
including any decree, order, or judgment of any Court, which results in an increase or decrease
in the cost incurred by the Company or the Generating Station, or a decrease or increase in the
revenue realised by the Company from the Generating Station, then appropriate adjustments
shall be made to the Tariff, in accordance with the terms and conditions of this Agreement, to
take into account such increase or decrease in cost or decrease or increase in revenue."
As per the clause, in case of a change in the law that results in an increase or decrease in the
cost incurred by the Company or the Generating Station or a decrease or increase in the revenue
realized by the Company from the Generating Station, the parties to the PPA shall make
appropriate adjustments to the Tariff in accordance with the terms and conditions of the
Agreement.
According to Clause 12.2, if there is a change in any law, rule, regulation, or judicial
pronouncement after the date of the PPA, which increases the cost of or a decrease in the
revenue from the power plant, the parties to the PPA shall make appropriate adjustments to the
tariff to account for the increased costs or decreased revenue.
Tata Power argued that the change in Indonesian mining laws was a "change in law" as per the
definition in Clause 12.2 of the PPA, which resulted in an increase in the cost of coal and
therefore, it was entitled to pass on the increased cost to the consumers. However, the Gujarat
government and the Supreme Court held that the change in law was a known risk and that Tata
Power should have factored it in while bidding for the project.
10 Important Considerations during Formation of a Bid Document

During the formulation of a bid document, some more considerations should be kept in mind
to improve the working of the contract and to reduce the risk to public property.
1. Discouraging abnormally low bids
a. When abnormally low bids emerge for a project, risk to the Client increases. To
mitigate this risk, measures may be taken to discourage bidders from quoting
impractically low prices only to get the project.
b. A provision of Additional Performance Security for bids below/above a threshold
percentage (20% or 15%) could be included, as an added risk mitigation measure.
c. Floor price for certain components may be fixed, to ensure the price is reasonable
(fixing minimum wages for service manpower contracts).
2. Restrictions to prevent the concentration of projects in the hands of a few entities
a. Wherever monopoly is not desired, provision to restrict such practices could be
included. This provision could be based on the maximum number of projects a firm
can have or the maximum amount of work a firm can have. The restriction can also
be relative, based on each company’s capacity to provide the service or goods.
11 Dispute Resolution
• The geneses of many disputes often lie in the contract document itself.
Page | 26
• It is often observed that tenders are formulated hastily, and sufficient attention is not
paid to ensure that:
o all the required information and details are appropriately incorporated into the
tender document
o the documents are internally consistent, i.e., there is no contradiction in the
provisions of general conditions, special conditions, and drawings
• Dispute Resolution Mechanism should be laid out in the Bid Document.
• It is also essential to mention the act which would govern the Dispute Resolution
process for the Contracts. Major Acts to know are –
o UNCITRAL Model Law on International Commercial Arbitration, 1985 –
United Nations (Global)
o Arbitration and Conciliation Act, 1996 – GoI (National)
o M. P. Madhyastham Adhikaran Adhiniyam, 1983 – GoMP (State)
12 Termination
The termination clause is rarely invoked, since it would leave both Parties in a lose-lose
scenario, thus, conferring only a false sense of security. It is should be used as a last resort. The
right to terminate lies with both Parties. It is important to keep documentation of
communications. Documentation should clearly show that the reason for termination is
compliant with the contract condition, without any room for subjective interpretation. After
termination, a decision has to be taken about the completion of remaining works, and at whose
risk and cost.
12.1 Termination by Contractor – Case of DMRC v DAMEPL
One example of the termination of a government contract is the Delhi airport express line
project, which was terminated in 2013 due to technical issues and safety concerns. The
concession agreement was between the Delhi Metro Rail Corporation (DMRC) and the private
consortium Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), which included Reliance
Infrastructure. Delhi Metro Rail Corporation Ltd., a joint venture of the Government of India
and the Government of National Capital Territory of Delhi, the proposed implementation of
the Airport Metro Express Line (AMEL) project in New Delhi, from New Delhi Railway
Station to Dwarka Sector 21 via Indira Gandhi International Airport, New Delhi. DMRC had
to undertake the design and construction of a basic civil structure for the project, which was
like a public-private partnership. The bid of a consortium comprising Reliance Energy Limited
(renamed as Reliance Infrastructure Limited) and M/s Construcciones y Auxiliar de
Ferrocarriles, S.A. was accepted by DMRC. Thereafter, a Concession Agreement was entered
between DMRC and DAMEPL for the design, installation, commissioning, operation, and
maintenance of the AMEL.
It was agreed between the parties that all civil works, as well as the appointment of consultants,
land acquisition, and other clearances from the Government and other authorities, have to be
obtained by DMRC and the design, supply, installation, testing, and commissioning of various
systems like rolling stock, power supply, overhead equipment, signaling, track system,
Page | 27
platform, screen doors, ventilation, architectural finishing, etc. were to be provided by

DAMEPL. As the work could not be completed in time, extensions were granted and finally,
safety clearances were obtained from the Commissioner of Metro Railway Safety. The date of
commercial operation was achieved on 23.02.2011.
There were some defects in the civil infrastructure of the Line, which were notified to DMRC
by DAMEPL in writing. DMRC accepted that there were some defects and advised DAMEPL
to impose speed restrictions as deemed necessary in the interest of safety.
A notice was issued by DAMEPL asking DMRC to cure the defects in DMRC’s works within
a period of 90 days from the date of the notice, failing which it shall be treated as a breach
having Material Adverse Effect on the Concessionaire under the Concession Agreement. In the
said notice, a non-exhaustive list of defects’ was set out by DAMEPL.
DAMEPL issued a notice terminating the Concession Agreement as, according to it, the defects
that were pointed out in the notice were not cured within a period of 90 days, resulting in an
Event of Default under the Concession Agreement. DMRC invoked arbitration. On 22.01.2013,
the Line was restarted with reduced speed after a certificate sanctioning resumption was issued
by the Commissioner on 18.01.2013. According to DAMEPL, it agreed to operate the Line
only as an agent in the public interest and on instructions of DMRC, although DAMEPL’s
stance was not accepted by DMRC. DAMEPL stopped its operations on 30.06.2013 and
handed over the Line to DMRC on the next day.
The main issue that arose for determination before the Arbitral Tribunal constituted under the
Concession Agreement is the validity of the termination notice. DMRC claimed that the
termination notice issued by DAMEPL is illegal, as DMRC had taken various steps to honour
its obligations under the Concession Agreement. A direction was sought from the Arbitral
Tribunal to DAMEPL to take over operations of the AMEL under the Concession Agreement,
and in the alternative, to grant compensation of Rs. 3,173 crores with the interest of 18% per
annum.
The arbitral award was given to DAMEPL after the process of arbitration, which was then
appealed in the Delhi High Court by DMRC and subsequently in the Supreme Court, where a
two-judge bench allowed the arbitral to stand in 2021. Thus, the termination notice by
DAMEPL was considered valid and as per Concession Agreement. DMRC showed a lack of
clarity in written communication, and their appeals were rejected.
12.2 Termination by Client – DFFCIL v CRSC
In the year 2016, CRSC (China Railway Signal and Communication (CRSC) Corporation) won
the contract to install signaling systems in over 400 km of rail lines on the Eastern Dedicated
Freight Corridor. Only 20% progress was made in the project in the next 4 years, by the year
2020. The contract, worth around Rs. 471 crores involved designing, constructing, testing,
supplying, telecommunications, commissioning signaling as well as associated works for two
lines of 417 km in UP’s New Bhaupur-Mughalsarai section. Due to slow progress and poor
performance, the contract was terminated by Dedicated Freight Corridor Corporation of India
Page | 28
Ltd (DFFCIL). DFFCIL issues a 14-day notice to CRSC and then a termination letter. The
process to oust the Chinese firm from the project had started as early as January 2019 as it had
failed to complete its work within the given time frame. The project was being funded by the
World Bank, and DFFCIL approached them to inform them of their decision to terminate the
contract, which lead to DFFCIL having to fund the work on their own. Apart from performance
issues, CRSC had also shown reluctance in furnishing technical documents, as per the contract
agreement, such as the logic design of electronic interlocking, did not have engineers or
authorized personnel at the project site, failed to have tie-ups with local agencies, and showed
no improvement in progress despite repeated meetings. The contract was terminated by
DFFCIL and the bank guarantee was seized. CRSC filed a petition against the termination and
revocation of the bank guarantee, but the Delhi High Court ruled in favour of DFFCIL. This
was done because DFFCIL had been clear in their written communication, and had followed
the process provided in the Contract document to the letter.
13 Agreement Design
1. Service Level Agreements
a. These are specifically for O&M and Service Contracts.
2. Main Provisions of Request for Proposal
a. Duration of Contract, GCC, SCC, Specifications, Scope of Work
3. Additional clauses as needed
a. Abide by CVC guidelines on post-tender negotiations
b. Anything addition/subtraction that has a material impact on cost should be carefully
assessed
4. Negotiation is not a norm, but an exception.
14 Post-Contracting
Contracting is a critical step in the procurement process, and it is essential to ensure that all the
terms and conditions are properly negotiated and agreed upon by all parties involved. However,
the contracting phase is not the end of the procurement process. There are several important
things to consider after the contracting is done:
1. Communication and Reporting: Clear communication channels and regular reporting
are important to ensure that the project or service is progressing as planned. Regular
status updates, progress reports, and change requests should be shared between the
parties.
For instance, in 2019, the Government of Andhra Pradesh launched the "Pedarikam Pai
Gelupu" (Victory for Women) program, which aimed to empower women entrepreneurs
in the state. The government contracted with a private agency to provide training and
support services to the women entrepreneurs. The agency was required to provide regular
Page | 29
progress reports to the government, which helped in monitoring the success of the
program.
2. Quality Control and Assurance: Quality control and assurance should be a top priority
to ensure that the project or service meets the required quality standards. This includes
regular inspections, testing, and verification.
3. Contract Management: After the contracting phase, it is crucial to ensure that the contract
is managed properly. This involves monitoring the performance of the supplier, tracking
contract milestones, and ensuring that all deliverables are met. A good contract
management system can help streamline this process and ensure that all parties involved
are aware of their responsibilities. Effective contract management is crucial to ensure that
the project or service is delivered as planned. This includes monitoring progress,
identifying risks, resolving disputes, and making necessary adjustments.
4. Agency Performance: It is essential to evaluate the performance of the agency to ensure
that they are meeting the requirements of the contract. This involves monitoring the quality
of goods and services provided, as well as ensuring that the agency is adhering to the
agreed-upon terms and conditions.
5. Payment and Invoicing: After the contracting phase, it is critical to ensure that all
payments are made on time and that all invoicing is accurate. This involves reviewing
invoices to ensure that they match the agreed-upon terms and conditions and verifying that
all payments are made on time.
6. Contract Renewal: It is essential to review contracts regularly to ensure that they are still
meeting the needs of the organization. This involves assessing the performance of the
agency, reviewing the terms and conditions of the contract, and negotiating any necessary
changes.
7. Claims Management: Identification, listing, and management of all claims
8. Monitoring of Statutory Permissions: Monitoring of statutory permissions and their
status at the beginning of the contract period, including land acquisition, forest clearance,
or any other clearance.
15 Contract Management
During the implementation of a contract, management of the Contractor’s performance on
various contract conditions is necessary. This can be done by preparing a list of KPIs (Key
Performance Indicators) to assess the implementation of the contract scope. Delay Analysis
should also be done at a regular frequency based on the Contractor’s approved work plan.
Constant recorded communication with the other Party regarding delays and contractual
progress is important to ascertain the issues at the right time and attribute them to the
appropriate Party. Below are some examples of cases where poor or inadequate Contract
Management practices led to disastrous results.
1. Boeing's 737 Max Crashes2: In 2018 and 2019, two Boeing 737 Max airplanes crashed,
killing a total of 346 people. A preliminary report from Indonesian investigators indicated
2
Boeing 737 Max crashes: everything you need to know - The Verge
Page | 30
that the plane crashed because a faulty sensor erroneously reported that the airplane was
stalling. The false report triggered an automated system known as the Manoeuvring
Characteristics Augmentation System or MCAS. This system tried to point the aircraft’s
nose down so that it could gain enough speed to fly safely.
Boeing explained that the design of the new Max jets made the engines larger to increase
fuel efficiency, and positioned them slightly forward and higher up on the plane’s wings.
These tweaks changed how the jet was handled in certain situations. The relocated engines
caused the jet’s nose to pitch skyward. To compensate, Boeing added a computerized
system called MCAS to prevent the plane’s nose from getting too high and causing a stall.
The software was not properly monitored and tested during the development process, and
the pilots were not adequately trained to handle the system. The consequences of
inadequate contract monitoring were devastating, with Boeing facing billions of dollars in
losses, regulatory scrutiny, and reputational damage.
16 Claims Management
Claims can be caused by a lot of reasons, which can be broadly categorized as follows:
1. Client-Side Factors: Delays in the handover of site, excessive change orders, etc.
Delaying payment can cause a significant financial burden on the contractor. The
contractor filed a claim, requesting compensation for the delay in payment. To avoid such
situations, the contract should clearly state the payment terms and deadlines. The
government should make timely payments as per the contract to avoid any financial burden
on the contractor.
2. Contractor’s Factors: Poor planning and management, errors in the Execution stage
The contract should clearly state the performance requirements and the consequences of
non-performance. The government should monitor the contractor's performance regularly
and take action against non-performance.
The contract should include clauses that clearly state the reasons for the delay, the
consequences of the delay, and the penalties for non-compliance. The contract should also
clearly define the scope of the project, the responsibilities of the parties involved, and the
consequences of non-performance. Additionally, the government should conduct regular
inspections and audits to ensure compliance with the contract's terms and conditions.
3. Contract Document Factors: Poorly written and ambiguous contractual terms, variations
in actual and planned quantities
A contract should clearly state all the norms and regulations that the company must comply
with. The government should conduct regular inspections to ensure compliance and take
action against non-compliance.
4. Project Related Factors: Change in Scope of Work, Complex execution
Page | 31
It should clearly be stated in Contract, about the scope of work and the process for making
changes to the scope of work. Any changes should be communicated in writing and
approved by both parties before implementation.
5. Contractual Relationship Related Factors: Lack of coordination and communication
between Parties, Suspension of work by one Party, Insufficient time for Bid Preparation
The contract should clearly state the resources required to fulfill the contract and the
consequences of non-availability. The contractor should ensure the availability of
resources before accepting the contract.
6. External Factors: Force Majeure, Unexpected changes in interest rate, inflation, Extreme
weather conditions, changes in government regulations
17 Blacklisting / Debarment / Bid Holiday

17.1 Case of Gorkha Security Services Vs. Delhi Govt.
Gorkha Security Services was contracted to provide security guards by Govt. of NCT, Delhi.
Show Cause notice was issued to them by Govt. citing poor performance and non-fulfilment
of statutory compliances. Their contract was terminated, penalty levied and they were
blacklisted for 4 years. Gorkha filed a case asking for quashing the Blacklisting order, since no
explicit mention of Blacklisting action was done in the Show Cause Notice. Supreme Court
observed that blacklisting the appellant without giving the appellant notice thereto, is contrary
to the principles of natural justice.
1. Performance history: The company's performance history should be evaluated, including
its track record in fulfilling contracts and meeting quality standards. Any instances of poor
performance may be grounds for blacklisting.
2. Compliance with regulations: The company should be assessed for its compliance with
relevant regulations and laws applicable in the industry. Any company found to be
violating regulatory norms may be blacklisted.
3. Integrity: The integrity and reputation of the company should be assessed, including any
instances of corruption, fraud, or unethical practices. Any company found to be engaging
in such practices may be blacklisted.
4. Financial stability: The financial stability of the company should be evaluated, as
companies with the weak financial position may not be able to deliver on their
commitments. The government may blacklist a company if it is found to be facing financial
difficulties.
5. National security: The government may blacklist a company if its activities are deemed
to pose a threat to national security or if it has links to entities that pose a threat to national
security.
17.2 Procedure
Initiation of Inquiry: The first step in blacklisting a company is the initiation of an inquiry
against the company. The inquiry can be initiated by the concerned department or agency,
based on complaints or any other information available.
Page | 32
Issue of Show Cause Notice: Once the inquiry is initiated, the concerned department or agency
will issue a show-cause notice to the company, asking for an explanation regarding the
allegations against them. The company is given a specified period to respond to the show-cause
notice.
Inquiry Report: After receiving the company's response, the department or agency will
investigate the matter and prepare an inquiry report. The inquiry report will contain findings,
observations, and recommendations.
Consideration of Inquiry Report: The inquiry report is then considered by the competent
authority, which can be the Head of the Department or a higher authority. The competent
authority will examine the report and take appropriate action.
Blacklisting Order: If the competent authority decides to blacklist the company, a blacklisting
order is issued. The order specifies the period of blacklisting and the reasons for blacklisting.
The blacklisting order is communicated to the concerned company.
Appeal: The company has the right to appeal against the blacklisting order to the appropriate
authority within a specified period. The competent authority will examine the appeal and take
appropriate action.
The Government of India has provided guidelines for blacklisting as per the General Financial
Rules (GFR) 2017, which are as follows:
1. Grounds for Blacklisting: The Government can blacklist a person or entity on the
following grounds:
i. Conviction in a criminal case related to fraud, corruption, or any other offense that
affects business credibility.
ii. Wilful and material breach of contractual obligations, leading to financial loss to the
Government or any agency.
iii. Providing false information or submission of fake/forged documents to gain an
advantage in a contract or tender.
iv. Persistent poor performance or non-performance of contractual obligations.
v. Unethical practices or actions, such as bribing officials or other illegal activities.
vi. Any other act or omission that affects the business credibility or reputation of the person
or entity.
2. Authority to Blacklist: The authority to blacklist a person or entity lies with the Ministry
or Department that has awarded the contract or tender. However, in cases where the
amount of the contract or tender is above a certain threshold, the approval of the Competent
Authority is required.
3. Notice to the Blacklisted Person/Entity: The Ministry or Department should issue a
show-cause notice to the person or entity before blacklisting them. The notice should
clearly state the grounds for blacklisting and provide an opportunity for the person/entity
to respond within a reasonable time.
4. Timeframe for Response: The blacklisted person or entity should be given a reasonable
time to respond to the show-cause notice, which should not be less than 15 days.
Page | 33
5. Personal Hearing: If the person/entity requests a personal hearing, the Ministry or

Department should provide the same within a reasonable time.
6. Decision on Blacklisting: After considering the response of the person/entity, the Ministry
or Department should decide on whether to blacklist the person/entity or not. The decision
should be communicated to the person/entity in writing.
7. Period of Blacklisting: The period of blacklisting should be proportionate to the
seriousness of the offense committed. In general, the period of blacklisting should not
exceed three years. However, in exceptional cases, the period of blacklisting can be
extended up to five years.
8. Review of Blacklisting: The person/entity can request a review of the blacklisting decision
after the expiry of one year from the date of blacklisting. The Ministry or Department
should consider the request and decide within a reasonable time.
9. Publication of Blacklisted Entities: The Ministry or Department should maintain a list
of blacklisted entities on their website and update it periodically. The list should also be
shared with other Ministries and Departments to prevent the blacklisted entities from
participating in other government contracts or tenders.
18 Litigation
Ministry of Law and Justice has issued guidelines for government departments to follow when
dealing with contractual disputes. These guidelines are outlined in the "Manual for
Procurement of Goods 2020" and include the following:
1. Exhaustion of Administrative Remedies: Before initiating legal action, the department
should exhaust all administrative remedies available under the contract, such as invoking
dispute resolution mechanisms like arbitration or conciliation.
2. Proper Documentation: All correspondence related to the dispute should be appropriately
documented and maintained as evidence in case of future litigation.
3. Jurisdiction and Venue: The contract should specify the jurisdiction and venue of the
court in case of any dispute. The department should ensure the contract complies with the
Indian Contract Act, 1872 and other applicable laws.
4. Reasonable and Adequate Compensation: In case of any breach of contract, the
department should ensure that the compensation sought is reasonable and adequate and
should not exceed the loss suffered by the department.
5. Timely Action: The department should take timely action to resolve the dispute and should
not delay the process.
6. Legal Advice: The department should seek legal advice from the Law Ministry or any
other authorised legal authority before initiating legal action.
Some of the things that should be considered when issuing a notice include the following:
Format: The notice should be in writing and in a form that is easily understandable and can be
referenced later on. It should identify the parties involved, the contract number and details, the
notice number and/or issue number, a reference to earlier notices on the same issue, and the
reason for issuing the notice.
Page | 34
Content: The notice should clearly state the issue and what the contractor is being asked to do
to remedy the situation. It should also specify the consequences of not complying with the
notice, such as termination of the contract or initiation of legal action. Specific clauses of the
contract should be invoked in the notice.
Delivery: The notice should be delivered in a way that provides proof of delivery, such as by
registered post or email with an acknowledgment of receipt. The department should also
maintain records of when and how the notice was delivered.
Response: The contractor should be given a reasonable amount of time to respond to the notice,
and the department should document any response received.
Follow-up: If the contractor does not respond or fails to comply with the notice, the department
should issue subsequent notices and document all correspondence.
19 Project Closure
Project closure refers to the final phase of a project where all activities, tasks, and deliverables
are completed, and the project is formally concluded. It involves a set of activities and
processes aimed at bringing the project to a controlled and organized end. Project closure is
essential for ensuring that all project objectives have been met, deliverables have been
achieved, and resources can be released and reallocated.
The primary objectives of project closure are as follows:
1. Formalize Completion: Project closure involves officially documenting the completion
of the project. It marks the point where the project's goals and objectives have been
achieved, and all work related to the project is finalized.
2. Assess Project Performance: During project closure, the project team evaluates the
project's overall performance. This assessment includes measuring project outcomes
against the defined objectives, evaluating the project's adherence to the established
schedule and budget, and assessing the quality of deliverables.
3. Handover and Transition: Project closure includes the transfer of project deliverables,
assets, and knowledge to the appropriate stakeholders or end-users. It ensures a smooth
transition and enables stakeholders to assume responsibility for maintaining and utilizing
the project's outcomes.
4. Documentation and Archiving: Project closure requires the completion of all necessary
documentation, such as project reports, financial records, contracts, and any other relevant
paperwork. Archiving these documents ensures that project information is preserved for
future reference, audits, or legal purposes.
5. Lessons Learned: Project closure provides an opportunity to capture and document
lessons learned from the project. This involves identifying best practices, documenting
challenges faced, and noting recommendations for future projects. Lessons learned can be
used to enhance organizational knowledge and improve project management processes.
It's important to note that project closure is not a sudden termination of activities but rather a
planned and systematic process that ensures the project's successful conclusion. The specific
Page | 35
activities and steps involved in project closure may vary depending on the nature and
complexity of the project, as well as organizational requirements and industry standards.
Several documents are important for project closure. These documents serve as evidence of the
project's completion, fulfilment of contractual obligations, and provide a basis for final
settlement.
1. Provisional Completion Certificate
2. Trial Run / Commissioning Certificate / Handover Certificate / Demobilization Notice
3. NOC from various departments related to O&M
4. Delay Analysis and closure of outstanding notices
5. Onset of Defects Liability Period
6. Discharge of Execution Performance Security (and submission of O&M Performance
Security)
7. Claim Submission Period
8. Knowledge Transfer
9. Financial Closure: taxes, final bills, financial reconciliation
10. Formal Closure
20 Premature Closure / Short Closure

"Short Closure" or "Premature Project Closure" refers to the termination of a project before the
scheduled or contractual completion date. This can happen for various reasons, such as force
majeure, external factors, contractor’s non-performance, changes in requirement, budget
constraints, lack of resources, or strategic shifts that render the project unfeasible or
unnecessary to continue. Some key points to consider in this scenario are:
1. Evaluation of Risks: The decision to prematurely close a project should be based on a
comprehensive evaluation of various factors, including project objectives, progress, costs,
risks, and the feasibility of achieving desired outcomes within the remaining time and
resources.
2. Contractual Obligations: It's important to review the project contract or agreement to
understand the rights and obligations of all parties involved regarding premature closure.
This may include provisions related to termination, liabilities, compensation, and dispute
resolution mechanisms.
3. Conditionality: It should be considered whether the Closure is to be kept conditional on
certain terms, like operation of a facility until a new agency is hired.
4. Legal Considerations: Depending on the jurisdiction and the terms of the contract, legal
implications and obligations are likely to arise from premature project closure. Regular
consultation with legal advisors should be done to ensure compliance with relevant laws
and contractual obligations.
5. Documentation: Formal termination order should be communicated. Maintain thorough
documentation throughout the process, including records of decisions, communications,
financial implications, contractual discussions, and any other relevant information. This
Page | 36
documentation can be helpful in resolving disputes and addressing potential legal or

financial issues.
6. Project Handover: If applicable, ensure a proper handover process to transfer any
completed work, project assets, and relevant documentation to the client or other
designated parties. This facilitates the closure process and allows for the efficient transition
of responsibilities.
7. Financial Reconciliation: Financial Reconciliation of the contract should be ensured, so
that payment for all the work done or services provided is given to the contractor /
consultant.
It's important to note that premature project closure should be carefully considered and pursued
as a last resort. It is generally advisable to explore alternative solutions, such as re-evaluating
project goals, adjusting scope, seeking additional resources, or renegotiating contracts, before
making a decision to terminate a project prematurely.
Ultimately, the decision to prematurely close a project should be based on a thorough analysis
of the situation and consideration of the best interests of all parties involved.
Page | 37

2023 - 10 - 30 Handouts - Govt Tendering and Contract Management

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2023 - 10 - 30 Handouts - Govt Tendering and Contract Management

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Government Tenders &

2 CONTRACTS: HISTORY ________________________________________________________________ 1

3 WHAT IS A CONTRACT? _______________________________________________________________ 4

4 RFP AND TENDERING _________________________________________________________________ 5

4.1 HISTORY OF GOVERNMENT TENDERING IN INDIA ________________________________________________ 5

5 INDIAN CONTRACT ACT, 1872 __________________________________________________________ 9

6 TYPES OF CONTRACTS _______________________________________________________________ 11

6.1 LUMP-SUM CONTRACT________________________________________________________________ 12

7.1 SWISS CHALLENGE ___________________________________________________________________ 15

7.4 VIRTUAL CONTRACTS _________________________________________________________________ 17

8 DESIGNING A BID DOCUMENT _________________________________________________________ 17

8.1 REQUIREMENT OF THE CONTRACT ________________________________________________________ 17

9 OTHER IMPORTANT CLAUSES _________________________________________________________ 21

9.1 MOBILIZATION ADVANCE ______________________________________________________________ 21

10 IMPORTANT CONSIDERATIONS DURING FORMATION OF A BID DOCUMENT ____________________ 26

11 DISPUTE RESOLUTION _______________________________________________________________ 26

12.1 TERMINATION BY CONTRACTOR – CASE OF DMRC V DAMEPL __________________________________ 27

13 AGREEMENT DESIGN ________________________________________________________________ 29

15 CONTRACT MANAGEMENT ___________________________________________________________ 30

16 CLAIMS MANAGEMENT ______________________________________________________________ 31

17 BLACKLISTING / DEBARMENT / BID HOLIDAY _____________________________________________ 32

17.1 CASE OF GORKHA SECURITY SERVICES VS. DELHI GOVT. ________________________________________ 32

19 PROJECT CLOSURE __________________________________________________________________ 35

20 PREMATURE CLOSURE / SHORT CLOSURE ________________________________________________ 36

4. Intention to Create Legal Relations:

Void agreements as per Indian Contract Act, 1872:

4 RfP and Tendering

4.3 Types of Procurement

Best Technical Solutions: Tendering allows government departments to evaluate proposals

5 Indian Contract Act, 1872

Figure 1: Levels of Private Involvement in PPP

Figure 2: Spectrum of Public to Private Options - Allocation of Responsibilities according to Modality

6.6 Firm Fixed Price Service Contract

7.4 Virtual Contracts

8 Designing a Bid Document

8.4 Scope of Work

8.6.2 Case of Airport Privatization of Delhi & Mumbai

9 Other Important Clauses

• There should be a clear mention of the dates/duration of CPI/WPI/Sectoral Index to be

9.7 Liquidated Damages / Penalty to Delay

9.10 Extension of Time

10 Important Considerations during Formation of a Bid Document

platform, screen doors, ventilation, architectural finishing, etc. were to be provided by

17 Blacklisting / Debarment / Bid Holiday

5. Personal Hearing: If the person/entity requests a personal hearing, the Ministry or

20 Premature Closure / Short Closure

documentation can be helpful in resolving disputes and addressing potential legal or

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