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Contracts Management

Generally contract may be defined as an agreement which creates rights and obligations between the parties. These obligations and right s must be of such a nature that these can be claimed in the court of law.

According to Salmond, “A contract is an agreement creating and defining obligation between the parties.” Section 8(h) of the Indian Contract Act defines contract as an agreement which is enforceable by law.

From the above definitions of contract it is clear that a contract essentially consists of three elements:

An agreement involves a valid offer by one party a valid acceptance by the other party. Enforceability means contract must be legal in nature and which can be claimed in the court of law.

For example, X invites Y to a party and Y accepts the invitation, then it is only a social agreement and not a contract. On the other hand A agrees to sell his house to B for Rs. 5, 00,000. This is a contract.

Contract Elements

An agreement to be enforced in the court has to satisfy certain conditions. On satisfying these, the agreements become a contract, and those conditions become essentials of a valid contract. The essential elements of a contract are contained in the definition of contract given in sec. 10 of the contract Act. According to this Act, “all agreements are contracts if they are made by free consent of parties competent to contract for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.” The essential elements of a contract include:

Thus an agreement made by parties should not fall in the above category.

Valid contract

A valid contract is a contract that the law will enforce and creates legal rights and obligations. A contract valid ab initio (from the beginning) contains all the three essential elements of formation:

In addition, a valid contract may have to be in writing to be legally valid (although most contracts may be oral, or a combination of oral and written words).

Void contract

A void contract lacks legal validity and does not create legal rights or obligations. A contract that lacks one or more of the essential formation elements is void ab initio (from the beginning). In other words, the law says that it is not, or never was, a valid contract.

 Voidable contract

A voidable contract is a valid contract that contains some defect in substance or in its manner of formation that allows one party (or sometimes both parties) to rescind it. A voidable contract remains valid and can create legal rights and obligations until it is rescinded. The party with the right to rescind may lose that right by affirmative conduct, or undue delay, or where the rights of an innocent third party may be harmed.

Unenforceable contract

An unenforceable contract is an otherwise valid contract that contains some substantive, technical or procedural defect. Most commonly, such a contract is illegal, either in its formation or its performance, as it offends either public policy (the common law) or some statute. As a general rule, the law will not allow the enforcement of such a contract Alternatively, the law may determine that such is a contract is void (rather than unenforceable) with the consequential loss of contractual rights.

Formal contract

A formal contract is wholly in writing, usually in the form of a deed, and does not require consideration. A promise (or term) of a contract made by deed is called a covenant. A deed can be unilateral (that is, made by only one party) and this is often called a deed poll. A deed made by two or more parties is called an indenture. Some types of contracts must be in writing and must be made by deed to be effective (for example, a conveyance of non-Torrens title land).

Simple contract

A simple contract may be oral or in writing (or a combination of both). Simple contracts are made between two or more parties and require consideration.

Contract Management

Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. The personnel involved in contract administration required to negotiate, support and manage effective contracts are often expensive to train and retain. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.

Common commercial contracts include employment letters, sales invoices, purchase orders, and utility contracts. Complex contracts are often necessary for construction projects, goods or services that are highly regulated, goods or services with detailed technical specifications, intellectual property (IP) agreements, outsourcing and international trade. Most larger contracts require the effective use of contract management software to aid administration among multiple parties.

Contract Management can be divided into three phases namely

During the post-award phase, it is important to ensure that contract conditions and terms are met, but it is also critical to take a closer look for items such as unrecorded liabilities, under-reported revenue or overpayments. If these items are overlooked, margin may be negatively impacted. A contract compliance audit will often commence with an opportunity review to identify the highest risk areas. Having a dedicated contract compliance (and/or governance) program in place has been shown to result in a typical recovery of 2-4% and sometimes as high as 20%.

Current thinking about contract management in complex relationships is shifting from a compliance “management” to a “governance” perspective, with the focus on creating a governance structure in which the parties have a vested interest in managing what are often highly complex contractual arrangements in a more collaborative, aligned, flexible, and credible way. In 1979, Nobel laureate Oliver Williamson wrote that the governance structure is the “framework within which the integrity of a transaction is decided.” He further added that “because contracts are varied and complex, governance structures vary with the nature of the transaction.”

A collaborative governance framework has four components:

It is the process of systematically and efficiently managing contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk. It consists of all administrative activities associated with handling of contracts, like

It may also include monitoring contract, adding any change or modification in the contract, ensuring both parties meet or exceed each other’s expectations, and actively interacting with the contractor to achieve the contract’s objective(s).

Public Procurement in India is a State subject, and thereby the Regulatory Framework governing the public procurement varies from State to State. ‘General Financial Rules’ (GFR), framed by the central financial ministry acts as the guideline for public procurement, but has only subordinate legislation status.

Various states have adopted their own Legal framework, based on the best practices. Procurement funded by external donors (World Bank, ADB etc) follows guidelines by the donor in this regard.

Purchase & Tender procedure

Government purchases are done through tendering process.

Fundamental Principle of Public buying

GFR: Rule 145

Certificate to be recorded by the competent Authority –

“I,—— am personally satisfied that these goods purchased are of the requisite quality and specification and have been purchased from a reliable supplier at a reasonable price.”

GFR: Rule 146

Committee’s responsibilities

Purchase of goods by obtaining bids(Tendering)

Ministry / Departments of Govt. of India have been delegated full powers to make their own arrangements for procurement of goods

Rule 141 of GFR says about Central Purchase Organisation (e.g. DGS&D) RATE CONTRACT

Types of Tender

In broader terms there are three types of tender : –

Please note sufficient time should be given in Ltd. Tender

Standard Bid Document

It is an instruction to bidder and has conditions of contract, schedule of requirement, specifications and allied technical details, Price Schedule. It also has contract form and other standard forms.

Earnest Money Deposit (EMD)

It safeguard the interest of Deptt (withdrawal / alter the bid by bidder). It is usually of 2 % to 5% of estimated project value and can be DD or FDR or Banker Cheque or bank guarantee. EMD is returned for unsuccessful bidders.

Process at a glance

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