Recent changes RSS feed

 

VARIATIONS IN CONTRACTS

1.0 Para 1265 E states clearly that “the powers to vary the terms of a contract lies only with actual parties thereto” i.e. the contractor and the Railway authority who has signed the contract. Consent of the contractor is necessary and a subsidiary agreement must be entered into, stating

  • What is to be varied
  • What will remain unchanged

The variation could be in

  • Conditions of contract (Finance concurrence is necessary)
  • Rates or items
  • Variation of the quantities of any item/items

A very important consideration in variations is to ensure that the scope, character and purpose of the original contract is not changed.
1.1 Some important safeguards in variations is to ensure

  • that prior Finance concurrence is obtained in cases where variation exceeds the limits delegated (25% in individual items or 25% in excess of original contract value for both positive (+) and negative variations (-) (SOPGEN item 1.25(a) and (b) of Central Railway)
  • that whenever as a consequence of variation, the total value of contract goes beyond the competence of the authority who originally approved the contract, sanction of higher authority must be taken
  • vitiation of original tender (change in inter se position) is not taking place as a consequence of variation
  • in cases of minus variation, it is clear that the work will not be required at a future date and at higher rates
  • while proposing excess or minus variations, the rates of contracts for the same type of work in contiguous areas have been seen.

Case Study: In a case of night lighting for track maintenance and work of mastic asphalt, Finance scrutiny revealed that minus variation had been proposed in a contract having lower rates and excess variation in a contract having higher rates. The re-examination of the matter led to savings.
1.2 Execution of Extra Quantities (Para 1268 E)

  • When the Work is NOT SEGREGABLE
  • Whenever variation is likely in excess of reasonable limits (15 to 25%), the railway administration should immediately examine whether it is practicable to bring in a new agency to carry out the extra quantity of work, keeping in view the progress of the work on the original contract and the nature of layout of the work. The most important factor to be determined is “whether the work is segregable”. If the work is not segregable, the reasons thereof must be recorded and negotiation should be carried out with the existing contractor for arriving at a reasonable rate for the additional quantity of work.
  • In terms of Clause 42(2) of GCC “unless otherwise specified in the special conditions of the contract, the accepted variation in quantity of each individual item of the contract would be upto 25% of the quantity originally contracted, except in case of foundation work. The contractor shall be bound to carry out the work at the agreed rates and shall not be entitled to any claim or any compensation whatsoever upto the limit of 25% variation in individual works.”
  • In terms of Clause 39(1) of GCC, any extra item, not already available in the “Schedule of Rates (SOR)” of the railway concerned, should be paid at a rate mutually agreed to between the Engineer and Contractor”.
  • It is in the light of emphasis on “individual items” in the GCC that SOPGEN item 1.25 of SOPGEN 2001 of Central Railway stipulates that prior Finance concurrence would be necessary in cases of variations in excess of 25% (+ or -) in the individual items as well as in the overall contract value. For extra items also, since arithmetically the variation vis-à-vis the tender schedule will be in excess of 25%, the rates should be determined carefully, keeping in view the LARs and acceptance of the contractor should be obtained.
  • Railway Board’s letter No.94/CE-I/CT/37 of 5.5.1995 (Para 2 of Annexure-I to the letter) [Annexure-60] stipulates that CE(C) (which may be read as SAG officer) can approve variations upto 25% of accepted tender value or Rs.25 lakhs whichever is less. It is in line with these instructions that Para 1.25 (b) of Central Railway SOPGEN states that–

• Variations between 10% to 25% of contract value have to be approved by DRM/ADRM/SAG officer with prior Finance concurrence
• Variations in excess of 25% have to be approved personally by GM with prior Finance concurrence.
The question of 25% is to be arrived at in total terms, i.e. due to variation in quantities and also due to introduction of new items and not separately for both. In cases where enhanced value of the contract goes beyond the powers of GM or if the variation in excess of 25% of contract value has been done in a contract accepted by Railway Board, approval of Railway Board is required.
1.3 Situation in which the work is segregable
In terms of Para 1268 E, if it is found that there will be no serious practical difficulty in meeting the additional quantity of work done by another agency, one of the following two alternatives as found feasible may be adopted :-
i) inviting fresh tenders for the extra quantity
ii) negotiating the rate for the extra quantities not only with the existing contractor but also with all the tenderers who had initially quoted for the work.
Board’s letter No.94/CE.I/CT/37 of 5/5/95 stipulates that “in case the work is proposed to be awarded to an agency after negotiating with all original tenderers along with existing contractor or by inviting fresh tenders for extra quantity, necessary sanction will be accorded as per normal delegation prevailing on the Railway for extra quantity only”. On Central Railway GM has not redelegated the powers for variation in excess of 25% of the original contract value.

New Instructions On Variations

While Board’s letter of 5/5/95 stipulates that enhancement of contract value beyond 25% of the original contract value should be resorted to scarcely, Railway Board’s letter No.94/CE-I/CT/4 of 22/10/2001 [Annexure-17]goes a step further by stipulating that
“Execution in quantities beyond (+)50% of the overall agreemental value should not be permitted … … … “.
In the event of such a variation being found necessary (as per stipulations of Para 1268 E) fresh rates should be negotiated with existing tenderer or fresh tenders should be invited. To control such situations of excessive variation, the letter stipulates the following safeguards.
1. Whenever a contract has been executed upto 75% of agreemental value (original value), if any doubt persists that the agreemental value may go beyond 50%, execution of any further quantity beyond 75% of original contract value will have to be monitored at the level of JAG officers. The intention therefore is to prevent any such variation.
2. The letter provides for an inbuilt regulatory mechanism on variations beyond 25% by stipulating an automatic :

  • 2% reduction in rates for variations between 25% to 40%
  • additional 2% reduction for variations between 40% to 50% (i.e. 4%).

This may prove to be a serious deterrent against excessive variations. With the provision of this regulatory mechanism there is a need to provide this clause in tender papers of all tenders which are being floated afresh as negotiation for fresh rates as per Board’s letter dated 22.10.2001 are to be carried out only in cases where variation exceeds 50%. Notwithstanding the fact that Board’s letter clearly stipulates that execution of quantities beyond 50% of the overall agreemental value should not be permitted normally, since negotiations in excess of 50% variation are now stipulated to be done only with the existing contractor, the old instructions with regard to negotiations with all tenderers who had originally quoted seem to have been superceded. In any case it was noted that in cases of variation in excess of 25%, when the executive certified that the work is segregable, and when a decision to negotiate with all tenderers who had tendered originally was taken, there was normally no response from any tenderer but the one who was executing the work. Cases above 25% variation will be treated as single tender as negotiation with existing tenderer is to be done and GM’s personal sanction will be necessary.
Reactions: Ideally the percentages of reduction provided for @ 2% or 4% should be the minimum compulsory percentages for reduction in rates. Negotiations in excess of 25% over original contract value should strive to reduce the rates further, particularly so since rates of some items may have gone down over a period of time while the old contracts may still be current. Instructions in this regard are desirable for exploring the possibility of reduction in rates over and above the stipulated percentages of 2% and 4%.
In terms of FA&CAO9F&B)’s L.No.AC/FX/1402/RB/IV/Corresp of 07-11-2001, the instructions in Boards letter No.94/CE-I/CT/1 of 22-10-2001 are to applied only after issue of a Joint Procedure Order. Tender schedule vetting and the existing procedure of negotiations above 25% excess variation are therefore still being followed.

Precautions to be taken in Variation cases

(1) It should be seen that when excess variation is being proposed, the work is not being proposed for items for which rates in subsequent contracts have come down sizeably.
(2) Reasons for variation in individual items are not contradictory. For example, if dismantling quantity has gone down, the quantity of removal of dismantled muck does not go up.
(3) Variations are not being proposed for profit making items without adequate justification even if it is not leading to a vitiation in the contract.
(4) The reasons furnished do not give an impression that the work has been already completed.
(5) As a consequence of the proposed variation, the competency of sanction is not getting changed and while concurring such variations, the appropriate authority under whose sanction the revised value will lie has been duly pointed out.
(6) As a consequence of proposed variation, the estimate is not being exceeded so as to necessitate higher authority’s sanction and in the event of the same sanctions are processed before concurrence is accorded.
(7) Excess variation is not caused due to work being proposed at some other site.

 
C:/wamp/www/doku/data/pages/variation_in_contracts.txt · Last modified: 2010/11/07 06:14 by 10.34.45.25