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Hemant Godbole,

SENIOR PROFESSOR FINANCIAL MANAGEMENT

NAIR

Legal and Financial issues related to

Tenders and Contracts

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Why Tender System? For ensuring best value for money i.e. Spending minimum amount for our stated

requirements, in expenditure contracts Getting maximum amount in Earnings contracts

Tender system facilitates the above due to better communication, objectivity fair-play / transparency;

thus enhancing the competition

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We need to UNDERSTAND

Constitutional and Statutory Provisions,

Codal provisions, circulars,Vigilance guidelines

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What is meant by a “Tender”?

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Not defined in Code etc.

Section 2(a) of Indian Contract Act, 1872(a) When one person

signifies to another

his willingness to do or to abstain from doing anything,

with a view to obtaining the assent of that other to such act or abstinence,

he is said to make a proposal;

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What is meant by a “Contract”?

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Meaning can be understood from Section 2 of the Act

2 (b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise;

2 (e) Every promise and every set of promises, forming the consideration for each other, is an agreement; (Concept of consensus ad idem)

2 (h) An agreement enforceable by law is a contract;

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Why lowest (in expenditure cases) or

highest (in earnings cases)?

Indian Contract Act 1872 does not stipulate about awarding the contract to L1/ H1, but in case of the “State”,

Public Interest and relevant Constitutional provisions are paramount

“What is a State” Art. 12 of the Constitution: "the State" includes the

Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.

For this purpose, Supreme Court has held in several case that Instrumentalities of State (say PSUs) are also “State”

Article 14: Equality before law…

Article 14 says that “The State shall not deny to any person equality before law or the equal protection of the laws within the territory of India.” This is equally applicable to Contracts entered into by the

“State”, including Contracts awarded by Railway s’ This Article is included in the “Fundamental

Rights”, for breach of which, aggrieved party can directly approach the Supreme Court under Article 32, or the High Court under Article 226 .

Certain related case are cited in the next slide

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Article 14: some cases

Nagar Nigam, Meerut .. Appellant vs Al Faheem Meat Exports Pvt. Ltd & Ors, Supreme Court judgment dt 07/12/2006 (http://judis.nic.in/supremecourt/imgs1.aspx?filename=28452)

HBL Nife Power Systems Ltd. vs Union Of India (Uoi) And Ors. on 27 October, 2005, Delhi High Court decision (Ref: http://indiankanoon.org/doc/534585/)

However, since absolute equal treatment in unequal circumstances would be inequitable, reasonable classification permissible, e.g. special concessions to Small Scale Industries, Tax concessions for Himachal, Uttarakhand etc

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Central Government Contracts in the name of President

Constitution of India provides under Article 299 thatAll contracts made in the exercise of the executive power of the Union shall be expressed to be made by the President of India. Railways being the Department of Government of India, we have o adhere to this provision.

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Understand thoroughly Indian Contract Act 1872 Read bare Act (Refer the link below)

http://www.advocatekhoj.com/library/bareacts/indiancontract/in

dex.php?Title=Indian%20Contract%20Act,%201872) Fully comprehend the illustrations given there Concepts of communication, acceptance and

revocation of proposals and acceptance given in Chapter 1 are extremely relevant for understanding.

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For better appreciation…

Understand ……..

NIT (Notice Inviting Tenders), RFP (Request for Proposals) IFB (Invitation for Bids) PROPOSALS as defined in the Indian Contract Act 1872

can take the form of TENDERS, BIDS, QUOTATIONS, OFFERS

PECULIARITIES OF GLOBAL TENDERS The Notice be published on the websites of Indian

Embassies Abroad and Foreign Embassies in India13

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Where to look for procedures ?

• Chapter III, IV & XIII – Stores Code

• Chapter XII – Engineering Code

• Chapter VI – Financial Code

Also various compendia, circulars, vigilance instructions, websites of Board, CVC etc (e.g. http://cvc.nic.in/3%20Tender%20Stage.pdf )

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Stages

– A. Preparation of tender papers.

– B. Invitation

– C. Receipt

– D. Appraisal and selection

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Precautions prior to invitation

• Have clarity about (a) What exactly is to be done. (b)Where it is to be done. (c) Completion Period(d)Extent of Assistance by Railways(e) Realistic estimated cost, payment terms. (f) Approved drawings.

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Precautions that are vital for Contract Agreement: para 621 F-I

Precise and definite terms, without any ambiguity • What the contractor to do, when, where, to whose

satisfaction?• What administration to do – on what terms? • Payment conditions• Responsibility of the contractor for adequate

supervision, care of Government property, Protection of outside interests, and of his staff and workmen.

• Variations and modifications if permitted – competent authority to assess them and basis thereof.

• Measures regarding breach: grounds and method of determination.

• Methods of settling disputes (Arbitration clause in GCC, IRS)

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Contd.1 Legal and Financial advice for drafting 2. Standard forms. 3. Terms of contracts to be varied only in exceptional

cases with legal and financial consultation. 4. Uncertain or indefinite liability / conditions of unusual

character only with previous consultation of competent financial and legal authority.

5. Provision regarding safeguarding Government property entrusted to contractor.

6. For long-term agreement, examine reserving unconditional power to cancel with 6 months’ notice.

7. Power to retain “set off” (concept of set off).

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Cost of Tender Forms/ EMD, SD etc.

Cost of Tender Forms (para 1240-A of Engg. code )

Earnest Money(para 1241 Engg. code )

Security Deposit(para 1244 Engg. code )

EMD/SD in which Form ?(para – 1246 Engg. code)

(Para 620 F I, works tender unaccompanied by EMD, should be summarily rejected) Concept of Banker’s cheque: Banker’s cheque is issued by

bank for “value received” , so there is no likelihood of its bouncing for want of funds. It is like a Demand Draft, payable within the city of issue.

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Notice Period – Para 1238 - E• Sufficient notice should be given to tenderers

for submission of tenders. • In case of large works, its should not be less

than a month. The prescribed period may be departed from, in the most exceptional circumstances and that too, in consultation with FA&CAO.

• Cases of S&T-BRC Division: In 4 cases, by mistake, notice period given was 24 days instead of 30 days which was the norm.

• Tenders had to be reinvited due to this

Important aspects of notice

Vigilance Directive: Upload on net first, then paper ad

Multiple news papers, including vernacular

Global Tender notice, how given? Short ad, drawing attention

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Contents of Tender NoticeAs per para 1239 E,(i) The place where and time when contract

documents can be seen(ii) The place and time where blank tenders

forms can be obtained(iii) The amount, if any, to be paid for such

documents (iv) The place where, the date on which and the

time when tenders are to be submitted and are to be opened

Besides, it will be useful to add the following: 1 Eligibility Conditions 2 Approx. Cost ( Display on notice board, notice in

newspapers, on web)

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Opening of Tenders- Precautions (para 1249 E)

1. Dated initials on cover, front cover page and every page having rates/conditions.

(In one Case of BRC Divn., --- % ---Below,was inserted later; it led to vigilance investigation)

2 Dated initials at all corrections in schedule of quantities/materials to be issued/ specifications/ other essential parts.

3 All overwriting/s be marked in red ink and initialed. Corrections/overwriting/omissions be serially numbered. – Total number of corrections etc. mentioned in the red at the end of each page and attested with date.

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Contd.

4. Clearly indicate ambiguity in rates in words and figures.

(What to do in such cases?)It would be prudent to specify in advance that insuch ambiguity, amount in words would prevail.

5. Clearly specify whether samples are supplied.

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Briefing Note for TC (para 612 F, 1253 E)

1. Complete and latest information about lowest contract rates for same/similar materials/works in particular / contiguous area.

2. Conditions related to the above. 3. Latest data about availability of materials / prices there/working

conditions for co-relating current quotations. 4. Why important? In one RE case, by the time the contract was

awarded, there was a lot of delay. The price of material had fallen substantially in the market . TC did not keep itself updated with this trend and finalised the case at much higher rate)

5. Special conditions attached to rates for 1 above and technical data for tenders under consideration.

6. Any other relevant information.7. Whom does the Briefing Note brief It briefs the TC (It should not seek to guide or be suggestive)

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Assessment Validity (What risk if validity is over?) (if L1 / H1 withdraws, re-tender as per

Vigilance instructions, rates may go up on re-invitation)

Competition. Previous experience. Rate reasonability/ LAR Conditions by Railways. Conditions by Parties. Modifications in specifications Negotiations

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Do check out……. Cases of “Pending sanction to Detailed

Estimate” 2 packet system Eligibility conditions Technical Conditions Changes in conditions subsequent to opening??? Don’t change the rules of the game after the

game has begun (cases).

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While bypassing the L1,1. Para-617 F I: Open tender, L1 not on approved

list, tender otherwise satisfactory, seek evidence of capacity and financial position, if he fails to do so, record it and bypass.

2. Para-618 F I: In all cases where L1 is to be rejected, full reasons be recorded for future reference.

Case of BRC Division linen washing: L1 had no experience, had formed a JV with a party that had failed in the pastRates of L1 were 24% lower than in ongoing contract and unworkable

What if Vigilance issues instructions not to correspond with tenderers?

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Preface To Vigilance Manual 2006:

http://www.indianrailways.gov.in/vigilance/Default.htm Provisions in this manual do not supercede Codal provisions. In case of conflict, the latter prevail.

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Vested Interest and Nepotism Indicate in opening para of TCM that

no member has any personal interest in any of the tenders involved in the case. It is a Vigilance requirement. Even TAA should guard against such interest.

Cases

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Acceptance of Tenders –1256 E

Unqualified acceptance constitutes binding contracts until formal agreement is signed. (Rationale?) Please See Section 4 of Indian Contract Act. Pl. refer the link http://www.advocatekhoj.com/library/bareacts/indiancontract/4.php?Title=Indian Contract Act, 1872&STitle=Communication when complete)

Acceptance letter should be suitably worded. Counter offer case WR

(Case of BRC Divn–defective acceptance letter by HQ: Party’s condition that it “would not maintain the work for 6 months” was ignored. Work Order was issued. This amounted to counter offer, which the party did not accept)

BESIDES LEGAL ISSUES……….

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Certain useful tips Maintain Confidentiality of TC proceedings Don’t entrust the job of assessment to

anybody, It’s your personal responsibilty. Have

confidence in self, Don’t discuss with unrelated persons, else

there could be divulgence and, Somebody can tamper with / insert new

documents

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Cut down delays and enjoy comfort

Sort the list of pending tender cases in order of expiry of validity, pursue well ahead of such expiry.

Asking for validity extension !!!-risky as L1 may not do it, he can also withdraw even within validity due to volatile market conditions.

Treat it as a blot to seek validity extension. Study tender papers in advance, then, discuss in

meeting with other TC members to save time. Check B/note, Vetting comments, replies beforehand Keep an indexed notebook, do advance homework,

make notes on points to be discussed in TC meeting All TC members should apply their mind. It helps

minimize the possibility of errors.

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MOST IMPORTANT:

FOLLOW THE PROCEDURE BOTH IN LETTER AND SPIRITbut do it expeditiously(businesslike)

as delays are costly.

Any Questions??

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