LEVY OF PENALTY ON SAVINGS IN CONTRACT

Shared Documents Joined: May 02, 2005 No. of Replies: 1236

Sometimes the work entrusted to the contractor is commissioned, but some items of works are not executed by the contractor and the contract is closed and final bill prepared. The value of the savings is too small to call for a risk and cost tender.

In such cases there exists a practice of leving a penalty at flat rate of 10% on the savings in the contract which are due to contractor's account shown in the final variation statement submitted along with the final bill. This also encourages the contractor not to complete all the items of work that are expected to be executed by him as he is only too willing to get the penalty recovered at 10% on the saving amount because if he executes the work, his loss in these works will be more than the recovery involved. He is also getting a work completion certificate for the work after levy of penalty on savings in the work on his account with which he can win more contracts.

In my opinion, if there are any savings in the contracted quantities due to contractor's account however small it may be , he should not be given work completion certificate so that it will encourage him to complete the work in all aspects. While signing the work completion certificate the authority issuing the certificate should also check the variation statement for any savings on contractor's account.

Further the completion certificate should be issued only by the Sr.DEN/DEN concerned and not by ADENs. The practice of issue of completion certificates by ADENs has now been stopped in BCT division.

I am also interested to know if there are any circulars available for recovery of penalty at 10% of savings on contractors account in the contract and about the instructions for issue of completion certificate.

What is the procedure followed in other divisions for issue of completion certificate and recovery on savings on contractors account.

Shared Documents Joined: No. of Replies: 323

I donot think there is a legal sanctity in closing the contract by way of imposition of a penalty of 10 % on the savings of the contract if certain items are not executed by a contractor.Actually, there is a provision in the rules giving a liberty to the parties executing contract to mutually agree for variation in the quantities .That is equally valid in case of reduction of quantities,as would be applicable in this situation.Why should contractor be penalised in such a situation and that too outside the provisions of the contract conditions.
However ,internally, there are instructions to obtain finance vetting before issuing variation statement in such a case to ensure railways donot suffer any monetary loss on this account.

Shared Documents Joined: May 02, 2005 No. of Replies: 1236

At the final stages of the work some small works are left out by the contractor like removal of debris and other minor works which cause some minor defficencies in the amenities as well . In order not to drag the contract further , the final bill is prepared though some items of works are very much required for execution which are later done departmentally or by other contractors.

What should we do in such a circumstance?. Can we deny work completion certificate on this account as only 99.99% of work is completed.

Shared Documents Joined: No. of Replies: 323

It appears both of us are on- line .That is why you have again put a supplementary questionin such a short time after my posting.
I feel there is nothing wrong in short closing the work if a contractor is not able to complete any of the minor value item provided railways are satisfied that it will not have an adverse effect by doing so.You can get such left over works through any other means some times even departmentally and deduct all such charges from the contracor.There should not be any problem in issuing a completion certificate to the contractor because both parties are willing and agreeable as per the conditions of contract.
What I have stated in my earlier posting is that imposition of a token penalty on the balance value of work not being executed by a contractor does not have any legal sanctity as there is no clause in the GCC to that effect.

Shared Documents Joined: May 02, 2005 No. of Replies: 1236

Thank you sir. Some of the practices being done are not correct as they not in accordance to any conditions of contract.