GOVERNMENT CONTRACTS

Meaning

Government Contracts as the word suggest refer to contracts entered into by the Government for various purposes such as construction activities, management purposes, maintenance and repairs, manpower supply, IT related projects etc.

Every Contract which includes the Government either Central Government or State Government or any other Government body as party is referred to as a Government Contract.

The party who performs the task of executing the contract on behalf of the Government is called the Contractor of the Government Contract.

For example, Dilip BuildCon may act as a contractor for the Maharashtra Government for the construction of a bridge.

In a Government contract, open tenders are floated through sealed biddings and request for proposals from parties who wish to act as the Contractor are invited.

Requirements to be eligible as a Contractor for a Government Contract:

  1. Fulfill all the criteria set forth by the Government in the Contract document set forth and proposal advertised.
  2. Post 1st July, 2017, every party who wishes to become a Contractor for a Government Contract must mandatorily have a valid GST Registration Number.

Types of Government Contracts in India:

  1. Fixed-Price Contracts
  2. Cost Reimbursement Contracts
  3. Incentive Contracts
  4. Indefinite-Delivery Contracts
  5. Time and Materials Contract

 

  1. Fixed-Price Contracts

A Government Contract where the cost isn’t calculated based on the duration and amount of resources used up is called a Fixed Price Contract. Such a Government Contract is one where the cost of the project is already known.

Such a Government Contract includes provisions of contract change, economic pricing, or defective pricing etc.

In such a type of Government Contract, either party i.e. the Government or the Contractor has a chance to gain or lose from it.

Like in a situation where there is a sudden rise in costs, the seller is at a great lose while the buyer is profited as he has the opportunity to bargain the deal and also vice versa.

2. Cost Reimbursement Contracts

A Government Contract where the Contractor is permitted to claim all expenses subject to certain conditions in the Contract, along with additional payments for profit purposes is called a Cost Reimbursement Contract.

This Contract is totally opposite to a Fixed Price Contract and benefits the Contractor to a great extent while also shielding him from sudden rise is cost prices.

The Government in such a Contract generally is at the receiving end and bears all the losses that can arise due to escalating costs, or the liability to pay even on occasions when the task hasn’t been completed.

The type of Government Contract is generally entered into where the costs are uncertain to be specifically ascertained.

Mostly, the Contractor is given a fixed amount based upon an estimated cost initially when the Contract is entered into. However, if the cost exceeds the estimated amount initially given, the Government is bound to approve the additional amount and reimburse the Contractor the same immediately.

3. Incentive Contracts

A Government Contract where the Contractor is given monetary incentives to take up the work is known as Incentive Contracts.

Such Government Contracts are entered into by the Government to encourage the Contractors to perform their work in a better and swift manner.

There are a number of incentive contracts available like:

  • Fixed price incentive contracts
  • Cost plus incentive contracts
  • Cost plus award fee contracts
  • Performance incentive
  • Delivery incentive
  • Multiple incentive contracts

The main motive of entering into an Incentive Contract is to:

  1. Form rational and achievable timelines to the Contractor.
  2. Provide proper incentive benefits in order to credit contractor’s efforts and milestones.
  3. Discourage contractor inefficiency and prevent waste of Government Resources.

4. Indefinite-Delivery Contracts

A Government Contract wherein the time of the contract is known but the precise date of delivery is unknown is known as an Indefinite-Delivery Contract.

Such a Government Contract guarantees smooth supply of indefinite amount of services in a specific amount of duration.

Such type of Government Contract is generally undertaken when the Government is skeptical about the amount of services that will be required by them from the Contractor to complete the particular job at hand.

Generally, the average duration to complete an Indefinite-Delivery Contract is four years.

There are three types of Indefinite-Delivery Contracts:

  1. Definite – quantity contract: An Indefinite-Delivery Contracts wherein the Contractor is bound by a definite kind of quantity within certain parameters, for a specified period with scheduled delivered.
  2. Requirements Contract: An Indefinite-Delivery Contracts wherein the Contractor is provided with filling for all actual purchase requirements of specific supplies or services during a specified period with scheduled deliveries.
  3. Indefinite – Quantity Contract: An Indefinite-Delivery Contracts wherein the Contractor is provided with an indefinite quantity within particular limits of specified supplies or services during a particular period with deliveries which are to be scheduled by the timely placement of orders upon the Contractor.

5. Time and Material Contract

A Government Contract which is undertaken by the Government where there is none or lack of thorough knowledge or date of the time or amount of costs that will be incurred for the completion of the contract is known as Time and Material Contract.

This type of Government Contract requires the government surveillance to monitor the productivity of the work process.

This Government contract is only undertaken by the Government in special circumstances if there is no scope for implementation of any other type of contracts.

Just like fixed-price contracts, time and material contracts include a sealing price which the contractor is bound to and has a risk of loss.

SUMMARY

Government Contracts are Contracts in which the Government is a party to. Such Contracts are entered by the government for varied purposes such as construction, maintenance, repair, and other IT related projects and activities etc.

For more information, visit Comapny Vakil website.

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