Government Contracts and Liquidated Damages

Contracts

1. GOVERNMENT CONTRACTS & LD Powergrid Corporation of India Limited

2. ABOUT ME: ANUBHAV VERMA Alumni of National Law University, Lucknow (RMLNLU) and National Law University, Bangalore (NLSIU). Joined POWERGRID Corporation of India in 2016 as ET-Law (21 st Batch) Presently, working as Manager (Law) at Corporate Law Department, Gurugram

3. Contracting with the Contractors Tender/Expression of Interest - invitation to offer, offer, acceptance Bidding Concept of L1 ; Concept of H1 Reverse Auction ; Limited Tender QR LOA (Letter of Award) GCC & SCC

4. Damages under Contract 73. Compensation for loss or damage caused by breach of contract.—When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Explanation.—In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. 74. Compensation for breach of contract where penalty stipulated for.— [When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]

5. Concept of LD 74. Compensation for breach of contract where penalty stipulated for.— [When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.] Replacing the words ‘whether or not actual damage of loss is proved’ 74. Compensation for breach of contract where penalty stipulated for.— [When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby , whether or not actual damage or loss is caused , to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]

6. Concept of LD (contd. ) Will include L.D. (genuine pre-estimate of damage) Will also include forfeiture of earnest money/ security deposit (it will be a stipulation in the nature of a penalty) (LD shall be leviable at 5% (for supply and installation packages/ 10% (for supply packages) of the total contract value at the rate of 0.05% for every day of delay.

7. Risk and Cost Completing the contract through another agency (Also see S. 20 SRA) At the risk and cost of the original party who defaulted If cost is escalated, it will be at the risk and cost/expense of the original contractor. Else, no recovery. Both LD and Risk and Cost can co-exist.

8. Factual situations Case Studies: Situation 1 : DDA auctions its property at Vasant Kunj. The highest bidder (H1) has bid the property for Rs. 3 crores. One of the conditions of the contract was that the bidder must pay 25% of earnest money at the time of the bid and rest 75% in 3 month period. In the present case, the time to pay the remaining amount was till 31.12.2021. H1 failed to pay the balance amount. DDA forfeited his amount. They again auctioned the property and got Rs. 12 crores for the plot in 2022. H1 filed a writ petition against illegal forfeiture of the earnest money. Decide.

9. Factual situations (contd.) Situation 2 : NHAI had to construct a road and operate a toll on it by 31.12.2021. They entered into a contract with L1 (the contractor). The road had to be built by 31.12.2021 or else LD would be imposed at the rate of 0.1 % for delay by every day, subject to 10% of the cost of the project. By the time the road was completed, there was a delay of 6 months. The cost of the entire project was 1000 crores. Hence LD was levied for the delay period of 6 months and adjusted in the bills raised by the contractor. The contractor challenged the levy of LD stating that NHAI could not prove any loss. Decide the outcome of the case.

10. Factual situations (contd.) Situation 3 GoI enters into a contract with a supplier for 1000 kgs of tomato and 1000 kgs of potato to be supplied to it on or before 31.12.2021. The contractor gave Rs. 10K security deposit for each contract. The contractor did not supply the goods as per the time stipulated. As a result of the non-performance of the contract, the govt. had to procure the vegetables through another supplier. Govt. forfeited the security deposit. The supplier filed a case against the govt. alleging that the security deposit has been wrongly forfeited. Discuss. Also, suggest the Govt. regarding whether it can claim Risk and Purchase cost.

11. Law regarding LD/Forfeiture The law laid down in Fateh Chand – losses have to be demonstrated Maula Bax – losses have to be demonstrated but some contracts can be of such a nature that it is impossible to prove the losses ONGC v Saw Pipes – In public utility contracts, losses can be assumed. LD is a genuine pre-estimate Kailash Nath v DDA – Inacse of forfeiture of EMD, losses will have to be demonstrated wherever losses can be demonstrated Construction Design v DDA – Even LD imposed can further be reduced so as to provide a reasonable amount as damages

12. WPP clause regarding LD

13. Anubhav Verma [email protected]