Legal and Financial issues

related to
Tenders and Contracts

Hemant Godbole,
SENIOR PROFESSOR
FINANCIAL MANAGEMENT

NAIR
1

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

We need to UNDERSTAND
Constitutional and
Statutory Provisions,
Codal provisions, circulars,
Vigilance guidelines
3

What is meant by
a Tender?

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;
5

What is meant by a
Contract?

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;
7

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
8

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

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

10

Central Government Contracts in

the name of President

Constitution of India provides under

Article 299 that
All 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.
11

For better appreciation

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

http://www.advocatekhoj.com/library/bareacts/indiancontract/i
ndex.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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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 India
13

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 )

14

Stages
A.
B.
C.
D.

Preparation of tender papers.

Invitation
Receipt
Appraisal and selection

15

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.
16

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)

17

Contd.
1
2.
3.
4.

5.
6.
7.

Legal and Financial advice for drafting

Standard forms.
Terms of contracts to be varied only in exceptional
cases with legal and financial consultation.
Uncertain or indefinite liability / conditions of unusual
character only with previous consultation of
competent financial and legal authority.
Provision regarding safeguarding Government
property entrusted to contractor.
For long-term agreement, examine reserving
unconditional power to cancel with 6 months notice.
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 Bankers cheque: Bankers 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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20

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 Notice

As per para 1239 E,
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
(i)

( 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
3

Dated initials at all corrections in schedule of

quantities/materials to be issued/
specifications/ other essential parts.
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 in
such 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.
2.
3.
4.

5.
6.
7.

Complete and latest information about lowest contract rates for

same/similar materials/works in particular / contiguous area.
Conditions related to the above.
Latest data about availability of materials / prices there/working
conditions for co-relating current quotations.
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)
Special conditions attached to rates for 1 above and technical
data for tenders under consideration.
Any other relevant information.
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

26

Do check out.

Cases of Pending sanction to Detailed Estimate

2 packet system
Eligibility conditions
Technical Conditions
Changes in conditions subsequent to opening???
Dont change the rules of the game after the
game has begun (cases).

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While bypassing the L1,

1.

2.

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.
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 past
Rates of L1 were 24% lower than in ongoing contract and
unworkable

What if Vigilance issues instructions not to

correspond with tenderers?
28

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 Divndefective acceptance letter by HQ: Partys

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)
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BESIDES LEGAL
ISSUES.
32

Certain useful tips

Maintain Confidentiality of TC proceedings

Dont entrust the job of assessment to
anybody,
Its your personal responsibilty. Have
confidence in self,
Dont 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 SPIRIT
but do it expeditiously
(businesslike)

as delays are costly.

35

Any Questions??

36

THANK YOU

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